230 Cal. App. 4th 686
Cal. Ct. App.2014Background
- In 2007 a developer Inland engaged general contractor 361 to develop a Kohl’s property and surrounding tract in Beaumont; Wachovia Bank was the construction lender.
- Palomar Grading & Paving, Inc. and Cass performed infrastructural work for the tract, with liens recorded for unpaid portions.
- Kohl’s and Wachovia ended up owning parcels but had no contracts with Palomar or Cass.
- Palomar and Cass foreclosed their mechanic’s liens and won judgments for prejudgment interest; the trial court set 10% interest.
- Kohl’s and Wachovia challenged the 10% rate, seeking 7% as the constitutional default rate for innocent, noncontracting owners.
- The issue concerns whether prejudgment interest on liens imposed on innocent owners should be at 7% or 10%.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether prejudgment interest on a mechanic’s lien should be 7% for innocent owners versus 10%. | Palomar/Cass: 10% per Civil Code 3289(b) applies. | Kohl’s/Wachovia: constitutional default rate of 7% should apply to noncontracting owners. | 7% prejudgment interest applies to innocent, noncontracting owners; reverse and remand for recalculation. |
Key Cases Cited
- Bay Lumber Co. v. Pickering, 120 Cal.App.3d 163 (1932) (early statement on lien rights and potential insolvency of owner)
- Connolly Development, Inc. v. Superior Court, 17 Cal.3d 803 (1976) (due process in mechanic’s lien taking; owner benefit rationale)
- Marine Terminals Corp. v. Paceco, Inc., 145 Cal.App.3d 991 (1983) (prejudgment interest applicable to tort actions)
- Forsgren Associates, Inc. v. Pacific Golf Community Development LLC, 182 Cal.App.4th 135 (2010) (precise lien amounts affect prejudgment interest necessity)
- Royster Construction Co. v. Urban West Communities, 40 Cal.App.4th 1158 (1995) (discussed prejudgment interest rate; unpublished portion lacks reasoning)
- Basic Modular Facilities, Inc. v. Ehsanipour, 70 Cal.App.4th 1480 (1999) (mechanic’s lien purpose; owner benefit and prevent unjust enrichment)