Legal Question in Construction Law in California

Pool Company Stops Construction

The pool we were having built was completed to the ''tile phase'' and the sub's were not payed. But two checks were issued, payed and cleared to the Contractor. After about two weeks of not returning our calls, when usually we get a call back within a hour of calling we get a call last Friday morning and low and behold it's the Sub for the Gunite, that was done just under a month ago stating he has not been paid. He heard from his San Diego Based office that the Pool Company's main office in S.D. closed it's doors and has filed Bankruptcy. Two other Homeowners are in the same boat as us, fortunately or not we are further along in the process then the other two.

Come to find out the San Diego based Company 1st filed Chapeter 11 then decided recently to change to Chapter 7 they owe the IRS hundreds of thousands of dollars. Oh my!

We paid them over $26,000.00 and they did not pay the Subs. What type of recourse do we have? Will we be out the money, possibly Double pay, can we sue the Company, the individuals? Record an Absrtact of Judgement against them personally and the Company? File with Small claims..Local DA's office..any paperwork to put our names in the Bankruptcy Filethat would help?

Bottom line, What can we do?

Asked on 5/31/06, 12:36 am

1 Answer from Attorneys

Cynthia Beckwith Law Offices of Cynthia Beckwith

Re: Pool Company Stops Construction

There are a number of things you can do.

First, file a claim in the bankruptcy case. The attorney for the pool company should be assembling a list of creditors and sending notices, but just in case, get the attorney's name and address either from the pool company or from the Bankruptcy Court website, then send him a brief letter with the dollar value of your claim. Here's the bad news: You will stand in line with all unsecured creditors to divide whatever assets exist after secured creditors and the government are paid. In a Chapter 7, there may not be sufficient assets to pay you.

Another step: Go on the website for the State of California contractors' license board, find the name and address of the pool company's bonding company, and make a claim on the bond. Again, the bond is only $10,000. Even if the pool company admits it abandoned the job, the bonding company will just split the bond among the claimants. You may need to file a civil action against pool company, naming the surety as another defendant.

Another step: Look closely at your contract. The United States Bankruptcy Code only stops litigation against the debtor, not other persons. If the entity that filed BK is not exactly the same as the one that signed your contract, you are not precluded from filing a civil action against the pool company. You are also not prohibited from bringing lawsuits against people other than the debtor, for example, for fraud, provided, of course, you have a factual basis for the allegation.

Also: Contact the Contractors State License Board. They may not be able to do anything to enforce the terms of the contract now that the contractor has filed bankruptcy, but you will have created a record.

In the future, the best course of action is to get a partial unconditional lien release every time you make a partial payment, stating that both the general and all subs have been paid and have released any lien rights they had for work performed to that point. And then you get a full unconditional lien release at the end of the project.

Ultimately, you need to make sure that all of the subs are paid. What is required here is coordination of your efforts to pay off the subs and (hopefully) recover some, if not all, of your money from the general. I have represented both property owners and contractors (both generals and subs) in this kind of situation, and would be happy to speak further with you if you need any assistance.

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Answered on 5/31/06, 6:57 pm

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