By Sam K. Abdulaziz & Kenneth S. Grossbart, Abdulaziz, Grossbart & Rudman
The case of California Paving & Grading Co., Inc. v. Lincoln General Insurance Company dealt with whether a contract was for a public work or a private work of improvement. This matter began with a contract between Moorpark LLC ("Moorpark") and the City of Los Angeles ("City") for a subdivision improvement. A condition of the City approving Moorpark's plans were that Moorpark was to construct and install all public improvements that were required because of the project. The contract estimated that the cost of the public improvements was $195,000 and Moorpark was required to obtain a security on payment. Moorpark obtained a bond from Lincoln General Insurance Company ("Lincoln") in the amount of $97,500 (50% the amount of labor and materials, as required).
Moorpark then hired Masada Development, Inc. ("Masada") as the prime/direct contractor for the construction on the public improvements. Masada hired California Paving & Grading Co., Inc. ("Paving") as a subcontractor for the street paving and asphalt work on the public improvements for $51,535. Paving completed its work in January 2009 but was not paid and then filed suit on Moorpark and Masada for the subcontract work. Both Moorpark and Masada filed bankruptcy. This left Paving to go after the bond obtained from Lincoln.
Paving filed suit in March of 2010 against Lincoln to recover on the labor and material payment bond alleging that they were the intended receiver of the bond. Lincoln demurred (asked for dismissal because there was no legal basis for the lawsuit) stating that Paving did not make a timely claim on the bond nor file its lawsuit within the statutory period. Paving opposed the demurrer stating that the bond was issued on subdivision improvements, not a public work since it entered into a contract with a private developer not a public entity and that the City was not a part to the construction contract, therefore the statute of limitations indicated in Lincoln's demurrer did not apply.
The trial court sustained (affirmed the validity of) Lincoln's demurrer indicating that the action was barred by limitations periods for claims and suits against sureties on payment bonds with respect to public works. The court further stated that the written notice of the claim on the bond was untimely and that suit was untimely. In addition, the court did not find the argument that the statutory deadlines did not apply because it was not a public works persuasive. According to Civil Code section 3100 a public work means any work of improvement contracted for by a public entity and section 3099 includes a city in its definition of a public entity. The contract between City and Moorpark was presented as evidence and it is clearly a contract for a public improvement contracted for by a public entity. The Court of Appeal agreed with the trial court on the matter of the project being a public works and affirmed the trial court's dismissal of the matter.
When entering into any contract, especially if you are a subcontractor or sub-subcontractor, make sure you know what you are getting into!
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Sam Abdulaziz has been practicing construction law for over 35 years, and is considered one of the premiere experts in construction law, including California contracting license laws. He is the author of "California Construction Law." Kenneth Grossbart is recognized as one of the foremost authorities in California construction law. Over the past 30 years, Ken has become a respected speaker on Mechanic's Liens and other construction related issues. Abdulaziz, Grossbart & Rudman provides this information as a service to its friends & clients and it does not establish an attorney-client relationship with the reader. This document is of a general nature and is not a substitute for legal advice. Since laws change frequently, contact an attorney before using this information. Ken Grossbart and Sam Abdulaziz can be reached at Abdulaziz, Grossbart & Rudman: (818) 760-2000 or by E-Mail at ksg@agrlaw.com, or at www.agrlaw.com