Construction Law Alert: Confusion Remains Over Stop Notice Procedures

In Tri-State, Inc v. Long Beach Community College District, No. B231848, filed March 12, 2012, the Second Appellate District held Civil Code section 3186 does not allow an attorneys’ fee award in favor of a public entity against a stop notice claimant. The opinion illustrates that confusion remains over stop notice procedures that have long been California law.

Tri-State filed a stop notice seeking payment of over $1 million. Pursuant to section 3186, the District withheld funds sufficient to cover the stop notice claim and the District’s related litigation costs. Tri-State filed suit against the original contractor and the District. The original contractor obtained a release bond for 125% of the stop notice amount, which the District accepted in exchange for its dismissal from the action. The District then filed a motion for attorneys’ fees, claiming they were included in litigation “costs” under section 3186. The trial court awarded the attorneys’ fees, and Tri-State appealed.

The Court of Appeal reversed the award, holding section 3186 does not allow a public entity to claim attorneys’ fees against a stop notice claimant. Rather, when public entities are disinterested stakeholders in the litigation, the proper method to obtain attorneys’ fees is an action to interplead the money in court.

To avoid confusion and unnecessary litigation, stop notice claimants would be well served to address the issue of attorneys’ fees prior to the dismissal of the public entity. Additionally, effective July 1, 2012, new California law on stop notices and liens will become effective. Further alerts and publications on the new law are forthcoming.

This document is intended to provide you with information about construction law related developments. The contents of this document are not intended to provide specific legal advice. This communication may be considered advertising in some jurisdictions.

March 20, 2012