Federal Ins. Co. v. Superior Court (Mackey)

• Decision Date: 21 January 1998
• Docket Number: No. B112571,B112571
• Citation: 60 Cal.App.4th 1370,71 Cal.Rptr.2d 164
• Court: California Court of Appeals Court of Appeals
• Parties: , 98 Cal. Daily Op. Serv. 580, 98 Daily Journal D.A.R. 721 FEDERAL INSURANCE COMPANY et al., Petitioners, v. The SUPERIOR COURT of Ventura County, Respondent; David MACKEY, Real Party in Interest.

Page 164

71 Cal.Rptr.2d 164

60 Cal.App.4th 1370, 98 Cal. Daily Op. Serv. 580,

98 Daily Journal D.A.R. 721

FEDERAL INSURANCE COMPANY et al., Petitioners, v. The SUPERIOR COURT of Ventura County, Respondent David MACKEY, Real Party in Interest.

No. B112571.

Court of Appeal, Second District, Division 6, California.

Jan. 21, 1998.

[60 Cal.App.4th 1372] Karen M. Andrews, Los Alamitos, for Petitioners.

No appearance for Respondent.

Philip A. Metson, Los Angeles, for Real Party in Interest.

OPINION AND ORDER

GILBERT, Acting Presiding Justice.

A subcontractor and a prime contractor on a public works project have a dispute. Their agreement provides that disputes be resolved by way of arbitration. Here we hold that the subcontractor's suit against the prime contractor's surety must be stayed until completion of the arbitration.

PROCEDURAL AND FACTUAL BACKGROUND

David Mackey, real party in interest, was a subcontractor on a public works project. He had a dispute with the prime contractor Hedley Builders, Inc. ("Hedley") over money allegedly owed him for his work on the project. Mackey filed an action against Hedley and petitioners Federal Insurance Company and Vigilant Insurance Company (hereinafter referred to as "the carriers"). A provision in Hedley's subcontract with Mackey required arbitration of any claim or dispute. Hedley petitioned respondent superior court to compel arbitration and for a stay of the action pending the resolution of arbitration. Respondent court ordered the arbitration of the Hedley-Mackey dispute and stayed the action as to Hedley.

Instead of arbitrating his dispute with Hedley, Mackey filed his first amended complaint and served the carriers with requests for discovery. Respondent superior court denied the carriers' motion for a stay.

The carriers sought relief by way of an extraordinary writ from this court. They asserted that a stay is mandatory because Mackey's claim upon the bond involves issues to be decided in the arbitration proceeding. We granted an alternative writ of mandate.

DISCUSSION

The Sureties

Unlike private works contracts, an unpaid subcontractor on a public works project may not seek recovery from the real property. "[P]rinciples of sovereign immunity do not permit liens for persons furnishing labor or supplies on public property...." (Department of Industrial Relations v. Seaboard Surety Co. (1996) 50 Cal.App.4th 1501, 1508, 58 Cal.Rptr.2d 532.) In the place of a lien, the unpaid subcontractor may proceed against the general contractor by way of the payment bond requirements of Civil Code section 3247, et seq. These statutes " 'give to materialmen and laborers who furnish material for and render services upon public works an additional means of receiving compensation.' [Citation.]" (Ibid.)

In the usual case, a claim against a surety derives from the primary action. (Powers Regulator Co. v. Seaboard Surety Co. (1962) 204 Cal.App.2d 338, 354, 22 Cal.Rptr. 373 [the determination of a subcontractor's claim against a prime contractor is a condition precedent to any recovery on the insurance bond].) The arbitration proceedings will determine the validity of Mackey's claim.

Mackey, however, seeks to avoid this rule. He asserts that a claim against an insurance bond initiated by a subcontractor in a public works project need not depend upon the claimant's success against the prime contractor.

It is true that Mackey is entitled to maintain a direct action against the sureties. (Civ.Code, § 3248, subd. (c); Union Asphalt, Inc. v. Planet Ins. Co. (1994) 21 Cal.App.4th 1762, 1766, 27 Cal.Rptr.2d 371; Sukut-Coulson, Inc. v. Allied Canon Co. (1978) 85 Cal.App.3d 648, 654-655, 149 Cal.Rptr. 711.) This remedy, however, does not allow him to circumvent arbitration.

The carriers' liability under the bond will arise only if the contractor fails to pay for work performed under the contract. (Civ.Code, § 3248, subd. (b).) It is Mackey's demand for payment for labor and materials furnished at the project site that lies at the heart of this proceeding. Mackey's claim necessarily involves the determination of whether he is entitled to be paid for the labor and materials. (Powers Regulator Co. v. Seaboard Surety Co., supra, 204 Cal.App.2d at p. 354, 22 Cal.Rptr. 373.) Mackey must prove that he performed under the contract and that Hedley breached the contract. He will have an opportunity to do so at his arbitration hearing.

Wm. R. Clarke Corp. v. Safeco Ins. Co. (1997) 15 Cal.4th 882, 64 Cal.Rptr.2d 578, 938 P.2d 372 does not help Mackey. Clarke holds that a "pay if paid" provision of an agreement between a contractor and a subcontractor, which makes payment contingent upon the owners paying the contractor, is void as against public policy. If the owner fails to pay the contractor, then the contractor is still liable to the subcontractors and, therefore, the surety is likewise liable on the payment bond.

Clarke mentions that its conclusion that the surety is liable "is in no way inconsistent" with the proposition stated in both Flickinger v. Swedlow Engineering Company (1955) 45 Cal.2d 388, 289 P.2d 214 and Lewis & Queen v. N.M. Ball Sons (1957) 48 Cal.2d 141, 308 P.2d 713, "that a claimant on a labor and material payment bond must 'establish[ ], without reference to the bond, a legal and valid claim for compensation.' " (Wm. R. Clarke Corp. v. Safeco Ins. Co., supra, 15 Cal.4th at p. 895, 64 Cal.Rptr.2d 578, 938 P.2d 372.) Capitol Steel Fabricators Inc. v. Mega Construction Co., Inc. (1997) 58 Cal.App.4th 1049, 68 Cal.Rptr.2d 672 arrives at the same conclusion.

Mackey repeatedly argues that the elements of his claims against Hedley differ from the elements of his claims against the carriers. He supplies no factual support for this contention. Moreover, this argument is belied by the allegations contained in his first amended complaint in which he incorporates by reference allegations that he furnished labor and materials, Hedley breached the contract, and Hedley negligently maintained the job site and thereby impaired his ability to fully perform.

Arbitration

Because it is considered to be a speedy and relatively inexpensive method of resolving disputes, there is a strong presumption favoring arbitration. (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9, 10 Cal.Rptr.2d 183, 832 P.2d 899; Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100 Oak Street (1983) 35 Cal.3d 312, 322, 197 Cal.Rptr. 581, 673 P.2d 251; but see Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 64 Cal.Rptr.2d 843, 938 P.2d 903.)

Code of Civil Procedure section 1281.4 provides, in pertinent part, that "If a court of competent jurisdiction ... has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, the court in which such action or proceeding ... is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies." (Italics added.)

The purpose of the statutory stay is to...