East West Bank v. Rio School District

Public Contract Code section 7107 (section 7107) allows a public entity to withhold funds due a contractor when there are liens on the property or a good faith dispute concerning whether the work was properly performed. Here we conclude that a dispute over the contract price does not entitle a public entity to withhold funds due a contractor.

We disagree with Martin Brothers Construction, Inc. v. Thompson Pacific Construction, Inc. (2009) 179 Cal.App.4th 1401 [ 102 Cal.Rptr.3d 419 ] (Martin Brothers), which holds otherwise. We also conclude the doctrine of unclean hands does not apply to section 7107.

This case arises from a contract for the construction of a school. After the school was completed, the school district and its general contractor engaged in a decade-long legal battle. The result was a judgment for the contractor FTR International, Inc. (FTR), against the Rio School District (District) exceeding $9 million. District appeals.

We conclude the trial court properly assessed penalties against District because it did not timely release retained funds required by section 7107. [[/]]*

We also conclude [[/]]* the trial court erred in awarding fees for work not…