BILL ANALYSIS                                                                                                                                                                                                    Ó






                             SENATE JUDICIARY COMMITTEE
                             Senator Noreen Evans, Chair
                              2011-2012 Regular Session


          SB 293 (Padilla)
          As Amended March 25, 2011
          Hearing Date: April 5, 2011
          Fiscal: No
          Urgency: No
          TW   
                    

                                        SUBJECT
                                           
                              Payment Bonds:  Laborers

                                      DESCRIPTION  

          Existing law exempts laborers from having to serve a preliminary 
          notice prior to asserting a claim for payment against private or 
          public works project payment bonds.  This bill would clarify 
          that, prior to enforcing a payment bond claim, laborers are 
          exempt from having to serve a preliminary notice. This bill 
          would contain a delayed operative date of July 1, 2012. 

                                      BACKGROUND  

          The California Constitution grants laborers and materials 
          suppliers a mechanics lien on any property improved by their 
          labor or material.  The mechanics lien law in the Civil Code 
          generally specifies the obligations, rights, and remedies of 
          those involved in a construction project.  While mechanics liens 
          are not available on public works of improvement, existing law 
          provides claimants on public works projects with other statutory 
          remedies, including stop notices and claims against payment 
          bonds.

          Prior to 1994, preliminary notices were required to be served 90 
          days after services were commenced in order to assert and 
          enforce a claim against a public works payment bond.  Laborers 
          were exempt from this notice requirement.  AB 3357 (Goldsmith, 
          Ch. 974, Stats. 1994) reduced the preliminary notice timing 
          requirement from 90 to 20 days and added these same provisions 
          for asserting and enforcing a claim against a private works 
          payment bond.  These provisions maintained the preliminary 
                                                                (more)



          SB 293 (Padilla)
          Page 2 of ?



          notice exemption for laborers.  (See Civ. Code Secs. 3097, 3098, 
          3242, and 3252.)

          Although the preliminary notice statutes specifically exempt 
          laborers from their provisions, the statutes regarding enforcing 
          a payment claim did not specifically exempt laborers from having 
          to serve a preliminary notice.  Those statutes contained a 
          cross-reference to the preliminary notice provisions, but 
          project owners and contractors maintained that laborers had to 
          serve a preliminary notice prior to enforcing a payment bond 
          claim.  To clarify this apparent ambiguity, AB 2390 (Torrico, 
          2010) was amended on August 31, 2010, to provide for the 
          provisions contained in AB 2216 (Fuentes, 2010), which died on 
          the Senate Floor.  AB 2216, among other things, would have 
          clarified the laborer exemption to the public works payment bond 
          claim enforcement provisions.  AB 2390 also failed passage on 
          the Senate Floor.  

          In 1999, the Assembly Judiciary Committee requested the 
          California Law Revision Commission (CLRC) to provide a 
          comprehensive review of mechanics lien law and make suggestions 
          for possible areas of reform.  Following initial efforts to 
          substantively revise specific provisions of existing law, the 
          CLRC began studying a general revision of mechanics lien law in 
          2004.  The CLRC believed that the mechanics lien statute had 
          "become increasingly difficult to use, generating litigation 
          over confusing provisions, and often leaving participants unsure 
          of their rights and obligations."  Therefore, the CLRC decided 
          that its primary objective would be to revise the statute in a 
          way that would make it easier for all practitioners to use and 
          understand.  It placed its highest priority on drafting a 
          "nonsubstantive reorganization of the existing mechanics lien 
          statute that would modernize and clarify existing law."  

          SB 189 (Lowenthal, Ch. 697, Stats. 2010) overhauled the 
          mechanics lien law and was based upon the February 2008 
          recommendations of the CLRC resulting from its study of 
          mechanics lien law.  (California Law Revision Commission, 
          Recommendation, Mechanics Lien Law, February 2008.)  In general, 
          the CLRC included substantive changes to existing law only if 
          the proposed reform fell into one of two categories: 1) 
          substantive reforms that were believed to bring about an 
          overarching improvement to the statute as a whole, thereby 
          benefiting all affected persons; and 2) substantive reforms 
          that, although primarily benefiting one group of persons 
          affected by the statute more than others, were perceived not to 
                                                                      



          SB 293 (Padilla)
          Page 3 of ?



          unduly burden any other group.  (See California Law Revision 
          Commission Memorandum 2009-45, October 13, 2009.)  

          This bill, sponsored by the California State Council of 
          Laborers, would clarify the exemption of public or private works 
          project laborers from the preliminary notice requirements 
          regarding payment bond enforcement.  The provisions of this bill 
          would become operative on July 1, 2012, consistent with the 
          provisions of SB 189.

                                CHANGES TO EXISTING LAW
           
          1.Existing law  , the California Constitution, provides that 
            mechanics, persons furnishing materials, artisans, and 
            laborers of every class have a lien on the property upon which 
            they bestowed labor or furnished material for the value of 
            such labor done and material furnished.  (Cal. Const., art. 
            14, sec. 3.)

             Existing law  defines laborers, among other things, to mean a 
            person acting as an employee who performs labor upon or 
            bestows skill or other necessary services on a work of 
            improvement.  (Civ. Code Sec. 8024.)
             Existing law  exempts laborers from having to serve preliminary 
            notices prior to asserting a claim for payment against private 
            or public works project payment bonds.  (Civ. Code Secs. 8200 
            and 9300.)  

             Existing law  requires preliminary notices to be served in 
            accordance with the preliminary notice statutes prior to 
            enforcing a claim against a private or public works project 
            payment bond.  (Civ. Code Secs. 8612 and 9560.)
             
            This bill  would clarify that laborers are exempt from having 
            to serve preliminary notices prior to enforcing a claim 
            against a private or public works project payment bond.

          2.  Existing law  , as enacted by SB 189, becomes operative on July 
            1, 2012.  (Civil Code Section 8000 et seq.)

             This bill  would also become operative on July 1, 2012.

                                        COMMENT
           
          1.  Stated need for the bill  
          
                                                                      



          SB 293 (Padilla)
          Page 4 of ?



          The author writes:
          
            A 1959 change to the Civil Code exempted laborers from the 
            preliminary notice requirement.  In 1994, AB 3357 was signed 
            into law, making changes to provisions regarding preliminary 
            notice.  The law left it ambiguous as to whether laborers are 
            required to file a preliminary notice before issuing a claim 
            against a bond.

            In a time of economic uncertainty and with foreclosure rates 
            and unemployment rates at an all-time high, it is important 
            that this ambiguity in current law be clarified.  This bill 
            would help ensure that laborers be paid promptly by codifying 
            into law that they are exempt from the twenty day preliminary 
            notice.  Laborers rendering services should be paid on a 
            timely basis.  Moreover, this bill would prevent any future 
            problems that could arise from the doubt in current law 
            regarding preliminary notices.

            SB 293 would clear up the uncertainty and codify that laborers 
            are indeed exempt from being required to file a preliminary 
            notice.
          
          California State Council of Laborers, the sponsor of this bill, 
          writes:  "Since laborers are exempt from the preliminary notice 
          requirement, the current language is ambiguous as to whether a 
          new notice requirement is to be added for laborers. . . . This 
          bill will further clarify the laborers' historic exemption from 
          the requirement to give a 20-day public works preliminary bond 
          notice in order to enforce a claim on any payment bond given in 
          connection with a public work. . . .  "
          2.  Exemption for laborers from preliminary notice requirements  

          This bill would clarify the exemption for public and private 
          works project laborers from the preliminary notice requirements 
          regarding payment bond claims.  Under existing law, laborers are 
          exempt from the preliminary notice requirements on private and 
          public works projects.  (Civ. Code Secs. 8200 and 9300.)  
          Existing law requires a preliminary notice to be served prior to 
          enforcement of a payment bond claim in accordance with Civil 
          Code Sections 8200 (private works) or 9300 (public works).  
          (Civ. Code Secs. 8612 and 9560.)  

          California State Council of Laborers, the sponsor of this bill, 
          states that confusion exists between contractors, project 
          owners, and laborers on the issue of preliminary notice 
                                                                      



          SB 293 (Padilla)
          Page 5 of ?



          requirements.  Because laborers are not expressly exempt from 
          the preliminary notice requirements under the payment bond 
          enforcement provisions, contractors and project owners are 
          denying payment bond claims submitted by laborers.  Although SB 
          189, which this bill amends, is not operative until July 1, 
          2012, the statutes in effect through July 1, 2012 contain these 
          same ambiguities.  (See Civ. Code Secs. 3097, 3098, 3242, and 
          3252.)  The enforcement provisions require preliminary notice to 
          be served in accordance with the separate preliminary notice 
          statutes, and these preliminary notice statutes are 
          cross-referenced within the enforcement provisions.  This bill 
          would clarify existing law that laborers may enforce a claim 
          against a payment bond and are not required to serve a 
          preliminary notice before hand.


           Support  :  Associated General Contractors; Engineering & Utility 
          Contractors Association

           Opposition  :  None Known

                                        HISTORY
           
           Source  :  California State Council of Laborers

           Related Pending Legislation  :  None Known

           Prior Legislation  :  See Background.

                                   **************