In Tarlton & Sons, Inc. v. Great American Insurance Company, a California Court of Appeal found that, absent formal notice of cessation or clear termination, the statute of limitations on a bond claim may be indeterminate.
Oxnard Union High School District (District) hired Fast Track Construction Corporation (Fast Track) to perform heating and air conditioning work. Fast Track obtained a public works payment bond from Great American Insurance Company (GAIC) and subcontracted with Tarlton & Sons, Inc (Tarlton) to handle the framing and drywall work. Tarlton began working on the project in April 2021.
A dispute arose between Fast Track and the District in August 2021. During the dispute, the District hired Viola, Inc. to “perform general contractor duties” on the project. Tarlton entered a subcontract with Viola and continued its work on the project. Tarlton alleged it never received formal notice that the District terminated Fast Track’s contract.
In April 2022, Tarlton submitted a $688,353.66 claim to GAIC against the $19,100,000.00 public works payment bond in connection with its work under the Fast Track subcontract. After failed negotiations, Tarlton sued GAIC, the District, Fast Track, and others for payment. GAIC alleged the bond claim was barred by the statute of limitations because Tarlton’s cessation of labor began when it stopped working for Fast Track in November 2021. The trial court agreed, concluding that Tarlton’s statutory period to commence an action to enforce a bond claim begins when the claimant ceases to provide work, but must be filed not later than six months after the period in which the claimant may give a stop payment notice. The trial court found that Tarlton’s stop payment notice period expired and affirmed its claim was time barred. Tarlton appealed.
In a public works project, if the owner records a notice of completion or cessation, claimants may serve the general contractor a stop payment notice within 30 days of the record date. If notice is not recorded, claimants may serve a stop payment notice within 90 days of the earlier date of completion of the work or cessation of labor.
The six-month statute of limitations on bond claims begins when the applicable stop payment notice period ends. Thus, even if no stop payment notice is provided, the statute of limitations to file a bond claim begins either 30 days after the recording date of a notice of completion or cessation, or if no such notice was recorded, 90 days after completion of the work or cessation of labor.
The Court of Appeal considered whether a cessation of labor occurred on the District’s project and found that the date of cessation of labor was the date all work under the bonded contract concluded, not just the date that Tarlton stopped doing work under the Fast Track subcontract. The Court emphasized that in the absence of a formal notice of cessation or clear project termination, the statutory clock to file a claim on a bonded contract may not begin.
The Court’s holding demonstrates how the statutory period may be an issue of fact in disputes over public works projects lacking formal notice of cessation or completion.
Further, Tarlton highlights how a cessation of labor is not solely based on a claimant’s individual work. Rather, it must be determined by the date all work under the bonded contract was completed or subject to continuous cessation.
Tarlton & Sons, Inc. v. Great American Insurance Company (Case No. B336550).
Notes: This decision serves as a reminder that ambiguity in project status and contractor transitions may open the door to extended liability periods and disputes. Districts involved in public works projects should review procedures to ensure clarity and timely communication.