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IMPACT OF NEW CLAIMS PROCEDURES ON PROJECT ADMINISTRATION FOR PUBLIC ENTITIES AND CONTRACTORS

This focuses on Public Contract Code § 9204, the new law requiring a minimum claims resolution procedure for claims arising in public contracts (“Section 9204”).  Below is a listing of the key aspects of Section 9204, some analysis and practical advice, along with a timeline sequence of how the new statute works.  Further below is the full text of the new statute.

New Claims Procedure for Public Works Contracts

What contracts do Section 9204 apply to?—All public works projects everywhere in California entered into on or after January 1, 2017, except when the public entity involved is (a) Dept. of Water Resources, (b) Dept. of Transportation, (c) Dept. of Parks and Recreation, (d) Dept. of Corrections and Rehabilitation, (e) Military Dept., (f) Dept. of General Services, or (g) High-Speed Rail Authority.  Any attempt to limit or avoid the effects of Section 9204 through contractual agreement is null and void.

Are Charter Cities and Charter Counties included?—It depends.  The statute certainly tries to reach all public works contracts (except for those involving agencies listed in the preceding paragraph), and specifically states that it should apply to public works contracts involving Charter Cities and Charter Counties.  Due to California’s “Home Rule” constitutional doctrine, which is conceptually similar to federalism, the applicability of Section 9204 therefore depends on a multiple prong test which has been part of California jurisprudence for decades.  See, e.g., California Fed. Savings & Loan Assn. v. City of Los Angeles (1991) 54 Cal.3d 1; City of El Centro v Lanier (2016) 254 Call.App.4th 1494.

Under the first and likely most important prong of the test, the statute is binding on a Charter City or Charter County if there is no actual conflict between the statute and a charter provision or municipal enactment.  Note—even if the statute conflicts with contract language a Charter City has been using for fifty years, that is not an actual conflict, because the contract language is not itself a municipal enactment.

If, however, the Charter City or Charter County has a charter or ordinance which does directly contradict the new statute, the “Home Rule” doctrine might negate the effect of Section 9204.  In summary, whether any particular Charter City or Charter County must comply with Section 9204 depends on an individualized analysis focusing on particular municipal enactments and other elements unique to their circumstances.  If there is no charter provision, ordinance or other municipal enactment conflicting with Section 9204, however, the new law likely applies to Charter Cities and Charter Counties.

What is the purpose of Section 9204?—The new statute is intended to encourage the timely payment of valid claims on public works projects.

Will Section 9204 be with us forever?—The new statute expires automatically on January 1, 2020, and therefore only impacts contracts entered into during an initial three year period.  For it to affect contracts entered into after that date, another statute would have to pass either extending it or making Section 9204 permanent.

Are other public contract claims statutes and procedures negated by the new statute?—No.  Existing claims statutes impacting public works remain enforceable and must be read in conjunction with Section 9204.  For example, Public Contract Code § 10240 et seq., requires some claims to be arbitrated rather than adjudicated in a court of law.  The deadlines and other provisions of those statutes still must be followed as they did before.  The only difference is that the provisions of Section 9204 now apply as well.  Other examples are Public Contract Code §§ 19100 et seq. & 20104 et seq, which remain the law and in full effect.  In addition, pursuant to subparagraph (f) of Section 9204, a public entity may prescribe  reasonable change order, claim, and dispute resolution procedures and requirements in addition to the new law, so long as the contractual provisions do not conflict with or otherwise impair the timeframes and procedures set forth in Section 9204.

Does Section 9204 have to be printed out in the public works contracts themselves?—Yes.  Section 9204 requires that its term, or a summary thereof, be set forth in the public works contract’s plans or specifications.

Timeline sequence of claim resolution activity required by Section 9204:

  • Process begins once contractor submits a claim to owner (consistent with any notice period prescribed by contract or local ordinance) accompanied by “reasonable documentation to support the claim.” Presumably a public entity can prescribe the level of detail of documentation that must be submitted with the claim, as long as it is reasonable.   The contractor’s submission of the claim must be done by either registered mail or certified mail, return receipt requested.  The claim itself can be for extra time, extra money, relief from liquidated damages, relief from backcharge, etc.  Note—Long before contractor gets to this stage, it should ensure its compliance with any other contractual pre-requisites to submitting a claim (e.g., providing written notice of events potentially giving rise to claim for additional time or money within three days of occurrence, etc.).
  • Upon receipt, Owner has 45 days to conduct a reasonable review of the claim and provide the claimant a written response which identifies what portion of the claim is disputed and what portion is undisputed. The parties are free to extend this time period by mutual agreement.  If the public entity needs approval from its governing body, and the body does not meet during the 45 day period, the owner’s written response is due within 3 days of the publicly noticed meeting of the body following the 45 day period (or mutually extended period).
  • If the owner does not provide a written response as required, the claim will be deemed to have been entirely disputed on the date the response was due.
  • All amounts the owner identifies in its response as undisputed must be paid within 60 days of the owner’s written response. If it takes longer, those amounts accrue interest at 7% per annum.
  • If any part of the claim is disputed by the owner, then after the response (or the time when it is deemed rejected) the contractor may demand in writing an informal conference to meet and confer about the dispute. If this written demand is made, the owner has 30 days to schedule such a conference.
  • If after the meet and confer conference some or all of the claim remains in dispute, then within 10 days of the conference, the owner must provide claimant with a written statement which identifies what matters are still outstanding. Again, undisputed amounts must be paid within 60 days of the written statement or be subject to 7% interest.
  • If the post-conference owner statement does identify aspects of claim still in dispute, contractor shall provide owner with written notice demanding non-binding mediation. Within 10 days of contractor’s notice, the parties are obligated to agree to a mediator.  If the parties cannot agree, each selects a mediator, and those two mediators will choose a third mediator, who will mediate the disputed parts of the contractor’s claim.
  • If mediation is unsuccessful, contractor is free to pursue its claim pursuant to contract and/or applicable law (arbitration, litigation, etc.).
  • It is very important to comply with all other contractual and statutory requirements involving claims. For instance, complying with Section 9204 does not excuse a failure to submit a Government Code claim as a precondition to filing suit, which must be done within one year of the cause of action accruing.  That is a timeline independent of the one contained in Section 9204.  Furthermore, the time to submit a Government Code claim can be stayed while a contractor complies with some of the requirements of Public Contract Code § 20104 et seq., but in contrast there is no tolling effect explicitly created by Section 9204.

Does Section 9204 apply to subcontractor pass-through claims?—Somewhat.  If a subcontractor has a claim against the owner, it can provide such a claim on a pass-through basis to the original contractor in writing.  Reasonable documentation must be included with the subcontractor’s claim.  Within 45 days of the original contractor receiving the subcontractor’s claim, the original contractor must notify the subcontractor in writing whether the claim was presented to the owner.  If the original contractor did not present the claim to the owner, the original contractor in its written statement must explain the reasons it did not present the claim to the owner.  If the subcontractor’s claim is passed through by the original contractor to the owner, the sequence of events detailed above will apply.

Note—the original contractor’s duty to investigate a subcontractor’s claim prior to passing it through to the owner to avoid False Claims Act liability is notoriously unclear.  Obviously an original contractor should not pass through a subcontractor’s claim it knows for certain to be false.  The amount of investigation, if any, required to insulate a contractor from potential False Claims Act liability may depend on the contractual relationship between it and the owner.  For instance, an owner would have an easier time holding the original contractor liable for the submission of a false pass-through claim if the original contract imposes on the contractor a duty to investigate subcontractor claims prior to submission.  False Claims Act liability does not arise from mere negligence, and there must at least be a reckless disregard for the truth proven before any defendant can be liable for False Claims Act liability.

Will 7% pre-judgment interest be available for sums unreasonably denied?—Probably.  Although Section 9204 does not specify what remedy would be available to a contractor whose claim was wrongly denied, the owner may be liable for 7% interest if it is later determined by court or arbitrator that a reasonable review of the contractor’s claim would have caused a reasonable owner not to dispute the claim.  Similarly, if some of the dispute is later deemed reasonable and some not, the 7% would probably apply to only the part of the claim which was unreasonably disputed.

California Public Contract Code § 9204 (full text)

  1. (a) The Legislature finds and declares that it is in the best interests of the state and its citizens to ensure that all construction business performed on a public works project in the state that is complete and not in dispute is paid in full and in a timely manner.

(b) Notwithstanding any other law, including, but not limited to, Article 7.1 (commencing with Section 10240) of Chapter 1 of Part 2, Chapter 10 (commencing with Section 19100) of Part 2, and Article 1.5 (commencing with Section 20104) of Chapter 1 of Part 3, this section shall apply to any claim by a contractor in connection with a public works project.

(c) For purposes of this section:

(1) “Claim” means a separate demand by a contractor sent by registered mail or certified mail with return receipt requested, for one or more of the following:

(A) A time extension, including, without limitation, for relief from damages or penalties for delay assessed by a public entity under a contract for a public works project.

(B) Payment by the public entity of money or damages arising from work done by, or on behalf of, the contractor pursuant to the contract for a public works project and payment for which is not otherwise expressly provided or to which the claimant is not otherwise entitled.

(C) Payment of an amount that is disputed by the public entity.

(2) “Contractor” means any type of contractor within the meaning of Chapter 9 (commencing with Section 7000) of Division 3 of the Business and Professions Code who has entered into a direct contract with a public entity for a public works project.

(3) (A) “Public entity” means, without limitation, except as provided in subparagraph (B), a state agency, department, office, division, bureau, board, or commission, the California State University, the University of California, a city, including a charter city, county, including a charter county, city and county, including a charter city and county, district, special district, public authority, political subdivision, public corporation, or nonprofit transit corporation wholly owned by a public agency and formed to carry out the purposes of the public agency.

(B) “Public entity” shall not include the following:

(i) The Department of Water Resources as to any project under the jurisdiction of that department.

(ii) The Department of Transportation as to any project under the jurisdiction of that department.

(iii) The Department of Parks and Recreation as to any project under the jurisdiction of that department.

(iv) The Department of Corrections and Rehabilitation with respect to any project under its jurisdiction pursuant to Chapter 11 (commencing with Section 7000) of Title 7 of Part 3 of the Penal Code.

(v) The Military Department as to any project under the jurisdiction of that department.

(vi) The Department of General Services as to all other projects.

(vii) The High-Speed Rail Authority.

(4) “Public works project” means the erection, construction, alteration, repair, or improvement of any public structure, building, road, or other public improvement of any kind.

(5) “Subcontractor” means any type of contractor within the meaning of Chapter 9 (commencing with Section 7000) of Division 3 of the Business and Professions Code who either is in direct contract with a contractor or is a lower tier subcontractor.

(d) (1) (A) Upon receipt of a claim pursuant to this section, the public entity to which the claim applies shall conduct a reasonable review of the claim and, within a period not to exceed 45 days, shall provide the claimant a written statement identifying what portion of the claim is disputed and what portion is undisputed. Upon receipt of a claim, a public entity and a contractor may, by mutual agreement, extend the time period provided in this subdivision.

(B) The claimant shall furnish reasonable documentation to support the claim.

(C) If the public entity needs approval from its governing body to provide the claimant a written statement identifying the disputed portion and the undisputed portion of the claim, and the governing body does not meet within the 45 days or within the mutually agreed to extension of time following receipt of a claim sent by registered mail or certified mail, return receipt requested, the public entity shall have up to three days following the next duly publicly noticed meeting of the governing body after the 45-day period, or extension, expires to provide the claimant a written statement identifying the disputed portion and the undisputed portion.

(D) Any payment due on an undisputed portion of the claim shall be processed and made within 60 days after the public entity issues its written statement. If the public entity fails to issue a written statement, paragraph (3) shall apply.

(2) (A) If the claimant disputes the public entity’s written response, or if the public entity fails to respond to a claim issued pursuant to this section within the time prescribed, the claimant may demand in writing an informal conference to meet and confer for settlement of the issues in dispute. Upon receipt of a demand in writing sent by registered mail or certified mail, return receipt requested, the public entity shall schedule a meet and confer conference within 30 days for settlement of the dispute.

(B) Within 10 business days following the conclusion of the meet and confer conference, if the claim or any portion of the claim remains in dispute, the public entity shall provide the claimant a written statement identifying the portion of the claim that remains in dispute and the portion that is undisputed. Any payment due on an undisputed portion of the claim shall be processed and made within 60 days after the public entity issues its written statement. Any disputed portion of the claim, as identified by the contractor in writing, shall be submitted to nonbinding mediation, with the public entity and the claimant sharing the associated costs equally. The public entity and claimant shall mutually agree to a mediator within 10 business days after the disputed portion of the claim has been identified in writing. If the parties cannot agree upon a mediator, each party shall select a mediator and those mediators shall select a qualified neutral third party to mediate with regard to the disputed portion of the claim. Each party shall bear the fees and costs charged by its respective mediator in connection with the selection of the neutral mediator. If mediation is unsuccessful, the parts of the claim remaining in dispute shall be subject to applicable procedures outside this section.

(C) For purposes of this section, mediation includes any nonbinding process, including, but not limited to, neutral evaluation or a dispute review board, in which an independent third party or board assists the parties in dispute resolution through negotiation or by issuance of an evaluation. Any mediation utilized shall conform to the timeframes in this section.

(D) Unless otherwise agreed to by the public entity and the contractor in writing, the mediation conducted pursuant to this section shall excuse any further obligation under Section 20104.4 to mediate after litigation has been commenced.

(E) This section does not preclude a public entity from requiring arbitration of disputes under private arbitration or the Public Works Contract Arbitration Program, if mediation under this section does not resolve the parties’ dispute.

(3) Failure by the public entity to respond to a claim from a contractor within the time periods described in this subdivision or to otherwise meet the time requirements of this section shall result in the claim being deemed rejected in its entirety. A claim that is denied by reason of the public entity’s failure to have responded to a claim, or its failure to otherwise meet the time requirements of this section, shall not constitute an adverse finding with regard to the merits of the claim or the responsibility or qualifications of the claimant.

(4) Amounts not paid in a timely manner as required by this section shall bear interest at 7 percent per annum.

(5) If a subcontractor or a lower tier subcontractor lacks legal standing to assert a claim against a public entity because privity of contract does not exist, the contractor may present to the public entity a claim on behalf of a subcontractor or lower tier subcontractor. A subcontractor may request in writing, either on his or her own behalf or on behalf of a lower tier subcontractor, that the contractor present a claim for work which was performed by the subcontractor or by a lower tier subcontractor on behalf of the subcontractor. The subcontractor requesting that the claim be presented to the public entity shall furnish reasonable documentation to support the claim. Within 45 days of receipt of this written request, the contractor shall notify the subcontractor in writing as to whether the contractor presented the claim to the public entity and, if the original contractor did not present the claim, provide the subcontractor with a statement of the reasons for not having done so.

(e) The text of this section or a summary of it shall be set forth in the plans or specifications for any public works project that may give rise to a claim under this section.

(f) A waiver of the rights granted by this section is void and contrary to public policy, provided, however, that (1) upon receipt of a claim, the parties may mutually agree to waive, in writing, mediation and proceed directly to the commencement of a civil action or binding arbitration, as applicable; and (2) a public entity may prescribe reasonable change order, claim, and dispute resolution procedures and requirements in addition to the provisions of this section, so long as the contractual provisions do not conflict with or otherwise impair the timeframes and procedures set forth in this section.

(g) This section applies to contracts entered into on or after January 1, 2017.

(h) Nothing in this section shall impose liability upon a public entity that makes loans or grants available through a competitive application process, for the failure of an awardee to meet its contractual obligations.

(i) This section shall remain in effect only until January 1, 2020, and as of that date is repealed, unless a later enacted statute, that is enacted before January 1, 2020, deletes or extends that date.

SEC. 2. The Legislature finds and declares that it is of statewide concern to require a charter city, charter county, or charter city and county to follow a prescribed claims resolution process to ensure there are uniform and equitable procurement practices.

SEC. 3. If the Commission on State Mandates determines that this act contains costs mandated by the state, reimbursement to local agencies and school districts for those costs shall be made pursuant to Part 7 (commencing with Section 17500) of Division 4 of Title 2 of the Government Code.

For more information about this topic please contact:

victor_luke_small

Victor F. Luke, Esq.

Gibbs Giden Locher Turner Senet & Wittbrodt LLP

1880 Century Park East 12th Floor

Los Angeles, CA 90067

email: vluke@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 2017 Gibbs Giden Locher Turner Senet & Wittbrodt LLP ©

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Prevailing Wage…for Material Suppliers???!!!

AAEAAQAAAAAAAAhqAAAAJGQ0MjU3ODA4LWE2YmYtNDU2NC1iNWIwLWYzOWE3MzAwNjRjNALast week, I came back from the American Bar Association Forum on Construction Law Annual Meeting in Nashville, Tennessee.  On my last night there, my wife and I went to the Grand Ole Opry.

One of the featured country artists that night asked the audience, “You know what happens when you play a country music record backwards?  You get your truck back, you get your dog back, you get your wife back…”   Well, after discussing California’s new Labor Code section 1720.9 (which goes into effect on July 1, 2016) with some of my colleagues from around the country, I couldn’t help but wonder if we here in California are headed backwards when it comes to making our prevailing wage law less cumbersome and taxpayer-funded construction projects less expensive.

California law has traditionally drawn a distinction between the performance of on-site construction labor and the supply of construction materials.  AB 219 added new Labor Code section 1720.9, signaling the extension of a legislative trend adding significant complexity, risk and cost for contractors and material suppliers on public works of improvement.

Specifically, AB 219 abrogates and supersedes conflicting case law and a prior (non-precedential) coverage determination by the California Department of Industrial Relations that the delivery of ready-mix concrete to a public job does not constitute a public work subject to prevailing wage laws.  As of July 1, 2016, the hauling and delivery of ready-mix concrete from a commercial plant to a public works job will be subject to California’s prevailing wage law.

The “hauling and delivery of ready-mixed concrete to carry out a public works contract” means the job duties for a ready mixer driver and includes receiving the concrete at the factory or batching plant and the return trip to the factory or batching plant. While AB 219 is specific to concrete suppliers, some believe that this is just the tip of the iceberg and that the co-sponsors of the new law (i.e., The California Teamsters Public Affairs Council, The State Building and Construction Trades Council, The California Labor Federation AFL-CIO) will push for additional legislation that could require prevailing wage for other material suppliers. What logical and legal justification exists for excluding the delivery of steel, lumber, paint, fuel, plumbing supplies, electrical components and even porta-potties?

In the face of vociferous opposition from Associated General Contractors (AGC) and other industry associations, the labor organizations behind AB 219 convinced the legislature and Governor Brown that the new law was merely a logical expansion of prevailing wage law.  Specifically, these advocates argued that concrete delivery was already subject to prevailing wage law if delivered by the project direct contractor or a subcontractor, but just not by a material supplier.

So what’s the big deal and what could possibly go wrong?  Here are some highlights of the new law which apply to all public projects awarded after July 1, 2016:

  • The cost of almost every public construction project in California will increase; in fact, according to the AGC of California: (1) ready-mix producers estimate that the cost of concrete for projects under AB 219 would increase by 30 to 40 percent; (2) state agencies indicated that the fiscal impact of the new law will exceed $35,000,000; and (3) Caltrans estimated $1 million annually in administrative costs to administer the law.
  • Ready-mix haulers and entities that deliver ready-mixed concrete to public works projects will be considered public works contractors under California Labor Code section 1722.1 and must register with the Department of Industrial Relations as set forth in Labor Code section 1725.5.
  • Ready-mix suppliers must develop an accounting and payroll infrastructure capable of processing, submitting and maintaining certified payroll records.
  • Because the material is perishable, a driver’s routine may last just 90 minutes or less (i.e., take load from the plant to the job, wait for truck to be unloaded and return to the plant) and a typical work day will often include deliveries to both public and private works of improvement; therefore, companies must implement a system that can divvy up each driver’s records on an hourly  basis to separate private and public work pay records.
  • Before furnishing concrete to a public works job, a ready-mix supplier must enter into a written agreement with its contractor customers, which specifically requires compliance with prevailing wage law (can a standard credit agreement and subsequent exchange of a written quotation, purchase order and/or invoice ever suffice???).
  • Within three working days after their drivers have been paid for the prevailing wage work, ready-mix suppliers must submit certified payroll records to their contractor customers and each project’s direct contractor (if that’s a different entity), accompanied by a written time record certified by the individual driver(s).
  • As with other subcontractors subject to prevailing wage laws, contractors are ultimately responsible for unpaid prevailing wages and unpaid penalties resulting from improper wage payment or improper certified payroll record submission; as such, public works contractors assume more risk as their ready-mix supply “subcontractors” attempt to abide by these new requirements after July 1, 2016.
  • Without a doubt, California has further complicated its already cumbersome regulatory scheme for public works.  Ready-mix suppliers must now gear up to navigate the complexities California prevailing wage law and contractors should double-check their standard form contracts to ensure they contemplate and properly allocated the new risks imposed by AB 219.

    For additional information and for F.A.Q., see the AB 219 Fact Sheet at http://www.calcima.org/pdf/AB219FactSheet.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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Beware: In a Settlement Silence on Fees is Not Golden

Businessman offering you to sign a document with focus to the te

In DeSaulles v. Community Hospital (March 10, 2016) case no. S219236, the Supreme Court has weighed in with what it calls a “default” rule regarding which party may be entitled to costs when an action is dismissed by way of settlement.  Such a “default” rule in effect overturns the prior holding in Chinn v. KMR Property Management (2008) 166 Cal. App.4th 175, at 185–190.

 

The settlement in Desaulles was made and put on the record during trial as a result of rulings by the Court and included a monetary payment plus the Defendant to prepare a Judgment of Dismissal with prejudice with respect to certain adverse rulings that Plaintiff wanted to appeal.  The settlement preserved the right to seek costs after the appeal was complete:  “The Parties shall defer seeking any recovery of costs and fees on this Judgment coming final after the time for all appeals.”  Plaintiff filed an appeal and lost.  Upon remand, Plaintiff filed for costs as prevailing party and the Supreme Court reversed the trial court’s ruling that Plaintiff was not the “prevailing party” under CCP 1032(a)(4), holding that under the statute, the monetary payment was a “net monetary recovery” which made the Plaintiff the prevailing party entitled to costs.

 

By referring to this as a “default” rule, the Court’s opinion applies to cases where the parties have not addressed “costs” in the settlement agreement or in a CCP 998 offer.

 

The  Supreme Court indicated this “default” may be altered by express agreement of the parties and that trial courts may look to such agreement of the parties when considering the issue of who is the prevailing party for purposes of costs when there has been a settlement. The Court stated:  “. . . settling parties are free to make their own arrangements regarding costs,”  and “Section 1032 merely establishes a default rule, and a settling defendant is in a far better position to calibrate the terms of a settlement, including allocations of costs, with appropriate provisions in the settlement.”

 

Costs, including defense fees as costs pursuant to a statute or contract, should be addressed in a written Settlement and Release Agreement which expressly provides either that costs are included in the settlement amount and/or that each side is waiving and releasing all claims, including costs. If there is an attorney fees provision at issue in the case, then a 998 offer should either include or exclude recoverable costs (which can include attorney fees).  If costs are excluded and Plaintiff accepts the 998 offer of money, plaintiff can then file a motion for recovery of fees as costs.  The same is true if a defendant accepts a Plaintiff’s 998 offer that is silent on the issue of costs.

 

For more information 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 ©

Change in Home Improvement Salesperson Registration Requirements

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On January 1, 2016, in accordance with Senate Bill 561, certain changes in home improvement salesperson registration requirements took effect.  Under previous law, home improvement salespersons employed by one or more home improvement contractors were required to have a registration for each home improvement contractor by whom they were employed.  See Cal. Bus. & Prof. Code former § 7153(a).

The current law is less cumbersome and now requires that a home improvement salesperson working for one or more home improvement contractors have only one current and valid home improvement salesperson registration at the time of a sales transaction.  See Cal. Bus. & Prof. Code §§ 7152(a), 7153(a).  Engaging in the occupation of salesperson of home improvement goods or services within California without having a current and valid home improvement salesperson registration is a misdemeanor.   Cal. Bus. & Prof. Code § 7153(a).

Additionally, the amended laws set forth clear expiration dates for home improvement salesperson registrations: registrations expire either (1) two years from the last day of the last month in which registration was issued, or (2) two years from the date on which a renewed registration last expired.  Cal. Bus. & Prof. Code. § 7153.2.

The definition of a “home improvement salesperson” was also amended, and arguably expanded.  Previously, a home improvement salesperson was defined as being “employed” by a home improvement contractor, however, a home improvement salesperson is now defined as one “engaged in the business of soliciting, selling, negotiating, or executing contracts for home improvements, for the sale, installation or furnishing of home improvement goods or services, or of swimming pools, spas, or hot tubs on behalf of a home improvement contractor licensed under this chapter.” Cal. Bus. & Prof. Code. § 7152(a)(emphasis added).

Home improvement contractors should also be mindful of their reporting requirements under California Business and Professions Code § 7154.  A home improvement contractor must notify the registrar of (1) the employment of a home improvement salesperson, prior to the salesperson beginning work for the contractor, and (2) the cessation of employment of a registered home improvement salesperson, within 90 days after the salesperson ceases to be employed by the contractor.  Cal. Bus. & Prof. Code. § 7154(a), (b).  Information that must be reported includes the home improvement salesperson name and registration number. Cal. Bus. & Prof. Code. § 7154(a), (b).  Further, contractors are subject to disciplinary action if they fail to report the above or if they employ an unregistered salesperson.  Cal. Bus. & Prof. Code. § 7154(c), (d).

The amended law authorizes the Contractors State Licensing Board to implement a system to provide for the electronic transmission of home improvement salesperson applications for registration.  Cal. Bus. & Prof. Code. § 7156.6.  More information about applying for Home Improvement Salesperson registration can be found at the Contractors State License Board website: http://www.cslb.ca.gov/Contractors/Applicants/Home_Improvement_Registration/

For more information about this topic please contact:

Ellison-Michele

 

Michele Ellison, Esq.

Gibbs Giden Locher Turner Senet & Wittbrodt LLP

1880 Century Park East 12th Floor

Los Angeles, CA 90067

(310) 552-3400

email: mellison@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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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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Will Balcony Collapse Lead to New Contractor Reporting Requirements?

balcony

In the wake of last month’s tragic apartment balcony collapse in Berkeley that killed 6 and seriously injured 7 others, two Northern California state senators have introduced new legislation with the stated goal of improving “construction industry disclosure.”  Senate Bill 465 would require contractors to report to the Contractors State License Board (CSLB) if and when they are convicted of a felony “or any other crime substantially related to the qualifications, functions, and duties of a licensed contractor.”  The proposed law would also require that every licensed contractor report “any civil action settlement…resulting in a settlement worth $50,000 or more, or a binding arbitration…worth $25,000 or more, resulting from specified acts.”  Finally, the law would also require insurance carriers to report any payment of all or a portion of a civil action settlement or binding arbitration award against the contractor.

The bill, supported by the City of Berkeley and various public interest groups, has been touted as a public safety measure that would require the disclosure of criminal convictions and civil suits in cases of construction defects, fraud, negligence and incompetence.  The California Building Industry Association and other trade groups oppose the legislation because it is overbroad and fails to take into account the reality of doing business as a contractor in the State of California.  Moreover, opponents of SB 465 argue that the required disclosures are not good indicators of whether a contractor is a bad actor or whether a contractor’s license should be considered for revocation because, for example, contractors are often principally liable for others and settle claims even when they are not primarily or directly at fault.

SB 465 is available for viewing here and more information about SB 465 from the San Jose Mercury News can be viewed here.  We’ll be keeping a close eye on SB 465 as it progresses through the legislative process.

For more information about this topic please contact:

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 2015 Gibbs Giden Locher Turner Senet & Wittbrodt LLP ©

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Using Apprentices on California Public Works Projects

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New Case Clarifies Use of Apprentices on Public Works:  Use of Craft Labor Rather than Pipefitter Apprentices Is Appropriate On Water Projects When On-Site Journeymen Were Union Laborers.

A group of pipefitter apprentices alleged lost wages and training and violation of Labor Code Section 1777.5 against a prime contractor who, as signatory to a collective bargaining agreement with a laborers union, hired apprentice laborers rather than  apprentice pipefitters to perform process pipe work on dozens of water and sewage treatment systems in Northern California.  The trial court found that the term “craft or trade” in section 1777.5 refers to the journeyman’s trade or occupation, not the work processes in which they engage on any given day.  In the new case, Henson v. C Overaa & Co., the CaliforniaCourt of Appeal agreed with the trial court.  Although subdivision (b) provides that apprentices be employed only at the work of the craft or trade to which he or she is registered, the plain language of subdivisions (g) and (h) refers to employing apprentices in the same craft or trade as journeymen employed at the job site.  The plaintiffs did not dispute that the on-site journeymen laborers were qualified to perform the process pipe work.  Moreover, nothing in the DIR regulations limits a journeyman to performing work processes on which his apprenticeship program has been authorized to train.  The Court saw no harm in labor apprentices receiving training in processes that were not expressly listed in the laborer apprenticeship standards.  The Court reasoned that any other reading of the statute has the potential to place an unreasonable burden on contractors (e.g., choose between violating a collective bargining agreement of the statute).

Barbara R. Gadbois, Esq.
Gibbs Giden Locher Turner Senet & Wittbrodt LLP
1880 Century Park East 12th Floor
Los Angeles, CA 90067
email: bgadbois@gibbsgiden.com

For more information from Barbara R. Gadbois, Esq. visit:

 http://www.gibbsgiden.com/_blog/Construction_and_Public_Contracts

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 2015 Gibbs Giden Locher Turner Senet & Wittbrodt LLP ©

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Authorization for Hospital to Use Design Build

AB 1290 adds Section 32132.8 to the Health and Safety Code to authorize the Mayers Memorial Hospital District to use this design-build process when contracting for the construction of a building and improvements directly related to a hospital or health facility building.

Text of the bill can be found at  https://legiscan.com/CA/text/AB1290/id/1148199

For more information about this topic please contact:

Barbara R. Gadbois, Esq.
Gibbs Giden Locher Turner Senet & Wittbrodt LLP
1880 Century Park East 12th Floor
Los Angeles, CA 90067
email: bgadbois@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 2015 Gibbs Giden Locher Turner Senet & Wittbrodt LLP ©

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