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Hunt Law Update – Stop Payment Notice Claimants Beware!
New Appellate Opinion Regarding Stop Payment Notices
by Dale Ortmann, Esq.
The men and women in the construction industry should be made aware of a recent published Court of Appeals opinion which significantly impacts the stop payment notice remedy.
The simple issue in Golden State Boring & Pipe Jacking, Inc. v. Eastern Municipal Water District was when the statute of limitations expired on a public works payment bond claim. For reasons even the lawyers involved in the case are unable to explain, the opinion loses its way and instead focuses on whether the claimant timely served its stop payment notice.
Golden State Boring and Pipe Jacking (“GSB”), a subcontractor, did not receive payment of $577,038.37. After completing its work, GSB filed a stop payment notice with the public agency and a few months later filed suit for non-payment under the contract, to enforce the stop payment notice, and to pursue a claim on the surety’s payment bond. Three months after the suit was filed, the public agency recorded a Notice of Acceptance, signifying project completion. Unfortunately, the appellate court interpreted former Civil Code § 3184 (now § 9356) to create a window of time for filing a stop payment notice, beginning with the recording of a Notice of Completion or Acceptance. Thus, the court held that GSB’s stop payment notice served before the Notice of Acceptance was premature and ineffective. This decision is incorrect because neither former Civil Code § 3184 nor current Civil Code § 9356 establish a window of time for filing a stop payment notice; these sections only establish a deadline.
Below, you will find a link to the full opinion for those wishing to read it. The succinct but minority dissenting opinion correctly interpreted the law.
A coalition of construction industry organizations, including BICA, are working to either persuade the State Supreme Court to reverse this decision, or to have the appellate case “de-published”.
In the meantime, we recommend a “belt and suspenders” approach. Serve the stop payment notice promptly after the labor and/or materials have been provided and payment has not been received. Continue to monitor the job. If a Notice of Completion or Notice of Acceptance is recorded by the agency, serve another stop payment notice because the Court of Appeal’s decision effectively nullifies the first stop payment notice.
We will keep you informed of further developments in this case.