Tri-State, Inc. (Tri-State) was an electrical subcontractor on a Long Beach Community College District (District) construction project. Tri-State delivered a stop notice to the District stating the general contractor Taisei Construction Corporation (Taisei) failed to pay $1.1 million of its $6.5 million contract.
Tri-State filed a complaint against Taisei, the District, and others, alleging counts against the District for reasonable value of labor and materials furnished and enforcement of the stop notice. After answering the complaint the District agreed to accept a release bond from Taisei for 125% of the claimed amount in exchange for a dismissal. All parties stipulated to the District's dismissal. The District then moved for an award of $10,974.50 in attorney fees from Tri-State, arguing it was the prevailing party and thus entitled to fees under Civil Code section 3186. Tri-State opposed the motion arguing Civil Code section 3186 did not authorize a fee award. The trial court granted the District's motion and entered a judgment of dismissal including an award of $10,974.50 in attorney fees as costs. Tri-State appealed and the Court of Appeal reversed the fee award.
Civil Code section 3186 requires a public entity, upon receipt of a stop notice, to withhold an amount sufficient to answer the claim in the stop notice and provide for the public entity's reasonable cost of any litigation. The Court of Appeal however found that the statute stops short of providing an attorney fee award to a prevailing party. The statute does not state that "reasonable cost of litigation" includes attorney fees or that the public entity is entitled to any of the withheld funds at the conclusion of litigation. Moreover, the legislative history of Civil Code section 3186 strongly suggests that "reasonable cost of litigation" refers to ordinary costs exclusive of attorney fees. If the Legislature wanted an attorney fee award for stop notice claims, it would have expressly provided for one in the statute. The absence of such a provision indicates the Legislature had no such intention.
A public entity is merely a disinterested stakeholder in an action to enforce a stop notice and acts as a custodian of the disputed funds. A public entity in a stop notice lawsuit may file an interpleader action, in which it deposits any funds in question with the court for the court to determine who is entitled to the fund. The District would then obtain a discharge of liability. The trial court has the discretion to award the interpleading party its reasonable attorney fees and costs.
Districts should consider filing an interpleader action when served a stop notice complaint to provide it the potential to recover its attorney fees and costs. As of July 1, 2012, Civil Code section 9358 will take the place of former section 3186. Both statutes provide for the public entity's "reasonable cost of litigation" so the ruling of this case is applicable to the new statute.
This article was written by Christopher Fallon, an attorney with the full service education law firm of Liebert Cassidy Whitmore. Mr. Fallon is an Associate in the Los Angeles office and can be reached at (310) 981-2000 or at email@example.com. For more information regarding the information above or our firm please visit our website at www.lcwlegal.com, or contact one of our offices below.
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