by Sam K. Abdulaziz, Abdulaziz, Grossbart & Rudman
The case of Clarke v. Safeco finally confirmed that mechanic’s liens are protected by the California constitution. The case started out in a dispute over work done at an office of MGM. Subcontractors were not paid. The reason for failing to pay subcontractors was alleged to be that the prime contractors above the subs were not paid. Therefore, the “Pay-If-Paid” clause protected the upper tier contractors.
The “Pay-If-Paid” clause essentially states that if one was owed money on a construction project, he could not collect if the person who owed him the money did not collect from that person’s customer. As an example, if you are a subcontractor, and are owed money by a prime contractor, you could not collect if the prime contractor was not paid, even though there was no fault on your part.
The underlying cases were between various subcontractors and a prime contractor. The case held in favor of the subcontractors.
The case was taken up on appeal. The Appellate Court held against the prime contractor and the surety company. The prime contractor really had no money. The case was again taken up on appeal to the Supreme Court. Our office filed an Amicus Brief but believed that based on this fact situation, the Supreme Court would not take the case. However, when the Supreme Court decided that it would review the case, we felt it was important that we again get involved. The Supreme Court does not hear many civil cases. It takes only cases that it feels are of importance. Because of that, we contacted a number of construction trade associations and they agreed that our office would file an Amicus Brief (friend of the court brief) arguing that the “Pay-If-Paid” clause was unconstitutional.
In a four to three decision, the court held that the “Pay-If-Paid” clause is unconstitutional because it takes away a constitutional right to get paid.
Since that time, another case dealing with a public works project was decided. It was not directly on point because there was no mechanic’s lien issue in that one cannot have a mechanic’s lien on public works projects.
You can only use a Stop Notice. Fortunately, the Appellate Court, in this second case, held that a stop notice is a substitute for a mechanic’s lien and therefore, also constitutionally protected.
***
Attorney Sam Abdulaziz of Abdulaziz, Grossbart & Rudman has been practicing construction law for over 30 years. He has written a book called “ California Construction Law” which is updated annually. He represents numerous construction trade associations and contractors. He appears at Contractors State License Board meetings and has argued a number of cases before the appellate courts, including the California Supreme Court dealing with the "Pay-If-Paid Clause." Abdulaziz, Grossbart & Rudman provides this information as a service to its friends & clients. The documents are of a general nature and are intended to highlight areas of the subject matter and should not be used as a substitute for specific legal advice. This document does not create an attorney-client relationship, or protect any confidential information until a written agreement is signed. You should seek the aid and advice of a competent attorney, accountant and/or other professional instead of relying on the presentation and/or documents. Sam Abdulaziz can be reached at Abdulaziz, Grossbart & Rudman, P.O. Box 15458, North Hollywood, CA 91615-5458; (818) 760-2000, Facsimile (818) 760-3908; or by E-Mail at info@agrlaw.net . On the Internet, visit our Website at www.agrlaw.net