Morrison Law Journal


The Morrison Law Journal February 2016 Volume XI, Edition 2 So When Is A Construction Project Complete? Court Of Appeal Affirms Judgment In Favor Of Contractor Which Recorded Mechanics Lien More Than 90 Days After Certificates Of Occupancy Were Issued As Well As The Date The Contractor Asserted Completion Occurred For Purposes Of The Owner’s Liquidated Damages Claim… By: Edward F. Morrison, Jr., Esq. Larry A. Schwartz, Esq.
In a case that will provide further guidance as to when a Mechanic's Lien must be filed, the California Court of Appeal, Third Appellate District, in Picerne Construction Corp. v. Castellino Villas, LLC, et al. (2016) WL 653961 (“Picerne case”) ruled that a general contractor timely recorded its mechanics lien for the construction of an apartment complex in Elk Grove, California even though the mechanics lien was recorded more than 90 days after the Certificates of Occupancy were issued and the contractor, at arbitration, asserted for purposes of the owner’s liquidated damages claim, that the entire project had been completed more than six (6) months before the lien was recorded. Under the California Mechanic's Lien law, which is embraced in California's Constitution, a direct contractor must record a mechanic's lien within 90 days after completion of the work of improvement. See, Civil Code § 8412, see also, former Civil Code §3115. In the case of any work of improvement other than a public work, the California Legislature has defined the term “completion” as “actual completion of the work of improvement.” In addition, the following are deemed to be equivalent to a completion: (a) the occupation or use of a work of improvement by the owner or his agent, accompanied by cessation of labor thereon; (b) the acceptance by the owner or his agent of the work of improvement; or (c) after the commencement of a work of improvement, a cessation of labor thereon for a continuous period of 60 days, or a cessation of labor thereon for a continuous period of 30 days or more if the owner records a notice of cessation of labor. The Picerne case involved a large scale construction litigation involving an 11 building apartment complex in the City of Elk Grove. General contractor Picerne Construction Corp. (“Picerne Construction”) entered into a contract with developer Castellino Villas, LLC (“Castellino Villas”). Certificates of Occupancy were first issued for some of the buildings on May 3, 2006 and the last Certificate of Occupancy was issued July 25, 2006. Picerne Construction apparently pulled its job trailer off site in July 2006 but had employees and subcontractors on site 1 every day in August 2006. The owner accepted six (6) buildings as complete on August 28, 2006 at which time a punch list was issued. An “Owners Acceptance of Site” was then signed on September 8, 2006. However, grip tape for stair treads was installed afterward. Some roof work also occurred after that date. Tenants first occupied in October 2006. When retention was not released, a mechanics lien was recorded on November 28, 2006 and suit to foreclose the mechanics lien was filed on December 29, 2006. The owner did not record a Notice of Completion until April 2007. The action was stayed pending contractual arbitration. At arbitration, Picerne Construction asserted that the project was complete, for purposes of the general contract agreement which contained a liquidated damages clause, on May 3, 2006. The arbitrator awarded Picerne Construction damages in the amount of $2,484,105.20 for the subject project as well as another project, and over $1,500,000 in attorney's fees and costs. The trial court subsequently confirmed the arbitration award and gave Picerne Construction an additional $144,836.15 in prejudgment interest. Picerne Construction, Castellino Villas and a lender then entered into a settlement agreement which called for the payment of monies to certain subcontractors and that the trial court would decide the validity, priority, and amount of Picerne Construction's mechanic's lien. Pursuant to the settlement agreement, if the trial court determined Picerne Construction's mechanic's lien was valid and senior to any interest of the lender, Picerne Construction would receive a cash payment equivalent to 18 percent of the amount of its lien and then monthly installment payments, including interest at the rate of 4 percent per annum, for the balance. At a bench trial, the trial court ruled that Picerne Construction had timely recorded its mechanics lien finding that the project was completed no earlier than September 8, 2006. Castellino Villas and the lender appealed asserting, among other issues, that (1) Picerne Construction did not have a valid mechanic's lien because it did not record its claim within 90 days after substantial completion of the project and (2) the doctrine of judicial estoppel prevented Picerne Construction from taking contrary positions at arbitration and at trial.1 The Court of Appeal affirmed. As for the date of completion of the project (and when the 90 day period commenced), the Court ruled that completion occurred on September 8, 2006 as that was the date the work was accepted by the owner, and not when the project was substantially complete in July 2006 when the final Certificate of Occupancy 1 Castellino Villas and the lender challenged other aspects of the trial court’s judgment which are not treated in this article. 2 was issued. The Court ruled that Code of Civil Procedure § 1187, based on amending language in 1929, does not establish an earlier completion date which commences the 90 day period (if, as here, work remains to be completed). Citing Howard S. Wright Construction Company v. BBIC Investors, LLC (2006) 136 Cal.App.4th 228, the Court also distinguished case law which holds that a lien claimant may record a lien based on the date the contractor “completes his contract” (i.e. a date when work is only substantially complete with some work remaining). In that regard, The Court ruled that phrase “completes his contract” is distinct from the phrase “completion of such work of improvement” for purposes of the Mechanics Lien statute. As for the fact that the contractor had asserted that substantial completion occurred on May 3, 2006, more than six (6) months before recording the lien, the Court of Appeal ruled that the owner failed to demonstrate error because it had not shown that any position the contractor took at arbitration with regard to liquidated damages under the general contract was necessarily inconsistent with the contractor’s argument at trial that it timely recorded its claim of lien under Civil Code § 3115. The Picerne case is important for its holding that the 90 day period to record a mechanics lien will not commence until a statutorily set event, such as the acceptance by the owner or his agent of the work of improvement, has occurred – and not when a Certificate of Occupancy is issued and additional work remains. But that is not all. The Picerne case acknowledges that a lien claimant may record its lien when the work under the contract is complete – even though, for example, punch list work remains. And perhaps most important to contractors, the holding in the Picerne case acknowledges that a contractor may argue that works of improvement are complete for purposes of the contract (in order to defeat a liquidated damages) and still argue that the project has a different, later date, of completion for purposes of the 90 day period in which a lien may be recorded. About the Authors: Edward F. Morrison, Jr. is the founding partner and Larry A. Schwartz is Of Counsel to The Morrison Law Group, a professional corporation. Their biographies can be viewed at www.morrisonlawgroup.com. Publication Note: The Morrison Law Group wishes to disseminate this publication to all clients and colleagues of the Firm who wish to receive it. Should any recipient desire to be removed from the distribution list, or wishes to have a colleague added, please contact Jim Van Dusen at The Morrison Law Group at 213 356-5504 or vandusen@morrisonlawgroup.com. 3 Disclaimer Note: The legal article presented above is intended to provide general information which may be of interest or use to clients and colleagues of The Morrison Law Group and should not be construed as legal advice on any matter. 4

In a case that will provide further guidance as to when a Mechanic's Lien must be filed, the California Court of Appeal, Third Appellate District, in Picerne Construction Corp. v. Castellino Villas, LLC, et al. (2016) WL 653961 (“Picerne case”) ruled that a general contractor timely recorded its mechanics lien for the construction of an apartment complex in Elk Grove, California even though the mechanics lien was recorded more than 90 days after the Certificates of Occupancy were issued and the contractor, at arbitration, asserted for purposes of the owner’s liquidated damages claim, that the entire project had been completed more than six (6) months before the lien was recorded.

Under the California Mechanic's Lien law, which is embraced in California's Constitution, a direct contractor must record a mechanic's lien within 90 days after completion of the work of improvement. See, Civil Code § 8412, see also, former Civil Code §3115. In the case of any work of improvement other than a public work, the California Legislature has defined the term “completion” as “actual completion of the work of improvement.” In addition, the following are deemed to be equivalent to a completion: (a) the occupation or use of a work of improvement by the owner or his agent, accompanied by cessation of labor thereon; (b) the acceptance by the owner or his agent of the work of improvement; or (c) after the commencement of a work of improvement, a cessation of labor thereon for a continuous period of 60 days, or a cessation of labor thereon for a continuous period of 30 days or more if the owner records a notice of cessation of labor.

The Picerne case involved a large scale construction litigation involving an 11 building apartment complex in the City of Elk Grove. General contractor Picerne Construction Corp. (“Picerne Construction”) entered into a contract with developer Castellino Villas, LLC (“Castellino Villas”). Certificates of Occupancy were first issued for some of the buildings on May 3, 2006 and the last Certificate of Occupancy was issued July 25, 2006. Picerne Construction apparently pulled its job trailer off site in July 2006 but had employees and subcontractors on site

every day in August 2006. The owner accepted six (6) buildings as complete on August 28, 2006 at which time a punch list was issued. An “Owners Acceptance of Site” was then signed on September 8, 2006. However, grip tape for stair treads was installed afterward. Some roof work also occurred after that date. Tenants first occupied in October 2006. When retention was not released, a mechanics lien was recorded on November 28, 2006 and suit to foreclose the mechanics lien was filed on December 29, 2006. The owner did not record a Notice of Completion until April 2007.

The action was stayed pending contractual arbitration. At arbitration, Picerne Construction asserted that the project was complete, for purposes of the general contract agreement which contained a liquidated damages clause, on May 3, 2006. The arbitrator awarded Picerne Construction damages in the amount of $2,484,105.20 for the subject project as well as another project, and over $1,500,000 in attorney's fees and costs. The trial court subsequently confirmed the arbitration award and gave Picerne Construction an additional $144,836.15 in prejudgment interest. Picerne Construction, Castellino Villas and a lender then entered into a settlement agreement which called for the payment of monies to certain subcontractors and that the trial court would decide the validity, priority, and amount of Picerne Construction's mechanic's lien. Pursuant to the settlement agreement, if the trial court determined Picerne Construction's mechanic's lien was valid and senior to any interest of the lender, Picerne Construction would receive a cash payment equivalent to 18 percent of the amount of its lien and then monthly installment payments, including interest at the rate of 4 percent per annum, for the balance.

At a bench trial, the trial court ruled that Picerne Construction had timely recorded its mechanics lien finding that the project was completed no earlier than September 8, 2006. Castellino Villas and the lender appealed asserting, among other issues, that (1) Picerne Construction did not have a valid mechanic's lien because it did not record its claim within 90 days after substantial completion of the project and (2) the doctrine of judicial estoppel prevented Picerne Construction from taking contrary positions at arbitration and at trial.1

The Court of Appeal affirmed.

As for the date of completion of the project (and when the 90 day period commenced), the Court ruled that completion occurred on September 8, 2006 as that was the date the work was accepted by the owner, and not when the project was substantially complete in July 2006 when the final Certificate of Occupancy

1 Castellino Villas and the lender challenged other aspects of the trial court’s judgment which are not treated in this article.

was issued. The Court ruled that Code of Civil Procedure § 1187, based on amending language in 1929, does not establish an earlier completion date which commences the 90 day period (if, as here, work remains to be completed). Citing Howard S. Wright Construction Company v. BBIC Investors, LLC (2006) 136 Cal.App.4th 228, the Court also distinguished case law which holds that a lien claimant may record a lien based on the date the contractor “completes his contract” (i.e. a date when work is only substantially complete with some work remaining). In that regard, The Court ruled that phrase “completes his contract” is distinct from the phrase “completion of such work of improvement” for purposes of the Mechanics Lien statute.

As for the fact that the contractor had asserted that substantial completion occurred on May 3, 2006, more than six (6) months before recording the lien, the Court of Appeal ruled that the owner failed to demonstrate error because it had not shown that any position the contractor took at arbitration with regard to liquidated damages under the general contract was necessarily inconsistent with the contractor’s argument at trial that it timely recorded its claim of lien under Civil Code § 3115.

The Picerne case is important for its holding that the 90 day period to record a mechanics lien will not commence until a statutorily set event, such as the acceptance by the owner or his agent of the work of improvement, has occurred – and not when a Certificate of Occupancy is issued and additional work remains. But that is not all. The Picerne case acknowledges that a lien claimant may record its lien when the work under the contract is complete – even though, for example, punch list work remains. And perhaps most important to contractors, the holding in the Picerne case acknowledges that a contractor may argue that works of improvement are complete for purposes of the contract (in order to defeat a liquidated damages) and still argue that the project has a different, later date, of completion for purposes of the 90 day period in which a lien may be recorded.

About the Authors: Edward F. Morrison, Jr. is the founding partner and Larry A. Schwartz is Of Counsel to The Morrison Law Group, a professional corporation. Their biographies can be viewed at www.morrisonlawgroup.com.

Publication Note: The Morrison Law Group wishes to disseminate this publication to all clients and colleagues of the Firm who wish to receive it. Should any recipient desire to be removed from the distribution list, or wishes to have a colleague added, please contact Jim Van Dusen at The Morrison Law Group at 213 356-5504 or vandusen@morrisonlawgroup.com.

Disclaimer Note: The legal article presented above is intended to provide general information which may be of interest or use to clients and colleagues of The Morrison Law Group and should not be construed as legal advice on any matter.