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Can A Public Agency Recover Attorney’s Fees Defending A Stop Notice Claim?

By Dale Ortmann, Esq.

In an opinion issued in March of this year, a Court of Appeal answered the question of whether a public agency can recover attorney’s fees defending against a stop notice claim.

On a project for the Long Beach Community College District (District), a subcontractor filed a stop notice claim with the District and then sued to enforce it. While the lawsuit was pending, the general contractor obtained a stop notice release bond and filed it with the District. The District accepted the release bond, released the funds it was withholding to the general contractor, and was dismissed from the case. The District then requested and was awarded its attorney’s fees against the subcontractor under Civil Code §3186, which allows a public agency to claim the “reasonable cost of any litigation” if it prevails.

The Court of Appeal reversed the trial court and denied the District’s claim for attorney’s fees, holding that the “reasonable cost of any litigation” did not include attorney’s fees. However, the Court of Appeal noted that if the District had deposited the disputed funds in court and filed an “interpleader” action against the subcontractor and general contractor who were each claiming the disputed funds, the District might have been able to recover its attorney’s fees. Here, the District simply withheld the funds from the general contractor upon receipt of the subcontractor’s stop notice and did not deposit the disputed funds in court.

The lesson learned: if a public agency receives a stop notice and believes it is a mere stakeholder of disputed money between a prime contractor and subcontractor, it should consider depositing the disputed funds in court to preserve its right to recover attorney’s fees.

Dale Ortmann is a Shareholder with Hunt Ortmann, a leader in California construction law. If you have any questions about this bulletin, please contact him atortmann@huntortmann.com.

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