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02/13/2014

Longer Statute of Limitations Applies in Case Involving Public Entity’s Contract for Private Work

On Jan. 27, the California Court of Appeal, Second Appellate District, reversed a grant of summary judgment that found that a pipeline company’s action against a surety to enforce a labor and material bond on a subdivision project was time-barred.   

The pipeline company acted as a contractor for a developer that had entered into a subdivision project agreement with Los Angeles County.  The county never provided approval or dedication to the project, and no notice of completion was filed.  The court found that the agreement between the developer and county was not a “public” work because the county was not an owner and did not contract for the work.  The court also noted that the bonds at issue were in the amount required for private works, not the amount required for public works.  Because there was no completion, the notice requirement for claims on private work payment bonds did not apply, and the complaint was timely filed under the four-year statute of limitations for enforcement of written contracts.   

R&R Pipeline, Inc. filed a complaint against the developer, Los Valles Company, LP, and included a cause of action against Bond Safeguard Insurance Co.  Los Valles hired R&R to install a storm drain, sanitary sewers and other improvements for a project consisting of a golf course, 209 residential lots and public subdivision improvements.  Los Valles entered into an agreement with the county that required Los Valles to complete subdivision improvements on the project, including the work performed by R&R, to receive a final map.  Bond Safeguard executed labor and material bonds covering work on the improvement including work performed by R&R under its contract with Los Valles. 

The trial court granted summary judgment in favor of Bond Safeguard, finding that R&R’s cause of action was barred by the statute of limitations governing public works as R&R engaged in “a work of improvement contracted for by a public entity” as described in former Civil Code section 3100.  The trial court noted that the surety bonds at issue were labeled Los Angeles County Public Works Department Labor and Material Bond. 

The trial court further stated that to recover on the bonds, R&R was required to provide notice under former Civil Code sections 3098 or 3252, and that no notice was given to the county as required by former section 3098.  Under former Civil Code section 3252, notice to a surety and bond principal is extended to 75 days after completion of the work of improvement.  Under former Civil Code section 3086, if work is subject to acceptance by any public entity, the work of improvement is deemed completed on the date of such acceptance, provided that a cessation of labor on any public work for a continuous period of 30 days would be deemed a completion. 

The trial court found that R&R stopped performing work on the project in September 2008 and did not name Bond Safeguard as a defendant in the action until July 2011, and therefore violated the notice requirement under former section 3252.

On appeal, the court determined the work of improvement contracted for between Los Valles and the county was properly classified as a private work.  The court noted that “public work” was defined under former Civil Code section 3100 as “any work of improvement contracted for by a public entity,” and that “contract” has the special meaning for purposes of defining a public work of improvement of “any agreement between an owner and any original contractor providing for the work of improvement or any part thereof” under former Civil Code section 3088.  The court found that the agreement between Los Valles and the county was not a contract for a work of public improvement because the county was not “an owner” of any portion of the development, and the county does not have a contract with R&R, an “original contractor” in the matter. 

 The court also noted that the amount of the surety bonds posted by Bond Safeguard demonstrated that this matter did not involve a contract by a public entity for a work of improvement.  Former Civil Code section 3248 required a surety bond in the sum of not less than 100 percent of the total amount payable on the contract for works of improvement contracted for by a public entity, while Government Code section 66410 required security to guarantee the performance of a contract for a private improvement in an “amount not less than 50 percent nor more than 100 percent of the total estimated cost of the improvement or of the act to be performed….”  The bonds were in amounts that approximated 50 percent of the estimated cost of the improvements in the contract between Los Valles and R&R. 

The court concluded that because there was no notice of completion, and the county never accepted the improvement, the notice requirements of former Civil Code section 3247 were not applicable, but that the four-year statute of limitations for enforcement of written contracts did apply.  The court held that the complaint was timely filed within this period.

Click here for the opinion.

The opinion in R&R Pipeline, Inc. v. Bond Safeguard Insurance Co. (January 27, 2014)____Cal.App.4th____, is not final. It may be withdrawn from publication, modified on rehearing, or review may be granted by the California Supreme Court. These events would render the opinion unavailable for use as legal authority.

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

Appellate

Jordan S. Altura



Appellate
Insurance