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The Effect the Golden State Boring Case Could Have on Stop Payment Laws

It’s one of the quirks of jurisprudence that cases are called by their claimant names. This means that when a major case is decided, the person whose name is attached becomes a kind of shorthand for the decision (think of your Miranda Rights, so-called because of Miranda vs. Arizona). It’s even more interesting when the name is in direct opposition to the gravity of the suit. This is the case with a recent trial in California, which could have a long-lasting impact on surety law, even though it will forever be known as the “Boring trial.”

stop payment
Payment issues connected to a water pipeline tunneling project in California has caused many contractors to take notice of their surety standing.
Image Source: Wikimedia Commons

Golden State Boring vs Eastern Municipal Water District and the SafeCo Insurance Company (“Boring vs. Eastern Municipal,” for short, or just “Boring”) is a case involving timelines for invoking payment bonds, and had an incredible surprise decision last year that left contractors scrambling and might have redefined the nature of bonds. It all comes down to Stop Payments and the rights of a subcontractor.

The Background — Stop Payment Laws

Eastern Municipal wanted a pipeline project done, starting in 2006, and they hired a contractor. As is usual, the contractor hired a subcontractor, in this case Golden State Boring, to do the tunneling. California laws are very clear on public works. Any project over $25,000 requires a payment bond.

The point of a payment bond is that subcontractors will be paid even if something happens with the main contractor, whether through accident or negligence. This is to avoid getting the government involved, since liens can’t be held on government property (thanks to the Little Miller Acts, on the statewide level). If a subcontractor is not being paid, they can issue a “stop payment” during the project which requires funds to be set aside to assure that they receive their just compensation.

Stop Payments laws demand that the owner of the project — in this case, Eastern Municipal — put aside payment that would normally go to the principle contractor so that it can be diverted to the sub. In essence, they are putting a mechanics lien in the money. This happens if they are not being paid on a timely basis for their work and have reason to believe they won’t be. That’s where the hinge on this case lies.

A Matter of Faith? Filing After Completion

Boring wasn’t being compensated and filed their Stop Payment during the project. As these things sometimes do, it wound up in court, with Boring filing motion against Eastern Municipal to recover their funds. The judge ruled against them, however, saying that because the Stop Payment was filed before a Notice of Completion, it was premature, and therefore invalid. Essentially, because they didn’t want to see if they were compensated, it didn’t count, even though they ended up not getting paid.

In essence, this means that subcontractors would have to file two notices of stop payment: one during the production and one within 30 days of the Notice of Completion. This would seem to put an undue burden on subcontractors, and even change the nature of surety law. After all, it could, in theory, stretch out toward the endless horizon. Who is to say you won’t get paid after a year? This is ridiculous, but after all, the law is all about precedent, and so it could continue to be stretched.

This was met with predictable indignation. The California Construction Law Blog, in a dissection both outraged and deeply informed, said that being a contractor just became a lot scarier. However, the California Supreme Court decertified the decision, meaning that it only applies to that one case, and can’t impact any other case.

While that is great news, it doesn’t mean it won’t be used as precedent, if not in the strictly legal sense. It makes it easier to find loopholes, which could breed mistrust. Contractors won’t get contracts with municipal boards who think they’ll drag them through lawsuits, and subcontractors may perhaps be leery of someone with a bad reputation. If a contractor wants to be protected, they need to go with a strong and trustworthy surety company. Surety1 has experience placing bonds in every state, with the goal to help every contractor obtain the necessary backing to continue work and maintain their reputation.

In the end, the law can be frustrating. It can seem convoluted and not worth paying attention to. However, decisions made in unknown cases could have a direct impact on your business, and that is never boring.

Getting the contract requires the backing of a strong Surety company with a reputation you can depend on. Contact Surety1 today for a quick and fair bonding process that’ll get you to work.

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