Attorneys Fees In Stop Payment Notice Actions

The case Tri-State, Inc. v. Long Beach Community College District dealt with Civil Code section 3186 (now renumbered to be Civil Code section 9358). Tri-State, Inc. ("Tri-State") was a subcontractor on a project owned by Long Beach Community College District ("District"). Tri-State delivered a Stop Notice (now defined as a Stop Payment Notice) as well as filed a complaint against the general contractor (note that the proper definition is now a direct contractor) for reasonable value of labor and materials furnished, enforcement of the Stop Payment Notice, and several other counts.

The direct contractor obtained a release bond in the amount equal to 125% of the claim. The District accepted the release bond for dismissal in the action. This is when the District asked for an award of attorneys fees under Civil Code section 3186 because it was the "prevailing party." The trial court awarded the attorneys fees and Tri-State appealed the decision.

Civil Code section 3186 read as follows:

"It shall be the duty of the public entity, upon receipt of a stop notice pursuant to this chapter, to withhold from the original contractor, or from any person acting under his or her authority, money or bonds (where bonds are to be issued in payment for the work of improvement) due or to become due to that contractor in an amount sufficient to answer the claim stated in the stop notice and to provide for the public entity's reasonable cost of any litigation thereunder. The public entity may satisfy this duty by refusing to release money held in escrow pursuant to Section 10263 or 22300 of the Public Contract Code."

The new Civil Code section 9358 states:

"(a) The public entity shall, on receipt of a stop payment notice, withhold from the direct contractor sufficient funds due or to become due to the direct contractor to pay the claim stated in the stop payment notice and to provide for the public entity's reasonable cost of any litigation pursuant to the stop payment notice.

(b) The public entity may satisfy its duty under this section by refusing to release funds held in escrow under Section 10263 or 22300 of the Public Contract Code."

Please note that in neither the old Civil Code section 3186 (which was still applicable when this case was heard) or the new and now applicable Civil Code section 9358 provide for "an attorneys fee award" but only "reasonable cost of any litigation." The appellate court reversed the trial court's decision. The Court of Appeal stated, "We believe that the Legislature would have expressly provided for an attorney fee award in favor of the prevailing party in an action to enforce payment of a claim... if so... intended... absence of such provision... indicate... no such intention."

Although this decision came down when Civil Code section 3186 was still applicable, the premise of this situation does not change because the new Civil Code section 9358, covers the same concept and replaces the old code section.

Lastly, public entities still have the option of filing an interpleader (depositing the money with the court) action when they are served with a Stop Payment Notice Complaint in order to potentially receive attorneys fees and costs.

Download a PDF Copy of ATTORNEYS FEES IN STOP PAYMENT NOTICE ACTIONS

Kenneth Grossbart is recognized as one of the foremost authorities in California construction law. Over the past 30 years, Ken has become a respected speaker on Mechanic's Liens and other construction related issues. Abdulaziz, Grossbart & Rudman provides this information as a service to its friends & clients and it does not establish an attorney-client relationship with the reader. This document is of a general nature and is not a substitute for legal advice. Since laws change frequently, contact an attorney before using this information. Ken Grossbart can be reached at Abdulaziz, Grossbart & Rudman: (818) 760-2000 or by E-Mail at ksg@agrlaw.com or at www.agrlaw.comw