Determining The Timing Of Bond Claims

A couple of recent cases from the Court of Appeal demonstrate that the timing of filing bond claims for work performed on private developments can depend on technical issues that are out of the control of the contractor. As background, in addition to the mechanic's lien right, which must be perfected within a very short time frame, sometimes there are payment bonds recorded to protect the owner or developer from liens. On private works, these bonds are more common with respect to work performed in the public right of way (i.e., street paving or utility work). Whether the work is a "public work" or a "private work" has a drastic difference in the statute of limitations for bring a bond claim, as the right on a public work is roughly six months after completion as complied to a four year limitations period on a private works bond.

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In 2012, the Court of Appeal held in California Paving & Grading Co. v. Lincoln General Insurance Company, that work by a paving subcontractor on public streets which was required for a private work of improvement was a "public work." The Court held that because there was a contract between the City and the developer for the work, it constituted a public work.

More recently another division of the same Court of Appeal ruled a different way for a lucky subcontractor in R&R Pipeline, Inc. v. Bond Safeguard Insurance Company. R&R Pipeline, Inc. ("R&R") entered into contract in 2008 for the installation of a storm drain and related improvements with Los Valles Co. LP ("Los Valles"), the developer of a golf course and residential community on private land,. R&R obtained labor and material bonds from Bond Safeguard Insurance Co. ("Surety") for the project. The land was privately owned but upon completion, the streets in the subdivision would be turned over (dedicated) to the County.

R&R alleged that there was a breach of contract and that Los Valles failed to pay R&R over $1 million for the improvements upon the land. In 2011, R&R filed suit and also sued Surety on the labor and material bonds which R&R asserted were obligated to pay for any work or labor performed by R&R under the contract with Los Valles. The Surety moved for a summary judgment, claiming that the bond was issued for a public work of improvement and R&R's claim was filed too late. R&R argued that its contract with Los Valles was a private work and thereby subject to a four-year statute of limitations and not subject to the shorter statute of limitations on a public work project.

The trial court found in favor of the Surety, holding that R&R "engaged in a public work" according to prior Civil Code section 3100 since Los Valles was the developer who entered into a Public Works Multiple Agreement with the County of Los Angeles. R&R appealed the decision to the Court of Appeal, who disagreed and reversed the decision of the trial court.

The Appellate Court did not agree that the specific Agreement was a contract between a public entity and a contractor for a public work of improvement. The Court looked at the R&R contract rather than the Multiple Agreement, which is contrary to the analysis by the Court in California Paving. But, despite making that determination, the Court of Appeal distinguished its facts from the California Paving case as the work of R&R was on private land which had not yet been dedicated to the County, rather than existing public streets. Because it was not a public work, the timing and rules related to claims on private works payment bonds applied and therefore the Court held R&R could prosecute its bond claim against the Surety.

It is very important that when entering into any contract to make sure what you are getting into; more importantly, do not delay in recording lien or filing bond claims and then perfecting those claims when you are unpaid on works of improvement. This matter worked out for R&R but many contractors will not be so lucky.