New California case affecting lien laws – Joseph Hanna

A recent decision by the California Appellate Court has now changed the rules for contractors and material suppliers.

In the case of California Paving & Grading Co., Inc. vs. Lincoln General Insurance Company, decided on May 21, 2012, the appellate court concluded that any time a public agency enters into a contract where a private developer is contractually obligated at its own expense to make public improvements, the contract is a public works contract as a matter of law.   This decision is retroactive to all cases and projects.

In this case a private developer, 26 Moorpark, LLC, and the City of Los Angeles entered into a Subdivision Improvement Agreement and Contract for Moorpark  “to construct and install all public improvements required in and adjoining and covered by the final map.”

As you know, those public improvements are then handed over to the City.  Moorpark hired Masada Development as it general contractor, who in turn hired California Paving & Grading (“CP&G”) as its subcontractor to perform the street paving and asphalt work.

CP&G finished its work and having not been paid, filed suit against the surety on the subdivision improvement labor and material payment bond.  The surety demurred to the suit and the trial court dismissed the case.

In affirming the dismissal, the appellate court found that CP&G’s failed to serve a public works preliminary notice on the City of Los Angeles and failed to bring suit within the time frame of a public works payment bond.

CP&G argued that it was not a public works project, that it served a private works preliminary notice pursuant to the private works statutory provision for a preliminary notice, §3097 of the Civil Code.  The surety successfully argued that a public works preliminary notice pursuant to §3098 should have been served.  Further, the surety argued that CP&G failed to file suit within the shortened timeline for suits against public works payment bonds (within six months of the deadline to serve a stop notice on the project) as opposed to the general four-year statute of limitation applicable to the subdivision improvement bond.

The appellate court began its analysis with §3100 of the California Civil Code which defines a public work to mean “any work of improvement contracted for by a public entity”.  Relying on this definition, the appellate court concluded the Subdivision Improvement Agreement between the City and Moorpark constituted a public work because it was a contract entered into by a public entity for the construction and installation of public improvements.

Because the CP&G’s subcontract agreement was in furtherance of the underlying Agreement between the City and Moorpark, the subcontract was likewise for a “work of improvement contracted for by a public entity” and therefore governed by the public works statutes governing suit on a payment bond, requiring the service of a preliminary notice on the City pursuant to §3098.  The appellate court concluded that the suit on the bond must be brought within the shortened time under §§3184 and 3249 of six months from the last day a stop notice could have been properly served.

The appellate court rejected CP&G’s argument that the project was not a public work of improvement CP&G argued that the subdivision improvements are not paid for out of public funds and that the improvements were not the subject of competitive bids or prevailing wage requirements.  The appellate court disagreed, relying on its interpretation of §3100 that the City entered into a contract for a “work of improvement contracted for by a public entity”.

What this means is any contract where its nature involves “a work of improvement to be performed under a contract entered into by the public agency” is now subject to the rules and laws governing public works.  This will require that a public works preliminary notice under §3098 must be given to the public agency and that the timeline to bring a suit on any labor and material payment bond or subdivision bond must be filed within the time period applicable to a public works payment bond.

So, if you are a material supplier or subcontractor performing work off site or upon privately held land in furtherance of an agreement by a public entity for public improvements, regardless if public funds are not being used, your job rights will be governed by both the private works statutes for mechanics’ liens and stop notices procedures and timelines as well as the public works procedures and time lines against the labor and material payment bond.  This means sending both private works and public works preliminary notices to protect your job rights against both the property and any public improvement bonds for a subdivision development.

The content of this article is intended to provide a general guide to the subject matter, and is not a substitute for legal advice in specific circumstances. Should further analysis or explanation of the subject matter be required, please contact Joseph M. Hanna at jhanna@lanak-hanna.com

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