Case of R&R Pipeline v Bond Safeguard Insurance Co

223 CA4TH 438 (2014)

In this case a Contractor provided a storm drain and sewer for a golf course subdivision brought suit to enforce a payment and performance bond. The Court found that the contract between the developer and County which mandated subdivision improvements prior to the receipt of a final map from the County was not a “contract for a work of public improvement. Also the Court found that the notice provisions for recovery on a private work payment bond did not apply.

R&R Pipeline(“R&R”) appealed from a judgment in favor of Bond Safeguard Insurance Co(“Bond Safeguard”) to enforce a labor and material bond which it issued in connection with a subdivision development of a golf course and residences. The Trial Court applied the statute of limitations applicable to enforcement of labor and material bonds for public works of improvement.

The Appellate Court reversed the Trial Court and agreed with R&R that the work performed was a “private work” of improvement –even though the work was required by a subdivision agreement with a public entity. Therefore the four(4) year statute of limitations to enforce written contracts applied to R &R’s action to enforce the bonds.

R &R entered into a written contract with Los Valles Company (“Los Valles”) to install storm drain, sanitary sewers and related improvements with regard to a golf course development in Castaic, California. R &R alleged that Los Valles did not pay it $1,085,858.64 under the contract and $150,000 in restocking charges.

Los Valles had payment and performance bonds for labor and materials issued through Bond Safeguard. Bond Safeguard moved for summary judgment as to the lawsuit against it alleging that this was a public work of improvement and that R & R did not provide the necessary notices as required for public works of improvement.

The Trial Court ruled on the motion for summary judgment by finding that pursuant to California Paving 206 CA4th 36 that this was a public work of improvement for a public entity. The labels on the bonds were Los Angeles County Public Works Dept Labor and Material Bonds.

The Appellate Court found that there was no “contract for a public work of improvement” between the developer owner and any original contractor. The County(in this case Los Angeles) was not an owner of any portion of the work of improvement. Furthermore, the County did not have a contract with R & R and R & R was not seeking recovery from the County.

Bond Safeguard relied on the California Paving case–which held that paving of existing streets was a public work. In that case the general entered in a subcontract with a paving contractor to install and constructed public improvements

Here the work was performed on PRIVATE PROPERTY. Merely because improvements were being made as part of subdivision agreement between the developer and the County does not make this relationship one of a PUBLIC IMPROVEMENT under the statute Former Civil Code Section 3088. Also in public works of improvement the bonds must be for 100% of the amount of the improvement. Here the bonds that were posted were only for 50% of the amount of the improvement.

If this was a public work of improvement–the notice under Civil Code Section 3242 required a 20 day notice by former Section 3097 and if that was not given and if no notice of completion was recorded then a notice on the cond can be given 75 days after completion of the work.

Here because R & R had a direct contract with Los Valles, it was not required to give a 20 day preliminary notice for private work under CC 3097(former) and R & R could not give notice within 15 days of a notice of completion being recorded because none was recorded. The only issue is whether R & R gave notice within 75 days “after completion of the work of improvement” pursuant to Former CC 3242.

Former CC 3086 provides three specific means of determining completion of a work of improvement other than a public work–(1) the occupation of the work by the owner or agent; (b) the acceptance by the owner or agent of the work of improvement and (3) any cessation of labor for a continuous period of 60 days if no notice of cessation is recorded or 30 days if a notice of cessation is recorded.

R & R ceased work on September 24 2008. The lien period under former section 3086 does not commence until the work of improvement is accepted by the public entity–if the project is never accepted by the public entity the time to file a lien never expires.

The Appellate Court found no completion of the work of improvement as the work was never accepted by the County. Therefore the notice requirements of former CC 32432 never come into play. The only remaining bar to action to enforce the surety bonds is the Four-year statute of limitations for enforcement of written contracts under CCP Section 337. The case was filed on July 25 2011 within the four(4) year period and JUDGMENT for the Surety Co was reversed and R & R could proceed against the Surety.