March 2019 Edition
by American Subcontractors Association
ASA submitted a “friend-of-the-court” brief in California, affirming the Superior Court’s judgment which voided a surety’s reliance on a “pay when paid” provision to withhold payment from a subcontractor. The case, Crosno Construction, Inc. et al v. Travelers Casualty and Surety of America, is currently on appeal to the 4th Appellate District in California.
At issue is a 2014 Public Works Project for construction of an arsenic water treatment plant in North Edwards, Calif. The North Edwards Water District entered into a contract with Clark Brothers as general contractor. Crosno Construction, Inc. was hired by Clark to fabricate, erect and coat two 250,000-gallon welded steel water reservoirs for the project, work that is was within one week of completing when a dispute arose between the owner and contractor and the subcontractor was instructed to stop work. Subcontractor Crosno made a payment bond claim for its work, but because the contract stated that the surety “shall have reasonable time to make payment to Subcontractor” and defining that time as not less than the time the required to pursue conclusion of legal remedies against the owner, Travelers Casualty and Surety denied the claim.
In granting summary judgment on behalf of Crosno, the court voided as unenforceable the surety’s reliance on this “pay when paid” provision that defined “reasonable” time for payment as the period of time it took for legal disputes to be resolved. The trial court held that the obligation of the bond is enforceable without reference to any contract between the contractor and the materialman. As such, the contract’s definition of “reasonable time” was unreasonable and unenforceable because it impairs the subcontractor’s right to timely payment under the bond. The court added that the primary focus of the surety should have been on whether the subcontractor furnished material and performed labor that was used in construction, not on the rights of the general contractor or owner. The surety is appealing, arguing that almost four years after the subcontractor stopped work on the project, there is still no money due them because of continuing litigation.
In its amicus brief, ASA encourages the Court of Appeal to affirm the trial court, citing the importance of maintaining current law on mechanic’s liens, stop notices, and payment bonds in the State of California. These laws provide meaningful security for payment for all interested parties involved in public and private construction. The brief states that arguments to the contrary conflict with the assurance of a bond as a primary obligation independent of the contract—“the very intention of payment protection.”
The brief addresses the contract language in question as an impermissible waiver of payment rights and affirms the bond claim as an independent obligation of the surety. As such, it maintains, the language of the contract cannot be used to delay Crosno’s payment bond claim. The brief continues, “There is simply no legal or public policy basis to require subcontractors situated like Crosno to wait until after the conclusion of litigation … to be entitled to payment on a payment bond.”
ASA is actively involved in the promotion of legislative action across the nation and has regularly intervenes in legal actions that affect the construction industry at large. The issues at hand in the Crosno case could not be more relevant to our mission in California and across the nation, affirming subcontractor rights to timely payment for work in construction. ASA encourages the judgment of the trial court to be upheld, preserving the legal and public policy securities of interested parties throughout the construction industry.