In North Bay Construction v. City of Petaluma, the First Appellate District Court agreed with the trial court's decision and held that a mechanic's lien cannot be enforced against property owned by a municipality, even if the work was not performed as part of a "public works" project. In addition, the Court held that a contractor cannot recover in quantum meruit for improvements to a municipality's property performed under a contract with a third party. The City of Petaluma was represented in this appeal by Joseph M. Quinn and Eric W. Danly, of Meyers, Nave.
In North Bay Construction, North Bay's complaint alleges that the City is the owner of real property commonly known as Redwood Empire Sportsplex that was leased to a developer for the purpose of constructing a sports complex. The developer contracted with North Bay, a licensed paving contractor, to perform grading work at the property, which North Bay completed, by for which it has not been paid. North Bay recorded a mechanic's lien against the property and served a "Notice of Potential Claim" on the City advising it that, as the owner and lessor of the property, it may be responsible for the reasonable value of the material and labor provided by North Bay. The complaint alleges, among other things, a common count to recover from the City the "reasonable value of the material and labor provided by North Bay." The City demurred to the complaint on the grounds that a mechanic's lien cannot be enforced against public property and that common counts may not be asserted against public entities. The trial court sustained the demurrer without leave to amend. The City was dismissed from the action and North Bay filed a timely appeal.
In its reasoning, the Court explained that because of the principles of sovereign immunity, any right to impress a mechanic's lien of public property must be expressly, not implicitly, provided for by statute. While most of the cases supporting this conclusion involve public work projects, the Court noted that the prohibition is frequently stated as applying to "public property," not simply to public work projects. Moreover, in holding that a mechanic's lien could not be imposed in this situation, the Court disagreed with North Bay's assertion that a distinction must be drawn between property owned by a municipality that is used for governmental as opposed to proprietary purposes--that property held in a proprietary capacity (as North Bay contends is the case here) is subject to a lien as is any privately held property. The Court explained that while California formerly drew a distinction between property held in a proprietary as distinguished from a governmental capacity for the purpose of permitting execution on a judgment lien, this distinction has since been abolished by the Legislature, in its passage of the California Tort Claims Act. The Court also noted that the Legislature has enacted a separate comprehensive scheme prescribing the manner in which a judgment against a local public entity may be satisfied, and it does not include execution of public property.
Lastly, the Court held that North Bay's common count cause of action seeking to recover the value of services based on a theory of quantum meruit was improper given that a quasi-contract theory cannot be asserted against a municipality in a public works context. The Court cited certain general principles inherent in the arena of municipal contracts. The most important being, that contracts wholly beyond the powers of a municipality are void. They cannot be ratified; no estoppel to deny their validity can be invoked against the municipality; and ordinarily no recover in quasi-contract can be had for work performed under them. Moreover, the Court noted that the competitive bidding requirements were founded upon a salutary public policy declared by the Legislature to protect the taxpayers from fraud, corruption, and carelessness on the part of public officials and the waste and dissipation of public funds. As such, the Court concluded that North Bay must be presumed to have known the law. It could have protected itself by confirming the existence and sufficiency of a construction loan and following the statutory sop notice procedures, or by obtaining a payment bond or other security to ensure payment. Having failed to do so, North Bay cannot now shift the burden of its loss to the City in disregard of well-defined public policy to the contrary.
To read the entire published opinion, click here.