Citations
- 42 Cal. App. 4th 1647
Full opinion text
Opinion
CROSKEY, J.
Plaintiff Mechanical Wholesale Corporation appeals from an order of dismissal entered after the trial court sustained, without leave to amend, the demurrer of defendant the Fuji Bank, Limited (Fuji Bank). The thrust of plaintiff’s argument is that the trial court misapplied the law relating to stop notices which are given, pursuant to California’s mechanic’s lien laws, to construction lenders (such as Fuji Bank), by subcontractors (such as plaintiff) when general contractors either refuse or are unable to pay the subcontractors for the subcontractors’ work or materials. Plaintiff also appeals from a postdismissal order awarding attorney fees to Fuji Bank, asserting there is no statutory basis for the award.
The principal issue presented by this case, which apparently has never before been considered in a published California opinion, is whether stop notices can be applied to construction funds held and administered in California for private works of improvement on sites located outside of California. As we conclude that a stop notice may only be served and enforced by a party entitled to record a mechanic’s lien, we necessarily hold that a stop notice is not an available remedy to enforce payment for labor or materials furnished to a private work of improvement outside of California where a mechanics’ lien obviously could not be recorded under California law. We also hold that Fuji Bank, as the prevailing party, was entitled to recover attorney fees under the relevant statute. We therefore affirm the judgment.
Background of the Case
Plaintiff filed this action in January 1994 to enforce a bonded stop notice. According to plaintiff’s complaint, plaintiff provided labor, materials and equipment for tenant build-out projects in a commercial building in Hawaii. The building is owned by Bishop Street Associates Limited. Plaintiff, a California-based subcontractor, entered into a contract with the general contractor, Daniel’s Management, Inc., on March 31, 1992, to provide construction services for the Hawaiian project. Plaintiff provided these services between March 31, 1992 and November 30, 1993. The reasonable value of the unpaid services is $505,527.
Plaintiff’s complaint further alleges that Fuji Bank entered into an agreement with the owner and with the general contractor whereby it would loan them money for the tenant improvements on the project. The loan funds would be maintained in Fuji Bank’s Los Angeles offices and used exclusively for paying the costs of the tenant improvements and for paying persons furnishing services for those improvements. According to the complaint, this construction loan fund constituted trust funds for the benefit of persons furnishing services for the tenant improvements, including plaintiff.
The complaint alleges that plaintiff gave Fuji Bank, the owner, and the general contractor a timely written preliminary notice in accordance with section 3097. On December 16, 1993, plaintiff served a stop notice on Fuji Bank in the sum of $505,527, together with the required surety bond in the sum of one and one-quarter times the amount of plaintiff’s claim. At the time plaintiff served the stop notice, Fuji Bank had sufficient funds to pay plaintiff’s claim. However, it failed and refused to honor the notice and has not paid plaintiff the sums which are claimed to be due.
Plaintiff prayed that the court deem the stop notice to be an equitable garnishment and lien on the moneys in the construction fund at the time of plaintiff’s service of the bonded stop notice, in the total amount of: (1) plaintiff’s unpaid services, (2) the premiums for plaintiff’s bond, and (3) plaintiff’s attorney fees. Plaintiff further prayed for a judgment against Fuji Bank in the amount of its unpaid services, plus interest, bond premiums, costs of suit, and attorney fees, and also prayed that a trust be imposed on the construction loan fund for those amounts.
Fuji Bank demurred generally to the complaint, contending: (1) California’s stop notice remedy does not apply to works of improvement located outside of California and (2) plaintiff is an unlicensed contractor and therefore cannot recover on any claim. The trial court sustained the demurrer without leave to amend, ruling only on the former ground, and specifically not ruling on the latter. An order dismissing the case was signed and filed April 20, 1994. Thereafter, Fuji Bank filed a memorandum of costs and noticed a motion for attorney fees. Plaintiff moved to tax costs. On June 8, 1994, the trial court ruled on the motions, granting each motion in part. The court awarded $15,592 in attorney fees to Fuji Bank. Thereafter, plaintiff filed this timely appeal, challenging the rulings on both the demurrer and the attorney fee award.
Issues on Appeal
In this appeal, we are asked to determine whether a California subcontractor who works on a private construction project located on real property outside of California, but which is funded with moneys loaned and administered by a bank located in California, is entitled to rely upon California’s mechanic’s lien law provisions to enforce a stop notice served by the subcontractor on the California construction lender. As we answer that question in the negative, we also address the validity of the order awarding attorney fees to Fuji Bank which, it is claimed, are authorized under section 3176.
Discussion
1. Standard of Review
We review this matter de novo. We treat the allegations of plaintiff’s complaint as true; indeed, there appears to be no dispute whatever about the operative facts in this matter. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318 [216 Cal.Rptr. 718, 703 P.2d 58].) The issue presented to us for decision will turn upon our construction and application of California’s statutory scheme for enforcement of mechanics’ liens and stop notices.
2. The Nature of Stop Notices
Stop notices are different from mechanics’ liens in that they attach to the funds of the owner of the property, or the construction loan proceeds from a lender, rather than to the real property being improved. (Connolly Development, Inc. v. Superior Court (1976) 17 Cal.3d 803, 809 [132 Cal. Rptr. 477, 553 P.2d 637].) By recording a mechanic’s lien, the claimant obtains a lien upon a property owner’s land; by serving a stop notice, a priority claim is obtained upon moneys. (Id. at p. 811.) Stop notices are independent of and cumulative to mechanics’ liens rights; they are “an additional remedy.” (Id. at p. 809.) Absent a direct contract right, service and enforcement of a stop notice provides the only remedy available to the unpaid subcontractor to reach the funds held by the construction lender. (§ 3264.)
“After giving 20 days preliminary notice (§ 3160), the materialman may serve a stop notice upon the owner or the construction lender (§§3158, 3159). Upon receipt of such notice, the owner must withhold from the general contractor sufficient money to pay the stop notice claimant. (§ 3161.) [U Unlike the owner, the lender may disregard an unbonded stop notice [citation], but upon receipt of a notice accompanied by a bond equal to one and one-fourth times the amount of claims (§ 3083) the lender must withhold from the unexpended balance of the loan fund a sum sufficient to pay the claim. (§ 3162.) Failure of the owner or lender to withhold money as required by the notice may render him personally liable to the claimant, notwithstanding the absence of privity of contract. ['][] Although the mechanics’ lien may provide adequate protection for materialmen when the owner finances the improvement from his own funds, such liens can be wiped out by the foreclosure of a lender’s trust deed. The value of the stop notice lies in the fact that its lien attaches to the unexpended balance of the loan, not to the land, and thus survives foreclosure of the trust deed. The stop notice claimant also acquires a right to the fund superior to that of any assignee from the owner or contractor (§ 3166), and superior to the lender’s contractual right to employ unexpended funds to complete the work of improvement[.] [Citations.] ['][]... The obligation of the owner or lender to withhold funds terminates unless the claimant files suit to enforce the stop notice within 90 days after expiration of the period for recording claims of lien. (§3172.)” (Connolly Development, Inc. v. Superior Court, supra, 17 Cal.3d at pp. 809-810, fn. omitted.)
Given the nature of the stop notice, one can see the argument to be made for its application to construction work performed outside of California. The stop notice’s lien attaches to the construction funds, not to the land upon which the construction is performed. Thus, it is not an attempt to affect land located outside of California. It is a remedy which is independent of the remedy which does attach to the land—the mechanic’s lien remedy. However, is that a sufficient basis to warrant giving extraterritorial effect to California’s statutory scheme? We think not; however there is little direct authority on the issue.
3. California’s Statutory Mechanic’s Lien Scheme Has Application Only to California Projects
One of the cases principally relied upon by Fuji Bank (ABC Plumbing & Heating Co. v. Vernon Savings & Loan Assn. (1989) 208 Cal.App.3d 1370, 1380 [257 Cal.Rptr. 139]) simply assumed that California’s mechanic’s lien law statutory scheme was never intended to have any extraterritorial application. Although we happen to believe that such assumption was correct, that was not the issue before the court in ABC Plumbing and no analysis or reasoning was given in support of its assumption. Nonetheless, it is our view that such conclusion is in fact supported by both the relevant statutory provisions and public policy considerations.
a. Statutory Language Appears to Assume Application to a California Work of Improvement
California’s statutory mechanic’s lien and stop notice provisions represent an integrated scheme obviously designed to provide maximum protection to laborers and materialmen. When read as a whole, they compel the conclusion that they were intended to be applied only to California works of improvement. Several examples will serve to illustrate the point.
Section 3097 provides for a preliminary 20-day notice to be given to the property owner, general contractor, and construction lender (if any) before a claimant may record a mechanic’s lien or file a stop notice. Fuji Bank argues that section 3097 (which was amended in 1994 in ways not impacting this case) speaks of acts which would only affect property within this state. For example, section 3097, subdivision (f)(1) addresses the delivery of the 20-day notice to persons residing within this state, and it provides that the notice may be delivered to the person personally, or left at his home or business, or may be mailed to such person. The mail may be addressed to his home, to his business, to the address on “the building permit on file with the authority issuing a building permit for the work,” or to the address on the recorded construction trust deed, if any. Subdivision (i) directs every governmental authority issuing building permits to provide spaces, in its application forms for building permits, for the applicant to enter information about a construction lender, if any, and keep that information available for public inspection. Subdivision (o) permits, but does not require, the filing of the notice with the county recorder “in the county in which any portion of the property is located.”
Section 3160 states in pertinent part as follows: “Service of a . . . bonded stop notice shall be effective only if the claimant: [H (a) Gave the preliminary 20-day notice ... in accordance with the provisions of Section 3097 if required by that section; and [