LEGAL ISSUES
On appeal, United argued that the trial court erred by ruling that Coast was entitled to withhold the retention payments because a good faith dispute existed between Coast and United.
Appeals Court Weighs In Te Court of Appeal agreed with
United’s argument, concluding that it is improper to withhold retention over a dispute that does not relate to retention. At the outset, the Court acknowledged that Section 7107 functions identically to Section 8814 with respect to public works so that Martin Brothers and East West Bank were precedential and relevant. Te Court further acknowledged that when the trial court decided United Riggers, the prevailing authority on Section 7107 was Martin Brothers, but that later, a different court of appeal, in East West Bank took the opposite view that withholding the retention is justified only if the dispute is about the retention itself. After concluding its juxtaposition
of Martin Brothers and East West Bank, the United Riggers Court affirmed the holding in East West Bank. Te Court noted that Coast did
not deny that it owed United the full retention. Te only dispute was over whether United was also entitled to other payments it claimed. Te Court opined that to favor Coast under these facts would unduly increase the leverage of owners and primes over smaller contractors and subs by discouraging subcontractors from making legitimate claims for fear of delaying the retention payment.
Appellate Courts Split Te disagreement between the
Second District in East West Bank and United Riggers, on one hand, and the Tird District in Martin Brothers, on the other hand, continues to create a split of authority among California’s appellate courts. It remains to be seen how or if California’s four other District Courts of Appeal will address this issue, but with two decisions now sharply
diverging from Martin Brothers, it appears the split will be resolved in favor of East West Bank and United Riggers. Ultimately, the California Supreme
Court may need to step in and resolve the conflict. In the meantime, owners and
contractors can minimize their exposure to prompt payment penalties by erring on the side of caution and withholding retention only in the event of good faith disputes relating to the retention itself, including mechanics liens, stop payment notices, or perfor- mance deficiencies. In the event of disputes of another
nature, owners and contractors would be well-advised to release retention proceeds within the time period prescribed by Public Contract Code § 7107, Civil Code §§ 8812 and 8814 and other related statutes.
Mary Salamone is a senior partner
and Anthony Niccoli is a partner at Atkinson, Andelson, Loya, Ruud & Romo. Visit
www.aalrr.com.
ROGERS JOSEPH O’DONNELL San Francisco Washington DC
The Construction Law Practice Group Serving the AGC for more than 35 years
Recognized by Chambers USA as leading law firm 311 California Street
San Francisco, CA 94104 415.956.2828
www.AGC-CA.org
875 15th Street NW, Suite 725 Washington, DC 20005 202.777.8950
www.rjo.com Associated General Contractors of California 15
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