November 2020 Update
The COVID-19 pandemic has had a tremendous effect on several areas of law, and construction law is no exception. This year’s update includes several enhancements related to COVID-19. Among the most notable are discussions regarding delays beyond the contractor’s control (see §§2.35, 5.104), electronic signatures (see §2.85A), contract provisions (see §§3.17, 9.9), effects on green building (see §4.3), landlord/developer liability (see §4.26B), arbitrations and mediations (see §§7.66, 14.58), insurance coverage (see §§12.122–12.137), statutes of limitations (see §15.31), and amendments to construction contracts (see App A).
The bond requirement to obtain a contractor’s license has been increased to $25,000. Bus & P C §7071.6. See §1.12.
In Regency Midland Constr., Inc. v Legendary Structures Inc. (2019) 41 CA5th 994, the court held that the general contractor was entitled to keep the 10 percent retention of the concrete subcontractor after the subcontractor quit half-way through the job and was paid 90 percent of its billings. The court further noted that the retention was not due, given the purpose of the clause was to ensure proper performance and such proper performance was not given. See §2.31.
The court in Hensel Phelps Constr. Co. v Superior Court (2020) 44 CA5th 595 held that for purposes of compliance with the time limit for bringing an action under CC §941, the date of substantial completion is an objective fact to be determined by the trier of fact, finding that it is a statutory standard, not a contractual one. See §§2.33, 15.35.
In East W. Bank v Altadena Lincoln Crossing, LLC (CD Cal 2019) 598 BR 633, the court’s application of CC §1671 rendered a holding that an increased default interest rate that applied only to the amount defaulted on a fully matured obligation was not an unenforceable penalty. See §2.36.
In Moore v Teed (2020) 48 CA5th 280, renovations for a fixer-upper home were defective and more costly than expected. The homeowner was entitled not only to out-of-pocket expenses for replacing the defective work, but also to benefit of the bargain damages for the additional cost he incurred in obtaining the renovations his real estate agent promised through his team of designers and contractors, including expense attributable to delay, as well as an award of attorney fees. See §2.109.
In Crosno Constr., Inc. v Travelers Cas. & Sur. Co. of Am. (2020) 47 CA5th 940, the court held that a “pay-when-paid” provision in a subcontract is void and unenforceable when the provision purports to delay payment for as long as necessary for the direct contractor to pursue its claim against the project owner. The court found this indefinite time frame to be unreasonable and, therefore, unenforceable against the subcontractor’s payment bond claim. See §§2.129, 5.51, 5.70, 9.128.
The City of Berkeley has adopted an ordinance requiring that all new building construction must be of electric buildings and requiring solar panels in many instances. The ordinance must be approved by the California Energy Commission. See §4.22C.
In Carmel Dev. Co. v Anderson (2020) 48 CA5th 492, the court held that an award of contractual interest is not allowed in mechanics lien foreclosures; however, a court may award prejudgment interest. See §§5.80, 5.140.
In A.J. Fistes Corp. v GDL Best Contractors, Inc. (2019) 38 CA 5th 677, a low-bidder contractor had sufficiently alleged facts to establish taxpayer standing under CCP §526a in a claim to void a contract awarded by a school district to another bidder as an illegal expenditure of public funds. See §6.59.
In ZB, N.A. v Superior Court (2019) 8 C5th 175, the California Supreme Court noted that not all statutory remedies for Labor Code violations are “civil penalties” recoverable in employee’s “private attorney general” action, and affirmed a court of appeal’s order requiring trial court to deny employer’s motion to compel arbitration, because motion concerned relief that was not cognizable under sole “private attorney general” cause of action in complaint. See §7.4.
The California Supreme Court in OTO, L.L.C. v Kho (2019) 8 C5th 111, reiterated that generally applicable contract defenses, such as unconscionability, may be applied to invalidate arbitration agreements without contravening the FAA or California law. See §§7.4, 7.26.
In Monster Energy Co. v City Beverages, LLC (9th Cir 2019) 940 F3d 1130, the court vacated an arbitration award because the arbitrator failed to disclose an ownership interest in arbitrator company, and company had administered 97 arbitrations within 5 years for one party. See §7.14.
In Lamps Plus, Inc. v Varela (2019) ___ US ___, 139 S Ct 1407, 1419, the Supreme Court ruled that “[c]ourts may not infer from an ambiguous agreement that parties have consented to arbitrate on a class wide basis.” Silence or ambiguity in arbitration agreements does not grant arbitrators the authority to decide certain “gateway questions” such as whether the agreement is valid, or if a “concededly binding arbitration clause applies to a certain type of controversy.” See §7.25.
In Heimlich v Shivji (2019) 7 C5th 350, the California Supreme Court reviewed and clarified the proper procedure for claiming and awarding costs arising from CCP §998 offers made in arbitration proceedings. A request for costs under §998 must be filed with the arbitrator within 15 days of a final award. In response, the arbitrator has authority to award costs to the offering party. But if the arbitrator refuses to award costs, the court noted, judicial review is limited. In Heimlich, the arbitrator had refused to hear any evidence concerning the §998 offer because he viewed the underlying arbitrable controversy as an attorney fee dispute; after hearing and resolving that dispute, the arbitrator concluded he no longer had jurisdiction to take any further action in the matter. See §§7.69, 7.99, 7.101, 7.104, 7.135.
In analyzing CC §941, the court in Hensel Phelps Constr. Co. v Superior Court (2020) 44 CA5th 595, 607, relied on CCP §337.15 in determining that a contractual definition of substantial completion does not override the statutory definition. See §§11.9, 11.12.
In Jones v Awad (2019) 39 CA5th 1200, the court refused to extend liability on a negligence per se basis for building code violations to a homeowner unaware of the violations. See §11.31.
In Insurance Co. of State of Pa. v American Safety Indem. Co. (2019) 32 CA5th 898, 914, the court held that an arbitration award for “diminution in value” of the home fell within the definition of “property damage” because diminution in value was the measure of damage to a home that was physically damaged by differential settlement. See §12.21.
In Insurance Co. of State of Pa., 32 CA5th at 921, the court noted that a deductible/SIR provision must be enforced according to its plain terms, and held such that if the insurer failed to request payment, its indemnity obligation was triggered. See §12.118.
In Travelers Prop. Cas. Co. of Am. v Liberty Surplus Ins. Corp. (9th Cir 2020) 806 Fed Appx 526, the court held that unless the language of an insurance policy extinguishes an insurance company’s duties to defend or indemnify an insured in the event the insured corporation becomes suspended, an insurance company has a legal obligation to defend and indemnify a corporation suspended by the California Secretary of State or Franchise Tax Board. See §§13.6, 14.24.