Real Estate, Land Use and Environmental Law Blog - Up-to-date information on Real Estate, Land Use and Environmental Law

Standard Pacific Corporation v. Superior Court of San Bernardino (Garlow) (2009) ___ Cal. App. 4th ____ (Aug. 14, 2009, No. E046844)

By James Pugh

The Fourth District Court of Appeal recently held that construction-defect plaintiffs must provide developers with notice and an opportunity to repair before filing suit. This holding in Standard Pacific Corporation v. Superior Court of San Bernardino (Garlow) confirms the procedural requirement of Senate Bill 800, which is also known as the “Fix It Law.”

The Fifth Day, LLC v. James P. Bolotin, et al., ___ Cal.App.4th ___(March 27, 2009, No KC047712)

By Jon E. Maki & Bram Hanono

The California Court of Appeal for the Second Appellate District determined that an entity which provided construction management services to a private owner developing commercial real property was not required to be licensed as a contractor pursuant to the Contractors' State License Law ("CSLL") (opinion by Acting Presiding Justice Armstrong, concurrence by Justice Krieger). In a lengthy dissent, Justice Mosk disagreed, highlighting that the intent of the CSLL is to protect consumers from unqualified and unlicensed contractors and predicted that the decision on a case of first impression creates a loophole in the license requirements by allowing unlicensed contractors to call themselves "construction managers."

By Edward B. Lozowicki

California has enacted a new law, Senate Bill 593, which prohibits CalTrans from withholding retention from progress payments to contractors on transportation projects. CalTrans has implemented this law by changing its Standard Specifications to delete the customary retention requirement. The official announcement from CalTrans states:

By James G. Higgins

Prompt payment laws can pose significant risk to owners and contractors.  In S&S Cummins Corp. v. West Bay Builders, Inc. 2008 Cal. App. LEXIS 160, *, a public works general contractor was stung under Public Contract Code section 7107 for delaying retention payments to an electrical subcontractor.

By Scott Hennigh

In California and most states, a contractor can get some security to assure that it will be paid for its work on a project. An unpaid contractor on a private project can go to the county recorder and record a mechanic's lien against the property to which it provided labor, service, materials or equipment. The mechanic's lien makes the property security for the debt owed to the contractor. Then, if the project owner still does not pay, the contractor can file a complaint requesting that a court enter judgment and order a foreclosure sale of the property so that the debt can be paid from the sale proceeds.

By Mathew R. Troughton

For the first time in a decade, the American Institute of Architects ("AIA") revised several of the key standard forms of contract it publishes for use on construction projects.  The various AIA forms are widely used as the starting point for negotiating the terms of contracts between various project participants.  The AIA last revised its key documents in 1997.

Landale-Cameron Court, Inc. v. Ahonen (Oct. 10, 2007, B190309 [2^nd Dist., Div. 2]), ___ Cal. App. 4th ____; http://www.courtinfo.ca.gov/cgi-bin/opinions

By Thomas B. Snyder and Andriana Ledesma

In Landale?Cameron, the homeowner's association of a condominium complex ("HOA"), discovered various water leaks to the building and subsequently sued the builder-developers Arnold and Helen Kaufman ("Kaufman") and Petri Ahonen dba Riteway Decking and Flooring ("Riteway") for negligence and contract causes of action.  Riteway moved for summary judgment on the grounds that the complaint was barred because it was filed after the expiration of the three-year statute of limitations for actions involving injury to real property under California Code of Civil Procedure Section 338.

Annual Construction Law Update

Shepard v. Edward Mackay Enterprises, Inc., et al., --- Cal. Rptr. 3d ---, No. C052564, 2007 WL 853456 (Cal. Ct. App. Mar. 22, 2007)

While Section 1298.7 of the California Code of Civil Procedure generally allows homebuyers to pursue defect litigation in court regardless of an agreement to arbitrate, the Third District Court of Appeal recently ruled the Federal Arbitration Act preempts California law and binds homebuyers to arbitration provisions when the transaction involves interstate commerce.  Because homes built in California today likely incorporate at least some construction materials originating outside the state and therefore implicate interstate commerce, the court's ruling may effectively preclude homebuyers from relying on this section of the Code of Civil Procedure to avoid arbitration.

Kemp Bros. Construction, Inc. v. Titan Electric Corp. (2007) Cal.App.4^th

By Thomas B. Snyder

In this case, Kemp was a prime contractor on two public works projects for the Los Angeles Unified School District ("LAUSD").  It subcontracted the electrical work to Titan Electric on both projects.  Partway through performance, Titan began to struggle with its payroll obligations and Kemp agreed to informally advance payments to Titan to assist in completing the work.  When problems continued, Kemp stopped the advance payments and Titan was unable to meet its payroll.  Kemp then retained another electrical subcontractor who completed the work.  Simultaneously, Kemp requested that the LAUSD approve Titan's substitution as the listed subcontractor under Public Contracts Code Section 4107, arguing that Titan was failing and refusing to perform its work and/or delaying or disrupting the progress of the work.  The LAUSD hearing officer agreed that Titan had been disrupting and delaying the work and therefore determined that Kemp had the statutory right to substitute Titan.

By Richard M. Freeman

In December, 2006, the Departmentf Industrial Relations adopted a new, official position which could adversely affect the real estate development and construction community.  Its new position is that any type of public subsidy, waiver of permitting fees, discount or assistance from a public body to a developer does not have to be for the purpose of facilitating construction in order for the requirement to be imposed that prevailing wages (i.e., the union wage rates) be paid to the construction workers on the any project within the development.  In 2005, the California Supreme Court, in interpreting California Labor Code § 1720(a)(1), ruled that in order for the prevailing wage requirement to be imposed, any public assistance or benefit under § 1720(a)(1) had to be provided to the developer for the purpose of facilitating the construction.  Even though the amendments to the prevailing wage law under SB975 did not change the language in § 1720(a)(1) of the Labor Code, the DIR has chosen to take the position that the City of Long Beach decision is no longer good law and that any public benefit to a developer relative to its overall development, converts the development into a prevailing wage project.  The DIR's decision is being appealed.  However, this new interpretation makes its increasingly important for developers, contractors, and others to analyze very carefully what the ramifications of any public assistance are to a real estate development.

For further information please contact Richard M. Freeman.  Richard Freeman is a partner in the Real Estate, Construction & Land Use Litigation Practice Group and the Labor and Employment Practice Group in the firm's Del Mar Heights Office.

Barton Properties, Inc. v. Superior Gunite Corp., California Court of Appeal, Second Appellate District (not officially published)

In an unpublished decision, Barton Properties, Inc. v. Superior Gunite Corp, the Second Appellate District of the California Court of Appeal has held that a "continued performance" clause in a construction contract was rendered unenforceable by the owner's material breach of contract. The clause at issue provided that in the event of the dispute between the parties, the contractor would

On May 8, 2006, Immigration and Customs Enforcement ("ICE") arrested 76 undocumented workers and 4 construction site managers at Fischer Homes, Inc. worksites in Kentucky. Fischer and its managers were charged criminally with harboring and transporting undocumented workers for financial gain. Tax investigators were also involved. On May 2, 2006, ICE carried a similar operation against a stucco contractor in Indiana, and charged the owner with harboring and money laundering. Both operations took place under the new Homeland Security "get tough" policy against companies who use undocumented workers.

The following article contains a brief analysis of the "labor through contract" theory of sanctions liability (specifically addressing the building and construction industry) and a 3-point compliance plan including a training component for managers and supervisors who are authorized to retain subcontractors on building projects.

Click here to view entire article

Michael v. Denbeste Transportation, Inc. California Court of Appeal, Second Appellate District

By Robert T. Sturgeon

Defendant Denbeste Transportation, Inc. hired plaintiffDavid Michael as an independent contractor to haul hazardous waste from a construction site. Michael was injured when he fell from his truck while attempting to roll a tarp over the top of the trailer to cover the load. Michael sued various parties for his injuries, including Denbeste; Chemical Waste Management, Inc. ("CWM"), the party that had hired Denbeste; Aman Environmental Construction, Inc. ("Aman"), the general contractor on the project and the party who had hired CWM; and Secor International, Inc. ("Secor"), a consultant to the project owner. Michael alleged the defendants owed him a duty of care under the peculiar risk doctrine, which provides that a party who hires a contractor to perform inherently dangerous activities can be held vicariously liable for tort damages when the contractor's negligence causes injury to others. Michael alleged the defendants had breached their duty by not providing fall protection while he was covering the load.

New Legislation Creates Additional Carve-out

by Candace Matson 

Legislation effective January 1, 2006 (AB 758), amending California Civil Code §2782, creates a further exception to parties’ ability to negotiate indemnity terms in construction agreements. AB 758 has been touted as addressing the “insurance crisis” of residential subcontractors. Some opine that, viewed in conjunction with SB 800 (Civil Code, Title 7, “Requirements for Actions for Construction Defects”), it prohibits builders from pushing down their strict liability obligations onto subcontractors through indemnity agreements. Others maintain that it basically deals with an issue of fairness, i.e., whether liability is fairly imposed on subcontractors.

Click here to view the full article.

Candace Matson is a partner in the Real Estate, Environmental and Construction Practice Group in Sheppard Mullin's Los Angeles office.

By Thomas B. Snyder

In AF Brown Electrical Contractor, Inc. v. Rhino Electric Supply, Inc., issued March 23, 2006, the Fourth Appellate District was faced with the question of whether an electrical supplier's conduct in filing a stop notice fell within the ambit of C.C.P. § 425.16, the anti-Slapp statute.

When The Owner Anticipatorily Breaches The Contract, And Therefore A Lien Recorded One Day After The Breach Is Not Premature

Howard S. Wright Construction Co. v. BBIC Investors, LLC, California Court of Appeal, First Appellate District, 2006 DJDAR 1339

By Robert T. Sturgeon

Cases concerning the timeliness of recording a mechanic's lien generally concern the latest time a party may record its lien. In Howard S. Wright Construction Co. v. BBIC Investors, LLC, 2006 DJDAR 1339, the California Court of Appeal considered the reverse issue, i.e., when is the earliest time an original contractor may timely record a mechanic's lien under California Civil Code Section 3115? Section 3115 provides that an original contractor may record a claim of lien "after he completes his contract . . . ." In Howard S. Wright, the California Court of Appeal held that a contractor "completes its contract" within the meaning of section 3115 not only when it substantially performs its obligations under the contract, but also when the contract is terminated prematurely by the owner, or the contractor is discharged from any further obligations under the contract by the owner's material or anticipatory breach.

By Candace L. Matson

Legislation effective January 1, 2006 (AB 758) creates a new exception to parties' ability to negotiate indemnity terms in residential construction agreements. AB 758 amends California Civil Code Section 2782 to generally limit subcontractors' indemnity obligations to builders in connection with construction defect claims on contracts entered into on or after January 1, 2006. The new legislation applies only to "original construction intended to be sold as an individual dwelling unit." Thus, the legislation does not apply to condominium conversions or apartment construction, nor does it apply to any commercial construction. However, arguably, it does apply to mixed use projects in which single family units are included. Under the new legislation, a "builder" is defined as "a builder, developer, general contractor, contractor, or original seller, who, at the time of sale, was also in the business of selling residential units to the public . . . or was in the business of building, developing, or constructing residential units for public purchase . . ." The term "builder" does not include general contractors who are "not a partner, member of, subsidiary of, or otherwise similarly affiliated with the builder."

Click here to view the full article.

For more information please contact Candace L. Matson. Candace L. Matson is a partner in the Real Estate, Environmental and Construction Practice Group of Sheppard Mullin's Los Angeles office where she specializes in construction law.

Greystone Homes, Inc. v. Cake37 Cal. Rptr. 3d 183 (2005)

By Matthew W. Holder

The California Court of Appeal recently affirmed a 2004 Supreme Court decision that impacts when prevailing wages need to be paid on projects where the contract was signed before January 1, 2001. At issue in Greystone Homes, Inc. v. Cake, 37 Cal. Rptr. 3d 183 (2005), was whether a 134-unit housing development project constituted a "public work," and thus required the payment of prevailing wages. The awarding body for the project was the Pleasant Hill Redevelopment Agency (the "Agency"). The Agency had contributed three forms of public funds to the project:

1. it had conveyed one parcel of property (out of 29 total parcels used) to the developer for use in the project
2. it paid a $200,000 "Traffic Impact Mitigation Fee" to the developer, and
3. it reimbursed the developer for upwards of $2.5 million in land acquisition costs. The total estimated cost of the project was $31.3 million.

By Robert T. Sturgeon

In LGS Architects, Inc. v. Concordia Homes Of Nevada, 9th Circuit (January 11, 2006), the 9th Circuit reversed the district court's denial of a motion for preliminary injunction. LGS, an architecture firm, had provided four copyrighted plans for Concordia's construction of a development known as Arbor Glens I. LGS and Concordia entered into a Licensing Agreement, based on the standard American Institute of Architects' form, which provided that the plans could only be used on the specific project unless Concordia obtained written authorization from LGS and paid an appropriate re-use fee. Without first obtaining written consent, Concordia tendered at least a portion of the required re-use fee and proceeded to build Arbor Glens II using the four floor plans provided by LGS. After Arbor Glens II was completed and sold out, LGS filed suit seeking an injunction requiring Concordia to cease using the plans and to return them to LGS.

Kinsman v. Unocal Corp. 36 Cal. Rptr. 3d 495 (Dec. 19, 2005)

The state Supreme Court ruled that a landowner who hires an independent contractor may be liable for injuries to the contractor's employees if the landowner knew or reasonably should have known of a concealed hazardous condition, and the condition could not reasonably have been discovered by the contractor.

McCrary Construction Company v. Metal Deck Specialists, Inc., California Court of Appeal, First Appellate District, November 14, 2004

By Robert T. Sturgeon

In McCrary, a general contractor sought indemnity from two of its subcontractors for damages arising from the death of a construction worker who fell through a hole in the metal roof of the project. One subcontractor, Metal Deck Specialists, Inc., was responsible for installing the metal deck system on the roof, and had cut the hole in the roof and left it uncovered. The other subcontractor, Horizon Sheet Metal Co., covered the hole with plywood at the request of the general contractor, but failed to secure the plywood to the metal decking. The accident occurred when the worker lifted the plywood up, and not realizing there was hole beneath it, stepped into the hole and fell to his death.

MW Erectors, Inc. v. Niederhauser Ornamental and Metal Works Co.,
30 Cal. Rptr. 3d 755 (2005)

By Robert T. Sturgeon

The California Supreme Court has clarified the rules under California Business & Professions Code section 7031 regarding an unlicensed contractor's ability to recover compensation for performance of work which requires a contractor's license.

By Doug Van Gessel

On August 4 the California Supreme Court ruled, in Grafton Partners v. Superior Court (Pricewaterhouse Coopers LLP), 2005 DJDAR 9387 that California contractual provisions in which the parties thereto pre-agree to waive the right to a trial by jury are unenforceable. The unanimous opinion stated that a right to a jury trial is a fundamental constitutional entitlement that cannot be waived in advance of a dispute between the contracting parties unless such a waiver is permitted by statute. Thus, the court has left the door open for the legislature to pass a statute allowing such waivers, and the forum for interests pursuing this debate will likely shift to the legislature now.

By Candace L. Matson and Kevin M. Rivera

Safety is important to all of us, but did you know you could be subject to criminal penalties, as well as civil penalties, for violating standards set by the California Occupational Safety and Health Administration (OSHA)? These penalties include prison sentences of up to four years and up to $3.5 million in fines.

The following information, derived from Sections 6423 and 6425 of the California Labor Code and from Section 192 of the California Penal Code, is designed to give you a general overview of the penalties you could receive for committing violations of OSHA guidelines. It does not constitute legal advice! Due to the serious nature of the penalties that may be incurred for such violations, you should consult with legal counsel for further guidance and clarification.

United States ex. rel. Bettis v. Odebrecht Contractors of California, Inc.
393 F.3d 1321 (D.C. Cir. 2005)

By Robert T. Sturgeon

A contractor entered into a contract with the Army Corp of Engineers for construction of the Seven Oaks Dam in San Bernardino County, California. The plaintiff was an alleged "whistleblower" who worked for one of the contractor's consultants. Plaintiff alleged the contractor had violated the federal False Claims Act ("FCA") by fraudulently inducing the government to enter into the contract by knowingly submitting a bid that was too low, with the intent of later making up for the loss by requesting change orders for extra work.

BFGC Architects Planners, Inc. v. Forcum/Mackey Construction, Inc.
119 Cal. App. 4th 848 (4th Dist. Jun. 21, 2004)

A school district contracted with an architect for construction of a high school and contracted with two general contractors for the same project. The District filed claims for breach of contract and professional negligence against the architect, who filed a cross-complaint against both general contractors. The architect sought equitable indemnity for the contractors' alleged failure to perform work in a timely manner, thus delaying the project and causing the architect damages.

The trial court sustained the contractors' demurrers without leave to amend and the Court of Appeal affirmed, finding that there is no basis for equitable indemnity where no action sounding in tort is alleged. The doctrine of equitable indemnity is "based on a duty owed to the underlying plaintiff." Here, where designer's allegations flowed only from contractors' alleged breach of contract, the designer's claims were "an improper attempt to recast a breach of contract cause of action as a tort claim."

Arntz Builders v. Superior Court (County of Contra Costa) 122 Cal. App. 4th 1195 (1st Dist. Sep. 30, 2004)

Provision in construction contract between Arntz and County purportedly waiving the change of venue provisions of Code of Civil Procedure Section 394 (providing that any party may move for a change of venue where a county brings an action within that county against a resident of another county) is void because a party "may not waive the benefits of a statute enacted primarily for a public purpose." The public purpose underlying Section 394 "is to guard against local prejudices which sometimes exist in favor of litigants within a county as against those from without."

Bell v. Greg Agee Construction, Inc.
125 Cal. App. 4th 453 (4th Dist. Dec. 29, 2004)

General contractor which did not affirmatively contribute to injury of subcontractor's employee was not subject to liability under peculiar risk doctrine for employee's injury even though subcontractor lacked workers' compensation insurance at the time of the injury. Because subcontractor's employee was not prevented from seeking compensation from the state's Uninsured Employers Fund, there was no justification for imposing vicarious liability on general contractor.

United States, Ex Rel. Ali v. Daniel, Mann, Johnson, & Mendenhall
355 F.3d 1140 (9th Cir. 2004)

Construction management firm employed by university to coordinate reconstruction of buildings damaged by the January 1994 Northridge earthquake was not immune from suit for false claims submitted to the Federal Emergency Management Agency. The management firm was a private corporation and was not acting as an arm of the state. Therefore it is not shielded by the doctrine of sovereign immunity.

For more information please contact a member of the Real Estate and Construction Law Blog Editorial Team.

Diede Construction, Inc. v. Monterey Mechanical Co.
125 Cal. App. 4th 380 (1st Dist. Dec. 28, 2004)

General contractor bidding on a public works project to remodel a city hall learned, after the bids were opened but before general contractor executed a contract with the city, that the proposal submitted by its HVAC subcontractor contained a $300,000 clerical error. General contractor executed the contract with the city, secured replacement contractors when subcontractor refused to honor its bid and sought to recover from subcontractor the additional costs incurred for the HVAC work.

The Court of Appeal held that statutory provisions for the relief of mistaken bidders do not apply to mistaken bids submitted by a subcontractor to a general contractor. Under Saliba-Kringlen Corp. v. Allen Engineering Co., 15 Cal. App. 3d 95 (1971), if general contractor can establish that it reasonably relied on subcontractor's mistaken bid, general contractor is entitled to recover from subcontractor the additional costs paid to a substitute contractor.

Liens and Waivers

D'Orsay International Partners v. Superior Court (Jeffrey C. Stone, Inc.)
123 Cal. App. 4th 836 (2d Dist. Oct. 29, 2004)

Where general contractor provided design and planning services for a construction project, but no actual visible work was commenced at the project and no materials were delivered to the site, owner was entitled to an outright release of contractor's mechanics' lien. Because contractor recorded a mechanics' lien - not a design professionals' lien - provisions of the design professionals' lien law authorizing filing of a design lien despite lack of commencement of construction do not apply.

The general rule is that a mechanics' lien (in contrast to a design professional's lien) does not attach unless and until actual visible work on the land has begun. In cases where no actual construction has commenced prior to recordation of the lien, the design professionals' lien law provides the exclusive remedy and the prior exception to mechanics' lien law requirements where owner prevents construction is no longer operative.

Handyman Connection of Sacramento, Inc. v. Sands
123 Cal. App. 4th 867 (3d Dist Oct. 29, 2004)

Plaintiff contractor appealed trial court judgment affirming Contractors' State License Board decision that plaintiff violated four aspects of Contractors' State License Law related to solicitation and obtaining of a contract to perform home improvement work. The Court of Appeal affirmed the trial court judgment as to all violations except the charge of using an improper business name.

The court explained that in an administrative mandate case where the only sanction under review is a fine - not revocation, suspension, or restriction of one's license - no fundamental vested right is implicated even though the contractor's violation may be disclosed publicly. In such a case, the trial court may not exercise independent judgment as to administrative findings of fact but must determine only whether substantial evidence supported the administrative findings of fact.

Travelers Casualty and Surety Company v. Amoroso
2004 WL 1918890 (N.D. Cal. Aug. 24, 2004)

Contractor claimed that surety, in its capacity as surety, had verbally promised that it would use $3 million paid to it by contractor to pay contractor's subcontractors, suppliers, and overhead expenses and to issue stop notice release bonds so contractor could continue working. Instead, surety allegedly failed to take these actions and issued hold funds letters to owners of contractor's projects directing owners not to pay contractor. Court dismissed without leave to amend contractor's claim against surety for breach of the implied covenant of good faith and fair dealing.