Brewer Corporation, et. al. v. Point Center Financial, Inc.

On January 31, the Fourth District Court of Appeal followed Familian Corp v. Imperial Bank, holding stop notice claimants have priority over the entire construction loan amount and lenders must make all fees, interest, and points they took from the loan available to stop notice claimants. This case should expedite recoveries and avoid the tired lender defenses that seek to distinguish Familian or assert it was wrongly decided. In the underlying action, four contractor claimants (two of which were represented by the firm) pursued bonded stop notice claims against the construction lender, Point Center Financial, Inc. After a bench trial, Point Center was found liable for the stop notice claims. Liability against Point Center was imposed not only for the construction funds undisbursed at the time of each stop notice, but also for all amounts that had already been spent on interest, loan fees, and real estate and escrow fees. The total judgment, including attorneys’ fees, was approximately $3 million.

[expand title=”Read More” swaptitle=”Less”]Point Center appealed the judgment on a number of grounds, including whether the Familian decision should be applied. While the Court of Appeal remanded the judgment of one claimant based on a procedural defense raised by Point Center, the Court affirmed the judgment for the other claimants, including the firm’s two clients, and upheld the Familian decision. Point Center also appealed on the ground that one of the firm’s clients failed to serve Point Center with a notice of commencement after filing a lawsuit to enforce its stop notice, which Point Center argued was a jurisdictional requirement that should have entitled Point Center to a nonsuit. The firm’s client timely served its stop notice and timely filed its lawsuit, but did not serve a notice of commencement, pursuant to Civil Code section 3172, within five days of commencing its lawsuit. The firm represented the client at trial. At trial, it was undisputed Point Center suffered no prejudice as a result of the lack of notice of commencement. The trial court denied Point Center’s motion for nonsuit, finding no prejudice to Point Center and substantial compliance by the firm’s client. The Court of Appeal affirmed the trial court’s ruling and rationale. The Court of Appeal concluded that the requirement to serve a notice of commencement was not mandatory, unless the lender could show prejudice. Since there was no prejudice to the lender, the contractor claimant was not required to serve a notice of commencement. The firm’s clients will now return to the trial court to seek an award of their attorneys’ fees and costs incurred on the appeal, and will continue to enforce their substantial money judgment.

A copy of the published decision can be viewed here.

(2014) 223 Cal.App.4th 831
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