Monthly Archives: February 2016

Increased Strict Products Liability Exposure for Contractors

In Hernandezcueva v. E.F. Brady Company, Inc. (2015) 243 Cal.App.4th 249, the California Second District Court reversed a jury finding that a drywall subcontractor was not negligent, and held for the first time that under the “stream-of-commerce theory,” a contractor who uses, installs or furnishes defective products is subject to “strict products liability” even if the product is merely incidental to its work.  E.F. Brady was a drywall subcontractor who bid to install drywall.  Only 25% of its bid was allocated to materials and 75% was allocated to labor.  Unknown to the subcontractor, the joint compound contained asbestos.  The subcontractor was held liable under “strict products liability” law based on exposure occurring in 1995 for a mesothelioma diagnosis in 2011, since it had a “participatory connection” to the stream of commerce.

Almost all major manufacturers of asbestos containing products have filed for bankruptcy and established “trusts” to compensate persons suffering from mesothelioma, but under California law, partial payment by a manufacturer’s trust as a joint tortfeasor does not relieve the subcontractor from strict products liability for the unpaid balance of plaintiff’s total personal injury claim.  Under strict products liability, joint and several liability still applies.

The 25% allocation to material costs is not a bright line which will cutoff potential strict products liability. The Hernandezcueva decision is not limited to asbestos litigation, and the  decision is a reminder that contractors and subcontractors should carry increased liability limits with policies that afford completed operations and products coverage.  The increased risk exposure can be expected to increase insurance costs and the costs of construction, and may put small subcontractors at risk of insolvency since the average mesothelioma case can be in multiples of a million dollars.

For more information about this topic please contact:

 

MICHAEL_GEIBEL_0309

Michael B. Geibel, Esq.

Gibbs Giden Locher Turner Senet & Wittbrodt LLP

1880 Century Park East 12th Floor

Los Angeles, CA 90067

 

email: mgeibel@gibbsgiden.com

The content contained herein is published online by Gibbs Giden Locher Turner Senet & Wittbrodt LLP (“Gibbs Giden”) for informational purposes only, may not reflect the most current legal developments, verdicts or settlements, and does not constitute legal advice. Do not act on the information contained herein without seeking the advice of licensed counsel.

Copyright 2016 Gibbs Giden Locher Turner Senet & Wittbrodt LLP ©

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New Appellate Case Weighs in on the Technical Requirements for a Proper California Preliminary Notice

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While the facts are interesting, there is nothing particularly groundbreaking in a new appellate case about California preliminary notices (Hub Construction Specialties, Inc. v. Esperanza Charities, Inc. – filed February 8, 2016, Second District, Div. Eight).  The case, however, serves as a good reminder of the pervasive push and pull between “strict compliance” and “substantial compliance” when interpreting mechanics lien law statutes.  In doing so, the case revisits many of the seminal cases that interpret California’s preliminary notice requirement as a prerequisite to the enforcement of a mechanics lien, stop payment notice or payment bond claim.

In Hub Construction, the Court reversed the trial court’s order releasing the contractor’s mechanics lien for failure to provide proof of a certified mail return receipt.  But Hub Construction focuses on statutory interpretation for mechanics lien laws that were in effect prior to July 1, 2012 and, as the Court admits, “[u]nder the current law, this case would not be before us.”  Thus, the Court’s decision that absence of a certified mail return receipt does not bar enforcement of the mechanics lien in certain circumstances is largely irrelevant for future disputes.

The Court, however, reminds construction industry material suppliers, subcontractors, direct contractors, owners, lenders and other industry professionals, that when interpreting mechanics lien law statutes, the judiciary does its best to balance the divergent interests of the industry.  Specifically, the Court acknowledges that the Legislature imposes and requires strict compliance with some aspects of the mechanics lien law (e.g., “transmittal methods” and “notice requirements” as set forth in Harold L. James, Inc. v. Five Points Ranch, Inc. (1984) 158 Cal.App.3d 1, 6 (Harold James)) to fulfill the purpose of alerting owners and lenders to the fact their property or construction funds “might be subject to claims arising from contracts to which they were not parties and would otherwise have no knowledge.”  (Romak Iron Works v. Prudential Ins. Co. (1980) 104 Cal.App.3d 767, 778 (Romak).

In Harold James, the court concluded that “the Legislature’s explicit mandate requires a finding that, as a matter of law, the plaintiff’s use of outdated statutory language in its preliminary notice did not substantially comply with section 3097” (section 3097 was the relevant preliminary notice statute in effect prior to July 1, 2012).  The court noted that the statute required “a bold face alert to the property owner” with “explicit warning of the danger of losing his property in connection with the labor or materials which were or were to be furnished by the subcontractor giving the notice.” (Id. at 7).  The court further noted that claimant’s notice used outdated statutory language “in rather small print” (id. at 3), and observed that the Legislature, in amending the statute in 1976, “unmistakably expressed its dissatisfaction with the former statutory language and the manner of its presentation” and “was concerned with making the notification process as conspicuous to the owner as possible” (Id. at 7).

In addition to Harold James and Romak, the Court noted that IGA Aluminum Products, Inc. v. Manufacturers Bank (1982) 130 Cal.App.3d 699 (IGA) was “the principal case cited for the proposition that notice requirements are to be strictly construed.”  In IGA, the question on appeal was whether the preliminary notice requirement was satisfied by actual written notice delivered by ordinary first class mail.  The appellate court affirmed the trial court’s granting of summary judgment in favor of the owner opining that “[o]bviously[,] the substantial compliance doctrine has no application in the present case”; the preliminary notice  statute was “unambiguous as to its notice requirement, and[,] therefore[,] there is no room for judicial construction, liberal or otherwise.”  (Id. at 703, 704;see also Romak, supra,104 Cal.App.3d at pp. 778, 773 [claimant’s failure to give preliminary notice to the defendant construction lender was fatal since the statute “imposed on [the plaintiff] an absolute obligation (“must”) to give a preliminary 20-day notice to [the construction lender] ‘as a necessary prerequisite to the validity’ of any stop notice given it later”].)

At the same time, however, the Court acknowledged that California courts do not always demand such strict compliance in order to fulfill the long-established principle that the mechanics lien law is “remedial legislation, to be liberally construed for the protection of laborers and materialmen.” (Connolly Development, Inc. v. Superior Court of Merced County (1976) 17 Cal.3d 803, 826-827).  The Court invoked the precedent of cases such as Industrial Asphalt, Inc. v. Garrett Corp. (1986) 180 Cal.App.3d 1001 (Industrial Asphalt), in which the plaintiff served the required preliminary notice on the owner, but failed to serve the required notice on the direct contractor. (Id. at p. 1005.) The Industrial Asphalt court, however, reversed the trial court’s invalidation of the lien, stating:

“To construe the statute strictly would require us to invalidate a lien against an owner who received notice because someone else, the original contractor, did not receive notice. That strict statutory construction would allow a party who received the required notice to be insulated from liability because another party did not receive notice. We do not believe that the statute’s
purpose should, or does, lead to this aridly formalistic result. We hold that the plaintiff‟s notice to the defendant satisfied the prerequisites for a valid lien against the defendant, and we reverse the trial court’s judgment.”

(Id. at 1006).  To hold otherwise, the Industrial Asphalt court held, would “allow the statute to frustrate enforcement of the constitutional remedy instead of to effectuate it.”  (Id. 1008).

At the end of the day, the Hub Construction Court returned to Harold James to distill the following principle reconciling cases requiring strict compliance and cases calling for liberal construction of lien statutes (Harold James, supra, 158 Cal.App.3d at 6):

“The general principles of liberal construction…are still good law, subject to this refinement . . . : where the Legislature has provided a detailed and specific mandate as to the manner or form of serving notice upon an affected party that its property interests are at stake, any deviation from the statutory mandate will be viewed with extreme disfavor….

“[W]e conclude that the transmittal
methods and notice requirements must be strictly construed. However, the issue of minor errors in the body of the notice must be independently addressed on a case-by-case basis, if and when such a case is presented.”

To read the entire case, go to http://www.courts.ca.gov/opinions/documents/B263398.PDF

For more information about this topic please contact:

Ng-Chris-web

Christopher E. Ng, Esq.

Gibbs Giden Locher Turner Senet & Wittbrodt LLP

1880 Century Park East 12th Floor

Los Angeles, CA 90067

 

email: cng@gibbsgiden.com

The content contained herein is published online by Gibbs Giden Locher Turner Senet & Wittbrodt LLP (“Gibbs Giden”) for informational purposes only, may not reflect the most current legal developments, verdicts or settlements, and does not constitute legal advice. Do not act on the information contained herein without seeking the advice of licensed counsel.

Copyright 2016 Gibbs Giden Locher Turner Senet & Wittbrodt LLP ©

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