Case Number: BC477960    Hearing Date: April 22, 2014    Dept: 58

JUDGE ROLF M. TREU
DEPARTMENT 58
________________________________________
Hearing Date: Tuesday, April 22, 2014
Calendar No.: 9
Case Name: Intrinsic Transportation, Inc. v. American Safety Casualty Insurance Co., Inc., et al.
Case No.: BC477960
Matter: Submitted Bench Trial

Background –
On 1/27/12, Plaintiff, Intrinsic Transportation, Inc. filed this action against Defendants, American Safety Casualty Insurance Co., Inc. (“American Safety”); Rust and Sons Trucking, Inc. (“Rust”); Urban Metro Environmental, Inc. (“Urban”); and City of Alameda, CA (“Alameda”) arising out Intrinsic’s provision of hazardous waste bin rental, transportation, and disposal in connection with a public work of improvement that involved the demolition of eight vacant residential buildings (“Project”). Intrinsic alleges that it was not paid for services provided on the Project for which American Safety issued a public works payment bond with Urban as the principal. Intrinsic also alleges that it rented the bins used in the Project from World Environmental Energy, Inc. (“World”) and that the bins were damaged by Urban and Rust.

Intrinsic filed a First Amended Complaint on 4/27/12 which asserts causes of action for (1) recovery on payment bond, (2) enforcement of payment of claim in stop notice, (3) money had and received, (4) breach of contract, (5) open book account, (6) value of goods and services, and (7) negligence.

On 3/14/12, Rust filed a cross-complaint against American Safety, Urban, and Alameda asserting causes of action for (1) breach of contract, (2) violation of prompt payment statutes, (3) breach of oral contract, (4) open book account, (5) value of goods and services, (6) negligence, (7) implied indemnity, (8) recovery on payment bond, (9) breach of third party beneficiary contract, and (10) improper disbursal of funds subject to lien.

On 5/25/12, Urban filed a cross-complaint against Rust for (1) implied equitable indemnity, (2) contribution and apportionment of fault, and (3) declaratory relief.

On 7/27/12, the Court granted Hartford Casualty Insurance Company (“Hartford”) leave to file a complaint in intervention against Urban for negligence. On 9/11/13, Hartford filed a notice of partial settlement with Urban. On 10/1/13, Hartford dismissed its complaint in intervention with prejudice.

On 5/21/13, the Court granted Intrinsic’s motion for summary adjudication against American Safety as to the 1st COA in the FAC arising out of the alleged failure to pay Intrinsic’s invoices, which was the only claim asserted against American Safety by Intrinsic. American Safety is also named as a cross-defendant in Rust’s cross-complaint as to the 8th and 9th COAs only, alleging that American Safety failed to pay Rust’s invoices. On 10/3/13, the Court denied American Safety’s motion for determination of good faith settlement and to deposit by stakeholder.

At the FSC on 10/3/13 and pursuant to the stipulation of counsel, the Court vacated the trial date in light of Intrinsic’s motion for attorney fees and “dispositive” motions to be filed by American Safety and Rust. On 12/6/13, the Court denied Intrinsic’s motion for interest; and on 12/12/13, the Court granted Intrinsic’s motion for attorney fees against American Safety in the total amount of $118,309.

On 3/13/14, the parties clarified the “dispositive motions” to be heard and the Court set them for hearing as a bench trial on the parties’ submissions.

Tentative Ruling –
On 9/27/13, the parties submitted a stipulation for remaining issues for trial and a stipulation of facts, legal issues, and documentary evidence for trial.

1. Evidence
In addition to the stipulation of facts, legal issues, and documentary evidence; Rust has submitted the declaration of its counsel Emil A. Zuccaro, a First Supplemental List of Trial Exhibits, and a request for judicial notice. American objects to the RJN based on relevancy: the objection is overruled.

2. Undisputed Facts
On 3/22/11, the City entered into a written contract with Urban for the Project with a contract price of $319,000. ¶¶ 6-7. American Safety issued a payment bond No. OKC609787 (“Bond”) naming Urban as the principal. ¶ 8. The City paid Urban all money due. ¶ 10.

On 4/6/11, Urban and Rust entered into a written subcontract (“Agreement”) for hazardous waste bin rentals, transportation, and disposal of friable asbestos waste for the Project. ¶ 12. On 4/7/11, Rust and Intrinsic entered into a written subcontract (“Subhaul Agreement”) for hazardous waste bin rentals, transportation, and disposal of friable asbestos waste for the Project. ¶ 12. Rust and Intrinsic fully performed under the Agreement and Subhaul Agreement. ¶¶ 13, 15.

On 5/13/11, Rust invoiced Urban for $227,647.44, and Urban did not pay Rust. ¶ 21. Between 4/21/11 and 5/25/11, Intrinsic sent invoices to Rust, and Rust did not pay Intrinsic. ¶¶ 16, 22.

On 6/21/11, Intrinsic served a claim on the bond on American Safety and Urban. ¶ 24. On 6/24/11, Intrinsic filed a public work stop notice with the City. ¶ 25. On 6/28/11, Rust filed a public work stop notice with the City in the amount of $227,647.44 which included Intrinsic’s claim for work: the principal amount of Rust’s invoices for its own work is $38,674. ¶¶ 26-27. On 6/28/11, Rust served a claim on the bond on American Safety and Urban. ¶ 29.

When the City received the stop notices by Intrinsic and Rust, the City was holding $141,174.02 (“Stop Notice Funds”) in its construction account that had not been disbursed to Urban. ¶ 30. On 6/30/11, a notice of completion was filed. ¶ 31. The City failed to give Rust and Intrinsic written notice pursuant to Civil Code § 9362 (formerly Civil Code § 3185). ¶¶ 32-33.

On 7/11/11, Rust’s employee Holly Smith had a conversation with American Safety’s assistant vice president Tina Switzer concerning Rust’s bond claim: Switzer explained the claim filing process and told Smith to complete a claim form and submit backup documentation. ¶ 34. On 7/19/11, Smith completed the claim form and sent backup documentation as requested. ¶ 36.

In November 2011, Intrinsic, Rust, and Urban engaged in settlement negotiations. ¶ 39. By 1/20/12, Intrinsic, Rust, and Urban thought they had reached settlement, and Urban emailed a draft settlement agreement to Intrinsic and Rust. ¶ 40. On 1/24/12, Intrinsic emailed changes to the draft settlement agreement to Urban and Rust (¶ 41); on 1/25/12, Urban sent an email to Intrinsic and Rust advising that the terms of the revised draft settlement agreement were acceptable and it was ready to finalize the settlement agreement (¶ 42).

On 1/26/12, Urban wrote to the City requesting final payment of $141,174.02 asserting that the stop notices were dissolved as of 1/20/12 (¶ 44): the City disbursed the Stop Notice Funds to Urban (¶ 45). On 1/27/12, Urban advised Intrinsic and Rust that the City disbursed the Stop Notice Funds and rescinded all previous offers of settlement. ¶ 46. Intrinsic commenced this action on 1/27/12. ¶ 48. Rust failed to file an action to foreclose its stop notice. ¶ 28. Rust did not file a claim with the City before filing its cross-complaint on 3/14/12. ¶¶ 49-50.

On 7/16/13, American Safety paid Intrinsic the unpaid invoice of its claim $186,375.33 plus 10% interest ($39,999.20). ¶ 52.

3. Remaining Issues
In light of the Court’s ruling on Intrinsic’s motion for attorney fees and interest, the Court concludes that the only remaining claims to be addressed on this bench trial are Rust’s 8th COA for recovery on payment bond and 9th COA for breach of third party beneficiary contract which are asserted against American Safety, and Rust’s 10th COA for improper disbursal of funds subject to lien which is asserted against the City.

Rust’s brief requests judgment against Urban on the 1st through 5th and 7th COAs of Rust’s cross-complaint. Rust Opening Brief p. 10:1-13:8. However, these claims were not part of the parties’ stipulations which notably Urban did not execute. Therefore, they are beyond the scope of this bench trial.

4. 8th COA for Recovery on Payment Bond
Rust requests the remaining unpaid balance of Rust’s invoices ($38,674) and a 2% monthly penalty on $229,778.96 from 5/25/11 to 7/16/13 and on $38,674 from 7/16/13 to the date of judgment. American Safety’s liability for Rust’s unpaid balance is based on the Bond. See Oldcastle Precast, Inc. v. Lumbermens Mutual Cas. Co. (2009) 170 Cal.App.4th 554, 563. The 2% penalty is based on Public Contract Code § 10262.5(a) which can apply to America Safety as the surety on the Bond (Washington Int’l Ins. Co. v Superior Court (1998) 62 Cal.App.4th 981, 987-89).

a. Statute of Limitations
American Safety argues that Rust’s 8th COA is time-barred. This argument relies on Civil Code § 9558 (formerly Civil Code § 3249) which requires an action to enforce the liability on a bond to be commenced no later than six months after the period in which a stop payment notice may be given. As pertinent in this case, the stop payment notice must be given 30 days after recordation of a notice of completion. Civil Code § 9356(a) (formerly Civil Code § 3184). Because the notice of completion was recorded on 6/30/11, the effective stop notice period is up to 8/1/11 (due to the last day falling on a Saturday (see CCP § 12 et seq.)) which results in the six month period to commence an action expiring on 2/1/12 (see CCP § 17). Rust’s cross-complaint was filed on 3/14/12. The COA is therefore time-barred.

b. Equitable Estoppel
Rust argues that American Safety should be equitably estopped from asserting that Rust’s 8th COA is time-barred. Equitable estoppel generally requires: “(1) The party to be estopped must know the facts; (2) he must intend that his conduct shall be acted upon, or must so act that the party asserting the estoppel had the right to believe that it was so intended; (3) the party asserting the estoppel must be ignorant of the true state of facts; and, (4) he must rely upon the conduct to his injury.” Doheny Park Terrace Homeowners Ass’n, Inc. v. Truck Ins. Exchange (2005) 132 Cal.App.4th 1076, 1099 (citation and quotation marks omitted).

American Safety argues that Rust failed to properly plead and prove estoppel. See Aetna Cas. & Sur. Co. v. Humboldt Loaders, Inc. (1988) 202 Cal.App.3d 921, 930 (“The presence of estoppel is a question of fact to be pleaded and proved.”). The Court disagrees.

Rust served a claim on the bond on American Safety and Rust’s employee, Smith, completed a claim form and submitted backup documentation as requested by American Safety. American Safety told Smith that according to Urban “this matter was resoled” and that “they are working out all of the final details of settlement then Urban will make payment.” Trial Ex. 16. American Safety has the right “to adjust, settle or compromise any claim, counterclaim, demand, suit or judgment involving any BOND or to take whatever other action it may deem necessary, expedient or appropriate with respect to such matter.” RJN Ex. B § V(A)(vii). Rust’s counsel, Zuccaro, was not hired until 1/27/12, after Urban rescinded all settlement offers and disclosed that the Stop Notice Funds had been disbursed. Zuccaro Decl. ¶¶ 2-3; Trial Ex. 22 [First Supplemental List].

The evidence supports all of the elements for equitable estoppel. See also Flintkote Co. v. Presley of Northern Cal. (1984) 154 Cal.App.3d 458, 465 (“Promises of settlement without the need of resorting to suit have been held to constitute [estoppel].”). Additionally, that Rust only failed to expressly allege equitable estoppel does not render Rust’s equitable estoppel claim improper because the Court may allow amendments to conform to proof (see Pellegrini v. Weiss (2008) 165 Cal.App.4th 515, 527). Therefore, the Court finds Rust has established that American Safety is equitably estopped from raising the issue of the statute of limitations.

c. Windfall
American Safety argues that the 2% monthly penalty requested by Rust is improper. The Court agrees in part.

American Safety argues that the 2% monthly penalty based on Intrinsic’s invoices should be limited to only the number of days Rust could hold funds until it was required to pay Intrinsic. American Safety Opp’n Brief p. 4:6-10. However, American Safety fails to cite to any authority supporting its position. Because of the contractor-subcontractor relationship between Rust and Intrinsic, Rust is entitled to recover the 2% penalty based on both Rust and Intrinsic’s invoices. If this were not the case, Rust would effectively be waiving the 2% monthly penalty solely because it chose to obtain a subcontractor’s services. This is unreasonable.

American Safety also argues that any interest paid by American Safety to Intrinsic should be credited against any interest (whether a penalty or prejudgment) in favor of Rust. American Safety Opp’n Brief p. 4:10-12. However, American Safety fails to distinguish between the legal rate of prejudgment interest that American Safety paid to Intrinsic and the penalty sought by Rust pursuant to Public Contract Code § 10262.5(a). Rust’s prejudgment interest, to the extent based on Intrinsic’s invoices, should be reduced by any interest paid by American Safety to Intrinsic. However, there is no reason why credit should be extended to any other penalty or prejudgment interest sought by Rust.

Lastly, American Safety argues that its total liability cannot exceed the penal sum of the bond. See CCP § 996.470(a). The Court agrees. See Nat’l Technical Systems v. Superior Court (2002) 97 Cal.App.4th 415, 427.

5. 9th COA for Breach of Third Party Beneficiary Contract
On this alternative legal theory, Rust requests the same damages under the 8th COA. Rust establishes that it is a third party beneficiary of the bond. See, e.g., C. O. Sparks, Inc. v. Pac. Coast Paving Co. (1958) 159 Cal.App.2d 513, 517-18; Sunset Lumber Co. v. Smith (1928) 91 Cal.App. 746, 751. That Rust is a direct intended beneficiary of the bond (see Civil Code § 9554(b)(1) (formerly Civil Code § 3248); Bond [Trial Ex. 3]) does not defeat Rust’s status as a third party beneficiary.

However, to the extent Rust attempts to claim a different statute of limitations applies to the 9th COA, this is without merit. Notably, the specific statute of limitations in Civil Code § 9558 (formerly Civil Code § 3249) takes precedence over the more general contract statute of limitations. See Estate of Mason (1990) 224 Cal.App.3d 63, 638.

Therefore, the 9th COA is analytically identical to the 8th COA.

6. 10th COA for Improper Disbursal of Funds Subject to Lien
Rust requests damages against the City for $141,174.02 arising out of the disbursement of the Stop Notice Funds. See Rust Cross-Complaint ¶¶ 79-80.

a. Government Claims Act
The City argues that because Rust failed to comply with the Government Claims Act, the 10th COA is barred. See C.A. Magistretti Co. v. Merced Irrigation Dist. (1972) 27 Cal.App.3d 270, 275-76. Rust argues that the 10th COA does not require compliance with the Government Claims Act (see U.S. Fidelity & Guar. Co. v. Oak Grove Union School Dist. of Sonoma County (1962) 205 Cal.App.2d 226, 234. Rust also argues that the 10th COA is exempt from the Government Claims Act (see Gov’t Code § 905(b)). Rust has the better argument.

Magistretti concluded that the Gov’t Code § 905(b) did not apply to a claim which was based on the failure to obtain a bond. 27 Cal.App.3d at 274. This is not the case here. Oak Grove really concerned enforcing a stop notice under the Education Code. 205 Cal.App.2d at 231-32, 234. This is also not the case here. However, the 10th COA is directed at the City’s alleged improper disbursement of the Stop Notice Funds based on Rust’s stop notice. This is a claim in connection with a stop notice. Therefore, Rust is not required to comply with the Government Claims Act for the 10th COA.

b. Effectiveness of Rust’s Stop Notice
Although not clearly stated, Rust’s theory under the 10th COA is that the City prematurely disbursed the Stop Notice Funds. See Rust Cross-Complaint ¶¶ 74-80; Rust Opening Brief p. 21:18-20. The City argues that Rust never filed an action to enforce Rust’s stop notice which is fatal to Rust’s claim. See A.J. Setting Co. v. Trustees of Cal. State Univ. & Colleges (1981) 119 Cal.App.3d 374, 382-83. The Court agrees.

Rust assumes, without any citation to authority, that Rust’s stop notice was effective during the same time period that Rust had to file a claim on the bond (six months). See Rust Cross-Complaint ¶¶ 74-80. However, after Rust filed its stop notice, Rust was required to commence an action to enforce payment on the stop notice no later than 90 days after expiration of the time within which a stop notice must be given. Civil Code § 9502(b) (formerly Civil Code § 3210). Rust failed to commence an action to enforce the stop notice; therefore, the stop notice ceased to be effective on 10/31/11 (the last day falling on a Sunday). See Civil Code § 9502(d).

While it is undisputed that the City failed to give Rust written notice as to the time for commencing such an action, this would only go towards estopping the City from asserting a statute of limitations bar to an enforcement action (see J.H. Thompson Corp. v. DC Contractors (1992) 4 Cal.App.4th 1355, 1359-60). However, Rust fails to establish estoppel against the City and the 10th COA is not an enforcement action on the Rust’s stop notice.

c. Forfeiture of Rights to Distribution
The City argues that Rust also forfeited any rights to distribution of the Stop Notice Funds (see Civil Code § 9454 (formerly Civil Code § 3192) based on the alleged over-stated amounts in Rust’s stop notice. However, the City’s argument is only based on the total sum claimed which included interest, work by Intrinsic, and damages to bins. Trial Ex. 11. The City fails to establish that Rust willfully gave a false stop notice or willfully included in the notice work not provided for the Project. At most, this represents a dispute as to what Rust could recover.

7. Ruling
Consistent with the above, the Court finds that Rust is entitled to judgment on the 8th and 9th COAs against American Safety and is not entitled to judgment on the 10th COA against the City.