McKenna & Cuneo, L.L.P. routinely provides its clients and contacts in the construction industry with recent developments in the law. We recently issued a special bulletin on the California Supreme Court's landmark Amelco Electric decision which bars "abandonment" claims against public entities, and in this edition we discuss other recent legal developments that may affect how you do business in California.
PRE-JUDGMENT INTEREST ON UNLIQUIDATED CLAIMS IS RECOVERABLE FROM PUBLIC ENTITIES
Contractors can now increase their recovery from public entities by receiving prejudgment interest on claim amounts that are uncertain ("unliquidated" claims). In Lewis C. Nelson & Sons, Inc. v. Clovis Unified School Dist. (2001) 90 Cal.App.4th 64, it was decided that interest can be recovered from public entities on unliquidated claims, just as the law has long allowed against private parties. Previously, pre-judgment interest could only be recovered from public entities on liquidated claims in which the damages were "certain, or capable of being made certain by calculation." The Court of Appeals found no reason why Civil Code § 3287(b), which permits recovery of pre-judgment interest on unliquidated obligations, should not apply to public entities as well.
Comment: On one hand, this decision increases the amount a contractor may recover on disputed construction claims. On the other, it provides incentive for public agencies to promptly resolve disputes so as to avoid having to pay interest on such claims. However, contractors cannot automatically count on being awarded interest on unliquidated claims because trial courts and arbitrators have broad discretion on whether or not to award interest. And in our experience, judges and arbitrators often are not hesitant to exercise this discretion.
ENFORCEMENT OF MECHANICS' LIEN DOES NOT LIMIT OTHER REMEDIES
In Paykar Construction, Inc. v. Spilat Construction Corp. (2001) 92 Cal.App.4th 488, a California Court of Appeal held that a subcontractor is not prohibited from pursuing other remedies after foreclosing on property that yielded insufficient funds to satisfy its entire claim. Paykar, the subcontractor, reached a settlement with the owner in which the mechanics' lien was released in exchange for a promissory note secured by real property. At the same time, Paykar dismissed the general contractor from that suit without prejudice.
After foreclosing on the property and obtaining less than the amount of its claim, Paykar re-filed its claim against the general contractor. The general contractor contended Paykar could not pursue any claim for the same debt after releasing the mechanics' lien and foreclosing on the property given by the owner as security for the debt. The Court disagreed, relying on Civil Code § 3152 which states that the statutes governing mechanics' liens and stop notices do not affect the claimant's rights against others for its unpaid work.
Comment: This decision is consistent with California "public policy" which protects lien claimants and encourages settlements. A contractor or subcontractor can pursue lien and non-lien claims in the same suit, or in a subsequent lawsuit, as long as the statute of limitations for each claim has not expired. This flexibility can be used to strategic advantage.
SIGNIFICANT LEGISLATIVE DEVELOPMENTS
Business and Professions Code § 7031 has been amended to permit an owner or general contractor to recover all funds previously paid to an unlicensed contractor for construction work that requires a license. "A person who utilizes the services of an unlicensed contractor may bring an action in any court of competent jurisdiction in this state to recover all compensation paid to the unlicensed contractor for performance of any act or contract." (Bus. & Prof. Code § 7031(b).)
Civil Code § 3110.5 has been enacted. This lengthy statute requires certain private owners on certain large projects ($5 million in "fee simple" ownership projects and $1 million in "less than fee simple" ownership) to post payment bonds or other security. If the owner fails to maintain the required security, the contractor after ten days' notice may suspend work.
Several new laws have been enacted to further allow the use of design-build contracting on public works in California. Education Code § 17230.10 has been repealed, thereby permitting design-build for school construction projects over $10 million. Public Contract Code § 21162 permits Santa Clara County's water district to use design-build, and Government Code § 14661.15 authorizes design-build for the construction of a 250,000 square foot state office building in downtown San Diego. Design-build continues to increase in popularity, and more new laws expanding its use are expected.
Public Contract Code § 1100.7 has been enacted. It codifies the rule of Howard Contracting v. G.A. MacDonald Construction (1998) 71 Cal.App.4th 38. The new statute clarifies that the Public Contract Code applies to construction contracts with charter cities, unless a city makes an express exemption or has a conflicting city charter provision or ordinance. The Public Contract Code provides numerous payment and claims protections for contractors, including payment and claims procedures. So prior to bidding with charter cities, contractors should check the charter and municipal code for conflicting provisions.
UPCOMING MCKENNA & CUNEO CONSTRUCTION SEMINARS
On May 2, 2002, Steven S. Owen will be panelists at an all-day seminar in San Diego entitled "Construction Contracting For Public Entities." This seminar is aimed at administrators and managers of cities, counties, school districts, and other public entities, their staff, legal counsel and construction managers, as well as all contractors, architects and engineers who are involved in public works construction.
On June 11, 2002, Mark G. Budwig and Theodore S. Drcar will present a seminar in San Diego entitled "Construction Management/Design-Build In California," an increasingly popular delivery system for public entities.
On September 10, 2002, Mr. Budwig and Mr. Drcar will also present "Law for Design Professionals," a six-hour seminar about legal issues facing architects and engineers.
If you would like to sign up for our seminars or receive additional details about them, go to www.lorman.com.
Ted Drcar joined the San Diego office of McKenna & Cuneo in November 2001 as an associate attorney. Mr. Drcar has over seven years of experience representing contractors and other businesses, with an emphasis on construction disputes and complex civil litigation. He has appeared frequently in California's state, federal and administrative courts, before the American Arbitration Association, and in Arizona courts. Mr. Drcar has worked on numerous appeals, several of which resulted in published decisions making new law. These include Lundell v. Anchor Construction Specialists, 223 F.3d 1035 (9th Cir. 2000) [established standards for proof of construction claim against bankruptcy debtor]; Anserv v. Albrecht, 960 P.2d 1159 (1998) [in case between insurance companies, Arizona Supreme Court clarified the procedural rules for pleading complaint]; and Anserv v. Kelso, 83 Cal.App.4th 197 (2000) [covered standards for disciplinary actions against licensed professionals].
Mr. Drcar is actively involved in efforts to improve legal services for the construction industry. In 2001, he served as the elected Chair of the San Diego County Bar Association's Construction Law Section. Earlier this year he spoke at an all-day seminar on California public works construction law and organized a seminar about the role of construction estimators in litigation. Mr. Drcar also was recognized for community service as "Outstanding Attorney Volunteer" of 2001 by Volunteers In Parole, Inc., a non-profit organization that seeks to reduce recidivism by pairing attorney mentors with young at-risk adults for direction and guidance
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