When Does The Time For Serving A Public Works Stop Notice Expire?

When Does The Time For Serving A Public Works Stop Notice Expire?

By
William C. Last, Jr. Esq.

A July 2003 Federal Appellate Court decision, El Dorado Improvement Corporation v. Dynamic Finance Corporation (2003) 335 F.3d 835 addressed the issue of when a project is complete in context of starting the time for serving a Stop Notice. The specific issue the court was confronted with was whether a partially government funded redevelopment project was "subject to acceptance by any public entity" under California's mechanic's lien law. The answer to that question was important, since the time for serving a Stop Notice on a project that is accepted by a public entity is different than a project that is not subject to such acceptance.

The appellate court’s opinion provides a tutorial on when a public works Stop Notice must be served. This article will review the basic requirements for a public works Stop Notice and then discuss the Appellate court decision.

Public Works Stop Notice Overview

As earlier articles indicated, California Law provides two procedures whereby one who provides services to a constructing project can obtain a more secure position. A properly served and perfected Stop Notice gives the claimant a lien against undisbursed construction funds in the possession of the public owner. The Stop Notice procedures involve three basic steps: (1) If you are not the general contractor, serving a preliminary 20-day notice; (2) Serving the Stop Notice; and (3) Filing a lawsuit to enforce the Stop Notice.

The Stop Notice on a state or local public work must be served within thirty (30) days after the recording of a Notice of Completion, Notice of Acceptance, or Notice of Cessation. (Civil Code §3184). Where no Notice of Completion, Acceptance or Cessation has been recorded, the Stop Notice must be served within ninety (90) days after actual completion or cessation of work. (Civil Code §3184).

When a properly executed Stop Notice is served on the proper public official, that official must withhold from the prime contractor construction funds in an amount sufficient to satisfy the amount claimed in the Stop Notice. (Civil Code §3186). He is not required to release the money to the claimant, however, until the claimant has foreclosed on the Stop Notice in a court action.

A suit on a Stop Notice on a public work must be filed within the following time period: Not less than ten (10) days after the filing of the Stop Notice; and not more than ninety (90) days after the expiration of the period within which Stop Notices may be filed. (Civil Code §3210).

The Federal Appellate Court Decision

The redevelopment project which was a public-private joint venture between the South Tahoe Redevelopment Agency (the "Agency"), a municipal agency, and El Dorado Improvement Corporation, a developer and landowner. Sundt was El Dorado's general contractor and Dynamic Finance was El Dorado's lender.

The project involved the construction of a luxury hotel, marina building and parking structure, as well as an artificial wetland and estuary and a view corridor to the lake. The project was also under the jurisdiction of the Tahoe Regional Planning Agency (TRPA). The TRPA had to approve the project both before and after construction.

Sundt performed some preparatory groundwork for the hotel site, including excavation and grading. After work began, El Dorado encountered financial difficulty and filed for bankruptcy, owing money to both Sundt and Dynamic. Sundt recorded a mechanics lien which was disputed by the project lender, Dynamic. That dispute led to the appellate court decision.

The sole issue before the trial court was “whether the development project was "subject to acceptance by any public entity." If it was, Sundt's lien was timely recorded; if not, Sundt could not recover on the lien. Sundt claimed that its work was subject to acceptance by both the Agency and the TRPA. It contends its obligations (a) to procure a certificate of completion from the Agency and (b) to obtain post-construction approval from the TRPA both constitute public acceptance requirements. Dynamic disagreed with Sundt’s contentions.

In essence, the question is when is a project complete for the purpose of determining when the lien is to be filed. As the Appellate court pointed out: “California law prescribes "completion equivalents"--events deemed to constitute completion. These include (a) the date the owner occupies or first uses the premises (assuming construction has ceased); (b) the date the owner "accepts" the project; and (c) the date following certain work stoppages. Cal. Civ. Code § 3086(a)-(c). The El Dorado case involves a fourth completion equivalent, applicable only to a limited class of projects: If the work of improvement is subject to acceptance by any public entity, the completion of such work of improvement shall be deemed to be the date of such acceptance . . . . Id. § 3086 (emphasis added).”

If the project is subject to acceptance by any public agency, unlike the other completion equivalents, it controls regardless of completion in accordance with any of the other “completion equivalents.” The part of Civil Code section 3086 that is relevant to public works states: “If the work of improvement is subject to acceptance by any public entity, the completion of such work of improvement shall be deemed to be the date of such acceptance; provided, however, that, except as to contracts awarded under the State Contract Act, Chapter 3 (commencing with Section 14250), Part 5, Division 3, Title 2 of the Government Code, a cessation of labor on any public work for a continuous period of 30 days shall be a completion thereof.”

The phrase "subject to acceptance by any public entity" is not defined by the relevant statute. As a result, California appellate cases generally construe the phrase to be solely applicable to public works, i.e., those built under contract with a public entity. Other California appellate court cases have held that phrase is applicable to civic improvements such as roads, sidewalks, gutters or sewers built under private contract in connection with otherwise private construction projects and when completed dedicated to public use.

The El Dorado court concluded “that the reference to "acceptance by any public entity" in section 3086 must be interpreted ....... that a private work is "accepted" only if it is civic in nature, in that approval results in the assumption of some public interest in it.” In context of the facts in the El Dorado case, the court held that to be accepted by a public entity the entity must be accepted by the public entity in the form of acceptance of the dedication of those improvements to the particular public entity.

Conclusion

While the holding in the El Dorado case is of some interest to contractors, the Appellate court’s discussion of the time limit for serving a Stop Notice is of greater interest to most public works contractors. The time limits are basically as follows.

If neither a notice of completion or cessation is recorded, the last day for service of the Stop Notice on a public entity, other than a state agency, requires a determination if the work was continuously stopped for a period of thirty days. If a stoppage for 30 days did not occur the Stop Notice must be served within 90 days after a stoppage of work for 30 days. In essence, the Stop Notice must be served within 120 days of the work stoppage. This rule does not apply to projects let by state agencies.

If the work is completed by the public agency, a Stop Notice must be served within 90 days after the acceptance by the public agency. The statute does not define what constitutes acceptance by the public agency. However, acceptance has been defined by the courts to occur when there is “some legislative enactment by the public authority.” Typically, such a legislative enactment occurs when that agencies governing body has an official meeting where acceptance is voted on and approved by the members of that body. It is not uncommon for the formal acceptance to occur months after the project is completed. To determine if such an enactment has occurred, prospective Stop Notice claimants should review the project contract and specifications relative the procedures for acceptance.

In closing, the Stop Notice remedy offers a public works subcontractor or supplier a valuable collection tool. In addition, a public works contractor should also consider making a claim on the payment bond. However, to be effective the subcontractor or supplier must meet the statutory prerequisites for enforcing the Stop Notice. This article was intended to give an overview of the public work Stop Notice process. If you have specific questions the author strongly suggests that you contact an attorney who is knowledgeable about the requirements and application of these remedies.

This article, ©2003, was written by William C. Last, Jr. Mr. Last is an attorney who has been specializing in Construction Law for over 20 years. In addition to belonging to a number of construction trade associations, Mr. Last holds a California AA@and AB@license. He can be contacted at 415-764-1990 or 650-425-7679 (e-mail: wclast@lastlawfirm.com). A number of his past articles can be found on his website (lhfconstructlaw.com). This bulletin is published periodically to provide general information about current legal issues. The articles are not intended to be a substitute for the advice of an attorney as to a specific problem. If you have a specific legal question or need legal advice, you should contact an attorney.