Existence of “Good Faith Dispute” Allows Contractor to Withhold Payments and Avoid Prompt Payment Penalties
Alpha Mech., Heating & Air Conditioning, Inc. v. Travelers Cas. & Sur. Co. of Am., 133 Cal. App. 4th 1319 (2005)
In this case, subcontractor Alpha Mechanical, Heating & Air Conditioning sued general contractor RAS Builders and payment bond issuer Travelers after RAS withheld a final payment on the grounds that Alpha Mechanical had damaged other trades’ work. At trial, Alpha Mechanical argued that RAS failed to comply with California prompt payment statutes because RAS failed to give timely notice of any good faith dispute. Travelers countered that the existence of a good faith dispute precluded the award of prompt payment penalties, and that RAS offered evidence that Alpha Mechanical had been notified of every backcharge. The trial court awarded Alpha Mechanical the principal amount owed, penalty interest, prejudgment interest and attorneys fees and costs.
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