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United Riggers & Erectors, Inc. v. Coast Iron & Steel Co.

Filed 5/14/18 IN THE SUPREME COURT OF CALIFORNIA UNITED RIGGERS & ERECTORS, INC., ) ) Plaintiff and Appellant, ) ) S231549 v. ) ) Ct.App. 2/1 B258860 COAST IRON & STEEL CO., ) ) Los Angeles County Defendant and Respondent. ) Super. Ct. No. VC062679 ____________________________________) This case is about construction –– both physical and statutory. Spurred by late payment problems in the construction industry, the Legislature established statutory payment deadlines and imposed penalties on owners who delay paying their direct contractors, and on direct contractors who delay paying their subcontractors. But these strict deadlines include an exception relevant to this case: Direct contractors can withhold monies from subcontractors in circumstances where a dispute has arisen between the parties. (Civ. Code, § 8814, subd. (c).) What we must decide is whether this exception allows withholding when there is any dispute between the parties, or only when there is a dispute directly relevant to the specific payment that would otherwise be due. The Court of Appeal adopted the narrower construction. We agree. The dispute exception excuses payment only when a good faith dispute exists over a statutory or contractual precondition to that payment, such as the adequacy of the construction work for which the payment is consideration. Controversies concerning unrelated work or additional payments above the amount both sides agree is owed will not excuse delay; a direct contractor cannot withhold payment where the underlying obligation to pay those specific monies is undisputed. We affirm. I. In 2010, Universal City Studios LLLP (Universal) entered agreements to build a new ride at its theme park, Universal Studios Hollywood. For the new attraction that would become Transformers: The Ride, Universal selected defendant Coast Iron & Steel Co. (Coast Iron) as the direct contractor to design, furnish, and install metal work. Universal agreed to pay Coast Iron on a monthly basis for amounts billed, minus a 10 percent withholding — referred to in the construction industry as a retention or retainage — as protection against nonperformance and potential liens. Upon receipt, Coast Iron was contractually responsible for making corresponding payments to its subcontractors. One such subcontractor was plaintiff United Riggers & Erectors, Inc. (United Riggers), which was responsible for installing the metal work Coast Iron fabricated and supplied. The contract between Coast Iron and United Riggers called for United Riggers to receive $722,742 for its work. Because of change orders submitted by United Riggers and approved by Universal, the amount Coast Iron owed United Riggers eventually rose to just under $1.5 million. United Riggers completed its work to Coast Iron’s satisfaction. In March 2012, once all work on the project was finished, Coast Iron asked for a final bill from its subcontractor. United Riggers demanded additional amounts that would have brought its pay to $1.85 million: $274,158.40 for increased expenses attributed to Coast Iron’s mismanagement, and $78,384 based on outstanding change order requests. Coast Iron refused payment, responding instead that it would “see [United Riggers] in court!!” 2 In August 2012, Universal paid out …
Original document
Source: California Supreme Court