Indemnity Agreements Requiring Designers to Indemnify Public Entities for more than their Share of Negligence are Declared Unenforceable

On September 25, 2006, Governor Arnold Schwarzenegger signed a new bill that will have significant implications on public works projects starting next year. The bill, Assembly Bill ("AB") 573, generally provides that in their contracts with design professionals, public entities cannot include certain indemnity provisions which require the design professional to indemnify the public entity for anything other than the design professional's own negligence, recklessness, or willful misconduct.

AB 573, which was authored by Assembly Member Lois Wolk (D - Vacaville), passed unanimously in both the California State Assembly (78-0 vote) and the California State Senate (37-0 vote). Given the unanimous and bi-partisan approval in both the Assembly and the Senate, it is certainly not surprising that Governor Schwarzenegger signed the bill into law.

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The Impact of The Court's Decision In Howard S. Wright Construction Co. V. BBIC Investors on Mechanics Lien Claims

1. Timing of Mechanic Lien Claims, Can You File a Lien Too Early?

The issue with the timing of filing mechanics liens that most contractors face is filing the liens too late. However, there are also risks in filing a mechanic's lien too early.

In the recent case of Howard S. Wright Construction Co. v. BBIC Investors, LLC, (2006) 136 Cal.App.4th 228, a subsequent case to Howard S. Wright Construction Co. v. Superior Court of Alameda County, infra, and based on the same facts, the issue of filing mechanics liens too early is addressed. BBIC Investors, LLC ("BBIC"), owned a warehouse which it leased to 360networks. 360networks contracted with Howard S. Wright Construction Company ("HWCC") to make improvements on the property. This case deals with the issue presented when HWCC sought to foreclose on its mechanic's lien against the property which it filed when 360networks filed for bankruptcy and indicated that it would not be fulfilling its end of the contract. The trial court found that HWCC's recordation of the lien was premature and the lien was therefore void. The timeliness of the recordation of a claim of lien is governed by California Civil Code §3115, which provides "each original contractor, in order to enforce a lien, must record his claim of lien after he completes his contract and before the expiration of (a) 90 days after the completion of the work of improvement as defined in Section 3106 if no notice of completion or notice of cessation has been recorded, or (b) 60 days after recordation of a notice of completion or notice of cessation." (emphasis added). Section 3115 defines the earliest a lien may be filed without being too early is after the contractor "completes his contract." Therefore, the court was charged with determining what constitutes completing one's contract. The court determined that a contract is complete for purposes of commencing the recordation period for a mechanic's lien when all work under the contract has been performed, excused, or otherwise discharged.

The court determined that when 360networks repudiated its obligation to make payment in accordance with its contract with HWCC, it anticipatorily breached the contract, which constituted a termination of the contract. The anticipatory breach occurred prior to the filing of HWCC's mechanic's lien. Therefore, the court held that 360network's anticipatory breach resulted in HWCC's completion of their contract within the meaning of Section 3115, and therefore HWCC's lien was not premature.

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New Law of Interest to the Construction Industry

NEW LAW

AB 758 (Calderon), Chapter 394, Statutes of 2005; Civil Code § 2782 provides that all agreements affecting any residential construction contract and amendments thereto entered into after January 1, 2006, that purport to indemnify the builder by a subcontractor against liability for claims of construction defects or other injury to property arising from, pertaining to, or relating to the negligence of the builder or the builder's other agents, servants, or independent contractors who are directly responsible to the builder, or for defects in design furnished by those persons, or for claims that are unrelated to the scope of work in the agreement, are unenforceable.

AB 662 (La Suer), Chapter 40, Statutes of 2005; Civil Code § 945.6 authorizes a homeowner and a contractor to agree by contract to be governed by the applicable standards for home construction, the statute of limitations, the burden of proof, the damages recoverable, a detailed prelitigation procedure, and the obligations of the homeowner with regard to the free rebuilding of residential homes destroyed in the Cedar Fire of October 2003, in the County of San Diego, and any construction defects.

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Guidelines for Expert Testimony on the Standard of Care

Johnson v. Superior Court, 06 C.D.O.S. 9098 (September 25, 2006, 3d District, CA)

The California Court of Appeal recently provided guidance on what an expert witness must testify to in order to provide an opinion as to compliance with the standard of professional care.

The case involved a claim of medical malpractice and a motion by the defendant physicians for summary judgment. The defendants submitted a declaration from a well qualified expert oncologist, who stated that the treatment was within the standard of care, and that the plaintiff suffered a known, but rare, outcome of a procedure that was planned, performed, and monitored properly by the defendants physicians. The trial court granted the defendants' motion.

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On September 28, 2006, William Peters and Kenneth Strong provided a CLE program on "Attorney Client, Work Product and Joint Defense Privileges" to the law department of an international design firm.

On October 18, 2006, Dion Cominos along with Kurt Cooknick of the California Architects Board will present a seminar before the Dealey Renton Company and its clients entitled "BIM: Advantages and Liabilities".

On October 26, 2006, Dion Cominos and Traci Lagasse will present a seminar at Shand Morahan in Deerfield, Chicago regarding "A & E Claims Handling: California".

On November 6 and 7, 2006, Sandy Kaplan will be presenting a seminar at the Mealey's Construction and Mold Seminar in Scottsdale, Arizona regarding "OCIP and Wrap Insurance Policies - New Issues, Traps and Trends".

On December 1, 2006, Kenneth Strong, Chuck Juliana and Ernie Isola will be presenting an all day Lorman Seminar in San Jose, California entitled "Construction Law: From Contract to Closeout in California".

Please contact us if you are interested in attending or receiving materials from any of these informational seminars.

This and other bulletins, as well as other publications of Gordon & Rees, LLP, may be found at www.gordonrees.com.