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(Super. Ct. No. 37-2009-00090855-CU-BC-CTL)
APPEAL from a judgment of the Superior Court of San Diego County, Ronald L. Styn, Judge. Affirmed.
North County Acoustics, Inc. (Acoustics) sued Bank of America, N.A. (Bank) to enforce a bonded stop notice. The court granted the Bank's summary adjudication motion based on undisputed facts showing Acoustics's stop notice was not adequately bonded and awarded the Bank $42,455.05 in attorney fees. (Civ. Code, §§ 3083, 3176.) On appeal, Acoustics contends the court erred in granting summary adjudication and awarding attorney fees. We reject these contentions and affirm.
All further statutory references are to the Civil Code, unless otherwise stated.
FACTUAL AND PROCEDURAL BACKGROUND
In September 2008, Acoustics entered into a written subcontract agreement with a general contractor to provide labor and materials for acoustical ceilings on a tenant improvement project. The Bank, as a construction lender, held funds for the project's construction costs.
In May 2009, the Bank received a one-page "Stop Notice" from Acoustics. The top portion of the document contained information pertaining to the claimant's identity, work performed, contract amount, and amount owed after deducting payments and credits. In the middle of the document, the Stop Notice stated: "YOU ARE HEREBY NOTIFIED to withhold sufficient monies held by you on the above described project to satisfy claimant's demand in the amount of $65,462.63 and in addition thereto sums sufficient to cover interest, court costs, and reasonable costs of litigation, as provided by law." The signature of Acoustics's president is below this statement. Acoustics also attached a bond issued for $65,462.63.
Less than one year later, Acoustics filed a complaint against various parties involved in the construction project, including the general contractor and the Bank. Acoustics named the Bank in the third and fourth causes of action. In the third cause of action, Acoustics sought to foreclose on its mechanics' liens and requested declaratory relief that its liens have priority over the Bank's liens. In the fourth cause of action, Acoustics alleged it had served a bonded stop notice on the Bank, requesting the Bank to withhold $52,370.10 of construction funds. Acoustics sought to enforce that notice and compel payment of the claim.
The Bank moved for summary adjudication on the fourth cause of action, presenting a copy of its Stop Notice and the attached bond. The Bank argued that under California law, a stop notice claim against a construction lender is enforceable only if the claimant served a bond with its stop notice in an amount equal to at least one and one-fourth times the amount of its stop notice demand. (See §§ 3083, 3162; Manos v. Degen (1988) 203 Cal.App.3d 1237, 1240 (Manos).) The Bank asserted that Accoustics' Stop Notice demand ($65,462.63) was the same amount as the bond, and therefore it was invalid and unenforceable as a matter of law.
In opposing the motion, Acoustics did not submit any additional evidence or disagree with the Bank's statement of the governing law. Instead, Acoustics argued the $65,462.63 claim was a "typographical error" and that its Stop Notice should be read as claiming $52,370.10, for which a $65,462.63 bond is enforceable as equal to one and one-fourth of this claimed amount. In support, Acoustics relied on the information on the top portion of the Stop Notice document, which read as follows:
"Total value of labor, service, equipment or materials agreed to be furnished........$371,484.00
Total value of labor, service, equipment, or materials actually furnished is..........$371,484.00
Credit for materials returned, if any...............................................$0.00
Amount paid on account, if any.............................................$319,113.90
Amount due after deducting all just credits and offsets...........................$52,370.10"
After a hearing, the court granted the Bank's summary adjudication motion. The court stated the Stop Notice was not enforceable because a lender is required to enforce a stop notice claim only if the claim is accompanied by a bond in the statutory amount (one and one-fourth times the amount of the claim). The court found Acoustics did not satisfy this requirement because "[i]t is undisputed the bonded stop notice identified claimant's demand as $65,462.63" and "[i]t is also undisputed the bond accompanying the stop notice was in the amount" of $65,462.63. The court found no legal or factual authority to support Acoustics's claims that "the amount claimed [$65,462.63] is a typographical error" and/or that the Bank "should have known there was a mistake on the face of the stop notice."
Acoustics then dismissed its mechanics' lien claim, and the court entered a final judgment in the Bank's favor. The court also awarded the Bank $42,455.05 in attorney fees under section 3176.
I. Summary Judgment
A. Standard of Review
To prevail on a summary adjudication motion, a defendant must show one or more elements of the plaintiff's cause of action cannot be established or there is a complete defense to that cause of action. (Code Civ. Proc., § 437c, subds. (f)(1), (o).) The moving party's evidence is strictly construed and any doubts as to the propriety of granting the motion are to be resolved in favor of the party opposing the motion. (Branco v. Kearny Moto Park, Inc. (1995) 37 Cal.App.4th 184, 189.) The trial court determines whether a reasonable trier of fact could find in favor of the party opposing the motion, and must deny the motion when there is some evidence that, if believed, would support a judgment in favor of the nonmoving party. (Alexander v. Codemasters Group Limited (2002) 104 Cal.App.4th 129, 139.) We independently review the parties' supporting and opposing papers and apply the same standard as the trial court to determine whether there exists a triable issue of material fact. (City of San Diego v. U.S. Gypsum Co. (1994) 30 Cal.App.4th 575, 582.)
B. Applicable Law
A bonded stop notice is a procedure for an unpaid contractor to secure its claim by requiring a construction lender to set aside funds in the lender's possession. (See §§ 3103, 3083, 3158-3167.) "Stop notices are governed exclusively by statute." (Manos, supra, 203 Cal.App.3d at p. 1239.) By enacting specific and exclusive statutory remedies, the Legislature intended to "relieve lenders from 'the expense and risk of policing the ultimate distribution of construction funds' . . . ." (Id. at p. 1240; see Mechanical Wholesale Corp. v. Fuji Bank, Ltd. (1996) 42 Cal.App.4th 1647, 1657-1658.)
Section 3162 provides in relevant part: "Upon receipt of a stop notice pursuant to Section 3159, the construction lender may, and upon receipt of a bonded stop notice the construction lender shall, . . . withhold from the borrower or other person to whom it or the owner may be obligated to make payments or advancement out of the construction fund, sufficient money to answer the claim . . . ." (Italics added.) Section 3083 defines "Bonded stop notice" as "a stop notice, given to any construction lender, accompanied by a bond with good and sufficient sureties in a penal sum equal to 1 1/4 times the amount of such claim . . . ." Section 3103 states a " 'Stop notice' means a written notice, signed and verified by the claimant or his or her agent, stating in general terms all of the following: [¶] (a) The kind of labor, services, equipment, or materials furnished or agreed to be furnished by such claimant. [¶] (b) The name of the person to or for whom the same was done or furnished. [¶] (c) The amount in value, as near as may be, of that already done or furnished and of the whole agreed to be done or furnished. [¶] (d) The name and address of the claimant."
More than 20 years ago, this court interpreted these statutes as requiring a private works lender to withhold funds "only if the stop notice is accompanied by a bond in the sum of one and one-fourth times the amount of the stop notice claim." (Manos, supra, 203 Cal.App.3d at p. 1240, italics added.) In Manos, the subcontractor's stop notice demanded that the lender withhold $41,000 and stated that the subcontractor was attaching a bond in the sum of 125 percent of the amount of this claim. (Id. at p. 1239.) However, the attached bond was only in the sum of $41,000. (Ibid.)This court held that because the "stop notice was not accompanied by a bond in the statutorily required amount, the [lender] was not required under section 3162 to withhold any funds." (Id. at p. 1241, italics added.) We reasoned that "section 3162 [requires] a lender to withhold funds only if the stop notice is accompanied by a bond in the sum of one and one-fourth times the amount of the stop notice claim. Nothing in section 3162 suggests the lender must withhold a proportion of the amount claimed in the stop notice when a bond is provided in an amount less than one and one-fourth times the stop notice claim." (Id. at p. 1240.) We found the plaintiff's "contention the [lender] had a duty to withhold a proportionate $32,800 from the loan funds upon his providing a $41,000 bond on his $41,000 stop notice claim [was] at most an appeal to equity. The Legislature has stated its disfavor with judicially created equitable remedies against construction loan funds. [Citation.]" (Id. at pp. 1240-1241.)
Under Manos and the governing statutes, a stop notice claim is bonded if and only if it is accompanied by a bond that is at least one and one-fourth times the amount of the claim. As in Manos, the subcontractor here did not attach a bond of at least one and one-fourth times the amount of its claim. Thus, the Bank was not required to withhold any funds under section 3162. The Stop Notice identifying $65,462.63 as the funds to be withheld and its accompanying bond for the same amount did not trigger a duty on the Bank to withhold the funds.
To avoid this result, Acoustics argues that its Stop Notice identified $52,370.10 as the amount of the claim. In support, Acoustics says that the Stop Notice document contains two different " 'bottom line' " figures that were the subject of the stop notice — the $65,462.63 set forth in the "YOU ARE HEREBY NOTIFIED to withhold" section and the $52,370.10 figure identified as the "Amount due after deducting all just credits and offsets" — and that a reasonable recipient of the Stop Notice would understand that the actual claim was for $52,370.10 because this was the figure on the "Amount due" line.
This argument is unsupported by the factual record. There is only one monetary amount that is the subject of the stop notice claim — the clearly stated demand that "YOU ARE HEREBY NOTIFIED to withhold . . . the amount of $65,462.63 . . . ." There is nothing on the Stop Notice document showing that Acoustics was actually claiming the amount identified in the "Amount due after deducting all just credits and offsets" line and that the Bank should disregard the "YOU ARE HEREBY NOTIFIED" amount. Similarly, there is nothing on the face of the document showing the claimed amount was a clerical error.
In reaching these conclusions, we agree with Acoustics that the governing statutes do not identify the precise location where a claimant must set forth the amount of the claim on the stop notice document. We further agree that an interpretation of the Stop Notice document requires a court to analyze the reasonable expectations of the recipient lender within the context of the document as a whole. (See Mammoth Lakes Land Acquisition, LLC v. Town of Mammoth Lakes (2010) 191 Cal.App.4th 435, 458 [when the issue involves the interpretation of a written instrument and there is no extrinsic evidence presented, the meaning of an instrument is essentially a judicial function requiring a reasonable expectations inquiry].)
However, applying this test, the only reasonable conclusion is that the claimed amount was $65,462.63, and not $52,370.10. The stop notice document plainly requests the Bank "to withhold" at least $65,462.63. (Italics added.) Although Acoustics asserts that the $65,462.63 number was a "typographical error," Acoustics did not submit any declarations supporting this claim, nor is there anything in the record showing the claimed clerical error would have been reasonably communicated to the lender. Contrary to Acoustics's arguments, there are no "objectively reasonable" facts in the record from which a reasonable recipient would "grasp" that the true amount of the claim was $52,370.10. Even if there was evidence showing that contractors generally request a construction lender to withhold the same amount as the "Amount due" line, this is insufficient to create a duty on the part of the lender to disregard a clearly stated demand amount. The purpose of the stop notice statutes is to provide clear rules to protect the lender from competing claims for construction funds. (See Manos, supra, 203 Cal.App.3d at p. 1240; Sofias v. Bank of America (1985) 172 Cal.App.3d 583, 586-587; see also Mechanical Wholesale Corp. v. Fuji Bank, Ltd., supra, 42 Cal.App.4th at pp. 1657-1658.) Acoustics's proposed interpretation of its notice would violate this legislative intent.
For similar reasons, we reject Acoustics's argument that its Stop Notice was valid because it "substantially complie[d]" with statutory requirements. Acoustics relies on section 3103, which provides that a "stop notice" is "a written notice, signed and verified by the claimant or his or her agent, stating in general terms" specified information relating to the claim. (§ 3103.) Section 3103 also states: "No stop notice shall be invalid by reason of any defect in form if it is sufficient to substantially inform the owner of the information required." (Italics added.)
Under section 3103, a stop notice is not defective if it contains the essential facts that must be included in a statutory stop notice (bonded or unbonded). However, there is nothing in the specified required information suggesting that the substantial compliance rule extends to cure an improperly stated demand amount or to the requirement that a stop notice be accompanied by a sufficient bond amount. The requirement that the bond be one and one-fourth times the amount of the claim is contained in different code sections (§§ 3083, 3162), and these code sections do not contain a substantial compliance exception. (§ 3083.) As we held in Manos, a lender may disregard a stop notice that does not strictly comply with the statutory bonding requirement. (Manos, supra, 203 Cal.App.3d at pp. 1240-1241.)
Acoustics contends that an interpretation of the statutes to mean that it did not provide a sufficient bond constitutes a "forfeiture" and violates California's strong public policy against forfeitures. However, this argument is at most an appeal to equity and thus is not a proper basis for relief under the statutory scheme. The Legislature provided that stop notices are governed exclusively by statute and "has stated its disfavor with judicially created equitable remedies against construction loan funds." (Manos, supra, 203 Cal.App.3d at pp. 1240-1241; see Mechanical Wholesale Corp. v. Fuji Bank, Ltd., supra, 42 Cal.App.4th at p. 1659.) Moreover, Acoustics has not forfeited its right to seek payment for work performed. Rather, because of its failure to comply with statutory requirements, it has merely lost the ability to enforce the stop notice.
III. Attorney Fees
Acoustics also contends the court erred in awarding the Bank $42,455.05 in attorney fees under section 3176. Section 3176 states in relevant part: "In any action against an owner or construction lender to enforce payment of a claim stated in a bonded stop notice, the prevailing party shall be entitled to collect . . . reasonable attorney's fees . . . [¶] The court . . . shall determine who is the prevailing party for purposes of this section . . . . Except as otherwise provided by this section, the prevailing party shall be the party who recovered a greater relief in the action. The court may also determine that there is no prevailing party."
In seeking attorney fees under section 3176, the Bank argued it was a prevailing party because it successfully defended the stop notice cause of action. The Bank also presented evidence that it incurred $53,068.91 in attorney fees for its defense of the stop notice claim.
In opposing the motion, Acoustics argued the Bank was not a prevailing party in the action because it paid $5,000 to settle Acoustics's separate mechanics' lien claim. In support, Acoustics submitted the declaration of its counsel who stated that during a mediation, Acoustics and the Bank agreed to settle the mechanics' lien claim for $5,000. Acoustics also submitted a letter from the Bank's counsel enclosing a $5,000 payment to Acoustics and stating the Bank would be recording the releases of Acoustics's mechanics' liens and filing the dismissal stipulation.
The Bank objected to the declaration and letter as violating Evidence Code section 1119, which provides that statements made in mediation are confidential and inadmissible. The Bank alternatively argued the evidence was irrelevant in determining the prevailing party on Acoustics's stop notice cause of action.
The court granted the Bank's motion, finding it was a prevailing party on the stop notice claim. The court sustained the Bank's evidentiary objections, but stated that even if the evidence was admissible, it does not alter the Bank's prevailing party status because "the 'relevant inquiry' is whether, as a practical matter, Bank of America is the prevailing party with respect to the cause of action for which it is entitled to attorney's fees — the stop notice cause of action. Thus, the resolution of the mechanic's lien causes of action is irrelevant to the determination of whether [the Bank] is the prevailing party on the stop notice cause of action."
On the reasonableness of the claimed amount, the court found defense counsel's hourly rate was reasonable, but "the nature of this litigation and its difficulty were not great and did not require exceptional skill in handling, nor was the amount involved very large." Based on these and other relevant factors, the court reduced the Bank's claimed fees by 20 percent and thus awarded $42,455.05 in attorney fees to the Bank for its defense of the stop notice claim.
Under section 3176, "a construction lender who successfully defends a suit on an invalid stop notice claim . . . is a prevailing party entitled to receive its attorney fees." (Mechanical Wholesale Corp. v. Fuji Bank, Ltd., supra, 42 Cal.App.4th at p. 1661.)
Acoustics acknowledges that the Bank prevailed on the stop notice claim, but contends the court erred in awarding attorney fees because Acoustics obtained a $5,000 settlement of its mechanics' lien cause of action. Even assuming Acoustics presented admissible evidence of a mechanics' lien settlement, the trial court properly found this settlement did not affect the Bank's prevailing party status on the stop notice claim. As this court has held, the relevant inquiry is whether the party seeking fees prevailed with respect to the cause of action for which attorney fees are available under a statute, and not with respect to causes of action for which fees are not available. (See Graciano v. Robinson Ford Sales, Inc. (2006) 144 Cal.App.4th 140, 151-152 (Graciano).)
Acoustics's contention that Graciano reached a different holding reflects a misreading of the case. In Graciano, the plaintiff sought to recover under numerous causes of action, including the defendant's violations of consumer statutes that contain prevailing party attorney fees provisions. (Graciano, supra, 144 Cal.App.4th at p. 149.) After trial, the jury found in favor of the plaintiff on these statutory causes of action, and the parties then settled the remaining claims. (Id. at p. 147.) The trial court ruled that because the plaintiff had not obtained the relief she had requested on the various other causes of action and did not recover all of the relief sought on the statutory claims, the defendant was an equally prevailing party. (Id. at pp. 147-148.) This court reversed on several grounds, including that in reaching the prevailing party determination on the statutory claims, the court erred in considering litigation results on the claims for which attorney fees were not available. (Id. at pp. 151-152.) We explained "the relevant inquiry . . . was simply whether as a practical matter [the plaintiff] was the prevailing party with respect to her causes of action under the [consumer statutes] under which she sought fees." (Ibid.)
Relying on Graciano's citation to Hensley v. Eckerhart (1983) 461 U.S. 424, Acoustics contends Graciano reached the opposite conclusion — that in determining the prevailing party, a court may properly consider the results of the claims for which attorney fees are not recoverable. (Graciano, supra, 144 Cal.App.4th at p. 153.) Graciano's citation to Hensley was in the context of the Graciano court's discussion of whether a party is entitled to fees if the party only partially succeeded on the claim for which attorney fees are available. (Graciano, at p. 153.) It did not pertain to the Graciano court's holding that when a plaintiff prevails on a claim for which attorney fees are available, the plaintiff is a prevailing party entitled to fees on this claim even if the plaintiff did not prevail on another cause of action for which attorney fees were unavailable.
Acoustics's reliance on Zuehlsdorf v. Simi Valley Unified School Dist. (2007) 148 Cal.App.4th 249 is also unhelpful. In that case, the plaintiff prevailed on its preliminary injunction motion, but the court denied a permanent injunction because the issue had become moot. (Id. at pp. 252-255.) The reviewing court upheld the trial court's finding that the plaintiff was a prevailing party despite the mootness issue because the plaintiff realized his "litigation objectives" of having his daughter reinstated to a high school sports team and the defendant school district failed in its efforts to prevent the student's participation. (Id. at pp. 257-258.)
Even assuming this "litigation objectives" standard applies to a section 3176 prevailing party analysis, the Bank was the prevailing party under this test. Acoustics's litigation objective on the stop notice claim was to enforce its stop notice and secure the funds it was owed on the project, and the Bank's objective was to prevent Acoustics from enforcing the stop notice because it did not serve an adequately bonded stop notice claim. The Bank prevailed on this defense in its entirety, and Acoustics failed in its efforts to enforce its stop notice claim. On this record, the court did not abuse its discretion in determining that the Bank obtained its litigation objective and thus was the prevailing party.
The Bank was entitled to its reasonable attorney fees under section 3176 and the court properly awarded those fees. Acoustics does not challenge the court's conclusion that the amount of the award was reasonable under the circumstances.
Judgment affirmed. Appellant to pay respondent's costs on appeal.
HALLER, J. WE CONCUR:
MCCONNELL, P. J.