California Construction Alert Newsletter

McKenna & Cuneo, L.L.P. routinely provides its clients and contacts in the construction industry with recent developments in the law that may assist them in managing their day-to-day affairs. To that end, below are recent decisions that may affect how you do business in California.

Prevailing Wages: Violation Withholdings Upheld

In Lujan v. G&G Fire Sprinklers Inc., U.S., No. 00-152 (April 17, 2001), the United States Supreme Court held that California did not violate a public works subcontractor's right to due process of law by withholding a payment representing back pay and penalties for alleged violations of prevailing wage and payroll recordkeeping requirements. [See Cal. Labor Code §§ 1771, 1776]. The Supreme Court unanimously reversed a 2-1 decision by the Ninth Circuit in favor of the subcontractor. The Supreme Court found the subcontractor was not entitled to a hearing before the Division of Labor Standards Enforcement ("DLSE"), the state agency that ordered the withholding of back pay and penalties. Instead, the Supreme Court decided that the subcontractor would likely have the ability to pursue a claim to recover the payment through a breach of contract suit in state court against the awarding body.

Employment Law: ERISA Does Not Preempt Stop Notice or Payment Bond Remedies

In Southern Cal. IBEW NECA Trust Funds v. Standard Ind. Elec. Co. (April 18, 2001) 2001 DJDAR 3795, the Ninth Circuit considered whether the Employment Retirement Income Security Act ("ERISA," the federal law governing benefit and retirement programs) preempted stop notice and payment bond remedies for money owed to employees for work on public construction projects. The plaintiffs were administrators of several employee benefit plans and sought to collect money owed their union members for work performed on a public construction project through California's stop notice and payment bond remedies. The lower court agreed with the defendant and found ERISA preempted the stop notice claim because it is a federal law which supersedes State laws if they have a connection with or a reference to any employee benefit plan. The appellate court reversed this holding, finding that California's stop notice and payment bond statutes do not have an impermissible connection with, nor do they impermissibly relate to, an ERISA benefit plan. As such, the unions will be able to pursue both the stop notice and payment bond remedies to recover their members' benefits.

Tort Liability: General Contractor Not Liable for Injured Subcontractor Employee

In Kinney v. CSB Construction, Inc. (Jan. 30, 2001) 2001 DJDAR 1957, the California Court of Appeals held that a general contractor was not liable for injuries sustained by a subcontractor's employee when the general contractor failed to require the subcontractor to take safety precautions. The plaintiff brought the action to recover damages for personal injuries he sustained when he fell from scaffolding while employed by a subcontractor. He sued the general contractor, CSB, contending it negligently failed to require his employer, the scaffolding subcontractor, to provide adequate protection against falls.

The question presented to the Court was whether a general contractor, who typically has the power to control all safety procedures on the work site, may be liable to the injured employee of a subcontractor for failing to direct the subcontractor to take safety precautions and where there is no evidence that any conduct by the general contractor contributed affirmatively to the injuries. The Court determined that the general contractor could not be held liable as a matter of law, in line with recent California Supreme Court decisions. The general contractor was found to owe no duty of care to an employee of a subcontractor to prevent or correct unsafe procedures or practices to which the contractor did not contribute by direction, induced reliance, or other affirmative conduct. The mere failure to exercise a power to compel the subcontractor to adopt safer procedures did not, without more, violate any duty owed to the plaintiff.

Construction Defects: Apportionment of Damages Among Liable Parties

In Expressions at Rancho Niguel Ass'n v. Ahmanson Dev., Inc. (Feb. 5, 2001) 2001 DJDAR 1369, the Court of Appeals held that a roofing subcontractor was liable to a party it had to indemnify, but only for that portion of a construction defect that was attributable to its work. A defendant who was strictly liable to the plaintiff homeowner's association settled with the plaintiff and with various other jointly liable parties. It then pursued a claim against the non-settling jointly liable roofing subcontractor. The question was whether the non-settling jointly liable subcontractor could be held liable for the entire amount of money paid by the settling parties to resolve the roofing issues.

The Court determined that the non-settling party could not be held liable for all of the money paid. The Court concluded that joint and several liability principles do not apply in apportioning losses from an indivisible injury among joint tortfeasors. Normally, where multiple wrongdoers are responsible for an indivisible injury suffered by the plaintiff, each tortfeasor is "jointly and severally" liable to the plaintiff for those damages and thus may be held individually liable to the injured plaintiff for the entirety of such damages (essentially a "deep pocket" rule). However, the wrongdoers are then left to work out between themselves the apportionment of the damages. In this case, the Court determined that the roofing subcontractor could only be liable to the other tortfeasors for that portion of settlement monies directly related to its work, rather than the "entirety" of the damages, under principles of equitable indemnity, not "joint and several" liability.

Payment: Late Payment Penalty Recoverable in Civil Action

In Morton Engineering & Construction, Inc. v. Patscheck (March 7, 2001) 2001 DJDAR 2413, the Court of Appeal held that that the 2% per month penalty allowed under Business & Professions Code section 7108.5 for late payments is recoverable in either a disciplinary action before the Contractors State License Board or in a civil action filed by a subcontractor. This is in addition to interest, attorney's fees and costs. The penalty is payable if the prime contractor does not pay the subcontractor the amount allowed for work performed by the subcontractor within 10 days from receipt of funds by the contractor.

The attorneys within McKenna & Cuneo's California Construction Group are happy to discuss these developments in the law with you at any time. We also welcome your comments and appreciate any developments that you may forward to us for our attention.

Upcoming McKenna & Cuneo Construction Seminars

Construction Contracting for Public Entities May 3rd San Diego

Construction Law May 18th San Francisco

Construction Management/Design Build June 12th San Diego

Construction Litigation July 19th San Diego

Construction Lien Law August 17th San Francisco

California Law for Design Professionals Sept. 18th San Diego

If you would like more information regarding any of these seminars, or our availability to conduct in-house seminars for your company, please contact us.

Other Matters

McKenna & Cuneo maintains a full up-to-date library of AIA and AGC contract forms, as well as numerous negotiated contracts. If you have questions about the forms or issues related to the contracts you use, let us know.

Pete Ippolito and Steve Owen have completed their annual chapter on Developments in Construction Law in the West Region (California, Nevada, Arizona, Utah and Hawaii) for the 2001 Construction Law Update published by Aspen Law & Business. The book is set for release April 27th and can be ordered by calling Aspen at 1-800-234-1660. If you would like a copy of the book chapter, it will be available at the beginning of May.

For more information, please contact: