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R & R Pipeline, Inc. v. Bond Safeguard Insurance Company

(Because Contract Between Developer and Subcontractor Did Not Relate to Public Work Project, the Subcontractor was Entitled to Maintain Cause of Action for Recovery Under Labor and Material Bonds)

In R & R Pipeline, Inc. v. Bond Safeguard Ins. Co., 223 Cal.App.4th 438 (January 27, 2014), the California Second District Court of Appeal reversed the trial court’s entry of summary judgment in favor of Bond Safeguard Insurance Company (“Bond Safeguard”) based on the statute of limitations applicable to public works of improvement. The parties’ dispute arose out of work performed pursuant to a written contract between R & R Pipeline, Inc. (“R & R”) and Developer, Los Valles Company, LP (“Los Valles”) for installation of a storm drain, sanitary sewer and related improvements upon land in Castaic being developed for Los Valles as a golf course and residential community. R & R performed work under the contract, but Los Valles breached the contract by failing to pay the sums due, resulting in damages to R & R of $1,085,858.64 under the contract and an additional $150,000.00 in re-stocking charges on materials ordered. As a result of Los Valles’ breach of contract, R & R filed a first amended complaint naming Los Valles and its labor and materials bond company, Bond Safeguard. Bonds issued by Bond Safeguard promised to pay for any work or labor performed by R & R under its contract with Los Valles, creating a right of action to recover on the subject bonds. In response to R & R’s first amended complaint, Bond Safeguard filed an answer which included affirmative defenses based on the statutes of limitations set forth in Code of Civil Procedure sections 337-339 and former Civil Code sections 3249, 3239, and 3240 (sections applied to a work of improvement before July 1, 2012).

Subsequently, Bond Safeguard filed a motion for summary judgment arguing that the labor and material bonds it issued were for a public work of improvement, and therefore subject to the notice requirements of former section 3247. R & R failed to provide notice of its work to the County of Los Angeles pursuant to former section 3098 and failed to provide the required special notice to Bond Safeguard under former section 3235. The trial court granted Bond Safeguard’s motion for summary judgment based on its determination that “R & R engaged in ‘a work of improvement contracted for by a public entity’ as described in former section 3100, because Los Valles as the developer, entered into the Multiple Agreement with the County, requiring Los Valles to furnish sewers, storm drains and tunnels, constructed according to approved plans applicable for public works construction and to the satisfaction of the County.” Because R & R failed to comply with the various noticed deadlines required under sections 3098 or 3252, and waited nearly three years after ceasing work on the project, to file suit against Bond Safeguard (stopped work on 9/24/08 and named Bond Safeguard as a defendant in lawsuit on 7/25/11), the applicable statutes of limitations applied to bar its cause of action to recover on any labor and material bonds issued by Bond Safeguard.

In reversing the trial court’s decision, the Court of Appeal focused on the trial court’s determination that R & R performed work in connection with a “contract for public works.” In that regard, the Court of Appeal held that R & R’s work related to a private contract, rather than a contract for work related to public works. As such, because a four year statute of limitations applied to claims for breach of private contract, R & R’s cause of action against Bond Safeguard was timely, requiring the reversal of the trial court’s entry of summary judgment. The Court of Appeal reasoned as follows:

Public vs. Private Works

As framed by the trial court and extensively addressed by the parties below and on appeal, the primary issue in this case is whether the work of improvements contracted for between Los Valles and R&R is properly classified as public work or private work. Resolution of this issue determines the notice requirements and the applicable statute of limitations.

We therefore examine whether the trial court correctly found the Multiple Agreement between the County and Los Valles was a contract for a "public work of improvement.""'Public work' means any work of improvement contracted for by a public entity." (Former § 3100.) "'Public entity' means the state, Regents of the University of California, a county, city, district, public authority, public agency, and any other political subdivision or public corporation in the state." (Former § 3099.)

Bond Safeguard argues the plain language of former section 3100 establishes the Multiple Agreement was a contract for a public work of improvement. According to Bond Safeguard, the County (a public entity) entered into a contract (the Multiple Agreement) for a public work of improvement by Los Valles. Los Valles agreed to provide the improvements for dedication to the County, thus satisfying the elements of a contract.

Bond Safeguard's interpretation of former section 3100 is based on a literal reading of the statute, but it fails to take into account the statutory definition of "contract," which has a specific meaning for purposes of defining a public work of improvement. “'Contract' means an agreement between an owner and any original contractor providing for the work of improvement or any part thereof." (Former § 3088.) Based on former section 3088, the Multiple Agreement is not a contract for a work of public improvement, because the County is not "an owner" of any portion of the development, and the County does not have a contract with R&R, an "original contractor" in this case. It is undisputed that the County has no contract for a work of improvement with R&R, and R&R is not seeking recovery from the County in any respect. The construction contract in this case is between Los Valles and R&R, and "[t]he project was therefore not a 'public work,' within the meaning of section 3100 . . . ." (Progress Glass Co. v. American Ins. Co. (1980) 100 Cal.App.3d 720, 727 [county was not a party to a contract to construct a motel on property leased from the county, where the contracting parties were a general contractor and a subcontractor].)

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