The California Court of Appeal recently held that where a developer hires a subcontractor to perform work in connection with a subdivision agreement with a public entity, the project may be considered a private work of improvement for purposes of interpreting the applicable California mechanic's lien statutes. As a result, those provisions applicable to private works may apply, including the longer statute of limitation to enforce written contracts for work performed at the project. (R&R Pipeline, Inc. v. Bond Safeguard Ins. Co. (2014) 223 Cal.App.4th 438).
In May 2008, R&R Pipeline, Inc. ("R&R") was hired as the contractor by a developer, Los Valles, to install storm drains, sanitary sewers, and other improvements for a project consisting of a golf course, 209 residential lots, and public subdivision improvements in Castaic County ("County"). Los Valles had entered into a Public Works Multiple Agreement with the County in December 2006, which required Los Valles to complete subdivision improvements on the project, including the work contracted for with R&R, in order to receive a final map. Bond Safeguard issued labor and material bonds covering work on the public subdivision improvements. The County was the beneficiary under the bonds and Los Valles was the principal.
R&R performed on the contract, but Los Valles breached the contract by failing to pay the sums due, resulting in damages to R&R of $1,085,858.64 under the contract and an additional $150,000 in restocking charges on materials ordered. R&R sued Los Valles to recover for work performed on the project and Bond Safeguard seeking payment under the bonds for sums due from Los Valles.
Bond Safeguard filed a motion for summary judgment, claiming that the labor and material bonds it issued were for a public work of improvement and therefore subject to the requirements for public works projects. Of particular relevance here, these requirements mandated that R&R file suit against Bond Safeguard for its claim on the bonds within six months. Bond Safeguard argued that because R&R did not file its claim until approximately three years after it performed work, R&R's claim was barred by the statute of limitation and was not entitled to recover on the bonds. The trial court granted summary judgment in favor of Bond Safeguard.
In reversing the trial court's decision, the appellate court found that the County was not "an owner" of any portion of the development, and the County did not have a contract with R&R, an "original contractor" in this case. Instead, the only construction contract was between Los Valles and R&R, and the project was therefore not a 'public work,' within the meaning of California's mechanic's lien statutes. Moreover, the work performed by R&R was on private property, not existing city streets; the project was not described as a "public improvement" in the Multiple Agreement, construction contract, or surety bond; and R&R's work was never accepted by the County. According to the court, a public entity is not a contracting party for purposes of California's mechanic's lien statutes merely because it requires improvements as part of a subdivision agreement. As a result, the four-year statute of limitation applicable to private works of improvement applied to R&R's claim, and did not bar R&R's action against Bond Safeguard.
Having determined that the project qualified as a private work of improvement, the court then addressed whether R&R complied with the other applicable notice requirements. Specifically, a claimant performing work on a private work of improvement must provide notice of its work to enforce its claim. This notice must be provided either (1) within 20 days of commencing work, (2) fifteen days following recordation of a notice of completion, or (3) 75 days after completion of the work of improvement. Having determined that neither of the first two requirements applied to R&R, the court explained that if a work of improvement is subject to acceptance by any public entity, the completion of such work of improvement shall be deemed to be the date of such acceptance. Unlike the other completion equivalents, this requirement is exclusive: If it applies, it governs regardless of completion in any other sense. Since the lien period does not commence until the work of improvement is accepted by the public entity, if the project is never accepted by the public authority, the period for recording the claim of lien by the claimants who supplied labor or materials to such work of improvement never expires.
Therefore, because the court found that the County had never accepted the improvements provided by R&R under its contract with Los Valles, there was no completion of work, the notice requirements were not applicable to R&R and R&R could maintain its claim against Bond Safeguard.
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