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California Mechanics Liens and Related Construction Remedies

Covering both private and public works, this authoritative guide details statutory remedies for unpaid work, with up-to-date, attorney-drafted notices and litigation forms. Effectively enforce mechanics liens, stop notices, and construction bonds, whether governed by law applicable before or after July 1, 2012.

 

Covering both private and public works, this authoritative guide details statutory remedies for unpaid work, with up-to-date, attorney-drafted notices and litigation forms. Effectively enforce mechanics liens, stop notices, and construction bonds, whether governed by law applicable before or after July 1, 2012.

  • Know your available remedies by reviewing checklists NEW!
  • Evaluate which remedy works best for your client
  • Understand role of cyber insurance in public & private works
  • Review drawbacks of engaging unlicensed contractors
  • Enforce mechanics lien rights against owner in bankruptcy
  • Pursue and defend federal bond actions under Miller Act
  • Advise clients using attorney-drafted notices, time charts, and calendar tools
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Covering both private and public works, this authoritative guide details statutory remedies for unpaid work, with up-to-date, attorney-drafted notices and litigation forms. Effectively enforce mechanics liens, stop notices, and construction bonds, whether governed by law applicable before or after July 1, 2012.

  • Know your available remedies by reviewing checklists NEW!
  • Evaluate which remedy works best for your client
  • Understand role of cyber insurance in public & private works
  • Review drawbacks of engaging unlicensed contractors
  • Enforce mechanics lien rights against owner in bankruptcy
  • Pursue and defend federal bond actions under Miller Act
  • Advise clients using attorney-drafted notices, time charts, and calendar tools

1

The Civil Code and Beyond: A User’s Guide to Remedies for Nonpayment During Construction

David W. Ginn

  • I.  SELECTED CHANGES AND DISPOSITION TABLE: RENUMBERED CIVIL CODE SECTIONS UNDER SB 189 (EFFECTIVE JULY 1, 2012)  1.1
  • II.  STATUTORY REMEDIES
    • A.  Mechanics Liens; Constitutional Basis  1.2
    • B.  Design Professional Liens  1.3
    • C.  Stop Payment Notices  1.4
    • D.  Statutory Payment and Release Bonds  1.5
    • E.  Cumulative Remedies  1.6
    • F.  Arbitration Rights  1.7
  • III.  REMEDIES AVAILABLE: PRIVATE VERSUS PUBLIC WORKS  1.8
    • A.  Private Works  1.9
    • B.  State or Local Public Works  1.10
    • C.  Federal Public Works  1.11
    • D.  Significant Differences in Remedies  1.12
    • E.  Hybrid Projects  1.13
      • 1.  Public Work Defined
        • a.  Broad Definition Under Federal Miller Act  1.14
        • b.  California Statutory Definitions
          • (1)  Narrow Definition Under Stop Notice and Payment Bond Law  1.15
          • (2)  Broad Definition Under Prevailing Wage Law  1.16
          • (3)  Applying Rules to Hybrid Projects  1.17
      • 2.  Claim Options for Hybrid Projects  1.18
    • F.  Work on Native American Lands
      • 1.  Sovereign Immunity and Tribal Court Jurisdiction  1.19
      • 2.  Mechanics Lien Not Available  1.20
      • 3.  Bond Remedies May Be Available  1.21
  • IV.  INTERPRETATION AND USE OF REMEDIES
    • A.  Statutory Construction  1.22
    • B.  Misuse of Statutory Remedies  1.23
    • C.  California’s False Claims Act  1.24
  • V.  REMEDIES BEYOND LIENS, STOP PAYMENT NOTICES, AND PAYMENT BONDS
    • A.  Further Remedies Against Owners or Contractors  1.25
      • 1.  Contract Actions
        • a.  Parties  1.26
        • b.  General Versus Special Damages  1.27
        • c.  Prejudgment Interest  1.27A
      • 2.  Construction and Wages Statutes
        • a.  Penalties Under Prompt Payment Statutes  1.28
        • b.  Stop Work Remedies  1.29
        • c.  Wage-Related Claims on Public Works Submitted to Labor Commissioner  1.30
        • d.  Wage-Related Claims on Private Works Enforceable by Labor Commissioner  1.30A
      • 3.  Quasi-Contract Remedies; Unjust Enrichment  1.31
        • a.  Private Works  1.32
        • b.  Public Works  1.33
      • 4.  Lack of Privity: Negligence, Quantum Meruit, and Unjust Enrichment  1.34
      • 5.  Liability of Agents, Partners, Alter Egos, and Dissolved and Successor Corporations  1.35
      • 6.  Securing Claim by Attachment  1.36
      • 7.  Securing Claim With Constructive Trust  1.37
      • 8.  Torts and Other Remedies
        • a.  Conversion  1.38
        • b.  Interference With Contract  1.39
        • c.  Statutory Unfair Business Practices  1.40
        • d.  Complaint to Licensing Board  1.41
    • B.  Further Remedies Against Lenders
      • 1.  Statutory Abolition of Equitable Lien  1.42
      • 2.  Limited Duty of Care Toward Claimants Concerning Construction Funds  1.43
      • 3.  Claimants Versus Construction Lenders  1.44
        • a.  Intentional Fraud  1.45
        • b.  Unjust Enrichment  1.46
    • C.  Further Remedies Against Bond Sureties
      • 1.  Performance Bonds  1.47
      • 2.  License and Judgment Bonds  1.48
      • 3.  Surety’s Duty to Investigate and Settle Claim  1.49

2

Private Works Remedies: Theories and Applicability

Craig S. Nevin

Garret D. Murai

  • I.  SCOPE OF CHAPTER  2.1
  • II.  MECHANICS LIENS: NATURE; LEGAL BASIS; JURISDICTION
    • A.  Security Device for Provider of Labor, Service, Equipment, or Material  2.2
    • B.  Statutory Remedies Apply Only in California  2.3
    • C.  Exceptions on Projects Built on Indian Land  2.4
    • D.  Work Defined  2.5
  • III.  PERSONS ENTITLED TO MECHANICS LIEN
    • A.  Classes of Claimants
      • 1.  Claimants Listed in Civil Code  2.6
      • 2.  Claimants Held Entitled to Lien Rights  2.7
      • 3.  Union Trust Fund Claims
        • a.  Preemption Under ERISA Abolished  2.8
        • b.  Legislative Response to Preemption Decisions  2.9
      • 4.  Claimants Held Not Entitled to Lien Rights  2.10
    • B.  Authorization by Owner
      • 1.  Consent of Owner or Agent Required  2.11
      • 2.  Owner Defined
        • a.  Person With Interest or Estate in Property  2.12
        • b.  Buyer Under Land Sale Contract  2.13
        • c.  Representative of Estate in Probate  2.14
      • 3.  Statutory Agents
        • a.  Direct Contractors and Others “Having Charge”  2.15
        • b.  Specialty Contractors  2.16
        • c.  Subcontractors  2.17
        • d.  Material Suppliers  2.18
    • C.  License Requirements
      • 1.  Claimants
        • a.  Contractors and Subcontractors Must Be Licensed  2.19
          • (1)  Master Developers  2.20
          • (2)  Joint Ventures  2.21
          • (3)  General Building Contractors  2.22
          • (4)  Home Improvement and Pool Contractors  2.23
        • b.  Suppliers, Manufacturers, Laborers, and Equipment Lessors Are Exempt  2.24
      • 2.  Persons For or Through Whom Claim Is Made
        • a.  Licensed Contractors Claiming for Work of Unlicensed Subcontractors  2.25
        • b.  Claimants Providing Labor, Material, or Equipment Through Unlicensed Contractors  2.26
      • 3.  Pleading and Proving Licensure  2.27
      • 4.  Effect of Noncompliance With License Law
        • a.  Suits and Security Interests Are Barred; Exceptions Are Few
          • (1)  General Rule Barring Recovery  2.28
          • (2)  Exceptions  2.28A
        • b.  Refund of Payments May Be Ordered  2.29
        • c.  Effect of Revoked License on Former Licensee’s Future Construction Activity  2.30
        • d.  Criminal Penalties and Fines; Disciplinary Action  2.31
        • e.  Doctrine of Substantial Compliance  2.32
          • (1)  Legislative Amendments  2.33
          • (2)  Judicial Doctrine  2.34
  • IV.  NATURE OF WORK ENTITLING CLAIMANTS TO MECHANICS LIEN
    • A.  “Work of Improvement” Defined  2.35
    • B.  Labor or Services Must Directly Contribute to Work of Improvement  2.36
    • C.  Material, Supplies, and Equipment
      • 1.  Material or Equipment Must Be Used or Consumed in Work of Improvement  2.37
      • 2.  Intent for Particular Use Required  2.38
      • 3.  Delivery as Indication of Use and Intent  2.39
      • 4.  Temporary Installation Exception  2.40
      • 5.  Capital Equipment Exception  2.41
      • 6.  Effect of Changes in Construction Practice  2.42
    • D.  Improvement Must Be Permanent  2.43
      • 1.  Possibility of Detachment Not Determinative  2.44
      • 2.  Material Must Actually Be Used on Project  2.45
      • 3.  Removal After Work Not Fatal to Lien  2.46
    • E.  Site Improvements  2.47
    • F.  Agricultural Improvements  2.48
  • V.  CALCULATING MECHANICS LIEN CLAIM
    • A.  Amount Recoverable Under Lien
      • 1.  Lesser of Contract Price or Reasonable Value  2.49
      • 2.  Reasonable Value of Contributions to Work Based on Written Modification of Contract  2.50
      • 3.  Reasonable Value of Contributions to Work Based on Oral Modification of Contract  2.51
      • 4.  Delay Damages  2.52
      • 5.  Interest as Damages  2.53
      • 6.  Attorney Fees Not Recoverable  2.54
    • B.  Application of Payment  2.55
    • C.  Offsetting Other Claims  2.56
    • D.  Limits on Lien Claims for Owner’s Benefit
      • 1.  To Work Terms of Direct Contract  2.57
      • 2.  To Amount Due Under Direct Contract  2.58
    • E.  One Claim Against Multiple Improvements  2.59
  • VI.  PROPERTY SUBJECT TO MECHANICS LIEN
    • A.  Works of Improvement
      • 1.  Structure Versus Land; Adjacent Land  2.60
      • 2.  Convenient Use and Occupation  2.61
      • 3.  Structure Not Always Required  2.62
      • 4.  When Work Not Caused by Fee Owner  2.63
        • a.  Lessees  2.64
        • b.  Buyer Under Installment Land Contract  2.65
        • c.  Trespassers and Adverse Possessors  2.66
      • 5.  When Owner Knows of Work Caused by Others
        • a.  Lien Attaches to Land if No Notice of Nonresponsibility  2.67
        • b.  Limitations of Notice of Nonresponsibility  2.68
    • B.  Site Improvements  2.69
    • C.  Transfer of Title  2.70
    • D.  Homesteads  2.71
    • E.  Security Interests Not Subject to Lien  2.72
  • VII.  PRIORITY OF MECHANICS LIENS AND SITE IMPROVEMENT LIENS  2.73
    • A.  Works of Improvement Liens
      • 1.  Lien Claim Relates Back to Start of Work
        • a.  Priority Over Recorded Liens  2.74
        • b.  Priority Over Unrecorded Liens  2.75
        • c.  Priority Over Attachment or Execution  2.76
        • d.  Priority of Competing Mechanics Liens  2.77
        • e.  Mechanics Liens Versus Options to Purchase  2.78
      • 2.  When Work Commences  2.79
      • 3.  Mechanics Liens Attach When Work Commences  2.80
    • B.  Site Improvement Liens  2.81
    • C.  Exceptions to Priority of Mechanics Liens and Site Improvement Liens
      • 1.  Lender’s Priority Reversal Bonds  2.82
      • 2.  Construction Loan Advances
        • a.  Obligatory Versus Optional Advances  2.83
        • b.  Lender’s Knowledge of Lien Claims  2.84
      • 3.  Federal Tax Liens  2.85
      • 4.  Foreclosure of Senior Mortgages  2.85A
      • 5.  “Early Starts” and Subordination Agreements  2.85B
        • a.  Managing Early Starts: Lien Priority and Indemnity Issues  2.85C
        • b.  Form: General Contractor's Representations and Indemnity Agreement  2.85D
        • c.  Form: Subcontractor's Subordination Agreement  2.85E
        • d.  Form: General Contractor's Subordination Agreement  2.85F
  • VIII.  DESIGN PROFESSIONAL LIENS: DEFINITION AND SCOPE
    • A.  Persons Entitled; Nature of Work  2.86
    • B.  Perfecting Lien Rights
      • 1.  Time Frame for Recordation  2.87
      • 2.  Lien Effective on Recordation; Priority  2.88
      • 3.  Amount of Lien Claim  2.89
      • 4.  Form: Design Professional Claim of Lien  2.89A
      • 5.  Enforcement of Lien
        • a.  Action on Lien  2.90
        • b.  Expiration of Lien  2.91
    • C.  Relationship to Other Remedies  2.92
    • D.  Converting Design Professional Lien to Mechanics Lien  2.93
  • IX.  DESIGN-BUILD AND ITS IMPACT ON DESIGN PROFESSIONAL LIENS OR MECHANICS LIENS  2.94
  • X.  STOP PAYMENT NOTICE: DEFINITION AND SCOPE
    • A.  Functions and Limits of Stop Payment Notice  2.95
    • B.  Stop Payment Notice and Mechanics Lien Compared  2.96
    • C.  Persons Entitled to Give Stop Payment Notice
      • 1.  Direct Contractors, Subcontractors, and Lien Claimants May Give Notice to Lender  2.97
      • 2.  Lien Claimants Other Than Direct Contractor May Give Notice to Owner  2.98
      • 3.  Trust Fund Stop Notice Rights Not Preempted  2.99
    • D.  Owner’s Right to Demand Stop Payment Notice  2.100
    • E.  Lender’s Obligation to Withhold Funds
      • 1.  Discretionary if Stop Payment Notice Is Unbonded  2.101
      • 2.  Mandatory if Stop Payment Notice Is Bonded  2.102
      • 3.  Effect of Recorded Payment Bond  2.103
    • F.  Lender’s Obligation to Furnish Notice of Election and Copy of Bond  2.104
    • G.  Owner’s Obligation to Withhold Funds and Furnish Copy of Bond  2.105
    • H.  Amount Recoverable
      • 1.  Calculation of Net Claim  2.106
      • 2.  Prorata Allocation  2.107
      • 3.  Interest; Attorney Fees  2.108
    • I.  Liability of Lender or Owner on Stop Notice  2.109
    • J.  Liability of Surety on Stop Payment Notice Bond  2.110
    • K.  Priority of Stop Payment Notice Claims
      • 1.  Over Assignment or Garnishment of Funds  2.111
      • 2.  Over Lender’s Preallocated Funds  2.112
  • XI.  CONSTRUCTION BONDS: DEFINITION AND SCOPE
    • A.  Bonds Available on Private Works  2.113
    • B.  Qualified Sureties  2.114
    • C.  Performance Bonds
      • 1.  Definition; Beneficiaries  2.115
      • 2.  Lien Claimant as Third Party Beneficiary  2.116
    • D.  Statutory Payment Bonds
      • 1.  Definition; Performance Bonds Distinguished  2.117
      • 2.  Lien Claimant as Beneficiary  2.118
      • 3.  Claimant’s Intent  2.119
      • 4.  Amount Recoverable  2.120
      • 5.  Effect of Modification of Contract or Release of Principal  2.121
    • E.  Subdivision Improvement Securities
      • 1.  Applicable Projects  2.122
      • 2.  Types of Securities  2.123
      • 3.  Suit on Improvement Security  2.124
    • F.  Contractor’s License Bonds  2.125
      • 1.  Claimants Under License Bonds  2.126
      • 2.  Recovery Under License Bonds  2.127
    • G.  Release Bonds  2.128
  • XII.  TABLE: PERSONS ENTITLED TO LIEN, STOP PAYMENT NOTICE, AND PAYMENT BOND REMEDIES (NONFEDERAL WORKS)  2.129

3

Private Works: Enforcing Mechanics Liens, Stop Payment Notices, and Bonds

Cathleen M. Curl

  • I.  SCOPE OF CHAPTER  3.1
    • A.  Governing Civil Code Statutes  3.2
    • B.  Effective Dates for Remedies Amended by SB 189  3.3
  • II.  ADVISING PROSPECTIVE CLAIMANT  3.4
    • A.  Obtaining Accurate Information
      • 1.  Potential Defendants’ Financial Condition; Equity  3.5
      • 2.  Data Sources for Lien, Stop Payment Notice, and Bond Claims  3.6
      • 3.  Consequences of Not Investigating  3.7
    • B.  Prompt Payment Statutes; Good Faith Disputes  3.8
    • C.  Reviewing Contract Provisions
      • 1.  Form Contracts  3.9
      • 2.  Void Provisions  3.10
      • 3.  “Pay if Paid” Clauses  3.11
      • 4.  Plans and Specifications; General Conditions  3.12
      • 5.  Extras  3.13
      • 6.  Backcharges  3.14
    • D.  Right of Direct Contractor to Stop Work  3.15
    • E.  Establishing Records and Evidence Files  3.16
    • F.  Lien Releases  3.17
  • III.  PERFECTING LIEN, STOP PAYMENT NOTICE, AND BOND CLAIMS
    • A.  Preliminary Notice Required  3.18
    • B.  Who Must Give Preliminary Notice
      • 1.  Persons Not Required to Give Notice  3.19
      • 2.  Persons Required to Give Notice  3.20
      • 3.  Locating Parties to Be Given Notice  3.21
      • 4.  Effect of More Than One Contract  3.22
    • C.  Who Must Be Served With Preliminary Notice
      • 1.  Owner or Reputed Owner  3.23
      • 2.  Contractor or Reputed Contractor  3.24
      • 3.  Lender or Reputed Lender  3.25
      • 4.  Deviations and Exceptions
        • a.  Noncontracting Owner With Actual Knowledge  3.26
        • b.  Payment Bond Principal and Surety May Be Given Notice Under CC §8612  3.27
    • D.  Effect of Failure to Give Preliminary Notice
      • 1.  Lack of Notice Invalidates Claim  3.28
      • 2.  Lack of Notice Is Basis for Discipline  3.29
      • 3.  Substantial Compliance Doctrine  3.30
        • a.  Stop Payment Notice Claims  3.31
        • b.  Mechanics Lien Claims  3.32
        • c.  Payment Bond Claims  3.33
    • E.  Contents of Preliminary Notice  3.34
      • 1.  General Description and Price Estimate  3.35
      • 2.  Description of Jobsite  3.36
    • F.  Service of Preliminary Notice
      • 1.  Time of Service  3.37
      • 2.  Effect of Late or Premature Service  3.38
      • 3.  Persons to Serve With Notice; Place of Service  3.39
      • 4.  Manner and Proof of Service  3.40
      • 5.  When Service Is Completed  3.41
    • G.  Filing of Notice With County Recorder  3.42
  • IV.  RECORDING LIEN; SERVING STOP PAYMENT NOTICE
    • A.  Time Limits for Claimants Vary  3.43
      • 1.  Direct Contractor
        • a.  Mechanics Lien Recordation Period
          • (1)  Completion Requirement  3.44
          • (2)  If Notice of Completion Recorded  3.45
          • (3)  If No Notice of Completion  3.46
          • (4)  If Work Subject to Acceptance by Public Entity  3.47
        • b.  Stop Payment Notice Time Limits  3.48
      • 2.  Other Claimants
        • a.  Mechanics Lien Recordation Period
          • (1)  No Completion Requirement for Work as a Whole  3.49
          • (2)  If Notice of Completion Recorded  3.50
          • (3)  If No Notice of Completion  3.51
          • (4)  Effect of Stop Payment Notice Demand on Lien Rights  3.52
        • b.  Stop Payment Notice Time Limits  3.53
      • 3.  Work Done Under Multiple Direct Contracts  3.54
      • 4.  Work Done for Multiple Projects, Subdivisions, or Condominiums  3.55
      • 5.  Effect of Defective Notice of Completion  3.56
    • B.  Preparing, Serving, and Recording Mechanics Lien and Notice of Lien
      • 1.  Required Contents of Lien Claim and Notice  3.57
      • 2.  Service of Lien Claim and Notice; Effect of Defective Service  3.58
      • 3.  Recordation of Lien Claim With County Recorder  3.59
    • C.  Preparing and Serving Stop Payment Notice
      • 1.  Required Contents of Stop Notice  3.60
      • 2.  Methods of Serving Stop Notice  3.61
    • D.  Effect of Reduction of Amount or Release of Stop Payment Notice During Construction  3.62
  • V.  TIME LIMIT FOR FILING SUIT TO ENFORCE MECHANICS LIEN OR STOP PAYMENT NOTICE
    • A.  Mechanics Lien: Sue Within 90 Days of Recordation  3.63
      • 1.  Effect of Void Lien on Unpaid Claim  3.64
      • 2.  Procedural Versus Substantive Limitation  3.65
      • 3.  Extension of 90-Day Limit by Credit Agreement  3.66
      • 4.  Tolling of 90-Day Limit by Owner’s Bankruptcy  3.67
    • B.  Stop Payment Notice: Sue Within 90 Days of End of Lien Recordation Period  3.68
      • 1.  Equitable Tolling of Statute of Limitations  3.69
      • 2.  Effect of Mass Production on Time Limit  3.70
    • C.  Stop Payment Notice: Serve Notice of Suit  3.71
  • VI.  PROCEDURES FOR BOND ACTIONS
    • A.  Payment Bonds
      • 1.  Prerequisites to Bond Action  3.72
        • a.  Preliminary Notice  3.73
        • b.  Postcompletion Notice  3.74
        • c.  Notice of Bond Claim to Surety  3.75
      • 2.  Anticipating Surety Defenses
        • a.  Statutes of Limitations  3.76
        • b.  Exhaustion of the Bond  3.77
        • c.  Pursuit of Other Remedies  3.78
        • d.  Miscellaneous Defenses  3.79
    • B.  Performance Bonds  3.80
    • C.  Mechanics Lien and Stop Payment Notice Release Bonds  3.81
      • 1.  Effect of Release Bond on Pending Lawsuit
        • a.  If Bond Obtained Before Action Filed  3.82
        • b.  If Bond Obtained After Action Filed  3.83
      • 2.  Statute of Limitations
        • a.  Mechanics Lien Release Bond  3.84
        • b.  Stop Payment Notice Release Bond  3.85
      • 3.  Enforcement of Release Bonds by Motion  3.86
    • D.  Perfecting Improvement Security Claims  3.87
    • E.  Contractor’s License Bonds  3.88
  • VII.  SUIT TO FORECLOSE LIEN AND ENFORCE STOP PAYMENT NOTICE AND BOND REMEDIES
    • A.  Prefiling and Enforcement Planning
      • 1.  Timely File Suit; Obtain Mechanics Lien Guaranty  3.89
      • 2.  Include All Indispensable Parties; Consider Necessary Parties  3.90
      • 3.  Determine Priority of Competing Claims  3.91
      • 4.  File Suit in Proper Jurisdiction  3.92
      • 5.  Record Lis Pendens  3.93
      • 6.  Consider Jury Trial  3.94
      • 7.  Consider Arbitration  3.95
      • 8.  Consider Consolidation or Reclassification of Related Actions  3.96
      • 9.  Bring Action to Trial Within 2 Years  3.97
      • 10.  Designate Expert Witnesses Promptly  3.97A
      • 11.  Prepare to Enforce Judgment Immediately  3.98
    • B.  Checklist: Review Claimants’ Potential Remedies  3.98A
    • C.  Essential Allegations of Complaint
      • 1.  General Allegations  3.99
        • a.  Allegations About Plaintiffs
          • (1)  Identification of Plaintiffs  3.100
          • (2)  Plaintiffs’ License Qualifications  3.101
        • b.  Allegations About Defendants
          • (1)  Identification of Defendants  3.102
          • (2)  Agency; Priorities  3.103
          • (3)  Fictitious (Doe) Defendants  3.104
        • c.  Property Description  3.105
        • d.  Entry Into Agreement  3.106
        • e.  Plaintiff’s Performance  3.107
        • f.  Value of Contribution to Work  3.108
      • 2.  Contract Cause of Action
        • a.  Agreement; Nonpayment  3.109
        • b.  Contract Damages  3.110
      • 3.  Foreclosure of Mechanics Lien
        • a.  Preliminary Notice (Private Works)  3.111
        • b.  Recording Lien Claim; Amount Recoverable  3.112
      • 4.  Enforcement of Stop Payment Notice
        • a.  Preliminary Notice  3.113
        • b.  Identification of Fundholder Defendant  3.114
        • c.  Service of Stop Payment Notice  3.115
        • d.  Funds Due or to Become Due  3.116
        • e.  Attorney Fees, Costs, and Interest on Bonded Stop Payment Notice  3.117
      • 5.  Cause of Action on Payment Bond
        • a.  Bond Parties and Terms  3.118
        • b.  Prerequisites to Payment Bond Action  3.119
      • 6.  Cause of Action: Release Bonds  3.120
        • a.  Alternative Pleading Strategies  3.120A
        • b.  When Release Bond Surety Is Insolvent  3.120B
    • D.  Attorney Fees; Costs; Interest  3.121
    • E.  Checklist: Prerequisites for and Defenses to Actions to Enforce Mechanics Liens, Stop Notices, and Bond Rights  3.121A
    • F.  Owner's Right to Redeem Property from Foreclosure  3.121B
  • VIII.  FORMS
    • A.  Form: Request for Information to Prepare Preliminary Notice  3.121C
    • B.  Form: 20-Day Preliminary Notice  3.122
    • C.  Form: Claim of Mechanics Lien  3.123
    • D.  Form: Stop Payment Notice  3.124
    • E.  Form: Agreement for Extension of Time to Enforce Mechanics Lien  3.125
    • F.  Form: Notice to Bonding Company  3.126
    • G.  Form: Complaint (Private Works)  3.127
  • IX.  CHARTS: MONITORING PRIVATE WORKS
    • A.  Subcontractor, Supplier, or Equipment Renter  3.128
    • B.  Laborer  3.129
    • C.  Direct Contractor  3.130

4

State and Local Public Works: Enforcing Stop Payment Notices, Bonds, and Prompt Payment Statutes

David W. Ginn

  • I.  SCOPE OF CHAPTER  4.1
    • A.  Definitions
      • 1.  What Is a Public Work?  4.2
      • 2.  Public Improvement Versus Work of Improvement  4.3
    • B.  Available Statutory Remedies  4.4
      • 1.  Mechanics Lien Not Available  4.5
      • 2.  Stop Payment Notices  4.6
      • 3.  Payment Bonds
        • a.  Direct Contracts  4.7
        • b.  Supplemental Contracts  4.8
        • c.  State Entities  4.9
      • 4.  Remedies on Invalid Contracts  4.10
    • C.  Statutory Remedies May Be Waived  4.11
    • D.  Nonstatutory Remedies
      • 1.  Breach of Contract  4.12
        • a.  Direct Contract With Public Entity  4.13
        • b.  Direct Contract With General Contractor  4.14
      • 2.  Other Nonstatutory Remedies  4.15
    • E.  Governing Civil Code Statutes  4.16
    • F.  Effective Dates for Remedies Amended by SB 189  4.17
  • II.  PRECOMMENCEMENT STEPS TO TAKE
    • A.  Obtain Correct Information  4.18
    • B.  Serve Preliminary Notice  4.19
  • III.  STOP PAYMENT NOTICES: DEFINITION AND SCOPE  4.20
    • A.  Who May Pursue Stop Payment Notice Claim  4.21
    • B.  Who May Not Pursue Stop Payment Notice Claim
      • 1.  Contractor, Certain Suppliers, Lenders  4.22
      • 2.  Trust Funds’ Stop Payment Notice Rights Not Preempted  4.23
  • IV.  PRELIMINARY NOTICE
    • A.  Preliminary Notice Defined  4.24
    • B.  Who Must Provide Preliminary Notice  4.25
    • C.  Service of Preliminary Notice
      • 1.  Timely Service Vital to Establish Stop Payment Notice Rights  4.26
      • 2.  Whom to Serve With Preliminary Notice  4.27
      • 3.  Manner of Serving Preliminary Notice  4.28
        • a.  Certified Mail  4.29
        • b.  Express Mail or Overnight Delivery  4.30
        • c.  Service Under CCP §415.20  4.31
      • 4.  Strict Compliance Required  4.32
      • 5.  Where to Serve Preliminary Notice
        • a.  Serving Direct Contractor  4.33
        • b.  Serving Public Entity  4.34
    • D.  Contents and Form of Preliminary Notice
      • 1.  Statutory Requirements  4.35
      • 2.  Defects in Form of Preliminary Notice  4.36
      • 3.  Accuracy of Preliminary Notice  4.37
      • 4.  Failure to Give Preliminary Notice  4.38
      • 5.  Potential Disciplinary Action  4.39
  • V.  CONTENTS AND FORM OF STOP PAYMENT NOTICE
    • A.  Information Required  4.40
    • B.  Form Required  4.41
    • C.  Defects in Form of Stop Payment Notice  4.42
  • VI.  SERVICE OF STOP PAYMENT NOTICE
    • A.  Persons Entitled to Serve  4.43
    • B.  Whom to Serve  4.44
      • 1.  Service for State Agency Projects  4.45
      • 2.  Service for Other Public Entity Projects  4.46
    • C.  Manner of Service  4.47
    • D.  Time for Service; Crucial Deadlines  4.48
      • 1.  Time Limit if Notice of Completion or Cessation Is Recorded  4.49
      • 2.  Time Limit if Notice Is Not Recorded
        • a.  Cessation of Work
          • (1)  Public Entity Projects  4.50
          • (2)  State Agency Projects  4.51
        • b.  “Completion of Work” Defined  4.52
      • 3.  Early Service of Stop Payment Notice  4.53
    • E.  Notice of Expiration of Period for Filing Action on Stop Payment Notice
      • 1.  Obtaining Expiration Notice  4.54
      • 2.  Importance of Requesting Expiration Notice
        • a.  Avoids Statute of Limitations Problems  4.55
        • b.  Discloses Release Date for Withheld Funds  4.56
      • 3.  Estoppel Defense if Expiration Notice Not Given  4.57
  • VII.  PENALTY FOR FALSE STOP PAYMENT NOTICE  4.58
  • VIII.  AMOUNT WITHHELD ON STOP PAYMENT NOTICE
    • A.  Scope of Public Entity’s Duty to Withhold  4.59
      • 1.  Duty to Withhold From Direct Contractor  4.60
      • 2.  Assignees Subordinate to Claimant  4.61
      • 3.  Judgment Creditors
        • a.  Third Party Judgment Creditors  4.62
        • b.  Claimant as Judgment Creditor  4.63
        • c.  Bankruptcy of Direct Contractor  4.64
      • 4.  Which Funds Must Be Withheld
        • a.  Money, Check, Warrant, or Bonds  4.65
        • b.  Due At and After Service of Stop Payment Notice  4.66
        • c.  Statutory Liquidated Damages  4.67
        • d.  Impact of Project Abandonment  4.68
    • B.  Amount Withheld; Items Included  4.69
      • 1.  Interest  4.70
      • 2.  Litigation Costs  4.71
    • C.  Loss of Withheld Funds  4.72
      • 1.  Failure to Take Required Procedural Steps  4.73
      • 2.  Direct Contractor’s Options to Obtain Release of Funds  4.74
        • a.  Posting Stop Payment Notice Release Bond  4.75
          • (1)  Release Bond Versus Summary Release of Funds  4.76
          • (2)  Joint and Several Liability of Surety
            • (a)  With Payment Bond Surety  4.77
            • (b)  With Direct Contractor  4.78
          • (3)  Release Bond Not a Guaranty of Payment  4.79
        • b.  Requesting Summary Release of Funds Under CC §§9400–9414  4.80
          • (1)  Direct Contractor Serves Public Entity With Affidavit  4.81
          • (2)  Public Entity Serves Notice to Claimant  4.82
          • (3)  Public Entity Releases Funds if No Counteraffidavit Filed  4.83
          • (4)  Claimant or Contractor Files Action for Declaration of Rights  4.84
          • (5)  Counsel Prepares for Hearing  4.85
          • (6)  Court Conducts Hearing and Issues Order  4.86
          • (7)  Claimant May Appeal by Writ  4.87
        • c.  Filing Motion for Summary Adjudication in Pending Enforcement Action  4.88
    • D.  Effect of Reduction of Amount or Release of Stop Payment Notice During Construction  4.89
    • E.  Escrowing Funds Subject to Stop Payment Notice  4.90
  • IX.  ACTION TO ENFORCE STOP PAYMENT NOTICE
    • A.  Parties  4.91
      • 1.  Third Party Stop Notice Claimants  4.92
      • 2.  Public Entity  4.93
      • 3.  Release Bond Surety  4.94
      • 4.  Direct Contractor  4.95
    • B.  Venue  4.96
    • C.  Pretrial Procedures
      • 1.  Presentation of Claim Not a Prerequisite  4.97
      • 2.  Statute of Limitations
        • a.  When to File Suit to Enforce Stop Payment Notice  4.98
        • b.  Checklist: Information From Public Entity  4.99
        • c.  Availability of Estoppel to Toll Statute  4.100
        • d.  Release Bond  4.101
      • 3.  Checklist: Stop Payment Notice Complaint  4.102
      • 4.  Additional Causes of Action  4.103
      • 5.  Notice of Commencement of Suit
        • a.  Service of Notice  4.104
        • b.  Purpose and Effect of Notice  4.105
      • 6.  Effect of Arbitration Clause in Contract  4.106
      • 7.  Interpleader and Consolidation  4.107
    • D.  Discovery in Stop Payment Notice and Payment Bond Claims
      • 1.  Informal Disclosure  4.108
      • 2.  Discovery Requests  4.109
    • E.  Judgment; Postjudgment Procedures
      • 1.  Proportional Distributions  4.110
      • 2.  Garnishment  4.111
      • 3.  Interpleader  4.112
  • X.  SMALL CLAIMS COURT  4.113
  • XI.  PAYMENT BONDS  4.114
    • A.  Statutory Requirements  4.115
      • 1.  Payment Bond Provisions
        • a.  Executed by Admitted Surety Insurer  4.116
        • b.  Amount and Terms of Payment Bond  4.117
        • c.  Recovery Under Payment Bond  4.118
        • d.  Work and Persons Covered  4.119
        • e.  Subcontractor’s Bonds  4.120
      • 2.  Direct Contractor’s Liability for Failure to Post Payment Bond  4.121
      • 3.  Public Entity’s Liability
        • a.  For Failure to Obtain Payment Bond  4.122
        • b.  For Failure to Investigate Payment Bond Surety  4.123
        • c.  No Liability for Failure to Investigate Amount of Payment Bond  4.124
        • d.  Procedure to Bring Action Against Public Entity  4.125
    • B.  Remedies Cumulative  4.126
    • C.  Prerequisites and Limitations  4.127
      • 1.  Preliminary or Postcompletion Notice Requirements
        • a.  Who Must Serve Notice  4.128
          • (1)  Exemptions for Claimants  4.129
          • (2)  Limitations for Claimants Not in Privity With Direct Contractor  4.130
        • b.  When to Serve Postcompletion Notice  4.131
        • c.  Form of Written Notice  4.132
        • d.  Manner of Service of Written Notice  4.133
      • 2.  No Stop Payment Notice Requirement  4.134
      • 3.  Time Limits for Bringing Action  4.135
      • 4.  Effect of Arbitration Clause  4.136
    • D.  Jurisdiction and Venue  4.137
    • E.  Settlement  4.138
    • F.  Pleadings
      • 1.  Parties  4.139
      • 2.  Checklist: Payment Bond Complaint  4.140
        • a.  Amount Recoverable  4.141
          • (1)  Attorney Fees  4.142
          • (2)  Prompt Payment Statutory Penalties  4.143
          • (3)  Penalty for Failure to Pay Wage Claim  4.144
        • b.  No Obligation to Accept Tender of Principal  4.145
      • 3.  Tort Recovery Against Surety  4.146
  • XII.  PROMPT PAYMENT STATUTES  4.147
    • A.  Progress Payments
      • 1.  State Agencies
        • a.  Payments by State Agencies to Contractors  4.148
        • b.  Payments by Prime Contractors to Subcontractors; “Pay if Paid” Clauses  4.149
        • c.  Exception: Existence of Good Faith Dispute  4.150
        • d.  Payments by State Agencies to Prime Design Professionals and Their Subconsultants  4.151
      • 2.  California State University Rules  4.152
      • 3.  Public Utilities  4.153
      • 4.  Other Public Entities
        • a.  Payment by Other Public Entities to Contractors  4.154
        • b.  Payments by Contractors and Subcontractors  4.155
        • c.  Payments by Other Public Entities to Prime Design Professionals and Their Subconsultants  4.156
    • B.  Prompt Payment of Retention  4.157
      • 1.  By State Agencies  4.158
      • 2.  By Contractors and Subcontractors  4.159
      • 3.  By Public Agencies to Prime Design Professionals and Their Subconsultants  4.160
    • C.  Penalties for Failure to Comply
      • 1.  Failure to Pay Progress Payment or Retention to Subcontractors  4.161
      • 2.  Failure to Pay Retention to Contractor  4.162
      • 3.  Failure to Pay Progress Payment or Retention to Prime Design Professional or Subconsultant  4.163
  • XIII.  INVALID OR CANCELED PUBLIC WORKS CONTRACT
    • A.  Contractor’s Recovery Against Public Entity
      • 1.  Limited Recovery for Work Performed Under Contract Declared Invalid After Work Commences  4.164
      • 2.  Limited Statutory Recovery for Contracts Invalidated Because of Flawed Bidding Process  4.165
      • 3.  Recovery of Bid Costs by Wrongfully Rejected Bidder  4.166
      • 4.  Recovery for Work Performed Under Canceled Contract  4.166A
    • B.  No Recovery for Interference With Prospective Economic Advantage Against Winning Bidder on Invalid Contract  4.166B
  • XIV.  DESIGN-BUILD PROJECTS  4.167
  • XV.  FORMS
    • A.  Form: Notice of Commencement of Action on Stop Payment Notice Claim  4.168
    • B.  Form: Release or Reduction of Stop Payment Notice  4.169
    • C.  Form: Notice to Surety of Release of Payment Bond  4.170
    • D.  Form: Complaint for Breach of Contract, to Enforce Stop Payment Notice, and to Recover on Payment Bond (Public Works Project)  4.171
    • E.  Form: Cause of Action for Violation of Prompt Payment Statutes for Unpaid Retention  4.172
    • F.  Discovery Lists for Interrogatories
      • 1.  Form: List of Interrogatories to Public Entity  4.173
      • 2.  Form: List of Interrogatories to Payment Bond Surety  4.174
    • G.  Form: List for Demand for Inspection or Production of Documents From Public Entity or Bond Surety  4.175
    • H.  Form: Claim Against Public Entity for Failure to Investigate  4.176
    • I.  Form: Subcontractor’s Complaint Against Public Entity for Failure to Investigate Payment Bond Surety  4.177
  • XVI.  CHARTS: MONITORING PUBLIC WORKS PROJECTS
    • A.  Subcontractor, Supplier, or Equipment Renter  4.178
    • B.  Laborer  4.179
    • C.  Direct Contractor  4.180
    • D.  Prompt Payment Statutes  4.181

5

Federal Projects: Bond Claims Under the Miller Act

Cathleen M. Curl

  • I.  INTRODUCTION TO MILLER ACT BONDS
    • A.  Scope of Bond Remedies  5.1
    • B.  “Public Work” Defined  5.2
      • 1.  Effect of Federal Financing When United States Not a Party to Contract  5.3
      • 2.  When Federal Ownership Triggers Application of Miller Act  5.4
      • 3.  When Native American Entities Exercise Autonomy  5.5
  • II.  PERFORMANCE BONDS
    • A.  General Information  5.6
    • B.  Amount of Performance Bond  5.7
    • C.  Must Cover Payroll Withholding Taxes  5.8
    • D.  Waiver of Performance Bond  5.9
    • E.  Who Is Protected  5.10
      • 1.  Named Obligee May Sue  5.11
      • 2.  Claims by Non-Obligees  5.12
    • F.  Liability of Surety  5.13
      • 1.  Limits on Liability; Conditions to Recovery  5.14
        • a.  Full Performance by Owner  5.15
        • b.  Notice of Default  5.16
      • 2.  Surety Options on Default of Contractor  5.17
    • G.  Damages Recoverable  5.18
    • H.  Surety’s Right of Subrogation  5.19
  • III.  PAYMENT BONDS
    • A.  Amount of Bond; Applicable Contracts  5.20
    • B.  Waiver of Bond Requirement  5.21
    • C.  If Government Fails to Require Bond
      • 1.  General Rule: No Liability to Claimants  5.22
      • 2.  Exception: Post Office Projects  5.23
      • 3.  Equitable Lien and Other Remedies  5.24
    • D.  No Governmental Duty to Investigate Surety  5.25
    • E.  Surety’s Right of Subrogation  5.26
    • F.  Payment Bond Indemnitor’s Rights  5.26A
  • IV.  PARTIES PROTECTED BY PAYMENT BOND
    • A.  Persons Supplying Labor or Material Directly to Prime Contractor or Its Subcontractors  5.27
      • 1.  Waiver of Bond Rights Prohibited  5.27A
      • 2.  Licensing Not Required  5.27B
    • B.  Determining Who Is Protected  5.28
    • C.  Subcontractor Defined  5.29
      • 1.  Cases Holding Claimant Was Subcontractor  5.30
      • 2.  Cases Holding Claimant Was Not Subcontractor  5.31
    • D.  Exclusions
      • 1.  The Contractor and Subcontractor-Indemnitor  5.32
      • 2.  Guaranties Between Claimants and Others  5.33
      • 3.  Third- and Lower-Tier Subcontractors  5.34
      • 4.  Material or Equipment Suppliers to Second- and Lower-Tier Subcontractors  5.35
      • 5.  Lenders to Contractors  5.36
      • 6.  Employees of Second- and Lower-Tier Subcontractors  5.37
    • E.  Assignees of First- or Second-Tier Subcontractors or Suppliers  5.38
    • F.  Sham Subcontractor May Be Disregarded  5.39
  • V.  WORK COVERED BY PAYMENT BOND
    • A.  Labor and Material
      • 1.  Must Be Furnished for Project  5.40
      • 2.  Labor and Material Covered  5.41
      • 3.  Fringe Benefit Payments  5.42
      • 4.  Prevailing Wages  5.42A
      • 5.  Professional Inspection Services  5.43
    • B.  Insurance Premiums  5.44
    • C.  Equipment Rent or Costs  5.45
    • D.  Capital Equipment  5.46
    • E.  Work Done Without Signed Written Change Order  5.46A
  • VI.  90-DAY PRELIMINARY NOTICE
    • A.  Parties in Privity With Contractor Exempt  5.47
      • 1.  Privity Established; Notice Not Required  5.48
      • 2.  Privity Not Established; Notice Required  5.49
    • B.  Contents of Written Notice  5.50
      • 1.  Examples of Adequate Notice  5.51
      • 2.  Examples of Inadequate Notice  5.52
    • C.  Substantial Accuracy of Claim Required  5.53
    • D.  Calculating 90-Day Notice Period
      • 1.  Last Furnishing of Labor or Material
        • a.  General Rule  5.54
        • b.  Effect of “When and If Paid” Clause  5.55
        • c.  Lessor of Equipment; Job Abandoned  5.56
        • d.  Material or Equipment Deliveries  5.57
      • 2.  Date of Expiration of Notice Period  5.58
    • E.  Method of Serving Notice  5.59
  • VII.  PAYMENT BOND DAMAGES  5.60
    • A.  Contract Price or Value of Items Furnished  5.61
    • B.  Interest Set by State Law  5.62
    • C.  Attorney Fees
      • 1.  Recoverable if Contract Provides  5.63
      • 2.  Cases Disallowing Fees  5.64
      • 3.  Discretionary Fees in Bad Faith Cases  5.65
      • 4.  Under CC §1717  5.66
    • D.  Delay Damages  5.67
      • 1.  Out-of-Pocket and Overhead Costs  5.68
      • 2.  Lost Profits  5.69
    • E.  Miscellaneous Damages
      • 1.  Other Contractual Damages  5.70
      • 2.  Equipment Damage  5.71
  • VIII.  PAYMENT BOND SUIT
    • A.  Time Limits to File Action  5.72
      • 1.  When Time Begins to Run
        • a.  When Labor or Material Last Furnished  5.73
        • b.  “Last” Day Defined  5.74
        • c.  Effect of Repairs or Corrections  5.75
        • d.  Effect of Default or Abandonment  5.76
      • 2.  Relation-Back Doctrine  5.77
    • B.  Jurisdiction and Venue: Federal Court  5.78
      • 1.  Contractual Change of Venue  5.79
      • 2.  Scope of Federal Jurisdiction  5.80
    • C.  Pleading Requirements
      • 1.  Parties to the Action  5.81
      • 2.  Miller Act Allegations  5.82
      • 3.  Ancillary Claims  5.83
    • D.  Proof of Claim  5.84
    • E.  Miller Act Preempts State Remedies  5.85
    • F.  Effect of Contract on Miller Act Suit
      • 1.  Limitations on Waiver of Miller Act Rights  5.86
      • 2.  Alternative Dispute Resolution Clauses
        • a.  Contractual Arbitration  5.87
          • (1)  Waiverability of Arbitration Right  5.88
          • (2)  Confirmation of Award  5.89
          • (3)  Importance of Contract’s Language  5.90
          • (4)  Stay of Arbitration or Court Action  5.91
        • b.  Administrative Forum; Stay of Court Action  5.92
      • 3.  “Pay if Paid” Clause  5.93
      • 4.  Privity Requirement for Setoff on Bond Claim  5.94
    • G.  Exhaustion or Expiration of Bond  5.95
    • H.  Contractor’s Cross-Claims and Defenses
      • 1.  Privity Required for Offsets  5.96
      • 2.  Effect of Promissory Note  5.97
      • 3.  Joint Check Defenses Limited  5.98
    • I.  Equitable Liens
      • 1.  Claimant Against Surety  5.99
      • 2.  Claimant Against Government  5.100
  • IX.  EFFECT OF BANKRUPTCY ON CLAIM  5.101
    • A.  Contractor’s Bankruptcy  5.102
    • B.  Subcontractor's Bankruptcy  5.102A
    • C.  Bonding Company’s Bankruptcy  5.103
  • X.  FORMS
    • A.  Form: Affidavit Requesting Copy of Miller Act Payment Bond  5.104
    • B.  Form: 90-Day Preliminary Notice  5.105
    • C.  Form: Miller Act Complaint  5.106
    • D.  Form: Document List for Request for Production (Miller Act Discovery)  5.107
    • E.  Form: Interrogatories (Miller Act Discovery)  5.108
    • F.  Form: Release and Settlement Agreement (Miller Act Case)  5.109

6

Enforcing Lien Rights Against a Debtor in Bankruptcy

Molly J. Baier

  • I.  BANKRUPTCY BASICS
    • A.  Scope of Chapter  6.1
    • B.  Commencement of Bankruptcy Case  6.2
      • 1.  Automatic Stay of Collection Activities  6.3
      • 2.  Bankruptcy Filed in Bad Faith; New Debtor Syndrome  6.3A
      • 3.  Notice to Creditors  6.4
    • C.  Property of Bankruptcy Estate  6.5
      • 1.  Carve-Outs From Property of Estate  6.6
        • a.  Funds Held in Trust: Joint Checks  6.7
        • b.  Payments Skipping Over Debtor  6.8
      • 2.  Cash Collateral  6.9
  • II.  OVERVIEW OF CHAPTER 11 (REORGANIZATION)
    • A.  Continued Business Operation Under Court Supervision  6.10
      • 1.  Filing Schedules and Statement of Affairs  6.11
      • 2.  Filing Operating Reports  6.12
      • 3.  Borrowing Money  6.12A
    • B.  Deferring Payment for Prepetition Work  6.13
    • C.  Executory Contracts  6.14
      • 1.  Assumption by Debtor  6.15
      • 2.  Rejection by Debtor  6.16
      • 3.  Compelling Assumption or Rejection  6.17
    • D.  Creditors’ Claims in Chapter 11 Cases
      • 1.  Filing Claims  6.18
      • 2.  Liquidating Claims  6.19
    • E.  Reorganization, Conversion, or Dismissal  6.20
      • 1.  Reorganization of Debtor  6.21
        • a.  Treatment of Mechanics Lienholders  6.22
        • b.  Treatment of Unsecured and Undersecured Creditors  6.23
        • c.  Lien-Stripping  6.23A
        • d.  Preserving Debtor’s Claims and Offsets  6.23B
      • 2.  Dismissal or Conversion to Chapter 7  6.24
      • 3.  Effect of Dismissal of Bankruptcy Case  6.25
  • III.  OVERVIEW OF CHAPTER 7 (LIQUIDATION)
    • A.  Cessation of Debtor’s Work or Business  6.26
    • B.  Appointment of Trustee; Duties  6.27
      • 1.  Liquidating Assets  6.28
      • 2.  Abandoning Assets  6.29
      • 3.  Collecting Debts  6.30
      • 4.  Avoiding Preferences and Unauthorized Postpetition or Fraudulent Transfers  6.31
      • 5.  Proofs of Claim in Chapter 7 Cases
        • a.  Filing Claims  6.32
        • b.  Liquidating Claims  6.33
      • 6.  Distributing Assets  6.34
    • C.  Nondischargeable Claims  6.35
  • IV.  EFFECT OF AUTOMATIC STAY ON ACTIONS BY CREDITORS
    • A.  Stay of Collections, Recordation, and Existing and Future Enforcement Actions  6.36
      • 1.  When Debtor Is Contractor  6.37
      • 2.  When Debtor Is Owner  6.38
    • B.  Actions Not Stayed
      • 1.  Actions Against Third Parties and Their Property  6.39
      • 2.  Relation Back of Stop Notices  6.40
    • C.  Protecting Lien Rights During Stay  6.41
      • 1.  Recordation of Mechanics Lien
        • a.  Perfecting Lien After Petition Filed  6.42
        • b.  Avoiding Violation of Automatic Stay  6.43
      • 2.  Notice in Lieu of Filing Suit  6.44
        • a.  Filing and Service Requirements  6.45
        • b.  Time Limits  6.46
    • D.  Remedies When Automatic Stay Is Violated
      • 1.  Voiding Acts That Violate Stay  6.46A
      • 2.  Retroactive Annulment of Automatic Stay  6.46B
      • 3.  Statutory Damages, Attorney Fees, and Contempt Sanctions  6.46C
  • V.  RELIEF FROM AUTOMATIC STAY  6.47
    • A.  Nature and Extent of Relief  6.48
    • B.  Grounds for Relief From Stay
      • 1.  Cause  6.49
      • 2.  Lack of Equity  6.50
    • C.  Arbitration Proceedings  6.50A
  • VI.  AVOIDABLE TRANSFERS
    • A.  Unauthorized Postpetition Transfers  6.51
    • B.  Avoidable Preferences (Prepetition Transfers)  6.52
      • 1.  Prima Facie Case  6.53
        • a.  Burden of Proof  6.54
        • b.  Date of Payment or Transfer  6.55
        • c.  Transfer of Interest of Debtor in Property  6.56
          • (1)  Payments Skipping Over Debtor  6.57
          • (2)  Effect of Joint Checks  6.58
        • d.  Receipt of More Than Similarly Situated Creditors
          • (1)  Statutory Distribution Formulas  6.59
          • (2)  Holder of Unperfected Lien May Be Secured Creditor  6.60
          • (3)  Discounted Payoffs  6.61
          • (4)  Only Debtor’s Interest in Property Applies  6.62
          • (5)  Time and Method of Measuring Value  6.63
      • 2.  Defenses  6.64
        • a.  Burden of Proof on Transferee  6.65
        • b.  Substantially Contemporaneous Exchange for New Value  6.66
          • (1)  Definition of “New Value”  6.67
          • (2)  Release of Mechanics Liens on Private Works
            • (a)  Debtor’s Property Versus Third Party’s Property  6.68
            • (b)  Value Determined as of Payment Date  6.69
            • (c)  Lien Release in Exchange for Payment; Recorded Versus Unperfected Rights  6.70
          • (3)  Release of Claims on Public Works Bonds and Payment Bonds  6.71
          • (4)  Provision of Future Goods or Services  6.72
        • c.  Ordinary Course of Business  6.73
          • (1)  Debt Incurred in Ordinary Course of Business  6.74
          • (2)  Payment Made in Ordinary Course Between Parties  6.75
          • (3)  Ordinary Business Terms (Industry Practices)  6.76
        • d.  New Value  6.77
        • e.  Statutory Liens  6.78
    • C.  Fraudulent Transfers: 11 USC §§544, 548  6.78A
  • VII.  FORMS
    • A.  Form: Request for Notice  6.79
    • B.  Form: Proof of Claim (Official Bankruptcy Form B 410)  6.80
    • C.  Form: Notice of Continued Perfection of Lien  6.81
    • D.  Form: Motion for Relief From Stay  6.82

7

Representing the Prime Contractor

Cathleen M. Curl

  • I.  TERMINOLOGY, CHAPTER SCOPE, AND LICENSING
    • A.  “Direct Contractor” and “Subcontractor” Defined  7.1
    • B.  Scope of Chapter  7.2
    • C.  Licensing and Registration Requirements
      • 1.  Contractor and Subcontractor Licensing; Causes for Disciplinary Action  7.2A
      • 2.  Contractor Registration  7.2B
  • II.  ASSESSING CONTRACTOR’S POSITION ON CLAIMS
    • A.  Contractor’s Duty to Prevent Claims  7.3
    • B.  Contractor’s Posture on Lien Claim Varies  7.4
      • 1.  Contractor Versus Owner  7.5
      • 2.  Contractor Versus Public Entity  7.5A
      • 3.  Contractor Versus Lender  7.6
      • 4.  Contractor Versus Subcontractors and Suppliers  7.7
        • a.  Effect of Mechanics Lien Claim  7.8
        • b.  Effect of Stop Payment Notice  7.9
        • c.  Effect of Bond Claims  7.10
  • III.  REVIEWING CONSTRUCTION CONTRACTS  7.11
    • A.  The Prime Contract
      • 1.  Notice of Completion  7.12
      • 2.  Lien Claims Settled at Discount  7.13
      • 3.  Conditions on Progress Payments  7.14
    • B.  The Subcontract
      • 1.  Checklist: Provisions Helpful to Contractor  7.15
      • 2.  Retention of Final Payment  7.16
      • 3.  “Pay if Paid” Clauses Are Void  7.17
      • 4.  “Pay When Paid” Clauses May Be Enforceable  7.18
    • C.  Insurance Requirements  7.18A
      • 1.  Builder’s Risk  7.18B
      • 2.  Liability  7.18C
      • 3.  Cyber  7.18D
  • IV.  CONTRACTOR’S OBLIGATIONS ON LIEN, STOP NOTICE, AND BOND CLAIMS
    • A.  Contractual or Implied-in-Law Duties
      • 1.  To Owner: Post Bonds; Defend Claims  7.19
      • 2.  To Lower-Tier Claimants: Pay for Work Done  7.20
    • B.  Statutory Duties
      • 1.  Liability to Wage Earners; Reimbursement From Subcontractor  7.21
      • 2.  Disbursing Progress Payments
        • a.  California Subcontractor Rule (7 Days After Receipt of Payment)  7.22
        • b.  Miscellaneous Payment Rules  7.23
        • c.  Penalties for Nonpayment or Diversion  7.24
      • 3.  Disbursing Retention Proceeds After Completion
        • a.  Private Works  7.25
          • (1)  Owner Must Release Retention Within 45 Days After Completion  7.26
          • (2)  Contractor Must Pay Subcontractors Within 10 Days After Receipt of Retention  7.27
          • (3)  Disputed Claims Rule and Resolution of Claims  7.28
          • (4)  Penalty for Withholding Retention  7.29
        • b.  Nonfederal Public Works  7.30
      • 4.  Defending Mechanics Lien Foreclosure Action  7.31
      • 5.  Reimbursing and Indemnifying Owner  7.32
  • V.  ADMINISTERING THE PROJECT
    • A.  Recordkeeping: Parameters and Criteria
      • 1.  Private Versus Public Project  7.33
      • 2.  Cost Versus Caution  7.34
    • B.  Filing Direct Contracts; Recording Payment Bond  7.35
    • C.  Relations With Subcontractors
      • 1.  Minimizing Disputes About Scope of Work  7.36
      • 2.  Bonding Subcontractors  7.37
      • 3.  Liability of Direct Contractors for Wages and Benefits of Subcontractor’s Employees  7.37A
        • a.  Form: Subcontractor Payroll Payments and Records Requirements  7.37B
        • b.  Form: Indemnification Clause  7.37C
    • D.  Discovering Potential or Recorded Lien Claims
      • 1.  On-the-Job Sources of Information
        • a.  Records of Preliminary Notices  7.38
        • b.  Owner’s Demand for Stop Payment Notice  7.39
        • c.  Declaration to Procure Payment  7.40
      • 2.  Other Sources of Information
        • a.  Union Trust Funds  7.41
        • b.  Publications and Credit Reports  7.42
    • E.  Making Payments to Subcontractors
      • 1.  Progress Payments; Releases  7.43
      • 2.  Vouchers  7.44
      • 3.  Joint Checks; Direct Payments  7.45
      • 4.  Final Payments  7.46
      • 5.  Owner’s Default Excuses Contractor’s Obligations to Owner  7.47
    • F.  Preparing Notice of Completion  7.48
  • VI.  RESPONDING TO CLAIMS AND SUITS
    • A.  When Claims Are Filed
      • 1.  Checklist: Investigating Validity of Claims  7.49
      • 2.  Strategic Options  7.50
        • a.  Tendering the Defense  7.51
        • b.  Settling the Claim  7.52
        • c.  Obtaining Release Bonds  7.53
        • d.  Indemnifying the Title Company  7.54
        • e.  Contesting the Claim  7.55
      • 3.  Supporting Subcontractor and Supplier Claims; Liquidating Agreements  7.56
    • B.  Contractor’s Role in Litigation
      • 1.  Contractor as Principal on Payment Bond
        • a.  Duty to Claimants  7.57
        • b.  Relationship With Surety  7.58
        • c.  Strategy of Surety  7.59
      • 2.  Contractor as Claimant on Payment Bond  7.60
      • 3.  Arbitration and Mediation Clauses
        • a.  Compelling Arbitration or Mediation  7.61
        • b.  Consolidation of Arbitration Hearings  7.62
        • c.  Stay of Arbitration or Complete Joinder of Proceedings in Court Action  7.63
        • d.  Surety May Be Compelled to Arbitrate  7.64
      • 4.  Cross-Complaints
        • a.  Against Subcontractor  7.65
        • b.  Against Owner  7.66
        • c.  Against Payment Bond Surety  7.67
        • d.  Against Architect  7.68
      • 5.  Statutory Recovery for Wage Claims Against Subcontractor  7.68A
  • VII.  FORMS
    • A.  Form: Attorney’s Letter Advising Client of Statutory Prompt Payment Penalties  7.69
    • B.  Form: Affirmative Defenses  7.70

8

Representing the Owner

Candace L. Matson

Helen J. Lauderdale

  • I.  PRELIMINARY CONSIDERATIONS
    • A.  Scope of Chapter; Summary of Strategies  8.1
    • B.  Governing Civil Code Statutes  8.2
    • C.  Effective Dates for Remedies Amended by SB 189  8.3
    • D.  Distinguishing Between Contracting, Noncontracting, and Participating Owners  8.4
    • E.  Legal and Economic Considerations Before Work Commences  8.5
    • F.  Checklist: Client Interview After Work Commences  8.6
    • G.  Checklist: Key Issues in the Face of a Claim or Potential Claim  8.7
    • H.  Chart: Monitoring Project Claims for Litigation  8.7A
  • II.  REPRESENTING LESSORS AND OTHER NONCONTRACTING OWNERS
    • A.  Factors Exposing Property to Liens  8.8
    • B.  Lease Provisions Offering Protection  8.9
    • C.  Owner Control  8.10
    • D.  Notice of Nonresponsibility  8.11
      • 1.  Who May Give Notice
        • a.  Only Nonparticipating Owner  8.12
        • b.  Special Circumstances Impacting Notice
          • (1)  New Owners  8.13
          • (2)  Beneficiaries  8.14
          • (3)  Vendors  8.15
          • (4)  Condominium Owners  8.16
          • (5)  Adjacent Owners  8.17
      • 2.  Required Writing; Contents; Verification  8.18
      • 3.  Scope of Notice  8.19
      • 4.  Time for Posting and Recording Notice  8.20
      • 5.  Actual Knowledge of Work; Duty of Inquiry  8.21
    • E.  Liens on Interests in Leases or Land Sale Contracts; Limitations on Windfall to Owner  8.22
  • III.  REPRESENTING CONTRACTING OWNERS BEFORE CONSTRUCTION
    • A.  Advising Owner on Rights and Duties
      • 1.  Mechanics Lien Statutes  8.23
      • 2.  Prompt Payment Statutes  8.24
        • a.  Progress Payments  8.25
        • b.  Retention Payments  8.26
      • 3.  Contractual Obligations and Liabilities  8.27
    • B.  Including Protective Terms in Contracts  8.28
      • 1.  Retention of Funds After Notice of Completion or Cessation Recorded  8.29
      • 2.  Contractor’s Duties to Pay Claimants and Protect Owner From Liens and Stop Notices  8.30
      • 3.  Owner’s Rights to Verify Conditions of Payment and to Pay Lower-Tier Claimants  8.31
      • 4.  Waiver of Lien, Stop Notice, and Bond Rights  8.32
      • 5.  Owner’s Right to Audit Contractor  8.33
      • 6.  Contractor’s Duty to Obtain Bonds  8.34
      • 7.  Owner’s Right to Take Over Project  8.35
      • 8.  Waiver of Surety’s Right to Approve Change Orders  8.36
      • 9.  Dispute Resolution  8.37
    • C.  Investigating the Contractor  8.38
    • D.  Procuring Construction Bonds  8.39
      • 1.  Performance Bond  8.40
      • 2.  Payment Bond  8.41
        • a.  Required Payment Bond or Other Security for Large Project  8.42
        • b.  Optional Payment Bond  8.43
      • 3.  Financial Considerations  8.44
    • E.  Filing Contract; Recording Payment Bond  8.45
    • F.  Working With the Lender  8.46
    • G.  Procuring Title Insurance  8.47
  • IV.  REPRESENTING OWNERS DURING CONSTRUCTION
    • A.  Impact of Bonds on Stop Payment Notices
      • 1.  Recording Payment Bond  8.48
      • 2.  Stop Payment Notice Release Bonds  8.49
    • B.  Mechanics Lien Release Bonds  8.50
    • C.  Monitoring the Project
      • 1.  Tracking Preliminary Notices  8.51
      • 2.  On-Site Inspections  8.52
      • 3.  Supervising Disbursement of Funds
        • a.  Owner or Lender Disbursements  8.53
        • b.  Joint Control Service  8.54
        • c.  Voucher System; Procedures  8.55
        • d.  Waivers and Releases
          • (1)  Statutory Forms Required  8.56
          • (2)  Exception: Stop Payment Notices Served on Owner During Construction  8.57
          • (3)  Progress Payment Releases  8.58
        • e.  Joint Checks  8.59
    • D.  Demanding Stop Payment Notice  8.60
    • E.  Shortening Lien and Stop Payment Notice Period  8.61
      • 1.  Notice of Completion
        • a.  Work Must Be Completed  8.62
        • b.  Contents of Notice  8.63
        • c.  Effect of Work Performed After Notice  8.64
      • 2.  Notice of Cessation
        • a.  Requirements of Notice  8.65
        • b.  Other Uses for Notice  8.66
      • 3.  Giving Notice of Recordation of Notice of Completion or Cessation  8.67
    • F.  Implementing Contractors’ License Law
      • 1.  Recovering on License Bond  8.68
      • 2.  Complaining to License Board  8.69
      • 3.  Ascertaining if Claimant Is Licensed  8.70
    • G.  Withholding Payment; Statutory Setoff
      • 1.  Mechanics Liens  8.71
      • 2.  Stop Payment Notices; Insolvent Contractor  8.72
    • H.  Responding to Stop Work Notice  8.73
  • V.  RELEASING THE PROPERTY FROM LIENS  8.74
    • A.  By Release in Exchange for Payment  8.75
    • B.  By Lien Release Bond  8.76
    • C.  By Satisfaction of Judgment  8.77
    • D.  By Petition for Release After Claimant Fails to File Timely Lien Action  8.78
      • 1.  Petition for Decree Releasing Property From Lien
        • a.  Procedure Under CC §§8480–8490 (Former CC §3154)  8.79
        • b.  Effect of Decree Under CC §§8480–8490 (Former CC §3154)  8.80
      • 2.  Effect of Voluntary Release of Recorded Lien Claim Without Payment of Debt  8.81
    • E.  By Affirmatively Attacking Lien Before Claimant Files Court Action  8.82
    • F.  By Pretrial Motion or Petition After Lien Action Filed
      • 1.  Proceedings to Expunge or Release Mechanics Lien  8.83
      • 2.  Withdrawal or Expungement of Lis Pendens  8.84
    • G.  By Motion to Void Lien After Criminal Conviction  8.84A
  • VI.  DEFENDING ENFORCEMENT ACTIONS
    • A.  Tendering the Defense  8.85
    • B.  Bankruptcy as a Defense Strategy  8.86
    • C.  Settling With Subcontractors and Suppliers  8.87
    • D.  Checklist: Defenses to Actions to Enforce Mechanics Liens, Stop Notices, and Bond Rights  8.88
    • E.  Attorney Fees and Interest  8.89
    • F.  Redeeming Owner's Property After Foreclosure Sale  8.89A
  • VII.  FORMS
    • A.  Form: Notice of Nonresponsibility  8.90
    • B.  Form: Attorney’s Letter Demanding Release of Mechanics Lien  8.91
    • C.  Form: Release of Mechanics Lien, Stop Payment Notice, and Bond Claims (Statutory Release)  8.92
    • D.  Form: Release of Claim of Mechanics Lien (Simple Release, Recordable With Acknowledgment)  8.93
    • E.  Form: Petition for Order Releasing Property From Claim of Mechanics Lien  8.94
    • F.  Form: Cross-Complaint Against Contractor, Subcontractors, or Sureties  8.95

9

Representing the Public Entity

David W. Ginn

  • I.  PRELIMINARY CONSIDERATIONS
    • A.  Scope of Chapter  9.1
    • B.  Definitions
      • 1.  What Is a Public Entity?  9.2
      • 2.  Who Is a Disbursing Officer?  9.3
    • C.  Competitive Bidding Not Always Required  9.4
    • D.  Statutory Remedies Available on Public Works
      • 1.  Remedies Allowed  9.5
      • 2.  Remedies Prohibited  9.6
      • 3.  Dispute Resolution Procedures for Claims on Public Works Projects   9.6A
    • E.  Role of Public Entity’s Attorney  9.7
      • 1.  State Entities  9.8
      • 2.  Local Entities  9.9
    • F.  Cyberattacks and Security Breaches  9.9A
  • II.  PUBLIC WORKS CONTRACT BONDS
    • A.  Payment Bonds  9.10
    • B.  Performance Bonds
      • 1.  Form and Purpose  9.11
      • 2.  Default in Performance by Contractor  9.12
      • 3.  Available Relief and Damages
        • a.  Project Completion  9.13
        • b.  Liquidated Damages and Delay Costs  9.14
        • c.  Attorney Fees and Costs  9.15
      • 4.  Payment of Construction Funds to Surety  9.16
      • 5.  Performance by Surety  9.17
      • 6.  Refusal by Surety to Proceed With Completion  9.18
  • III.  NOTICES TO PUBLIC ENTITY
    • A.  Preliminary Notice  9.19
    • B.  Stop Payment Notice
      • 1.  Statement of Compliance With Preliminary Requirements  9.20
      • 2.  Parties to Be Served  9.21
      • 3.  Contents and Form of Stop Payment Notice  9.22
      • 4.  Mandatory Duty to Withhold Funds  9.23
        • a.  Guidelines for Public Entities  9.24
        • b.  Defect in Form Does Not Invalidate Stop Payment Notice  9.25
      • 5.  Time Limits for Serving Stop Payment Notice  9.26
      • 6.  Effective Filing of Stop Payment Notice  9.27
      • 7.  Notice to Claimants of Final Date for Filing Stop Payment Notices  9.28
  • IV.  WITHHOLDING FUNDS UNDER STOP PAYMENT NOTICE
    • A.  Duty to Withhold Funds  9.29
    • B.  Funds Not Subject to Withholding  9.30
    • C.  Amount to Withhold  9.31
      • 1.  Successive Stop Payment Notices  9.32
      • 2.  Prompt Payment Statutes  9.33
    • D.  Expiration of Withhold  9.34
  • V.  RELEASE BONDS FOR STOP PAYMENT NOTICE CLAIMS
    • A.  Statutory Requirements
      • 1.  Discretionary Right of Public Entity  9.35
      • 2.  Dispute Regarding Stop Payment Notice  9.36
      • 3.  Same or Different Surety  9.37
      • 4.  Style and Amount of Bond  9.38
    • B.  Public Entity Dismissed as Party  9.39
    • C.  Insolvency of Release Bond Surety  9.40
  • VI.  PROCEDURE FOR SUMMARY DECLARATION OF RIGHTS  9.41
    • A.  Affidavit Challenging Stop Payment Notice
      • 1.  Direct Contractor Serves Affidavit on Public Entity  9.42
      • 2.  Public Entity Serves Notice to Claimant Regarding Counteraffidavit  9.43
      • 3.  Release of Funds if No Counteraffidavit Filed  9.44
    • B.  Action for Declaration of Rights
      • 1.  Nature of Action  9.45
      • 2.  Public Entity’s Response  9.46
  • VII.  SETTLEMENTS
    • A.  Withdrawal and Release  9.47
    • B.  Effect of Joint Checks  9.48
    • C.  Release of Funds to Claimant After Filing Stop Payment Notice  9.49
    • D.  Effect of Prior Assignment; Subordination  9.50
  • VIII.  ACTION TO ENFORCE STOP PAYMENT NOTICE
    • A.  Complaint
      • 1.  Filing Period  9.51
      • 2.  Notice of Commencement of Action; Effect on Duty to Withhold Funds  9.52
      • 3.  Joining Direct Contractor When Not Named in Complaint  9.53
    • B.  Public Entity as Stakeholder  9.54
      • 1.  Stakeholder Liability  9.55
      • 2.  Public Entity’s Answer to Stop Notice
        • a.  Checklist: Contents of Answer  9.56
        • b.  Availability of Attorney Fees  9.57
        • c.  Stipulations to Release Public Entity  9.58
    • C.  Public Entity Is Not Mere Stakeholder if It Fails to Withhold  9.59
    • D.  Continuance  9.60
    • E.  Interpleader and Consolidation
      • 1.  Interpleader and Consolidation Compared  9.61
      • 2.  Interpleader Avoids Public Entity’s Liability in Excess of Withheld Funds  9.62
      • 3.  Need to Interplead All Potential Claimants  9.63
      • 4.  Where to File Interpleader  9.64
      • 5.  Where to Deposit Withheld Funds  9.65
      • 6.  Restraining Order Against Stop Payment Notice Actions  9.66
    • F.  Impact of “Fast Track” Rules  9.67
    • G.  Judgment Directing Disbursement of Funds  9.68
    • H.  Small Claims Court  9.69
    • I.  Arbitration  9.70
  • IX.  FORMS
    • A.  Form: Stop Payment Notice Release Bond  9.71
    • B.  Form: Joint Check Agreement  9.72
    • C.  Form: Notice of Public Entity’s Receipt of Contractor’s Affidavit  9.73
    • D.  Form: Public Entity’s (Stakeholder’s) Answer to Complaint  9.74

10

Bond Claim Procedures and Surety Defenses

Marilyn Klinger

Jonathan J. Dunn

  • I.  OVERVIEW OF SURETYSHIP
    • A.  Scope of Chapter  10.1
    • B.  Surety Bond Tables  10.2
    • C.  Surety Liability
      • 1.  Usually Limited by Amount of Bond  10.3
      • 2.  Liability May Exceed Bond Amount
        • a.  Taking Over Completion of Project  10.4
        • b.  Financing the Principal  10.5
      • 3.  No Tort Damages for Breach of Covenant of Good Faith and Fair Dealing  10.6
    • D.  Statutory Bond and Common Law Bond Distinguished  10.7
      • 1.  Ascertaining Type of Bond  10.8
      • 2.  Interpreting Statutory Bonds  10.9
      • 3.  Effect If Common Law Bond Is Statutory  10.10
      • 4.  Joint and Several Nature of Bonds  10.10A
  • II.  PAYMENT BONDS
    • A.  Nature of Payment Bonds
      • 1.  Definition  10.11
      • 2.  Types of Payment Bonds  10.12
      • 3.  Rules Governing All Payment Bonds  10.13
      • 4.  Recoverable Damages and Attorney Fees
        • a.  Available Relief  10.14
        • b.  Attorney Fees  10.14A
        • c.  Contract Price Versus Reasonable Value  10.15
    • B.  Differences Between Payment Bonds
      • 1.  Statutory Private Works Payment Bonds
        • a.  Bond Not Always Mandated by Law  10.16
        • b.  Prior Notice Required to Enforce Claim  10.17
      • 2.  Statutory Public Works Payment Bonds
        • a.  Bond Requirement  10.18
        • b.  Bond Amount; Other Mandatory Terms  10.19
        • c.  Prior Notice Required to Enforce Claim  10.20
      • 3.  Bond Principals  10.21
      • 4.  Subdivision Payment Bonds  10.22
    • C.  Claims Against Payment Bonds  10.23
      • 1.  Statutory and Regulatory Claims Procedures  10.24
      • 2.  Submitting Claim to Surety
        • a.  Contents and Format of Claim  10.25
        • b.  Checklist: Contents for Claim  10.26
      • 3.  Surety’s Response to Claim
        • a.  Acknowledging and Investigating Claim  10.27
        • b.  Denial, Acceptance, or Rejection of Claim  10.28
        • c.  Payment by Surety  10.29
      • 4.  Representing Surety After Tender of Defense  10.30
  • III.  PERFORMANCE BONDS
    • A.  Nature of Performance Bonds
      • 1.  Definition  10.31
      • 2.  Types of Performance Bonds
        • a.  Private Works  10.32
        • b.  Public Works  10.33
        • c.  Statutory Subdivision Bonds  10.34
        • d.  Subdivision Bonds Distinguished From Other Performance Bonds  10.35
      • 3.  Interpreting Performance Bonds  10.36
    • B.  Measure and Scope of Surety’s Liability
      • 1.  Standard Liability Under Performance Bond  10.37
      • 2.  Liabilities Under Construction Contract
        • a.  Effect of Bond Incorporating Contract by Reference  10.38
        • b.  Arbitration Agreement  10.39
        • c.  Interest and Attorney Fees  10.40
        • d.  Cost to Remove Mechanics Lien  10.41
        • e.  Consequential Damages  10.42
    • C.  Claims Against Performance Bonds
      • 1.  Statutory and Regulatory Claim Procedures  10.43
      • 2.  Default and Termination of Underlying Contract  10.44
      • 3.  Surety’s Investigation of Claim  10.45
        • a.  Dispute Between Obligee and Principal  10.46
          • (1)  Surety Manages and Pays to Complete Project  10.47
          • (2)  Surety Pays to Complete Project Managed by Principal  10.48
        • b.  Examining All Bonds for Overall Exposure  10.49
        • c.  Physical and Financial Status of Project  10.50
        • d.  Completion Estimates, Bids, and Independent Advice  10.51
        • e.  Principal’s Financial Condition  10.52
      • 4.  Bond Surety’s Options  10.53
        • a.  Take Over Project and Complete Work  10.54
        • b.  Tender a Completing Contractor  10.55
        • c.  Finance the Principal  10.56
        • d.  Buy Back the Bond  10.57
        • e.  Allow Obligee to Complete Project  10.58
  • IV.  MISCELLANEOUS BONDS
    • A.  Mechanics Lien and Stop Payment Notice Release Bonds
      • 1.  Nature of Release Bonds  10.59
      • 2.  Attorney Fees on Release Bond Actions  10.60
    • B.  Contractor’s License Bonds
      • 1.  Bond Terms  10.61
      • 2.  Requirement That Violation Be Willful and Deliberate  10.62
  • V.  SURETY DEFENSES
    • A.  Misrepresentation or Concealment  10.63
    • B.  Material Alteration or Release of Construction Contract  10.64
    • C.  Premature Payment by Obligee  10.65
    • D.  Failure to Give Required Notices  10.66
    • E.  Statute of Limitations and Contractual Limitations
      • 1.  Payment Bonds  10.67
      • 2.  Performance Bonds  10.68
      • 3.  Release Bonds  10.69
    • F.  Requiring Obligee to Pursue Other Remedies  10.70
    • G.  Defenses of the Principal  10.71
      • 1.  Invalid Claim  10.72
      • 2.  “Pay if Paid” Clause Not a Defense  10.73
  • VI.  SURETY REMEDIES
    • A.  Surety’s Right of Reimbursement From Principal  10.74
    • B.  Surety’s Right of Indemnity
      • 1.  Based on Separate Indemnity Contract  10.75
      • 2.  Writs of Attachment  10.76
      • 3.  Surety May Require Additional Collateral  10.77
    • C.  Surety’s Rights of Subrogation  10.78
      • 1.  Payment Bond: Surety May Enforce Stop Payment Notice and Lien Claims  10.79
      • 2.  Performance Bond
        • a.  Surety’s Right to Contract Balance  10.80
        • b.  Surety’s Rights Against Construction Lender  10.81

11

Representing the Construction Lender

Candace L. Matson

Alan Hugh Martin

  • I.  LENDER’S PRIMARY CONSIDERATIONS  11.1
  • II.  ANALYZING, DOCUMENTING, AND CLOSING THE LOAN; LENDER ASSURANCES
    • A.  Protecting Lender and Its Construction Loan Lien  11.2
    • B.  Construction Loan Documents  11.3
      • 1.  Summary of Important Loan Provisions  11.4
        • a.  Loan Conditions  11.5
        • b.  Loan Fund Uses; Disbursements  11.6
        • c.  Reserve Accounts  11.7
        • d.  Construction Budget; Cost Overruns  11.8
        • e.  Lender’s Right to Inspect Project  11.9
        • f.  Release of Stop Notices and Liens  11.10
        • g.  Lender’s Right to Complete Project on Borrower’s Default  11.11
      • 2.  Use of Proceeds; Segregation of Construction Funds  11.12
      • 3.  Disbursement Methods in Loan Agreement  11.13
        • a.  Progress Payments  11.14
        • b.  Vouchers; Joint Checks; Joint Control
          • (1)  Payment on Receipt of Voucher  11.15
          • (2)  Joint Checks  11.16
          • (3)  Joint Control Agencies  11.17
          • (4)  Necessity of Lien Releases  11.18
    • C.  Ensuring Priority of Construction Loan Deed of Trust  11.19
      • 1.  Record Deed of Trust Before Commencement of Work
        • a.  Priority Under CC §8450 (Over Mechanics Liens for Work Other Than Site Improvements)
          • (1)  Mechanics Lien Priority Rules  11.20
          • (2)  Obtain Warranties and Conduct Inspection  11.21
        • b.  Priority Under CC §8458 (Over Site Improvement Liens)
          • (1)  Separate Priority Rules  11.22
          • (2)  Site Improvement Lien Priority Rules  11.23
          • (3)  Separate Contract for Site Improvements; Restrict Use of Loan Funds  11.24
        • c.  Priority Under CC §8306 (Over Design Professional Liens)  11.25
      • 2.  Obtain Title Insurance
        • a.  Mechanics Lien Coverage  11.26
        • b.  Site Improvement Lien Coverage  11.27
        • c.  Disclosure to Title Insurer  11.28
        • d.  Creditors’ Rights Endorsements  11.28A
      • 3.  Establishing Priority After Work Has Commenced
        • a.  Title Policy Options  11.29
        • b.  Procure and Record Payment Bond  11.30
    • D.  Other Assurances: Price Controls; Guaranties  11.31
  • III.  LOAN ADMINISTRATION; DISBURSING FUNDS
    • A.  Disbursement Practices Are Critical  11.32
    • B.  Lender’s Liability Limited  11.33
    • C.  Effect of Disbursing Funds for Nonconstruction Purposes on Stop Notice Claims and Lien Priority
      • 1.  Claims for Diversion or Improper Disbursement  11.34
      • 2.  Optional Advances  11.35
    • D.  Other Lender Actions Affecting Lien Priority
      • 1.  Effect on Title Insurance Coverage  11.36
      • 2.  Impact on Priority of Contractually Subordinated Liens  11.37
    • E.  Inspection Procedures  11.38
    • F.  Additional Advances  11.39
  • IV.  WORKOUTS FOR DEFAULTED CONSTRUCTION LOANS
    • A.  Using Receivership in Workout  11.40
    • B.  Using Consensual Workout  11.40A
  • V.  PROCESSING STOP PAYMENT NOTICE AND OTHER CLAIMS
    • A.  Preliminary Notices  11.41
      • 1.  Ensuring Receipt of Notice
        • a.  Lender’s Steps  11.42
        • b.  Statutory Requirements
          • (1)  Identity of Lender in Construction Documents  11.43
          • (2)  Reputed Lender and Constructive Notice  11.44
      • 2.  Lender’s Actions on Receipt of Notice
        • a.  Monitoring Preliminary Notices  11.45
        • b.  Monitoring Notices to Laborers  11.46
    • B.  Stop Payment Notices  11.47
      • 1.  Checklist: Stop Payment Notice Validity  11.48
      • 2.  Withholding Funds
        • a.  Amount Withheld  11.49
        • b.  Attorney Fees
          • (1)  Prevailing Party’s Right to Fees  11.50
          • (2)  Exceptions  11.51
      • 3.  Requiring Borrower to Release Stop Payment Notice  11.52
      • 4.  Prorata Distribution of Withheld Funds  11.53
      • 5.  Prohibited Uses of Withheld Funds  11.54
    • C.  Equitable Liens  11.55
  • VI.  RESPONDING TO AND DEFENDING MECHANICS LIEN AND STOP NOTICE ACTIONS  11.56
    • A.  Filing Complaint in Interpleader  11.57
    • B.  Consolidation  11.58
    • C.  Tendering Defense to Title Insurer
      • 1.  Insurer’s Duty to Investigate and Defend  11.59
      • 2.  Coverage Disputes  11.60
      • 3.  Insurer’s Options  11.61
        • a.  Purchase Indebtedness and Defend Claim  11.62
        • b.  Negotiate Workouts or Settlements  11.63
        • c.  Defend Mechanics Lien Action  11.64
    • D.  Defense Considerations
      • 1.  Perfection of Claims; Answer to Complaint  11.65
      • 2.  Checklist: Defenses to Lien and Stop Notice Actions  11.66
      • 3.  Proceedings to Expunge or Release Mechanics Lien  11.66A
    • E.  Settlement Considerations  11.67

CALIFORNIA MECHANICS LIENS AND RELATED CONSTRUCTION REMEDIES

(4th Edition)

October 2019

TABLE OF CONTENTS

 

File Name

Book Section

Title

CH02

Chapter 2

Private Works Remedies: Theories and Applicability

02-085D

§2.85D

General Contractor's Representations and Indemnity Agreement

02-085E

§2.85E

Subcontractor's Subordination Agreement

02-085F

§2.85F

General Contractor's Subordination Agreement

02-089A

§2.89A

Design Professional Claim of Lien

CH03

Chapter 3

Private Works: Enforcing Mechanics Liens, Stop Payment Notices, and Bonds

03-098A

§3.98A

Checklist: Review Claimants’ Potential Remedies

03-121A

§3.121A

Checklist: Prerequisites for and Defenses to Actions to Enforce Mechanics Liens, Stop Notices, and Bond Rights

03-121C

§3.121C

Request for Information to Prepare Preliminary Notice

03-122

§3.122

20-Day Preliminary Notice

03-123

§3.123

Claim of Mechanics Lien

03-124

§3.124

Stop Payment Notice

03-125

§3.125

Agreement for Extension of Time to Enforce Mechanics Lien

03-126

§3.126

Notice to Bonding Company

03-127

§3.127

Complaint (Private Works)

03-128

§3.128

Subcontractor, Supplier, or Equipment Renter

03-129

§3.129

Laborer

03-130

§3.130

Direct Contractor

CH04

Chapter 4

State and Local Public Works: Enforcing Stop Payment Notices, Bonds, and Prompt Payment Statutes

04-099

§4.99

Checklist: Information From Public Entity

04-102

§4.102

Checklist: Stop Payment Notice Complaint

04-140

§4.140

Checklist: Payment Bond Complaint

04-168

§4.168

Notice of Commencement of Action on Stop Payment Notice Claim

04-169

§4.169

Release or Reduction of Stop Payment Notice

04-170

§4.170

Notice to Surety of Release of Payment Bond

04-171

§4.171

Complaint for Breach of Contract, to Enforce Stop Payment Notice, and to Recover on Payment Bond (Public Works Project)

04-172

§4.172

Cause of Action for Violation of Prompt Payment Statutes for Unpaid Retention

04-173

§4.173

List of Interrogatories to Public Entity

04-174

§4.174

List of Interrogatories to Payment Bond Surety

04-175

§4.175

List for Demand for Inspection or Production of Documents From Public Entity or Bond Surety

04-176

§4.176

Claim Against Public Entity for Failure to Investigate

04-177

§4.177

Subcontractor’s Complaint Against Public Entity for Failure to Investigate Payment Bond Surety

04-178

§4.178

Subcontractor, Supplier, or Equipment Renter

04-179

§4.179

Laborer

04-180

§4.180

Direct Contractor

CH05

Chapter 5

Federal Projects: Bond Claims Under the Miller Act

05-104

§5.104

Affidavit Requesting Copy of Miller Act Payment Bond

05-105

§5.105

90-Day Preliminary Notice

05-106

§5.106

Miller Act Complaint

05-107

§5.107

Document List for Request for Production (Miller Act Discovery)

05-108

§5.108

Interrogatories (Miller Act Discovery)

05-109

§5.109

Release and Settlement Agreement (Miller Act Case)

CH06

Chapter 6

Enforcing Lien Rights Against a Debtor in Bankruptcy

06-079

§6.79

Request for Notice

06-081

§6.81

Notice of Continued Perfection of Lien

06-082

§6.82

Motion for Relief From Stay

CH07

Chapter 7

Representing the Prime Contractor

07-015

§7.15

Checklist: Provisions Helpful to Contractor

07-037B

§7.37B

Subcontractor Payroll Payments and Records Requirements

07-037C

§7.37C

Indemnification Clause

07-049

§7.49

Checklist: Investigating Validity of Claims

07-069

§7.69

Attorney’s Letter Advising Client of Statutory Prompt Payment Penalties

07-070

§7.70

Affirmative Defenses

CH08

Chapter 8

Representing the Owner

08-006

§8.6

Checklist: Client Interview After Work Commences

08-007

§8.7

Checklist: Key Issues in the Face of a Claim or Potential Claim

08-007A

§8.7A

Chart: Monitoring Project Claims for Litigation

08-088

§8.88

Checklist: Defenses to Actions to Enforce Mechanics Liens, Stop Notices, and Bond Rights

08-090

§8.90

Notice of Nonresponsibility

08-091

§8.91

Attorney’s Letter Demanding Release of Mechanics Lien

08-092

§8.92

Release of Mechanics Lien, Stop Payment Notice, and Bond Claims (Statutory Release)

08-093

§8.93

Release of Claim of Mechanics Lien (Simple Release, Recordable With Acknowledgment)

08-094

§8.94

Petition for Order Releasing Property From Claim of Mechanics Lien

08-095

§8.95

Cross-Complaint Against Contractor, Subcontractors, or Sureties

CH09

Chapter 9

Representing the Public Entity

09-056

§9.56

Checklist: Contents of Answer

09-071

§9.71

Stop Payment Notice Release Bond

09-072

§9.72

Joint Check Agreement

09-073

§9.73

Notice of Public Entity’s Receipt of Contractor’s Affidavit

09-074

§9.74

Public Entity’s (Stakeholder’s) Answer to Complaint

CH10

Chapter 10

Bond Claim Procedures and Surety Defenses

10-026

§10.26

Checklist: Contents for Claim

CH11

Chapter 11

Representing the Construction Lender

11-048

§11.48

Checklist: Stop Payment Notice Validity

11-066

§11.66

Checklist: Defenses to Lien and Stop Notice Actions

 

Selected Developments

October 2019 Update

Book Enhancements. Sometimes in an action to enforce statutory remedies, such as mechanics liens, stop notices, or bond claims, for unpaid work, labor, equipment, or materials, the defendant will raise defective work or other issues that require expert testimony regarding the sufficiency or quality of the work. A new section was added to discuss the advantages of designating expert witnesses promptly. See §3.97A.

The checklist for claimants, “Prerequisites for and Defenses to Actions to Enforce Mechanics Liens, Stop Notices, and Bond Rights” was amended. See §3.121A.

The bankruptcy chapter, chapter 6, was substantially enhanced with additional discussion of the scope of the automatic stay (§6.3), penalties and consequences for repeat bankruptcy filers (§6.3), determining the priority of a mortgage lien versus a mechanics lien (§6.23), the ability of the debtor to reduce (or “strip down”) the amount of an undersecured claim (newly added §6.23A), preserving claims held by the debtor against other parties, including setoff claims against creditors (newly added §6.23B), objecting to creditors’ claims (§6.33), perfecting mechanics lien claims after the bankruptcy petition was filed (§6.42), annulling the automatic stay retroactively to validate otherwise void past actions of creditors (§6.46B), whether mechanics liens are avoidable as a preference under 11 USC §545 (§6.78), and fraudulent transfer litigation occurring in connection with foreclosure and tax sales (§6.78A).

In chapter 7, discussion of the Contractors’ State License Law (Bus & P C §§7000–7191) was enhanced, because a license violation may arise from construction work or conduct that does comply with state or local building laws, California labor laws, or health and safety laws. See §7.2A. The discussion of cyber insurance in §7.18D was greatly expanded to describe not only protective legislation but also in greater detail the types of insurance policies available for purchase by owners and contractors. There is a new section (§7.37A) describing California Lab C §218.7, which expands the potential liability of general contractors for unpaid wage and benefit claims owed to employees of their subcontractors or lower tier subcontractors who perform work on a private construction project. The law became effective January 1, 2018, and applies to all private construction contracts entered into on or after January 1, 2018; it was further amended effective January 1, 2019. Additional subcontract form clauses for use in response to Lab C §218.7 were added to §§7.37B–7.37C.

In chapter 11, a new section (§11.40A) was added that summarizes four basic kinds of construction loan consensual workouts, which are designed to resolve issues between parties raised by a nonperforming construction loan. The parties’ willingness to attempt such workouts will depend on how each assesses and appraises a variety of legal and economic factors and conditions.

Supreme Court Cases. The California Supreme Court in Heimlich v Shivji (2019) 7 C5th 350 reviewed the proper procedure for claiming and awarding costs arising from CCP §998 offers to compromise 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. The court noted that an arbitrator’s ordinary errors in ruling on costs are not subject to correction, nor do they serve as a basis for vacating an award on appeal. 7 C5th at 367. See §§3.117, 7.62.

When an attorney signs a settlement agreement under the words “approved as to form” or “approved as to form and content,” the attorney may be bound by the settlement if it includes provisions requiring the parties’ attorneys to maintain confidentiality regarding the settlement terms or any part of the case. Monster Energy Co. v Schechter (2019) 7 C5th ___, 2019 Cal Lexis 5526 (concluding that attorney’s signature on document with notation that it is “approved as to form and content” does not, as matter of law, preclude factual finding that attorney intended to be bound by agreement). See §§5.109, 8.87.

The U.S. Supreme Court ruled that a bankruptcy court may hold a creditor in civil contempt for violating a discharge order when there is not a “fair ground of doubt” about whether the creditor’s conduct might be lawful under the discharge order. Taggart v Lorenzen (2019) 587 US ___, 139 S Ct 1795. See §6.46C.

Miscellaneous Remedies in Construction. To enforce a provision requiring contractual arbitration of disputes arising from construction work on residential property with four or fewer units, the contract must comply with requirements specified in Bus & P C §7191, including the warning that the owner has forfeited the right to a jury trial. See §§1.7, 7.61.

The definition of “construction” in prevailing wage law for public works was amended. See Lab C §1720(a). But the “construction” language limiting the definition of “public works” in §1720(a)(1) does not so limit the definition of “public works” in §1720(a)(2), which must be “read independently.” Kaanaana v Barrett Bus. Servs., Inc. (2018) 29 CA5th 778. See §1.16.

The Ninth Circuit certified a question of state law to the California Supreme Court in the case of Busker v Wabtec Corp. (9th Cir 2018) 903 F3d 881, 883, regarding whether “installing electrical equipment on locomotives and rail cars” falls within the definition of “public works” under Lab C §1720. See §1.16.

Initially effective January 1, 2018, and amended effective January 1, 2019, joint employer liability of construction contractors and subcontractors applies when certain wages and benefits owed to workers hired by a subcontractor remain unsatisfied, for all private construction contracts entered into on or after January 1, 2018. Lab C §218.7. See §§1.30A, 7.37A.

Although the contractors’ licensing law provides strong protections for project owners, there are risks for owners who hire unlicensed contractors as well. See Jones v Sorenson (2018) 25 CA5th 933 (homeowner potentially liable as “employer” for injuries sustained by laborer of unlicensed contractor under Lab C §2750.5). See §§2.26, 8.38.

The courts have been uneven at times in applying the contractors’ licensing law. But one area in which the courts have been consistent is that the law, as a consumer protection statute, can be used both as a sword (e.g., disgorgement) and as a shield (e.g., claim preclusion) by a property owner, but not by a contractor. See Design Built Sys. v Sorokine (2018) 32 CA5th 676 (court did not allow licensed contractor to prevent project owner from introducing cost of repair damages to correct licensed contractor’s work in construction defect action when repairs were performed by unlicensed contractor). See §§2.28A, 8.95.

In an arbitration, there is authority that if the claim arises from a contract containing an attorney fee clause, a fee award must be given to the party expressly designated by the arbitrator to be the prevailing party on any contract cause of action. But see Cohen v TNP 2008 Participating Notes Program, LLC (2019) 31 CA5th 840 (arbitrator did not exceed its authority in denying attorney fees to prevailing party, despite contractual attorney fee provision, based on finding that attorney, whose firm advanced fees and costs, was partially culpable for plaintiffs’ injury). See §3.117.

The legislature’s use of the term “willful” in Bus & P C §7110 requires only a showing of general intent, meaning that when a corporate manager makes “an affirmative decision not to inquire about the permitting requirements” and then proceeds with the work without a permit, such conduct is imputed to the corporation and constitutes the corporate licensee’s “willful disregard of the building laws.” ACCO Engineered Sys., Inc. v Contractors’ State License Bd. (2018) 30 CA5th 80, 94. See §7.2A.

In disciplinary proceedings arising from the license law, a contractor must exhaust administrative remedies before filing any court action arising from the proceedings, even if the action only seeks a declaration on issues of statutory interpretation. Contractors’ State License Bd. v Superior Court (2018) 28 CA5th 771. See §7.2A.

The extensive use of various technologies by construction participants creates cyber risks, including system failures, data breaches, and cyber attacks. The California legislature enacted manufacturing protections for technology devices, effective January 1, 2020. See CC §§1798.91.04–1798.91.06, which require a manufacturer of an Internet-connected device, as defined, to equip the device with reasonable security features that are appropriate to the nature and function of the device and to the information it may collect, contain, or transmit. See §7.18D.

Under CCP §1281.5, a contractor’s filing of a mechanics lien foreclosure action does not waive contractual arbitration rights if the contractor follows statutory procedures to preserve its rights. The contractor’s failure to do so operates to waive the contractor’s right to arbitrate the mechanics lien, as well as any right to arbitrate the owner’s separate, related claims. See Von Becelaere Ventures, LLC v Zenovic (2018) 24 CA5th 243. See §8.37.

The mediation procedure for claims on public works projects in Pub Cont C §9204 might sunset on January 1, 2020, but there is pending legislation to make the law permanent. See §9.6A.

Withheld Retentions & Remedies. The California Department of Transportation is temporarily prohibited from withholding retention proceeds on any progress payment to a contractor for work performed on a transportation project. See Pub Cont C §7202(a) (scheduled to sunset on January 1, 2020, but legislation is pending to make the prohibition permanent (see SB 197 (2019)), discussed in §4.158).

There is a temporary exception in Pub Cont C §10261(b) to the cap on the percentage of retention proceeds that a public entity may withhold under Pub Cont C §10261(a). The exception applies when the director of the department has determined that a project is substantially complex and therefore requires a higher retention amount than 5 percent, and the department includes in the bid documents details explaining the basis for the finding and the actual retention amount. Pub Cont C §10261(b). The exception provisions in §10261(b) will expire on January 1, 2023, unless extended. See §4.158.

Similarly in public works, under Pub Cont C §7201(b)(1), there is a temporary cap on the percentage of retention proceeds that may be withheld from any payment by the original contractor from any subcontractor and by a subcontractor from any sub-subcontractor. Until January 1, 2023, retention proceeds may not exceed 5 percent of the payment, and the total retention proceeds withheld may not exceed 5 percent of the contract price. See §4.159.

Miller Act Bond Remedies. A district court allowed a subcontractor’s claim against a Miller Act bonding company for idle equipment costs. In U.S. ex rel American Civil Constr., LLC v Hirami Eng’g & Land Surveying P.C. (D DC 2018) 345 F Supp 3d 11, the court noted that although the Miller Act did not bar all claims for all equipment costs, recovery for such costs was limited. The court further held that the extent of recovery for idle equipment costs depends on the factual circumstances of each case, and it described the factors to be considered. See §5.45.

Federal courts have exercised discretion to stay Miller Act actions pending arbitration under certain circumstances. But in U.S. ex rel Harbor Constr. Co. v T.H.R. Enters. (ED Va 2018) 311 F Supp 3d 797, the trial court limited the stay to a period of only 6 months so that the arbitration could not be used to delay resolution of the Miller Act claim. See §5.91.

Bankruptcy Issues. Under 11 USC §362(c), which addresses the consequences of a debtor’s filing multiple unsuccessful cases in a short period of time, the consequences may be severe, because a debtor may receive only limited protection from the stay or no protection. See In re Wood (Bankr D Md 2018) 590 BR 120. Some courts interpret §362(c)(3) to revoke the stay in its entirety if the court does not enter an order extending the stay within 30 days of the filing of the petition (the minority approach). Other courts take a more narrow approach, reading §362(c)(3) as terminating the stay only as to the debtor and the debtor’s property but not as to property of estate (the majority approach). See new authorities added to §6.3.

A court can also vacate a prior discharge order that was improperly entered because of clerical mistake, oversight, or omission if the debtor was ineligible for the discharge by virtue of an illegal repeated bankruptcy filing. Filice v United States (In re Filice) (Bankr ED Cal 2018) 580 BR 259. See §6.3.

In addition to confirming a plan of reorganization, a bankruptcy court has authority in an adversary proceeding to adjudicate disputes arising from a creditor’s postpetition actions that violate an executory contract between the debtor and the creditor. See Charleston Assocs. v RA Southeast Land Co. (In re Charleston Assocs.) (Bankr D Nev 2018) 592 BR 709 (although secured creditor completed prepetition foreclosure sale of real property, court adjudicated issues arising from prepetition settlement agreement involving same property). See §6.14.

For discussion of a nondischargeability action arising from a construction agreement and the availability of attorney fees to the owner-debtor for successfully defending the action, see Asphalt Profs., Inc. v Davis (In re Davis) (Bankr CD Cal 2019) 595 BR 818. See §6.35.

When a bankruptcy court has granted a creditor’s motion for retroactive annulment of the automatic stay regarding an action against property of the estate, the Ninth Circuit held that other creditors holding liens on the same property have no independent standing to appeal that decision. Petrone v SFR Invs. Pool 1, LLC (In re Petrone) (9th Cir 2019) 754 Fed Appx 590 (unpublished opinion). See §6.46B.

The Ninth Circuit ruled that attorney fees incurred by the debtor in actions to remedy stay violations, including attorney fees incurred on a successful appeal, are recoverable in addition to damages. Easley v Collection Serv. of Nevada (9th Cir 2018) 910 F3d 1286. See §6.46C.

In a contractor’s bankruptcy case, the court concluded that payment to the debtor’s subcontractors and suppliers, by a joint-payee check issued by the owner seeking to avoid mechanics liens, was a transfer of property in which the debtor had an interest and thus avoidable under 11 USC §547(b). Davis v Kice Indus. (In re WB Servs., LLC) (Bankr D Kan 2018) 587 BR 548. See §6.58.

In a subcontractor’s bankruptcy case, when a prime contractor issued checks payable jointly to the debtor (its subcontractor) and a sub-subcontractor, and the debtor then endorsed the checks to the sub-subcontractor, the transfers to the sub-subcontractor were held to be avoidable preferences under 11 USC §547(b) because the sub-subcontractor gave no preliminary notice under CC §8200. In re Applegate Johnston, Inc. (Bankr ED Cal, Mar. 7, 2017, No. 13-91315-E-07, Adv Proc No. 15-9047) 2017 Bankr Lexis 635. See §6.58.

About the Fourth Edition Authors

MOLLY J. BAIER, B.A., is an attorney with the Federal Deposit Insurance Corporation in Washington, D.C. Before that, she was in private practice at Reed Smith, San Francisco, and specialized in loan workouts and bankruptcy and commercial litigation on behalf of lenders. She also served as senior counsel in the legal department of Wells Fargo Bank, N.A., in San Francisco, where she specialized in loan workouts. Ms. Baier is the author of chapter 6, “Enforcing Lien Rights Against a Debtor in Bankruptcy.” (The views and analyses in her chapter are not reflective of her current or past employers.) Ms. Baier earned her undergraduate degree in 1980 from Cornell College and her J.D. degree in 1983 from the University of California, Davis, School of Law.

CATHLEEN M. CURL, a partner with Manos & Curl, LLP, Millbrae, specializes in handling problems related to the construction industry, including payment disputes, contract negotiations, contract preparation and revisions, stop notices, mechanics liens, bonds, construction defect litigation, and other matters. Ms. Curl is the author of chapter 3, “Private Works: Enforcing Mechanics Liens, Stop Payment Notices, and Bonds”; chapter 5, “Federal Projects: Bond Claims Under the Miller Act”; and chapter 7, “Representing the Prime Contractor.” She has been involved in many phases of construction law, representing owners, contractors, construction managers, suppliers, subcontractors, engineers, condominium associations, and sureties. She earned her B.A. degree in 1974 from Stanford University and her J.D. degree in 1978 from Santa Clara University School of Law.

JONATHAN J. DUNN, a partner with SMTD Law LLP, Irvine, specializes in construction counseling and litigation and in creditors’ rights and remedies, including bankruptcy. He is a coauthor of chapter 10, “Bond Claim Procedures and Surety Defenses,” and has significant experience in complex construction disputes, including performance, changes, administration, delay, impact, disruption, inefficiency, extra-work, design scope, errors and omissions, differing site conditions, false claims, bid-protests, subcontractor substitutions, and other construction claims. He has been honored frequently as one of Orange County’s top lawyers for construction and development in OC Metro magazine, and he is a speaker at numerous professional and industry conferences. Mr. Dunn is a member of the ABA’s Forum on Construction Law and of the Legal Advisory Committee for the Associated General Contractors of California (AGC-CA). Mr. Dunn earned his B.A. degree in 1989 from the University of California, Los Angeles, and his J.D. degree in 1992 from Seattle University (formerly University of Puget Sound).

DAVID W. GINN, is senior partner at Ginn & Crosby, LLP, Walnut Creek, specializing in real estate and construction litigation with a focus on public works claims (stop payment notices and payment and performance bonds) from the perspective of the public entity. He litigates construction claims and defects, mechanics liens, and False Claims Act disputes; he also negotiates and prepares construction agreements, public contracts, requests for proposals, requests for bids, and bids. Mr. Ginn is the author of chapter 1, “The Civil Code and Beyond: A User’s Guide to Remedies for Nonpayment During Construction”; chapter 4, “State and Local Public Works: Enforcing Stop Payment Notices, Bonds, and Prompt Payment Statutes”; and chapter 9, “Representing the Public Entity.” He earned his B.A. degree in 1981 from the University of California, Berkeley, and his J.D. degree in 1986 from the University of California, Hastings College of the Law.

MARILYN KLINGER, the managing partner of SMTD Law LLP, Los Angeles, and formerly Chair Emeritus of Sedgwick’s Construction Practices Group, is involved in all aspects of construction law on a state and national level. She represents the full spectrum of clients in the construction industry, including owners, contractors, subcontractors, and sureties. Ms. Klinger is a coauthor of chapter 10, “Bond Claim Procedures and Surety Defenses.” Her practice includes both enforcement of and defense against performance and payment bonds, mechanics liens, and stop notices; she also provides legal advice regarding the contracting process (e.g., contract negotiation, preparation, and bidding). She was given the award Best Lawyers in America, Construction Law, in 2018, and she received the Martin J. Andrew Award for Lifetime Achievement in Fidelity and Surety Law in 2017. Ms. Klinger earned her B.S. degree in 1975 from Santa Clara University and her J.D. degree in 1978 from the University of California, Hastings College of the Law.

HELEN J. LAUDERDALE is an attorney at Perkins Coie LLP, Los Angeles, specializing in construction contract drafting and litigation. Ms. Lauderdale is a coauthor of chapter 8, “Representing the Owner,” which she wrote when she was an associate at Sheppard Mullin, LLP, Los Angeles. She earned her B.A. degree in 1981 from Carleton College and her J.D. degree in 1985 from Northwestern University Law School.

ALAN HUGH MARTIN is a partner at Sheppard, Mullin, Richter & Hampton, LLP, Los Angeles, where he is the firm’s Finance & Bankruptcy Practice Group co-leader and specializes in bankruptcy, creditors’ rights enforcement, state and federal receiverships and related litigation. Mr. Martin is a coauthor of chapter 11, “Representing the Construction Lender.” He earned his B.A. degree in 1984 from the University of Virginia and his J.D. degree in 1987 from the University of Virginia School of Law.

CANDACE L. MATSON is a partner at Sheppard Mullin, Richter & Hampton, LLP, Los Angeles, where she is a member of the Business Trials, Real Estate, and Finance & Bankruptcy Practice Groups and specializes in design and construction law, as well as title issues. She represents owners, lenders, investment funds, contractors, design professionals, and others as an advocate in a wide range of private and public contexts relating to real property design and construction. Ms. Matson is a coauthor of chapter 8, “Representing the Owner” and chapter 11, “Representing the Construction Lender.” She earned her B.S. degree in 1977 from the University of California, Berkeley; her M.S.Ed. degree in 1980 from California Lutheran College; and her J.D. degree in 1989 from the University of California, Los Angeles, School of Law.

GARRET D. MURAI is an attorney with Wendel, Rosen, Black & Dean, LLP, Oakland. He specializes in construction, real estate, and related business disputes. He is a coauthor and annual update author of chapter 2, “Private Works Remedies: Theories and Applicability.” In Mr. Murai’s practice, he has represented owners, developers, architects, engineers, contractors, subcontractors, material suppliers, equipment lessors, and sureties on numerous public and private projects, from state-of-the-art manufacturing facilities to landmarks in California, including the Golden Gate Bridge. His experience extends from project formation through project closeout, including contractor licensing, contract drafting and negotiations, bid protests and subcontractor substitutions, mechanics liens, stop payment notice and other payment remedies, and defect, delay, and acceleration claims. He earned his B.A. in 1993 from the University of California, Davis, and his J.D. degree in 2001 from Santa Clara University School of Law.

CRAIG S. NEVIN, former Associate General Counsel for Lusk Homes in Irvine, is based in Walnut Creek and assists companies throughout the state involved in real estate and construction-related litigation and transactions. He is a coauthor of chapter 2, “Private Works Remedies: Theories and Applicability.” Mr. Nevin earned his B.S. in 1992 from the University of California, Berkeley, and his J.D. degree in 1987 from Western State University College of Law.

About the 2019 Update Authors

CATHLEEN M. CURL is the update author of chapters 3, 5 and 7. See biography in About the Fourth Edition Authors section.

JONATHAN J. DUNN is the update coauthor of chapter 10. See biography in About the Fourth Edition Authors section.

DAVID W. GINN is the update author of chapters 1, 4, and 9. See his biography in About the Fourth Edition Authors section.

MARILYN KLINGER is the update coauthor of chapter 10. See her biography in About the Fourth Edition Authors section.

ALAN HUGH MARTIN is the update coauthor of chapter 11. See biography in About the Fourth Edition Authors section.

CANDACE L. MATSON is the update coauthor of chapters 8 and 11. See biography in About the Fourth Edition Authors section.

GARRET D. MURAI is the update coauthor of chapter 2. See biography in About the Fourth Edition Authors section.

TIMOTHY R. SULLIVAN is the update coauthor of chapter 7, to which he added greater discussion concerning cyber security and insurance. Mr. Sullivan is a partner with McCormick Barstow LLP, Fresno, and was selected as a Super Lawyer in Insurance Coverage each year since 2008. He was named one of the Top 100 Insurance Lawyers in California for 2013 and 2014 by the American Society of Legal Advocates. He is a member of the American Board of Trial Advocates (ABOTA). He served on the Executive Committee of the Real Property Section of the California Lawyers Association from 2007 to 2010 and also has served on the CEB Real Property Advisory Committee. Mr. Sullivan received the Spirit of CEB Award in 2011 and is a coauthor of chapters regarding insurance coverage and bad faith litigation for five other CEB books. He received his B.A. and J.D. from the University of Missouri at Columbia.

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