Is It A Public Or Private Improvement Project? Court Reviews The Differences With Millions In Claims On The Line.

By Natalie Kuffel and Glen Hansen

In R&R Pipeline, Inc. v. Bond Safeguard Insurance Company (2014) 223 Cal.App.4th 438, the Court of Appeal for the Second District held that a contractor who provided infrastructure work on a subdivision could timely file a $1.2 million lawsuit to enforce a subdivision improvement bond because the project was private and not public, even though the work was required by a subdivision agreement between the developer and a public entity.

In May 2008, R&R entered into a written contract with Los Valles Company, LP for installation of a storm drain, sanitary sewer, and related improvements upon land being developed by Los Valles as a golf course and residential community. The improvements were required by a Public Works Multiple Agreement with Los Angeles County to get a final subdivision map. Bond Safeguard issued labor and material payment bonds covering the work. The County was the beneficiary under the bonds and Los Valles was the principal. The improvements were to be dedicated to the County upon approval. R&R performed on the contract, but Los Valles breached the contract by failing to pay the sums due. The subdivision improvements were never dedicated or accepted by the County.

After originally bringing suit against Los Valles, R&R filed an amended complaint in 2011 naming Bond Safeguard as a defendant three years after completing work on the project. Bond Safeguard moved for summary judgment under multiple theories, including (1) the bonds were issued for a public work of improvement and therefore subject to the notice requirements of the former section 3247 of the Code of Civil Procedure; and (2) the claims were barred by the statute of limitations applicable to public work. The trial court agreed and granted summary judgment.

The appellate court overturned the trial court on both points. First, the court addressed whether the Multiple Agreement between the County and Los Valles was a contract for a “public work of improvement” as determined by the trial court. The term “contract” under former section 3088 means an agreement between an owner and any original contractor providing for the work of improvement or any part thereof. Because the County was not an owner of the property being developed and R&R, not Los Valles, was the original contractor, the court held that the Multiple Agreement was not a contract. Also, the the work was performed by R&R on private property, not existing city streets; the project was not described as a “public improvement” in the Multiple Agreement, construction contract, or surety bond; and R&R’s work was never accepted by the County.

The appellate court was further persuaded that the R&R’s work was private by the structure of the bonds that Bond Safeguard issued. Though the bonds were labeled “Los Angeles County Public Works Department Labor and Material Bond,” the amount of bonds was only 50 percent of the estimated cost of the improvements in contract between Los Valles and R&R despite a statutory requirement that works of improvement contracted for by a public entity have a bond in the sum of “not less than 100 percent of the total amount payable on the contract.” However, the bond amount was in line with the Subdivision Map Act’s requirement that bonds for a private improvement be in an amount “not less than 50 perfect nor more than 100 percent of the total estimated cost of the improvements.”

After concluding that this was a private improvement, the court determined that R&R was not required to provide notice to Bond Safeguard because the applicable statute for private projects required notice only after “completion of the work” and in cases where work is subject to acceptance by public authority, the completion of work date is the day that the public authority accepts. Since the County had never accepted the improvements provided by R&R, the work was never completed and thus the notice requirements were never triggered.

Finally, the court held that because work had concluded in October 2008 and the amended complaint naming Bond Safeguard was filed in July 2011, the complaint was timely under the four-year statute of limitations applicable to private improvements. R&R was allowed to continue its $1.2 million lawsuit against Bond Safeguard.

Natalie Kuffel is a law clerk at Abbott & Kindermann, LLP and graduating this year from University of the Pacific, McGeorge School of Law. Glen C. Hansen is Senior Counsel at Abbott & Kindermann, LLP. For questions relating to this article or any other California land use, real estate, environmental and/or planning issues contact Abbott & Kindermann, LLP at (916) 456-9595.

The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, LLP, nor the formation of a lawyer/client relationship. Because of the changing nature of this area of the law and the importance of individual facts, readers are encouraged to seek independent counsel for advice regarding their individual legal issues.

 

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