BILL ANALYSIS Ó AB 456 Page 1 Date of Hearing: April 5, 2011 ASSEMBLY COMMITTEE ON JUDICIARY Mike Feuer, Chair AB 456 (Wagner) - As Amended: March 17, 2011 As Proposed to be Amended SUBJECT : MECHANIC'S LIENS: STAY OF LITIGATION PENDING ARBITRATION KEY ISSUE : SHOULD THE PROCEDURE BE CLARIFIED FOR REQUESTING A STAY OF MECHANICS' LIEN LAWSUITS PENDING ARBITRATION? FISCAL EFFECT : As currently in print this bill is keyed non-fiscal. SYNOPSIS This non-controversial bill is intended to clarify that mechanics' lien claimants in construction disputes may seek a stay of litigation pending the outcome of arbitration to which the parties agree, without any necessity to move for an order to compel arbitration, provided that if any party opposes the motion to stay the action on the ground that the party objects to arbitration of the dispute, the court shall determine whether the claim of lien or any relevant issue, question or dispute is subject to arbitration before staying the action. Supporters believe this revision will be helpful in providing guidance to the court when there is no dispute about the need for and relevance of a pending arbitration proceeding. SUMMARY : Clarifies procedures for certain stays of litigation. Specifically, this bill clarifies that mechanics' lien claimants in construction disputes may seek a stay of litigation pending the outcome of arbitration to which the parties agree, without any necessity to move for an order to compel arbitration, provided that if any party opposes the motion to stay the action on the ground that the party objects to arbitration of the dispute, the court shall determine whether the claim of lien or any relevant issue, question or dispute is subject to arbitration before staying the action. EXISTING LAW : AB 456 Page 2 1)Provides that any person who proceeds to record and enforce a mechanics' lien claim by commencement of an action does not thereby waive any right of arbitration the person may have pursuant to a written agreement to arbitrate, if, in filing an action the claimant either: (1) includes an allegation in the complaint that the claimant does not intend to waive any right of arbitration, and intends to move the court, within 30 days after service of the summons and complaint, for an order to stay further proceedings in the action; or (2) at the same time that the complaint is filed, the claimant files an application that the action be stayed pending the arbitration of any issue, question, or dispute that is claimed to be arbitrable under the agreement and that is relevant to the action to enforce the claim of lien. (Code of Civil Procedure Section 1281.5.) 2)Requires that within 30 days after service of the summons and complaint, the claimant shall file and serve a motion and notice of motion pursuant to Section 1281.4 to stay the action pending the arbitration of any issue, question, or dispute that is claimed to be arbitrable under the agreement and that is relevant to the action to enforce the claim of lien. The failure of a claimant to comply with this subdivision is a waiver of the claimant's right to compel arbitration. (Code of Civil Procedure Section 1281.5.) COMMENTS : The author argues that this bill is needed to clarify existing law regarding the stay of litigation pending arbitration of certain construction disputes. Code of Civil Procedure section 1281.5 deals with arbitration of construction disputes when there is a right to a mechanics lien. It allows the lien foreclosure lawsuit to be filed to satisfy the statute of limitations and notice to potential purchasers, but requires that the arbitration be commenced promptly and allows the lawsuit to be stayed. According to the author, the statute has caused some confusion because it has not been clear in some cases whether the claimant must also file a motion to compel arbitration. Supporters state that such a motion is frequently unnecessary because the parties do not dispute that the claim is arbitrable. AB 456 Page 3 In these circumstances, it is sensible to stay any court proceeding while the arbitration, once started, continues to be prosecuted. The sponsors contend that requiring a motion to compel arbitration is not only superfluous but only serves to "clog up" the courts. The author's proposed amendments largely clarify and refocus the bill appropriately. However, the Committee recently received further suggested revisions from the Judicial Council. The author and sponsor have committed to continuing to work with the Committee and the Judicial Council to ensure that any remaining concerns are addressed satisfactorily. Author's Clarifying Amendments. To better capture the intent of the bill, the author proposes the following clarifying amendments: 1281.5. (a) Any person who proceeds to record and enforce a claim of lien by commencement of an action pursuant to Title 15 (commencing with Section 3082) of Part 4 of Division 3 of the Civil Code, does not thereby waive any right of arbitration the person may have pursuant to a written agreement to arbitrate, if, in filing an action to enforce the claim of lien, the claimant does either of the following: (1) Includes an allegation in the complaint that the claimant does not intend to waive any right of arbitration, and intends to move the court, within 30 days after service of the summons and complaint, for an order to stay further proceedings in the action. (2) At the same time that the complaint is filed, the claimant files a motionan applicationthat the action be stayed pending the arbitration of any issue, question, or dispute that is claimed to be arbitrable under the agreement and that is relevant to the action to enforce the claim of lien. (b) Within 30 days after service of the summons and AB 456 Page 4 complaint, the claimant shall file and serve a motion and notice of motion pursuant to Section 1281.4 to stay the action pending the arbitration of any issue, question, or dispute that is claimed to be arbitrable under the agreement and that is relevant to the action to enforce the claim of lien. Notwithstanding section 1281.4, the claimant may make a motion to stay the action pending arbitration even if none of the parties to the action has filed an application for an order to arbitrate the controversy, provided that if any party opposes the motion to stay the action on the ground that the party objects to arbitration of the dispute, the court shall determine whether the claim of lien or any relevant issue, question or dispute is subject to arbitration before staying the action. The failure of a claimant to comply with this subdivision is a waiver of the claimant's right to compel arbitration. (c) The failure of a defendant either to file for a court order to arbitrate pursuant to Section 1281.2 or tocommencedemand arbitration pursuant to an agreement to arbitrate at or before the time the defendant answers the complaint filed pursuant to subdivision (a) is a waiver of the defendant's right to compel arbitration. REGISTERED SUPPORT / OPPOSITION : Support California Fence Contractors' Association (co-sponsor) California Chapter of the American Fence Association (co-sponsor) Engineering Contractors' Association (co-sponsor) Marin Builders' Association (co-sponsor) Flasher Barricade Association (co-sponsor) California Chamber of Commerce Civil Justice Association of California AB 456 Page 5 Opposition None on file Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334