DIVISION OF LABOR STANDARDS ENFORCEMENT v. HOLMES ROOFING COMPANY INC

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Court of Appeal, Fourth District, Division 2, California.

DIVISION OF LABOR STANDARDS ENFORCEMENT, Department of Industrial Relations, State of California, Plaintiff and Appellant, v. HOLMES ROOFING COMPANY, INC., a California corporation, et al., Defendants and Respondents.

Civ. 23194.

Decided: March 24, 1981

Laurence T. Emert, Los Angeles, for plaintiff and appellant. Musick, Peeler & Garrett, John W. Prager, Jr., and Dwight L. Armstrong, Los Angeles, for defendants and respondents.

The defendant roofing contractor failed to pay its employees “the general prevailing rate of per deim wages” as prescribed by a public works contract which the contractor had entered into with the County of Orange.   About nine months after a notice of completion of the work had been recorded, plaintiff Division of Labor Standards Enforcement (DLSE), as assignee of the employees, brought suit to recover approximately $65,000 in allegedly unpaid wages and penalties.   Besides Holmes Roofing Company, Inc. (Holmes), the complaint named as a defendant Balboa Insurance Company (Balboa), which as surety had written the labor and materials bond for the contractor as principal.

The defendants demurred to the complaint, arguing among other things that the several causes of action were time-barred variously by the time limitations in section 1775 of the Labor Code and in section 3249 of the Civil Code.   The trial court sustained the demurrer, and, when DLSE declined to amend, the defendants successfully moved to dismiss.   Included in the motion was an application for attorney's fees under section 3250 of the Civil Code.   The order as noted provided for dismissal of the complaint under section 581 subdivision (3) of the Code of Civil Procedure and that “DLSE shall pay Defendant HOLMES costs, which shall include HOLMES' attorneys' fees incurred in undertaking the defense of BALBOA in this matter.”

When Holmes filed its memorandum of costs and disbursements, it included therein the amount of $6,091 for attorney's fees “incurred by HOLMES in undertaking the defense of BALBOA.”   Thereafter, DLSE moved to tax costs, and the trial court reduced the attorney's fees recoverable to $3,500.   DLSE appealed both from the judgment of dismissal and from the order awarding attorney's fees.

The complaint, entitled “Complaint for Prevailing Wages on Public Works, Waiting Time Penalties, and Against Bond” contains three counts.   In its material aspects, the first count alleged the following.   Nineteen named roofers and thirteen named laborers had assigned to DLSE their claims for wages purportedly due from the defendant Holmes, such assignment and suit thereon alleged to be “under the authority vested in it by the laws of the State of California ․”

Before such assignment, Holmes had entered into a public works contract with the County of Orange.   Under the terms of the contract, Holmes agreed to furnish all labor, material and equipment necessary to perform the work of re-roofing certain buildings and to pay not less than the prevailing wage rates to all persons employed in performance of the contract.   More particularly, paragraph 10 provided:  “Pursuant to the provisions of Section 1773 of the Labor Code of the State of California, the Board of Supervisors has obtained the general prevailing rate of per diem wages and the general prevailing rate for holiday and overtime work in this locality for each craft, classification or type of workman needed to execute this contract from the Director of the Department of Industrial Relations.   These rates are on file with the Clerk of the Board of Supervisors.   Copies may be obtained at the office of GSA/Facilities & Real Property at cost.   Contractor shall post a copy of such wage rates at the job site, and shall pay the adopted prevailing wage rates.   The provisions of Sections 1775 and 1813 of the Labor Code will be complied with.”  (Emphasis added.)

In this connection, DLSE inserted in its complaint the legal conclusion that “The provision in said contract requiring said defendants to pay prevailing wage rates was made for the benefit of plaintiff's assignors.”   Reference was then made to sections 1771 and 1774 of the Labor Code as being applicable to the duties of Holmes under the contract,1 in that Holmes was obligated to pay the prevailing wages in the locality in which the public work here involved was to be performed.

The complaint then alleged that certain workers as named in attached exhibits had been employed by Holmes on the project.   This exhibit further set forth what was actually paid and what the prevailing rate was, indicating prima facie an aggregate differential owing and unpaid of $8,606.98.

In the second count, the foregoing items were realleged, and then it was further alleged that Holmes “wilfully failed to pay all of the wages earned by and unpaid to said assignors ․”  DLSE then alleged also that the “failure to pay within the time period required by Labor Code §§ 201 and 202 ․ was intentional.”   Reference was then made to section 203 as the basis for an allegation that waiting penalties had accrued for 30 days as to all the employees named in the aggregate amount of $56,820, all of which was due and unpaid.

In the third count, DLSE sought to charge the bonding company Balboa, with concurrent responsibility for payment of the amounts of the allegedly unpaid wages of $8,606.98 sought to be recovered from Holmes.   The express provision of the bond alleged and relied upon reads:  “THE CONDITION OF THIS OBLIGATION IS SUCH, That, if said Contractor, his or its heirs, executors, administrators, successors or assigns, or subcontractors, shall fail to pay for any materials, provisions, provender or other supplies or teams, implements or machinery used in, upon, for or about the performance of the work contracted to be done, or for any work or labor thereon of any kind, or for amounts due under the Unemployment Insurance Act with respect to such work or labor as required by the provisions of Chapter 7 of Title 15 of the Civil Code, and provided that the claimant shall have complied with the provisions of said Code, the surety or sureties hereon will pay for the same in an amount not exceeding the sum specified in this bond, otherwise the above obligation shall be void.”

As earlier noted, the defendants successfully demurred, and later obtained an order of dismissal when DLSE declined to amend its complaint.   To have obtained such order it is apparent from the record, because the defendants were able to persuade the trial court of the correctness of their argument that the 90-day statute of limitations contained in section 1775 applied, that the court had acceded to their request that it take judicial notice of the fact that a notice of completion of the work performed under the contract has been recorded by the owner, County of Orange, on October 11, 1978.   The action was filed July 16, 1979.

The plaintiff DLSE makes a number of contentions in support of its appeal comprising seven major points, several of which contain as many as four subpoints.   However, as summarized at the oral argument, DLSE urges three theories of recovery each of which it argues justified an overruling of the demurrer and hence entitled it to a reversal of the order of dismissal.   These three theories are that:  (1) plaintiff, as assignee of the workers on the project was prosecuting the latters' rights as third-party beneficiaries under the written roofing contract and as such was proceeding under a four-year statute of limitations;  (2) plaintiff had sued as assignee to enforce statutory rights arising under the Labor Code and hence was proceeding under a three-year statute of limitations;  and (3) plaintiff as assignee was enforcing the oral contracts of employment between Holmes and its employees and hence was entitled to the benefit of a two-year statute of limitations.   Ancillary to the statute of limitations issue is that arising in connection with the award of attorney's fees, and plaintiff contends first that the state cannot be held to respond on attorney's fees under section 3250 of the Civil Code.   Plaintiff argues further, even if it were conceded arguendo that the state could be held for fees, that those ordered are excessive and disproportionate to the expenses intended to be covered by the statute and the bond.

The defendants, on the other hand, contend that the complaint is time-barred by the 90–day limitation provision of section 1775 regardless of whether Holmes' workers could be deemed to be third-party beneficiaries under the roofing contract.   As to the second count, designed to recover penalties which would accrue to the state, there is hardly a question but what section 1775 bars recovery.   At oral argument, it was the position of DLSE that that section applied only to actions to enforce the penalties, and not to collection for the benefit of Holmes' employees the unpaid wage differentials.   Turning to the third count, defendants argue that the exoneration of Holmes, the principal, on the first count extinguished the liability of Balboa, the surety.   They argue further that the third count, in any event, is barred by the six-month limitation prescribed by section 3249 of the Civil Code which deals expressly with actions against a surety on its payment bond brought either by a claimant or his assignee.

Chapter 1 of Division 2, Part 7 of the Labor Code, consisting of sections 1720 through 1861, constitutes a comprehensive legislative scheme designed primarily for the obvious purpose of forestalling possible mass migration of construction and building trades' workers to areas of public work projects with the intent to sell their services at less than the wage rates prevailing in the community of the proposed public work.   As such, the scheme is intended to promote economic stability throughout the state insofar as any disruption of the customary patterns of employment in the building trades would adversely affect the economy of any given area of the state.   The statutory obligation which requires the payment of prevailing rates of wages is not a minimum wage law, for, as a practical matter, prevailing rates of wages usually represent union scale which invariably exceeds the minimum wage substantially.

Under the statutory scheme, section 1770, as amended in 1976, prescribes that the Director of the Department of Industrial Relations shall determine the general prevailing rate of per diem wages in accordance with the standards set forth in section 1773.   That section and those immediately following require that any notice inviting bids for public work shall contain a schedule of the rates so determined for each craft to be utilized on the project, or at least that the notice refer to a copy of such rates as available to any interested party at the principal office of the awarding body.

As a consequence, all contracts for public work entered into in this state contemplate this determination, and, under section 1773.2, all such contracts are required to include in their terms this schedule of wage rates to be paid to each craft employed on the project.

Should a contractor on a public works project breach its contract by failing to pay the prevailing rates of wages, certain remedies and penalties accrue.   Section 1727 provides, if the DLSE or the body awarding the contract determines that the contractor has not paid its workmen the prevailing rate of wages, that the awarding body must then withhold and retain moneys otherwise owing to the contractor.   If, however, there are insufficient moneys due the contractor to cover the aggregate amounts due plus penalties, section 1775 comes into play.

Section 1775 in pertinent part provides, “To the extent that there is insufficient money due a contractor to cover all penalties forfeited and amounts due in accordance with this section, or in accordance with Section 1813 of this chapter, and in all cases where the contract does not provide for a money payment by the awarding body to the contractor, the awarding body shall notify, provided that in the case of a workman claiming the difference between the prevailing wage rate and the amount paid him the awarding body has first been given the notice mentioned in Section 1190.1 of the Code of Civil Procedure, the Division of Labor Standards Enforcement of such violation and the Division of Labor Standards Enforcement, if necessary with the assistance of the awarding body, may maintain an action in any court of competent jurisdiction to recover the penalties and the amounts due provided for herein.   Such action shall be commenced not later than 90 days after the filing of a valid notice of completion in the office of the county recorder in each county in which the public work or some part thereof was performed, or not later than 90 days after acceptance of such public work, whichever last occurs.   No issue other than that of the liability of the contractor for the penalties allegedly forfeited and amounts due shall be determined in such action, and the burden shall be upon the contractor to establish that the penalties and amounts demanded in such action are not due.  [¶]  Out of any money withheld or recovered or both there shall first be paid the amount due each workman and if insufficient funds are withheld or recovered or both to pay each workman in full the money shall be prorated among all such workmen.”  (Emphasis added.)

Section 1775 otherwise provides for a penalty of $25 per day for each workman employed by the contractor who is not paid the prevailing rate of wages, and this penalty is recoverable by and retained by the state.

Turning to resolution of the basic statute of limitations issue, section 1775 is explicit in setting out the time within which actions thereunder are to be brought.   Such actions must be commenced within 90 days of the filing of a notice of completion of the work in the office of the county recorder.   Here the complaint was filed 279 days after the notice of completion was filed.   Therefore, unless there is some legal reason why the statute should not be applied according to its terms, the demurrer was properly sustained.

DLSE argues that we should disregard the plain language of section 1775 and import a common-law remedy under which it could invoke a four-year statute of limitations because its action is to enforce as assignee the supposed third-party beneficiary rights of Holmes' employees.   This raises the question of whether section 1775 contains the exclusive remedy available either to DLSE or its assignors in pursuing the alleged breach of Holmes' obligation to pay wages at the prevailing rates.

In a variety of situations, it has been observed that the common law is not repealed by implication.   If there is no repugnancy between the common law and the statute, and it does not appear that the Legislature intended in its enactment to cover the entire subject matter field involved, then the common law and its applicable remedies will survive and will figure in deciding the case.  (Saala v. McFarland, 63 Cal.2d 124, 130, 45 Cal.Rptr. 144, 403 P.2d 400;  Cole v. Rush, 45 Cal.2d 345, 356, 289 P.2d 450, rev'd on other grounds Vesely v. Sager, 5 Cal.3d 153, 167, 95 Cal.Rptr. 623, 486 P.2d 151.)

However, where the Legislature has created a statutory obligation non-existent at common law, i. e., as here the duty to pay prevailing rates of wages on public works projects as they are determined by the Director of Industrial Relations, and the Legislature has further prescribed a special statute of limitations which applies to enforcement of that obligation, it follows that any move to import the common law in aid of efforts at such enforcement must be proscribed.   In a far less stringent factual situation, the court in People v. Black, 114 Cal.App. 468, 300 P. 43, said, “Where the legislature has provided a statutory remedy which supplants in whole or in part a corresponding common-law remedy and has appended thereto a statute of limitations different from that which governs the common-law remedy, there is presented the situation of a conflict between the common law and the statute, in which case the latter must prevail.”  (Id. at p. 472, 300 P. 43, citing People v. Reid, 195 Cal. 249, 257, 232 P. 457, revd. on other grounds People v. Hutchinson, 71 Cal.2d 342, 78 Cal.Rptr. 196, 455 P.2d 132.)

 The case below us is an a fortiori case;  here there has been no “supplanting” of a common-law remedy by a statutory remedy.   What occurred was the creation of a wholly statutory obligation which requires contractors on public works projects to pay so-called prevailing rates of per diem wages, rates of wages even determined by a state official.   No such obligation existed at common law, and the enforcement of this new obligation has been subjected by the Legislature to a particular statute of limitations.   Therefore, following the legal propositions noted, it must be applied.

DLSE argues that the repeal of section 1781 in 1957 operated to eliminate section 1775 as the exclusive remedy for the enforcement of any breach under Chapter 1 of Division 2, Part 7 of the Labor Code.   Section 1781, before its repeal, provided that “the penalties and remedies provided for in sections 1775 and 1777 shall be the exclusive penalties and remedies against any contractor or subcontractor for any violation of sections 1770 and 1777 or of the provisions inserted in any call for bids, specifications or contracts pursuant thereto.”   Without more, this argument is persuasive.   However, by the same act which repealed section 1781, the Legislature added the 90-day limitation period to section 1775.  (Stat.1957, ch. 397, p. 1240.)   Thus, if the argument advanced by DLSE were followed, the result would be to read the 90-day provision right out of section 1775.

DLSE seeks to avoid this obviously illogical consequence by arguing that section 1775 was intended to apply only to the collection of penalties and hence that the enforcement of the wage provisions for the benefit of the underpaid workers falls under common law remedies.   This argument would also be persuasive except that the language of section 1775 expressly refers to an action to recover “the penalties and the amounts due.”  (Emphasis added.)   The only possible meaning to be accorded the latter items is that it refers to the differential between the prevailing rate and that actually paid to the contractors' workmen.   Hence, section 1775 must necessarily apply also to actions to recover wage claims accruing for violation of sections 1771 and 1774.

Otherwise, it can be observed that such cases will only arise under contracts for public works, and so if DLSE were permitted to pursue its third-party beneficiary theory, there would never be a case in which the 90-day limitation would apply.   Thus, we hold that the Legislature intended section 1775 to provide the exclusive remedy for enforcement of the obligation here involved and that the 90-day time period within which civil actions for such enforcement must be commenced applies.   Any other conclusion would ignore the legislative mandate and the plain language of the statute.

 At oral argument, DLSE conceded the issue on the second count, and turning to the third count, it should be enough to state that Balboa is exonerated because “the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal ․”  (Civ.Code, § 2809;  see U.S. Leasing Corp. v. DuPont, 69 Cal.2d 275, 290, 70 Cal.Rptr. 393, 444 P.2d 65.)

DLSE nevertheless argues that the running of the statute as to the principal does not exonerate the surety, citing Regents of the University of California v. Hartford Acc. & Indem. Co., 21 Cal.3d 624, 639, 147 Cal.Rptr. 486, 581 P.2d 197.   An analysis of Hartford makes clear, however, that its holding does not deprive Balboa of the benefit and protection of the 90-day limitation period found in section 1775.

Hartford involved a typical procedural type statute of limitations, i. e., Code of Civil Procedure section 337.15.   As such it was described by the Hartford court as “not part of a statute creating a new substantive liability, but ․ codified in that portion of the Code of Civil Procedure which sets out procedural limitations on the commencement of common law actions.”  (Id. at p. 640, 147 Cal.Rptr. 486, 581 P.2d 197.)

However, unlike the statute considered in Hartford, section 1775 is part of a comprehensive statutory scheme creating a totally new substantive liability devolving upon public works contractors and, necessarily, their sureties.   Witness that it is not codified as part of the Code of Civil Procedure providing limitations upon the commencement of common-law actions.   As stated by Witkin, “If the Legislature creates a right or liability unknown at common law and, in the same statute, fixes a limitation period, the time provision is usually considered substantive.”  (2 Witkin, Cal. Procedure (2d ed. 1970) § 232, p. 1089.)

The consequence of the distinction, i. e., between procedure and substance, was noted by this court in Butterfield v. Northwestern Nat'l. Ins. Co., 100 Cal.App.3d 974, 161 Cal.Rptr. 280, when we construed the rationale of Hartford to be that section 337.15 of the Code of Civil Procedure did not extend to the contractor's surety because the latter was not mentioned in the statute.  (Id. at p. 977, 161 Cal.Rptr. 280.)   We were fortified in this analysis because the Legislature in apparent response to the Hartford decision amended the applicable statute to extend its protection to sureties.

 In matters of substance, the converse is true by reason of section 2809 of the Civil Code, and the period of limitations in such statutes shall be construed to extend also to sureties unless the latter are expressly excluded.   This conclusion derives from the actual wording of section 1775 which simply provides for a limitation upon “an action in any court of competent jurisdiction,” whereas former section 337.15 of the Code of Civil Procedure actually defined the persons against which an action could be brought to recover damages in a particular circumstance and thus created the limitation as to those persons only.   As noted, section 1775 refers broadly to “an action” to which the limitation applies.

The trial court awarded $3,500 attorney's fees to Holmes based upon Civil Code section 3250, which provides for the maintenance of an action on the payment bond and allows costs to be taxed in such actions.   It reads in pertinent part:  “In any action, the court shall award to the prevailing party a reasonable attorney's fee, to be taxed as costs.” 2

The DLSE argues that (1) section 3250 does not apply when the state is a litigant;  and (2) if we should find that section 3250 is applicable to the state, nevertheless, then the fees awarded were unreasonable.   We reject both arguments.

 In response to the DLSE's first argument, Code of Civil Procedure section 1028 explicitly allows costs to be taxed against the state.   It reads:  “Notwithstanding any other provisions of law, when the State is a party, costs shall be awarded against it on the same basis as against any other party and, when awarded, must be paid out of the appropriation for the support of the agency on whose behalf the State appeared.”

The DLSE has not cited us to any authority which would insulate the state from liability for attorney's fees as in this case.   Also, it is not clear that the DLSE was even acting in the capacity of sovereign, as ordinarily understood, because it purported to proceed in this litigation as assignee of Holmes' employees.

In response to the DLSE's second argument, we state the well established rule of law that the determination of what is a reasonable fee is a question of fact that rests within the sound discretion of the trial court, a discretion exercised after it has considered a number of factors.  (La Mesa-Spring Valley School Dist. v. Otsuka, 57 Cal.2d 309, 316, 19 Cal.Rptr. 479, 369 P.2d 7.)   The court's award of an amount for such fees will be disturbed only when it is manifest that there has been a palpable abuse of such discretion.   (Los Angeles v. Los Angeles-Inyo Farms Co., 134 Cal.App. 268, 274, 25 P.2d 224.)

DLSE argues that the attorney fees were calculated for work done for both the first and third counts of the complaint and that Civil Code section 3250 only allows the fees to be paid to the surety in pursuing a defense on the bond and not as to the contractor Holmes.   However, we find Holmes' argument convincing:  “Only the third cause of action is directed against Balboa.   Nevertheless, because of the principle of law that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal, Cal.Civ.Code § 2809, the attorneys' fees expended in exonerating Holmes, the principal, are directly related to the exoneration of Balboa, the surety ․ [all] of the legal research and analysis invested in the defense of the first cause of action [is] essential to the defense of the third cause of action alone.   Therefore, Holmes may properly claim attorneys' fees for a defense which also relates to the first cause of action.”

Based upon the foregoing, we cannot say as a matter of law that the trial court abused its discretion in awarding attorney's fees to Holmes.

Proceeding from our conclusion that the complaint failed to state sufficient facts to support a cause of action that would allow the DLSE to recover as assignee or otherwise, we hold that the trial court properly sustained the demurrer.

DISPOSITION

The judgment is affirmed.

FOOTNOTES

1.   Section 1771 of the Labor Code provides:“Except for public works projects of five hundred dollars ($500) or less, not less than the general prevailing rate of per diem wages for work of a similar character in the locality in which the public work is performed, and not less than the general prevailing rate of per diem wages for holiday and overtime work fixed as provided in this chapter, shall be paid to all workmen employed on public works.“This section is applicable only to work performed under contract, and is not applicable to work carried out by a public agency with its own forces.   This section is applicable to contracts let for maintenance work.”Section 1774 of the Labor Code provides:“The contractor to whom the contract is awarded, and any subcontractor under him, shall pay not less than the specified prevailing rates of wages to all workmen employed in the execution of the contract.”All statutory references hereafter will be to the Labor Code unless otherwise specified.

2.   The attorney's fees were awarded to Holmes' attorney because Holmes undertook the legal defense of Balboa, the surety.

McDANIEL, Associate Justice.

KAUFMAN, Acting P. J., and GOLDSTEIN, J.,* concur.