State Construction Inc v. Hartford Fire Insurance Company ( 2020 )

IN THE COURT OF APPEALS FOR THE STATE OF WASHINGTON
STATE CONSTRUCTION, INC., a ) No. 78753-5-I
Washington Corporation, )
) DIVISION ONE
Appellant, )
)
v.
CITY OF SAMMAMISH, a governmental )
entity, PORTER BROTHERS ) UNPUBLISHED OPINION
CONSTRUCTION, INC., a Washington )
Corporation,
Defendants,
HARTFORD FIRE INSURANCE )
COMPANY, a corporation, Bond No. )
52BCSDL1 582, )
Respondent. ) FILED: January 13, 2020
ANDRUS, J. — State Construction, Inc., a subcontractor on a public works
project, challenges the dismissal of its lien and bond claims. Because its claims
were untimely, we affirm.
FACTS
In May 2014, Porter Brothers Construction, Inc. contracted with the City of
Sammamish (City) to construct the Sammamish Community & Aquatic Center (the
No. 78753-5-1/2
Project).1 The City and Porter Brothers entered into an American Institute of
Architects Standard Form Agreement between Owner and Contractor (AlA
Agreement). Under this agreement, Porter Brothers invoiced the City monthly, and
when the City paid the invoice, it retained five percent of the funds owed to Porter
Brothers, as required by RCW 60.28.011 ~2 A retainage fund totaling $1 ,351 ,472
is now on deposit in an escrow account at Heritage Bank pursuant to a retainage
agreement between Porter Brothers and the City.
Porter Brothers subcontracted with State Construction on June 10, 2014, to
perform certain excavation and utilities work. State Construction began this work
shortly thereafter.
Porter Brothers also obtained a payment and performance bond3 for the
value of the Project, $28 million, from Hartford Fire Insurance Company. On
October 12, 2015, Hartford filed a Uniform Commercial Code (UCC) financing
statement against Porter Brothers, attaching, as collateral for debts owed to
Hartford, Porter Brothers’ interest in any payments due to the contractor, including
monies to which it might be entitled from retainage funds.
1 The Project involved the construction of a 69,000 square foot building with a 6-lane, 25-yard lap
pool and other spaces, a parking structure and surface parking lot, and an access loop road.
2 RCW 60.28.011(1)(a) required the City to hold back a contract retainage not to exceed five
percent of the moneys earned by the contractor and to deposit the retained funds into a trust fund
for the protection and payment of claims and state taxes and penalties. This is commonly referred
to as a retainage fund.
~ RCW 39.08.010(1)(a) provides that on public improvement projects, contractors must post a
performance and payment bond to ensure that they have the financial ability to perform all
provisions of the contract; to pay all laborers, mechanics, subcontractors, and material suppliers;
and to pay all state taxes, increases, and penalties. Contractor bonds guarantee that the contractor
will perform the contract and will pay bills for labor and materials for which it contracts. 11 LEE R.
Russ & THOMAS F. SEGALLA, COUcH ON INSURANcE 3D, § 163:10 (2005). If the contractor defaults,
the surety agrees to pay an owner’s damages up to the limit of the bond and to pay claims of unpaid
subcontractors and suppliers. Id.
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No. 78753-5-1/3
Porter Brothers subsequently executed multiple “Irrevocable Assignment”
documents, in which it assigned to Hartford any right to payment it had on several
outstanding projects, including this Project. The assignment at issue here,
executed November 3, 2015, included the right to receive any portion of the
retainage funds held by the City:
FOR VALUE RECEIVED, the undersigned, Porter Brothers
Construction, Inc., hereby irrevocably assigns, transfers and sets
. . .
over to Hartford Fire Insurance Company. all Contract Funds of. .
any nature, including, but not limited to, progress payments, earned
or unearned funds, change orders, extras, claims of any nature,
retainages, with all the interest accruing thereon, and whether said
Contract Funds are due now or in the future under the contract . .
[for the Project].
The City determined that the Project was “substantially complete” on April
1, 2016.~ The building was operational at that point and, according to the City,
punch list items5 were completed thereafter. State Construction completed punch
list items in June 2016.
At some point around this time, Porter Brothers experienced financial
difficulty and notified the City it was abandoning the contract because it was unable
to complete the work. After Porter Brothers’ voluntary default, Hartford stepped in
~ Although the record does not contain a complete copy of the City’s AlA Agreement with Porter
Brothers, they executed the AlA Standard Form of Agreement Between Owner and Contractor,
Document Al 01-2007, which, in section 9.1.2, incorporated by reference AlA Document A201-
2007, General Conditions of the Contract for Construction (General Conditions). Under paragraph
9.8.1 of the General Conditions, “substantial completion” is defined as “the stage in the progress of
the Work when the Work . is sufficiently complete
. . .so that the Owner can occupy or utilize the
. .
Work for its intended use.” WERNER SABO, LEGAL GUIDE TO AlA DOCUMENTS § 4.56 SUBSTANTIAL
COMPLETION: ¶9.8, at ¶9.8.1 (6th ed. 2019); see also I JONATHAN J. SWEET, SWEET ON
CONSTRUCTION INDUSTRY CONTRACTS: MAJOR AlA DOCUMENTS § 15.14, at 627-28 (5th ed. 2009).
~ Under paragraph 9.8.2 of the General Conditions, when the Contractor considers the work
substantially Complete, the Contractor submits a list of items needing to be Corrected before final
payment. LEGALGUIDETOAIADOCUMENTS § 4.56 SUBSTANTIAL COMPLETION: ¶ 9.8, at~T 9.8.2.
This list is known as the punch list. SWEET ON CONSTRUCTION INDUSTRY CONTRACTS: MAJOR AlA
DOCUMENTS § 15.14, at 628.
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No. 78753-5-1/4
and paid certain debts, including monies owed to union trust funds for employee
fringe benefits and dues, and materials and supplies furnished by various
companies.
The City stated in discovery that landscaping work was completed on
August 31, 2016. The landscaping subcontractor testified that it completed its
punch list work in November 2016. The City received as-built drawings on January
13, 2017. Porter Brothers indicated that the last subcontractor to perform services
on the Project was Milne Electric, which completed its work on January 19, 2017.
In discovery, the City stated that “Porter Brothers, by and through its
subcontractors, was performing work under the contract through February 2017,
of which the City has no[] specific knowledge. After February 21, 2017, warranty
work was completed.”6
On February 21, 2017, the City’s council passed a resolution recognizing
the “[P]roject was substantially completed by the contractor on April 1, 2016,”
accepting the Project as officially complete, and authorizing the contract closure
process. The City filed a notice of completion with the state agencies, pursuant to
RWC 60.28.051, on April 13, 2017, listing the “Date Work Completed” as
“4/1/2016,” and the “Date Work Accepted” as “2/21/2017.”
On March 27, 2017, State Construction filed with the City a notice of a lien
claim against the retainage fund and notified Hartford of its claim against the bond
6 The General Conditions contains an express warranty that the work will be free from defects and
conform to the design documents. LEGAL GUIDE TO AlA DOCUMENTS § 4.17 WARRANTY: ¶ 3.5.
The warranty period runs for one year after substantial completion of the contract. Ia. at § 4.70
CORRECTION OF WORK: ¶ 12.2, at ¶ 12.2.2.1: see also Patrick J. O’Connor, Jr., Warranties,
Guarantees, and Correction Remedies under the AlA Document A201 (1997), Constr. Law. 19, 24
(1998). Any work a contractor must perform to correct deficiencies is known in the construction
industry as “warranty work.”
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No. 78753-5-1/5
for $250,462.27. State Construction later amended its claim against the retainage
fund to $199,205.66 and claimed to be owed another $7,295.16 on unpaid
invoices.
On April 28, 2017, State Construction filed suit against the City, Porter
Brothers, and Hartford. State Construction sought to foreclose on its lien against
the retainage fund, to collect the amounts it was owed from Hartford’s bond or from
the City, and to obtain a judgment against Porter Brothers for the amount owed
under its subcontract.
In March 2018, Porter Brothers stipulated to the entry of judgment against
it in favor of State Construction, in the amount of $1 99,205.66.~
In May 2018, State Construction and Hartford filed cross-motions for
summary judgment. State Construction sought judgment against Hartford and the
City for $199,205.66, or an order requiring Hartford to pay State Construction’s lien
from the retainage fund. Hartford contended the claims were time barred under
RCW 39.08.030 and RCW 60.28.011(2).
The trial court dismissed State Construction’s claims against the City. It
further granted summary judgment for Hartford, concluding that while the retainage
fund “is a statutorily authorized trust and may not be assigned to the general
contractor’s creditors,” State Construction’s lien claim was not timely filed and, as
a result, was not enforceable against the retainage fund. The order did not
separately address State Construction’s claim against Hartford’s bond but
dismissed all claims against Hartford.
~ State Construction waived its claim to $7,295.16 in unpaid bills.
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No. 78753-5-1/6
The trial court awarded $20,012.21 in attorney fees to Hartford under
RCW 39.04.240. State Construction appeals.
ANALYSIS
State Construction contends the trial court erred in concluding that its lien
claims against Hartford’s bond and the retainage fund were time barred. State
Construction also maintains that if the notices were untimely, it resulted from the
City’s failure to notify it of the date of substantial completion, in violation of due
process.
State Construction alternatively argues that even if its lien claims are
untimely, it is still entitled to be paid out of the retainage fund because Porter
Brothers unlawfully assigned the retainage funds to Hartford, and its stipulated
judgment against Porter Brothers is a valid lien against any funds to which Porter
Brothers is otherwise entitled. Finally, State Construction contends the trial court
erred by awarding Hartford attorney fees.
A. Standard of Review
We review summary judgment orders de novo, performing the same inquiry
as the trial court. Hisle v. Todd Pac. Shipyards Corp., 151 Wn.2d 853, 860, 93
P.3d 108 (2004). A court may grant summary judgment if the evidence, viewed in
a light most favorable to the nonmoving party, establishes there is no genuine
issue of any material fact, and the moving party is entitled to judgment as a matter
of law. CR 56(c); Hisle, 151 Wn.2d at 861.
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No. 78753-5-1/7
B. State Construction’s Bond and Retainage Claims
1. RCW 39.08.030—Performance Bond
State Construction first contends the trial court erred in dismissing its claim
against Hartford’s performance bond. It argues that its notice was timely under
RCW 39.08.030(1)(a). We disagree.
Subcontractors may bring a claim against a performance bond for any
completed work, but
such persons do not have any right of action on such bond for any
sum whatever, unless within [30] days from and after the completion
of the contract with an acceptance of the work by the affirmative
action of the . city. ,the
. . subcontractor.
. . must present to
. . . . .
and file with such city. a notice in writing [in a form set out in
. . . . .
the statute].
RCW 39.08.030(1)(a).
The City passed a resolution on February 21, 2017, accepting the Project
as complete as of that date. State Construction concedes that the City “accept[ed]
the Project as complete,” as required by the statute, on February 21, 2017. It
further concedes that it filed its lien claim notice with the City 34 days after the date
of acceptance. It argues, however, that its notice should be considered timely
because the statute requires both “completion of the contract” and “acceptance of
the work” to occur before the 30-day deadline is triggered. It contends there are
questions of fact as to whether contract completion occurred before or after
February 21, 2017.
Hartford contends that the City’s certification of the date of completion and
acceptance is legally conclusive and that State Construction cannot factually
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No. 78753-5-I/S
challenge the certification.8 When a subcontractor initiates a lien foreclosure
action, rather than file an answer, a public owner certifies
the name of the contractor; the work contracted to be done; the date
of the contract; the date of completion and final acceptance of the
work; the amount retained; the amount of taxes certified due or to
become due to the state; and all claims filed with it showing
respectively the dates of filing, the names of claimants, and amounts
claimed.
RCW 60.28.030 (emphasis added).
The City initially certified the date of completion to be the same date as the
date of final acceptance—February 21, 2017. But the City amended its certification
to distinguish between the “date of completion” and the “date of final acceptance.”
In its amended filings, the City certified the date of completion as April 1, 2016—
the date it identified as the date of substantial completion under the contract.
RCW 60.28.030 does not explicitly provide that a certification is conclusive
proof of the date of contract completion under either the bond or retainage statute.
The Washington Supreme Court, however, considered a similar argument in
Denny-Renton Clay & Coal Co. v. National Surety Co., 93 Wash. 103, 160 P. 1(191 6),~ and Pearson v. Puqet Sound Machinery Depot, 99 Wash. 596, 169 P. 961(1918). In Denny-Renton, the plaintiff supplied bricks for a street improvement
project in Wenatchee. 93 Wash. at 104. The engineer certified the work as
complete on November 25, 1913, even though there remained “cleanup work” to
8 A ‘conclusive presumption,” or “irrebuttable presumption,” is “[a] presumption that cannot be
overcome by any additional evidence or argument because it is accepted as irrefutable proof that
establishes a fact beyond dispute.” BLACK’S LAw DICTIONARY 1435 (11th ed. 2019).
~ Superseded by statute, LAWS OF 1915, ch. 28, § 2 (requiring affirmative action of a public body to
effectuate acceptance), as recognized in Nat’l Blower & Sheet Metal Co. v. Am. Sur. Co. of N.Y.,
41 Wn.2d 260, 264, 248 P.2d 547 (1952).
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No. 78753-5-1/9
be completed, including the removal of unused bricks and tarpaulins and sand from
the pavement. fri at 107-08.
The Court held that the engineer’s certification constituted the city’s legal
acceptance and that this acceptance was binding on the contractor and the brick
supplier. at 110. It held that “[t]he fact that the ‘cleanup work’ was done after
the engineer certified that the work was [100 percent] completed [wa]s immaterial.”
Id. The date certified by the public owner could not be undermined except by
evidence of fraud or collusion on the part of the owner or its agent. j4~. Because
the plaintiff had no evidence of fraud or collusion, the Court concluded it could not
rebut the certified contract completion date. j~
Similarly, in Pearson, a subcontractor filed a claim against a surety bond on
a Port of Seattle construction project 31 days after the Port engineer certified the
building complete and the Port, by resolution, accepted it. 99 Wash. at 598. The
Court deemed the bond claim untimely because the subcontractor had no
evidence that the engineer concealed the certificate of completion and both the
certificate and the Port’s resolution accepting the work were public records. fri. at
599. Quoting Denny-Renton, the Court reiterated that the engineer’s certificate
and the Port’s resolution of acceptance were legally binding on the subcontractor.
fri. at 599-600.
Under Denny-Renton and Pearson, a public owner’s resolution—deeming
the project complete and accepting the project—is legally conclusive absent
evidence of fraud or collusion by the public owner in the certification or acceptance
process. We have seen no evidence of any fraud or collusion here. State
Construction’s evidence regarding work activities undertaken after April 1, 2016 is
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No. 78753-5-Ill 0
thus immaterial and insufficient to preclude entry of summary judgment. See
Jacobsen v. City of Seattle, 98 Wn.2d 668, 671, 658 P.2d 653 (1983) (disputes
over immaterial facts are not a bar to summary judgment). We conclude that the
City’s formal resolution accepting the Project as complete is legally conclusive and
triggered the bond claim filing deadline of RCW 39.08.030.10
Nevertheless, State Construction contends that the City’s resolution, on its
face, demonstrates that the contract was not complete because it authorized the
deputy city manager to take steps “to complete the contract closure process.” One
of the key steps to closing out a public works contract, it maintains, is the filing of
a “Notice of Completion of Public Works Contract” with the State, as required by
RCW 60.28.051 ~ State Construction argues the City filed this notice on April 13,
2017, and that the “completion of the contract” for purposes of the bond lien statute
did not occur until then.
The meaning of a statute is a question of law reviewed de novo. Dep’t of
Ecology v. Campbell & Gwinn, LLC, 146 Wn.2d 1, 9, 43 P.3d 4 (2002). Our primary
10 For this reason, we reject State Construction’s argument that work still in progress in 2016 and
2017 creates a genuine issue of material fact. Moreover, State Construction’s punch list argument
appears contrary to the language in the City’s AlA Agreement with Porter Brothers. Paragraph
5.2.1.1 provided that the City would issue final payment to Porter Brothers after Porter Brothers
fully performed the contract, “except for the Contractor’s responsibility to correct Work.” This
provision demonstrates that the parties had agreed that “full performance of the contract” did not
include punch list work. The bond statute does not preclude a public owner from accepting a
contract as complete before all punch list work has been finished. ~ Seattle Plumbing Su~Iy
Co. v. Md. Cas. Co., 151 Wash. 519, 521-22, 276 P. 552 (1929) (school board’s acceptance of
project as complete, subject to terms as to repair of any defective work discovered within a
year. and subject to all necessary clean-up work,” is complete for purposes of bond claim); I``I
. .
Blower & Sheet Metal Co., 41 Wn.2d at 267 (clarifying that Seattle Plumbing ‘hold[s] squarely that
an acceptance subject to necessary clean-up work does not make the acceptance conditional”).
~ Under RCW 60.28.051, the public owner must notify various state agencies when a contract is
completed and cannot release any of the retained funds until the state agencies certify that all taxes
or any other money owed to the state by the contractor have been paid or can be paid without
recourse to the state’s lien on the retained percentage.
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No. 78753-5-I/il
duty in interpreting a statute is to discern and implement the legislature’s intent.
State v. J.P., 149 Wn.2d 444, 450, 69 P.3d 318 (2003). Statutory interpretation
begins with the statute’s plain meaning. Lake v. Woodcreek Homeowners Ass’n,
169 Wn.2d 516, 526, 243 P.3d 1283 (2010).
Well-established rules of statutory construction lead us to conclude that the
phrase “completion of the contract” refers to completion of the contract by the
contractor, not by the public owner. Had the legislature used the language
“completion of the contract ~ acceptance of the work by the public owner,” we
might conclude that the prepositional phrase “by the public owner” modifies both
preceding phrases. But the legislature did not use this language. Instead, it used
the phrase “completion of the contract ~ an acceptance of the work by the
affirmative ~ction of the [public owner].” RCW 39.08.030 (emphasis added). Under
the last antecedent rule of statutory construction, courts construe the final
qualifying words and phrases in a sentence to refer to the last antecedent unless
a contrary intent appears in a statute. Eyman v. Wyman, 191 Wn.2d 581, 599,
424 P.3d 1183 (2018). Thus, under this rule, the prepositional phrase “by the
affirmative action of [the public owner]” modifies only “acceptance of the work,” and
not the phrase “completion of the contract.”
State Construction also relies on the fact that RCW 39.08.030 refers to
“completion of the contract” while the language used in the retainage lien statute,
RCW 60.28.011(2), refers to “completion of the contract work.” It argues that
because the legislature used different language in the two statutes, it must have
intended different meanings. It maintains that the omission of the word “work” after
“contract” in RCW 39.08.030 means that the City’s post-acceptance activities can
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No. 78753-5-1/12
delay the trigger date for bond claims.
But we find no material difference between “completion of the contract” and
“completion of the contract work” as those phrases are used in the bond and
retainage lien claim statutes. Although chapter 39.08 RCW does not contain
definitions, a related public works statute—chapter 39.04 RCW—does. The
definitions in this related statute provide context for evaluating State Construction’s
arguments here. ~ Lake, 169 Wn.2d at 526 (courts discern plain meaning from
the ordinary meaning of the language at issue, the statute’s context, related
provisions, and the statutory scheme as a whole).
RCW 39.04.010(2) defines “contract” to mean “a contract in writing for the
execution of public work for a fixed or determinable amount duly awarded after
advertisement and competitive bid.” The term “public work” is defined as “all work,
construction, alteration, repair, or improvement. . . executed at the cost of the
state or of any municipality.” RCW 39.04.010(4). The focus of these definitions is
clearly on the physical execution of construction activities performed by a
contractor, not administrative activities performed by the public owner.
Furthermore, State Construction has not identified any authority for the
proposition that “completion of the contract” as used in RCW 39.08.030(1)(a)
occurs only after a public owner completes its internal administrative closure
process or files a notice of completion required by RCW 60.28.051. Where a party
fails to cite to relevant authority, we generally presume that the party found none.
Edmonds Shopping Cen. Assocs. v. City of Edmonds, 117 Wn. App. 344, 353, 71
P.3d 233 (2003).
State Construction’s argument is also unsupported by the City’s AlA
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No. 78753-5-1/13
Agreement with Porter Brothers. Article 3 refers to the dates of commencement,
substantial completion, and final completion of “the Work.” And article 5 ties final
payment to when “the Contractor has fully performed the Contract.” The parties
appear to have treated completion of the contract to equate to completion of the
contract work by Porter Brothers.
We agree with State Construction that the use of the preposition “with” to
link the two events (contract completion and acceptance of work) means that the
bond claim filing deadline does not trigger until both events occur. But the City’s
AlA Agreement with Porter Brothers did not permit it to accept the contractor’s
work before Porter Brothers completed it. Paragraph 5.2 of the AlA Agreement
provided that the City would not make final payment of “the entire unpaid balance
of the Contract Sum” to the contractor until “the Contractor has fully performed the
Contract” and “Final Acceptance has occurred.” The contract itself indicates the
City would not accept the work until Porter Brothers had fully performed the
contract. 12
Our construction of the bond lien statute is consistent with the historical
understanding of its requirements. As Hartford persuasively contends, the
construction industry and our courts have long understood the deadline for a claim
against a bond to coincide with the public owner’s acceptance of the work. ~
Seattle Plumbing Su~ly Co. v. Md. Cas. Co., 151 Wash. 519, 522, 276 P. 55212 Acceptance has significant ramifications for a project owner. The owner is acknowledging that
the work conforms to the applicable contract quality and quantity requirements and that title and
risk of loss pass from the contractor to the owner. 4A BRuNER & O’CONNOR ON CONSTRUCTION LAW
§ 13:58 (2019 Update). Moreover, acceptance is generally the commencement of any warranty
period set out in the contract. Id. State Construction’s suggestion that the City issued a final
acceptance before Porter Brothers fully performed its contractual obligations is not supported by
the record.
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No. 78753-5-1/14
(1929) (materialmen’s notice of claim, filed more than 30 days after school board
accepted contract as complete, was deemed untimely); Pearson, 99 Wash, at 600
(materialman’s claim against bond deemed untimely when filed 31 days after port
commission passed resolution accepting warehouse as completed); C-Star
Concrete Corp. v. Hawaiian Ins. & Guar. Co., 8 Wn. App. 872, 874, 509 P.2d 758(1973) (filing period runs 30 days after acceptance of work).
Finally, State Construction asks the court to conclude that it “substantially
complied” with the bond statute by filing a lien claim 34 days—rather than 30
days—after the City’s acceptance of the Project. This argument runs contrary to
well-established law that a person claiming the benefits of a statutory lien must
demonstrate strict compliance with the time deadline in the statute. Kinskie v.
Capstin, 44 Wn. App. 462,464, 722 P.2d 876 (1986); see also Shope Enters., Inc.
v. Kent Sch. Dist., 41 Wn. App. 128, 131, 702 P.2d 499 (1985) (courts strictly
construe time deadlines in lien statutes).
A party asserting substantial compliance must demonstrate:
(1) that some notice must be filed with the proper body; (2) that it
must be filed within at least [30] days from the completion of the
contract and acceptance of the work; (3) that there must be some
identification of the bond, surety, and work; and (4) that there must
be some notice of an intent to claim against the bond.
Foremost-McKesson Sys. Div. of Foremost-McKesson, Inc. v. Nevis, 8 Wn. App.
300, 303-04, 505 P.2d 1284 (1973) (quoting Fid. & Deposit Co. of Md. v. Herbert
H. Conway, Inc., 14 Wn.2d 551, 558, 128 P.2d 764 (1942)). A subcontractor
cannot establish substantial compliance if it failed to meet the 30-day deadline.
Keller Supply Co., Inc. v. Lydig Construction Co., Inc., 57 Wn. App. 594,
789 P.2d 788 (1990), on which State Construction relies, does not provide
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No. 78753-5-1/15
otherwise. In Keller, a plumbing materials supplier sent a timely preclaim lien
notice to a project owner. j..ç~ at 596, 599. The only alleged deficiency in the notice
was the failure to state specifically that the supplier would look to the contractor’s
bond or retainage for any claim in the case of nonpayment. at 596, 598. This
court deemed the form of the notice substantially complied with the statute
because it identified the job for which Keller supplied materials and specifically
stated that Keller intended to claim a lien if it was not paid. ki. at 599-600.
But Keller’s holding—relating to the form of a notice—has never been
extended to resuscitate an untimely notice. To the contrary, in Pearson, the
Supreme Court held that a subcontractor’s bond claim, filed 31 days after the port
commission certified a building as complete and accepted it, was one day late and
thus untimely. 99 Wash, at 598-600. Pearson remains good law.
State Construction was required to file its bond claim no later than March
23, 2017. The City did not receive it until four days later. As a result, State
Construction’s right to assert a claim against the performance bond under
RCW 39.08.030 expired, and the trial court properly dismissed its claim against
the bond.
2. RCW6O.28.011(2)—Retainage Fund
State Construction makes similar arguments regarding its retainage fund
claim. If a contractor fails to pay a subcontractor, the subcontractor may seek
recovery directly from the retainage fund according to a specific statutory
procedure:
Every person performing labor or furnishing supplies toward
the completion of a public improvement contract has a lien upon
moneys reserved by a public body under the provisions of a public
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No. 78753-5-1/16
improvement contract. However, the notice of the lien of the claimant
must be given within [45] days of completion of the contract work,
and in the manner provided in RCW 39.08.030.
RCW 60.28.011(2). The timeliness of State Construction’s retainage lien claim
thus depends on whether it served notice on the City within 45 days of the
“completion of the contract work.”
Hartford contends State Construction’s lien was not timely filed because it
was sent almost a year after the date of substantial completion, April 1, 2016, the
date the City certified as the date of “completion of the contract work.” It again
argues the City’s certification is legally conclusive and cannot be challenged
factually by State Construction. We agree. State Construction is bound by the
City’s determination that the contract work was complete as of April 1, 2016.
State Construction argues, however, that the statute does not set as the
trigger date the date of “substantial completion of the contract work,” and Hartford
is impermissibly injecting a word into the statute that does not exist. It also
contends the trigger date for filing a retainage fund lien claim should be the same
as the trigger date for filing a bond lien claim—February 21, 2017. To support this
argument, State Construction submitted a publication from the Municipal Research
and Services Center (MRSC), a non-profit organization that helps local
governments in Washington serve their citizens “by providing legal and policy
guidance on any topic.”13 State Construction’s President, Phuong Busselle,
testified that she relied on this publication in closing out some of the company’s
public works contracts. In the MRSC overview of “required steps that local
13 About MRSC, MRSC: LOCAL GOVERNMENT SUCCESS, http://mrsc.orq/Home/About-MRSC.aspx.
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No. 78753-5-1/17
governments in Washington State must take to officially complete a public works
contract,” it provides the following ‘Practice Tip:”
The contract documents should clarify that for the purposes of the
retainage statute (RCW6O.28.0l1), “completion of all contract work”
is the same as “date of final acceptance” in the performance and
payment bond statute (RCW 39.08.010). This means that the trigger
date for retainage release will be the same as the trigger date for
filing claims.
The problem with relying on an Internet summary of the law, however, is
that it may be incorrect. The retainage statute does not refer to “completion of all
contract work.” It merely states “completion of ~ contract work.” While the
retainage statute may allow a local government to contractually deem the date of
“completion of the contract work” to be the date of final acceptance, rather than the
date of substantial completion, we find nothing in the language of the statute
mandating that outcome.14
Indeed, the general conditions of a construction contract often define what
constitutes completion of the contract work. See ROBERT L. OLSON, Payment, ~,
WASH. STATE BAR Ass’N, WASHINGTON CONSTRUCTION LAW DESKBOOK § 10.3(2)(c),
at 10-11 (2019). It appears well-established that parties may contractually select
as the date of completion of the work either the date of substantial completion or
the date of final completion. 5 BRUNER & O’CONNOR ON CONSTRUCTION LAW § 15:14
(2019 Update). But
14We similarly reject State Construction’s argument that the date of “corripletion of the contract
work” should be the date the City filed its Notice of Completion with the state agencies under
RCW 60.28.051. This argument would require us to import words into the statute that do not exist.
RCW 60.28.011(2) makes no reference to the date the owner notifies state agencies of the
completion of the contract work. Our rules of statutory construction prohibit reading additional
words into a statute. Densley v. Dept of Ret. Sys., 162 Wn.2d 210, 219, 173 P.3d 885 (2007).
The date the City filed a statutorily required Notice of Completion is not the date that triggered the
45-day deadline.
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No. 78753-5-1118
[u]nless otherwise defined by the contract to mean “final
completion[,]” the date on which the work is 100 [percent] complete,
“comjletion” ordinarily is understood to mean “substantial
comijletion”—the date on which all material elements of the work are
sufficiently complete in conformance with the contract so that the
owner can use the work for its intended purpose.
kI. at § 15:15 (emphasis added).
Furthermore, under paragraph 9.8.4 of the General Conditions, the City’s
architect was required to inspect the work and issue a “Certificate of Substantial
Completion.” WERNER SABO, LEGAL GUIDE TO AlA DOCUMENTS § 4.56
SUBSTANTIAL COMPLETION: ~ 9.8, at ~ 9.8.4 (6th ed. 2019). This certificate
would have established the date of substantial completion and started the warranty
period. j4~ “Final completion” would only have occurred after the contractor
notified the owner that all the work was ready for final inspection, the architect
inspected the work and deemed it acceptable under the contract documents, and
the architect issued a certificate for final payment. ki. at § 4.58 FINAL
COMPLETION AND FINAL PAYMENT: ~ 9.10, at~ 9.10.1.
Although we have no certificate of substantial completion in the record
before us, State Construction does not challenge that, as of April 1, 2016, a
sufficient amount of construction had been completed so that the City could use
the community and aquatic center for its intended purpose. Instead, State
Construction argues, without evidence, that the City did not decide, until February
2017, ten months after-the-fact, that Porter Brothers had reached substantial
completion on April 1, 2016. But there is no evidence in the record that the City
failed to follow the process for determining and certifying substantial completion
here.
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No. 78753-5-1/19
Even if the City’s certification were not legally conclusive, State
Construction has not established a genuine issue of material fact that the
substantial completion date provided by the City was not the date of “completion
of the contract work” for purposes of RCW 60.28.011(2). Therefore, the contract
work was completed on the Project as of April 1, 2016, and State Construction’s
notice of lien claim, filed on March 27, 2017, was untimely as it was not filed within
the 45 days required by statute.
C. State Construction’s Due Process Claim
State Construction next argues it had no notice that April 1, 2016 was the
trigger date for filing a retainage lien claim and, as a result, the City violated its due
process rights by failing to provide it notice.
Article I, section 3 of the Washington State Constitution provides that “[nb
person shall be deprived of life, liberty, or property, without due process of law.”
The Washington Supreme Court has held that the state due process clause is no
broader than its federal counterpart. In re Dependency of E.H., 191 Wn.2d 872,
884-85, 427 P.3d 587 (2018). The loss of lien rights to funds held in trust under
RCW 60.28.011 implicates a property interest protected by due process. The
question is what process is due to protect subcontractors like State Construction
against the erroneous deprivation of that property interest.
A procedural due process challenge under the state constitution turns on
whether the increased accuracy afforded by additional procedures is outweighed
by the government’s legitimate reasons in denying more protections. ki. at 891.
Our Supreme Court has employed the balancing test adopted by the United States
Supreme Court in Mathews v. Eldridqe, 424 U.S. 319, 96 S. Ct. 893, 47 L. Ed. 2d
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No. 78753-5-1/20
18 (1976), to assess procedural due process challenges on a case-by-case basis.
EH., 191 Wn.2d at 891-92. The Mathews test requires a court to compare the
status quo to the procedures sought and identify (1) the private interest involved,
(2) the risk of an erroneous deprivation of that interest, and (3) the government’s
interest. 424 U.S. at 335.
The first Mathews factor requires us to identify the nature and weight of the
private interest affected by the challenged action. Prostov v. Dept of Licensing,
186 Wn. App. 795, 811, 349 P.3d 874 (2015) (quoting City of Redmond v. Moore,
151 Wn.2d 664, 670, 91 P.3d 875 (2004)). In this case, we agree that
subcontractors like State Construction have a substantial interest in being paid by
contractors and receiving full payment on public projects. The money deposited
into the retainage fund was deducted from State Construction’s invoices to Porter
Brothers and, but for the retainage requirement, would have been paid to State
Construction for its work. This factor weighs in favor of State Construction.
Under the second Mathews factor, we consider whether the risk of an
erroneous deprivation of this private interest under the existing statutory scheme
is unreasonable. See Prostov, 186 Wn. App. at 813-14. Here, if a subcontractor
is unaware that the public owner and contractor have contractually agreed that the
date of substantial completion will trigger the retainage lien statute, or does not
know that a contractor has reached substantial completion, there is a risk that this
subcontractor will miss the deadline to file a notice of lien claim.
But State Construction has not demonstrated that that risk is unreasonable.
Subcontractors have multiple ways to protect their interest in the retainage fund,
including negotiating with the contractor for advance notice of the lien filing
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No. 78753-.5-l121
deadline, tracking the contractor’s progress on the project and requesting records
from the public owner as to the status of the contractor’s progress, or filing lien
claims regularly throughout the project. Courts have noted on several occasions
that a claimant need not wait until project completion and acceptance to file a claim.
Airefco, Inc. v. Yelm Cmty. Schs. No. 2, 52 Wn. App. 230, 232-34, 758 P.2d 996(1988); see also Pearson, 99 Wash, at 598-600; Title Guar. & Sur. Co. v. Coffman,
Dobson & Co., 97 Wash. 211, 213-15, 166 P. 620 (1917) (unnecessary to wait
until end of project to file claim); Denny-Renton, 93 Wash, at 110 (“This works no
hardship upon a reasonably prudent laborer or materialman. He is not required to
wait for completion or acceptance of the work. He can file his claim as soon as he
finishes furnishing labor or materials.”); WASHINGTON CONSTRUCTION LAW
DESKBOOK § 10.4(2), at 10-29 (acknowledging that it is safer to submit claim upon
completion of subcontractor work instead of waiting for main contract completion).
State Construction had methods by which it could protect its private interest in the
retainage fund without imposing new notice requirements on the City. The second
Mathews factor weighs against State Construction.
The third Mathews factor addresses the government’s interest in the fiscal
and administrative burden that additional procedural requirements would entail.
Prostov, 186 Wn. App. at 816. The City has an interest in minimizing the
administrative burden of having to track the identity of multiple subcontractors and
suppliers on large public works projects and having to notify each one when the
contractor achieves substantial completion.15 The public works contracts and
15 It is for this reason that State Construction argued, see supra note 14, the trigger date for filing
lien and bond claims should be the date the Notice of Completion is filed with the state agencies,
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No. 78753-5-1/22
certificates of substantial completion are available to the public, even if not
available from the contractor. The third factor weighs against State Construction.
Given the subcontractors’ ability to manage the risk associated with filing a
timely notice of lien, and the burden a notice requirement would pose on public
bodies managing large construction projects, we conclude that State
Construction’s due process rights were not violated by the City when it failed to
notify it that Porter Brothers had achieved substantial completion under the
contract.
D. Porter Brothers’ Assignment of Retainage Funds
Next, State Construction maintains that because retainage funds are trust
funds that cannot be assigned, Porter Brothers’ assignment to Hartford is invalid.
And if the assignment is invalid, it argues its judgment takes priority over any claim
Hartford may have to the retainage funds. We reject both arguments and conclude
that Porter Brothers had a property interest in excess retainage funds under
RCW6O.28.021, and it lawfully assigned that interest to Hartford. Therefore,
Hartford’s assignment predated State Construction’s judgment and has priority
over it.
First, under RCW 60.28.021, any excess retainage funds, after payment of
all taxes, timely lien claims, foreclosure costs, and attorney fees, must be paid to
the contractor. In Johnson Service Co. v. Roush, 57 Wn.2d 80, 87, 89, 355 P.2d
i.e., subcontractors can search public records to ascertain when a public works contract has been
completed. While this might be expeditious for all parties, that is not what the statutes provide, and
we cannot rewrite or modify statutory language under the guise of statutory interpretation or
construction. Garcia v. DeQ’t of Soc. & Health Svcs., Wn. App. 2d
— —, 451 P.3d 1107, 1123
(2019). We must give full effect to the plain language of the statutes, even when the results may
seem harsh. Geschwind v. Flana~an, 121 Wn.2d 833, 841, 854 P.2d 1061 (1993).
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No. 78753-5-1/23
815 (1960), the Supreme Court held that the Internal Revenue Service (IRS) could
not attach money on deposit in a retainage fund for taxes owed by a contractor
because the funds were held in trust for payment to subcontractors and suppliers,
“except to the extent that the claim of the [contractor] exceeds the aggregate of the
claims of the subcontractors and the State Tax Commission.” Because the
retainage was exhausted by payment of timely lien claims, there was no balance
to remit to the contractor and nothing to which the federal tax lien could attach. ki.
at 89. But had there been funds sufficient to remit to the contractor, the IRS could
have attached those funds to prevent their payment to the contractor.
RCW 60.28.011(1)(a) makes the retainage fund a “trust fund for the
protection and payment” of claims arising under the contract. But once an owner
determines that all taxes and timely lien claims have been paid, the contractor is
entitled to the remaining funds. RCW 60.28.021; see also Fid. & Deposit, 14
Wn.2d at 568-69 (duty to remit remaining funds to contractor because “[ut was
clearly the contractor’s money, and any retention would constitute an unlawful
deprivation of the money”).
Porter Brothers’ assignment to Hartford only conveyed title to contract funds
that were “due now or in the future.” Under RCW 60.28.021, no retainage funds
were due to Porter Brothers until all taxes and timely liens were paid. Just as
Porter Brothers will not receive any excess funds from the retainage until all taxes
and timely liens are paid, neither will Hartford. See Levinson v. Linderman, 51
Wn.2d 855, 861, 322 P.2d 863 (1958) (“An assignment of a sum of money due or
to become due will pass to the assignee only so much as a construction of the
instrument shows was intended to pass.”) (quotation and citation omitted). We
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No. 78753-5-1/24
conclude that Porter Brothers lawfully assigned to Hartford any excess retainage
funds that it may be entitled to receive under RCW 60.28.021.
Second, because State Construction’s lien was untimely, its lien against the
retainage fund ceased to exist. “‘The right to a lien ceases to exist when the
designated period is over.” Thompson v. Peninsula Sch. Dist. N. 401, 77 Wn.
App. 500, 505, 892 P.2d 760 (1995) (quoting Shope, 41 Wn. App. at 131). Once
State Construction’s lien ceased to exist, the funds in the account based on State
Construction’s work became available to other lien claimants and, if any excess
exists, to Porter Brothers or its secured creditors. The record is insufficient for the
court to determine whether the retainage fund has any excess funds that would be
payable to Porter Brothers. The City’s certification lists over 20 lien claimants (in
addition to State Construction) whose combined claims well exceed the $1.3
million in the retainage fund.
To the extent any excess funds in the retainage fund are due to Porter
Brothers, Hartford, as a secured creditor, has a claim to those funds that takes
priority over State Construction’s judgment. A debtor’s general assignment for the
benefit of a creditor passes to the creditor all title to the property vested in the
debtor and that title is superior to any unsecured creditor who acquires a judgment
against the debtor thereafter. Steinberg v. Raymond, 50 Wn.2d 502, 503, 312
P.2d 824 (1957). Because Porter Brothers executed a valid assignment for the
benefit of Hartford that included title to any excess funds that would otherwise be
owing to Porter Brothers, and that assignment preceded State Construction’s
judgment, Hartford’s interest is superior to that of State Construction.
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No. 78753-5-1/25
E. Attorney Fee Award to Hartford
Lastly, State Construction argues that Hartford is not entitled to attorney’s
fees for two reasons—first, under RCW 60.28.030 and RCW 39.08.030, only the
party claiming against the retainage fund and the bond may recover fees; and
second, under RCW 39.04.240, State Construction’s action does not arise out of
a public works contract.
Washington courts may only award attorney fees “when doing so is
authorized by a contract provision, a statute, or a recognized ground in equity.”
King County v. Vinci Constr. Grands Projets/Parsons RCI/Frontier-Kemper, JV,
188 Wn.2d 618, 625, 398 P.3d 1093 (2017). Generally, attorney fee awards are
reviewed for an abuse of discretion. Guillen v. Contreras, 169 Wn.2d 769, 774,
238 P.3d 1168 (2010). But the “underlying question of which fees may be awarded
pursuant to the statute is a question of law reviewed de novo.” Olympic Peninsula
Narcotics Enf’t Team v. Real Prop. Known as (1) Junction City Lots 1 Through 12
Inclusive, Block 35, (2) Lot 2 of the Nelson Short Plat Located in Jefferson County,
191 Wn.2d 654, 661, 424 P.3d 1226 (2018).
Hartford’s motion for attorney fees and costs was based on RCW
39.04.240(1), which provides:
The provisions of RCW 4.84.250 through 4.84.280 shall apply
to an action arising out of a public works contract in which the state
or a municipality, or other public body that contracts for public works,
is a party, except that: (a) The maximum dollar limitation in RCW
4.84.250 shall not apply; and (b) in applying RCW 4.84.280, the time
period for serving offers of settlement on the adverse party shall be
the period not less than thirty days and not more than one hundred
twenty days after completion of the service and filing of the summons
and complaint.
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No. 78753-5-1/26
Under RCW 4.84.250 through .280, if a defendant makes a settlement offer to a
plaintiff and the plaintiff subsequently recovers nothing or recovers an amount
equal to or less than the settlement offer, the defendant is deemed the prevailing
party entitled to recover attorney fees.
Hartford represented, and State Construction does not dispute, that it
offered to settle State Construction’s claims for $0 on August 29, 2017, a date
within the deadlines prescribed in RCW 39.04.240 and RCW 4.84.280. State
Construction did not accept this offer. Because State Construction recovered
nothing in its suit, Hartford argued it was the prevailing party under RCW 4.84.270
and, as a result, entitled to attorney fees under RCW 39.04.240. The trial court
agreed.
State Construction argues that RCW 60.28.030 and RCW 39.08.030 only
permit a lien claimant to recover attorney fees. It contends the more general public
works attorney fee statute, RCW 39.04.240, conflicts with the lien statutes and is
thus inapplicable. It relies on Housing Authority of City of Everett v. Kirby, 154 Wn.
App. 842, 856, 226 P.3d 222 (2010)16 for this proposition. We decline to extend
Kirby to public works contract disputes because of the mandatory nature of the
language in RCW 39.04.240.
In Kirby, the Housing Authority brought an unsuccessful unlawful detainer
action against Kirby, who then sought attorney fees under multiple statutes,
including RCW 4.84.250 and .270. 154 Wn. App. at 846, 848. The Housing
Authority noted that applying these statutes to residential unlawful detainer actions
16 on other grounds by Hous. Auth. of C[ty of Seattle v. Bin, 163 Wn. App. 367, 260 P.3d
900 (2011).
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No. 78753-5-1127
would, in certain situations, create a conflict between them and the specific statute,
RCW 59.18.290, that allowed landlords to recover attorney fees in residential
unlawful detainer actions. jç[. at 856. We affirmed the denial of Kirby’s request for
attorney fees, reasoning that it made no sense that a tenant, found guilty of non
payment of rent and subject to eviction, could become the prevailing party entitled
to an award of attorney fees by offering to settle for less rent than the landlord
claimed was owed. Id. at 856-57. Such an outcome, we concluded, would conflict
with RCW 59.18.290, which authorizes a discretionary fee award to the landlord
who prevailed in recovering possession of the premises. Id. We determined that
RCW 59.1 8.290 superseded RCW 4.84.250 and .270. k~.
But the public works statute under which Hartford sought an award of
attorney fees is distinguishable from the general language of RCW 4.84.250 and
.270. RCW 39.04.240 provides that the provisions of RCW 4.84.250 through .280
“shall apply to an action arising out of a public works contract in which the state or
a municipality. . . is a party.” Additionally, the right to recover attorney fees under
the settlement offer process set out in RCW 4.84.250 to .280 “may not be waived
by the parties to a public works contract” entered into after June 11, 1992, and any
contractual provision providing for such a waiver is void against public policy.
RCW 39.04.240(2).
When the legislature uses the word “shall,” we deem it to be mandatory.
Khandelwal v. Seattle Mun. Court, 6 Wn. App. 2d 323, 337-38, 431 P.3d 506(201 8). In addition, the statute contains a significant legislative statement of public
policy. The mandatory language of RCW 39.04.240 undermines State
Construction’s suggestion that the legislature intended RCW 60.28.030 and RCW
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No. 78753-5-1/28
39.08.030(1)(b) to supersede it. We therefore conclude that RCW 60.28.030 and
RCW 39.08.030(1) do not supersede RCW 39.04.240.
Finally, State Construction contends that RCW 39.04.240 does not apply
because Hartford was not a party to the public works project contract and because
its lien foreclosure action did not arise out of a public works contract. But State
Construction misreads RCW 39.04.240.
By its language, RCW 39.04.240 applies when the state or a city is a party
to a public works contract and is a party to a lawsuit arising out of that contract.
The statute does not require that the party seeking attorney fees is a party to the
underlying contract. .~ Puget Sound Elec. Workers Health & Welfare Tr. v.
Lighthouse Elec. Grp., No. C12-276 RAJ, 2014 WL 2619921 (W.D. Wash. June
12, 2014) (granting the surety and the general contractor their attorney fees for
time period that the State was a party to the action); see also Am. Safety Cas. Ins.
Co. v. City of OlymiDia, 162 Wn.2d 762, 773, 174 P.3d 54 (2007) (awarding
RCW 39.04.240 fees to the city as prevailing party in lawsuit brought by surety as
assignee of the general contractor’s rights under a public works construction
project). It is undisputed that the City was a party to the dispute.
We also conclude that State Construction’s action arose out of a public
works contract. A public works contract is a condition precedent to a bond or
retainage lien claim. See RCW 39.08.010(1) (public owner must require contractor
to obtain bond); RCW6O.28.011(1) (public works contracts must set up retainage
trust fund). Retainage and bond lien claims brought pursuant to RCW 39.08.010
and 60.28.011 thus arise out of a public works contract. Puget Sound Elec.
Workers Health & Welfare Tr., 2014 WL 2619921, at *1.
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No. 78753-5-1/29
We affirm the trial court’s award of Hartford’s attorney fees pursuant to RCW
39.04.240. Furthermore, because Hartford is the prevailing party on appeal, we
award it attorney fees and costs pursuant to RAP 14.2, subject to its compliance
with RAP 18.1.
Affirmed.
WE CONCUR:
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