Lujan v. G & G Fire Sprinklers

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Brief Collection, LDF Court Filings. Lujan v. G & G Fire Sprinklers, 2001. b7b4d404-bc9a-ee11-be36-6045bdeb8873. LDF Archives, Thurgood Marshall Institute. https://ldfrecollection.org/archives/archives-search/archives-item/87b9ddf9-19c6-4351-843a-02ef8b29136a/lujan-v-g-g-fire-sprinklers. Accessed December 31, 2025.

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    flic Supreme Court of the United States

Lujan

versus (00-152)

G & G Fire Sprinklers

Petitions and Briefs

NAACP LEGAL DEFENSE FUND 
LIBRARY

99 HUDSON STREET 
NEW YORK, N„ Y. 10013

Labor Law Series

Volume 34, No. 6 
2000/2001 Term of Court

Law Reprints





TABLE OF CONTENTS

Arthur S. Lujan

versus (00-152)

G & G Fire Sprinklers, Inc.

Docket Sheet.................................................................................3

Petition for Writ of Certiorari.....................................  5
Opposition................................................................................... 43

AMICUS CURIAE BRIEF ON THE PETITION

Port of Oakland, e t a l ............................................................... 79

BRIEFS ON THE MERITS

Petitioner......................................................................................97
Respondent.......................................................   181
Reply Brief of Petitioner......................................................... 241

AMICI CURIAE BRIEFS ON THE MERITS

AFL/CIO, et a l ..........................................................................254
Port of Oakland, et a l ...........................    289
United States.....................................   ...317

1



Editor’s Note:

As a general rule Law Reprints reproduces appendix 
materials containing original research that is not 
generally available, such as compilations of case or 
statutory citations and un published opinions.
However, decisions that are readily available in the state 
or federal reporter systems are not reprinted.

2



DOCKET SH EET

No. 0G-152-CFX Title: Arthur S. Lujan, Labor Commissioner of California,
Status: GRANTED et al., Petitioners

v.
G & G Fire Sprinklers, Inc.

Docketed:
July 25, 2000 Court: United States Court of Appeals for

the Ninth Circuit
Counsel for petitioner: Kerrigan,Thomas Sherman,

Cohen,Frederic
Counsel for respondent: Seideman,Stephen A., Gemmill,William 

P.
)ntrv Date Note Proceedings and Orders

1 Jul 26 2000 G Petition for writ of certiorari filed. (Response due August 
27, 2000)

3 Aug 25 2000 G Motion of Port of Oakland, et al. , for leave to file a 
brief as amici curiae filed.

2 Aug 28 2000 Brief of respondent G & G Fire Sprinklers, Inc. in 
opposition filed.

4 Sec 13 2000 DISTRIBUTED. October 6, 2000 (Pace 1)
5 Se? 22 2000 Opposition of respondent to motion of Port of Oakland, et 

al., for leave to file a brief as amici curiae filed.
6 Oct 10 2000 Motion of Port of Oakland, et al., for leave to file a 

brief as amici curiae GRANTED.
7 0- ̂ 10 2000 Petition GRANTED.

SET FOR ARGUMENT February 26, 2001. ***************★************************** + *★**■**■*«*'***♦
9 Nov 6 2000 Order extending time to file brief of petitioner on the 

merits until December 4, 2000.
10 Dec 4 2000 Joint appendix filed.
11 Dec 4 2000 Joint appendix in two volumes.
12 Dec 4 2000 Brief amici curiae of Port of Oakland and Fifty-four 

California Cities filed.
13 Dec 4 2000 P Motion of AFL-CIO for leave to file a brief as amicus 

curiae filed.
14 Dec 4 2000 Brief of petitioners Arthur S. Lujan, et al. filed.
15 Dec 4 2000 Brief amicus curiae of United States filed.
16 Dec 19 2000 Order extending time to file respondent's brief on the 

merits to and inciudina January 16, 2001.17 Dec 21 2000 * Record filed.
Proceedings from the.U.S.C.A. for the Ninth Circuit (1 
envelope).

18 Jan 11 2001 * Record filed.
Record proceedings from the U.S.D.C. for the Central 
Dist. of California (1 box). Record complete.

19 Jan 16 2001 G Motion of the Solicitor General for leave to participate 
in oral argument as amicus curiae and for divided 
argument filed.20 Jan 16 2001 Brief of respondent G & G Sprinklers, Inc. filed.21 Jan 17 2001 LODGING consisting of twenty bound copies of related 
documents submitted by counsel for the respondent.23 Jan 19 2001 CIRCULATED.

3



No. 00-152-CFX
Entry Bate Note Proceedings and Orders

22 Jan 22 2001

24 Jan 30 2001

25 Jan 31 2001
2 5 Feb 8 2001
25 Feb 14 2001
27 Feb 15 2001
28 Feb 20 2001

30 Feb 25 2001

Motion of the Solicitor General for leave to participate 
in oral argument as amicus curiae and for divided 
argument GRANTED.
Motion of petitioners for order to disregard certain 
matters outside the certified record and to strike 
respondent's lodging filed.
DISTRIBUTED. February IS, 2001 (page 48)

Opposition of respondent to motion of petitioners filed.
X Reply of petitioners to opposition of respondents to 
motion filed.

Reply brief of petitioners Arthur Lujan, et al. filed.
Motion of petitioners for order to disregard certain 
matters outside the certified record and to scrike 
respondent's lodging DENIED.
ARGUED.

4



No. 00-152

In The

Supreme Court of the United States

VICTORIA L. BRADSHAW, an individual, in her 
official capacity as Labor Commissioner of the State of 

California; LLOYD W. AUBRY, JR., an individual, in 
his official capacity as Director of the Department of 

Industrial Relations of the State of California; DANIEL 
DELLAROCCA, an individual, in his official capacity 

as Deputy Labor Commissioner of the State of 
California; ROGER MILLER, an individual in his 

official capacity as Deputy Labor Commissioner of the 
State of California; ROSA FRAZIER, an individual in 

her official capacity as Deputy Labor Commissioner of 
the State of California; DIVISION OF LABOR 

STANDARDS ENFORCEMENT, an agency of the State 
of California; DEPARTMENT OF INDUSTRIAL 

RELATIONS, an agency of the State of California,
Petitioners,

v.

G & G FIRE SPRINKLERS, INC.,
Respondent.

-----------4 -----------

On Petition For A Writ Of Certiorari To The United 
States Court Of Appeals For The Ninth Circuit

PETITION FOR A WRIT OF CERTIORARI

T h o m a s  S. K e r r i g a n, Counsel 
Division of Labor Standards 

Enforcement
Department of Industrial Relations 
State of California
6150 Van Nuys Boulevard, Suite 100 
Van Nuys, CA 91401 
Telephone: (818) 901-5482

Attorney of Record for Petitioners

5



1

QUESTIONS PRESENTED

1. Whether every instance of nonpayment to a private 
contractor by a state agency under a commercial contract 
constitutes a deprivation of due process.

2. Whether action within the absolute discretion of a 
private party constitutes state action.

3. Whether a third party not targeted by a statute suffers 
a denial of due process where the impact suffered is at 
most indirect.

4. Whether a contractor who has not alleged that he has 
an entitlement to public funds can state a claim for denial 
of due process based on the state's withholding of said 
funds.

6



ii

Opinions Below...........................................     1

Jurisdiction....................        2

Constitutional Provisions and Statutes Involved . . . .  2

Statement of the Case.....................................................  2

A. Facts.............................................................................  2

B. Proceedings Below.................................................  6

Reasons for Granting the W rit......................................... 10

A. The Ninth Circuit's Determination That A Pri

TABLE OF CONTENTS
Page

vate Party's Unpaid Claim Under A Commer
cial Construction Contract With A State 
Agency Constitutes A Property Right For Due 
Process Purposes Conflicts With Every Other 
Circuit That Has Considered The Matter And 
Threatens To Shift The Whole Body Of Public 
Contract Law Into The Federal Courts............ 11

B. The Standard Adopted By The Ninth Circuit 
For Determining Whether Or Not State Action 
Exists Directly Conflicts With This Court's 
Explicit Guidelines And Instructions In Sul
livan ................. ................................... ...................  17

C. The Ninth Circuit Misapplied The Established 
Rule Concerning Indirect Deprivations And 
Due Process................................ ...........................  22

D. The Ninth Circuit's Decision Obliterates The 
Criteria Set Forth In Sullivan For Determining 
When Sufficient Property Interests Exist For 
Purposes Of Due Process....................................  27

7



Conclusion............................................................................... 30

Appendix.................................................................................. A-l

iii

TABLE OF CONTENTS -  Continued
Page

6



IV

C ases

American Manufacturers Mutual Insurance Co. v.
Sullivan, 526 U.S. 40, 119 S. Ct. 977 (1999) . . . .  passim

Anderson v. Clow, 89 F.3d 1399 (9th Cir. 1996) . . .  .28, 29

Atkin v. Kansas, 191 U.S. 207, 24 S. Ct. 124, 48
L. Ed. 148 (1903)............................................................. 25

Austin v. Paramount Parks, Inc., 195 F.3d 1727 (4th
Cir. 1999) ..........................................................................  22

Bleeker v. Dukakis, 665 F.2d 401 (1st Cir. 1981) ............ 12

Blum v. Zaretsky, 457 U.S. 991, 102 S. Ct. 2777
(1981).......................................................................... 18, 19

Board of Regents v. Roth, 408 U.S. 564, 92 S. Ct.
2701, 33 L. Ed. 2d 548 (1972).................................. 15, 28

Brown v. Brienen, 722 F.2d 360 (7th Cir. 1983).......... 13, 16

Castaneda v. U.S. Dept, of Agriculture, 807 F.2d 1478
(9th Cir. 1987)..................................................................  24

Christ Gatzonis Electrical Contractor, Inc. v. New 
York City School Construction Authority, 23 F.3d 
636 (2nd Cir. 1994).....................................................11, 15

DeBauche v. Trani, 191 F.3d 499 (4th Cir. 1999)............ 22

Epstein v. Washington Energy Co, 83 F.3d 1136 (9th
Cir. 1996) .................................................................... 28, 29

Flagg Bros., Inc. v. Brooks, 436 U.S. 149, 98 S. Ct.
1789 (1978)........................................................................  19

G&G Fire Sprinkers, Inc. v. Bradshaw, 136 F.3d 587, 
amended by 156 F.3d 893, 204 F.3d 941 (9th Cir.

TABLE OF AUTHORITIES
Page

2000)................... .................................... 10, 13, 14, 15, 20

9



V

Grove City College v. Bell, 687 F.2d 684 (3rd Cir.
1 9 8 2 ) .. . ................................................................ .. 25

In re Glenfed Securities Litigation, 42 F.3d 1541 (9th
Cir. 1994 )..............................................................................  29

Jackson v. Metropolitan Edison Co., 419 U.S. 345, 95
S. Ct 449 (1974)................................................................. 18

Lansing v. Memphis, 202 F.3d 821 (6th Cir. 2000)........  21

Legal Tender Cases, 79 U.S. (12 Wall.) 457, 20 L. Ed.
287 (1870)..............................................................................  23

Linan-Faye Construction Co., Inc. v. Housing Author
ity of the City o f Camden, 49 F.3d 915 (3rd Cir.
1995)........................................................................................  13

Lusardi Construction Co. v. Aubry (1992) 1 Cal. 4th
976, 4 Cal. Rptr. 2d 847 ....................................................  24

Martz v. Village o f Valley Stream, 22 F.3d 26 (2nd
Cir. 1994)..............................................................................  11

Nuclear Transport & Storage v. United States, 890
F.2d 1348 (6th Cir. 1989).................................................   25

O'Bannon v. Town Court Nursing Center, 447 U.S.
773, 100 S. Ct. 2467, 65 L. Ed. 2d 506 (1980).. .23, 24

O.G. Sansone Co. Department o f Transportation
(1976) 55 Cal. App. 3d 444, 127 Cal. Rptr. 799 . . . .  16

Perkins v. Lukens Steel Co., 310 U.S. 113, 60 S. Ct.
869, 84 L. Ed. 1108 (1940)...............................................  26

Perkins v. Lombardy Basketball Club, 196 F.3d 19 (1st
Cir. 1999)..............................................................................  22

Reich v. Beharry, 883 F.2d 239 (3rd Cir. 1989).................. 13

TABLE OF AUTHORITIES -  Continued
Page

10



VI

S & D Maintenance Co. v. Goldin, 844 F.2d 962 (2nd 
Cir. 1988)................................................. . 11, 12, 15

San Bernardino Physicians' Services Medical Group,
Inc. v. County of San Bernardino, 825 F.2d 1404 
(9th Cir. 1987)......................................... 13, 14, 16

Snaidach v. Family Finance Corp., 395 U.S. 337, 89
S. Ct. 1820, 23 L. Ed. 2d 349 (1969)..................... 15, 16

TABLE OF AUTHORITIES -  Continued
Page

C onstitutional P rovisions

U.S. Constitution, Fourteenth Amendment 
.............................................................. 2, 10, 11, 13, 14, 18

Statutes

California

Cal. Civil Code § 3103., 

Cal. Civil Code § 3181., 

Cal. Civil Code § 3184. 

Cal. Civil Code § 3186. 

Cal. Civil Code § 3210. 

Cal. Labor Code § 1720 

Cal. Labor Code § 1727 

Cal. Labor Code § 1729 

Cal. Labor Code § 1730 

Cal. Labor Code § 1731 

Cal. Labor Code § 1732 

Cal. Labor Code § 1733

........................ 2, 6

......... 2, 6

.......... 2, 6

......... 2, 6

..............................2 ,  6

................. 2, 3

............. passim

2, 3, 5, 18, 19

........2, 5, 6, 7

........2, 5, 6, 7

........2, 5, 6, 7

........2, 5, 6, 7

11



vn

Cal. Labor Code § 1771...................................................... 2, 4

Cal. Labor Code § 1772........................................ .................2

Cal. Labor Code § 1773......................................................2, 3

Cal. Labor Code § 1773.2 ..................................................2, 4

Cal. Labor Code § 1774.............................................. 2, 4, 18

Cal. Labor Code § 1775..........................................2, 4, 7, 18

Cal. Labor Code § 1776................................................ 2, 4, 7

Cal. Labor Code § 1813...................................................... 2, 7

Federal
28 U.S.C. § 1254(1).....................................................................2

28 U.S.C. § 2201......................................................................    6

28 U.S.C. § 2202...........................................................................6

42 U.S.C. § 1983.................................................................passim

T reatises, A rticles

Haggerty, Real Estate Construction: Current Prob
lems (Practicing Law Institute 1973)............................  26

TABLE OF AUTHORITIES -  Continued
Page

12



1

PETITION FOR A WRIT OF CERTIORARI

Petitioners Victoria L. Bradshaw1, Lloyd W. Aubry, 
Jr.1 2, Daniel Dellarocca, Roger Miller, Rosa Frazier, the 
Division of Labor Standards Enforcement, and the 
Department of Industrial Relations of the State of Califor
nia (collectively, "State petitioners"), pray that a writ of 
certiorari issue to review the judgment of the United 
States Court of Appeals for the Ninth Circuit entered in 
the above-entitled action on May 1, 2000.

OPINIONS BELOW

The judgment of the District Court, entered on 
November 9, 1995, is not reported but is reprinted in the 
appendix to this petition at A-85. The original opinion of 
the United States Court of Appeals for the Ninth Circuit 
is reported at 136 F.3d 587 (9th Cir. 1998) and is reprinted 
at A-52. The Ninth Circuit issued a subsequent order and 
amended opinion on September 10, 1998, reported at 156
F.3d 893 (9th Cir. 1998), and reprinted at A-16. On Octo
ber 28, 1998, the Ninth Circuit issued an order denying 
the State's petition for rehearing, reprinted at A-88. Fol
lowing the October 28, 1998 order denying the petition 
for rehearing, the State filed a Petition for Writ of Cer
tiorari with this Court, which petition was granted on 
April 19, 1999 (526 U.S. 1061). This Court summarily 
vacated the judgment below and remanded the case for 
further consideration in light of American Manufacturer's 
Mutual Insurance Co. v. Sullivan, 526 U.S. 40, 119 S. Ct. 977 
(1999). The Ninth Circuit issued yet a third opinion in this

1 Victoria L. Bradshaw was sued in her official capacity as 
Labor Commissioner of the State of California, a position she 
held when this litigation commenced. That position is presently 
held by Arthur S. Lujan.

2 Lloyd W. Aubry, Jr., was sued in his official capacity as 
Director of the Department of Industrial Relations of the State of 
California, a position he held when this litigation commenced. 
Stephen Smith is the current Director.



2

case on February 23, 2000, reported at 204 F.3d 941 (9th 
Cir. 2000) and reprinted at A-l.

JURISDICTION
The Ninth Circuit issued its amended opinion and 

order on February 23, 2000. A timely petition for rehear
ing and rehearing en banc was denied on May 1, 2000. 
This petition for writ of certiorari is filed within ninety 
days of the denial of rehearing. This Court has jurisdic
tion under 28 U.S.C. § 1254(1).

CONSTITUTIONAL PROVISIONS 
AND STATUTES INVOLVED

The Fourteenth Amendment of the United States 
Constitution provides, in relevant part, "No State shall 
. . . deprive any person of life, liberty, or property, with
out due process of law. . . . "

42 U.S.C. § 1983 provides, in relevant part, "Every 
person who, under color of any statute, ordinance, regu
lation, custom, or usage, of any State . . . subjects, or 
causes to be subjected any citizen of the United States or 
other person within the jurisdiction thereof to the depri
vation of any rights, privileges, or immunities secured by 
the Constitution and laws, shall be liable to the party 
injured in an action at law, suit in equity, or other proper 
proceeding for redress."

The relevant California statutory provisions are 
reproduced in the appendix at A-77, and include Califor
nia Labor Code §§ 1720, 1727, 1729, 1730, 1731, 1732, 1733, 
1771, 1772, 1773, 1773.2, 1774, 1775, 1776, and 1813, and 
California Civil Code §§ 3103, 3181, 3184, 3186, 3210.

STATEMENT OF THE CASE
A. Facts

Petitioners are state officials and state agencies, i.e., 
the Division of Labor Standards Enforcement (hereinafter 
"DLSE") and the Department of Industrial Relations,

14



3

responsible for the enforcement of California prevailing 
wage law. Respondent, G&G Fire Sprinklers, Inc. (here
inafter "G&G"), is a fire protection company that installs 
fire sprinkler systems. G&G both contracts directly with 
building owners or, as here, agrees to perform fire sprin
kler installation solely as a subcontractor for a prime 
contractor. When the building owner is a California gov
ernmental entity, the construction work is a "public 
work."3 On public works, the prime contractor agrees, in 
its contract with the governmental entity, that its con
struction workers, and those of the subcontractors whom 
it later selects to execute the contract, will be paid "pre
vailing wages."4 (A-9, 10.)

This case arose when DLSE, pursuant to California 
Labor Code § 1727, having discovered after investigation 
prevailing wage law violations concerning three separate 
projects undertaken by G&G, a subcontractor, issued 
notices to withhold public works contract payments from 
the prime contractors on these projects. This investigation 
also disclosed a failure to provide DLSE with certified 
payroll records, an additional violation of law. Following 
issuance of the notices to withhold, the awarding bodies 
for each of the projects withheld money from the prime 
contractors. The prime contractors, in turn, withheld 
from G&G payments otherwise due under their sub
contracts, as authorized by California Labor Code § 1729.

The obligation to pay prevailing wages on a public 
works project, and to provide DLSE with certified payroll

3 The term "public work" is defined at Cal. Labor Code 
§ 1720 to include "construction, alteration, demolition, or repair 
work done under contract and paid in whole or in part out of 
public funds. . . . "

4 Prevailing wages are fixed for each construction craft or 
classification in the locality in which the public work is 
performed. The procedure for determining prevailing wages is 
set out at Cal. Labor Code § 1773.

15



4

records, is founded upon both statute and contract. Cali
fornia Labor Code sections 1771 and 1774 require contrac
tors and subcontractors to pay prevailing wages to all 
workers employed on a public works project. California 
Labor Code section 1776(a) requires all public works con
tractors to maintain certified payroll records and to make 
them available to the State on request. These require
ments to pay prevailing wages and maintain certified 
payroll records must be included as an express stipula
tion in any such public works contract. (Cal. Labor Code 
§ 1773.2, 1775, and 1776(h)).

California Labor Code § 1775 provides for penalties if 
workers are paid less than the prevailing wage, and 
requires that every public works contract contain provi
sions authorizing the imposition of these penalties. Like
wise, as a matter of state law, all public works contracts 
must contain provisions authorizing the imposition of 
penalties for failure to provide DLSE with certified pay
roll records. (Cal. Labor Code § 1776(g) and (h)).

Thus, each of the prime contractors that sub
contracted work to G&G had agreed to the following 
contractual provisions in their public works contracts 
with the respective awarding bodies: (1) that prevailing 
wages would be paid to all workers employed on the 
project by the prime contractor and its subcontractors, (2) 
that certified payroll records would be kept, and pro
vided to DLSE upon request, showing the hours worked 
and wages paid to all workers employed on the project by 
the prime contractor and its subcontractors, and (3) that 
the public agencies that had awarded the contracts could 
withhold contract payments to these prime contractors to 
cover unpaid wages and penalties if the agreements were 
breached (A-90).

Pursuant to California Labor Code § 1727, the public 
entity that awarded the contract must "withhold and 
retain therefrom all wages and penalties which have been 
forfeited pursuant to any stipulation in a contract for 
public work, and the terms of this chapter." The with
holding must be preceded by a "full investigation" by

16



either the DLSE or by the awarding body, except in the 
case of a final payment.

A withholding of payments from a prime contractor 
for unpaid prevailing wages and penalties can be chal
lenged by filing a lawsuit to recover the withheld funds.5 
(Cal. Labor Code § 1730-1733.) Any such funds withheld 
from a public works contractor must be retained by the 
awarding body for 90 days following the completion of 
the contract. During that period, the contractor or his or 
her assignee may file a state court breach of contract 
action against the awarding body to recover the withheld 
funds. This breach of contract action "is the exclusive 
remedy of the contractor or his or her assignees" for the 
recovery of withheld wages and penalties. (Cal. Labor 
Code § 1732.) The action may be filed "without permis
sion from the state or other authority," and it is "limited 
to the recovery of the wages or penalties" without preju
dice to any other rights or issues arising under the con
tract. (Cal. Labor Code § 1733.) If an action is not brought 
within this retention period, the withheld funds are dis
bursed to the underpaid workers. If an action is brought 
within the retention period, the money is held in escrow 
until its resolution. These statutory provisions have been 
in effect for over sixty years.

Pursuant to California Labor Code § 1729, a prime 
contractor who has had a payment withheld by a public 
agency as a result of a subcontractor's failure to comply 
with its prevailing wage obligations can in turn withhold 
that amount from the funds the prime contractor would 
otherwise owe to the subcontractor under the sub
contract. With an assignment from the prime contractor,

5

5 The public agency which is buying the construction work 
(pursuant to the various specifications, including the agreement 
to pay the prevailing wage) is buying the construction work 
from the prime contractor -  not its subcontractors, who may be 
unknown to the public agency at the time the contract is 
awarded. The withholding under Cal. Labor Code § 1727 is only 
from payments to the prime contractor. 27



6

the subcontractor can then file a breach of contract action 
under California Labor Code § 1730-1733 to recover these 
funds from the public agency. If the subcontractor pro
ceeds by way of assignment, that lawsuit is the sub
contractor's exclusive remedy for the recovery of the 
withheld funds. (Cal. Labor Code § 1732.) But if the 
subcontractor does not obtain an assignment, the sub
contractor can pursue an alternative statutory remedy 
under the California Civil Code, consisting of the right to 
file a "stop notice", setting forth the amount owed by the 
prime contractor to the subcontractor for work performed 
under the subcontract. The stop notice is filed with the 
public agency that awarded the contract. (Cal. Civil Code 
§ 3103, 3181, 3184.) Upon receipt of a timely stop notice, 
the public agency is obligated to withhold from the prime 
contractor an amount sufficient to pay the claim stated by 
the subcontractor. (Cal. Civil Code § 3186.) The sub
contractor may file "an action against the [prime] contrac
tor and the public entity to enforce payment of the claim 
stated in the stop notice . . .  at any time after 10 days from 
the date of the service of the stop notice upon the public 
entity. . . . "  (Cal. Civil Code § 3210.)

Disdaining utilization of any of its viable state law 
remedies, G&G filed a lawsuit against these petitioners in 
the United States District Court for the Central District of 
Los Angeles.

B. Proceedings Below
1. The District Court Proceedings
G&G brought this action for declaratory and injunc

tive relief under 42 U.S.C. §§ 1983 and 28 U.S.C. 
§ 2201-2202, claiming that the issuance of the notices to 
withhold without a prior hearing constituted a depriva
tion of property without due process of law, in violation 
of the Fourteenth Amendment. The state responded with 
a motion to dismiss, and G&G later filed a motion for 
summary judgment. The district court denied the state's

18



7

motion to dismiss and granted G&G's motion for sum
mary judgment. The district court's judgment declared 
§§ 1727, 1730-1733, 1775, 1776(g) and 1813 of the Califor
nia Labor Code unconstitutional, and enjoined the state 
from enforcing those statutes against G&G.

2. The Ninth Circuit Proceedings

On February 3, 1998, Judge Hawkins, joined by Judge 
Reinhardt, issued an opinion, in part affirming and in 
part reversing the district court, and remanding the case 
for further proceedings consistent with the opinion. 
Judge Kozinski vigorously dissented. The panel majority 
held that due process requires that the state provide a 
subcontractor with either a pre- or prompt post-depriva
tion hearing when withholding payments from a public 
works contractor for unpaid wages or penalties. This 
holding is founded upon the majority's view that a sub
contractor "has a property interest in being paid in full 
for the construction work it completed," and that this 
interest, which "arises from its6 public works contract", is 
protected by the Due Process Clause. 136 F.3d at 595-597 
(A-63, footnote added.) The panel also concluded, how
ever, that the district court's injunction was overbroad in 
that the challenged withholding provisions, while uncon
stitutional as applied, were not facially invalid.

In his dissent, Judge Kozinski protested the major
ity's "categorical approach that turns every right to 
receive payment on a public works contract into a prop
erty right protected by due process." 136 F.3d at 602 
(A-81) Instead, Judge Kozinski maintained that any rights

6 No party contended at any stage in this litigation that G & 
G, with respect to the three public works contracts at issue 
herein, was anything but a subcontractor -  i.e., that it (rather 
than the prime contractors) had entered into any contracts with 
these public agencies. 19



8

arising under commercial contracts, such as service con
tracts, material supply contracts, and construction con
tracts, are not protected by the Due Process Clause.

Judge Kozinski warned that the majority decision not 
only conflicts with the opinions of other circuits, but that 
it is "very bad policy" because it saddles the state, when 
it engages in "the purely commercial activity of construc
tion", with "a burden not suffered by private builders", 
who routinely put provisions for payment withholdings 
for failure (or suspected failure) of performance into their 
private construction contracts. 136 F.3d at 602 (A-81) 
Judge Kozinski explained that payment withholdings are 
consistent with the awarding bodies' activities as market 
participants, and that any contractor or subcontractor 
who objects to provisions for withholdings is free not to 
do business with the state. Consequently, a dispute over 
withholdings is nothing more than a "run-of-the-mill con
tract dispute", for which the subcontractors' remedy lies 
in a state court breach of contract action against the prime 
contractor, or, as an assignee of the prime contractor, 
against the awarding body. 136 F.3d at 603 (A-82)

Finally, Judge Kozinski cautioned that drastic conse
quences would result from the majority decision, as due 
process requirements would inexorably apply to any 
withholding of payments under any commercial contract 
with the state, be it a withholding for failure to pay 
prevailing wages, or in more mundane instances, a failure 
to complete a project on time or a failure to comply with 
applicable building codes.

3. Rehearing
The State petitioned for rehearing. This petition was 

granted, and on September 10, 1998, the panel issued an 
amended opinion and order. 156 F.3d 903. Once again, the 
panel split with Judge Kozinski in the minority. The only 
significant change in the majority's opinion is its conces
sion that "the state's interest in ensuring payment of 
prevailing wages is sufficiently important to justify the

20



9

withholding of funds pending the outcome of whatever 
kind of hearing may be afforded." 156 F.3d at 903 (A-18), 
internal citation and quotation omitted.) Thus, the major
ity concluded that a pre-deprivation hearing is not 
required, but that a prompt post-deprivation hearing is 
necessary to satisfy due process requirements.

In his dissent to this amended opinion, Judge 
Kozinski found that under California law, every sub
contractor who wishes to challenge a withholding has an 
adequate state law remedy. Under California Labor Code 
§ 1733, a subcontractor with an assignment from the 
contractor can file a breach of contract action against the 
awarding body to recover sums withheld. Furthermore, 
Judge Kozinski noted, any subcontractor unable to obtain 
an assignment but whose payment had been withheld by 
the prime contractor could bring suit against the award
ing body under various state law theories. 156 F.3d at 909 
(A-50).

The panel majority, however, concluded that even if 
the aggrieved subcontractor could bring an action on the 
contract, that would not be sufficient. While conceding 
that this Court has held that in certain circumstances, a 
post-deprivation state court action may fulfill the require
ments of due process, the majority held that the right to 
bring a breach of contract action to recover withheld 
payments, when the withholding was carried out by state 
officials pursuant to state policy, does not provide ade
quate due process.

On October 28, 1998, the court entered an order 
denying a petition for rehearing, indicating however that 
Judge Kozinski had voted to grant the petition for rehear
ing and to accept the suggestion for rehearing en banc.

4. Certiorari in the Supreme Court

Petitioners petitioned for a Writ of Certiorai. This 
Court granted the petition on April 10, 1999, summarily 

I vacating the Ninth Circuit's judgment and remanding the
21



10

case back for further consideration in light of American 
Manufacturer's Mutual Insurance Co. v. Sullivan, supra.

5. Additional proceedings in the Ninth Circuit
Following additional oral argument, the Ninth Cir

cuit issued a third opinion on February 23, 2000. Deter
mining that its prior reasoning "fits comfortably within 
the analytic framework set forth in Sullivan", Judges 
Hawkins and Reinhardt reinstated the prior judgment 
and opinion (204 F.3d 941) (A-l). Judge Kozinski again 
vigorously dissented, pointing out that "Sullivan fits the 
majority's rationale about as comfortably as Cinderella's 
slipper on the wicked step-sister's foot." He pointed out 
as well that, under the analysis mandated by this Court in 
Sullivan, the withholding by the prime contractor of 
funds from G&G was purely private conduct. Continuing 
on, he observed that the claim of G&G did not qualify as 
a valid property interest without a showing that G&G 
had met the prevailing wage requirements.

REASONS FOR GRANTING THE WRIT
The Ninth Circuit's decision conflicts with and con

stitutes a radical departure from the decisions of several 
other circuits, and raises important questions of federal 
law which this Court should resolve. The issue of 
whether a private company contracting with a state 
agency has a property right to payment within the mean
ing of the Due Process Clause of the Fourteenth Amend
ment is of paramount importance and affects every state, 
county, city, school district, and special use district in the 
nation. The additional issues of 1) whether a state is 
responsible for private action by contractors contracting 
with the state who take discretionary action against their 
subcontractors and 2) whether third parties who are indi
rectly impacted by governmental conduct have stated a 
claim for relief against a state are of manifest importance 
as well to state and local governments. Review of these 
issues by this Court is now imperative because the G&G

22



11

decision constitutes a drastic departure from the conclu
sions other circuits have reached when faced with these 
questions.

A. The Court's Determination That Constitutionally 
Protected Property Rights Can Be Founded Upon 
Any Breach Of A Commercial Contract With A State 
Agency Is In Conflict With Every Other Circuit 
That Has Considered This Issue And Threatens To 
Shift The Whole Body Of State Public Contract Law 
Into The Federal Courts.

The Ninth Circuit expressly determined that G&G's 
interest in getting paid in full under its public works 
contract constituted a cognizable due process property 
right under the Fourteenth Amendment (A-30). As the 
carefully considered dissent of Judge Kozinski makes 
clear, the reductio ad absurdum of this novel conclusion 
is that every failure by the state to pay its bills on time 
would necessarily equate to an actionable constitutional 
violation in the federal courts. An obvious conflict pres
ently exists between the Ninth Circuit's position on this 
point, as reflected in this decision, and the pronounce
ments of all other circuits that have considered the mat
ter, with the Ninth Circuit being clearly the "odd man 
out" with respect to this question.

The Second Circuit in S & D Maintenance Co. v. 
Goldin, 844 F.2d 962 (2nd Cir. 1988), Martz v. Village of 
Valley Stream, 22 F.3d 26 (2nd Cir. 1994), and Christ Gatz- 
onis Electrical Contractor, Inc. v. New York City School Con
struction Authority, 23 F.3d 636 (2nd Cir. 1994), e.g., has 
held that ordinary construction and supply contracts do 
not create property interests protected by the Fourteenth 
Amendment.

In each of these Second Circuit cases, contractors 
filed actions under 42 U.S.C. § 1983 against public agen
cies that had withheld contract payments, asserting that 
the withholdings without hearings constituted a violation 
of due process. The Second Circuit held that the contrac
tual relationship between a contractor and a public

23



12

agency does not create a constitutionally protected inter
est in the payment of sums allegedly due pursuant to the 
contract. In a careful analysis that distinguishes between 
ordinary contract rights and property rights that are pro
tected under the Due Process Clause, the Second Circuit 
reasoned:

"An interest in enforcement of an ordinary com
mercial contract with a state is qualitatively dif
ferent from the interests the Supreme Court has 
thus far viewed as 'property' entitled to pro
cedural due process protection. . . . [T]he Due 
Process Clause is invoked to protect something 
more than an ordinary contractual right. Rather, 
procedural protection is sought in connection 
with a state's revocation of a status, an estate 
within the public sphere characterized by a 
quality of either extreme dependence in the case 
of welfare benefits, or permanence in the case of 
tenure, or sometimes both, as frequently occurs 
in the case of social security benefits. . . . But we 
hesitate to extend the doctrine further to consti
tutionalize contractual interests that are not 
associated with any cognizable status of the 
claimant beyond its temporary role as a govern
ment contractor." S & D Maintenance Co., supra,
844 F.2d 966-67.
This analysis, distinguishing ordinary contract rights 

from the sort of property that is protected by due process, 
resonates in the decisions of other circuits as well. Justice 
Breyer, then on the First Circuit, wrote: "A mere breach of 
a contractual right is not a deprivation of property with
out constitutional due process of law. . . . Otherwise 
virtually every controversy involving an alleged breach 
of contract with a governmental institution or agency or 
instrumentality would be a constitutional case." Bleeker v. 
Dukakis, 665 F.2d 401, 403 (1st Cir. 1981). The Seventh 
Circuit, in affirming the dismissal of a section 1983 action 
brought by county employees asserting that the county 
violated their due process rights by its refusal to abide by 

24



13

a contract to permit time off in compensation for over
time hours worked, cautioned that "[tjhere is reason to 
doubt whether the Fourteenth Amendment was intended 
to allow every person with a breach of contract claim 
against a state to bring that claim in federal Court", and 
that the Amendment was "not intended to shift the whole 
of the public law of the states into the federal courts." 
Brown v. Brienen, 722 F.2d 360, 364 (7th Cir. 1983).

The Third Circuit, has likewise observed that "if 
every breach of contract by someone acting under color 
of state law constituted a deprivation of property for 
procedural due process purposes, the federal courts 
would be called upon to pass judgment on procedural 
fairness of the processing of a myriad of contract claims 
against public entities," and that "the wholesale federal
ization of state public contract law seems far afield from 
the great purposes of the Due Process Clause." Reich v. 
Beharry, 883 F.2d 239, 242 (3rd Cir. 1989). Following this 
analysis, the Third Circuit upheld a summary judgment 
against a building contractor as to a section 1983 claim 
asserting a property interest in its contract with a city 
housing authority, while permitting the contractor's 
claim for unpaid compensation for work allegedly per
formed under the contract to proceed under the state 
public contract law. Linan-Faye Construction Co., Inc. v. 
Housing Authority o f the City of Camden, 49 F.3d 915 (3rd 
Cir. 1995). The court further held that whatever severe 
consequential damages the contractor may have suffered 
as a result of the housing authority's allegedly wrongful 
retention of the contractor's performance bond, that fact 
"cannot convert a contract claim into a deprivation of 
liberty." Ibid., at 932.

With its decision in G&G, the Ninth Circuit became 
the only circuit to find an enforceable property right 
under the Fourteenth Amendment in a contract between 
a public agency and a contractor. Prior to G&G, the Ninth 
Circuit stood in the mainstream of federal law on the 
issue. In San Bernardino Physicians’ Services Medical Group, 
Inc. v. County of San Bernardino, 825 F.2d 1404, 1408 f9th



14

Cir. 1987), the court explained "[ejven though every con
tract may confer some legal rights under state law, that 
fact alone need not place all contracts within federal due 
process protection." In drawing the line between those 
government contracts that may create rights that are pro
tected by the Fourteenth Amendment and those that do 
not, the court focused on the distinction between employ
ment contracts and ordinary commercial contracts, such 
as contracts to perform a construction project or to sup
ply the state with services or materials. "The right of an 
individual not to be deprived of employment that he or 
she has been guaranteed is more easily characterized as a 
civil right, meant to be protected by section 1983, than are 
many other contractual rights." Ibid., at 1409. Conse
quently, "the farther the purely contractual claim is from 
an interest as central to the individual as employment, 
the more difficult it is to extend it constitutional protec
tion without subsuming the entire state law of public 
contracts." Ibid. Based on this analysis, the court held 
that a corporation's contract to supply medical services to 
a county hospital does not implicate any constitutionally 
protected interest, and that such a "contract to supply 
services to the state cannot sensibly be distinguished 
from construction contracts or even purely material sup
ply contracts, for purposes of federal protection." Ibid., at 
410.

The G&G panel majority abandoned this restrained 
approach in favor of a sweeping expansion of property 
rights and due process protections. G&G's constitutional 
claim, according to the panel majority, "arises from its 
public works contract; it has a property interest in being 
paid in full for the construction work it has completed." 
(A-30) Assuming, arguendo, that a subcontractor that 
lacks privity of contract with an awarding body can none
theless assert a claim based on the awarding body's con
tract with the prime contractor, the question that must be 
carefully addressed is whether, under either the public

26



15

works contract or applicable state law, there is an entitle
ment to prompt payment in full once the job is purpor
tedly completed. The answer to this question is that 
under the California prevailing wage law, and under the 
contracts that G&G relies on as a basis for its due process 
claim, there is no entitlement to payment of sums with
held for unpaid wages and penalties. These contracts 
expressly provide for the withholding of payments to 
cover unpaid wages and penalties. The contractor's right 
to payment in full is contingent not only on completion of 
the work, but also, on the contractor's and its subcontrac
tors' compliance with prevailing wage and certified pay
roll record keeping requirements.

In both S & D Maintenance and Christ Gatzonis Electri
cal Contractor, the Second Circuit held that there can be 
" 'no legitimate claim of entitlement' to funds allegedly 
due" pursuant to "a contract [that] vested the municipal 
official with discretion to withhold interim payments." 
Christ Gatzonis Electrical Contractor, Inc., supra, 23 F.3d at 
640. This holding stems from the application of the well 
known test adopted in Board o f Regents v. Roth, 408 U.S. 
564, 576-78, 92 S. Ct. 2701, 2708-09, 33 L. Ed. 2d 548 
(1972). Under this test, "Property interests, of course, are 
not created by the Constitution. Rather, they are created 
and their dimensions are defined by existing rules or 
understandings that stem from an independent source 
such as state law------" 408 U.S. at 577, 92 S. Ct. at 2709.

In contrast, the Ninth Circuit G&G panel majority 
looks beyond state law, and beyond the state's contracts, 
to the Constitution as an independent source of property 
rights. Ultimately unable to find any basis for G&G's 
asserted property interest in the provisions of the public 
works contracts or in state law, the panel majority relies 
on Snaidach v. Family Finance Corp., 395 U.S. 337, 89 S. Ct. 
1820, 23 L. Ed. 2d 349 (1969) to conclude that although 
G&G has no right to prompt payment (and no right to a 
deprivation hearing) under the state's statutory scheme, 
any withholding under this scheme is constitutionally 
infirm. Snaidach, however, is inapposite. In a garnishment

27



16

case, such as Snaidach, a creditor seeks to seize funds that 
are indisputably owed by a third party to the debtor. The 
funds being seized are the debtor's property. In contrast, 
in a public works contract case such as this, there is 
inevitably a substantive dispute between the immediate 
parties to the contract as to whether the contract requires 
payment of the amounts withheld. The awarding body 
did promise to make the payment; but the contractor 
promised, inter alia, that prevailing wages would be paid 
and that certified payroll records would be kept and 
made available as conditions precedent to receiving pay
ment. To say that the contractor is entitled to the withheld 
funds, and therefore that the state's failure to make pay
ment has deprived the contractor of its "property" with
out due process of law, is to decide the merits of the 
substantive dispute -  a dispute founded upon a breach of 
contract claim -  between the contracting parties.7

If the Ninth Circuit's reasoning on this point is to 
stand as legal precedent, then every failure by a state, 
county or municipality to pay its bills on time will argua
bly constitute an actual deprivation of due process. 
Under this misconceived theory every contractual sow's 
ear is to be converted to a constitutional silk purse. The 
result, which a more circumspect Ninth Circuit earlier 
warned against in San Bernardino Physician Services, supra, 
and the Seventh Circuit warned against in Brown v. 
Brienen, supra, will be the inevitable shifting "of the 
whole of the public law of the state into the federal 
courts", courts which are already overburdened with a 
demanding caseload. For the first time, federal district 
courts will be required to routinely adjudicate local con
struction disputes, including but not limited to claims

7 As the California courts have held "[ujnder the statutory 
scheme presently before us, in acting pursuant to Labor Code 
section 1727 the state did not take property belonging to 
plaintiffs; rather it withheld sums pursuant to the terms of its 
contract with plaintiffs." O.G. Sansone Co. Department of 
Transportation (1976) 55 Cal. App. 3d 444,455,127 Cal. Rptr. 799.

28



17

concerning the adequacy of plumbing, heating and air 
conditioning improvements and compliance or noncom
pliance with state and municipal building codes.

B. The Standard Adopted By The Ninth Circuit For 
Determining Whether Or Not State Action Exists 
Directly Conflicts With This Court's Explicit Guide
lines And Instructions In Sullivan

As aforementioned, upon the vacating of the Ninth 
Circuit's decision by this Court, the case was remanded 
to the Ninth Circuit for further consideration in light of 
American Manufacturers' Mutual Insurance Co. v. Sullivan, 
526 U.S. 40, 119 S. Ct. 977 (1999). The instructions of this 
Court were apparent and unmistakable: G&G's rights in 
this action, if any, were to be reexamined in light of the 
express teachings of Sullivan. While the majority of the 
panel gave lip service to Sullivan, in actuality it rendered 
a decision which clearly disregards its principles.

Respondents in Sullivan attacked on due process 
grounds a Pennsylvania law authorizing the withholding 
by private insurers of medical benefits from employees in 
workers compensation cases without a hearing where the 
insurer submitted a form to the State contesting the rea
sonableness or necessity of the treatment provided. 
Respondents argued that these benefits could not be 
withheld by the insurers without a hearing. An issue also 
arose concerning whether the withholding of medical 
payments pursuant to the Pennsylvania law by the 
insurers constituted state action within the meaning of 42 
U.S.C. § 1983. This Court rejected all of respondents' 
arguments, expressly finding, inter alia, that the withhold
ing by the insurers was not state action.

Petitioners herein contend that on the issue of state 
versus private action, the operative facts in this case are 
strikingly similar to those in Sullivan. G&G was a sub
contractor under a public works contract. California law 
authorizes DLSE to issue a notice to withhold funds from 
the prime contractor on a public works project if his

29



18

workers or the workers of his subcontractors have not 
been paid the prevailing wage. Upon issuance of the 
notice to withhold, the awarding body withholds an 
equivalent amount from the funds otherwise due the 
prime contractor. California Labor Code §§ 1727, 1774, 
1775. There is no requirement in the law that the amount 
withheld from the prime contractor must likewise be 
withheld by the prime contractor from the subcontractor. 
The awarding body does not itself deduct any funds from 
the subcontractor. Section 1729, however, allows the 
prime contractor to deduct a like amount from its pay
ments to the subcontractor "on account of the subcontrac
tor s failure to comply with" the prevailing wage law, if 
the prime contractor chooses to do so. Here, funds were 
withheld from G&G's prime contractor after the issuance 
of notices to withhold pursuant to these code sections 
and the prime contractor decided, in its sole discretion, 
and as a self-help remedy, to deduct a like amount from 
the money it may have otherwise owed G&G. Indeed, 
whether the prime contractor owed any funds to G&G in 
the first instance under the terms of its subcontract with 
G&G is unknown.

As in Sullivan, the inquiry must begin in this case 
with the threshold principle that section 1983 "excludes 
from its reach merely private conduct, no matter how 
discriminatory or wrongful." 526 U.S. 40, 48 (1999). 
Under this basic tenet of law, the federal courts have no 
jurisdiction over a 1983 action unless the plaintiff can 
plead and prove that there was demonstrable state action.

The issue of state action under section 1983 has long 
been litigated in the federal courts, with the result that 
several well-established principles have emerged. Thus, it 
has been concluded that the fact, standing alone, "that a 
business is subject to state regulation does not convert its 
action into that of the State for purposes of the Four
teenth Amendment." Blum v. Yarelsky, 457 U.S. 991, 1004, 
102 S. Ct. 2777 (1981); Jackson v. Metropolitan Edison Co., 
419 U.S. 345, 350, 95 S. Ct. 449 (1974). It is also clear that a

30



19

plaintiff seeking relief under section 1983 must affirma
tively show "a sufficiently close nexus" between the State 
and the challenged action so that "the latter may be fairly 
treated as that of the State itself." Blum, supra, 457 U.S. at 
1004. Finally, the State can be held responsible for private 
action "only when it has exercised coercive power or has 
provided significant encouragement, either overt or cov
ert, that the choice must in law be deemed that of the 
State." Blum, supra, 457 U.S. at 1004; Flagg Bros., Inc. v. 
Brooks, 436 U.S. 149, 166, 98 S. Ct. 1789 (1978).

In deciding Sullivan, this Court expressly confirmed 
these longstanding principles. Its opinion points out that 
"action taken by private entities with the mere approval 
or acquiescence of the State is not state action." Going 
further, in words that echo resoundingly in this case, this 
Court declared that "[t]he mere availability of a remedy 
for wrongful conduct even where that remedy serves 
important public interests does not so significantly 
encourage the private entity so as to make the State 
responsible for it." 526 U.S. 40, 49.

The application of these principles in light of Sullivan 
made it abundantly clear the result required in this case. 
There, as here, the state law authorized a private business 
to withhold funds under certain conditions. In Sullivan, 
withholding was justified if the employer or insurer sus
pected that the treatment was not reasonable or necessary 
and filed a form with the state to that effect. In this case 
withholding is only authorized under section 1729 "on 
account of the subcontractor's failure to comply" with the 
law. In both cases the applicable statute did not mandate 
withholding by the third party, it only permitted it. The 
decision whether or not to withhold was in the sole 
discretion of the private party, not the sovereign.

There can accordingly be no logical distinction 
between the effect of the withholding sanctioned by Cali
fornia law in this case and the effect of the withholding 
which survived judicial scrutiny in Sullivan. If anything, 
there is arguably lesser participation by the State in this 
case than there was in Sullivan, since there the actual

31



20

withholding required government approval, albeit pro 
forma approval, while here no official approval was man
dated by law prior to withholding. Otherwise, with 
respect to the operative factors discussed by the Supreme 
Court, this case and Sullivan are indistinguishable in law. 
The result in Sullivan with respect to the issue of state 
action clearly compelled a similar result in this case.

As in Sullivan, all the State did here was to provide a 
remedy to the prime contractor, a remedy for relief from 
the subcontractor's violations of the prevailing wage law. 
The State of California did not mandate utilization of this 
remedy any more than the State of Pennsylvania manda
ted withholding. The teaching of Sullivan is unequivocal: 
"[pjrivate use of state-sanctioned private remedies does 
not rise to the level of state action." 526 U.S. 40, 49.

The majority of the Panel concluded that the "with
holding here was specifically directed by State officials in 
an environment where the withholding party had no 
discretion at all" (204 F.3d at 944). This statement, the 
factual cornerstone of the Panel majority's reasoning in 
this case, represents a confusion of two separate and 
distinct events. It refers both to the issuance by DLSE of 
notices to withhold to the awarding body, who then with
holds from the prime contractor, on the one hand, and the 
possible withholding from the subcontractor by the prime 
contractor, on the other. But the actual taking by the 
prime contractor from the subcontractor, which is the act 
complained of in this case, consists solely in the discre
tionary withholding by the prime contractor, a private 
party, from the subcontractor. The prime contractor has 
the absolute power to withhold or not withhold. If the 
majority was confused about this distinction, Judge 
Kozinski was not, as he correctly points out in his dissent 
the problem with the majority's reasoning:

"This would be true had the prime contrac
tor been ordered, under penalty of law, to with
hold funds from G&G. It was not. The only 
entity 'specifically directed' to withhold funds 
was the awarding body, which withheld funds

32



21

only from the prime contractor, not from G&G. 
While the challenged provisions authorized -  
even encouraged -  the prime to withhold an 
equivalent amount from G&G, the prime was 
free to pay G&G the full amount specified by 
the contract. Sullivan clearly holds that mere 
authorization and encouragement do not render 
a private entity's decisions 'fairly attributable' 
to the state. 119 S. Ct. at 986. Under Sullivan, 
then, the prime contractor who chose to deprive 
G&G of its alleged property was not a state 
actor" (A-8-A-9).
Here, as in Sullivan, there was no evidence before the 

Court to show that the action of the private entity com
plained of was the result of either the "coercive power" 
or "significant encouragement" of the State. The actual 
evidence, in fact, was plainly to the contrary. The prime 
contractor may indeed under the particular circumstances 
prevailing at the time, find it in his business interest to 
withhold funds from the subcontractor, but he clearly 
need not do so,8 and, in fact, he need fear no adverse 
response from the state if he chooses not to withhold, the 
state being satisfied to receive the money it claims is 
owed.

Federal decisions in other circuits since Sullivan was 
decided have, unlike the Ninth Circuit, faithfully applied 
its teachings with respect to the issue of state versus 
private action in a variety of factual situations. In Lansing 
v. Memphis, 202 F.3d 821, 831-833 (6th Cir. 2000) a private 
nonprofit corporation authorized by the City of Memphis 
to promote tourism in a "Memphis in May" program in a 
park owned by the city was determined not to be a state 
actor when it excluded a preacher from the park with the

8 A prime contractor might decline to withhold from the 
subcontractor, for example, because the former is holding 
substantial funds payable to the latter as progress payments in 
the future.

33



22

assistance of local police. In Austin v. Paramount Parks, 
Inc., 195 F.3d 1727 (4th Cir. 1999) a private security guard 
at an amusement park was held not to be engaged in state 
action despite the fact he obtained an arrest warrant 
through the auspices of a local county sheriff. See also 
discussions of the state action criteria of Sullivan in 
DeBauche v. Irani, 191 F.3d 499, 507-508 (4th Cir. 1999) and 
Perkins v. Lombardy Basketball Club, 196 F.3d 13, 19 (1st Cir. 
1999).

The reasoning of the Ninth Circuit, as we have seen, 
is grounded on misconceived "facts", i.e., that the prime 
contractor had no choice but to withhold from the sub
contractor. This statement has no support in the record 
and is plainly at variance with the true circumstances. 
The undisputed truth is that the prime contractor had the 
absolute discretion to withdraw or not withdraw funds 
from the subcontractor. It was not compelled to do the 
former. Where, as here, the evidentiary underpinnings for 
a determination fall, the determination itself must fall.

G&G's claim accordingly lacks a fundamental juris
dictional element under section 1983, the element of state 
action. It was evident from the record that G&G would 
never be able to cure this defect. The case should accord
ingly have been remanded to the District Court with 
instructions to dismiss this action with prejudice for lack 
of jurisdiction.

C. The Ninth Circuit Misapplied The Established Rule
Concerning Indirect Deprivations And Due Process
A companion issue to the issue of state versus private 

action is the question of whether G&G was foreclosed 
from proceeding against petitioners because the action of 
the State in withholding funds from the prime contractor 
only impacted G&G indirectly.

The sole action taken by petitioners, i.e., the issuance 
of notices to withhold to the contracting public bodies 
based on G&G's noncompliance with the prevailing wage 
law, was taken solely against the prime contractors, who

34



23

thereafter unilaterally chose to withhold monies due 
G&G for work performed under its subcontracts. While 
the law allows the prime contractor to deduct wages and 
penalties from the subcontractor, the decision is that of 
the prime contractor, not the state. Petitioners have con
tended all along that the alleged deprivation of G&G's 
rights is indirect at best (A-66).

"Over a century ago this Court recognized the 
principle that the due process provision . . . does 
not apply to the indirect adverse effects of govern
mental action. Thus, in the Legal Tender Cases, 12 
Wall. 457, 551, the Court stated:

'That provision has always been understood 
as referring only to a direct appropriation, 
and not to consequential injuries resulting 
from the exercise of legal power. It has 
never been supposed to have any bearing 
upon, or to inhibit laws that indirectly work 
harm and loss to individuals.' "

O'Bannon v. Town Court Nursing Center, 447 U.S. 773, 
788-789, 100 S. Ct. 2467 (1980) (emphasis added).

The Ninth Circuit refused to apply the principle of 
O'Bannon and its progeny, finding that G&G, as a sub
contractor, was the "target of the state's action here" 
(A-67) and that, therefore, this case falls within an excep
tion noted in O’Bannon, i.e., where action is taken by one 
party for the purpose of "punishing" another. Appellants 
submit, however, that this is yet another misreading of 
the record in the case by the Ninth Circuit, there being 
absolutely no evidence to support the conclusion that 
either the intent or the policy of the state in enforcing the 
prevailing wage law was at any time to target or punish 
G&G, or other subcontractors.

To ascribe such a motive to appellants is unwar
ranted, particularly in view of the fact that the California 
courts have uniformly found that the purpose of the 
prevailing wage law, far from being a punitive one, is to 
foster the public welfare.

35



24

"The overall purpose of the prevailing wage 
law . . .  is to benefit and protect employees on 
public works projects. This general objective 
subsumes within it a number of specific goals: 
to protect employees from substandard wages 
that might be paid if contractors could recruit 
labor from distant cheap-labor areas; to permit 
union contractors to compete with nonunion 
contractors; to benefit the public through the 
superior efficiency of well-paid employees; and 
to compensate nonpublic employees with higher 
wages for the absences of job security and 
employment benefits enjoyed by public 
employees."

Lusardi Construction Co. v. Aubry (1992) 1 Cal. 4th 976, 987, 
4 Cal. Rptr. 2d 847.

None of the opinions of the Ninth Circuit in this case 
referred to any evidence that suggests that in enforcing 
its contract the state was acting for any purpose other 
than that set forth in Lusardi, because, as noted, no such 
evidence exists. Not even G&G has argued that the state 
acted with the motive assigned by the court in issuing the 
notices to withhold. Certainly there was nothing before 
the majority from which it could have inferred that the 
state acted with a specific intent to impact G&G; it there
fore had no factual basis upon which to draw such an 
inference.

The mere knowledge that an adverse impact on third 
parties is likely to follow from the enforcement of the law 
is clearly not enough to vitiate the reasoning in O'Bannon. 
Thus, the fact that the state had reason to know that the 
withholding from the prime contractor might impact 
G&G is no more significant than the fact that in O'Bannon 
the government had reason to know that the cessation of 
reimbursements to a medical facility would impact its 
patients; that the Department of Agriculture had reason 
to know that the closing of a store would impact the 
employees of the store [Castaneda v. U.S. Department of 
Agriculture, 807 F.2d 1478 (9th Cir. 1987)]; that the U.S.

36



25

Department of Education had reason to know that revok
ing student aid to a college would impact the students 
[Grove City College v. Bell, 687 F.2d 684, 704 (3rd Cir. 
1982)]; or that the U.S. Department of Energy had reason 
to know that its offering of free storage facilities for 
nuclear waste would impact those in the business of 
providing such facilities. [Nuclear Transport & Storage v. 
United States, 890 F.2d 1348 (6th Cir. 1989)]. Yet the 
injured third parties suing in these cases, all of whom had 
as strong a claim as G&G has here, were held to be only 
indirectly affected by the government's action and, there
fore, could state no due process claim.

The state has decided to conduct its business like 
every builder in the private sector by electing to contract 
and deal exclusively with the prime contractor. The deci
sion of the Panel clearly flies in the face of the long 
judicially acknowledged right of a state to dictate the 
terms and conditions upon which public works will be 
performed by private contractors.

In Atkin v. Kansas, 191 U.S. 207, 24 S. Ct. 124 (1903), 
the Supreme Court upheld challenged Kansas legislation 
providing for maximum hours of work and requiring 
minimum rates of pay on public works projects. The 
Court stated:

"It cannot be deemed a part of the liberty of any 
contractor that he be allowed to do public work 
in any mode he may choose to adopt, without 
regard to the wishes of the state. On the contrary, 
it belongs to the state, as the guardian and trustee 
for its people, and having control of its affairs, to 
prescribe the conditions upon which it will permit 
public work to be done on its behalf, or on behalf of 
its municipalities. No court has authority to 
review its actions in that respect. Regulations on 
this subject suggest only considerations of pub
lic policy. And with such considerations the 
courts have no concern." 191 U.S. at 222-223 
(emphasis added).

37



26

In Perkins v. Luekens Steel Co., 310 U.S. 113, 60 S. Ct. 
869 (1940), an attack was made on the Public Contracts 
Act, a statute setting forth standards for those who deal 
with the federal government. This Court upheld the law, 
pointing out that '[l]ike private individuals and busi
nesses, the government enjoys the unrestricted power to 
produce its own supplies, to determine those with whom it 
will deal, and to fix the terms and conditions upon which it 
will make needed purchases." 310 U.S. at 127 (emphasis 
added).

Correctly viewed, the terms and conditions of the 
state's public works contracts merely empower it and its 
political subdivisions to do what every private proprietor 
in the marketplace does, deal on building projects with a 
single prime contractor who, in turn, has the direct 
responsibility for the companies and individuals it 
chooses to select as subcontractors on the project. This is 
a practice that has existed as long as there has been a 
building industry in this country. See, e.g., discussion in 
Haggerty, Real Estate Construction Current Problems (Prac
ticing Law Institute, 1973), p. 47, et seq. Business effi
ciency dictates that the owner (in this case the State) be 
permitted to look to and deal exclusively with the prime 
contractor, the only party with which it is in privity of 
contract, and to say that it holds the prime contractor 
accountable for all failures or defects in performance, 
whether they in fact be due to the fault of the prime 
contractor or one of its subcontractors.

As the cases cited supra declare, this is the State's 
right as a proprietor. This being the case, it cannot be 
fairly argued that the State's actions in this regard are 
tantamount to punishing or targeting those with whom it 
does not contract.

38



27

D. The Ninth Circuit's Decision Obliterates The Crite
ria Set Forth In Sullivan For Determining When 
Sufficient Property Interests Exist For Purposes Of 
Due Process

This Court in Sullivan further held that the workers 
compensation claimants in that case had no property 
right to a hearing because they had not made a showing 
of the basic elements of entitlement to the money with
held, i.e., that the medical treatment in question was 
reasonable and necessary. Having failed to make such a 
showing, they were not entitled to any relief.

"Respondents obviously have not cleared both 
of these hurdles. While they indeed have estab
lished their initial eligibility for medical treat
ment, they have yet to make good on their claim 
that the particular medical treatment they 
received was reasonable and necessary." 526 
U.S. 40, 49.

It is apparent upon the most cursory analysis that 
G&G's claim in this case is subject to the same infirmity 
as the claims in Sullivan. It has never made any kind of a 
showing at any level that it was entitled to the funds 
withheld by its prime subcontractor. It has never, in fact, 
even alleged any entitlement to these funds (A-91). 
Clearly, under Sullivan, it has fallen far short of meeting 
its affirmative burden. Its failure to "clear" these essential 
"hurdles" in its pleadings must be assumed to lie in the 
fact that in actuality it can establish no valid claim on the 
merits.

The action G&G filed in the District Court sought 
only declaratory and injunctive relief on constitutional 
grounds for the failure of DLSE to grant a hearing prior 
to the issuance of the notices to withhold. Significantly, 
G&G did not seek recovery of the funds withheld. While 
G&G alleged in that action that the notices to withhold

39



2 8

were "wrongful" and "arbitrary and unreasonable/'9 it 
has never alleged, and could never allege, either in the 
District Court or thereafter, that it was in compliance 
with the prevailing wage law requirements and had 
therefore met all of the conditions entitling it to payment 
in full. There is not even an allegation in the First 
Amended Complaint that all contractual conditions pre
cedent to receipt of the funds (i.e., full performance of the 
terms of the contract) were satisfied. Instead, G&G took 
the simplistic position, contrary to the express reasoning 
of Sullivan, that the withholding without a hearing in and 
of itself necessarily constituted a deprivation of due pro
cess, regardless of the validity of G&G's claims bn the 
merits. This contention is contrary to law and to well- 
established legal precedents existing prior to Sullivan.

G&G's allegations of entitlement to these withheld 
funds are accordingly clearly lacking. As this Court 
stated years ago in Board of Regents v. Roth, supra, 408 U.S. 
564, 577, 92 S. Ct. 2701 (1972) in considering the nature of 
property interests for purposes of due process:

"To have a property interest in a benefit, a per
son clearly must have more than an abstract 
need or desire for it. He must have more than a 
unilateral expectation of it. He must, instead, 
have a legitimate claim of entitlement to it." 
What is clearly missing in G&G's pleadings is the 

statement of "a legitimate claim of entitlement" to the 
funds withheld. Without such threshold allegations, G&G 
cannot be heard to argue that it is entitled to relief in 
either this Court or the district court.

Judges Hawkins and Reinhardt elected not to address 
this fundamental failing on G&G's part. (AS). They sim
ply glossed over the fact that G&G, having failed to set 
forth its entitlement to the funds by not alleging it had

9 It is well-settled that such conclusionary allegations are 
insufficient to defeat a motion to dismiss for failure to state a 
claim. Epstein v. Washington Energy Co., 83 F.3d 1136, 1140 (9th 
Cir. 1996); Anderson v. Clow, 89 F.3d 1399, 1403 (9th Cir. 1996).

40



29

performed all the terms of its contract, had not stated a 
claim upon which any relief could be granted.

Judge Kozinki's learned dissent, on the other hand, 
points out that "G&G can have no property interest in 
being paid for work that has not been shown to satisfy 
the contractual conditions that it be completed in accor
dance with the prevailing wage requirements." (A-ll).

G&G must be made, like any other litigant, to stand 
or fall on the sufficiency of its pleadings, pleadings in this 
instance that omitted essential allegations necessary to 
maintain its due process claims. As the Ninth Circuit has 
observed in comparable circumstances, "[a] complaint is 
not a puzzle, however, and we are loathe to allow plain
tiffs to tax defendants, against whom they have leveled 
very serious charges, with the burden of solving puzzles 
in addition to the burden of formulating an answer to 
their complaint." In re Glenfed, Inc. Securities Litigation, 42 
F.3d 1541, 1554 (9th Circ. 1994).»o

Having failed to address, let alone prove at any stage 
of the administrative or judicial proceedings, its entitle
ment to the funds withheld by its prime contractor, G&G 
cannot be heard to suddenly argue at this juncture, in 
view of the manifest teachings of Sullivan, that it had a 
property right for due process purposes to a hearing in 
this case.

10 Conclusionary allegations are insufficient to defeat a 
motion to dismiss for failure to state a claim. Epstein v. 
Washington Energy Co., 83 F.3d 1136, 1140 (9th Cir. 1996); 
Anderson v. Clow, 89 F.3d 1399, 1403 (9th Cir. 1996).

41



CONCLUSION
For the reasons stated above, this Petition for Writ of 

Certiorari should be granted.
Respectfully submitted,
Thomas S. K errigan, Counsel 
Division of Labor Standards 

Enforcement
Department of Industrial Relations 
State of California
6150 Van Nuys Boulevard, Suite 100 
Van Nuys, California 91403 
(818) 901-5482

30

42



N o . 0 0 -1 5 2

In The

Supreme Court of the United States
-------------- «---------------

VICTORIA L. BRADSHAW, an individual, in her 
official capacity as Labor Commissioner of the State of 

California; LLOYD W. AUBRY, JR., an individual, in 
his official capacity as Director of the Department of 

Industrial Relations of the State of California; DANIEL 
DELLAROCCA, an individual, in his official capacity 

as Deputy Labor Commissioner of the State of 
California; ROGER MILLER, an individual in his 

official capacity as Deputy Labor Commissioner of the 
State of California; ROSA FRAZIER, an individual in 

her official capacity as Deputy Labor Commissioner of 
the State of California; DIVISION OF LABOR 

STANDARDS ENFORCEMENT, an agency of the State 
of California; DEPARTMENT OF INDUSTRIAL 

RELATIONS, an agency of the State of California,
Petitioners,

v.

G & G FIRE SPRINKLERS, INC.,
Respondent.

-------------- ♦ ---------------------

On Petition For A Writ Of Certiorari To The United 
States Court Of Appeals For The Ninth Circuit

Brief in Opposition

S tephen A. S eideman, Esq.
L evin, S tein, C hyten & S chneider 
12424 Wilshire Boulevard, Suite 1450 
Los Angeles, CA 90025-1048 
Telephone: (310) 207-4663
Attorney of Record for Respondent

43



1

QUESTIONS PRESENTED

The Petition sets forth four questions, allegedly pre
sented by this case (Pet. p. i). None of the four questions 
asserted by Petitioners are presented by this case.

The questions presented by this case are as follows:

"When state law enforcement officials assess civil 
penalties, and forfeitures, for alleged violations of state 
law; and order seizure of money on account thereof, must 
they comply with the due process clause of the fourteenth 
amendment."

"Is notice and a pre-deprivation, or prompt post
deprivation, hearing required, when state law enforce
ment officials assess civil penalties, and forfeitures, for 
alleged violations of state law; and order seizure of 
money on account thereof."

44



11

QUESTIONS PRESENTED ................................................ i
I. SUMMARY OF THE ARGUMENT ...................  1

II. INTRODUCTION.....................................................  2
III. THE QUESTIONS PRESENTED, AS STATED

IN THE PETITION, ARE NOT ISSUES PRE
SENTED BY THIS CA SE...................................... 6
A. The Court Did Not Consider Whether

Every Nonpayment to a Contractor Is a 
Deprivation of Due Process  .................. 6
1. This Is Not A Breach Of Contract 

A ction..............................................    7
B. The Court Did Not Consider Whether 

Action Within the Absolute Discretion of a 
Private Party Constitutes State Action . . .  10
1. The Conduct Challenged in this Action 

Is Clearly State Action............................ 10
a. This Action Is Distinguishable From 

American Manufacturers Mutual Insur
ance v. Sullivan 526 U.S. 40, 119 S.Ct.
977 (1999) With Regard To The Issue 
Of State Action For The Following 
Reasons..................................... . 11

C. The Court of Appeals Did Not Consider 
Whether a Third Party Not Targeted by 
Statute Suffers a Denial of Due Process 
Where the Impact Is at Most Indirect.... 14

D. The Case Does Not Raise the Question of
Whether a Contractor Who Has Not 
Alleged an Entitlement to Public Funds 
Can State a Claim for Denial of Due Pro
cess Based on the State's Withholding Said 
Funds .................................................................  17

TABLE OF CONTENTS
Page

45



IV. AMERICAN MANUFACTURES MUTUAL
INSURANCE V. SULLIVAN IS DISTINGUISH
ABLE, AND NOT APPLICABLE TO THIS 
CASE...........................................................................  20

V. THE COURT OF APPEAL DECISION DOES
NOT CONFLICT WITH ANY OTHER DECI
SIONS .........................................................................  21

VI. THIS CASE DOES NOT INVOLVE MARKET
PLACE ACTIVITY BY THE STATE....................  22

VII. THE PETITION INCLUDES A NUMBER OF
INCORRECT STATEMENTS................................ 24

VIII. CONCLUSION.........................................................  27

iii

TABLE OF CONTENTS -  Continued
Page

46



IV

C ases

American Manufacturers Mutual Insurance v. Sul
livan

526 U.S. 40, 119 S.Ct. 977 (1999)..............................passim

Associated General Contractors v. Coalition for Eco
nomic Equity

950 F.2d 1401 (9th Cir. 1991)......................... ............ 10, 14

Bleeker v. Dukakis
665 F.2d 401 (1st Cir. 1981)............................................... 21

Board of Regents v. Roth
408 U.S. 564, 92 S.Ct. 2701, 33 L.Ed.2d 548 (1972) . . . .  18

Brown v. Brienen
722 F.2d 360 (7th Cir. 1983)............................. . 21

Building and Construction Trades Council o f the Met
ropolitan District v. Associates Builders and Con
tractors o f Massachusetts

507 U.S. 218 (1993).........................................................22, 23

Christ Gatzonis Electrical Contractor, Inc. v. New 
York School Construction Authority 

23 F.3d 636 (2nd Cir. 1994)...............................................  21

Flast v. Cohen
392 U.S. 83 (1968)................................................... 10, 14, 16

Fuentes v. Shevin
407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.2d 556 (1972) . .5, 18

G & G Fire Sprinklers v. Bradshaw
156 F.3d 893 (9th Cir. 1998)............................... 6, 9, 11, 21

TABLE OF AUTHORITIES
Page

47



V

TABLE OF AUTHORITIES -  Continued
Page

Kruegar v. San Francisco
198 Cal.App.3d 1, 243 Cal.Rptr. 585 (1988)................ 3, 4

Logan v. Zimmerman Brush Co.
455 U.S. 422, 101 S.Ct. 1148, 71 L.Ed.2d 265 (1982) . . . .  18 

Lujan v. Defenders of Wildlife
504 U.S. 555 (1992).........................................................11, 14

Lusardi v. Aubry
1 Cal.4th 976, 4 Cal.Rptr.2d 837 (1992).................passim

Martz v. Village of Valley Stream
22 F.3d 26 (2nd Cir. 1994).................................................. 21

O'Bannon v. Town Court Nursing Center
447 U.S. 773, 100 S.Ct. 2467 (1980) ..................................  15

S & D Maintenance v. Goldin
844 F.2d 962 (2nd Cir. 1988).............................................. 21

San Bernardino Physicians' Services Medical Group,
Inc. v. County of San Bernardino 

825 F.2d 1404 (9th Cir. 1987)............................................  21

Sniadach v. Family Finance Corp.
395 U.S. 337, 89 S.Ct. 1820, 23 L.Ed.2d 349

(1969).........................................................................5, 12, 18

United States v. james Daniel Good Real Property
510 U.S. 43, 114 S.Ct. 492, 126 L.Ed.2d 490 (1993)........5

Worth v. Selvin
422 U.S. 490 (1975).................................................  10, 14, 16

Wisconsin Department o f Industry v. Gould
475 U.S. 282 (1986)..........................................................22, 23

48



VI

O ther A uthorities

California Labor Code § 9 0 .5 ............................. 3, 7, 8, 24

California Labor Code § 1720.............................................3

California Labor Code § 1727.........................................3, 8

California Labor Code § 1729..................................... 15, 16

California Labor Code §§ 1731-1733................................. 4

California Labor Code § 1775.............................................3

California Labor Code § 1777......................................... 4, 8

California Labor Code § 1776(g)................................... 3, 8

California Labor Code § 1813............................... ............ 3

TABLE OF AUTHORITIES -  Continued
Page

49



1

I. SUMMARY OF THE ARGUMENT

The questions presented in the Petition are not raised 
by this case. The issue presented in this case was whether 
due process is required when law enforcement officials 
assess civil penalties and forfeitures for alleged violations 
of state law, and seize money on account thereof. The 
California Supreme Court has held that the actions of the 
state officials is regulatory, and not proprietary conduct; 
and does not constitute a contractual dispute. The hold
ing of the California Supreme Court, as to California law, 
is binding on all other courts.

The procedure which was challenged is similar to a 
writ of attachment or garnishment. State law enforcement 
officials ("DLSE") order property owners ("awarding 
bodies") to hold money, for transmittal to DLSE, on 
account of civil penalties and forfeitures assessed by 
DLSE for alleged violations of the state labor code. The 
orders are issued without notice, hearing, or explanation. 
The DLSE is not in privity of contract with the awarding 
body. The order must be complied with, under threat of 
criminal prosecution. The only remedy is to file a lawsuit 
for return of money seized, and the money must be held 
until final judgment, and exhaustion of all appellate 
rights, which can take years. The Court of Appeals held 
that a prompt post-deprivation hearing is required to 
determine whether there is adequate grounds for the 
seizure.

The decision of the Court of Appeals does not con
flict with any other decision. The DLSE position conflicts 
with longstanding due process precedents. There are a

50



2

myriad of state laws regulating the performance of con
tracts, both public and private. If adopted, the DLSE 
position would hold that state enforcement officials could 
assess civil penalties for alleged violations of state law, 
and seize money due on account thereof, without due 
process; so long as state law obligates businesses to com
ply with the law when performing a contract. The DLSE 
position advocates an unprecedented contraction of due 
process rights, and expansion of government power.

The Court of Appeals decision expressly states that 
mere contractual disputes do not give rise to a due pro
cess claim. There is nothing in the decision which sug
gests, or holds, that public entities, who are parties to a 
contract, must provide a due process hearing when acting 
in accordance with their proprietary interests as a mar
ketplace participant. DLSE's contention that special sta
tus, such as tenure for a teacher, is required, is incorrect. 
Even a temporary, non-tenured teacher has due process 
rights, if money owed, is seized for civil penalties 
assessed for alleged violations of state law. II.

II. IN TRODUCTION

G&G FIRE SPRINKLERS, INC. ("G&G") filed this 
action seeking declaratory and injunctive relief. G&G 
sought a declaration that the notice to withhold pro
cedure utilized by the California Division of Labor Stan
dards Enforcement ("D LSE") in connection with 
enforcing prevailing wage laws violates the Fourteenth 
Amendment of the United States Constitution. The defen
dants in the action were DLSE, and certain officials 
thereof. DLSE is an agency of the State of California.

51



3

DLSE is mandated by California law as the agency 
responsible for enforcement of the California Labor Code. 
Cal. Labor Code § 90.5. DLSE is mandated to enforce the 
so-called prevailing wage law statutes. Cal. Labor Code 
§ 90.5(b). DLSE is authorized by statute to impose civil 
penalties for violations of various statutory provisions; 
and forfeitures of alleged wage underpayments; and to 
seize money on account thereof, without any notice or 
hearing. Cal. Labor Code §§ 1727, 1775, 1776(g), 1813. 
Kruegar v. San Francisco 198 Cal.App.3d 1; 243 Cal.Rptr. 
585 (1988). No person, including the person alleged to 
have violated the Labor Code, is entitled to notice or 
hearing before the assessment of civil penalties or forfei
tures, and seizure of money on account thereof. Further
more, there is no procedure for a prompt post
deprivation hearing. The District Court, and Court of 
Appeals, held that such action violates the due process 
clause.

The notice to withhold is an order to the "awarding 
body" (i.e., the public entity that awarded a public works 
contract or private owner receiving public funds) requir
ing the withholding of money due under a public works 
contract, for transmittal to DLSE. See, Exc. 23, Exhibit 2A, 
2B, 2C.1 The awarding body may be a city or other public 
entity created by California law, or a private owner of a 
project funded, in whole or in part, by public monies. Cal. 
Labor Code § 1720. Under California law, there is no priv
ity of contract between the DLSE and the awarding body. 
Lusardi v. Aubry 1 Cal.4th 976, 995; 4 Cal.Rptr.2d 837

1 The reference "Exc." is to the excerpts on appeal which 
were filed in the Court of Appeals.

52



4

(1992). The awarding body is obligated to comply with 
the DLSE order, under threat of criminal prosecution. Cal. 
Labor Code § 1777. The contractor may file a lawsuit 
within ninety days of completion of the project for recov
ery of the monies withheld. Cal. Labor Code § 1731. The 
lawsuit is the exclusive remedy for recovery of monies 
withheld, no issue other than the validity of the civil 
penalties and assessment of wages due may be presented 
in the action; and the contractor has the burden to prove 
the invalidity of DLSE's assessment of civil penalties and 
wages due. Cal. Labor Code §§ 1731-1733. If a lawsuit is 
not filed within the ninety-day period, the monies are 
transmitted to DLSE. Exc. 23, Exhibits 2A, 2B, 2C. If a 
lawsuit is filed, the money must be withheld until final 
judgment is entered, including exhaustion of all appellate 
rights. Krueger v. San Francisco 198 Cal.App.3d 1, 243 
Cal.Rptr. 585 (1988); Cal. Labor Code §§ 1731-1733. Even if 
the notice to withhold is without merit, it can take years 
for the contractor to recover the money seized on account 
of civil penalties and forfeitures. The contractor is 
required to continue to perform work, even though the 
money which would fund performance has been seized 
by DLSE. A failure to continue performance constitutes a 
breach of contract, subjecting the contractor to a claim by 
the awarding body for damages. The civil penalties alone, 
which are assessed without notice or explanation, can be 
hundreds of thousands of dollars. The procedure allows 
DLSE enforcement officials to inflict severe injury, with 
no constitutional constraint. The evidence established 
that contractors are often forced out of business by a 
notice to withhold.

53



5

The United States Supreme Court has repeatedly held 
that a temporary deprivation pending the outcome of an 
underlying lawsuit requires due process. United States v. 
James Daniel Good Real Property 510 U.S. 43, 114 S.Ct. 492, 
126 L.Ed.2d 490 (1993); Sniadach v. Family Finance Corp. 
395 U.S. 337, 89 S.Ct. 1820, 23 L.Ed.2d 349 (1969); Fuentes 
v. Shevin 407 U.S. 67, 85, 92 S.Ct. 1983, 32 L.Ed. 556, 572 
(1972).

DLSE asserts, without any basis, that the case does 
not involve state action and/or solely involves issues of 
breach of contract.

DLSE points out that the Supreme Court granted 
DLSE's previous petition for writ of certiorari, and 
remanded the case for further consideration in light of 
American Manufacturers Mutual Insurance v. Sullivan 526 
U.S. 40,119 S.Ct. 977 (1999). DLSE fails to point out that it 
filed a petition for writ of certiorari which stated that the 
issue addressed by the Court of Appeals in this case is as 
follows:

"Is a commercial contractor who claims that 
a public agency breached a contract by failing to 
make payment entitled by the due process 
clause of the fourteenth amendment to anything 
more than an opportunity to pursue its contract 
claims through an ordinary state court lawsuit?"

No such issue is raised by this case. The contention 
that this is a breach of contract action has been com
pletely rebutted. There is no reason to grant certiorari.

54



6

III. THE QUESTIONS PRESENTED, AS STATED IN 
THE PETITION, ARE NOT ISSUES PRESENTED 
BY THIS CASE.
A. The Court Did Not Consider Whether Every 

Nonpayment to a Contractor Is a Deprivation 
of Due Process

The Court of Appeals expressly held that this case 
did not involve breach of contract. The Court stated:

"(W]e must bear in mind that the Four
teenth Amendment was not intended to shift the 
whole of the public law of the states into the 
federal courts. . . . Even though every contract 
may confer some legal rights under state law, 
that fact alone need not place all contracts 
within federal due process protection . . . 
Drawing on these principles, the state asserts 
that because the withholding procedure at issue 
is contained in G & G's contract, this case is 
nothing more than a contractual dispute that 
does not rise to the level of a constitutional 
claim. Moreover, the state argues that constru
ing this case to present a constitutional claim 
would result in the 'federalization' of state con
tract law by giving G & G and all others who 
contract with the state an opportunity to have 
their grievances reviewed in federal court when 
they should be confined to their contractually 
bargained-for remedies under state law. This 
argument, however, misses the mark. Unlike the 
cases cited by the state, this case does not involve a 
breach o f contract claim or a challenge to the con
tract itself." (Emphasis added).

G & G Fire Sprinklers v. Bradshaw 156 F.3d 893, 901-902 
(9th Cir. 1998).

55



7

DLSE contends that this case involves nothing more 
than a contractual dispute between parties to a contract. 
The contention that this case involves a mere breach of 
contract dispute is completely rebutted for the following 
reasons:

a. DLSE enforces the regulatory power of the state, 
not the proprietary interests of the awarding body. See 
Lusardi supra at 995; see also Section VI infra.

b. The California Supreme Court has held, as a mat
ter of state law, that DLSE's activities in enforcing the 
prevailing wage laws are not contractual. Lusardi v. Aubry 
1 CaUth 976, 4 CaI.Rptr.2d 837 (1992). The California 
Supreme Court expressly held that DLSE enforcement 
actions are, in no way, dependent upon a contract. The 
California Supreme Court held that the DLSE enforce
ment actions are undertaken to enforce statutory obliga
tions imposed by the California Labor Code. Id. See also 
Cal. Labor Code § 90.5(b). The California Supreme Court 
analogized the actions of DLSE to that of a criminal 
prosecutor. Lusardi at 992. The California Supreme Court 
holding on this issue of state law is binding on all other 
courts.

1. This Is Not A Breach Of Contract Action

c. DLSE is not a party to any contract. The Califor
nia Supreme Court expressly held in Lusardi that there is 
no privity of contract between DLSE and the awarding 
body. Lusardi at 995. Once again, since this is an issue of 
state law that has been decided by the California 
Supreme Court, it may not be reconsidered by any other 
court.

56



8

d. DLSE assesses civil penalties for violations of 
state law. Under California law, penalty provisions in a 
contract are void. The assessment of civil penalties can 
never be a matter of contract.

e. The California Supreme Court has held that the 
prevailing wage laws are intended to protect and benefit 
employees, and not to benefit the public entity which 
awarded the contract. Lusardi supra at 985, 987 and 995. 
DLSE's actions are to enforce the state law, which imple
ments public policy, and not pursuant to any contractual 
dispute between parties to a contract. See Cal. Labor Code 
§ 90.5.

f. The notice to withhold effectuates a seizure of 
money due under the contract, similar to a writ of attach
ment or garnishment. The notice to withhold procedure 
only causes seizure of "money due" under the contract. 
Cal. Labor Code §§ 1727 and 1776(g). Section 1776(g) 
expressly states that "penalties shall be withheld from 
progress payments then due." Section 1727 says payments 
are to be withheld from "money due." The California 
Supreme Court expressly stated that the forfeitures and 
penalties are withheld "from sums due under the con
tract." Lusardi supra at 986. The notices to withhold issued 
by DLSE state "you are directed to withhold and retain 
from any payments due the general contractor the total
amount o f__ which is the sum of all wages and penalties
forfeited pursuant to the provisions of Labor Code 
§ 1727 . . . "  Exc. 23, Exhibit 2B.

g. Officials of the awarding body are obligated to 
comply with the notice to withhold, under threat of crim
inal prosecution. Cal. Labor Code § 1777.

57



9

h. Usual breach of contract remedies do not apply. 
See G & G Fire Sprinklers supra 156 F.3d at 902, fn. 6.

i. The civil penalties, and forfeitures for alleged 
wage underpayments, are not contract damages. The 
awarding body is not liable for penalties, or wages.

j. DLSE did not dispute the following statement of 
uncontroverted facts and conclusions of law in the Dis
trict Court:

"13. DLSE undertakes the function of enforce
ment of the California Labor Code provisions 
relating to payment of prevailing wages.

14. The aforesaid prevailing wage requirement 
applies to all construction projects for which the 
entity awarding the prime contract is a public 
entity (hereinafter referred to as the "Awarding 
Body").

15. Defendants have adopted, and utilized, the 
practice and procedure of issuing notices to 
withhold money to Awarding Bodies on account 
of wages and penalties due for alleged viola
tions of California laws relating to payment of 
prevailing wages.

16. The notices to withhold issued by Defen
dants require Awarding Bodies to withhold 
monies otherwise due to contractors in the 
amount set forth in the notice.

17. The result of the issuance of a notice to 
withhold by Defendants is the withholding of 
money otherwise due and payable to contrac
tors who have been the subject of such notice to 
withhold."

Excerpt from record No. 9, docket sh eet__ .

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1 0

The contention that this case involves a mere contrac
tual dispute between parties to a contract is completely 
without merit.

B. The Court Did Not Consider Whether Action 
Within the Absolute Discretion of a Private 
Party Constitutes State Action

1. The Conduct Challenged in this Action Is 
Clearly State Action

DLSE asserts that the conduct challenged in this 
action is that of a private contractor. The assertion by 
DLSE is completely incorrect. G&G's challenge was to the 
conduct of the DLSE officials in issuing notices to with
hold. The pleadings, the proceedings in the District 
Court, and the opinion of the Court of Appeal all address 
that issue. It is axiomatic that actions of state law enforce
ment officials, pursuant to their mandate to enforce state 
law, constitute state action.

DLSE contends that G&G has standing to challenge 
the notice to withhold procedure only as a subcontractor. 
The pleadings and evidence in the District Court estab
lished that G&G had standing to challenge the notice to 
withhold procedure as both a prime contractor and a 
subcontractor. G&G had been subject to notices to with
hold as both a prime contractor and a subcontractor. Exc. 
9, 1114, 15; Exc. 23, 115, 8. Hence, G&G dearly had 
standing to seek declaratory and injunctive relief with 
regard to the notice to withhold procedure, as both a 
prime contractor and subcontractor. Associated General 
Contractors v. Coalition for Economic Equity 950 F.2d 14Q1 
(9th Cir. 1991); Flast v. Cohen 392 U.S. 83 (1968); Worth v.

59



1 1

Selvin 422 U.S. 490 (1975); Lujan v. Defenders o f Wildlife 504 
U.S. 555 (1992).

Moreover, a subcontractor has standing to challenge 
the constitutionality of the DLSE action since the sub
contractor is the target of the enforcement action, the 
penalties or forfeitures are based on alleged violations of 
the Labor Code by the subcontractor, and state law pro
vides that the subcontractor bears the economic burden 
of the notice to withhold. Id. See also G & G Fire Sprinklers 
v. Bradshaw 156 F.3d 893, 899-901 (9th Cir. 1998).

a. This Action Is Distinguishable From 
American Manufacturers Mutual Insur
ance v. Sullivan 526 U.S. 40, 119 S.Ct. 
977 (1999) With Regard To The Issue Of 
State Action For The Following Rea
sons

1. In Sullivan, the defendants were private insur
ance companies. In Sullivan, the Supreme Court charac
terized the argument by stating, "The argument goes, we 
need not concern ourselves with the identity of the defen
dant." In this case, the defendants are public agencies 
and officials of the State of California.

2. In Sullivan, the court stated that "The party 
charged with the deprivation must be a person who may 
fairly be said to be a state actor." The court held that 
private insurance companies were not state actors. In this 
case, it is the defendant DLSE who assesses civil penalties 
and forfeitures, and orders seizure of money on account 
thereof. This action deals with a state actor.

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1 2

3. As explained above, G&G has standing as a 
prime contractor, and as a subcontractor, to seek declara
tory and injunctive relief with regard to the notice to 
withhold procedure. Moreover, even as a subcontractor, 
G&G has standing to challenge the notice to withhold 
procedure. The action challenged is that of the DLSE. 
Even assuming, arguendo, that the issue was whether 
state action was involved in the pass-through of the with
holding to the subcontractor; under Sullivan, there is state 
action. Sullivan states that there is state action, even as to 
conduct by private parties, where "The state has exer
cised coercive power or has provided such significant 
encouragement, either overt or covert, that the choice 
must in law be deemed to be that of the state." Clearly, 
the state exercises coercive power, when DLSE assesses 
civil penalties and forfeitures based on alleged violations 
of the Labor Code by a subcontractor, and then seizes 
money due to the prime contractor, while authorizing the 
prime contractor to withhold such money from the sub
contractor. If the prime contractor does not withhold 
payment from the subcontractor, the prime contractor 
suffers the loss. The conduct of DLSE also provides such 
significant encouragement that the action must be 
deemed that of the state. The contention that the prime 
contractor may, if he chooses, pay money to the sub
contractor, is immaterial. For example, in Sniadach supra, 
the employer who received the garnishment order was 
free to pay wages to the employee. However, doing so 
would not relieve the employer of liability under the 
garnishment order. In this case, payment by a prime 
contractor to the subcontractor does not relieve the prime 
contractor of liability under the notice to withhold.

61



13

4. In Sullivan, the Supreme Court expressly relied 
on the fact that it is solely a private party which makes 
the determination whether to dispute the claim for bene
fits under the policy. The Supreme Court stated that the 
decision "is made by concededly private parties, and 
turns on judgments made by private parties without stan
dards established by the state." In this action, the deter
mination to assess civil penalties and forfeitures for 
alleged violations of the Labor Code, and to issue an 
order to withhold, is made by DLSE. In this case, it is the 
government which initiates the action resulting in the 
seizure of money. In Sullivan,, there was merely a dispute 
by a private party with a private insurance company.

5. In Sullivan, the Supreme Court described the pro
cedure as one of "state inaction, or more accurately, a 
legislative decision not to intervene in a dispute between 
an insurer and an employee over whether a particular 
treatment is reasonable and necessary." This case does 
not involve "state inaction." This case involves state law 
enforcement officials undertaking enforcement action for 
alleged violations of state law.

6. In Sullivan, the private insurance company could 
seek a determination from a state administrative tribunal 
(called the "URO") with regard to whether treatment was 
reasonable and necessary. The Supreme Court stated that, 
while the decision to submit a case to the URO is not state 
action, any decision by the URO is state action. In this 
case, it is DLSE that makes the decision that the State 
Labor Code was violated, and assesses civil penalties and 
forfeitures, and an order to withhold.

62



14

7. Sullivan did not involve a seizure of money by a 
third party. Sullivan was a dispute between the worker 
and the insurer. No third party issued an order to the 
insurer, to withhold money due under the policy, on 
account of civil penalties and forfeitures which had been 
assessed by a state enforcement agency. The Supreme 
Court expressly distinguished such a case in Sullivan. The 
Supreme Court stated, "In the present case, of course, 
there is no effort by petitioners to seize property of 
respondents by an ex parte application to a state official." 
In this case, DLSE makes ex parte assessments of penal
ties and forfeitures, and issues orders to withhold money 
due on account thereof.

C. The Court of Appeals Did Not Consider 
Whether a Third Party Not Targeted by Statute 
Suffers a Denial of Due Process Where the 
Impact Is at Most Indirect

G&G had standing to seek declaratory and injunctive 
relief with regard to the notice to withhold procedure, as 
both a prime contractor and subcontractor. Associated 
General Contractors v. Coalition for Economic Equity 950 F.2d 
1401 (9th Cir. 1991); Flast v. Cohen 392 U.S. 83 (1968); 
Worth v. Selvin 422 U.S. 490 (1975); Lujan v. Defenders of 
Wildlife 504 U.S. 555 (1992). DLSE's contention that G&G's 
injuries consist solely of non-actionable indirect averse 
effects of governmental action is without merit, even 
where G&G acts as a subcontractor.

DLSE has issued notices to withhold asserting viola
tions by G&G as a subcontractor. (See, Exc. 23; Ex. 2).

63



15

Labor Code 1729 provides for withholding from a sub
contractor in such circumstances. Thus G&G, as sub
contractor, is not only the accused party, but also bears 
the financial burden of the withholding. An accused sub
contractor has no remedy against the prime contractor, as 
the Labor Code allows for withholding payment from the 
subcontractor so long as the notice to withhold by DLSE 
remains in effect. Cal. Labor Code § 1729.

DLSE asserts that under O'Bannon v. Town Court 
Nursing Center 447 U.S. 773, 100 S.Ct. 2467 (1980), G&G 
cannot assert a claim. DLSE's contention is without merit. 
O'Bannon does not bar G&G's claim. To the contrary, 
O'Bannon expressly makes clear that G&G may assert a 
claim. O'Bannon concerned a nursing home which had 
been certified to provide care for patients receiving Medi- 
care/Medicaid. The government revoked the certification 
pursuant to proceedings instituted against the nursing 
home (Town Court). There was no dispute that due pro
cess was provided to Town Court. Certain patients of the 
nursing home contended that they had a separate right to 
a due process hearing before the certification could be 
revoked. In this case, unlike O'Bannon, no one was given due 
process; since the prime contractor is not provided due 
process. Moreover, the Supreme Court expressly distin
guished a situation where governmental action against a per
son is intended or expected to affect a third person who is 
considered the responsible party. Id. at 789, fn. 22.

A notice to withhold, due to alleged violations by a 
subcontractor, is precisely the type of situation distin
guished by the court in O'Bannon. The statutory scheme 
provides that upon the assertion of forfeitures and/or

64



1 6

penalties on account of a subcontractor, the subcontrac
tor's money is withheld {Cal. Labor Code § 1729). The 
deprivation of such money is not a mere incidental effect 
of the governmental action. To the contrary, it is the 
expected and intended effect. The subcontractor is the 
alleged violator of the law, who is targeted by the notice 
to withhold.

In O'Bannon, the court explained that the nursing 
home had a due process right to contest the decertifica
tion, and was the party with the greatest interest in doing 
so. Id. at 789 fn. 22; 797. Under California Labor Code, 
neither the prime contractor or subcontractor is entitled to 
due process. Moreover, if a subcontractor's money is 
withheld, the prime contractor has no financial incentive 
to contest the action.

In Flast v. Cohen 392 U.S. 83 (1968) the court held that 
plaintiff's status as a taxpayer was sufficient to confer 
standing to attack a statute providing for the payment of 
government money to a religious school.

In Worth v. Selvin 422 U.S. 490 (1975), the court held 
plaintiff had standing to attack the constitutionality of 
exclusionary zoning. The court explained to have stand- 
ing a party need merely only show some injury due to the 
governmental action. The court stated so long as the 
plaintiff suffered some injury, the plaintiff may invoke the 
rights of others. Worth supra at 501. The court further 
explained that a third party has standing where its injury 
resulted indirectly in the deprivation of the rights of 
another. Id. at 504-505.

65



17

G&G was the target of the unconstitutional action. 
G&G suffered substantial injury due to the unconstitu
tional procedure. Clearly, G&G has standing to assert the 
unconstitutionality of the procedure.

Under the theory of DLSE, no one has standing to 
challenge the unconstitutional conduct. DLSE says a sub
contractor has no standing, because the order seizes 
money due the prime contractor; and a prime contractor 
has no standing because he suffers no injury, since the 
law allows the loss to be passed through to the sub
contractor. In fact, G&G has standing as both a prime 
contractor and subcontractor.

D. The Case Does Not Raise the Question of 
Whether a Contractor Who Has Not Alleged an 
Entitlement to Public Funds Can State a Claim 
for Denial of Due Process Based on the State's 
Withholding Said Funds

As a matter of law, a notice to withhold only has 
effect when money is due under the contract. The notice 
is similar to a writ of attachment. If a writ of attachment 
is served on a person who is not indebted to the defen
dant, the writ has no effect. If a notice to withhold is 
served on an awarding body that does not owe money to 
the contractor, the notice has no effect. If no money is 
owed under the contract, there is no money to transmit to 
DLSE as payment of the civil penalties. California law 
expressly provides that the notice to withhold seizes 
money due. The California Supreme Court explained the 
statutory provision as follows: "Deficiencies and penal
ties are to be withheld by the awarding body from sums 

66



1 8

due under the contract. (§ 1727,)" Lusardi v. Aubry 1 Cal,4th 
976, 986; 4 Cal.Rptr.2d 837, 842 (1992).

Where an existing entitlement under state law (such 
as money due under a contract) is eliminated, for cause, 
by state action (such as assessment of civil penalties for 
violation of state law, and an order to withhold money 
due to secure payment thereof), there is a deprivation of 
property. Logan v. Zimmerman Brush Co. 455 U.S. 422, 101 
S-Ct. 1148, 71 L.Ed.2d 265 (1982). American Manufacturers 
Mutual Insurance v. Sullivan 526 U.S. 40, 119 S.Ct. 977 
(1999) does not change this long established principle. 
DLSE's reliance on Sullivan is misplaced. In Sullivan, it 
had not been established that payment was due. In this 
action, the notice to withhold only has effect when money 
is due under the contract. The notice to withhold secures 
payment of civil penalties and wages allegedly due to 
third parties. The penalties and wages are transferred to 
DLSE from the money due the contractor under the con
tract. The notice to withhold is issued pursuant to the 
Labor Code, as a law enforcement action, and does not 
involve a contractual dispute between the parties to the 
contract. DLSE's contention that special status, such as 
tenure for a teacher, is required, is incorrect. C/. Board of 
Regents v. Roth 408 U.S. 564, 92 S.Ct. 2701, 33 L.Ed.2d 548 
(1972). Even a temporary, non-tenured teacher has due 
process rights, if money owed, is seized for civil penalties 
assessed for alleged violations of state law. Sniadach, 
supra; Fuentes, supra.

This case was decided in the District Court on sum
mary judgment. The following facts were not disputed by 
DLSE:

67



19

"16. The notices to withhold issued by Defen
dants require awarding bodies to withhold 
monies otherwise due to contractors in the 
amount set forth in the notice.

26. The DLSE has issued notices to withhold to 
the Awarding Bodies of various public works 
projects on account of alleged violation of the 
prevailing wage law by Plaintiff. The projects 
for which such notices to withhold have been 
issued include those known as Moore Hall Seis
mic Renovation at the University of California,
Los Angeles; University Center at the University 
of California, Santa Barbara; Recreation Center 
at the University of California, Santa Barbara;
The Pyramid at California State University, 
Long Beach; Anaheim City Utilities Building; 
CSU, San Bernardino; San Joaquin General Hos
pital; Culver City, City Hall.

29. As a result of those notices to withhold still 
pending, which were issued by DLSE as to 
Plaintiff, there is at least $120,000 which has 
been withheld from monies otherwise due 
Plaintiff."

Ex. of Record No. 9, Docket Sheet___, Plaintiff's
Statement of Uncontroverted Facts and Conclu
sions of Law. See also, Ex. of Record No. 12, 
Docket 25, Defendants' Statement of Genuine 
Issues of Material Fact.

California law, and the undisputed facts of this case, 
establish that DLSE seizes money established to be due 
under the contract.

68



20

IV. AMERICAN MANUFACTURES MUTUAL INSUR
ANCE V. SULLIVAN IS DISTINGUISHABLE, 
AND NOT APPLICABLE TO THIS CASE.

DLSE argues that American Manufactures Mutual 
Insurance v. Sullivan 526 U.S. 40, 119 S.Ct. 977 (1999) 
requires reversal of the Court of Appeals decision. DLSE 
is incorrect. Sullivan is distinguishable from this action in 
the following respects:

1. Sullivan involved a public insurer acting in a 
proprietary manner, as would any private insurer. This 
action involves a state enforcement agency exercising its 
regulatory power as government, enforcing the State 
Labor Code.

2. Sullivan involved disputes between the parties to 
the contract; whereas, this action involves enforcement 
activity by DLSE who is not a party to the contract.

3. Sullivan involved disputes as to whether money 
was due under the contract. This action involves the 
assessment of punitive civil penalties for violations of 
state law.

4. Sullivan did not involve seizure of money due, on 
account of third party claimants. This action involves the 
DLSE ordering seizure of money on account of third 
party claims (civil penalties allegedly owed the state, and 
possibly wage claims).

5. In Sullivan payment was not due; in this action 
payment is due under the contract.

Sullivan would be similar to this case if, after the 
worker in Sullivan had established the right to payment 
of a medical bill, a law enforcement agent ordered the

69



21

insurer to hold payment, for transmittal to the enforce
ment agency, as a civil penalty assessed for an alleged 
violation of state law. Under such circumstances, due 
process would require a pre-deprivation hearing, or 
prompt post-deprivation hearing.

V. THE COURT OF APPEAL DECISION DOES NOT
CONFLICT WITH ANY OTHER DECISIONS

DLSE contends that the Ninth Circuit's decision in 
this case conflicts with other court of appeal decisions. 
DLSE has relied on cases holding that not all contractual 
disputes with public entities give rise to a due process 
claim. See San Bernardino Physicians' Services Medical 
Group, Inc. v. County of San Bernardino 825 F.2d 1404 (9th 
Cir. 1987); S & D Maintenance v. Goldin 844 F.2d 962 (2nd 
Cir. 1988); Martz v. Village of Valley Stream 22 F.3d 26 (2nd 
Cir. 1994); Christ Gatzonis Electrical Contractor, Inc. v. New 
York School Construction Authority 23 F.3d 636 (2nd Cir. 
1994); Brown v. Brienen 722 F.2d 360 (7th Cir. 1983); Bleeker 
v. Dukakis 665 F.2d 401 (1st Cir. 1981). The Court of 
Appeal's decision in this case does not conflict with the 
cases cited with DLSE.

The Court of Appeal expressly distinguished this 
case, from the case cited by DLSE. The Court of Appeal 
explained that "unlike the cases cited by the State, this 
case does not involve a breach of contract claim or a 
challenge to the contract itself". G & G Fire Sprinklers v. 
Bradshaw 156 F.3d 893, 902 (9th Cir. 1998).

The cases relied on by DLSE involved contractual 
disputes between parties to a contract. The cases involved 
disputes, such as, whether payment was due under the

70



22

terms of the contract, or whether the contract was pro
cured by fraud. In each such case, the defendant was a 
contracting agency acting in a proprietary manner. None 
of the cases involved the imposition of civil penalties, for 
alleged violations of state law, and the issuance of an 
order to the contracting agency seizing money on account 
thereof.

VI. TH IS CASE DOES NOT IN VOLVE M AR
KETPLACE ACTIVITY BY THE STATE

The petition suggests that this case involves mar
ketplace activity by the State. This case concerns regula
tory activity of the State, not marketplace activity. The 
Supreme Court has recognized that a governmental entity 
may act as regulator, or as a proprietor. Essentially, the 
difference is whether the government is acting as govern
ment, or merely participating in the marketplace as 
would any private owner of property. See, Building and 
Construction Trades Council o f the Metropolitan District v. 
Associates Builders and Contractors o f Massachusetts 507 
U.S. 218 (1993); Wisconsin Department of Industry v. Gould 
475 U.S. 282 (1986). In Building and Construction Trades the 
court explained that government acts as a marketplace 
participant, when it manages its own property, according 
to its purely proprietary interests, with no interest in 
setting policy, where analogous private conduct would be 
permitted. Id. at 229, 231-232. "States have a qualitatively 
different role to play from private parties. When the State 
acts as regulator, it performs a role that is charac
teristically a governmental rather than a private 
role . . . Moreover, as a regulator of private conduct, the

71



23

State is more powerful than private parties. These distinc
tions are far less significant when the State acts as a 
market participant with no interest in setting policy." Id. 
at 229.

In Gould, the State of Wisconsin barred three-time 
violators of the NLRA from bidding on State construction 
projects. The Supreme Court held that such debarment 
was regulatory, not proprietary, and therefore preempted 
by the NLRA. The court explained that the debarment 
rule was an effort to promote public policy, and not 
merely to pursue the proprietary interest of the State.

The conduct of DLSE is wholly regulatory, and not 
proprietary. DLSE is not pursuing a proprietary interest. 
DLSE is not the owner of the property, or even a party to 
the public works contract. The awarding body does pur
sue certain proprietary interests in connection with its 
contracting for the public works project. There is no 
privity of contract between the awarding body and the 
DLSE. Lusardi supra at 995. The California Supreme Court 
has explained that there is a "direct and palpable con
flict" between DLSE and the awarding body. Id. at 995. 
The awarding body has "an interest in obtaining the 
lowest possible cost for construction," whereas the DLSE 
has an interest "in enforcing the prevailing wage laws. 
Contractors that do not pay the prevailing wage . . . may 
be preferred by local government agencies for public 
works projects, because the construction dollar will pur
chase more when a contractor who is paying less than the 
prevailing wage is selected." Id. at 995. The California 
Supreme Court in Lusardi, and the DLSE in its petition, 
both assert that the purpose of prevailing wage laws is to 
protect and promote the interests of workers. The DLSE

72



24

operates pursuant to its statutory mandate to enforce the 
Labor Code. Cal. Labor Code § 90.5. DLSE imposes civil 
penalties for violation of the law. The actions of DLSE are 
to promote the public policy, embodied in the statutes 
being enforced. The actions of the DLSE are regulatory, 
and not merely proprietary.

VII. THE PETITION INCLUDES A NUMBER OF 
INCORRECT STATEMENTS

The petition includes many statements that are incor
rect. A number of the incorrect statements are addressed 
below. Due to the number of such incorrect statements, 
not all incorrect statements are necessarily addressed 
below. The failure to mention any statement below does 
not constitute an acknowledgment that the statement is 
correct. Moreover, matters addressed in the foregoing 
arguments are not repeated below.

Page 3 of the petition states that a prime contractor, 
agrees in its contract with the governmental entity, that 
workers will be paid prevailing wages. Sometimes the 
prime contract does not set forth the obligation to pay 
prevailing wages. Nevertheless, the obligation exists as a 
matter of law. Lusardi supra.

The DLSE asserts on page 4 that prime contractors 
who hire G&G agreed in their contracts to certain require
ments regarding prevailing wages. No evidence was sub
mitted in that regard. The issue was immaterial. DLSE 
has asserted, and conceded in the District Court, that its 
authority to issue notices to withhold is not based on 
contract. DLSE has asserted, and concedes, that its

73



25

authority to issue notices to withhold is statutory, pur
suant to its mandate to enforce the Labor Code. The 
California Supreme Court has held that DLSE's authority 
does not derive from contract. Lusardi supra.

Page 5 of the petition states that monies transmitted 
to DLSE pursuant to a notice to withhold are disbursed to 
underpaid workers, if a lawsuit is not filed to recover 
said monies. There is no evidence in the record that the 
money is disbursed to underpaid workers. In fact, the 
money is not necessarily disbursed to underpaid 
workers. Civil penalties, which constitute a large portion 
of monies seized, are retained by the state. Moreover, a 
notice to withhold may be issued, and often is, even if 
there are no underpaid workers who have been identi
fied. Where no underpaid workers are identified, or if 
workers cannot be located, the state retains the monies 
seized for alleged underpayments.

Page 5, in footnote 5, states that the subcontractors 
may be unknown to the awarding body at the time the 
contract is awarded. The California Public Contracts 
Code requires a prime contractor identify all subcontrac
tors in its bid. A subcontractor cannot be removed from 
the project without the approval of the awarding body, 
which may be granted only on certain specified statutory 
grounds. The only instance when an awarding body 
would not know of the subcontractor, is where it provides 
such a negligible amount of work that it falls within an 
exception to the general rule that subcontractors must be 
listed in the bid.

Page 6 of the petition states that a subcontractor who 
has been targeted by a notice to withhold may pursue a

74



26

remedy under the "stop notice" procedure set forth in the 
California Civil Code. The stop notice procedure does not 
provide such a remedy. The stop notice procedure allows 
any person who is owed money for work or materials at 
the project, including a subcontractor or worker, to file a 
stop notice with the awarding body. The stop notice 
requires the awarding body to withhold the amount of 
money claimed, pending litigation of the claim. Inter
estingly, the statutory stop notice procedure provides for 
due process, by allowing a prompt post-deprivation hear
ing. DLSE is authorized to file stop notices on behalf of 
workers, but refrains from doing so. Rather, DLSE uses 
the notice to withhold procedure, which does not provide 
due process. Rather than being a remedy for a notice to 
withhold, a stop notice would only make the subcontrac
tor's situation worse. The DLSE notice to withhold seizes 
money owing to the prime contractor, and authorizes 
pass-through withholding of the subcontractor's money. 
The filing of a stop notice causes even more money to be 
withheld from the prime contractor. The stop notice is 
without merit because the prime contractor has not 
breached the subcontract. The prime contractor is autho
rized to withhold the same amount from the subcontrac
tor, as damages for the wrongful stop notice. The filing of 
the stop notice simply causes the subcontractor to suffer a 
double penalty.

Page 6 of the petition states that G&G disdained 
utilizing any of its state law remedies, but rather filed 
this action. To the contrary, G&G filed this action for 
declaratory and injunctive relief because there is no state 
remedy which provides for due process.

75



27

Page 7 of the petition, footnote 6, states that no party 
contended that G&G was anything but a subcontractor on 
the three public works contracts at issue. There had been 
previous notices to withhold, which had been released. 
G&G contended that all of the notices to withhold, 
including those which had been released, combined with 
the threat of future notices to withhold, gave G&G stand
ing to assert a claim for declaratory and injunctive relief. 
Notices to withhold had been issued against G&G both as 
a subcontractor and a prime contractor.

Page 9 of the petition states that a subcontractor 
targeted by a notice to withhold may sue the awarding 
body under various state law theories. This is incorrect. 
The Labor Code provides that the exclusive remedy for a 
notice to withhold is a lawsuit by the prime contractor or 
his assignee. Cal. Labor Code §§ 1731-1733. No money may 
be released until final judgment, and exhaustion of all 
appellate rights. Krueger, supra.

Page 18 of the petition states, that it is unknown 
whether G&G was owed any money under the terms of 
its contract. This is incorrect. The undisputed facts in the 
District Court established that the notices to withhold 
caused withholding of money due and owing to G&G. VIII.

VIII. CONCLUSION

The Petition asserts issues which are not raised by 
the facts of this case. The decision of the Court of Appeals 
does not conflict with any existing precedent. The Peti
tion asserts a position that has never been adopted by any 
court, and which conflicts with long standing precedents

76



28

of the United States Supreme Court. The Petition sets 
forth no reason why long standing principles of due 
process should be abandoned. It is respectfully submitted 
that the Petition should be denied.

Respectfully submitted,

S tephen A. S eideman, Esq.
Levin, Stein, C hyten & Schneider

12424 Wilshire Boulevard, Suite 1450
Los Angeles, CA 90025-1048
Telephone: (310) 207-4663

Attorney of Record for Respondent

77



No. 00-152

In The

Supreme Court of the United States
♦

VICTORIA L. BRADSHAW, et a l,

vs.
Petitioners,

G & G FIRE SPRINKLERS, INC.,
Respondent.

----------------♦ ----------------

On Petition For A Writ Of Certiorari 
To The United States Court Of Appeals 

For The Ninth Circuit
--------------- * ----------------

MOTION FOR LEAVE TO FILE BRIEF 
AMICI CURIAE AND BRIEF OF AMICI CURIAE 

THE PORT OF OAKLAND AND TEN CALIFORNIA 
CITIES IN SUPPORT OF PETITIONERS

----------------♦ ----------------

D avid L. A lexander,
Port Attorney 
C hristopher H. A lonzi, 
Deputy Port Attorney 
Counsel of Record 
Port of Oakland 
530 Water Street, 4th Floor 
Oakland, California 94607 
(510) 627-1572
Attorneys for Amici Curiae 

In Support of Petitioners 
Victoria Bradshaw, et al.

79



1

TABLE OF CONTENTS
Page

TABLE OF AUTHORITIES................................................  ii

STATEMENT OF AMICI CURIAE .................................. 1

SUMMARY OF ARGUMENT............................................  3

I. THE DECISION BELOW CONFLICTS WITH 
PRECEDENTS OF THE SECOND AND THIRD 
CIRCUITS, AND EVEN FAILS TO FOLLOW 
BINDING PRECEDENTS OF THE NINTH CIR
CUIT ITSELF, ALL OF WHICH HOLD THAT 
AN ORDINARY COMMERCIAL CONTRACT 
WITH A PUBLIC ENTITY DOES NOT CREATE 
A PROTECTED PROPERTY INTEREST UNDER
THE FOURTEENTH AMENDMENT.................. .. 4

II. THE DECISION BELOW WILL ENTANGLE 
THE FEDERAL JUDICIARY IN STATE AND 
LOCAL PUBLIC WORKS CONTRACT DIS
PUTES ............................................................................  8

III. THE DECISION BELOW WILL SERIOUSLY 
IMPEDE THE DEVELOPMENT AND MAINTE
NANCE OF VITAL PUBLIC INFRASTRUC
TU R E BY C O N V E R TIN G  O R D IN A R Y  
CONTRACT DISPUTES INTO FEDERAL CIVIL 
RIGHTS CLAIMS WHICH ALLOW FOR INDI
VIDUAL LIA BILITY AND PREVAILING 
PLAINTIFF ATTORNEY'S FEES UNDER 42 
U.S.C. § 1988...............................................................  10

CONCLUSION......................................................................  13

80



ii

TABLE OF AUTHORITIES
Page

C ases

American Manufacturers Mutual Insurance Co. v. 
Sullivan, 526 U.S. 40, 119 S.Ct. 977, 143 L.Ed.2d 
130 (1999)........................................................................... 3, 4

Excess Electronixx v. Heger Realty Corp., 64 
Cal.App. 4th 698, 75 Cal.Rptr. 2d 376 (1998).......... 11

G & G Fire Sprinklers, Inc. v. Bradshaw, 156 F.3d 893 
(9th Cir. 1998) (vacated and remanded).......... passim

G & G Fire Sprinklers, Inc. v. Bradshaw, 204 F.3d 941 
(9th Cir. 2000)......................................................................... 8

Hafer v. Melo, 502 U.S. 21, 112 S.Ct. 358, 116 
L.Ed.2d 301 (1991).............................................................  11

Martz v. Incorporated Village of Valley Stream, 22
F.3d 26 (2nd Cir. 1994)................................4, 5, 6, 8, 10

Paul v. Davis, 424 U.S. 693, 96 S.Ct. 1155, 47 
L.Ed.2d 405 (1976)................................................................. 9

Reich v. Beharry, 883 F.2d 239 (3rd Cir. 1989)..............  10

San Bernardino Physicians' Services Medical Group v.
County of San Bernardino, 825 F.2d 1404 (9th Cir.
1^87).................................................................................passim

S & D Maintenance Co., Inc. v. Goldin, 844 F.2d 962
(2nd Cir. 1988)...............................................  4, 5, 6, 8, 10

Unger v. National Residents Matching Program, 928 
F.2d 1392 (3d Cir. 1991)........................................4, 5, 10

Walentas v. Upper, 862 F.2d 414 (2nd Cir. 1988)..........  10

81



iii

TABLE OF AUTHORITIES -  Continued
Page

C onstitutions, S tatutes and R ules

U.S. Constitution

Amendment XIV................  passim

42 U.S.C. § 1983........................................................6, 7, 9, 11

42 U.S.C. § 1988.................................. ..................... 2, 10, 11

California Civil Code, Section 3186................................ . 12

California Public Contract Code, Sections 10164,
10226, 10262.5, 10781, 10782, 10826, 20103.5^
20172, 20418, 7107..............................................................  12

California Commercial Code, Section 2717......................12

California Civil Code, Section 1717....................................11

U.S. Supreme Court Rules, Rule 37(4)............................... 2

O ther A uthorities

Miller, Cities by Contract: The Politics o f Municipal
Incorporation, MIT Press (Cambridge, MA 1981)........2

Martin, Management of Public Works Construction 
Projects, American Public Works Assoc. (Kansas
City, MO 1999)......................................................................2

Sweet & Sweet, Sweet on Construction Industry 
Contracts-Major AlA Documents § 15.11 (4th Ed.)
Aspen Law & Business 1999.......................................... 12

Public Works Standards, Inc., "Greenbook" Stan
dard Specifications for Public Works Construction 
(2000 ed.) (BNI Publications 1999)........................... 12

82



1

BRIEF OF AMICI CURIAE THE PORT OF 
OAKLAND AND NINE CALIFORNIA CITIES 

IN SUPPORT OF PETITIONERS

The Port of Oakland and the cities of Berkeley, New
port Beach, Bakersfield, San Pablo, Sunnyvale, Redding, 
Lodi, Oakland, Fremont and Tracy ("Amici") submit this 
brief of amici curiae in support of petitioners Victoria 
Bradshaw, et al.

---------------- ♦ -------------------

STATEMENT OF AMICI CURIAE1

A. Identity of Amici

Amici are ten California public entities responsible 
for building and maintaining roads, bridges, buildings, 
harbors and airports for use by the public. In fulfilling 
these responsibilities, Amici award and execute 
numerous public works contracts in the manner specified 
by state law and local charters.

B. Interest of Amici

Amici have concluded that this case presents an issue 
of exceptional importance to municipalities because the 
holding that an ordinary public works contract creates a 
protected property interest under the Fourteenth Amend
ment to the U.S. Constitution is contrary to established 
precedent in the Second and Third Circuits, and fails

1 No person or entity, other than Amici, or their counsel, 
made any monetary contribution to the preparation and 
submission of this brief.



2

even to follow long-established precedent in the Ninth 
Circuit. Moreover, the majority's deviation from estab
lished Fourteenth Amendment jurisprudence holds the 
potential to open an entirely new realm of municipal 
liability. All cities utilize contractors to deliver municipal 
services; indeed some cities use contractors for all of their 
services. (See, Miller, Cities by Contract: The Politics of 
Municipal Incorporation, MIT Press (Cambridge, Mass. 
1981).) Unfortunately, disputes with contractors are an 
unavoidable part of contemporary public works adminis
tration. (See, Martin, Management o f Public Works Con
struction Projects, pp. 121-122, American Public Works 
Assoc. (Kansas City, Mo. 1999).) However, if the conflict 
between the majority decision and established precedent 
is not resolved, the federal judiciary will become entan
gled in ordinary public works contract disputes. More
over, state and local governmental agencies will face the 
threat of a federal civil rights suit, and a potential attor
ney fee award under 42 U.S.C. § 1988, in every dispute 
with a contractor.

C. Source of Authority

Amici are authorized by state law or local charter to 
participate in any judicial proceedings related to their 
operations. This brief is filed under the authority of Rule 
37.

84



3

SUMMARY OF ARGUMENT

The decision below concerns an issue of national 
importance and conflicts with the decisions of the Courts 
of Appeals for the Second and Third Circuits; consider
ation by this Court is therefore necessary to secure and 
maintain uniformity of the interpretation of the Four
teenth Amendment to the U.S. Constitution. The decision 
below presents a question of exceptional importance 
because by holding that an ordinary commercial contract 
with a public agency creates a property interest within 
the meaning of the Fourteenth Amendment, it will result 
in a federal cause of action for every breach of a public 
contract. Moreover, the decision below will seriously 
impede the development and maintenance of vital public 
infrastructure.2

2 Amici agree with Petitioner's argument that G & G failed 
to prove the required element of state action as necessitated by 
American Manufacturers Mutual Insurance Co. v. Sullivan, 526 U.S. 
40, 119 S.Ct. 977, 143 L.Ed.2d 130 (1999). However, as Amici 
explain, the majority opinion is also fatally flawed in that it 
holds that an ordinary commercial contract with a public entity 
creates a protected property interest, sufficient to create a 
federal cause of action in an ordinary contract dispute.

85



4

I.

THE DECISION BELOW CONFLICTS WITH PRECE
DENTS OF THE SECOND AND THIRD CIRCUITS, 
AND EVEN FAILS TO FOLLOW BINDING PRECE
DENTS OF THE NINTH CIRCUIT ITSELF, ALL OF 
WHICH HOLD THAT AN ORDINARY COMMERCIAL 
CONTRACT WITH A PUBLIC ENTITY DOES NOT 
CREATE A PROTECTED  PRO PERTY IN TER EST 
UNDER THE FOURTEENTH AMENDMENT

"The first inquiry in every due process challenge is 
whether the plaintiff has been deprived of a protected 
interest in 'property' or 'liberty'." (American Mfrs. Mut. 
Ins. Co. v. Sullivan, 526 U.S. 40, 119 S.Ct. 977, 990, 143 
L.Ed.2d 130 (1999).) In the decision below, the majority 
concluded that a corporation's public works contract cre
ated a protected property interest under the Fourteenth 
Amendment. The majority holding conflicts with prior 
precedent from Second and Third Circuits, and fails even 
to follow binding precedent from the Ninth Circuit.

The Court of Appeals for the Second and Third Cir
cuits have held that an ordinary commercial contract with 
a public entity does not create a property interest pro
tected by due process. (S & D Maintenance Co., Inc. v. 
Goldin, 844 F.2d 962 (2nd Cir. 1988); Unger v. National 
Residents Matching Program, 928 F.2d 1392, 1397-1400 (3d 
Cir. 1991); Martz v. Incorporated Village o f Valley Stream, 22 
F.3d 26 (2nd Cir. 1994).) Prior to the issuance of the 
decision below, Ninth Circuit precedent had also rejected 
any theory that an ordinary public contract created a 
protected property interest. (San Bernardino Physicians' 
Services Medical Group v. County o f San Bernardino, 825 F.2d

86



5

1404 (9th Cir. 1987).) S & D, Unger, Martz and San Bernar
dino Physicians are each authoritative decisions in that a 
central issue on appeal was the existence of any protected 
property interest created by an ordinary commercial con
tract with a public entity and in each case the court's 
holding is supported by a thorough analysis of the rele
vant authorities.

In S & D, supra, the Second Circuit considered 
whether a municipal contract to maintain parking meters 
in New York City created a protected property interest. 
There, the city withheld payments and eventually termi
nated the contract under a no-cause termination provi
sion in the contract. After exhaustive analysis, the panel 
unanimously held that S & D's contract created no prop
erty interest under the Fourteenth Amendment: "[A]n 
interest in enforcement of an ordinary commercial con
tract with the state is qualitatively different from the inter
ests the Supreme Court has thus far viewed as 'property' 
entitled to procedural due process protection." (S & D, 
supra, 844 F.2d, at 966 [emphasis added].)

In Unger, supra, the plaintiff alleged that a public 
medical school deprived her of a protected property 
interest when it discontinued its residency program after 
it had accepted her application. After an extensive review 
of the other federal precedents, including the Ninth Cir
cuit's opinion in San Bernardino Physicians, supra, the 
Third Circuit held that the plaintiff's contract with the 
medical school created no protected property interest. 
(Unger, supra, 928 F.2d, at 1399.)

In Martz, supra, the plaintiff attorney had been 
retained to provide legal services for a municipality. As a

87



6

result of a dispute, the village failed to compensate the 
plaintiff for the services rendered and she filed an action 
under 42 U.S.C. § 1983 ("Section 1983") alleging depriva
tion of her property in violation of the Fourteenth 
Amendment. Reiterating its holding from S & D, supra,, 
the court rejected the plaintiff's Section 1983 claim, 
explaining that the right to payment on an ordinary com
mercial contract does not rise to the level of a constitu
tionally protected property interest. (Martz, supra, 22 F.3d, 
at 31; citing, San Bernardino Physicians, supra.)

The Ninth Circuit's decision below fails even to fol
low the binding precedent from that circuit in San Bernar
dino Physicians, supra. There, a m edical services 
corporation entered a contract with the county which 
could be terminated only "for cause." (Id., at 1406.) How
ever, the county breached the contract by terminating it 
prematurely. The medical group filed an action under 
Section 1983 alleging deprivation of property without 
due process of law under the Fourteenth Amendment. On 
appeal from summary judgment in favor of the county, 
the Ninth Circuit held the medical services contract was 
an ordinary commercial contract which did not create a 
protected property interest.

In its analysis, the Ninth Circuit acknowledged that a 
contract may, in some circumstances, create a protected 
property interest. But, recognizing the practical problems 
with conferring constitutional protection on every public 
contract, the Court set out to "determine what kinds of 
contracts with the state create rights that are protected by 
the Fourteenth Amendment." (Id., at 1409.) Essential to 
the court's determination was the fact that employment

88



7

contracts, which have been the basis for nearly all suc
cessful contract-based Section 1983 actions, relate to an 
interest of overriding importance to the individual. 
Employment is more easily characterized as a civil right 
than the transitory business interest embodied in an ordi
nary commercial contract. Therefore, an ordinary com
mercial contract does not create a protected property 
interest simply because one party is a public entity. Of 
special significance to the instant matter, the court 
observed:

. . . Physician's Group's contract to supply medi
cal services to the state does not confer any 
constitutionally protectible interest on Physi
cian's Group . . . [I]ts contract to supply services 
to the state cannot sensibly be distinguished 
from construction contracts or even purely mate
rial supply contracts, for purposes of federal 
protection. (San Bernardino Physicians, supra, 825 
F.2d, at 1410 [emphasis added].)

The majority opinion in G & G Fire Sprinklers does not 
respect the carefully crafted reasoning of the authorita
tive decisions from the Second and Third Circuits. (See, G 

G Fire Sprinklers, supra, 156 F.3d, at 908-909 [Kozinski, 
J., dissenting].) Nor does the decision below follow bind
ing Ninth Circuit precedent. In each prior case, plaintiffs 
alleged the deprivation of a protected property interest 
arising from an ordinary commercial contract with a pub
lic entity. Indeed, the San Bernardino Physicians court 
specifically identified "construction contracts", such as 
the G & G contract, to illustrate the types of contracts 
which do not create a protected property interest. (San 
Bernardino Physicians, supra, 825 F.2d, at 1410.) Even the

89



8

inclusion of a "for cause" termination provision did not 
warrant a different result in San Bernardino Physicians.

The decision in G & G Fire Sprinklers cannot be recon
ciled with the above authorities. In the decision below, 
the majority's attempt to avoid a conflict with other cir
cuits by focusing on the statutory scheme of the Califor
nia Labor Code, rather than the terms of the contract, is 
simply unavailing. (G & G Fire Sprinklers v. Bradshaw, 204 
F.3d 941, 943 (9th Cir. 2000).) Clearly, G & G's property 
interest did not arise from the Labor Code itself. Sim
ilarly, characterizing G & G's property interest as an 
expectation of receiving payment is insufficient, since any 
such expectation must be rooted in the contract. In its 
original decision, the majority itself noted that "G & G's 
interest arises from its public works contract." (G & G Fire 
Sprinklers, supra, 156 F.3d, at 901.) This result cannot be 
squared with the precedents in S & D, Unger, Martz and 
San Bernardino Physicians.

In sum, the majority opinion creates an irreconcilable 
conflict with Second and Third Circuit precedents by 
recognizing a protected property interest arising out of an 
ordinary commercial contract with a public entity. This 
Court should grant the writ in order to resolve this con
flict.

II.
THE DECISION BELOW WILL ENTANGLE THE FED
ERAL JUDICIARY IN STATE AND LOCAL PUBLIC 
WORKS CONTRACT DISPUTES.

As a practical matter, the decision below will entan
gle the federal judiciary in disputes between state and

90



9

local governments, on the one hand, and public works 
contractors on the other, by converting a broad range of 
ordinary contract disputes into civil rights actions.

Over twenty years ago, this Court expressed a con
cern that the day-to-day operations of state and local 
governments may become subject to constitutional 
review as the result of a limitless definition of "property 
interests." In Paul v. Davis, 424 U.S. 693, 96 S.Ct. 1155, 47 
L.Ed.2d 405 (1976), county law enforcement officials dis
tributed flyers to local merchants depicting the plaintiff 
among a list of "active shoplifters." The plaintiff filed suit 
against the officials under 42 U.S.C. § 1983, alleging that 
the county had deprived him of his protected liberty and 
property interests without due process of law. In rejecting 
this claim, this Court observed:

It is hard to perceive any logical stopping place 
to such a line of reasoning. Respondent's con
struction would seem almost necessarily to 
result in every legally cognizable injury which 
may have been inflicted by a state official acting 
under "color of law" establishing a violation of 
the Fourteenth Amendment. We think it would 
come as a great surprise to those who drafted 
and sheparded the adoption of that Amendment 
to learn that it worked such a result, a study of 
our decisions convinces us they do not support 
the construction urged by respondent. (Paul, 
supra, 424 U.S., at 698-699, 96 S.Ct., at 1159, 47 
L.Ed.2d 405.)

The identical concern expressed by this Court in Paul 
v. Davis is presented in the decision below. To paraphrase 
this Court's holding in Paul v. Davis, the Ninth Circuit's 
reasoning would seem almost necessarily to result in

91



10

every breach of a public works contract by a state or local 
agency establishing a violation of the Fourteenth Amend
ment. As noted by Judge Kozinski, the result adopted by 
the majority opinion will effectively "constitutionalize" a 
broad swath of garden variety contract disputes simply 
because one of the parties is a government agency. (See 
e.g., G & G Fire Sprinklers, supra, 156 F.3d, at 909.) At least 
16 other federal judges have expressed the same con
cern.3

III.

THE DECISION BELOW WILL SERIOUSLY IMPEDE 
THE DEVELOPM ENT AND M AINTENANCE OF 
VITAL PUBLIC INFRASTRUCTURE BY CONVERTING 
ORDINARY CONTRACT DISPUTES INTO FEDERAL 
CIVIL RIGHTS CLAIMS WHICH ALLOW FOR INDI
VIDUAL LIABILITY AND PREVAILING PLAINTIFF 
ATTORNEY'S FEES UNDER 42 U.S.C. § 1988.

In his dissenting opinion in the original G & G Fire 
Sprinklers decision, Judge Kozinski identified with strik
ing clarity the detrimental impact the majority opinion 
will have on state and local governments. (G & G Fire 
Sprinklers, supra, 156 F.3d, at 909-910.) Amici shares Judge 
Kozinski's concern that the majority holding will hobble

3 See, S & D, supra, 844 F.2d 962 [Feinberg, Newman, 
Winter, JJ. ]; Unger, supra, 928 F.2d 1392 [Hutchinson, Resenn, 
JJ.]; Martz, supra, 22 F.3d 26 [Miner, Mahoney, Restani, JJ.], San 
Bernardino Physicians, supra, 825 F.2d 1404 [Hug, Canby, Norris, 
JJ.]; Walentas v. Upper, 862 F.2d 414 (2nd Cir. 1988) [Mahoney, 
Winter, JJ.]; Reich v. Beharry, 883 F.2d 239 [Seitz, Stapleton, 
Cowan, JJ.].

92



11

the ability of public entities to construct and maintain 
vital public improvements.

Two aspects of Section 1983 liability will fundamen
tally alter the dynamics of public works administration to 
the detriment of the public. First, the decision below will 
discourage vigorous protection of the public fisc by per
mitting imposition of individual liability upon project 
managers, engineers and administrators. (See, e.g., Hafer 
v. Melo, 502 U.S. 21, 112 S.Ct. 358, 116 L.Ed.2d 301 (1991).) 
As noted by Judge Kozinski, "when the government is 
acting as a commercial entity, taxpayers cajole it to act 
with all the ferociousness the marketplace demands." (G 
& G Fire Sprinklers, supra, 156 F.3d, at 910, n.2.) Self- 
evidently, the prospect of individual liability under Sec
tion 1983 will discourage public works managers from 
vigorously enforcing the terms of commercial contracts in 
order to obtain complete performance. The taxpayers will 
bear the consequences in the form of higher costs and 
delayed completion of critical public improvements.

Second, as the instant case illustrates, liability under 
Section 1983 carries with it the right to prevailing plaintiff 
attorney's fees under 42 U.S.C. § 1988. Under California 
law, parties to an ordinary breach of contract action are 
entitled to recovery of attorney's fees only if their con
tract specifically provides such a remedy. (Cal. Civ. C. 
§ 1717 (Deerings 1994); Excess Electronixx v. Heger Realty 
Gorp., 64 Cal.App.4th 698, 75 Cal.Rptr.2d 376.) However, 
as a practical matter, the majority opinion may result in 
the imposition of a significant contract remedy in every 
public works contract, regardless of the mutual assent of 
the parties. c



12

The contours of the expanded zone of Section 1983 
liability which might result if this conflict is not resolved 
are suggested by the frequency with which payments are 
withheld from contractors in the course of a construction 
project. The withholding or partial withholding of pay
ments by a project owner is an inherent feature of con
struction projects, whether privately or publicly owned. 
(See, Sweet & Sweet, Sweet on Construction Industry Con- 
tracts-Major AIA Documents, § 15.11 (4th Ed.) Aspen Law 
& Business 1999.) Moreover, in California numerous stat
utes authorize or require state and local agencies to with
hold funds from a contractor for such reasons as failure 
to execute a contract after award (Cal. Pub. Con. C , 
§§ 10164, 10781, 10782, 20103.5, 20172, 20418 (Deerings 
1994)), as liquidated damages (Cal. Pub. Con. C. §§ 10226, 
10826 (Deerings 1994), see also, Cal. Comm. C. § 2717), 
due to disputes regarding amounts due (Cal. Pub. Con. C. 
§ 7107, § 10262.5 (Deerings 2000 supp.)), and in order to 
protect the rights of a subcontractor or supplier (Cal. Civ. 
C. § 3186 (Deerings 2000 supp.)). Indeed, the construction 
industry's own standard contract specifications make fre
quent use of this commercially accepted practice. (Public 
Works Standards, Inc., Greenbook: Standard Specifications 
for Public Works Construction (2000 ed.) § 4-1.1 (deduction 
for defective materials or work); § 6-2 (deduction for 
failure to provide for public safety, traffic and protection 
of work); § 6-9 (liquidated damages) (BNI Publications, 
Los Angeles, 1999).)

94



13

CONCLUSION

The Court should intervene now and halt any further 
propagation of the mistaken notion that an ordinary pub
lic works contract creates a protected property interest 
under the Fourteenth Amendment. Based on the forego
ing, Amici urge the Court to grant the Petition for Writ of 
Certiorari and reverse the Court of Appeals decision.

Dated: August 25, 2000

Respectfully submitted,

D avid L. A lexander,
Port Attorney 
C hristopher H. A lonzi,
Deputy Port Attorney 
Counsel o f Record 
Port of Oakland 
530 Water Street, 4th Floor 
Oakland, California 94607 
(510) 627-1572

Attorneys for Amici Curiae 
In Support of Petitioners 
Victoria Bradshaw, et al.

95



No. 00-152

In The

Supreme Court of the United States

ARTHUR S. LUJAN, an individual, in his official 
capacity as Labor Commissioner of the State of 

California; LLOYD W. AUBRY, JR., an individual, 
in his official capacity as Director of the Department 

of Industrial Relations of the State of California; 
DANIEL DELLAROCCA, an individual, in his 

official capacity as Deputy Labor Commissioner 
of the State of California; ROGER MILLER, an 

individual in his official capacity as Deputy Labor 
Commissioner of the State of California; ROSA 

FRAZIER, an individual in her official capacity as 
Deputy Labor Commissioner of the State of California; 
DIVISION OF LABOR STANDARDS ENFORCEMENT, 

an agency of the State of California; 
DEPARTMENT OF INDUSTRIAL RELATIONS, 

an agency of the State of California,
Petitioners,v.

G&G FIRE SPRINKLERS, INC.,
Respondent.

--------------f--------------
On Writ Of Certiorari To The 

United States Court Of Appeals 
For The Ninth Circuit

PETITIONERS' BRIEF

T homas S. Kerrigan 
Counsel o f Record 
D ivision of Labor Standards 

Enforcement
D epartment of Industrial R elations
State of California
6150 Van Nuys Boulevard, Suite 100
Van Nuys, CA 91401
Telephone: (818) 901-5482
Attorney fo r  Petitioners

97



1

QUESTIONS PRESENTED

1. Whether the discretionary withholding of funds 
by a prime contractor from his subcontractor, where 
authorized by statute, constitutes state action.

2. Whether a subcontractor who has not alleged that 
he has an entitlement to public funds can state a claim for 
denial of due process based on the state's withholding of 
said funds from his prime contractor.

3. Whether nonpayment to a private contractor by a 
state agency under the terms of a commercial contract 
constitutes a deprivation of due process.

4. Whether a post-deprivation hearing pursuant to 
common law or statutory remedies satisfies the require
ments of due process.

5. Whether a subcontractor not targeted by a with
holding statute suffers a denial of due process where his 
loss is at most indirect.

98



11

Arthur S. Lujan1, Lloyd W. Aubry, Jr.1 2, Daniel Dellarocca, 
Roger Miller, Rosa Frazier, the Division of Labor Stan
dards Enforcement, and the Department of Industrial 
Relations of the State of California are the petitioners 
herein. G&G Fire Sprinklers, Inc., a subcontractor on 
construction projects, is the respondent.

LIST OF PARTIES

1 Arthur S. Lujan is the Labor Commissioner of the State of 
California, a position Victoria Bradshaw held when this 
litigation commenced.

2 Lloyd W. Aubry, Jr., was sued in his official capacity as 
Director of the Department of Industrial Relations of the State of 
California, a position he held when this litigation commenced. 
Stephen Smith is the current Director.

99



Opinions and Orders...........................................   1

Jurisdiction...........................   1

Constitutional Provisions and Statutes Involved . . . .  2

Statement of the C ase...................................................  2

A. Material Facts...................................................  2

B. The District Court Proceedings...................   5

C. The Ninth Circuit Proceedings............................  6

D. Certiorari in the Supreme Court........................  10

E. Additional Proceedings in the Ninth Circuit. . . .  10

F. Legislative Changes.................................................  11

Summary of Argument.....................................................  11

Argument..............................................................................  13

I. THE DISTRICT COURT WAS WITHOUT 
JURISDICTION BECAUSE THE DEPRIVA
TION OF PROPERTY COMPLAINED OF BY 
G&G WAS NOT PURSUANT TO STATE 
ACTION..................................................................... 13

II. G&G FAILED TO SUSTAIN ITS BURDEN OF
SHOWING THE EXISTENCE OF A LEGALLY 
COGNIZABLE ENTITLEMENT TO THE 
FUNDS IN QUESTION.......................................... 19 III.

III. G&G'S CLAIM AGAINST THE STATE FOR
PAYMENT PURSUANT TO A COMMERCIAL 
CONSTRUCTION CONTRACT DOES NOT 
CONSTITUTE A PROPERTY RIGHT FOR DUE 
PROCESS PURPOSES ...........................................  24

iii

TABLE OF CONTENTS
Page

100



TABLE OF CONTENTS -  Continued
Page

IV. A WIDE ARRAY OF STATE LAWS EXISTS TO
REMEDY THE DAMAGE G&G CLAIMS TO 
HAVE SUSTAINED...............................................  32

V. THE DEPRIVATION COMPLAINED OF WAS
INDIRECT AND DID NOT CONSTITUTE A 
DENIAL OF DUE PROCESS  .......................  41

Conclusion 

Appendix. .

. . .  47 

App. 1



V

C ases

American M anufacturers M utual Insurance Co. v.
Sullivan , 526 U.S. 40, 119 S.Ct. 977, 143 L.Ed. 2d 
130 (1999).................................................................... passim

Anderson v. Clow, 89 F.3d 1399 (9th Cir. 1996)............  21

Arnett v. Kennedy, 416 U.S. 134, 94 S.Ct. 1663, 40
L.Ed. 2d 15 (1974)............................................................. 31

Atkin i7. Kansas, 191 U.S. 207, 24 S.Ct. 124, 48 L.Ed.
148 (1903).............................................................. . .. .3 0 , 45

Bishop v. Wood, 426 U.S. 341, 96 S.Ct. 2074, 48
L.Ed. 2d 684 (1976)........................................................... 29

Bleeker v. Dukakis, 665 F.2d 401 (1st Cir. 1981)............. 26

Blum v. Zaretsky, 457 U.S. 991, 102 S.Ct. 2777, 73
L.Ed. 2d 534 (1 9 8 1 ) .... ...................................................  15

Board o f  Regents v. Roth, 408 U.S. 564, 92 S.Ct. 2701,
33 L.Ed. 2d 548 (1972)...............................................22, 29

Brown v. Brienen, 722 F.2d 360 (7th Cir. 1983)... 26, 32, 33

Caito v. United California Bank, 20 Cal. 3d 694, 144
Cal. Rptr. 751 (1978)......................................................... 36

Castaneda v. U.S. Dept, o f Agriculture, 807 F.2d 1478
(9th Cir. 1987)....................................................................  44

Chavez v. Arte Publico Press, 157 F.3d 282 (5th Cir.
1998)..................................................................................... .27

Christ Gatzonis Electrical Contractor, Inc. v. Nezv 
York City School Construction Authority, 23 F.3d 
636 (2nd Cir. 1994).....................................................25, 29

TABLE OF AUTHORITIES
Page

102



VI

TABLE OF AUTHORITIES -  Continued
Page

Consolidated Electric Distributors v. Kirkham, et ah,
18 Cal. App. 3d 54, 95 Cal. Rptr. 673 (1971).......... 38

Contractors Labor Pool v. Westway Construction, 53
Cal. App. 4th 152, 61 Cal. Rptr. 715 (1997).............  38

Coughlin v. Blair, 41 Cal. 2d 587, 262 P.2d 305
(1953)...................................................................................  34

Crofoot Lumber v. Thompson, 163 Cal. App. 3d 824,
329 P.2d 302 (1958)..........................................................  34

Daniels v. Williams, 474 U.S. 327, 106 S.Ct. 662, 88 
L.Ed. 2d 662 (1986)..........................................................  38

Department o f Industrial Relations v. Seaborne 
Surety, 50 Cal. App. 4th 1501, 58 Cal. Rptr. 2d 
532 (1996)...........................................................................  37

Epstein v. Washington Energy Co., 83 F.3d 1136 (9th
Cir. 1996)............................................................................21

Fahey v. Mallonee, 332 U.S. 45, 67 S.Ct. 1552, 91
L.Ed. 2030 (1947).............................................................. 31

Flagg Bros, Inc. v. Brooks, 436 U.S. 149, 98 S.Ct.
1789, 56 L.Ed. 2d 185 (1978)........................................... 15

G&G Fire Sprinkers, Inc. v. Bradshaw, 136 F.3d 587, 
amended by 156 F.3d 893, 204 F.3d 941 (9th Cir.
2000)............................................................................. passim

Grove City College v. Bell, 687 F.2d 684 (3rd Cir.
1982)..................................................................................... 44

Henning v. Industrial Welfare Commission, 46 Cal.
3d 1262, 252 Cal. Rptr. 278 ..........    36

Hudson v. Palmer, 468 U.S. 517, 104 S.Ct. 3194, 82
L.Ed. 2d 393 (1984).................................................... 39, 40

103



Ingraham v. Wright, 430 U.S. 651, 97 S.Ct. 1401, 51
L.Ed. 2d 711 (1977)...........................................................  39

In re Glenfed Securities Litigation, 42 F.3d 1541 (9th
Cir. 1994)............................................................................  23

Integrated, Inc. v. Fergusson Electrical Contracting,
250 Cal. App. 2d 287, 58 Cal. Rptr. 503 (1967) . . . .  34

Jackson v. Metropolitan Edison Co., 419 U.S. 345, 95
S.Ct. 449, 42 L.Ed. 2d 477 (1974).................................  15

Legal Tender Cases, 12 Wall. 457, 20 L.Ed. 287 (1870) . . . .  42

Linan-Faye Construction Co., Inc. v. Housing Author
ity of the City of Camden, 49 F.3d 915 (3rd Cir.
1995)...................................................................................... 27

Lloyd v. Stewart & Nuss, 327 F.2d 642 (9th Cir. 1964) . . . .  30

Logan v. Zimmerman Brush Co., 455 U.S. 422, 101
S.Ct. 1148, 71 L.Ed. 2d 265 (1982)........................ 40, 41

Lusardi Construction Co. v. Aubry, 1 Cal. 4th 976, 4
Cal. Rptr. 2d 847 (1992)........................... ....................  43

Martz v. Village of Valley Stream, 22 F.3d 26 (2nd
Cir. 1994) .......................................    25

Mathews v. Eldridge, 424 U.S. 319, 96 S.Ct. 893, 47
L.Ed. 2d 18 (1976).....................................................  40

Memphis Light, Gas, and Water Division v. Craft, 436
U.S. 1, 98 S.Ct. 1554, 56 L.Ed. 2d 52 (1978)............ 29

M.F. Kemper Construction v. City of Los Angeles, 37
Cal. 2d 696, 235 P.2d 1 (1951)....................................... 35

VX1

TABLE OF AUTHORITIES -  Continued
P a g e

104



V l l l

TABLE OF AUTHORITIES -  Continued
Page

Nuclear Transport b  Storage v. United States, 890
F.2d 1348 (6th Cir. 1989)................................................  44

O'Bannon v. Town Court Nursing Center, 447 U.S.
773, 100 S.Ct. 2467, 65 L.Ed. 2d 506 (1980)........42, 44

O.G. Sansone v. Department o f Transportation, 55 
Cal. App. 3d 434, 127 Cal. Rptr. 799 (1976) . . .  .29, 30

Parratt v. Taylor, 451 U.S. 527, 101 S.Ct. 1908, 68
L.Ed. 2d 420 (1981)........................................... 38, 39, 40

Paul v. Davis, 424 U.S. 693, 96 S.Ct. 1155, 47 
L.Ed. 2d 405 (1976)..........................................................  30

Perkins v. Lukens Steel Co., 310 U.S. 113, 60 S.Ct.
869, 84 L.Ed. 1108 (1940).........................................45, 46

Reich v. Beharry, 883 F.2d 239 (3rd Cir. 1989)........27, 33

S & D Maintenance Co. v. Goldin, 844 F.2d 962 (2nd 
Cir. 1988) .......................................................................25, 26

San Bernardino Physicians' Services Medical Group,
Inc. v. County o f San Bernardino, 825 F.2d 1404 
(9th Cir. 1987)................................................................28, 32

Smith v. Mendonsa, 108 Cal. App. 2d 540, 238 P.2d
1039 (1952)......................................................................... 34

Sniadach v. Family Finance Corp., 395 U.S. 337, 89 
S.Ct. 1820, 23 L.Ed. 2d 349 (1969)......................... 30, 31

United States Fidelity & Guaranty Co. v. Oak Grove 
School District , 205 Cal. App. 2d 226, 22 Cal.
Rptr. 907 (1962).............................................. ................  37

Zinermon v. Burch, 494 U.S. 113, 110 S.Ct. 975, 108
L.Ed. 2d 100 (1990)...................................................... 40, 41

105



IX

C onstitutional Provisions

U.S. Constitution, Fourteenth Amendment
.................................................... ............  2, 6, 12, 24, 26, 27

TABLE OF AUTHORITIES -  Continued
Page

Statutes

California

Cal. Civil Code § 3103.. 

Cal. Civil Code § 3110.. 

Cal. Civil Code § 3181.. 

Cal. Civil Code § 3184.. 

Cal. Civil Code § 3186.. 

Cal. Civil Code § 3210.. 

Cal. Civil Code § 3248.. 

Cal. Civil Code § 3250.. 

Cal. Labor Code § 1720. 

Cal. Labor Code § 1727. 

Cal. Labor Code § 1729. 

Cal. Labor Code § 1730. 

Cal. Labor Code § 1731. 

Cal. Labor Code § 1732. 

Cal. Labor Code § 1733. 

Cal. Labor Code § 1771. 

Cal. Labor Code § 1772. 

Cal. Labor Code § 1773. 

105

.........................2

...........................36

............. 2, 36, 37

............................. 2

..................... 2, 37

..................... 2, 37

...........................37

........................... 38

............................. 2

........... 2, 4, 6, 14

.2, 5, 14, 21, 35 

. . 2, 5, 6, 33, 36 

.. 2, 5, 6, 33, 36 

, . .  2, 5, 6, 33, 36 

2, 5, 6, 9, 33, 36

........................ 2, 3

........................ 2, 3

.....................-.2, 3



X

TABLE OF AUTHORITIES -  Continued
Page

Cal. Labor Code § 1773.2 .....................................................2

Cal. Labor Code § 1774............................................. 2, 3, 14

Cal. Labor Code § 1775.........................................2, 3, 6, 14

Cal. Labor Code § 1776...................................................2, 6

Cal. Labor Code § 1813...........................................2, 6

Federal
28 U.S.C. § 1254(1).................................................................1

28 U.S.C. § 2201 .........     5

28 U.S.C. § 2202..............................................................  5

42 U.S.C. § 1983.............................................................passim

Treatises, A rticles

Haggerty, Real Estate Construction: Current Prob
lems (Practicing Law Institute 1973)...........................  46

Kreynin, Breach of Contract as Due Process Violation:
Can the Constitution Be a Font of Contract Law? 90 
Columbia Law Rev. 1098, 1122 (1990).......................  38

Stewart, The Reformation of American Administrative
Law, 88 Harvard Law Review 1667, 1717 (1975) . . . .  24

107



1

OPINIONS AND ORDERS

The judgment of the District Court, entered on 
November 9, 1995, is not officially reported but is 
reprinted in Volume II, p. 372 of the Joint Appendix. The 
original opinion of the United States Court of Appeals for 
the Ninth Circuit is officially reported at 136 F.3d 587 (9th 
Cir. 1998) and is reprinted at A-52 of the Petition. The 
Ninth Circuit issued a subsequent order and amended 
opinion on September 10, 1998, officially reported at 156 
F.3d 893 (9th Cir. 1998), and reprinted at A-16 of the 
Petition. Following the October 28, 1998 order denying 
the petition for rehearing, the State filed a Petition for 
Writ of Certiorari with this Court, which petition was 
granted on April 19, 1999 (526 U.S. 1061). This Court 
summarily vacated the judgment below and remanded 
the case for further consideration in light of American 
Manufacturers Mutual Insurance Co. v. Sullivan, 526 U.S. 40, 
119 S.Ct. 977 (1999). The Ninth Circuit issued yet a third 
opinion in this case on February 23, 2000, officially 
reported at 204 F.3d 941 (9th Cir. 2000) and reprinted at 
A-l of the Petition.

----------------♦----------------

JURISDICTION

The Ninth Circuit issued its amended opinion and 
order on February 23, 2000. A timely petition for rehear
ing and rehearing en banc was denied on May 1, 2000. 
The petition for writ of certiorari was filed within ninety 
days of the denial of rehearing. This Court has jurisdic
tion under 28 U.S.C. § 1254(1).

----------------♦----------------

108



2

CONSTITUTIONAL PROVISIONS 
AND STATUTES INVOLVED

The Fourteenth Amendment of the United States 
Constitution provides, in relevant part, "No State shall 
. . . deprive any person of life, liberty, or property, with
out due process of law. . . . "

42 U.S.C. § 1983 provides, in relevant part, "Every 
person who, under color of any statute, ordinance, regu
lation, custom, or usage, of any State . . . subjects, or 
causes to be subjected any citizen of the United States or 
other person within the jurisdiction thereof to the depri
vation of any rights, privileges, or immunities secured by 
the Constitution and laws, shall be liable to the party 
injured in an action at law, suit in equity, or other proper 
proceeding for redress."

The relevant California statutory provisions are 
reproduced in the appendix to the Petition at A-77, and 
include California Labor Code §§ 1720, 1727, 1729, 1730, 
1731, 1732, 1733, 1771, 1772, 1773, 1773.2, 1774, 1775, 1776, 
and 1813, and California Civil Code §§ 3103, 3110, 3181, 
3184, 3186, 3210, 3245, 3250.

--------------- ♦ ----------------

STATEMENT OF THE CASE

A. Material Facts

Respondent, G&G Fire Sprinklers, Inc. (hereinafter 
"G&G"), a fire protection company that installs fire sprin
kler systems, contracted as a subcontractor with certain

109



3

prime contractors on certain "public works"3 projects 
with California governmental agencies during 1995. (Jt. 
App. 18, 20-21, 64, 67.)

California, like many other states, has adopted a 
prevai l ing wage law (Cal i fornia  Labor Code 
§§ 1720-1861) applicable to public works projects under
taken within its geographical boundaries. Under this law, 
enacted in 1931, the State pays a premium for construc
tion work done on public projects and in consideration of 
such premium requires all contractors working on these 
projects to pay their employees "prevailing wages" in the 
construction industry. The prime contractor agrees, in his 
contract with the governmental entity, that its construc
tion workers, and the workers of the subcontractors 
whom he later selects to perform the contract, will be 
paid prevailing wages4 as required by California Labor 
Code §§ 1771 and 1774. Section 1775 mandates that the 
prevailing wage requirement is incorporated into and 
becomes a part of the contract. The governmental award
ing body is required by § 1772 to withhold funds other
wise due to the prime contractors where there are 
violations of the prevailing wage requirement, so that this 
money can be held for and eventually paid to the affected 
workers.

3 The term "public work" is defined at Cal. Labor Code 
§ 1720 to include "construction, alteration, demolition, or repair 
work done under contract and paid in whole or in part out of 
public funds. . . . "

4 Prevailing wages are fixed for each construction craft or 
classification in the locality in which the public work is 
performed. The procedure for determining prevailing wages is 
set out at Cal. Labor Code § 1773.

110



4

Each of the prime contractors that subcontracted 
work to G&G on these projects was accordingly required 
by law to agree to the following contractual provisions in 
their public works contracts with the respective public 
awarding bodies: (1) that prevailing wages would be paid 
to all workers employed on the project, whether by the 
prime contractor or its subcontractors, (2) that certified 
payroll records would be kept, and provided to the Divi
sion of Labor Standards Enforcement (hereinafter 
"DLSE") upon request, showing the hours worked and 
wages paid to all workers employed on the project by the 
prime contractor and its subcontractors, and (3) that the 
public agencies that had awarded the contracts could 
withhold contract payments to these prime contractors to 
cover unpaid wages and penalties if the agreements were 
breached.

DLSE, pursuant to California Labor Code § 1727, 
having discovered after investigation certain prevailing 
wage law violations by G&G, i.e., the failure to pay 
prevailing wages, concerning three separate projects 
undertaken by G&G, issued notices to the awarding 
bodies to withhold contract payments from the prime 
contractors on these projects. This investigation also dis
closed a failure by G&G to provide DLSE with certified 
payroll records, an additional violation of law. Following 
issuance of notices to withhold from DLSE, the awarding 
bodies for each of the projects withheld money from the 
prime contractors. The prime contractors, in turn, with
held from G&G payments allegedly otherwise due under 
their subcontracts, as authorized by California Labor 
Code § 1729 "on account of G&G's failure to comply"

111



5

with the prevailing wage requirements. (Jt. App. 21, et 
seq., 67, et seq.).

Following the prime contractors withholding from 
G&G, it appears that G&G did not obtain an assignment 
of any of its prime contractors' rights to sue to recover 
the funds withheld by the State under California Labor 
Code § 1730-1733. G&G did not assert that it was subro
gated to the rights of the prime contractor against the 
State under the doctrine of equitable subrogation. Fur
thermore, it did not pursue any common law remedy 
existing under California law, including an action for 
breach of contract for damages, recission, or restitution. It 
did not pursue its rights under the stop notice provisions 
of the California Civil Code, consisting, inter alia, of the 
right to file a stop notice, setting forth the amount owed 
by the prime contractor to the subcontractor for work 
performed under the subcontract. Finally, it did not com
mence an action against the prime contractors' payment 
bonds pursuant to the applicable provisions of the Cali
fornia Civil Code. In other words, G&G did not avail 
itself of any existing state law remedy in challenging the 
withholding of funds.

B. The District Court Proceedings

G&G brought this action for declaratory and injunc
tive relief under 42 U.S.C. § 1983 and 28 U.S.C. 
§§ 2201-2202 in the United States District Court for the 
Central District of California, claiming that the issuance 
of the notices to withhold by the State without a prior 
hearing constituted a deprivation of property without

112



6

due process of law, in violation of the Fourteenth Amend
ment. G&G alleged therein that the notices to withhold 
issued by petitioners were "wrongful, incorrect, exces
sive" and "arbitrary and unreasonable." (Jt. App. 69) 
G&G did not, however, allege in the initial Complaint or 
the First Amended Complaint, either in haec verba or in 
substance, the existence of an agreement between it and 
any of its prime contractors in connection with the pro
jects which are the subject matter of this action. (Jt. App. 
16, et seq., 62, et seq.) It also failed to allege that it had 
performed all conditions precedent to these contracts if 
any; and it further failed to allege that it had complied in 
all respects with the provisions of the prevailing wage 
law.

The State responded with a motion to dismiss, and 
G&G shortly thereafter filed a motion for summary judg
ment (Jt. App. 79, et seq., 143, et seq.). The district court 
denied the state's motion to dismiss and granted G&G's 
motion for summary judgment. The district court's judg
ment declared §§ 1727, 1730-1733, 1775, 1776(g) and 1813 
of the California Labor Code unconstitutional, and 
enjoined the state from enforcing those statutes against 
G&G. (Jt. App. 372).

Petitioners filed a timely notice of appeal from this 
judgment. (Jt. App. 392).

C. The Ninth Circuit Proceedings

On February 3, 1998, Judge Hawkins, joined by Judge 
Reinhardt, issued an opinion, in part affirming and in 
part reversing the district court, and remanding the case 
for further proceedings consistent with the opinion.

113



7

Judge Kozinski vigorously dissented. The panel majority 
held that due process requires that the state provide a 
subcontractor with either a pre- or prompt post-depriva
tion hearing when withholding payments from a public 
works contractor for unpaid wages or penalties. This 
holding is founded upon the majority's view that a sub
contractor "has a property interest in being paid in full 
for the construction work it completed," and that this 
interest, which "arises from its5 public works contract", is 
protected by the Due Process Clause. 136 F.3d at 595-597. 
(Pet. A-63). The panel also concluded, however, that the 
district court's injunction was overbroad in that the chal
lenged withholding provisions, while unconstitutional as 
applied, were not facially invalid. (Pet. A-72 to 73).

In his dissent, Judge Kozinski protested the major
ity's "categorical approach that turns every right to 
receive payment on a public works contract into a prop
erty right protected by due process." 136 F.3d at 602. (Pet. 
A-80). Instead, Judge Kozinski maintained that any rights 
arising under commercial contracts, such as service con
tracts, material supply contracts, and construction con
tracts, are not protected by the Due Process Clause.

Judge Kozinski warned that the majority decision not 
only conflicts with the opinions of other circuits, but that 
it is "very bad policy" because it saddles the state, when

5 No party contended at any stage in this litigation that 
G&G, with respect to the three public works contracts at issue 
herein, was anything but a subcontractor -  i.e., that it (rather 
than the prime contractors) had entered into any contracts with 
these public agencies.

114



8

it engages in "the purely commercial activity of construc
tion", with "a burden not suffered by private builders", 
who routinely put provisions for payment withholdings 
for failure (or suspected failure) of performance into their 
private construction contracts. 136 F.3d at 602. (Pet. A-81 
to 82). Judge Kozinski explained that payment withhold
ings are consistent with the awarding bodies' activities as 
market participants, and that any contractor or sub
contractor who objects to provisions for withholdings is 
free not to do business with the state. Consequently, a 
dispute over withholdings is nothing more than a "run- 
of-the-mill contract dispute", for which the subcontrac
tor's remedy lies in a state court breach of contract action 
against the prime contractor, or, as an assignee of the 
prime contractor, against the awarding body. 136 F.3d at 
603. (Pet. A-82 to 83).

Finally, Judge Kozinski cautioned that drastic conse
quences would result from the majority decision, as due 
process requirements would inexorably apply to any 
withholding of payments under any commercial contract 
with the state, be it a withholding for failure to pay 
prevailing wages, or in more mundane instances, a failure 
to complete a project on time or a failure to comply with 
applicable building codes. (Pet. A-83 to 84).

The State petitioned for rehearing. This petition was 
granted, and on September 10, 1998, the panel issued an 
amended opinion and order. 156 F.3d 903. Once again, the 
panel split, with Judge Kozinski in the minority. The only 
significant change in the majority's opinion is its conces
sion that "the state's interest in ensuring payment of 
prevailing wages is sufficiently important to justify the 
withholding of funds pending the outcome of whatever

115



9

kind of hearing may be afforded." 156 F.3d at 903 (Inter
nal citation and quotation omitted.) (Pet. A-35 to 36). 
Thus, the majority concluded that a pre-deprivation hear
ing is not required, but that a prompt post-deprivation 
hearing is necessary to satisfy due process requirements.

In his dissent to this amended opinion, Judge 
Kozinski found that under California law, every sub
contractor who wishes to challenge a withholding has an 
adequate state law remedy. Under California Labor Code 
§ 1733, a subcontractor with an assignment from the 
contractor can file a breach of contract action against the 
awarding body to recover sums withheld. Furthermore, 
Judge Kozinski noted, any subcontractor unable to obtain 
an assignment but whose payment had been withheld by 
the prime contractor could bring suit against the award
ing body under various state law theories. 156 F.3d at 909. 
(Pet. A-50).

The panel majority, however, concluded that even if 
the aggrieved subcontractor could bring an action on the 
contract, such an action would not be sufficient. While 
conceding that this Court has held that in certain circum
stances, a post-deprivation state court action may fulfill 
the requirements of due process, the majority held that 
the right to bring a breach of contract action to recover 
withheld payments, when the withholding was carried 
out by state officials pursuant to state policy, would not 
provide adequate due process. (Pet. A-20).

On October 28, 1998, the court entered an order 
denying a petition for rehearing, indicating however that 
Judge Kozinski had voted to grant the petition for rehear
ing and to accept the suggestion for rehearing en banc.

116



10

D. Certiorari in the Supreme Court

Petitioners petitioned for a Writ of Certiorari. This 
Court granted the petition on April 10, 1999, summarily 
vacating the Ninth Circuit's judgment and remanding the 
case back for further consideration in light of American 
Manufacturers Mutual Insurance Co. v. Sullivan, supra.

E. Additional Proceedings in the Ninth Circuit

Following additional oral argument, the Ninth Cir
cuit issued a third opinion on February 23, 2000. Deter
mining that its prior reasoning "fits comfortably within 
the analytic framework set forth in Sullivan", Judges 
Hawkins and Reinhardt reinstated the prior judgment 
and opinion 204 F.3d 941. (Pet. A-7). Judge Kozinski again 
vigorously dissented, observing that "Sullivan fits the 
majority's rationale about as comfortably as Cinderella's 
slipper on the wicked step-sister's foot." (Pet. A-7). He 
pointed out as well that, under the analysis mandated by 
this Court in Sullivan, the withholding by the prime con
tractor of funds from G&G was purely private conduct. 
Continuing on, he opined that the claim of G&G did not 
qualify as a valid property interest without a showing 
that G&G had met the prevailing wage requirements. 
(Pet. A-8 to 11).

117



11

F. Legislative Changes

The Governor of California signed Assembly Bill 
1646 on September 29 of this year. That new law repeals 
certain provisions of the California Labor Code (as speci
fically noted therein) and adds new language providing 
procedures for an appeal and hearing for both sub
contractors and prime contractors in the event of a with
holding by the State due to an alleged prevailing wage 
violation.6

----------------»----------------

SUMMARY OF ARGUMENT

The act of the prime contractors in withholding funds 
from G&G, their subcontractor, even though authorized 
by state statute, did not constitute state action within the 
meaning of 42 U.S.C. § 1983 because this action remained 
within the sole discretion of these prime contractors and 
the prime contractors were not subject to any penalty 
imposed by the State if they chose not to withhold. The 
District Court had no jurisdiction to hear this matter 
because the prime contractors did not act under color of 
law in withholding these funds from G&G.

6 The text of the new law, which is not effective until July, 
2001, is attached in an appendix hereto. A number of cases 
which arose after the decisions of the Ninth Circuit in this case 
nevertheless remain pending under the existing statutory 
provisions of the prevailing wage law that are being challenged 
in this case. The combined prayer for these cases exceeds 
$1,000,000.00. It is anticipated similar new challenges will be 
filed in the courts as well prior to the effective date of the new 
law.

118



12

G&G has failed to plead the necessary elements suffi
cient to show entitlement to the funds withheld, i.e., it 
has not alleged the existence of any contract between it 
and the prime contractors; or that it complied with the 
prevailing wage law; or even that it performed all condi
tions entitling it to payment under said contract.

A subcontractor contracting with the prime contrac
tor on a public works project has no property right to 
payment from the state within the meaning of the Due 
Process Clause of the Fourteenth Amendment. In 
acknowledging such a right for the first time the Ninth 
Circuit found contrary to all other courts that have enter
tained the question.

G&G failed to avail itself of other valid, existing 
remedies under California law for recovery of the sums 
allegedly wrongfully withheld, including a common law 
breach of contract action against the prime contractor, a 
suit on the theory of equitable subrogation, and actions 
under alternative statutory remedies designed to afford 
the relief sought here.

Being only indirectly impacted by the State's with
holding of payments, an action taken by the State solely 
against the prime contractors, G&G has not stated a claim 
for relief for deprivation of due process.

-----  --------— ♦ -------—  -------------

119



1 3

ARGUMENT
I

THE DISTRICT COURT WAS WITHOUT JURISDIC
TION BECAUSE THE DEPRIVATION OF PROPERTY 
COMPLAINED OF BY G&G WAS NOT PURSUANT TO 
STATE ACTION

Upon the initial granting of certiorari by this Court 
on April 10, 1999, and the consequent vacating of the 
Ninth Circuit's decision, this case was remanded for fur
ther consideration in light of this Court's decision in 
American Manufacturers Mutual Insurance Co. v. Sullivan 
supra, 526 U.S. 40. The instructions of this Court in 
remanding the case were explicit and unambiguous: 
G&G's rights in this action, if any, were to be reexamined 
in light of the express teachings of Sullivan.

In Sullivan, the respondent claimants attacked on due 
process grounds a Pennsylvania law authorizing the 
withholding by private insurers of their medical benefits 
in workers compensation cases without a hearing where 
the insurer submitted a form to the State contesting the 
reasonableness or necessity of the treatment provided. 
Respondents argued that these benefits could not be 
withheld by the insurers without a hearing. An issue also 
arose concerning whether the withholding of medical 
payments pursuant to the Pennsylvania law by the 
insurers constituted state action within the meaning of 42 
U.S.C. § 1983. This Court rejected all of respondents' 
arguments, expressly finding, inter alia, that the withhold
ing by the insurers was not state action.

120



1 4

When the operative facts in this case are examined 
with respect to the issue of private versus state action, 
they prove to be strikingly similar to those in Sullivan. 
G&G was a subcontractor under a public works contract. 
California law authorizes DLSE to issue a notice to with
hold funds from the prime contractor on a public works 
project if his workers or the workers of his subcontractors 
have not been paid the prevailing wage. Upon issuance of 
the notice to withhold, the awarding body withholds an 
equivalent amount from the funds otherwise due the 
prime contractor. California Labor Code §§ 1727, 1774, 
1775. There is no requirement in the law that the prime 
contractor must withhold all or any part of that sum from 
the subcontractor. The awarding body does not itself 
deduct any funds from the subcontractor. Section 1729, 
however, allows the prime contractor to deduct a like 
amount from its payments to the subcontractor "on 
account of the subcontractor's failure to comply with" the 
prevailing wage law. But the prime contractor may 
choose not to do so. Here, funds were withheld from 
G&G's prime contractors after the issuance of notices to 
withhold pursuant to these code sections and the prime 
contractors decided, in their sole discretion, and as a self- 
help remedy, to deduct a like amount from the money 
they presumably owed G&G.

Where state action is in issue, the inquiry must begin 
with the threshold principle that § 1983 "excludes from 
its reach merely private conduct, no matter how discrimi
natory or wrongful." Sullivan, 526 U.S. 40, 50 (1999). 
Under this basic tenet of law, the federal courts have no 
jurisdiction over a 1983 action unless the plaintiff can 
plead and prove state action.

121



15

The issue of state action under § 1983 has often been 
litigated in the federal courts, with the result that several 
well-established principles have emerged. Thus, it has 
long since been concluded that the fact, standing alone, 
"that a business is subject to state regulation does not 
convert its action into that of the State for purposes of the 
Fourteenth Amendment." Blum v. Yaretsky, 457 U.S. 991, 
1004, 102 S.Ct. 2777, 73 L.Ed. 2d 534 (1981); Jackson v. 
Metropolitan Edison Co., 419 U.S. 345, 350, 95 S.Ct. 449, 42 
L.Ed. 2d 477 (1974). It is also clear that a plaintiff seeking 
relief under § 1983 must affirmatively show "a suffi
ciently close nexus" between the State and the challenged 
action so that "the latter may be fairly treated as that of 
the State itself." Blum, supra, 457 U.S. at 1004. Finally, the 
State can be held responsible for private action "only 
when it has exercised coercive power or has provided 
significant encouragement, either overt or covert, that the 
choice must in law be deemed that of the State." Blum, 
supra, 457 U.S. at 1004; Flagg Bros., Inc. v. Brooks, 436 U.S. 
149, 166, 98 S.Ct. 1789, 56 L.Ed. 2d 185 (1978).

In deciding Sullivan, this Court expressly confirmed 
these longstanding principles. Its opinion points out that 
"action taken by private entities with the mere approval 
or acquiescence of the State is not state action." Going 
further, in words that echo resoundingly in this case, this 
Court stated that it had never declared that "[t]he mere 
availability of a remedy for wrongful conduct even where 
that remedy serves important public interests, so signifi
cantly encourages the private entity so as to make the 
State responsible for it." 526 U.S. 40, 53.

Careful analysis of the principles enunciated in Sul
livan manifestly compels the overturning of the Ninth

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1 6

Circuit's unwarranted application of the state action doc
trine to the facts of this case. In Sullivan, as here, the state 
law authorized a private business to withhold funds 
under certain conditions. The insurers in Sullivan were 
permitted to withhold payment if they suspected that the 
treatment provided by the physician or other care giver 
was not reasonable or necessary and filed a form with the 
state to that effect. Here, the prime contractors are per
mitted to withhold payment due a subcontractor if they 
believe the subcontractor has failed to comply with pre
vailing wage obligations. In both cases the applicable 
statute does not mandate withholding by the regulated 
party, it only permits it. The decision whether or not to 
withhold is in the ultimate discretion of the private party, 
not the sovereign. Here, too, "the State's decision to allow 
the prime contractors to withhold payments . . . can just 
as easily be seen as state inaction. . . . "  526 U.S. at 53.

There can accordingly be no logical distinction 
between the effect of the withholding sanctioned by Cali
fornia law in this case and the effect of the withholding 
which survived judicial scrutiny in Sullivan. If anything, 
there is arguably lesser participation by the State in this 
case than there was in Sullivan, since there the actual 
withholding required government approval, albeit pro 
forma approval, while here no official approval is manda
ted by law prior to withholding. Otherwise, with respect 
to the operative factors discussed by this Court, this case 
and Sullivan are indistinguishable in law. The result in 
Sullivan with respect to the issue of state action clearly 
compels a similar result in this case.

As in Sullivan, all the State did here was to provide a 
remedy to the prime contractor, a remedy for relief from

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17

the subcontractor's violations of the prevailing wage law. 
The State of California did not mandate utilization of this 
remedy any more than the State of Pennsylvania manda
ted withholding in Sullivan. The teaching of Sullivan is 
unequivocal: "[p]rivate use of state-sanctioned private 
remedies does not rise to the level of state action." 526 
U.S. 40, 53.

The conclusion below was that the "withholding here 
was specifically directed by State officials in an environ
ment where the withholding party had no discretion at 
all" 204 F.3d at 944. (Pet. A-6 to 7). This statement, the 
factual cornerstone of the reasoning of the Ninth Circuit 
with respect to this issue, represents a confusion of two 
separate and distinct events. It refers both to the issuance 
by DLSE of notices to withhold to the awarding body, and 
the mandatory withholding by that body from the prime 
contractors, on the one hand, and the discretionary with
holding from G&G by the prime contractors, on the other. 
But the actual withholding by the prime contractor of 
money purportedly due G&G, which is the act com
plained of in this case, consists solely of the election of 
the prime contractors, private parties. The prime contrac
tor under this statutory scheme has the absolute power to 
withhold or not withhold and is not subject to penalty or 
forfeiture of any kind from the State regardless of his 
decision. If the rest of the court below was confused 
about this distinction, Judge Kozinski was not, as he 
correctly points out in his dissent:

"This would be true had the prime contractor 
been ordered, under penalty of law, to withhold 
funds from G&G. It was not. The only entity 
'specifically directed' to withhold funds was the

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1 8

awarding body, which withheld funds only from 
the prime contractor, not from G&G. While the 
challenged provisions authorized -  even encour
aged - the prime to withhold an equivalent 
amount from G&G, the prime was free to pay 
G&G the full amount specified by the contract. 
Sullivan clearly holds that mere authorization 
and encouragement do not render a private 
entity's decisions 'fairly attributable' to the 
state. 119 S.Ct. at 986. Under the reasoning of 
Sullivan, then, the prime contractor who chose 
to deprive G&G of funds was not a state actor".
204 F.3d 934-935. (A-18 to 19).

Here, as in Sullivan, there is no evidence before the 
Court to show that the action of the private entity com
plained of was the result of either the "coercive power" 
or "significant encouragement" of the State. The evi
dence, in fact, is plainly to the contrary. The prime con
tractor may indeed under the particular circumstances 
prevailing at the time find it in his business interest to 
withhold funds from the subcontractor, but he clearly 
need not do so, and, again, he need fear no adverse 
response from the State if he chooses not to withhold, the 
State being satisfied in the first instance to receive the 
money it claims is owed to the workers.

In both this case and in Sullivan, the last link in the 
chain of action was a private one, requiring the exercise 
of private discretion before the determination was made 
whether there was or was not to be withholding from the 
subcontractor. The fact that the prime contractors in fact 
chose to withhold from G&G does not alter our analysis. 
The common and controlling fact in both this case and 
Sullivan is that the final act was entrusted to a private

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19

party who either could have withheld or not withheld in 
its sole discretion.

The reasoning in the decision below, as pointed out, 
supra, is grounded on a misconceived assumption, i.e., 
that the prime contractor had no choice but to continue 
the chain of conduct initiated by the State and withhold 
from the subcontractor. This perception has no support in 
the record and is plainly at variance with the true circum
stances. The undisputed truth is that a prime contractor 
in this situation has the absolute discretion to either 
withdraw or not withdraw funds from the subcontractor. 
It is not compelled to do the former and can freely choose 
to do the latter without fear of reprisal.

G&G's claim here accordingly lacks a fundamental 
jurisdictional element under § 1983, the key factor of state 
action. It is evident from the record that G&G will never 
be able to cure this inherent defect in its case. The deci
sion below must be overturned on this ground at least, 
since it goes to the power of the District Court to hear the 
matter. II

II
G&G FAILED TO SUSTAIN ITS BURDEN OF SHOW
ING THE EXISTENCE OF A LEGALLY COGNIZABLE 
ENTITLEMENT TO THE FUNDS IN QUESTION

This Court further held in Sullivan that the workers 
compensation claimants in that case had not established a 
property right to a hearing because they had not made a 
showing of the basic elements of entitlement to the 
money withheld, i.e., they had not established that the

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20

medical treatment in question was reasonable and neces
sary. Having failed to make this mandatory threshold 
showing, they were not entitled to any relief thereafter.

"Respondents obviously have not cleared both 
of these hurdles. While they indeed have estab
lished their initial eligibility for medical treat
ment, they have yet to make good on their claim 
that the particular medical treatment they 
received was reasonable and necessary. Conse
quently, they do not have a property interest."
526 U.S. 40, 61.

It is apparent upon the most cursory analysis of 
G&G's claim in this case that it is subject to the same 
infirmity as the claims asserted in Sullivan.

Assuming, arguendo, that a subcontractor that lacks 
privity of contract with an awarding body can nonethe
less assert a claim based on the awarding body's contract 
with the prime contractor, the question that must be 
carefully addressed is whether, under either the public 
works contract or applicable state law, there is an entitle
ment to payment in full once the job is purportedly 
completed. Under the California prevailing wage law the 
right to payment in full is contingent not only on the 
existence of a contract between the parties, and the satis
factory completion of the ordinary specifications of the 
job, but also on compliance with the prevailing wage and 
certified payroll record keeping requirements.

G&G, as has been previously noted, never alleged the 
existence of any agreements between itself and the prime 
contractors, making it impossible to determine what, if 
any, property rights it possesses. Moreover, it has never 
made any kind of a showing at any level that it was in

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2 1

compliance with the prevailing wage law. Finally, it has 
not alleged that it was due the funds withheld by the 
prime contractors because it had fully performed its part 
of the contract. It has never, in fact, even alleged any 
entitlement to these funds (Jt. App. 15, et seq., 62, et seq.). 
Clearly, under Sullivan, G&G has fallen far short of meet
ing its affirmative burden as the moving party in its own 
lawsuit. Its failure to "clear" these essential "hurdles" in 
its pleadings strongly suggests that in actuality G&G can 
establish no valid claim on the merits.

The action G&G filed in the District Court sought 
only declaratory and injunctive relief on constitutional 
grounds for the failure of DLSE to grant a hearing prior 
to the issuance of the notices to withhold. Significantly, 
G&G did not seek recovery of the funds withheld. While 
G&G alleged in that action that the notices to withhold 
were "wrongful" and "arbitrary and unreasonable" (Jt. 
App. 69),7 it has never alleged, and could never allege, either 
in the District Court or thereafter, that it was in compliance 
with the prevailing wage law requirements and had therefore 
met all of the conditions entitling it to payment in fu ll.8 There 
is not even an allegation in the First Amended Complaint

7 It is well-settled that such conclusionary allegations are 
insufficient to defeat a motion to dismiss for failure to state a 
claim. E p s t e in  v. W a s h in g to n  E n e r g y  C o ., 83 F.3d 1136, 1140 (9th 
Cir. 1996); A n d e r s o n  v. C lo w , 89 F.3d 1399, 1403 (9th Cir. 1996).

8 As is argued more fully in fr a , § 1729 of the California 
Labor Code conditions the prime contractor's withholding from 
the subcontractor on "the subcontractor's failure to comply 
with the terms of this chapter," i.e., the prevailing wage law. 
Where the subcontractor pleads and proves compliance with 
this law, the state court must necessarily find in its favor.

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22

that all contractual conditions precedent to receipt of the 
funds (i.e., full performance of the terms of the contract) 
were satisfied. (Jt. App. 69) Instead, G&G took the posi
tion that all it needed to do to state a claim for relief was 
to allege the withholding took place without an adminis
trative hearing, and that this allegation would, in and of 
itself, establish a deprivation of due process, regardless of 
the validity of G&G's claims on the merits.

G&G's naked contention that it possesses a property 
interest and an entitlement to these withheld funds is 
clearly insufficient and cannot substitute for factual alle
gations to that effect. As this Court stated years ago in 
Board of Regents v. Roth, 408 U.S. 564, 577, 92 S.Ct. 2701, 33 
L.Ed. 2d 548 (1972) in considering the nature of property 
interests for purposes of due process:

"To have a property interest in a benefit, a per
son dearly must have more than an abstract 
need or desire for it. He must have more than a 
unilateral expectation of it. He must, instead, 
have a legitimate claim of entitlement to it." 
(Emphasis added.)

What is clearly missing in G&G's pleadings and 
proof is a showing that it has a property right to the 
funds in question based on the existence of a valid con
tract, in other words, "a legitimate claim of entitlement" 
to these funds. Without such threshold allegations and 
averments, G&G cannot be heard to argue that it is enti
tled to relief in either this Court, the Ninth Circuit, or the 
District Court.

Judges Hawkins and Reinhardt elected not to address 
this fundamental failing on G&G's part. They appear to 
have simply overlooked the fact that G&G, having failed

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23

to set forth its entitlement to the funds by omitting alle
gations establishing the existence of a contract or con
tracts and allegations that it had performed all the terms 
of such contracts, had not stated a claim upon which any 
relief could be granted.

Judge Kozinki's learned dissent, on the other hand, 
points out that "G&G can have no property interest in 
being paid for work that has not been shown to satisfy 
the contractual conditions that it be completed in accor
dance with the prevailing wage requirements." 204 F.3d 
946-947. (Pet. A-71).

G&G must be made, like any other litigant, to stand 
or fall on the sufficiency of its pleadings, pleadings in this 
instance that omitted essential allegations necessary to 
maintain its due process claims. As the Ninth Circuit has 
observed in comparable circumstances, "[a] complaint is 
not a puzzle, however, and we are loathe to allow plain
tiffs to tax defendants, against whom they have leveled 
very serious charges, with the burden of solving puzzles 
in addition to the burden of formulating an answer to 
their complaint." In re Glenfed, Inc. Securities Litigation, 42 
F.3d 1541, 1554 (9th Cir. 1994).

Having failed to sufficiently address, let alone prove 
at any stage of the administrative or judicial proceedings, 
its entitlement to the funds withheld by its prime contrac
tor, G&G cannot be heard to argue at this juncture that it 
had a property right for due process purposes to a hear
ing in this case.

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24

III

G&G'S CLAIM AGAINST THE STATE PURSUANT TO 
A CONSTRUCTION CONTRACT DOES NOT CON
STITUTE A PROPERTY RIGHT FOR DUE PROCESS 
PURPOSES

The Court below expressly determined that G&G's 
interest in being paid in full under its public works 
contract constituted a cognizable due process property 
right under the Fourteenth Amendment (136 F.3d 
595-597). (Pet. A-63). As the carefully considered dissent 
of Judge Kozinski makes clear, the reductio ad absurdum 
of this novel reasoning is that every failure by the state to 
pay its bills on time will necessarily equate to a constitu
tional violation actionable in the federal courts.9

While this Court has not had occasion to make a 
conclusive determination with respect to the property 
rights of contractors performing public works for pur
poses of due process, virtually all the federal courts that 
have dealt with the question have reached a single con
clusion. These courts have held unequivocally that the 
scope of due process rights does not extend to these 
kinds of cases. The overwhelming weight of these deci
sions lends support to Judge Kozinki's assessment of the

9 The expansion of property rights in due process cases has 
principally involved the interests of individuals and is 
relatively contemporary in origin. Thus a scholar writing 
twenty-five years ago observed that "due process protections 
have only comparatively recently been extended to protect 
advantageous relations with the government." Stewart, T h e  
R efo rm a tio n  o f  A m e r ic a n  A d m in is t r a t iv e  L a w , 88 Harvard Law 
Review 1667, 1717 (1975).

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25

contrary decision by the majority in G&G as “very bad 
policy". 136 F.3d at 602. (Pet. A-81 to 82).

Thus the Second Circuit in S & D Maintenance Co. v. 
Goldin, 844 F.2d 962 (2nd Cir. 1988), Martz v. Village oj 
Valley Stream, 22 F.3d 26 (2nd Cir. 1994), and Christ Gatz- 
onis Electrical Contractor, Inc. v. New York City School Con
struction Authority, 23 F.3d 636 (2nd Cir. 1994) has 
consistently held that purported rights existing under 
ordinary construction and supply contracts do not equate 
to significant property interests protected by the Four
teenth Amendment.

In each of these Second Circuit cases, contractors 
filed actions under 42 U.S.C. § 1983 against public agen
cies that had withheld contract payments, asserting that 
the withholdings without hearings constituted a violation 
of due process. The Second Circuit held that the contrac
tual relationship between a contractor and a public 
agency does not create a constitutionally protected inter
est in the payment of sums allegedly due pursuant to the 
contract. In a careful analysis that distinguishes between 
ordinary contract rights and property rights protected 
under the Due Process Clause, the Second Circuit rea
soned:

"An interest in enforcement of an ordinary com
mercial contract with a state is qualitatively dif
ferent from the interests the Supreme Court has 
thus far viewed as "property" entitled to pro
cedural due process protection. . . . [T]he Due 
Process Clause is invoked to protect something 
more than an ordinary contractual right. Rather, 
procedural protection is sought in connection 
with a state's revocation of a status, an estate

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26

within the public sphere characterized by a 
quality of either extreme dependence in the case 
of welfare benefits, or permanence in the case of 
tenure, or sometimes both, as frequently occurs 
in the case of social security benefits. . . . But we 
hesitate to extend the doctrine further to consti
tutionalize contractual interests that are not 
associated with any cognizable status of the 
claimant beyond its temporary role as a govern
ment contractor." S & D Maintenance Co., supra,
844 F.2d 966-67.

This pragmatic analysis, distinguishing ordinary con
tract rights from the sort of property right that is pro
tected by due process, resonates in the decisions of other 
circuits as well. Justice Breyer, then on the First Circuit, 
wrote: "A mere breach of a contractual right is not a 
deprivation of property without constitutional due pro
cess of law. . . . Otherwise virtually every controversy 
involving an alleged breach of contract with a govern
mental institution or agency or instrumentality would be 
a constitutional case." Bleeker v. Dukakis, 665 F.2d 401, 403 
(1st Cir. 1981). The Seventh Circuit, in affirming the dis
missal of a § 1983 action brought by county employees 
asserting that the county violated their due process rights 
by its refusal to abide by a contract to permit time off in 
compensation for overtime hours worked, cautioned that 
"(tjhere is reason to doubt whether the Fourteenth 
Amendment was intended to allow every person with a 
breach of contract claim against a state to bring that claim 
in federal Court", and that the Amendment was "not 
intended to shift the whole of the public law of the states 
into the federal courts." Brown v. Brienen, 722 F.2d 360, 
364 (7th Cir. 1983).

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27

The Third Circuit has likewise observed that "if 
every breach of contract by someone acting under color 
of state law constituted a deprivation of property for 
procedural due process purposes, the federal courts 
would be called upon to pass judgment on the procedural 
fairness of the processing of a myriad of contract claims 
against public entities," and that "the wholesale federal
ization of state public contract law seems far afield from 
the great purposes of the Due Process Clause." Reich v. 
Beharry, 883 F.2d 239, 242 (3rd Cir. 1989). Following this 
analysis, the Third Circuit upheld summary judgment 
against a building contractor asserting a property interest 
in its contract with a city housing authority, while at the 
same time permitting the contractor's claim for unpaid 
compensation for work allegedly performed under the 
contract to proceed under the state public contract law. 
Linati-Faye Construction Co., Inc. v. Housing Authority of the 
City of Camden, 49 F.3d 915 (3rd Cir. 1995). The court 
further held that whatever severe consequential damages 
the contractor may have suffered as a result of the hous
ing authority's allegedly wrongful retention of the con
tractor's performance bond, that fact "cannot convert a 
contract claim into a deprivation of liberty." Ibid., at 932.10

With its decision in G&G, the Ninth Circuit became 
the only circuit to find an enforceable property right 
under the Fourteenth Amendment in a garden variety

10 So pervasive has been this line of cases that the court in 
C h a v e z  v. A r t e  P u b l ic o  P r e s s , 157 F.3d 282, 289 (5th Cir. 1998) was 
emboldened to state that its research "discloses no ordinary 
breach of contract case that has been allowed to proceed in 
federal courts against a state."

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28

public works contract dispute between a public agency 
and a private contractor. Prior to G&G, the Ninth Circuit 
stood in the mainstream of federal law on this issue. In 
San Bernardino Physicians' Services Medical Group, Inc. v. 
County of San Bernardino, 825 F.2d 1404, 1408 (9th Cir. 
1987), the court explained that "jejven though every con
tract may confer some legal rights under state law, that 
fact alone need not place all contracts within federal due 
process protection." In drawing the line between those 
government contracts that may create rights that are pro
tected by the Fourteenth Amendment and those that do 
not, the court focused on the distinction between employ
ment contracts and ordinary commercial contracts, such 
as contracts to perform a construction project or to sup
ply the state with services or materials. "The right of an 
individual not to be deprived of employment that he or 
she has been guaranteed is more easily characterized as a 
civil right, meant to be protected by § 1983, than are 
many other contractual rights." Ibid., at 1409. Conse
quently, "the farther the purely contractual claim is from 
an interest as central to the individual as employment, 
the more difficult it is to extend it constitutional protec
tion without subsuming the entire state law of public 
contracts." Based on this analysis, the court held that a 
corporation's contract to supply medical services to a 
county hospital did not implicate any constitutionally 
protected interest, and that such a "contract to supply 
services to the state cannot sensibly be distinguished 
from construction contracts or even purely material sup
ply contracts." Ibid., at 410.

The G&G panel majority abandoned this reasoned 
and historic approach in favor of an unwarranted and

135



29

sweeping expansion of property rights and due process 
protections far beyond any contemplated in prior deci
sions of the federal courts. G&G's constitutional claim, 
according to the panel majority, "arises from its public 
works contract; it has a property interest in being paid in 
full for the construction work it has completed." (136 F.3d 
595-597). (Pet. A-63).

The federal courts have uniformly held that there can 
be " 'no legitimate claim of entitlement' to funds 
allegedly due" pursuant to "a contract [that] vested" a 
public agency "with discretion to withhold interim pay
ments." (Christ Gatzonis Electrical Contractor, Inc., supra, 23 
F.3d at 640). In so ruling, these courts have relied on 
Board of Regents v. Roth, supra, 408 U.S. 564, 576-78, 92 
S.Ct. 2701, 2708-09, 33 L.Ed. 2d 548 (1972). As this Court 
stated in that case, "Property interests, of course, are not 
created by the Constitution. Rather, they are created and 
their dimensions are defined by existing rules or under
standings that stem from an independent source such as 
state law. . . . "  408 U.S. at 577.

Other decisions of this Court have followed the same 
reasoning. See, e.g., Bishop v. Wood, 426 U.S. 341, 344, 96 
S.Ct. 2074, 48 L.Ed. 2d 684 (1976); Memphis Light, Gas, and 
Water Division v. Craft, 436 U.S. 1, 11-12, 98 S.Ct. 1554, 56 
L.Ed. 2d 52 (1978) ["The hallmark of property, the Court 
has emphasized, is an individual entitlement grounded in 
state law, which cannot be removed except 'for cause' "].

The California courts have also directly addressed 
the question of the property rights of contractors under 
the prevailing wage law in O.G. Sansone Co. v. Department 
of Transportation, 55 Cal. App. 3d 444, 127 Cal. Rptr. 799

136



30

(1976). The Sansone Court, relying in part on this Court's 
earlier determination in Atkin v. Kansas, 191 U.S. 207, 24 
S.Ct. 124, 48 L.Ed. 148 (1903) stated:

"Under the statutory scheme presently before 
us, in acting pursuant to Labor Code § 1727 the 
state did not take property belonging to plain
tiffs; rather, it withheld sums pursuant to the 
terms of its contract with plaintiffs."

55 Cal. App. 3d at 456.

In Lloyd v. Stewart & Nuss, 327 F.2d 642, 645-646 (9th 
Cir. 1964), a bankruptcy case, the Ninth Circuit likewise 
held that a subcontractor under the California prevailing 
wage law has no property right in any sums withheld by 
the state.

It therefore appears that not only have the purported 
property rights asserted by G&G failed to attain "consti
tutional status by virtue of the fact that they have been 
initially recognized and protected by state law" (Paul v. 
Davis, 424 U.S. 693, 710, 96 S.Ct. 1155, 47 L.Ed. 2d 405), 
these so called "rights" have been specifically denied 
such status by all the California courts that have consid
ered the question.

The Ninth Circuit G&G panel majority, however, 
looked beyond state law, and beyond the state's con
tracts, to the Constitution as an independent source of 
property rights. Ultimately unable to find any basis for 
G&G's asserted claim to a property interest in the provi
sions of the public works contracts or in state law in 
general, the panel majority relies on Sniadach v. Family 
Finance Corp., 395 U.S. 337, 89 S.Ct. 1820, 23 L.Ed. 2d 349 
(1969) to conclude that although G&G has no right to

137



31

prompt payment (and no right to a deprivation hearing) 
under the state's statutory scheme (156 F.3d 901), any 
withholding under this scheme is constitutionally infirm. 
Sniadach, however, is inapposite. In a garnishment case, 
such as Sniadach, a creditor seeks to seize funds that are 
indisputably owed by a third party to the debtor. The 
funds being seized are the debtor's property. In contrast, 
in a public works contract case such as this, there is 
inevitably a substantive dispute between the immediate 
parties to the contract as to whether the contract requires 
payment of the amounts withheld. The awarding body 
promises to make the payment; but the contractor prom
ises, inter alia, that prevailing wages will be paid and that 
certified payroll records will be kept and made available 
as conditions precedent to receiving payment. To say that 
the contractor is entitled to the withheld funds, and 
therefore that the state's failure to make payment has 
deprived the contractor of its "property" without due 
process of law, is to decide the merits of the substantive 
dispute -  a dispute founded upon a breach of contract 
claim -  between the contracting parties.11

If the Ninth Circuit's reasoning on this point is to 
stand as legal precedent, then, as previously mentioned, 
every failure by a state, county or municipality to pay its 
bills on time will arguably constitute an actual depriva
tion of due process. Under this misconceived theory an 11

11 G&G also finds itself in the dubious position of being one 
who has availed itself of the benefits of the very statute it 
attacks. Arnett v. Kennedy, 416 U.S. 134, 153, 94 S.Ct. 1663, 40 
L.Ed. 2d 15 (1974); Fahey v. Mallonee, 332 U.S. 245, 255, 67 S.Ct. 
1552, 91 L.Ed. 2030 (1947).

138



32

alarming number of contractual sows' ears are to be 
converted to constitutional silk purses. As has been dis
cussed, supra, the result, which a more circumspect Ninth 
Circuit earlier warned against in San Bernardino Physician 
Services, supra, and the Seventh Circuit warned against in 
Brown v. Brienen, supra, will be the inevitable shifting "of 
the whole of the public law of the state into the federal 
courts", courts which are already known to be overbur
dened with a demanding caseload. If the Ninth Circuit's 
approach is to be upheld, for the first time in their his
tory, federal district judges will be required to routinely 
adjudicate local construction disputes, including but not 
limited to claims concerning the adequacy of plumbing, 
heating and air conditioning improvements and compli
ance or noncompliance with state and municipal building 
codes.

This Ninth Circuit's approach to property rights and 
due process goes well beyond any intent expressed by the 
framers of the Constitution, finds no support in logic, and 
is contrary to established precedent. Unless it is over
turned, it threatens to upset the carefully preserved bal
ance between the state and federal courts. IV

IV
A WIDE ARRAY OF STATE LAWS EXISTS TO REM
EDY THE DAMAGE G&G CLAIMS TO HAVE SUS
TAINED

The G&G panel majority held that a state court 
breach of contract action to recover the withheld funds 
does not provide adequate due process to a subcontractor 
in the position of G&G in this case; that the subcontractor

139



33

is in effect left with an "empty bag." (Pet. A-28). Other 
federal courts have reached the opposite conclusion, find
ing that state lawsuits provide a satisfactory vehicle for 
the vindication of the subcontractor's rights in these 
types of cases.

In Brown v. Brienen, supra, 722 F.2d 360, the Seventh 
Circuit held that even if a county's denial of time off for 
overtime worked by county employees could be said to 
implicate any property rights (a proposition the court 
found extremely doubtful), the availability of a post
deprivation state court action for breach of contract 
which could make the employees whole for any losses 
provided an adequate remedy that satisfied the require
ments of due process. Likewise, in Reich v. Beharry, supra, 
883 F.2d 239, 242-243, the Third Circuit, after expressing 
"considerable doubt" that a private attorney had an 
enforceable property interest in the payment of amounts 
allegedly due as a result of work he had performed under 
a contract with a county, held that the availability of a 
breach of contract remedy in state court through which 
he could be made whole for the unpaid fees provides "all 
the process that was constitutionally due."

A subcontractor involved in a public works project in 
California who has had funds withheld under the prevail
ing wage law may request an assignment of the prime 
contractor's rights to bring a lawsuit against the state 
under Labor Code §§ 1730-1733. The prime contractor in 
most cases is understandably motivated to agree to such 
an assignment because it will tend to eliminate a suit by

140



34

the subcontractor against the prime,12 thereby sparing the 
latter the cost and travail of litigation. The assignment of 
the claim serves the interests of both prime contractor 
and subcontractor.

In the unlikely event there is no assignment, how
ever, the subcontractor is still not foreclosed from assert
ing his right to the withheld funds. A well-developed 
body of case law in California invests the subcontractor 
with comprehensive remedies for breach of contract. This 
body of decisional law provides, inter alia, for suits for 
damages (Coughlin v. Blair, 41 Cal. 2d 587, 597, 262 P.2d 
305 (1953)), recission (Integrated, Inc. v. Fergusson Electrical 
Contractor, 250 Cal. App. 2d 287, 297, 58 Cal. Rptr. 503 
(1967) [Subcontractor on state public works project could 
rescind contract for nonpayment amounting to a material 
breach of contract and sue for reasonable value of ser
vices!), restitution on a theory of unjust enrichment 
(Crofoot Lumber v. Thompson, 163 Cal. App. 2d 324, 331, 
329 P.2d 302 (1958)), specific performance, declaratory 
relief and injunctive relief (Smith v. M endonsa, 108 
Cal. App. 2d 540, 544, 238 P.2d 1039 (1952)).13

12 Indeed, a subcontractor operating under the California 
prevailing wage law could bargain for a provision in the 
subcontract automatically entitling him to an assignment in the 
event of a withholding from the prime contractor by an 
awarding body.

13 The California Supreme Court long ago recognized that 
equitable remedies, such as those sought by G&G here, are as 
readily available under a public contract as under private 
contracts. "The cases recognize no distinction between public 
and private contracts with respect to the right of equitable 
relief. . . . The California cases refuse to apply special rules of 
law simply because a government body is a party to a contract."

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35

The Ninth Circuit had grave doubts about the effi
cacy of a state claim by a subcontractor against a prime 
contractor for breach of contract, erroneously concluding 
that the provisions of § 1729 of the Labor Code could 
constitute a complete defense to any breach of contract 
action under state law. (156 F.3d at 602).

This interpretation of § 1729, for which the court 
cited no authority or precedent, is based on a mis
construction of the language of that section. While that 
section does provide that it shall be "lawful for any 
contractor to withhold from any subcontractor under him 
sufficient sums to cover any penalties withheld from him 
by the awarding body," the right of withholding by the 
prime contractor is qualified and can only be justified "on 
account of the subcontractor's failure to comply" with the 
prevailing wage law. If the withholding is not "on 
account of a violation" of the prevailing wage law, this 
section by definition does not provide a defense. The trier 
of fact, finding no violation of the law, would surely 
further find that the subcontractor is entitled to recover 
the withheld funds. A fair reading of § 1729 can only lead 
to the conclusion that its exculpatory effect is limited to 
the situation where there is a demonstrable violation by 
the subcontractor.

The dissent by Judge Kozinski, noted a remedy in 
addition to the remedy of a common law suit for breach 
of contract, i.e., a subcontractor may sue for equitable 
subrogation and get a full hearing of its claims why the

M .F . K e m p e r  C o n s t r u c t io n  v. C i ty  o f  L o s  A n g e l e s  (1951) 37 Cal. 2d 
696, 704, 235 P.2d 1.

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36

funds should not be withheld. (Pet. A-50). There is noth
ing in either the record or the law to suggest that the 
relief thus granted would in any way be inferior to the 
relief mandated by the court. The DLSE has continued to 
take the position in this litigation that equitable subroga
tion permits the subcontractor to stand in the shoes of the 
prime contractor and obtain a full and fair hearing under 
§§ 1730-1733 of the California Labor Code. As the agency 
empowered to administer the prevailing wage law in 
California, its determinations in this respect have been 
accorded great weight in the California courts. Henning v. 
Industrial Welfare Commission, 46 Cal. 3d 1262, 1269, 252 
Cal. Rptr. 278 (1988).

While it has not been widely applied in the public 
works area, the doctrine of equitable subrogation is 
"broad enough to include every instance in which one 
person, not acting as a mere volunteer or intruder, pays a 
debt for which another is primarily liable, and which in 
equity and good conscience should have been discharged 
by the latter." Caito v. United California Bank, 20 Cal. 3d 
694 704, 144 Cal. Rptr. 751 (1978).

In addition, over the years the California Legislature 
has created two distinct statutory vehicles for subcontrac
tors on public works projects to use to prosecute their 
rights to withheld funds. Thus, the subcontractor is 
empowered to proceed to recover the withheld funds 
under both the stop notice procedures and the payment 
bond provisions of the California Civil Code.

The right of a subcontractor on a public works proj
ect to invoke the stop notice provisions of California Civil 
Code §§ 3110 and 3181 is clear, subcontractors having

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37

been expressly included among those persons entitled to 
"serve a stop notice upon the public entity responsible for 
the public work. . . . "  (Cal. Civ. Code § 3181). Upon 
receipt of a stop notice, Civil Code § 3186 requires the 
public entity to withhold from the original contractor "an 
amount sufficient to answer the [subcontractor's) claim." 
In effect, the filing imposes "a trust obligation on the 
public agency." The subcontractor may then file a lawsuit 
pursuant to § 3210 of the Civil Code and require the 
awarding body to pay it the money claimed.

In United States Fidelity & Guaranty Co. v. Oak Grove 
Union School District, 205 Cal. App. 2d 226, 230-231, 22 
Cal. Rptr. 907, 910 (1962), the California Court of Appeal 
explained that the stop notice procedure exists "to pro
vide protection to subcontractors against defaulting con
tractors." Thus, a subcontractor, such as G&G, has a 
defined statutory remedy under Civil Code § 3210, in 
addition to.the aforementioned breach of contract theo
ries of action against the prime contractor, to secure pay
ment of amounts purportedly due under its subcontract 
by use of the stop notice procedure. G&G has never 
argued that this statutory remedy is insufficient to protect 
its rights.

The provisions of California Civil Code § 3248, which 
require prime contractors on public works projects to 
purchase a payment bond, arm subcontractors in Califor
nia with an additional remedy should the prime contrac
tor default on payment. (Department o f Industrial Relations 
v. Seaboard Surety Co., 50 Cal. App. 4th 1501, 1508, 58 
Cal. Rptr. 2d 532 (1996).) Moreover, a subcontractor's 
action against the payment bond "may be maintained 
separately from" an action upon a stop notice claim. (Cal.

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38

Civ. Code § 3250). Contractors Labor Pool v. Westway Con
struction, 53 Cal. App. 4th 152, 158-160, 61 Cal. Rptr. 2d 
715 (1997). Thus in Consolidated Electric Distributor, Inc. v. 
Kirkham, el al., 18 Cal. App. 3d 54, 61, 95 Cal. Rptr. 673, 
677 (1971), the Court of Appeal recognized that the two 
forms of action are independent.

The adequacy of post-deprivation state court 
remedies is an issue that has come frequently before this 
Court over the years. This case presents this Court with 
an opportunity to revisit this issue in the context of an 
alleged deprivation of property founded upon a commer
cial contract with a state entity.14

In Parratt v. Taylor, 451 U.S. 527, 101 S.Ct. 1908, 68 
L.Ed. 2d 420, overruled in part on other grounds by Daniels v. 
Williams, 474 U.S. 327, 106 S.Ct. 662, 88 L.Ed. 2d 662 
(1981), the Court recognized that "post-deprivation 
remedies made available by the State can satisfy the Due 
Process Clause." 451 U.S. at 538, 101 S.Ct. at 1914. The 
Court reasoned:

"[EJither the necessity of quick action by the 
State or the impracticality of providing any 
meaningful pre-deprivation process, when cou
pled with the availability of some meaningful 
means by which to assess the propriety of the

14 An academic commentator's detailed examination of this 
issue concluded that "[Contractual interests, though protected 
by the Constitution, receive adequate protection in state court 
post-deprivation proceedings." Kreynin, Breach o f  Contract as 
Due Process Violation: Can the Constitution Be a Font o f Contract 
Law?, 90 Columbia Law Rev. 1098, 1122 (1990).

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39

State's action at some time after the initial tak
ing, can satisfy the requirements of procedural 
due process." 451 U.S. at 539, 101 S.Ct. at 1915.

The Court held that although an action under § 1983 
might provide more relief than a state tort action, the 
available state remedies "could have fully compensated 
the respondent for the property loss he suffered, and we 
hold that they are sufficient to satisfy the requirements of 
due process." 451 U.S. at 544, 101 S.Ct. at 1917.

In Hudson v. Palmer, 468 U.S. 517, 104 S.Ct. 3194, 82 
L.Ed. 2d 393 (1984), like Parratt, the Court found the 
availability of a post-deprivation state tort action that 
could provide compensation for the loss constitutes suffi
cient due process with respect to prisoners' claims of 
wrongful destruction of property by prison officers. To be 
sure, part of the rationale behind these cases was that the 
alleged destruction of the property did not stem from the 
proper implementation of an established state procedure, 
but rather, from the unauthorized and unanticipated acts 
of state employees.

Even the fact that the challenged action is authorized 
by state law and is implemented in an anticipated way by 
state employees consistent with established methods does 
not necessarily mean that a state court post-deprivation 
remedy is inadequate. For example, in Ingraham v. Wright, 
430 U.S. 651, 97 S.Ct. 1401, 51 L.Ed. 2d 711 (1977), this 
Court held that state tort remedies provided adequate 
process for students subjected to corporal punishment in 
school. Having concluded that a pre-disciplinary admin
istrative hearing was not required, the Court could have 
insisted on a post-disciplinary hearing. It did not, as a

146



40

post-disciplinary tort action could adequately compen
sate the student for the wrongful imposition of discipline.

In cases where this Court has sought to limit Parratt 
and Hudson, the available state court remedy plainly 
could not provide adequate compensation for the depri
vation. Thus, in Logan v. Zimmerman Brush Co., 455 U.S. 
422, 435-37, 101 S.Ct. 1148, 1157-58, 71 L.Ed. 2d 265 
(1982), this Court, after observing that a post-deprivation 
tort remedy was not capable of making the plaintiff 
whole, held that the availability of such a remedy did not 
satisfy the requirements of due process. The deprivation 
consisted of a state administrative agency's wrongful fail
ure to proceed on a claim that was filed, within the 
agency's jurisdiction, against an employer for having dis
charged the claimant in violation of the state's anti-dis
crimination laws. The Court noted that reinstatement was 
not an available remedy under a tort claim, and thus, 
even a successful lawsuit could not provide him with the 
relief that would have been available but for the state's 
deprivation of his right to proceed on his anti-discrimina
tion claim.

Likewise, in Zinermon v. Burch, 494 U.S. 113, 110 S.Ct. 
975, 108 L.Ed. 2d 100 (1990), a sharply divided Court held 
that allegations in a mental patient's complaint that 
employees of a state mental treatment facility admitted 
him to the facility as a voluntary patient without taking 
any steps to ascertain whether he was mentally compe
tent to sign admission forms were sufficient to state a 
§ 1983 claim, notwithstanding the availability of post
deprivation tort remedies. In ascertaining the adequacy 
of the state's post-deprivation tort remedies, the Court 
applied the familiar tripartite test set forth in Mathews v.

147



4 1

Eldridge, 424 U.S. 319, 335, 96 S.Ct. 893, 903 (1976), weigh
ing the following factors:

"First, the private interest that will be affected 
by the official action; second, the risk of an 
erroneous deprivation of such interest through 
the procedures used, and the probable value, if 
any, of additional or substitute procedural safe
guards; and finally, the Government's interest, 
including the function involved and the fiscal 
and administrative burdens that the additional 
or substitute procedural requirement would 
entail." Zinermon v. Burch, supra, 494 U.S. at 127,
110 S.Ct. at 984.

Not surprisingly, applying this test to a situation 
where the deprivation consisted of an extremely lengthy 
stay in a mental institution, the Court concluded that the 
state's post-deprivation tort remedy was inadequate.

In contrast to the injuries in Logan and Zinermon, the 
routine nature of the deprivation allegedly suffered by 
G&G renders it wholly compensable through the afore
mentioned state post-deprivation remedies. These 
remedies provide all the process that is due to a contrac
tor challenging the state's failure to make payments 
allegedly owed under a commercial contract. The view of 
the court below would result in an enormous burden to 
states, counties, cities, and all other public agencies that 
award contracts. V

V
THE DEPRIVATION COMPLAINED OF WAS INDI
RECT AND DID NOT CONSTITUTE A DENIAL OF 
DUE PROCESS

A companion issue to the issue of state versus private 
action is the question of whether G&G was foreclosed

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42

from proceeding against petitioners because the action of 
the State in withholding funds from the prime contractor 
only impacted G&G indirectly.

The sole action taken by petitioners, i.e., the issuance 
of notices to withhold to the contracting public bodies 
based on G&G's noncompliance with the prevailing wage 
law, was taken solely against the prime contractors, who 
thereafter unilaterally chose to withhold monies due 
G&G for work performed under its subcontracts. While 
the law allows the prime contractor to deduct wages and 
penalties from the subcontractor, the decision is that of 
the prime contractor, not the state.

"Over a century ago this Court recognized the 
principle that the due process provision . . . does 
not apply to the indirect adverse effects of govern
mental action. Thus, in the Legal Tender Cases, 12 
Wall. 457, 551, the Court stated:

'That provision has always been understood 
as referring only to a direct appropriation, 
and not to consequential injuries resulting 
from the exercise of legal power. It has 
never been supposed to have any bearing 
upon, or to inhibit laws that indirectly work 
harm and loss to individuals.' "

O'Bannon v. Town Court Nursing Center, 447 U.S. 773, 
788-789, 100 S.Ct. 2467, 65 L.Ed. 2d 506 (1980) (Emphasis 
added).

The Ninth Circuit refused to apply the principle of 
O'Bannon and its progeny in this case, seizing on the idea 
that G&G, as a subcontractor, was the "target of the 
state's action here" (Pet. A-67) and that, therefore, this 
case falls within an express exception noted in O'Bannon,

149



43

i.e., where action is taken by one party for the purpose of 
"punishing" another. It is submitted, however, that this is 
yet another misreading of the record on the part of the 
Ninth Circuit, there being absolutely no evidence to sup
port the conclusion that it was ever the intent or the 
policy of the State in enforcing the prevailing wage law to 
target or punish G&G, or other subcontractors.

The ascribing of such a motive to petitioners is fanci
ful, unwarranted and unfounded, particularly in view of 
the fact that the California courts have uniformly found 
that the purpose of the prevailing wage law, far from 
being a punitive one, is to foster the public welfare.

"The overall purpose of the prevailing wage 
law . . .  is to benefit and protect employees on 
public works projects. This general objective 
subsumes within it a number of specific goals: 
to protect employees from substandard wages 
that might be paid if contractors could recruit 
labor from distant cheap-labor areas; to permit 
union contractors to compete with nonunion 
contractors; to benefit the public through the 
superior efficiency of well-paid employees; and 
to compensate nonpublic employees with higher 
wages for the absences of job security and 
employment benefits enjoyed by public 
employees."

Lusardi Construction Co. v. Aubry, 1 Cal. 4th 976, 987,4 
Cal. Rptr. 2d 847 (1992).

None of the three opinions of the Ninth Circuit in 
this case refer to any evidence that suggests that in 
enforcing its contract the state was acting for any purpose 
other than that set forth in Lusardi, because, as noted, no 
such evidence exists. Not even G&G has argued that the

150



44

state acted with the motive assigned by the court in 
issuing the notices to withhold. Since there was nothing 
from which the court below could have inferred that the 
state acted with a specific intent to impact G&G, it there
fore had no factual basis upon which to draw such an 
inference.

The mere knowledge that an adverse impact on third 
parties is likely to follow from the enforcement of the law 
is clearly not enough to vitiate the reasoning in O'Bannon. 
Thus, the fact that the state had reason to know that the 
withholding from the prime contractor might impact 
G&G is no more significant than the fact that in O'Bannon 
the government had reason to know that the cessation of 
reimbursements to a medical facility would impact its 
patients; that the Department of Agriculture had reason 
to know that the closing of a store would impact the 
employees of the store [Castaneda v. U.S. Department of 
Agriculture, 807 F.2d 1478 (9th Cir. 1987)]; that the U.S. 
Department of Education had reason to know that revok
ing student aid to a college would impact the students 
[Grove City College v. Bell, 687 F.2d 684, 704 (3rd Cir. 
1982)]; or that the U.S. Department of Energy had reason 
to know that its offering of free storage facilities for 
nuclear waste would impact those in the business of 
providing such facilities. [Nuclear Transport & Storage v. 
United States, 890 F.2d 1348 (6th Cir. 1989)]. Yet the 
injured third parties suing in these cases, all of whom had 
as strong a claim as G&G has here, were held to be only 
indirectly affected by the government's action and, there
fore, could state no due process claim.

The State of California, like most other states, has 
decided to conduct its business in the same fashion as

151



45

every builder in the private sector by electing to contract 
and deal exclusively with the prime contractor. The deci
sion of the Panel clearly flies in the face of the long 
judicially acknowledged right of a state to dictate the 
terms and conditions upon which public works will be 
performed by private contractors.

In Atkin v. Kansas, supra, 191 U.S. 207, the Supreme 
Court upheld challenged Kansas legislation providing for 
maximum hours of work and requiring minimum rates of 
pay on public works projects. The Court stated:

"It cannot be deemed a part of the liberty of any 
contractor that he be allowed to do public work 
in any mode he may choose to adopt, without 
regard to the wishes of the state. On the contrary, 
it belongs to the state, as the guardian and trustee 
for its people, and having control of its affairs, to 
prescribe the conditions upon which it will permit 
public work to be done on its behalf, or on behalf of 
its municipalities. No court has authority to 
review its actions in that respect. Regulations on 
this subject suggest only considerations of pub
lic policy. And with such considerations the 
courts have no concern." 191 U.S. at 222-223 
(emphasis added).

In Perkins v. Luekens Steel Co., 310 U.S. 113, 60 S.Ct. 
869, 84 L.Ed. 1108 (1940), a steel producer attacked the 
Public Contracts Act, a statute setting forth standards for 
those who deal with the federal government. This Court 
upheld the law, pointing out that '[ljike private individ
uals and businesses, the government enjoys the unre
stricted power to produce its own supplies, to determine

52



46

those with whom it will deal, and to fix the terms and condi
tions upon which it will make needed purchases." 310 U.S. at 
127 (emphasis added).

Correctly viewed, the terms and conditions of the 
state's public works contracts merely empower it and its 
political subdivisions to do what every private proprietor 
in the marketplace does, deal on building projects with a 
single prime contractor who, in turn, has the direct 
responsibility for the companies and individuals it 
chooses to select as subcontractors on the project. This is 
a practice that has existed as long as there has been a 
building industry in this country. See, e.g., discussion in 
Haggerty, Real Estate Construction Current Problems (Prac
ticing Law Institute, 1973), p. 47, et seq. Business effi
ciency dictates that the owner (in this case the State) be 
permitted to look to and deal exclusively with the prime 
contractor, the only party with which it is in privity of 
contract, and to say that it holds the prime contractor 
accountable for all failures or defects in performance, 
whether they in fact be due to the fault of the prime 
contractor or one of its subcontractors.

Here, the State is merely exercising its right as a 
proprietor. Consequently, far from punishing or targeting 
those with whom it does not contract, the State here is 
engaging in a legitimate business practice, sanctioned by 
custom and practice, of refusing to deal with anyone 
other than the prime contractor and insisting that the 
prime contractor be responsible for the performance 
under the contract of all other parties. The Ninth Circuit 
had no justification for supposing any other motive on 
the part of petitioners.

153



47

Being only indirectly impacted by the alleged depri
vation of the State, G&G cannot be heard to complain that 
it was denied due process.

----------------♦ ------------------

CONCLUSION

For the reasons stated above, the decision of the 
court below should be vacated with instructions to enter 
judgment in favor of petitioners.

Respectfully submitted,
T homas S. K errigan 
Counsel of Record 
D ivision of L abor S tandards 

E nforcement
D epartment of Industrial 

R elations
State of California 
6150 Van Nuys Boulevard,

Suite 100
Van Nuys, California 91403 
(818) 901-5482

154



A pp. 1

APPENDIX
BILL NUMBER: AB 1646 CHAPTERED 

BILL TEXT

CHAPTER 954
FILED WITH SECRETARY OF STATE SEPTEMBER 

30, 2000
APPROVED BY GOVERNOR SEPTEMBER 29, 2000 
PASSED THE ASSEMBLY SEPTEMBER 1, 2000 
PASSED THE SENATE AUGUST 30, 2000 
AMENDED IN SENATE AUGUST 29, 2000 
AMENDED IN SENATE AUGUST 25, 2000 
AMENDED IN SENATE AUGUST 7, 2000 
AMENDED IN SENATE AUGUST 30, 1999 
AMENDED IN SENATE AUGUST 16, 1999 
AMENDED IN SENATE JULY 1, 1999 
AMENDED IN SENATE JUNE 24, 1999

INTRODUCED BY Assembly Member Steinberg

MARCH 4, 1999

An act to amend Sections 1723, 1726, 1727, and 1773.1 
of, to add Sections 1741 and 1743 to, to add and repeal 
Sections 1742 and 1742.1 of, to repeal Sections 1730, 1731, 
1732, 1733, and 1771.7 of, to repeal and amend Section 
1775 of, and to repeal and add Section 1771.6 of, the 
Labor Code, relating to public works.

LEGISLATIVE COUNSEL'S DIGEST

AB 1646, Steinberg. Public works: payments.

(1) Existing law regulating public works contracts 
requires the awarding body of a public works contract to 
withhold and retain from payments to the contractor all 
wages and penalties that have been forfeited pursuant to

155



A pp. 2

the contract or existing law. The awarding body is 
required to transfer all wages and penalties retained, to 
the Labor Commissioner for disbursement pursuant to 
specified provisions whenever a contractor fails to bring 
a suit against the awarding body for recovery of wages 
and penalties withheld within 90 days after the comple
tion of the contract and formal acceptance of the job.

This bill would require the awarding body to report 
promptly any suspected violations of the laws regulating 
public works contracts to the Labor Commission and to 
retain all amounts required to satisfy any civil wage and 
penalty assessment issued by the Labor Commissioner.

(2) Existing law authorizes the contractor to bring 
suit for the limited purpose of recovery of the penalties or 
forfeitures withheld.

Existing law permits the Division of Labor Standards 
Enforcement to intervene in a contractor's suit for recov
ery of amounts withheld, provides for the deposit of 
wages for workers who cannot be located into the Indus
trial Relations Unpaid Wages Fund, and provides for the 
deposit of penalties into the General Fund. Existing law, 
until January 1, 2003, requires a contractor to withhold 
moneys due a subcontractor in an amount sufficient to 
pay the wages that are the subject of a claim filed with 
the Division of Labor Standards Enforcement, as directed 
by the division, if the body awarding the public works 
contract has not withheld sufficient moneys to pay the 
wage claims. Existing law requires the contractor to pay 
those moneys to the subcontractor after receipt of noti
fication that the claim has been resolved, or to pay those

156



A pp. 3

moneys to the awarding body, under specified circum
stances.

This bill would repeal these provisions and instead 
would require the Labor Commissioner to issue a civil 
wage and penalty assessment to the contractor or sub
contractor or both if the Labor Commissioner determines 
after investigation that there has been a violation of the 
laws regulating public works contracts. The bill would 
permit an affected contractor or subcontractor to obtain 
review of a civil wage and penalty assessment by trans
mitting a written request for a hearing to the office of the 
Labor Commissioner that appears on the assessment 
within 60 days after service of the assessment and would 
require an impartial hearing officer, until January 1, 2005, 
and then an administrative law judge appointed by the 
Director of Industrial Relations to commence a hearing 
within 90 days of receipt of the request. The bill would 
permit an affected contractor or subcontractor to obtain 
review of the decision of the director, until January 1, 
2005, and then an administrative law judge by filing a 
petition for a writ of mandate to the superior court within 
45 days after service of the decision. The bill would 
provide for liquidated damages in an amount equal to the 
amount of unpaid wages, as specified. The bill would 
also authorize informal settlement meetings.

The bill would provide that the contractor and sub
contractor are jointly and severally liable for all amounts 
due pursuant to a final order or a judgment on that final 
order, but would require the Labor Commissioner to col
lect amounts due from the subcontractor before pursuing 
the claim against the contractor. The bill would require

157



A pp. 4

that the wage claim be satisfied from the amounts col
lected prior to those amounts being applied to penalties 
and that the money be prorated among all workers if an 
insufficient amount is recovered to pay each worker in 
full. The bill would require wages for workers who can
not be located to be placed in the Industrial Relations 
Unpaid Wage Fund, a continuously appropriated fund, 
and penalties to be paid into the General Fund.

(3) Existing law requires any political subdivision 
that enforces the laws regulating public works contracts 
and any court collecting fines or penalties that result 
from enforcement actions by political subdivisions to 
deposit penalties or forfeitures withheld from any con
tract payment in the General Fund of the political subdi
vision. Existing law authorizes a contractor to appeal an 
enforcement action by a political subdivision to the Direc
tor of Industrial Relations.

The bill would repeal and recast this provision to 
apply to any awarding body that enforces the laws regu
lating public works contracts in accordance with speci
fied provisions of existing law.

The bill would require such an awarding body to 
provide written notice of the withholding of contract 
payments to the contractor and subcontractor, as speci
fied. The withholding of contract payments would be 
reviewable in the same manner as a civil penalty order of 
the Labor Commissioner.

(4) Existing law provides that per diem wages shall 
be deemed to include employer payments for health and 
welfare, pension, vacation, travel, and subsistence pay, 
apprenticeship or other training programs, and similar

158



A pp. 5

purposes. Existing law requires the representative of any 
craft, classification, or type of worker needed to execute a 
public works contract entered into with the state to file 
with the Department of Industrial Relations, fully exe
cuted copies of the collective bargaining agreements for 
the particular craft, classification, or type of work 
involved for the purposes of determining the per diem 
wages.

This bill would specify the employer contributions, 
costs, and payments that employer payments may 
include and would provide that employer payments not 
required to be provided by state or federal law are a 
credit against the obligation to pay the general prevailing 
rate of wages. However, credits for employer payments 
would not reduce the obligation to pay the hourly 
straight time or overtime wages found to be prevailing. 
This bill would expand the requirement that copies of 
collective bargaining agreements be filed with the 
Department of Industrial Relations to apply to represen
tatives of any craft, classification, or type of worker 
needed to execute a public works contract entered into 
with a public entity other than the state. The bill would 
revise the filing requirements to permit, if the collective 
bargaining agreement has not been formalized, the tem
porary filing of a typescript of the final draft accom
panied by a statement under penalty of perjury as to its 
effective date. Because this bill would impose additional 
duties on local agency employers, expand the scope of 
the existing crime of perjury, and provide that a violation 
of these provisions is a misdemeanor, this bill would 
impose a state-mandated local program.

159



A pp. 6

(5) This bill provides that it would become opera
tive on July 1, 2001.

(6) The California Constitution requires the state to 
reimburse local agencies and school districts for certain 
costs mandated by the state. Statutory provisions estab
lish procedures for making that reimbursement, includ
ing the creation of a State Mandates Claims Fund to pay 
the costs of mandates that do not exceed $1,000,000 state
wide and other procedures for claims whose statewide 
costs exceed $1,000,000.

This bill would provide that with regard to certain 
mandates no reimbursement is required by this act for a 
specified reason.

With regard to any other mandates, this bill would 
provide that, if the Commission on State Mandates deter
mines that the bill contains costs so mandated by the 
state, reimbursement for those costs shall be made pur
suant to the statutory provisions noted above.

THE PEOPLE OF THE STATE OF CALIFORNIA DO 
ENACT AS FOLLOWS:

SECTION 1. The Legislature declares that its intent in 
adopting this act is to provide contractors and sub
contractors with a prompt administrative hearing in the 
event that the contractor or subcontractor is alleged by 
the Labor Commissioner or an awarding body to have 
violated Labor Code provisions governing the obligations 
of contractors and subcontractors on public works pro
jects, and to provide that the exclusive method for review 
of the decision after the administrative hearing is by 
petition for writ of mandate under Section 1094.5 of the

160



App. 7

Code of Civil Procedure. It is not the intent of this act to 
preclude remedies otherwise authorized by law to rem
edy violations of this chapter.

SEC. 2. Section 1723 of the Labor Code is amended to
read:

1723. "W orker" includes laborer, worker, or 
mechanic.

SEC. 3. Section 1726 of the Labor Code is amended to 
read:

1726. The body awarding the contract for public 
work shall take cognizance of violations of the provisions 
of this chapter committed in the course of the execution 
of the contract, and shall promptly report any suspected 
violations to the Labor Commissioner.

If the awarding body determines as a result of its 
own investigation that there has been a violation of this 
chapter and withholds contract payments, the procedures 
in Section 1771.6 shall be followed.

SEC. 4. Section 1727 of the Labor Code is amended to 
read:

1727. (a) Before making payments to the contractor of 
money due under a contract for public work, the award
ing body shall withhold and retain therefrom all amounts 
required to satisfy any civil wage and penalty assessment 
issued by the Labor Commissioner under this chapter. 
The amounts required to satisfy a civil wage and penalty 
assessment shall not be disbursed by the awarding body 
until receipt of a final order that is no longer subject to 
judicial review.

161



A p p .  8

(b) If the awarding body has not retained sufficient 
money under the contract to satisfy a civil wage and 
penalty assessment based on a subcontractor's violations, 
the contractor shall, upon the request of the Labor Com
missioner, withhold sufficient money due the subcontrac
tor under the contract to satisfy the assessment and 
transfer the money to the awarding body. These amounts 
shall not be disbursed by the awarding body until receipt 
of a final order that is no longer subject to judicial review.

SEC. 5. Section 1730 of the Labor Code is repealed.

SEC. 6. Section 1731 of the Labor Code is repealed.

SEC. 7. Section 1732 of the Labor Code is repealed.

SEC. 8. Section 1733 of the Labor Code is repealed.

SEC. 9. Section 1741 is added to the Labor Code, to 
read:

1741. If the Labor Commissioner or his or her 
designee determines after an investigation that there has 
been a violation of this chapter, the Labor Commissioner 
shall with reasonable promptness issue a civil wage and 
penalty assessment to the contractor or subcontractor or 
both. The assessment shall be in writing and shall 
describe the nature of the violation and the amount of 
wages, penalties, and forfeitures due and shall include 
the basis for the assessment. The assessment shall be 
served not later than 180 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 180 days after 
acceptance of the public work, whichever occurs last. 
However, if the assessment is served after the expiration

162



A p p .  9

of this 180-day period, but before the expiration of an 
additional 180 days, and the awarding body has not yet 
made full payment to the contractor, the assessment is 
valid up to the amount of the funds retained. Service of 
the assessment shall be completed pursuant to Section 
1013 of the Code of Civil Procedure by first-class and 
certified mail to the contractor, subcontractor, and award
ing body. The assessment shall advise the contractor and 
subcontractor of the procedure for obtaining review of 
the assessment. The Labor Commissioner shall, to the 
extent practicable, ascertain the identity of any bonding 
company issuing a bond that secures the payment of 
wages covered by the assessment and any surety on a 
bond, and shall serve a copy of the assessment by certi
fied mail to the bonding company or surety at the same 
time service is made to the contractor, subcontractor, and 
awarding body. However, no bonding company or surety 
shall be relieved of its responsibilities because it failed to 
receive notice from the Labor Commissioner.

SEC. 10. Section 1742 is added to the Labor Code, to 
read:

1742. (a) An affected contractor or subcontractor may 
obtain review of a civil wage and penalty assessment 
under this chapter by transmitting a written request to 
the office of the Labor Commissioner that appears on the 
assessment within 60 days after service of the assessment. 
If no hearing is requested within 60 days after service of 
the assessment, the assessment shall become final.

(b) Upon receipt of a timely request, a hearing shall 
be commenced within 90 days before the director, who 
shall appoint an impartial hearing officer possessing the

163



A p p . 10

qualifications of an administrative law judge pursuant to 
subdivision (b) of Section 11502 of the Government Code. 
The appointed hearing officer shall be an employee of the 
department, but shall not be an employee of the Division 
of Labor Standards Enforcement. The contractor or sub
contractor shall be provided an opportunity to review 
evidence to be utilized by the Labor Commissioner at the 
hearing within 20 days of the receipt of the written 
request for a hearing. Any evidence obtained by the 
Labor Commissioner subsequent to the 20-day cutoff 
shall be promptly disclosed to the contractor or sub
contractor.

The contractor or subcontractor shall have the bur
den of proving that the basis for the civil wage and 
penalty assessment is incorrect. The assessment shall be 
sufficiently detailed to provide fair notice to the contrac
tor or subcontractor of the issues at the hearing.

Within 45 days of the conclusion of the hearing, the 
director shall issue a written decision affirming, modify
ing, or dismissing the assessment. The decision of the 
director shall consist of a notice of findings, findings, and 
an order. This decision shall be served on all parties and 
the awarding body pursuant to Section 1013 of the Code 
of Civil Procedure by first-class mail at the last known 
address of the party on file with the Labor Commissioner. 
Within 15 days of the issuance of the decision, the direc
tor may reconsider or modify the decision to correct an 
error, except that a clerical error may be corrected at any 
time.

The director shall adopt regulations setting forth pro
cedures for hearings under this subdivision.

154



App. 11

(c) An affected contractor or subcontractor may 
obtain review of the decision of the director by filing a 
petition for a writ of mandate to the appropriate superior 
court pursuant to Section 1094.5 of the Code of Civil 
Procedure within 45 days after service of the decision. If 
no petition for writ of mandate is filed within 45 days 
after service of the decision, the order shall become final. 
If it is claimed in a petition for writ of mandate that the 
findings are not supported by the evidence, abuse of 
discretion is established if the court determines that the 
findings are not supported by substantial evidence in the 
light of the whole record.

(d) A certified copy of a final order may be filed by 
the Labor Commissioner in the office of the clerk of the 
superior court in any county in which the affected con
tractor or subcontractor has property or has or had a 
place of business. The clerk, immediately upon the filing, 
shall enter judgment for the state against the person 
assessed in the amount shown on the certified order.

(e) A judgment entered pursuant to this section 
shall bear the same rate of interest and shall have the 
same effect as other judgments and shall be given the 
same preference allowed by law on other judgments ren
dered for claims for taxes. The clerk shall not charge for 
the service performed by him or her pursuant to this 
section.

(f) An awarding body that has withheld funds in 
response to a civil wage and penalty assessment under 
this chapter shall, upon receipt of a certified copy of a 
final order that is no longer subject to judicial review,

165



App. 12

promptly transmit the withheld funds, up to the amount 
of the certified order, to the Labor Commissioner.

(g) This section shall provide the exclusive method 
for review of a civil wage and penalty assessment by the 
Labor Commissioner under this chapter or the decision of 
an awarding body to withhold contract payments pur
suant to Section 1771.5.

(h) This section shall remain in effect only until 
January 1, 2005, and as of that date is repealed, unless a 
later enacted statute, that is enacted before January 1, 
2005, deletes or extends that date.

SEC. 11. Section 1742 is added to the Labor Code, to 
read:

1742. (a) An affected contractor or subcontractor may 
obtain review of a civil wage and penalty assessment 
under this chapter by transmitting a written request to 
the office of the Labor Commissioner that appears on the 
assessment within 60 days after service of the assessment. 
If no hearing is requested within 60 days after service of 
the assessment, the assessment shall become final.

(b)(1) Upon receipt of a timely request, a hearing 
shall be commenced within 90 days before an administra
tive law judge appointed by the Director of Industrial 
Relations. The appointed hearing judge shall be an 
employee of the department, but shall not be an 
employee of the Division of Labor Standards Enforce
ment. The contractor or subcontractor shall be provided 
an opportunity to review evidence to be utilized by the 
Labor Commissioner at the hearing within 20 days of the 
receipt of the written request for a hearing. Any evidence

166



App. 13

obtained by the Labor Commissioner subsequent to the 
20-day cutoff shall be promptly disclosed to the contrac
tor or subcontractor.

(2) The contractor or subcontractor shall have the 
burden of proving that the basis for the civil wage and 
penalty assessment is incorrect. The assessment shall be 
sufficiently detailed to provide fair notice to the contrac
tor or subcontractor of the issues at the hearing.

(3) Within 45 days of the conclusion of the hearing, 
the administrative law’ judge shall issue a written deci
sion affirming, modifying, or dismissing the assessment. 
The decision of the administrative law judge shall consist 
of a notice of findings, findings, and an order. This deci
sion shall be served on all parties and the awarding body 
pursuant to Section 1013 of the Code of Civil Procedure 
by first-class mail at the last known address of the party 
on file with the Labor Commissioner. Within 15 days of 
the issuance of the decision, the administrative law judge 
may reconsider or modify the decision to correct an error, 
except that a clerical error may be corrected at any time.

(4) The Director of Industrial Relations shall adopt 
regulations setting forth procedures for hearings under 
this subdivision.

(c) An affected contractor or subcontractor may 
obtain review of the decision of the administrative law 
judge by filing a petition for a writ of mandate to the 
appropriate superior court pursuant to Section 1094.5 of 
the Code of Civil Procedure within 45 days after service 
of the decision. If no petition for writ of mandate is filed 
within 45 days after service of the decision, the order 
shall become final. If it is claimed in a petition for writ of

167



A pp. 14

mandate that the findings are not supported by the evi
dence, abuse of discretion is established if the court 
determines that the findings are not supported by sub
stantial evidence in the light of the whole record.

(d) A certified copy of a final order may be filed by 
the Labor Commissioner in the office of the clerk of the 
superior court in any county in which the affected con
tractor or subcontractor has property or has or had a 
place of business. The clerk, immediately upon the filing, 
shall enter judgment for the state against the person 
assessed in the amount shown on the certified order.

(e) A judgment entered pursuant to this section 
shall bear the same rate of interest and shall have the 
same effect as other judgments and shall be given the 
same preference allowed by law on other judgments ren
dered for claims for taxes. The clerk shall not charge for 
the service performed by him or her pursuant to this 
section.

(f) An awarding body that has withheld funds in 
response to a civil wage and penalty assessment under 
this chapter shall, upon receipt of a certified copy of a 
final order that is no longer subject to judicial review, 
promptly transmit the withheld funds, up to the amount 
of the certified order, to the Labor Commissioner.

(g) This section shall provide the exclusive method 
for review of a civil wage and penalty assessment by the 
Labor Commissioner under this chapter or the decision of 
an awarding body to withhold contract payments pur
suant to Section 1771.5.

168



App. 15

(h) This section shall become operative on January 
1, 2005.

SEC. 12. Section 1742.1 is added to the Labor Code, to 
read:

1742.1. (a) After 60 days following the service of a 
civil wage and penalty assessment under Section 1741 or 
a notice of withholding under subdivision (a) of Section
1771.6, the affected contractor, subcontractor, and surety 
on a bond or bonds issued to secure the payment of 
wages covered by the assessment or notice shall be liable 
for liquidated damages in an amount equal to the wages, 
or portion thereof, that still remain unpaid. If the assess
ment or notice subsequently is overturned or modified 
after administrative or judicial review', liquidated dam
ages shall be payable only on the wages found to be due 
and unpaid. If the contractor or subcontractor demon
strates to the satisfaction of the director that he or she 
had substantial grounds for believing the assessment or 
notice to be in error, the director shall wraive payment of 
the liquidated damages. Any liquidated damages col
lected shall be distributed to the employee along with the 
unpaid wages. Section 203.5 shall not apply to claims for 
prevailing wages under this chapter.

(b) The Labor Commissioner shall, upon receipt of a 
request from the affected contractor or subcontractor 
within 30 days following the service of a civil wage and 
penalty assessment under Section 1741, afford the con
tractor or subcontractor the opportunity to meet with the 
Labor Commissioner or his or her designee to attempt to 
settle a dispute regarding the assessment w'ithout the 
need for formal proceedings. The awarding body shall,

169



A p p .  16

upon receipt of a request from the affected contractor or 
subcontractor within 30 days following the service of a 
notice of withholding under subdivision (a) of Section
1771.6, afford the contractor or subcontractor the oppor
tunity to meet with the designee of the awarding body to 
attempt to settle a dispute regarding the notice without 
the need for formal proceedings. The settlement meeting 
may be held in person or by telephone and shall take 
place before the expiration of the 60-day period for seek
ing administrative review. No evidence of anything said 
or any admission made for the purpose of, in the course 
of, or pursuant to, the settlement meeting is admissible or 
subject to discovery in any administrative or civil pro
ceeding. No writing prepared for the purpose of, in the 
course of, or pursuant to, the settlement meeting, other 
than a final settlement agreement, is admissible or subject 
to discovery in any administrative or civil proceeding. 
The assessment or notice shall advise the contractor or 
subcontractor of the opportunity to request a settlement 
meeting.

This section shall remain in effect only until January 
1, 2005, and as of that date is repealed, unless a later 
enacted statute, that is enacted before January 1, 2005, 
deletes or extends that date.

SEC. 13. Section 1742.1 is added to the Labor Code, to 
read:

1742.1. (a) After 60 days following the service of a 
civil wage and penalty assessment under Section 1741 or 
a notice of withholding under subdivision (a) of Section
1771.6, the affected contractor, subcontractor, and surety 
on a bond or bonds issued to secure the payment of

170



App. 17

wages covered by the assessment or notice shall be liable 
for liquidated damages in an amount equal to the wages, 
or portion thereof, that still remain unpaid. If the assess
ment or notice subsequently is overturned or modified 
after administrative or judicial review, liquidated dam
ages shall be payable only on the wages found to be due 
and unpaid. If the contractor or subcontractor demon
strates to the satisfaction of the administrative law judge 
that he or she had substantial grounds for believing the 
assessment or notice to be in error, the administrative law 
judge shall waive payment of the liquidated damages. 
Any liquidated damages collected shall be distributed to 
the employee along with the unpaid wages. Section 203.5 
shall not apply to claims for prevailing wages under this 
chapter.

(b) The Labor Commissioner shall, upon receipt of a 
request from the affected contractor or subcontractor 
within 30 days following the service of a civil wage and 
penalty assessment under Section 1741, afford the con
tractor or subcontractor the opportunity to meet with the 
Labor Commissioner or his or her designee to attempt to 
settle a dispute regarding the assessment without the 
need for formal proceedings. The awarding body shall, 
upon receipt of a request from the affected contractor or 
subcontractor within 30 days following the service of a 
notice of withholding under subdivision (a) of Section
1771.6, afford the contractor or subcontractor the oppor
tunity to meet with the designee of the awarding body to 
attempt to settle a dispute regarding the notice without 
the need for formal proceedings. The settlement meeting 
may be held in person or by telephone and shall take

171



App. 18

place before the expiration of the 60-day period for seek
ing administrative review. No evidence of anything said 
or any admission made for the purpose of, in the course 
of, or pursuant to, the settlement meeting is admissible or 
subject to discovery in any administrative or civil pro
ceeding. No writing prepared for the purpose of, in the 
course of, or pursuant to, the settlement meeting, other 
than a final settlement agreement, is admissible or subject 
to discovery in any administrative or civil proceeding. 
The assessment or notice shall advise the contractor or 
subcontractor of the opportunity to request a settlement 
meeting.

This section shall become operative on January 1, 
2005.

SEC. 14. Section 1743 is added to the Labor Code, to 
read:

1743. (a) The contractor and subcontractor shall be 
jointly and severally liable for all amounts due pursuant 
to a final order under this chapter or a judgment thereon. 
The Labor Commissioner shall first exhaust all reasonable 
remedies to collect the amount due from the subcontrac
tor before pursuing the claim against the contractor.

(b) From the amount collected, the wage claim shall 
be satisfied prior to the amount being applied to penal
ties. If insufficient money is recovered to pay each worker 
in full, the money shall be prorated among all workers.

(c) Wages for workers who cannot be located shall 
be placed in the Industrial Relations Unpaid Wage Fund 
and held in trust for the workers pursuant to Section 96.7. 
Penalties shall be paid into the General Fund.

172



A p p .  19

(d) A final order under this chapter or a judgment 
thereon shall be binding, with respect to the amount 
found to be due, on a bonding company issuing a bond 
that secures the payment of wages and a surety on a 
bond. The limitations period of any action on a payment 
bond shall be tolled pending a final order that is no 
longer subject to judicial review.

SEC. 15. Section 1771.6 of the Labor Code is repealed.

SEC. 16. Section 1771.6 is added to the Labor Code, to 
read:

1771.6. (a) Any awarding body that enforces this 
chapter in accordance with Section 1726 or 1771.5 shall 
provide notice of the withholding of contract payments to 
the contractor and subcontractor, if applicable. The notice 
shall be in writing and shall describe the nature of the 
violation and the amount of wages, penalties, and forfei
tures withheld. Service of the notice shall be completed 
pursuant to Section 1013 of the Code of Civil Procedure 
by first-class and certified mail to the contractor and 
subcontractor, if applicable. The notice shall advise the 
contractor and subcontractor, if applicable, of the pro
cedure for obtaining review of the withholding of con
tract payments.

The awarding body shall also serve a copy of the 
notice by certified mail to any bonding company issuing 
a bond that secures the payment of wages covered by the 
notice and to any surety on a bond, if their identities are 
known to the awarding body.

(b) The withholding of contract payments in accor
dance with Section 1726 or 1771.5 shall be reviewable

173



A p p . 20

under Section 1742 in the same manner as if the notice of 
the withholding was a civil penalty order of the Labor 
Commissioner under this chapter. If review is requested, 
the Labor Commissioner may intervene to represent the 
awarding body.

(c) Pending a final order, or the expiration of the 
time period for seeking review of the notice of the with
holding, the awarding body shall not disburse any con
tract payments withheld.

(d) From the amount recovered, the wage claim 
shall be satisfied prior to the amount being applied to 
penalties. If insufficient money is recovered to pay each 
worker in full, the money shall be prorated among all 
workers.

(e) Wages for workers who cannot be located shall 
be placed in the Industrial Relations Unpaid Wage Fund 
and held in trust for the workers pursuant to Section 96.7. 
Penalties shall be paid into the General Fund of the 
awarding body that has enforced this chapter pursuant to 
Section 1771.5.

SEC. 17. Section 1771.7 of the Labor Code is repealed.

SEC. 18. Section 1773.1 of the Labor Code is amended 
to read:

1773.1. (a) Per diem wages shall be deemed to 
include employer payments for health and welfare, pen
sion, vacation, travel, subsistence, and apprenticeship or 
other training programs authorized by Section 3093, so 
long as the cost of training is reasonably related to the 
amount of the contributions, and similar purposes, when

174



App. 21

the term "per diem wages" is used in this chapter or in 
any other statute applicable to public works.

(b) Employer payments include all of the following:

(1) The rate of contribution irrevocably made by the 
employer to a trustee or third person pursuant to a plan, 
fund, or program.

(2) The rate of actual costs to the employer reason
ably anticipated in providing benefits to workers pur
suant to an enforceable commitment to carry out a 
financially responsible plan or program communicated in 
writing to the workers affected.

(3) Payments to the California Apprenticeship 
Council pursuant to Section 1777.5.

(c) Employer payments are a credit against the 
obligation to pay the general prevailing rate of per diem 
wages. However, no credit shall be granted for benefits 
required to be provided by other state or federal law. 
Credits for employer payments also shall not reduce the 
obligation to pay the hourly straight time or overtime 
wages found to be prevailing.

(d) The credit for employer payments shall be com
puted on an annualized basis where the employer seeks 
credit for employer payments that are higher for public 
works projects than for private construction performed 
by the same employer, except where one or more of the 
following occur: 1

(1) The employer has an enforceable obligation to 
make the higher rate of payments on future private con
struction performed by the employer.

175



A p p .  2 2

(2) The higher rate of payments is required by a 
project labor agreement.

(3) The payments are made to the California 
Apprenticeship Council pursuant to Section 1777.5.

(4) The director determines that annualization 
would not serve the purposes of this chapter.

(e) For the purpose of determining those per diem 
wages for contracts, the representative of any craft, classi
fication, or type of worker needed to execute contracts 
shall file with the Department of Industrial Relations 
fully executed copies of the collective bargaining agree
ments for the particular craft, classification, or type of 
work involved. The collective bargaining agreements 
shall be filed after their execution and thereafter may be 
taken into consideration pursuant to Section 1773 when
ever filed 30 days prior to the call for bids. If the collec
tive bargaining agreement has not been formalized, a 
typescript of the final draft may be filed temporarily, 
accompanied by a statement under penalty of perjury as 
to its effective date.

Where a copy of the collective bargaining agreement 
has previously been filed, fully executed copies of all 
modifications and extensions of the agreement that affect 
per diem wages or holidays shall be filed.

The failure to comply with filing requirements of this 
subdivision shall not be grounds for setting aside a pro- 
vailing wage determination if the information taken into 
consideration is correct.

176



App. 23

SEC. 19. Section 1775 of the Labor Code, as amended 
by Section 1 of Chapter 757 of the Statutes of 1997, is 
repealed.

SEC. 20. Section 1775 of the Labor Code, as added by 
Section 2 of Chapter 757 of the Statutes of 1997, is 
amended to read:

1775. (a) The contractor and any subcontractor under 
him or her shall, as a penalty to the state or political 
subdivision on whose behalf the contract is made or 
awarded, forfeit not more than fifty dollars ($50) for each 
calendar day, or portion thereof, for each worker paid 
less than the prevailing wage rates as determined by the 
director for the work or craft in which the worker is 
employed for any public work done under the contract 
by him or her or, except as provided in subdivision (b), 
by any subcontractor under him or her.

The amount of this penalty shall be determined by 
the Labor Commissioner based on consideration of both 
of the following:

(1) Whether the failure of the contractor or sub
contractor to pay the correct rate of per diem wages was a 
good faith mistake and, if so, the error was promptly and 
voluntarily corrected upon being brought to the attention 
of the contractor or subcontractor.

(2) Whether the contractor or subcontractor has a 
prior record of failing to meet its prevailing wage obliga
tions.

The determination of the Labor Commissioner as to 
the amount of the penalty shall be reviewable only for 
abuse of discretion. The difference between the prevailing

177



A p p .  24

wage rates and the amount paid to each worker for each 
calendar day or portion thereof for which each worker 
was paid less than the prevailing wage rate shall be paid 
to each worker by the contractor or subcontractor, and 
the body awarding the contract shall cause to be inserted 
in the contract a stipulation that this section will be 
complied with.

(b) If a worker employed by a subcontractor on a 
public works project is not paid the general prevailing 
per diem wages by the subcontractor, the prime contrac
tor of the project is not liable for any penalties under 
subdivision (a) unless the prime contractor had knowl
edge of that failure of the subcontractor to pay the speci
fied prevailing rate of wages to those workers or unless 
the prime contractor fails to comply with all of the fol
lowing requirements:

(1) The contract executed between the contractor 
and the subcontractor for the performance of work on the 
public works project shall include a copy of the provi
sions of Sections 1771, 1775, 1776, 1777.5, 1813, and 1815,

(2) The contractor shall monitor the payment of the 
specified general prevailing rate of per diem wages by 
the subcontractor to the employees, by periodic review of 
the certified payroll records of the subcontractor.

(3) Upon becoming aware of the failure of the sub
contractor to pay his or her workers the specified prevail
ing rate of wages, the contractor shall diligently take 
corrective action to halt or rectify the failure, including, 
but not limited to, retaining sufficient funds due the 
subcontractor for work performed on the public works 
project.

178



A pp. 25

(4) Prior to making final payment to the subcontrac
tor for work performed on the public works project, the 
contractor shall obtain an affidavit signed under penalty 
of perjury from the subcontractor that the subcontractor 
has paid the specified general prevailing rate of per diem 
wages to his or her employees on the public works pro
ject and any amounts due pursuant to Section 1813.

(c) The Division of Labor Standards Enforcement 
shall notify the contractor on a public works project 
within 15 days of the receipt by the Division of Labor 
Standards Enforcement of a complaint of the failure of a 
subcontractor on that public works project to pay 
workers the general prevailing rate of per diem wages.

SEC. 21. This act shall become operative on July 1, 
2001.

SEC. 22. No reimbursement is required by this act 
pursuant to Section 6 of Article XIIIB of the California 
Constitution for certain costs that may be incurred by a 
local agency or school district because in that regard this 
act creates a new crime or infraction, eliminates a crime 
or infraction, or changes the penalty for a crime or infrac
tion, within the meaning of Section 17556 of the Govern
ment Code, or changes the definition of a crime within 
the meaning of Section 6 of Article XIIIB of the California 
Constitution.

However, notwithstanding Section 17610 of the Gov
ernment Code, if the Commission on State Mandates 
determines that this act contains other costs mandated by 
the state, reimbursement to local agencies and school 
districts for those costs shall be made pursuant to Part 7 
(commencing with Section 17500) of Division 4 of Title 2

179



A p p . 26

of the Government Code. If the statewide cost of the 
claim for reimbursement does not exceed one million 
dollars ($1,000,000), reimbursement shall be made from 
the State Mandates Claims Fund.

180



No. 00-152

In The

Supreme Court of the United States
---------------♦------------------

ARTHUR S. LUJAN, et al,

vs.
Petitioners,

G&G FIRE SPRINKLERS, INC.,
Respondent.

---------------♦---------------
On Writ Of Certiorari To The 

United States Court Of Appeals 
For The Ninth Circuit 
--------------- ♦----------------

RESPONDENTS BRIEF ON THE MERITS

---------------♦---------------

S tephen A. S eideman, E sq .
L evin, S tein, C hyten & S chneider

12424 Wilshire Boulevard,
Suite 1450

Los Angeles, CA 90025-1048 
Telephone: (310) 207-4663

181



1

QUESTIONS PRESENTED

1. Is a statutory seizure of money due under a con
tract, by State Enforcement officials, for payment of civil 
penalties and third-party wage claims, which have been 
assessed for alleged violations of the Labor Code, to 
advance the regulatory policy of the State, a deprivation 
of property?

2. If the money seized must be held until the com
pletion of a civil lawsuit, including exhaustion of appel
late rights, does the Due Process Clause require a pre- or 
prompt post-deprivation hearing?

3. If the seizure becomes permanent, with no hear
ing being held, by the failure of the contractor to file a 
lawsuit within ninety days of completion of the project, 
must there be a pre- or prompt post-deprivation hearing?

4. Is a targeted subcontractor, who is alleged to be 
the violator of the Labor Code, and who bears the eco
nomic burden of the seizure, entitled to a hearing at any 
time, and if so, is the subcontractor entitled to a pre- or 
prompt post-deprivation hearing?

5. Does the California Procedure deprive a contrac
tor and/or a subcontractor of a property interest in a 
claim to payment?

182



TABLE OF AUTHORITIES...............................................  iv

I. INTRODUCTION...............................   1

II. DESIGNATION OF THE PARTIES............. 1

III. STATEMENT OF FACTS.................................... 1

A. Application Of The Notice To Withhold
Procedure To G & G .....................................  1

B. The Notice To Withhold Procedure........  1

IV. THE PROCEEDINGS BELOW .......................... 8

V. THE COURT OF APPEALS OPINION..........  10

VI. SUMMARY OF ARGUMENT ............................  12

VII. DLSE'S CONTENTION THAT THIS CASE
DOES NOT INVOLVE STATE ACTION IS
INCORRECT........................................................... 20

A. The Pass-Through Of The Seizure From
The Prime Contractor To The Sub
contractor Is State Action.......................... 21

B. G&G Has Standing As A Subcontractor
To Challenge The Constitutionality Of 
The Seizure Of The Prime Contractor's 
Money Due.....................................................  23

C. Even If G&G, As A Subcontractor, Suffers
An Indirect Injury, G&G Has Standing To 
Seek Declaratory And Injunctive Relief 
With Regard To DLSE's Conduct.............. 24

D. G&G Has Standing As A Prime Contrac
tor ........................................    25

ii

TABLE OF CONTENTS
Page

183



VIII. THE NOTICE TO WITHHOLD PROCEDURE 
CAUSES A DEPRIVATION OF A PROPERTY 
INTEREST..................................................  26

A. The Notice To Withhold States That It 
Seizes Money Due Under The Contract .. 29

B. The Labor Code States That The Seizure
Is Of Money Due......................................... 30

C. The California Courts Have Stated That 
The Seizure By The Notice To Withhold
Is Of Money Due......................................... 31

D. The Notice To Withhold Seizes Money
For Third-Party Claim s.............................  31

E. The Seizure Of The Prime Contractor's
Right To Money Due Is Sufficient To Sup
port The Judgment......................................  32

F. The Subcontractor's Property Interest In
Money D ue....................................................  33

G. This Case Involves Regulatory, Not Pro
prietary, Conduct, And Does Not 
Involve A Breach Of Contract Claim . . .  34

H. The Holding Of The Court Of Appeals Is 
Consistent With American Manufacturers
v. Sullivan......................................................  38

I. DLSE's Reliance On O'Bannon Is Mis
placed................................................................ 39

IX. THE DLSE'S CONTENTION THAT ADE
QUATE REMEDIES EXIST IS INCORRECT. . .  40

A. The Private Interest Is Substantial........ 42

iii

TABLE OF CONTENTS -  Continued
Page

184



IV

B. The Governmental Interest Is Not
Affected By A Hearing.............................. 43

C. A Right To Hearing Would Impose No
Administrative Burden...............................  44

D. The Risk Of Error Is Substantial With A
Notice To Withhold.....................................  44

X. THE LEGISLATIVE CHANGES REFERRED
TO IN THE PETITIONERS' BRIEF SHOULD 
NOT AFFECT THE JUDGMENT...................... 46

XI. THE JUDGMENT DOES NOT DEPEND ON 
ANY UNCERTAINTIES IN STATE LAW . . . .  49

XII. DLSE'S CONTENTION THAT G&G DID 
NOT PLEAD AND PROVE ENTITLEMENT
IS INCORRECT....................................................  49

TABLE OF CONTENTS -  Continued
Page

185



V

C ases

American Manufacturer's Mutual Insurance Co. v. 
Sullivan, 526 U.S. 40, 119 S.Ct. 977, 143 L.Ed.2d 
130 (1999)......................................................................passim

Atkin v. State of Kansas, 191 U.S. 207 (1908).......... 29

Aubry v. Tri-City Hospital District, 2 Cal.4th 962, 9
Cal.Rptr.2d 92 (1992) ................................. . 34, 35, 36

Bailey v. Secretary of the United States Department of
Labor, 810 F.Supp. 261 (D. Alaska 1993)..................  42

Barry v. Barachi, 443 U.S. 55, 99 S.Ct. 2642, 61
L.Ed.2d 365 (1979)............................................................  44

Bell v. Burson, 402 U.S. 536, 91 S.Ct. 1586 (1971). .41, 43

Berlanti v. Bodeman, 780 F.2d 296 (3d Cir. 1985).......... 43

Bishop v. Wood, 426 U.S. 341 (1941)................................  49

Building Trades Council v. Associated Builders and 
Contractors, 507 U.S. 218, 122 L.Ed.2d 565, 113 
S.Ct. 1190 (1993)..........................................  28, 35, 36, 37

Chalkboard v. Brandt, 902 F.2d 1375 (9th Cir. 1989) . . . .  44

City of Mesquite v. Aladdin's Castle, 455 U.S. 283
(1982)...................................................................................  47

Cleveland Board of Education v. Loudermill, 470 U.S.
532, 105 S.Ct. 1487 (1985).........................................41, 44

Daniels v. Williams, 474 U.S. 327, 106 S.Ct. 662 
(1986)...................................................................................  45

Department of Industrial Relations v. Fidelity Roof, 60 
Cal.App.4th 411, 70 Cal.Rptr.2d 465 (1997)........13, 36

TABLE OF AUTHORITIES
P a g£

186



VI

Dillingham v. County of Sonoma, 190 F.3d 1034 (9th 
Cir. 1999)............................................................................  35

Dixon v. Love, 431 U.S. 105, 97 S.Ct. 1723, 52 
L.Ed.2d 321 (1979)............................................................. 44

Federal Deposit Insurance Corporation v. Mallen, 486 
U.S. 230, 11 L.Ed.2d 265, 108 S.Ct. 1780 (1988) . . . .  44

Fuentes v. Shevin, 407 U.S. 67, 32 L.Ed.2d 556, 92 
S.Ct 1983 (1972).......................................................... 40, 41

General Electric v. Department of Labor, 936 F.2d 
1448 (2nd Cir. 1991).......................................................... 28

General Electric v. New York, 936 F.2d 1448 (2nd Cir.
1991).............................................................. ................ 29, 32

G & G Fire Sprinklers, Inc. v. Bradshaw, 156 F.3d 893 
(9th Cir. 1998)..............................................................passim

G & G Fire Sprinklers v. Bradshaw, 204 F.3d 941 (9th 
Cir. 2000) ............................................................................  10

Gilbert v. Homar, 520 U.S. 924, 117 S.Ct. 1807, 138 
L.Ed.2d 120 (1997)............................................................  10

Harmelin v. Michigan, 501 U.S. 957, 111 S.Ct. 2680,
115 L.Ed.2d 836 (1991)..................................................... 43

Hudson v. Palmer, 468 U.S. 517, 104 S.Ct. 3194, 82 
L.Ed.2d 393 (1984)............................................................  45

Ingraham v. Wright, 430 U.S. 651, 97 S.Ct. 1401, 51 
L.Ed.2d 771 (1977)............................................................  46

J&K Painting v. Bradshaw, 45 Cal.App.4th 1394, 53 
Cal.Rptr.2d 496 (1996)...............................................23, 31

Krueger v. San Francisco, 198 Cal.App.3d 1, 243 
Cal.Rptr. 585 (1988).............................................................. 7

TABLE OF AUTHORITIES -  Continued
Page

187



v n

TABLE OF AUTHORITIES -  Continued
P a g e

Logan v. Zimmerman, 455 U.S. 422, 101 S.Ct. 1148,
71 L.Ed.2d 265 (1982)......................... ............................ 26

Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992)... .24, 25

Lusardi v. Aubry, 1 Cal.4th 976, 4 Cal.Rptr.2d 837
(1992)............................................................................. passim

Mathews v. Eldridge, 424 U.S. 319 (1976).......................  41

Merco v. Los Angeles, 274 Cal.App.2d 154 (1969) . .28, 29

Metropolitan Water Dist. v. Whitsett, 215 Cal. 400
(1932)...................................................................................  29

O'Bannon v. Town Court, 447 U.S. 773, 100 S.Ct.
2467, 65 L.Ed.2d 506 (1980).............................  34, 39, 40

O.G. Sansone v. Department of Transportation, 55 
Cal.App.3d 434, 127 Cal.Rptr. 799 (1976)......... 28, 29

Parrat v. Taylor, 451 U.S. 527, 101 S.Ct. 1908, 68
L.Ed.2d 420 (1981).....................................................10, 45

Purdy v. State of California, 71 Cal.2d 566 (1969)...........7

Singleton v. Wulf 428 U.S. 106, 49 L.Ed.2d 826 
(1976)...................................................................................  49

Sniadach v. Family Finance Corp., 395 U.S. 337, 23
L.Ed.2d 349, 89 S.Ct. 1820 (1969) .. 10, 26, 32, 40, 41, 44

United States v. fames Daniel Good Real Property, 510 
U.S. 43, 114 S.Ct. 492, 126 L.Ed.2d 490 (1993) 

.............................................................  19, 26, 32, 40, 41, 43

U.S. Bank Corp. v. Bonner, 513 U.S. 18 (1994)........47, 49

Warth v. Seldin, 422 U.S. 490 (1975)...............................  24

Wisconsin v. Gould, 475 U.S. 282 (1986)... 28, 35, 36, 37

188



vm

Constitutions, Statutes and Rules 

U.S. Constitution
Amendment V .......................................................................... 16

Amendment XIV...............................................................passim

California Business and Professions Code, Section
7107.5......................................................................................33

California Civil Code, Section 3247..................................  43

California Civil Code, Section 3248.................................. 43

California Code of Regulations, Title 8, Sections
16410-16414 .............   9

California Labor Code, Section 21........ ...............  1

California Labor Code, Section 90 .5 ....................................1

California Labor Code, Section 96 .7 ................................. 32

California Labor Code, Section 1720....................................6

California Labor Code, Section 1727..........................passim

California Labor Code, Section 1728..........................26, 30

California Labor Code, Section 1729..........................22, 34

California Labor Code, Section 1730..............................7, 8

California Labor Code, Sections 1730-1733 
............. ............................................................7, 9, 10, 27, 40

California Labor Code, Sections 1730-1850....................  35

California Labor Code, Section 1731................7, 8, 31, 32

California Labor Code, Sections 1731-1733.................... 11

California Labor Code, Section 1773................................... 8

TABLE OF AUTHORITIES -  Continued
Page

189



IX

TABLE OF AUTHORITIES -  Continued
Page

California Labor Code, Section 1774........................... 6, 21

California Labor Code, Section 1775........7, 8, 29, 30, 32

California Labor Code, Section 1776.................................6

California Labor Code, Section 1776(g). . .  3, 5, 7, 26, 31

California Labor Code, Section 1777.....................  7, 8, 43

California Labor Code, Section 1778.................................7

California Labor Code, Section 1778(f)........................... 3

California Labor Code, Section 1813................... ... 6, 7, 8

California Public Contract Code, Section 4107 . . .  .33, 43 

California Public Contract Code, Section 7107 . . .  .24, 33

California Public Contract Code, Section 9203 ___26, 27

California Public Contract Code, Section 10261 ..........27

California Public Contract Code, Section 10262 . .  .24, 33

California Public Contract Code, Section 10621............26

O ther Authorities

1 Witkin, Summary of Cal. Law, Contracts 5503
(9th ed. 1987) ...................................................................  35

190



1

I. INTRODUCTION

Consider a procedure that allows enforcement offi
cials to seize money, without notice or hearing, based on 
secret one-sided determinations. Consider further a con
tractor who pays the prevailing wage being choked to 
death because of its non-union status. You have just 
considered a procedure that was declared to be uncon
stitutional by the District Court and Court of Appeals.

Petitioner's brief revealed, for the first time to G&G, 
that in response to this lawsuit, the State has adopted 
legislative changes scheduled to become effective July, 
2001. Notwithstanding the legislative changes, the judg
ment in this case remains vital, and should not be 
vacated.

II. DESIGNATION OF THE PARTIES

The respondent is G & G Fire Sprinklers, Inc. 
("G&G") a contractor.

Petitioners are referred to as "DLSE." DLSE is the 
state agency mandated to enforce the California Labor 
Code. Labor Code §90.5.1 The Labor Commissioner is chief 
of DLSE. Labor Code §21. The office of the Labor Commis
sioner, and DLSE, are the same entity. Jt. App. 230.2

III. STATEMENT OF FACTS
A. Application Of The Notice To Withhold Pro

cedure To G&G

G&G is a fire sprinkler contractor whose business 
includes performing work on public works projects in 
California. Jt. App. 189-190. G&G became a target of 
DLSE enforcement officials. Jt. App. 189-222. G&G

1 All references to the "Labor Code" refer to California 
Labor Code.

2 "Jt. App." refers to the Joint Appendix.
191



2

believed that it was being targeted by DLSE, because of 
its non-union status. Jt. App. 151. G&G believed that 
DLSE was participating in an effort to force G&G out of 
business. Id.

G&G has performed work as a prime contractor, and 
as a subcontractor, on public works projects. Jt. App. 
189-190. DLSE issued Notices to Withhold against G&G 
on numerous projects. Jt. App. 190-191. G&G disputed 
and denied the allegations of DLSE, and contended there 
was no proper basis for the Notices to Withhold. Jt. App. 
191, 193. G&G asserted that the Notices to Withhold were 
"wrongful, incorrect, and excessive, and were issued 
arbitrarily and unreasonably." Jt. App. 69.

Prior to the seizures which were pending when this 
action was filed, DLSE seized money on a number of 
G&G's projects, including projects known as Anaheim 
City Public Utilities Project; Moore Hall Seismic Renova
tion, at University of California, Los Angeles; University 
Center Expansion, at University of California, Santa Bar
bara; Rec-Center, University of California, Santa Barbara; 
and the Pyramid at California State University, Long 
Beach. Jt. App. 190-191. G&G acted as both a prime 
contractor, and subcontractor, depending on the project. 
Jt. App. 190-191. The aforesaid Notices to Withhold 
seized approximately $300,000 of money due. Jt. App. 
159, 190-191. G&G contended that the penalties and wage 
claims asserted by DLSE were arbitrary, unreasonable 
and without merit. Jt. App. 69, 191. The exclusive remedy, 
upon seizure of the money, is to file a lawsuit, and all 
money must be held pending completion of the lawsuit, 
including appeal. In the meantime, the seizure of the 
money was cutting off G&G's cash flow, putting G&G at 
imminent threat of going out of business. Jt. App- at 
193-194. G&G filed an action in the United States District

192



3

Court, alleging that the seizure procedure was uncon
stitutional. Jt. App. 152-153, 174-175. Meanwhile, a state 
court ordered G&G and DLSE to mediation. A settlement 
was reached. DLSE released all of the Notices to With
hold (Southern California only) in exchange for approxi
mately ten percent of the money seized. Jt. App. 174-175; 
Notice of Settlement filed in District Court is lodged by 
G&G,

Not long after the events described above, DLSE 
issued a Notice of Penalty Assessment against G&G on a 
project known as CSU, San Bernardino. Jt. App. at 
195-196. The Notice of Penalty Assessment was dated 
July 12, 1995. The Notice of Penalty Assessment ordered 
the University (project owner) to withhold $750 per day, 
commencing July 1, 1995, "from any and all progress 
payments which now or thereafter may become due to 
the contractor." Jt. App. 195-196. The notice stated that 
"the withholding shall continue until you are notified to 
the contrary by this office." Id. The Notice to Withhold 
identified G&G as the targeted subcontractor. The Notice 
was issued just as G&G was to receive the final payment 
on the project. Jt. App. at 193. The Notice of Penalty 
Assessment was open-ended, increasing on a daily basis. 
The University was unable to release any money to the 
prime contractor on the project. Jt. App. 259, 260. As a 
result, over $500,000 due to the prime contractor was 
being held by the seizure. Jt. App. at 259, 260.

The notice asserted that penalties had been assessed 
pursuant to §1778(f) of the Labor Code. Jt. App. 195. 
There is no such statute. A subsequent notice stated that 
the penalties were assessed under Labor Code §1776(g). Jt. 
App. 208-209. The statute provides for civil penalties, to 
be assessed by DLSE, when a contractor fails to comply 
with a request for payroll records within ten days. Nei
ther G&G nor the prime contractor received any request

193



4

for payroll records, prior to receipt of the Notice to With
hold. jt. App. 192, 259-260. The deputy labor commis
sioner, who issued the notice, contended that such a 
request had been sent to G&G (albeit at an out-dated 
address). Jt. App. at 192. G&G promptly provided the 
payroll records, and requested that the penalty assess
ment be rescinded. Jt. App. 192-193. DLSE refused to 
rescind the penalty assessment. Jt. App. at 192-193.

Upon G&G's receipt of the Notice of Penalty Assess
ment for CSU, and DLSE's refusal to rescind the penalty 
assessment, it was apparent to G&G that DLSE would 
issue a Notice to Withhold against G&G, on any project, 
irrespective of whether there was any basis to do so. The 
District Court lawsuit was re-filed.

A month later, the open-ended penalty assessment 
remained in effect, and no money could be released by 
the owner of the project. As a result, G&G's agreed-upon 
payment was not received. Jt. App. 193. G&G's attorney 
sent a letter to DLSE demanding that the Notice of Pen
alty Assessment be rescinded immediately. Jt. App. at 
253-256. G&G's attorney further stated that, in the event 
DLSE was unwilling to rescind the Notice of Penalty 
Assessment, a specific amount thereof should be speci
fied.

On September 13, 1995, DLSE's counsel transmitted a 
Notice to Withhold to the University (the awarding 
body), superceding the previous penalty assessment. Jt. 
App. at 197-209. The letter from DLSE's counsel to the 
University stated; "Transmitted herewith is a copy of 
DLSE's Notice to Withhold with respect to subcontractor 
G & G  Fire Sprinklers, Inc. This Notice to Withhold 
supercedes the previous Notice of Penalty Assessment." 
Jt. App. 198. The Notice to Withhold was in the amount of 
$23,121.28. Jt. App. 199. The notice alleged wage under
payments of $1,771.28, and penalties of $21,350. Jt. App.

194



5

208-209. The penalties included $20,000 for failure to 
provide payroll records under Labor Code §1776(g). Id. 
The penalties were assessed at the rate of $750 per day. 
The statute provides for a penalty of $25 per day, per 
worker. Basic arithmetic reveals that penalties were based 
on thirty workers per day. There were four workers. Jt. 
App. 199-205. The Notice to Withhold stated that the 
University was "directed to withhold and retain from any 
payment due the general contractor the total amount of 
$23,121.28." Jt. App. at 199. DLSE also included a stan
dard memorandum explaining that the contractor was 
not allowed to post a bond in lieu of the seizure of funds. 
Jt. App. at 201-202. The memorandum explained that the 
purpose of the seizure is to create a fund that may be 
transmitted as payment to DLSE, and therefore a bond 
was not allowed. Id. The seizure of the prime contractor's 
money was passed through, by the prime contractor, to 
G&G. As a result, G&G's agreed-upon money due for the 
project was not paid. Jt. App. at 193.

On September 22, 1995, DLSE issued a Notice to 
Withhold on a project known as City Hall-Culver City. Jt. 
App. 210-218. The Notice to Withhold asserted alleged 
violations of the Labor Code by G&G. The notice stated 
that the city was "directed to withhold and retain from 
any payments due the general contractor the total 
amount of $48,314.64, which is the sum of all wages and 
penalties forfeited pursuant to the provisions of Labor 
Code §1727 as evidenced by the attached Notice of Wages 
Owed and Notice of Penalty Assessment." Jt. App. at 
210-211. The attached Notice of Wages Owed stated: 
"Please take notice that the persons named on Exhibit A, 
attached hereto and made a part hereof, have performed 
labor as stated on Exhibit A." The Exhibit A identified 
G&G as the alleged violator, but merely referenced 
"unknown employees." Jt. App. at 216. DLSE gave no

195



6

prior notice that the Notice to Withhold and Penalty 
Assessment would be issued. Jt. App. at 193. G&G 
requested information as to the basis of the notice, but 
none was provided. Id. G&G disputed that there was any 
basis for the Notice to Withhold. Id.

A Notice to Withhold was also pending on a project 
known as San Joaquin General Hospital. Jt. App. 192. 
DLSE told G&G that it disputed the job classification 
used by G&G for certain workers on the project. Jt. App. 
192.

Each of the aforesaid Notices to Withhold was issued 
on account of alleged violations of the California Prevail
ing Wage Law by G&G. Jt. App. 190-191. Pursuant to the 
mandate of the Notices to Withhold, the awarding bodies 
for each of the projects withheld payments they had 
determined to be due to the prime contractors, and the 
prime contractors, in turn, withheld money earned by 
G&G. Jt. App. 191. As a result of the Notices to Withhold 
that were pending, more than $120,000 was being with
held from G&G. Jt. App. 193. This was the status when 
the motion for summary judgment in this case was heard, 
and granted.

B. The Notice To Withhold Procedure

The prevailing wage laws apply to public projects, 
and private projects funded, in whole or in part, by 
public money. Labor Code §1720. The prevailing wage laws 
impose, upon contractors and subcontractors, obligations 
with regard to payment of wages, work hours, and record 
keeping relating thereto. Labor Code §§1774, 1776, 1813. 
The prevailing wage obligations are imposed as a matter 
of law, irrespective of the terms of any contract. Lusardi v. 
Aubry, 1 Cal.4th 976; 4 Cal.Rptr.2d 837 (1992).

The Labor Code provides various enforcement mech
anisms for violations of the prevailing wage laws. A 

196



7

violation of the prevailing wage laws may give rise to 
criminal penalties (§§1777, 1778), administrative debar
ment (§1777.1), civil penalties (§§1775, 1776(g), 1813), and 
liability for wage underpayments (§1775). The Labor 
Code provides for the payment of civil penalties, and 
wage claims, from money that becomes due under the 
public works contract. Labor Code §§1727, 1730-1731, 1775.

The Notice to Withhold is a procedure used by DLSE 
to enforce the prevailing wage provisions of the Labor 
Code.3 The Notice to Withhold is a statutory seizure 
order issued by DLSE to an awarding body. Labor Code 
§1727, Id. The seizure is made without notice or hearing. 
Id. The Notice to Withhold seizes payments as they 
become due under the contract. Id. The Notice to With
hold sets forth civil penalties assessed by DLSE, and 
alleged wage claims asserted by DLSE. Id. The Notice to 
Withhold identifies the subcontractor, if any, alleged to 
have violated the Labor Code. Id. The awarding body is 
ordered to remit the money seized to DLSE, unless the 
contractor files a lawsuit, pursuant to Labor Code 
§§1730-1731. Id. If a lawsuit is filed, the money is held by 
the awarding body, as a stakeholder, pending completion 
of the lawsuit, including exhaustion of all appellate 
rights. Id. The lawsuit is the exclusive remedy, and no 
other issue may be included in the action. Id. The money 
must be held pending conclusion of the lawsuit, includ
ing exhaustion of all appellate rights. Labor Code §1731; 
Krueger v. San Francisco, 198 Cal.App.3d 1, 243 Cal.Rptr. 
585 (1988); Jt. App. 182, 332-335 [undisputed fact on 
summary judgment]; See also, Purdy v. State o f California, 
71 Cal.2d 566 (1969) [action pursuant to Labor Code

3 Krueger v. San Francisco, 198 Cal.App.3d 1, 243 Cal.Rptr. 
585 (1988); Labor Code §§1727, 1730-1733, 1775, 1813; Jt. App. 
195-222; Jt. App. 241, 250; Jt. App. 333-335.

197



8

§§1730-1731 is the exclusive remedy to recover money 
seized]. The awarding body has a mandatory duty under 
the Labor Code to comply with the Notice to Withhold. 
Id. A refusal to comply with the Notice to Withhold can 
be a crime. Labor Code §1777.

The Labor Code provides that the contract should 
give notice of the obligation to pay prevailing wage, and 
the potential for civil penalties. Labor Code §§1773.2, 
1773.8, 1775, 1813. The authority for the Notice to With
hold is Labor Code §1727. See also, Jt. App. 195-222 
[Notices to Withhold and DLSE memorandum]. The 
Labor Code does not provide that the withholding 
requirement be included in the contract. See, Labor Code 
§1727.

IV. THE PROCEEDINGS BELOW

G&G filed this action in District Court alleging that 
the Notice to Withhold Procedure, and statutes on which 
it was based, were unconstitutional. Jt. App. 151-152.

G&G obtained summary judgment. The only fact dis
puted by DLSE was G&G's contention as to the amount of 
time necessary to litigate the State Court lawsuit. Jt. App. 
332-335. DLSE stated that a State Court lawsuit could be 
brought to trial nine to fifteen months after filing. DLSE 
did not dispute that the money must be held pending 
trial, and appeal. Id., 181-182, 332-335. G&G argued that 
the procedure was unconstitutional, even accepting 
DLSE s contention regarding the time required to bring a 
case to trial. Jt. App. 352. G&G contended that due pro
cess required a hearing, with regard to the "temporary" 
seizure, pending the completion of the lawsuit provided 
for by the Labor Code.

The District Court found in favor of G&G.
The Court of Appeals affirmed the District Court's 

judgment, with a modification. G & G  Fire Sprinklers, Inc.
198



9

v. Bradshaw, 156 F.3d 893 (9th Cir. 1998). The Court of 
Appeals held that the Notice to Withhold Procedure was 
unconstitutional, but that the statutes need not be 
declared unconstitutional on their face. Id. at 905. The 
Court held that the statutes were unconstitutional as 
applied. Id. The Court of Appeals stated that the constitu
tional defect could be remedied by adoption of regula
tions providing for a pre-deprivation or prompt post
deprivation hearing. Id. The Court of Appeals held that 
the right to a lawsuit under Labor Code §§1730-1733 did 
not satisfy the due process violation asserted by G&G. Id. 
at 904, n.9.

Upon a Petition for Rehearing by DLSE, the Court of 
Appeals modified the opinion to state that a post-depri
vation hearing would be sufficient (as opposed to requir
ing a pre-deprivation hearing). Pet. App. A-18.

The case was remanded to the District Court. In 
response to the Ninth Circuit's opinion, DLSE adopted 
regulations providing that a prime contractor, or sub
contractor, could obtain a hearing, within thirty days. The 
hearing would determine whether there was "reasonable 
cause" for the Notice to Withhold. The regulations pro
vided that the hearing would have no res judicata effect 
with regard to an underlying State Court lawsuit, filed 
pursuant to Labor Code §§1730-1733. See, Title 8 of Califor
nia Code of Regulation §§16410-16414. DLSE argued to the 
District Court that the regulations remedied the constitu
tional violation in accordance with the Ninth Circuit 
opinion.

Subsequently, this Court granted a Petition for Writ 
of Certiorari, and vacated the Ninth Circuit opinion for 
reconsideration in light of American Manufacturer's Mutual 
Insurance Co. v. Sullivan, 526 U.S. 40, 119 S.Ct. 977, 143 
L.Ed.2d 130 (1999). The Ninth Circuit issued an order

199



10

reinstating its prior opinion, without modification. G&G 
Fire Sprinklers v. Bradshaw, 204 F.3d 941 (9th Cir. 2000).

V. THE COURT OF APPEALS OPINION

The Court of Appeals held that the Notice to With
hold Procedure is a "seizure" which requires the State 
"provide the contractor with a reasonably prompt hear
ing of some sort." G&G, supra, 156 F.3d at 897, 904. The 
Court relied on Sniadach v. Family Finance Corp., 395 U.S. 
337, 23 L.Ed.2d 349, 89 S.Ct. 1820 (1969), in holding there 
was a deprivation of property, comparing the procedure 
to a garnishment. Id. at 901. The Court explained that the 
Labor Code authorized seizure of “money owed to contrac
tors or subcontractors for alleged violations of the state 
prevailing wage law." Id. at 902. [Emphasis Added.] If a 
lawsuit is filed to recover the money seized, "the money 
is held in escrow until its resolution. §1731." Id. at 898.

The Court held that a prompt post-deprivation was 
due, relying on Gilbert v. Homar, 520 U.S. 924, 117 S.Ct. 
1807, 138 L.Ed.2d 120 (1997) [temporary suspension of 
pay required "prompt post suspension hearing."]. The 
Court held that a right to a lawsuit under Labor Code 
§§1730-1733 was not sufficient due process, rejecting 
DLSE's reliance on Parrot v. Taylor, 451 U.S. 527, 101 S.Ct. 
1908, 68 L.Ed.2d 420 (1981).

The Court held that the injury to G&G, as a sub
contractor, was a direct injury; but even if it was indirect, 
the result would be the same — G&G had standing to 
assert "a direct constitutional challenge" to DLSE's con
duct. Id. at 899-901, 902. "The state's action is targeted at 
G&G; the prime contractors' only role in the dispute is 
that of a conduit." Id. at 900.

The Court rejected DLSE's argument that this case 
involved contractual disputes. Id. at 902. The Court 
explained that the case posed no risk of "federalization"

200



11

of state contract law. Id. at 902. The case involved the 
"regulatory power" of the State. Id. at 902.

The Court rejected DLSE's contention that G&G's 
lack of a direct right of action against the awarding body 
was a basis for denying relief. Id. at 901. In response, the 
Court stated that the inability of a subcontractor to sue 
for recovery of the money seized "only bolsters" their 
conclusion in the case. Id. at 901. The Court noted the 
self-executing nature of the procedure. Id. at 904. [If a 
lawsuit is not filed within ninety days, the seizure is 
permanent, without any hearing having been held].

The Court held the statutes were unconstitutional as 
applied. The constitutional defect could be remedied by 
adopting a hearing procedure for "G&G and others." Id. 
at 905-906. The Court did not specify a particular pro
cedure, but left the State "to manage its own affairs in a 
manner consistent with the Constitution." Id. at 905.

In connection with holding that the case does not 
involve breach of contract claims, the Court stated that 
"G&G concedes that the express terms of the contract 
grant the state authority to withhold funds for wage 
violations; the withholding is not a breach of contract." 
Id. at 902. A review of G&G's briefs will reveal that no 
such statement was made. G&G has consistently argued 
that DLSE's action is not pursuant to contract. The Court 
explains, in a footnote, that it is referring to G&G's point 
that usual breach of contract remedies do not exist for the 
statutory seizure. Id. at 902, n.6. G&G's point was that the 
awarding body is under a statutory mandate to withhold 
the payment due, hence there is no breach of contract; 
and the exclusive remedy is the lawsuit under Labor Code 
§§1731-1733. See, Appellee's Brief filed in Ninth Circuit, 
March 25, 1996, p. 13.

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Upon remand from this Court, to reconsider the 
opinion in light of Sullivan, the Court of Appeals reins
tated its opinion, without modification. G&G v, Bradshaw, 
204 F.3d 941 (9th Cir. 2000). The Court of Appeals held 
that this case involved state action, and the Court distin
guished Sullivan with regard to the property interest. The 
Court stated that there was a property interest in the 
right to a claim for payment. G&G believes that addi
tional grounds for distinguishing Sullivan exist. In addi
tion to relying on the reasoning of the Court of Appeals 
opinion, G&G sets forth in this brief the additional rea
sons that Sullivan is distinguishable from this case.

VI. SUMMARY OF ARGUMENT
This is a case about the deprivation of property. The 

property seized, while it goes by various names, is what 
we have called in this litigation, the right to money due 
for work performed. The right to money due means the 
right to money due. The money seized by DLSE is money 
due. There are certain sequences of events which must 
occur in a particular order, to occur at all. Among these is 
that payment under a contract must be due before pay
ment is made. In a California public works project, 
money is determined to be due when the awarding body, 
in the exercise of its proprietary judgment, determines that 
money is due and payable under the public works con
tract.

An awarding body, exercising it's proprietary judg
ment, may determine that money requested, is not due. A 
dispute can arise. The dispute may be submitted to a 
dispute resolution procedure. While there are particular 
procedures of this sort in California, for public works 
contract disputes, they are of no specific concern here. 
The significant point is that upon resolution of the dis
pute, whether by agreement, arbitration award, judgment

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13

or otherwise, if the resolution calls for payment to the 
contractor, money is due for work performed.

If every payment for work performed was disputed, 
little work would be done. The usual state of affairs is 
that money becomes due, when the awarding body, act
ing under the terms of its contract, and within the broad 
confines of the California Public Contracts Code, makes 
the proprietary determination that money is due. The 
consequence of a determination that money is due, is that 
money is paid; all of which occurs, before any effective 
action is taken by DLSE.

DLSE enters as a stranger to the contract. DLSE, at 
times, refers vaguely in its brief to itself, and the award
ing body, interchangeably, as the "State." The two are not 
the same, in substance or form. DLSE attempts to clothe 
itself in the sheep's wool of the awarding body's propri
etary conduct. DLSE itself has declared, in another case, 
that it "is the enforcing entity of the prevailing wage 
statutes and . . .  is not a participant in the various public 
works projects."4 The California Supreme Court has 
declared that DLSE's enforcement actions creates a 
"direct and palpable conflict of interest" with the propri
etary concerns of the awarding body. The conclusion that 
DLSE is engaged in enforcement activity, pursuant to the 
regulatory power of the State, and not proprietary mar
ketplace activity, is not even a close call. In a similar vein, 
the conclusion that DLSE's actions are not contractual, 
but wholly regulatory, is not a close call either. Once 
again, the California Supreme Court has spoken on the 
issue. The Court stated that the prevailing wage obliga
tions are statutory obligations, imposed by law, even if 
the contract says in big, bold, red, underlined letters that

4 Department o f Industrial Relations v. Fidelity Roof, 60 
Cal.App.4th 411, 420; 70 Cal.Rptr.2d 465 (1997).

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14

"Thou shall not pay the prevailing wage." The California 
Supreme Court held that DLSE is not in privity with the 
awarding body. The California Public Contracts Code 
provides that each public agency in California has its own 
right to act as an independent marketplace participant, 
with regard to public works. Labor Code § 1727, which 
provides DLSE with the authority to issue the so-called 
Notices to Withhold (which would be better termed 
notices of SEIZURE), does not require, or even suggest, 
that a public works contract set forth, or even provide 
notice of, the withholding procedure. All that the Labor 
Code directs be put in a public works contract, is notice 
of the contractor's legal obligation to comply with the 
prevailing wage laws, and possibly also (though the stat
utes are vague on this) notice of the potential for civil 
penalties and liability if the law is violated. The statute 
expressly states that the "money due" is "forfeited" by 
violations of the Labor Code. It is difficult to forfeit 
something one does not own. Admittedly, the mere use of 
isolated words in the statute is not dispositive, since 
substance controls over form. The substance here is a 
statutory forfeiture, implemented by a statutory seizure, 
pursuant to the order of government enforcement agents. 
The character of the action is confirmed by the fact that 
DLSE officials assert prosectutorial immunity for the issu
ance of Notices to Withhold. (A copy of such a ruling 
from G&G v. Dept. BC220974 is lodged herewith).

Having established that DLSE is a stranger to the 
contract, and more importantly, a stranger to the propri
etary concerns of the contract, we still have yet to see 
DLSE enter the picture in an effective way. Enter the 
Notice to Withhold. The Notice to Withhold, despite its 
quaint nomenclature, is a statutory seizure order. The 
Notice to Withhold directs the awarding body, pursuant 
to its mandatory obligations under the Labor Code, to

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withhold "from money due or which becomes due to the 
contractor" monies for transmittal to DLSE (non-compli
ance by the awarding body may be a crime). The money 
is to be paid to DLSE for civil penalties assessed under 
the Labor Code, and for alleged wage claims asserted by 
DLSE. In the event the workers cannot be found (includ
ing "unknown" workers alleged to be owed wages, see. 
Part III), the wage claim money goes into a trust fund, 
from where it goes into the State's general fund, when
ever the trust fund exceeds $200,000.5

The Notice to Withhold seizes money due, not merely 
in words but in action. There can be no monies available 
for transmittal to the DLSE, as payment of civil penalties, 
or wage claims, unless money has been determined to be 
due under the public works contract by the awarding 
body. The Notice to Withhold does not terminate the 
awarding body's contractual obligation to pay the money 
due; it seizes the money as it becomes due.

DLSE continues to insist, in this case, that the right to 
money due under a contract, for work performed, is not 
property, because it doesn't rise to the level of entitle
ments such as a horse trainer's license or a college 
teacher's tenure rights. DLSE contends that G&G, by 
asserting that the right to receive money due is a prop
erty right, is trying to create some new form of property, 
that will cause western civilization to collapse. According 
to DLSE, all contract law will become federal law, if 
regulatory enforcement officials are not granted the 
unfettered right to seize money due under a contract,

s While not particularly relevant to this case, it may be 
worthy of note that there is a seldom-used provision of the 
Labor Code, which allows an awarding body to establish a 
Labor Compliance Program (LCP), which if approved by DLSE, 
allows the awarding body to keep the civil penalties it collects 
pursuant to the LCP, as an incentive to enforce the Labor Code.

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16

without concern for the Due Process Clause. Yet due 
process rights for seizures under state law are well-estab
lished in other contexts, and those subjected to such 
established procedures are not inundating the federal 
courts. This case does not establish a right to sue in 
federal court for project specific disputes, but merely the 
obligation of the State of California to establish a pro
cedure.

Contrary to the views expressed by, and in support 
of, DLSE, the right to money due under a contract is not a 
new-found property right, just created by the Ninth Cir
cuit. Before John Hancock put his John Hancock on the 
Declaration of Independence, the right to money due for 
work performed was property. When the founding 
fathers wrote the Fifth Amendment, and later the Four
teenth Amendment, they may not have been thinking of 
statutory penalties for violations of not-yet-created pre
vailing wage laws, but they were definitely thinking of 
the right to money due for work performed. This particu
lar stick, in the bundle of sticks we call property, is so old, 
that DLSE, and its supporters, seem to have forgotten 
about it, or worse yet, inadvertently thrown it on a holi
day fire. Speaking of the holidays, the inevitable chorus 
of reply will be that workers too have rights, as they 
surely do. One Court noted that bankrupting a contractor 
with unproven and untested seizures of money, pursuant 
to the government's regulatory power, may well put 
those very workers out of work. But more to the point, 
workers are deserving of protection and concern, includ
ing the protection of vigorous law enforcement by DLSE, 
which is, after all, the reason for its existence. However, 
when DLSE, acting as an enforcement arm of the State, 
enforces the law in ways that involve the seizure of 
property, process is due, and in this case, long overdue.

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1 7

Since this summary of argument has undoubtably 
droned on far too long, we will not belabor the difference 
between a request for payment, and a seizure of a pay
ment that is due, although this is the central distinction 
between this case and the Sullivan case. This case asks the 
question of what happens after the insurer in Sullivan 
determines that payment is due. Is the money freely 
available for seizure by regulatory enforcement officials 
without due process? Does such a seizure of the money 
due, on the purported basis of alleged violations of the 
law, invoke the Due Process Clause?

If DLSE issued a Notice to Withhold for labor law 
violations on a private job, due process would be 
required. The Due Process Clause does not evaporate 
because the owner of the project may be a public entity, 
or a private entity receiving public funds.

The Notice to Withhold attaches only after it has been 
determined that money is due. While the Notice to With
hold intends that money be paid to the DLSE, the money 
must first remain suspended in a state of limbo, for an 
indeterminate amount of time. From the contractor's 
point of view, the time is measured in years. DLSE may 
receive the money much sooner, for if the contractor does 
not file and serve notice of a lawsuit within ninety days 
of completion of the work, the seizure becomes perma
nent, and the money is transferred from limbo to DLSE. If 
the contractor does file the lawsuit, the money remains 
suspended in limbo until completion of the lawsuit, 
including exhaustion of DLSE's appellate rights. You may 
be wondering whether this procedure allows enforcement 
officials to gain unfair leverage from excessive Notices to 
Withhold. But rather than ponder such a question, let us 
return to the point, which is process due. The point of 
this case is that process is due for the seizure, while the 
money seized remains in regulatory purgatory, awaiting

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1 8

the completion of the litigation. A further question is 
whether any process is due before the seizure becomes 
permanent, by the self-executing nature of the procedure. 
A third question is whether the targeted subcontractor, 
who bears the loss, is entitled to a hearing. The Court of 
Appeals held that a hearing "of some sort" is required to 
determine if a basis for the seizure exists, pending the 
marathon of litigation, or for those whose legs can't last 
the twenty-six miles.

The state action argument, raised for the first time 
four years into the litigation, invokes the age-old duck 
test. If it looks like a duck, walks like a duck, and quacks 
like a duck, it's a duck. This case is a challenge to the 
conduct of DLSE, a state actor.

To G&G's surprise (believe it or not, G&G is not a 
major player in the halls of power in Sacramento), DLSE 
revealed in its brief that new legislative changes are 
pending, in response to this lawsuit. The new legislation 
includes three familiar elements -  the Notice to Withhold 
procedure, large-scale statutory ambiguities, and DLSE's 
plenary power to implement and enforce the statutes by 
adoption of regulations, and otherwise. Needless to say, 
DLSE continues to assert that its seizures of money are 
beyond the reach of the Due Process Clause, despite the 
fact that the new statutes, make even more clear than it 
already was, that the procedure is a regulatory enforce
ment mechanism.

DLSE asserts a split among the Circuit Courts. G&G 
has found only two Circuits who have considered 
whether a seizure, of money due, under prevailing wage 
laws, invokes the Due Process Clause. The Second Circuit 
and the Ninth Circuit (in this case) have both answered in 
the affirmative. In both Circuits, a breach of contract 
claim does not invoke the Due Process Clause. There is no 
split among the Circuits. The Circuits are unanimous. 
Due process is required for regulatory seizures. Such 
seizures are not a mere breach of contract.

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19

Of course, a person is free not to undertake public 
works projects. All businesses may evade all regulatory 
enforcement action, by not engaging in business. The 
Notice to Withhold Procedure gives DLSE the power of de 
facto debarment of contractors from public works. The 
Notice to Withhold Procedure can, and does, put contrac
tors out of business. Electing to go out of business is not 
an adequate remedy. Under such a theory, there are no 
constitutional limits on the seizure of property, in a com
mercial context, since a person may always choose not to 
do business. Business risk should not be defined as 
including a governmental right to seize property without 
due process.

The property right to money due for services ren
dered is of ancient origin, and derives in this case from 
the awarding body's contractual activity as a marketplace 
participant. Regulatory labor laws are not an essential 
ingredient to the creation of the property right. The right 
to payment due under a contract would exist in the 
absence of the statutory scheme for seizing money due, to 
pay civil penalties and purported wage claims.

Property may not be defined, by statute, as incor
porating a governmental right of seizure. Enforcement 
mechanisms which seize money to pay civil penalties and 
forfeitures do not define property; they seize property. 
Characterizing such enforcement mechanisms as a defini
tion of property logically implies that all property can be 
defined as subject to government seizure. The promise of 
property in America means much more. "Individual free
dom finds tangible expression in property rights." United 
States v. James Daniel Good Real Property, 510 U.S. 43, 61, 
114 S.Ct. 492, 126 L.Ed.2d 490 (1993).

Seven decades ago, when the prevailing wage laws 
were adopted in California, the power of government to 
regulate business activity may have been debatable.

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20

Today, the power to regulate is well-established. Accep
tance of the position urged by DLSE, and the amicus 
curiae, would constitute a quantum leap in the expansion 
of such power. The DLSE's contention is that States may 
enforce regulatory laws by seizing money without notice 
or hearing. Acceptance of such a position by this Court 
could lead to the adoption of a myriad of laws, mandat
ing seizure of money due, without notice or hearing. 
Adherence to constitutional restrictions in the enforce
ment of regulatory laws is a requirement at the core of the 
Due Process Clause. Constitutional constraint on enforce
ment officials is no less important when the owner of 
property happens to be a public entity, acting as a mar
ketplace participant, or a private party receiving public 
funds. The power of State officials is not limited merely 
by their good intentions, which may be disregarded or 
misapplied at their whim. Constitutional limitations have 
been established to prevent the abuse of such power. 
Thomas Jefferson said, "let us hear no more of faith in 
men, but bind them to the Constitution." VII.

VII. DLSE'S CONTENTION THAT THIS CASE DOES 
NOT INVOLVE STATE ACTION IS INCORRECT

G&G has asserted throughout the five plus years of 
this litigation that it has standing to challenge the consti
tutionality of the DLSE seizure procedure as both a sub
contractor, and as a prime contractor. The Court of Appeals 
apparently concluded that it did not need to reach the 
issue. G&G has standing as both a prime contractor and 
subcontractor, to challenge the DLSE procedure for seiz- 
ing a prime contractor's money. G&G also has standing to 
challenge the seizure of a subcontractor's money. Unlike 
Sullivan, in which a judgment was sought against a pri
vate party, G&G sought and obtained a judgment only 
against a state actor.

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21

The first and most critical right that needed to be 
vindicated in this case was the right to a hearing, for 
someone, anyone. Under existing law there is no right to 
a hearing for anyone. The Court of Appeals said that 
there should be a right to a hearing for everyone whose 
money was seized. The Court described those who shall 
have the right to a hearing as "contractor," "subcontrac
tor," "G&G and others." DLSE, quite appropriately, has 
interpreted the requirement as a hearing for the prime 
contractor and targeted subcontractor (in its regulations, 
and its anticipated statutes, which were adopted to 
respond to the judgment in this case). DLSE contends that 
the seizure of the subcontractor's money is not state 
action. The judgment is sustainable without having to 
reach this issue (i.e., G&G has standing to challenge sei
zure of the prime contractor's money). Nevertheless, we 
examine the issue in light of Sullivan.

A. The Pass-Through Of The Seizure From The 
Prime Contractor To The Subcontractor Is State 
Action

In Sullivan, the Court explained that a private party's 
resort to the machinery of the State, to effect an ex parte 
seizure of property is state action. Sullivan, 119 S.Ct. at 
989. In this case, state action is even more severe. Here, 
the machinery of the State is thrust upon a private party 
to effect an ex parte seizure, purportedly to advance the 
regulatory purpose of the State. See, Labor Code §1774 
[statutory duty imposed on subcontractor to pay prevail
ing wages.] DLSE speaks of the prime contractor's discre
tion to pay the subcontractor. DLSE grants the prime 
contractor discretion to absorb the loss from DLSE's tar
geting of the subcontractor as alleged violator of the 
Labor Code, or alternatively, the prime contractor may

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22

accept the role of DLSE's enforcement agent. Signifi
cantly, Labor Code §1729 grants a safe harbor to the com
pliant prime contractor. The net effect is that the 
subcontractor bears the burden of the civil penalties and 
alleged wage claims, by becoming the transferee of the 
seizure. The prime contractor is enlisted by DLSE in the 
transfer as a mere conduit, or at most joint participant, by 
the hammer of economic compulsion. The prime contrac
tor is drafted into the fray, only after DLSE interjects 
itself into the contractual relations of the project partici
pants, by seizing money due, and which will become due, 
to the prime contractor. DLSE identifies the subcontractor 
as the alleged violator of the Labor Code, thereby render
ing the prime contractor's pass-through inevitable. For 
example, on the CSU job, DLSE stated that it sent G&G, 
as subcontractor, a request for payroll reports (albeit to a 
wrong address), and transmitted its Notice to Withhold 
with a letter specifically targeting G&G; on Culver City 
Hall, DLSE asserted that G&G had failed to pay 

unknown workers"; and on the San Joaquin project, 
DLSE asserted that G&G had mis-classified workers. See, 
Part III.A, supra.

The injured subcontractor, who is looking for his 
money, is confronted with a prime contractor who says "I 
don't have it," and the DLSE who says "I didn't take it." 
The money is held by an awarding body, who says "I 
don t want it." All the while, no hearing rights accrue. 
DLSE concedes the subcontractor's right of equitable sub
rogation, and the potential of an assignment, from a 
prime contractor, who himself has no right to a due 
process hearing. The subcontractor's predicament is not 
the result of judgments made by private parties without 
standards established by the state" or "state inaction, 
or . . .  a legislative decision not to intervene in a dispute," 
but rather the subcontractor is directly in the cross-hairs

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23

of a pro-active State enforcement agency. Sullivan, 119 
S.Ct. at 987. State action is manifest.

B. G&G Has Standing As A Subcontractor To 
Challenge The Constitutionality Of The Sei
zure Of The Prime Contractor's Money Due

G&G suffered a direct injury from the seizure of the 
prime contractor's money due and, therefore, has stand
ing to challenge the constitutionality of that seizure. The 
injury to G&G, as a subcontractor, from the seizure of the 
prime contractor's money due, was a direct injury caused 
by the DLSE. See, G&G, 156 F.3d at 900. (Pet. App. A-26). 
No other result makes sense. The prime contractor suffers 
no injury, to the extent the seizure is passed through to 
the subcontractor. Obviously, the seizure causes an injury. 
If the prime contractor is not injured, the injury must be 
suffered by the subcontractor. In ]&K Painting v. Bradshaw, 
45 Cal.App.4th 1394, 1399; 53 Cal.Rptr.2d 496, 499 (1996) 
the Court held that a subcontractor suffers direct injury 
from DLSE's Notice to Withhold:

"According to the Commissioner [DLSE], 
PaintCo [subcontractor] was not aggrieved by 
the assertedly illegal withholding order because 
the withholding of funds was directed against 
Amoroso, the general contractor. The Commis
sioner does not dispute, however, that Amoroso 
in turn withheld funds from PaintCo, as section 
1729 expressly empowered it to do. PaintCo was 
therefore directly aggrieved by the withholding, 
and possesses a direct interest in the determina
tion of its lawfulness." Id. at 1399.
DLSE asserts that a subcontractor has a direct right of 

action against the awarding body to recover monies with
held. "DLSE has continued to take the position in this 
litigation that equitable subrogation permits the sub
contractor to stand in the shoes of the prime contractor . . .  As

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24

an agency empowered to administer the prevailing wage 
law in California, its determinations in this respect have 
been accorded great w eight in the California 
courts."[Emphasis added]. (Petitioner's Brief, p. 36).

A subcontractor on a public works project may not be 
terminated by a prime contractor, except on statutory 
grounds after a hearing before the awarding body. Cal. 
Pub. Cont. Code §4107. California law imposes a statutory 
duty on a prime contractor to pay a subcontractor out of 
monies paid by the awarding body. Cal. Pub. Cont. Code 
§§7107, 10262, 10262.5.

The DLSE seizure of the prime contractor's money 
due causes direct injury to the targeted subcontractor. 
G&G, as a targeted subcontractor, has standing to chal
lenge the constitutionality of the DLSE seizure. Lujan v. 
Defenders of Wildlife, 504 U.S. 555 (1992); Warth v. Seldin, 
422 U.S. 490, 505 (1975). This case concerns the conduct of 
DLSE, as state actor.

C. Even If G&G, As A Subcontractor, Suffers An 
Indirect Injury, G&G Has Standing To Seek 
Declaratory And Injunctive Relief With Regard 
To DLSE's Conduct

Even if the injury to G&G is indirect, G&G has stand
ing to challenge DLSE's actions. Lujan, supra, Warth, 
supra. DLSE asserts that a targeted subcontractor "stands 
in the shoes of the prime contractor" with regard to an 
action to recover the money held by the awarding body. If 
release of the prime contractor's money did not redress 
the subcontractor's injury, why would the subcontractor 
"stand in the shoes of the prime contractor?" DLSE seems 
to contend that this is the case of the phantom seizure. 
The prime contractor's money is taken, but he suffers no 
injury because it is transferred to the subcontractor, and 
so the prime contractor has no injury to redress, while the

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25

subcontractor, who suffers the injury, has no redress 
against the one who caused it, DLSE.

D. G&G Has Standing As A Prime Contractor

G&G has standing to challenge the Notice to With
hold Procedure as a prime contractor. Standing requires 
an injury that is concrete and particularized, and actual 
or imminent. Lujan v. Defenders of Wildlife, 504 U.S. 555, 
560 (1992). The pleadings, and facts, show that G&G was 
being targeted, on an ongoing basis, by DLSE. See, Part 
III.A, supra. G&G's complaint alleged that "Plaintiff has 
performed work as both a subcontractor and prime con
tractor on various public works projects which are subject 
to the prevailing wage requirements set forth in the Cali
fornia Labor Code. Plaintiff intends to continue perform
ing work on public works projects in California as a 
subcontractor and as a prime contractor." Jt. App. 67. 
G&G's motion for summary judgment established, as an 
undisputed fact, that "Plaintiff has performed and 
intends to continue to perform work, on a number of 
public works projects in the State of California. Plaintiff 
has performed such work, and intends to perform such 
work in the future, as both a subcontractor, and prime 
contractor." Jt. App. 182, 190. The motion further estab
lished that "DLSE has issued Notices to Withhold on 
account of alleged violations of the prevailing wage law 
by Plaintiff where Plaintiff has acted as a subcontractor, 
and a prime contractor. . . . For example, G&G was a 
prime contractor for the Anaheim City Public Utilities 
Project for which a Notice to Withhold was issued." Jt. 
App. 183, 190, 191. The facts show that G&G suffered an 
actual injury from an ongoing series of DLSE actions. The 
injury occurred to G&G as both a subcontractor, and as a 
prime contractor. The injury was concrete and partic
ularized. The injury was both actual and imminent. G&G

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26

had actually suffered the injury as a prime contractor. 
Given G&G's intention to continue to do business as a 
prime contractor, further injury was imminent. G&G had 
standing to challenge the Notice to Withhold Procedure 
as a prime contractor.

VIII. THE NOTICE TO WITHHOLD PROCEDURE 
CAUSES A DEPRIVATION OF A PROPERTY 
INTEREST

DLSE argues that the prevailing wage requirement is 
a condition precedent to payment under the public works 
contract. Unfortunately, no one told the awarding body, 
who, unlike DLSE, is a party to the contract. See, Lusardi, 
supra. So while DLSE contends that the condition prece
dent to payment under the contract has not yet occurred, 
it issues orders to the awarding body, requiring that 
payment be made, but not to the contractor, who has been 
determined by the awarding body to have earned the 
money due for work performed, but instead to DLSE, 
who need not prove anything, to anyone. Jt. App. 195-222 
[Notices to Withhold); Labor Code §§1727, 1728, 1776(g) 
[withholding is from "money due contractor" and "pro
gress payments then due"); Cal. Pub. Cont. Code §§9203, 
10621 [awarding body makes proprietary determination 
of when money is due).

This Court has held that a deprivation of property 
occurs when an entitlement grounded in state law is 
removed for cause. See, Logan v. Zimmerman, 455 U.S. 422, 
101 S.Ct. 1148, 71 L.Ed.2d 265 (1982). This Court has held 
that the right to money due is property. Sniadach v. Family 
Finance Corp., 395 U.S. 337, 23 L.Ed.2d 349, 89 S.Ct. 1820 
(1969) [wages due); United States v. James Daniel Good Real 
Property, 510 U.S. 43, 114 S.Ct. 492, 126 L.Ed.2d 490 (1993) 
[rent due). California law provides that decisions about 
payment under a public works contract are to be made by

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27

a party to the contract, based on its discretion to exercise 
proprietary judgment. Cal. Pub. Cont. Code §§9203, 10261. 
DLSE seizes the payment, to pay the secretly assessed 
civil penalties and wage claims derived from the 
unproven and untested allegations of Labor Law viola
tions. Thus an awarding body, upon having made the 
determination that payment is due under the public 
works contract, but having been served with a Notice to 
Withhold by DLSE, makes the payment, but not to the 
prime contractor. The payment is made to DLSE, or held 
as an escrow fund, until all litigation rights have been 
exhausted, including the DLSE's rights of appeal. Labor 
Code §1730-1733. (Technically, the awarding body is the 
nominal defendant in the lawsuit, but DLSE defends the 
case as real party interest.) This brings us to the new 
math: work performed + work accepted + payment 
approved + payment made + payment diverted for penal
ties and third party claims = no deprivation of property, 
or so says DLSE. Consider the facts of fames Daniel Good, 
supra, where the property included the right to money 
due for rent. If the tenant had been a public entity, the 
seizure would, nevertheless, have been a deprivation of 
the landlord's property. It is true, that in this case the 
contractor is regulated, but if DLSE issued a Notice to 
Withhold for labor law violations on a private project, 
due process would be required. The result does not 
change because the owner is a public entity, acting as a 
marketplace participant, or a private entity receiving 
public funds. How can it be that the right of a college 
professor to teach English is property, but the right to 
payment due for services rendered is not?

DLSE relies on cases holding that a breach of contract 
does not constitute a deprivation of property. A contrac
tual dispute over payment does not remove an estab
lished entitlement, for cause. The hallmark of property

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28

does not exist. Also, when a public entity acts as a mar
ketplace participant, concerned only with its proprietary 
interests, constitutional constraint is of less concern. See, 
Wisconsin v. Gould, 475 U.S. 282, 290 (1986); Building 
Trades Council v. Associated Builders, 507 U.S. 218, 229; 122 
L.Ed.2d 565; 113 S.Ct. 1190, 1197 (1993). When money due 
under a contract is seized for civil penalties and third 
party claims, which are imposed for alleged violations of 
State law, there is a deprivation of property.

G&G is aware of only two circuits who have 
addressed the issue in this case, and both found there to 
be a deprivation of property. See, General Electric v. 
Department of Labor, 936 F.2d 1448 (2nd Cir. 1991); (the 
other is this case). These cases are not contrary to the 
well-established rule that the mere breach of a construc
tion contract is not a deprivation of property, which is the 
rule in both the Ninth and Second Circuits.

DLSE relies on O.G. Sansone v. Department o f Transpor
tation, 55 Cal.App.3d 434, 127 Cal.Rptr. 799 (1976) for the 
proposition that the withholding is merely a contract 
dispute. The California Supreme Court held otherwise 
sixteen years later. Lusardi, supra. Furthermore, Sansone is 
poorly reasoned. Sansone misapplied due process law, 
and is inconsistent with other cases. See, General Electric v. 
Department of Labor, 936 F.2d 1448 (2nd Cir. 1991). Sansone 
is inconsistent with Merco v. Los Angeles, 274 Cal.App.2d 
154 (1969), which provided that deduction of civil penal
ties from a prime contractor by the awarding body, for 
violation of the fair subcontracting act, is a deprivation of 
property. Sansone is even inconsistent with itself, to the 
extent that it held that the procedure is contractual. San
sone said:

" 'There is no inhibition upon the state to 
impose such penalties for disregard of its police 
power as will insure prompt obedience to the 
requirements of such regulations.' "

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29

Sansone distinguished Merco on the grounds that 
under the Labor Code, there was no discretion with 
regard to the amount of civil penalties to be imposed. As 
recognized in Merco, a hearing is required to ascertain the 
fact of the violation. Merco, supra, at 166, n.6. The distinc
tion relied on by Sansone, no longer exists. In 1989, Labor 
Code §1775 was amended to provide discretion in the 
determination of the amount of penalties. Sansone is no 
longer good law.

DLSE relies on Atkin v. Stale o f Kansas, 191 U.S. 207 
(1908). Atkin merely held that the State may regulate 
commercial activity involving public entities as mar
ketplace participants. See, Metropolitan Water Dist. v. 
Whitsett, 215 Cal. 400 (1932). Atkin does not hold that 
regulatory enforcement actions do not require due proc
ess. See, General Electric v. New York, 936 F.2d 1448, 1455 
(2nd Cir. 1991).

A. The Notice To Withhold States That It Seizes 
Money Due Under The Contract

The Notice to Withhold is issued on standard forms, 
by enforcement officials of DLSE. The Notice to Withhold 
is issued to an awarding body. Among the examples 
included in the joint appendix is a Notice to Withhold 
alleging a wage underpayment of $1,739.33, and civil 
penalties of $21,350. Jt. App. 197-207. The Notice to With
hold states:

"You are directed to withhold and retain 
from any payments due the general contractor the 
total amount of $23,121.28 which is the sum of 
all wages and penalties forfeited pursuant to the 
provisions o f Labor Code §1727 . . .  if no notice of 
suit is received within ninety days . . . the 
amount withheld shall be remitted to this office." 
[Emphasis added] Jt. App. 199-200.

The Notice to Withhold further states: "This notice is 
given pursuant to the provisions o f section 1727 o f the Labor

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30

Code. You are hereby required pursuant to said section to 
withhold any and all payments which are or hereafter may 
become due to the contractor hereinabove named to the 
extent of the total claim." [Emphasis added]. Jt. App. 
213-214. A standard memorandum by DLSE to awarding 
bodies is included in the record at Jt. App. 201-202. The 
memorandum states, in part, as follows:

"There is a statutory scheme within the 
Labor Code which sets such a high priority of 
payment of wages to workers that certain Labor 
Code provisions enable the DLSE to enforce 
proper payment of wages and penalties by mandat
ing that the awarding body withhold funds set 
out in the notice to withhold (Labor Code 
§1727) . . . Labor Code §1730 clearly mandates that 
the awarding body shall forward funds withheld 
pursuant to a notice to withhold directly to 
DLSE." [Emphasis Added] Jt. App. 201-202.

B. The Labor Code States That The Seizure Is Of 
Money Due

The statutes which provide DLSE with the authority 
to issue the Notice to Withhold expressly state that the 
withholding is a seizure of "money due." The statutes 
require penalties to be withheld from "progress payments 
then due." Labor Code §1727 provides that "before making 
payments to the contractor of money due under a contract 
for public work, the awarding body shall withhold and 
retain therefrom" the civil penalties and wages allegedly 
due. Labor Code §1728 provides that where full payment is 
made in the form of a single warrant, or other evidence of 
full payment, the awarding body shall accept from the 
contractor cash in an amount equal to, and in lieu of, the 
amount required to be withheld, and then shall release 
the final warrant or payment in full. Labor Code §1775 
provides for the imposition of civil penalties by the Labor

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Commissioner for violations of the prevailing wage laws. 
The statute states that "to the extent there is insufficient 
money due a contractor to cover all penalties and amounts 
due in accordance with this section, or in accordance with 
section 1813" the DLSE may maintain a lawsuit to recover 
the penalties and amounts due. Labor Code §1776(g), 
which provides for civil penalties for failure to keep and 
provide certain payroll records, states that "upon the 
request of the Division of Apprenticeship Standards or 
the Division of Labor Standards Enforcement, these pen
alties shall be withheld from progress payments then due."

C. The California Courts Have Stated That The 
Seizure By The Notice To Withhold Is Of 
Money Due

The California Supreme Court explained the statu
tory provisions for withholding as follows: "Deficiencies 
and penalties are to be withheld by the awarding body 
from sums due under the contract. (§1727)." Lusardi v. 
Aubrey, 1 Cal.4th 976, 986; 4 Cal.Rptr.2d 837, 842 (1992). 
The California Court of Appeals stated that "the contract
ing public entity (the 'awarding body') is required to 
withhold from any payments due the contractor all wages 
and penalties which have been forfeited by virtue of 
those violations. (§1727)." ]&K Painting v. Bradshaw, 45 
Cal.App.4th 1394, 1397; 53 Cal.Rptr.2d 496, 498 (1996).

D. The Notice To Withhold Seizes Money For 
Third-Party Claims

The civil penalties are not contract damages retained 
by the awarding body. The penalties must be transmitted 
to the DLSE for payment into the general fund of the 
State. Labor Code §1731.

The amounts seized for wage claims are not contract 
damages to be retained by the awarding body. The

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32

monies are to be transmitted to the DLSE for disburse
ment to workers, or deposit into a trust fund for workers 
maintained by the Department of Industrial Relations. 
Labor Code §1731, 1775.6 The Notices to Withhold issued 
by the DLSE expressly states that "the amount withheld 
shall be remitted to this office." Jt. App. 200.

DLSE is a statutory assignee of all workers in Califor
nia with regard to claims for wages. Labor Code §96.7. The 
Notice to Withhold includes the following statement: "1 
am an authorized representative acting for the State 
Labor Commissioner. I execute this declaration on behalf of 
the workers whose names are set forth on the attached 
notices."

E. The Seizure Of The Prime Contractor's Right To 
Money Due Is Sufficient To Support The Judg
ment

It has been established that the Notice to Withhold 
seizes the prime contractor's right to receive money due 
under the contract. The money is paid, instead, into a 
fund to be used for payment of civil penalties and wage 
claims. The seizure of the prime contractor's right to 
receive money due under the contract is a deprivation of 
property. Sniadach, supra, James Daniel Good, supra, General 
Electric, supra. At this point, process is due. Vindicating a 
prime contractor's right to a hearing establishes that the 
procedure is unconstitutional, and provides most of the 
relief sought by G&G. Establishing the right to a hearing 
for a prime contractor remedies G&G's problem as a 
prime contractor, and mostly as a subcontractor, since

6 When the trust fund exceeds $200,000 monies are 
transferred to the State's general fund, not to the awarding 
body. L a b o r  C o d e  §96.7.

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33

DLSE concedes an equitable right of subrogation for par
ticipation by a subcontractor, and a subcontractor may 
well be able to participate, in any event, as an assignee, 
witness, or joint participant. Establishing the prime con
tractor's right to a hearing establishes even more, because 
it follows that a targeted subcontractor has a due process 
right to participate. See, Part VII, supra. The injury to the 
targeted subcontractor is an injury, entitled to redress 
under due process principles. See, Part VII, supra. 
Although vindicating the right to a hearing with regard 
to the seizure of the prime contractor's money due is 
sufficient to decide the case, it is noteworthy that the 
Notice to Withhold invades two other property interests.

F. The Subcontractor's Property Interest In Money 
Due

The subcontractor's property interest in money due, 
actually includes two property interests; a statutory right 
to receive payment from the prime contractor's payment, 
and the old-fashioned money due for work performed.

A subcontractor has a statutory entitlement to the 
contract, Cal. Pub. Cont. Code §4107 [termination of sub
contract allowed only on statutory grounds after a hear
ing]; and a statutory entitlement to payment from money 
paid to the prime contractor. Cal. Pub. Cont. Code §§7107, 
10262, 10262.5; Cal. Bus. & Prof. Code §7108.5. The Notice 
to Withhold terminates these statutory entitlements. The 
targeted subcontractor who is owed money would be 
paid, but for the seizure of the prime contractor's pay
ment due. The seizure is distinct from a contractual dis
pute with the awarding body, because the prime 
contractor, in acting as a mere conduit, or joint partici
pant, for DLSE, passes through the seizure by DLSE. See, 
Part VII.

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3 4

Similarly, the seizure terminates the targeted sub
contractor's right to receive money due under the con
tract, even without regard to any statutory entitlements. 
See, Labor Code §1729.

In order for the prime contractor to pass through the 
loss it has suffered, there must be money due to the 
subcontractor. If there is no money due to the subcontrac
tor, the prime contractor cannot pass through his loss. 
Thus, the constitutionality of the procedure must be 
determined in the context of when money is due to the 
subcontractor. (This was the situation G&G was in on the 
projects described in the statement of facts). The money 
due, is not paid, because of the seizure by DLSE. Where 
the subcontractor is the alleged violator of the law, who is 
suffering the economic burden, the subcontractor has the 
right to a hearing. See, O'Bannon v. Town Court, 447 U.S. 
773, 789, n.22; 100 S.Ct. 2467, 2477; 65 L.Ed.2d 506 (1980).

G. This Case Involves Regulatory, Not Proprietary, 
Conduct, And Does Not Involve A Breach Of 
Contract Claim

Proprietory provisions of a contract are negotiable. 
The awarding body can make choices to accomodate the 
market. The Labor Code is non-negotiable.

In Lusardi v. Aubrey, 1 Cal.4th 976, 4 Cal.Rptr.2d 837 
(1992) the California Supreme Court expressly held that 
the prevailing wage law creates statutory obligations, 
which exist without regard to the terms of any contract. 
The California Supreme Court analogized the function of 
the DLSE, in enforcing the prevailing wage laws, to that 
of a criminal prosecutor. Lusardi, supra, at 992.

Contractual remedies must be compensatory. An 
awarding body has no liability for civil penalties imposed 
under the Labor Code. Aubry v. Tri-City Hospital District, 2 
Cal.4th 962, 969; 9 Cal.Rptr.2d 92 (1992). Similarly, an

Z24



3 5

awarding body has no liability for underpayment of 
wages to workers. Id. The money seized does not com
pensate the awarding body for damages. Damages 
claimed by the awarding body would be offset from the 
contract price, before the awarding body determines if 
there is "money due," which can be seized to pay penal
ties and wage claims.

The imposition of civil penalties for violations of 
State law are never a matter of contract. Penalty provi
sions in a contract are void. See e.g., 1 Witkin, Summary of 
Cal. Law, Contracts §503 (9th ed. 1987). Civil penalties 
can be imposed only as an act of regulatory power.

The Court has explained that a governmental entity 
acts as a marketplace participant when, as an owner of 
property, it conducts business as would any private 
owner of property, with no interest in setting policy. See, 
Building Trades v. Associates Builders and Contractors, 507 
U.S. 218 (1993); Wisconsin v. Gould, supra, [invalidated a 
statute which provided that three-time violators of the 
National Labor Relations Act could not bid on public 
works projects as being regulatory, not proprietary].

Dillingham v. County o f Sonoma, 190 F.3d 1034, 
1037-1038 (9th Cir. 1999) held that DLSE actions pursuant 
to the prevailing wage law are regulatory, not propri
etary. In this case, DLSE stated in the District Court, as an 
undisputed fact, that "the Division of Labor Standards 
Enforcement, the agency mandated to enforce the prevail
ing wage requirements of the California public works law 
(California Labor Code §§1730-1850) has interpreted the 
purposes of the act to benefit workers and prevent unfair 
competition in the industry."

The California Supreme Court explained that there is 
a direct conflict of interest between the proprietary inter
ests of the awarding body, and the regulatory interests of 
DLSE. Lusardi, supra, at 995.

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36

DLSE "is the enforcing entity of the prevailing wage 
statute and . . .  is not a participant in the various public 
works projects." Department of Industrial Relations v. Fidel
ity Roof, 60 Cal.App.4th 411, 420; 70 Cal.Rptr.2d 465 
(1997). "When DLSE pursues only unpaid wages and not 
section 1775 penalties, it acts solely on behalf of the 
aggrieved workers." Id. at 427.

When an awarding body contracts, as an owner of 
property, for the construction of a building or other 
improvement, it acts as a marketplace participant. Dis
putes over performance, such as the quality or timeliness 
of work, etc., are proprietary in nature. However, the 
statutory mandate that an awarding body hold money, to 
secure payment of civil penalties and third-party claims 
for wages, does not involve marketplace activity. The 
awarding body is subjected to a statutory mandate to 
enforce the Labor Code, so as to promote the public 
policy of the State. The action of the awarding body 
pursuant to such mandate is regulatory, and not propri
etary. In essence, the Labor Code mandates that the 
awarding body remove its marketplace participant hat, 
put on its governmental enforcement hat, and enforce the 
Labor Code. In so doing, the awarding body does not act 
as would any private owner of property. The awarding 
body acts as an enforcer of State law. See, Aubry v. Tri- 
City, 2 Cal.4th 962, 969; 9 Cal.Rptr.2d 92 (1992) [awarding 
body not liable for non-compliance with prevailing wage 
laws because "this is an injury that could not exist in an 
action between private persons."]

Regulatory conduct by states is subject to limitations 
not imposed on private parties because "Government 
occupies a unique position of power in our society, and 
its conduct, regardless of form, is rightly subject to spe
cial restraints." Wisconsin, supra, at 290. See, also, Building 
Trades, supra, at 229. An awarding body, pursuing its

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3 7

proprietary interests, is constrained by the marketplace. 
DLSE officials, pursuing enforcement actions, are not 
constrained by market forces. DLSE does not manage a 
construction budget, or contemplate a need for bidders 
on the next project.

The seizure of money by enforcement officials pend
ing extended litigation can have devastating effects. The 
constraint imposed by marketplace activity does not exist 
when enforcement officials act pursuant to the regulatory 
power of the State. The Brief of Amicus Curiae, Port of 
Oakland, quotes a law review article as stating: "The Due 
Process Clause's function of discouraging arbitrary gov
ernment action is of limited importance when external 
constraints have the same effect. The most important 
external constraint for our purposes is the general effect 
that marketplace competition has on government behav
ior and individual choice." Id. at p. 7, n.4. DLSE is not 
subject to any such constraint, as it is not a marketplace 
participant engaged in proprietary conduct. As a law 
enforcement agency, DLSE can, and does, target contrac
tors without regard to the proprietary concerns of the 
awarding bodies. An owner's risk from breaching a con
tract does not exist for DLSE. An owner who breaches a 
contract by arbitrarily refusing payment may suffer sub
stantial damages, termination of work by the contractor, 
and/or rescission of the contract. An awarding body, 
acting as proprietor, is concerned with its desire to com
plete the work at the least possible cost. The awarding 
body must be concerned with not discouraging bidders 
on future contracts. DLSE has no such proprietary con
cerns. The cutting off of a contractor's cash flow can, and 
often does, put the contractor out of business. Excessive 
Notices to Withhold are inherently attractive, due to the 
leverage available to enforcement officials from such an

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3 8

action. The right to sue, and obtain recovery of the money 
seized years later, is too little too late.

Judge Kozinski, dissenting in this case, stated that 
"[wjhen the government is acting as a commercial entity, 
taxpayers cajole it to act with all the ferociousness the 
marketplace demands." G&G, 156 F.3d at 910, n.2 (Pet. 
App. A-51). Judge Kozinski misses the point. This case is 
about releasing all the ferociousness of State enforcement 
officials, completely untethered to the mast of the Consti
tution.

H. The Holding Of The Court Of Appeals Is Con
sistent With American Manufacturers v. Sul
livan

This case was previously remanded to the Court of 
Appeals, to be reconsidered in light of the recent decision 
in American Manufacturers v. Sullivan, 52 U.S. 40; 119 S.Ct. 
977; 143 L.Ed.2d 130 (1999). The Court's prior order 
regarding Sullivan was issued in response to a Petition for 
Writ of Certiorari, by DLSE, that presented the question 
in this action is as follows:

"Is a commercial contractor who claims that 
a public agency breached a contract by failing to 
make payment entitled by the Due Process 
Clause of the Fourteenth Amendment to any
thing more than an opportunity to pursue its 
contract claims through an ordinary State Court 
lawsuit?"
As explained in the discussion above, no such issue is 

presented by this case.
Sullivan involved the denial of a claim by a public 

insurance company. The Court held that the mere submis
sion of a payment request did not establish an entitle
ment to payment. This case addresses the situation where 
the payment request has been approved, and the obliga
tion to pay established. The question here is whether a

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3 9

seizure of the right to receive the payment is a depriva
tion of property.

In Sullivan, enforcement officials did not seize money 
due under the insurance policy, for payment of civil 
penalties and third-party claims arising from an alleged 
violation of law. Sullivan did not involve money due, civil 
penalties, third-party claims, or regulatory enforcement 
action. Sullivan did not involve termination of an entitle
ment for cause. Sullivan involved classic proprietary con
duct by a public entity. An employer could purchase 
insurance from the private insurer, or the public insurer.

This case is the flip side of the Sullivan coin. Sullivan 
involved denial of a claim by an insurance company. A 
due process violation did not arise, merely because the 
insurer was a public company. In this case, DLSE's 
enforcement action would require due process, if a pri
vate project were involved. The mere fact that the project 
owner may be public company, does not eliminate the 
need for due process.

Sullivan is similar to the cases which hold that a mere 
contractual dispute is not a deprivation of property. The 
breach of contract cases are inapplicable here for the 
same reason that Sullivan does not control. See, G&G, 
supra, 156 F.3d at 901-902 (Pet. App. A-31-32) [contract 
cases distinguished].

I. DLSE's Reliance On O'Bannon Is Misplaced

DLSE's reliance on O'Bannon v. Town Court, supra is 
misplaced. In O'Bannon, a nursing home received due 
process for termination of its medicare/medicaid certi
fication. The patients claimed a right to additional pro
cess. O'Bannon does not apply to the facts of this case. In 
this case, neither a subcontractor, nor a prime contractor, 
receives due process. In this case, there is no hearing at 
which anyone can attend. G&G has standing, as a prime

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40

contractor, and as a subcontractor, to establish the right to 
such a hearing. See, Part VII, supra. In O’Bannon, due 
process rights already existed for the nursing home, who 
had the financial incentive to exercise those rights.

Additionally, O'Bannon concerned an indirect injury. 
Even as a subcontractor, G&G asserts a direct injury. See, 
Part VII.B, supra; G&G, supra, 156 F.3d at 903 (Pet. App. 
A-26-27). Furthermore, O'Bannon expressly states that it 
does not apply to indirect injuries to targeted third par
ties. O'Bannon, supra, at 789, n.22; G&G, supra, 156 F.3d at 
903 (Pet. App. A-26-27).

IX. THE DLSE'S CONTENTION THAT ADEQUATE 
REMEDIES EXIST IS INCORRECT

DLSE argues that the right to sue under Labor Code 
§§1730-1733, or under various other theories, is adequate 
remedy. The right of a contractor to sue does not address 
the deprivation in issue. The issue here is the seizure of 
money pending the final determination of such a lawsuit. 
The "temporary" seizure can be devastating in its effect. 
The release of the money seized, years later, does not 
remedy the injury suffered from cutting-off a contractors 
cash flow. This Court has held that notice and hearing for 
such a "temporary seizure" is required. Sniadach, supra; 
]ames Daniel Good, supra; Fuentes v. Shevin, 407 U.S. 67, 85; 
32 L.Ed.2d 556, 572; 92 S.Ct 1983 (1972).

Contractual disputes over payment arise in a funda
mentally different context, and are fundamentally dis
similar to regulatory enforcement action. See, Part VIII. G.

In a lawsuit to recover monies seized by a Notice to 
Withhold, the contractor has the burden of proof. DLSE is 
not required, at any time, to establish that adequate 
grounds existed for the issuance of the Notice to With
hold. A contractor's money may be held for years, even if 
DLSE did not have legitimate grounds to issue the Notice

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4 1

to Withhold, The procedure provides tremendous 
leverage for enforcement officials, which case be misused. 
Excessive and improper seizures can be used to compel a 
contractor to accept demands not justified by the facts or 
law. The power of enforcement officials must be con
strained by due process.

When a deprivation causes an ongoing injury, pend
ing a full litigation of the issue, this Court has held that a 
hearing is required for the temporary seizure. James Dan
iel Good, supra, [ex parte proceeding to establish "proba
ble cause" for seizure pending litigation inadequate], 
Fuentes, supra, at 99 ["probable validity" must be estab
lished], Sniadach, supra, at 343 ["probable validity" must 
be established]; Bell v. Burson, 402 U.S. 536, 540; 91 S.Ct. 
1586 (1971) ["reasonable possibility of judgment" must be 
established]; Cleveland Board o f Education v. Loudermill, 470 
U.S. 532, 545-546; 105 S.Ct. 1487 (1985) ["reasonable 
grounds" must be established]. The type of hearing 
required varies, depending on the circumstances. In this 
case, no hearing of any type is provided. The Court of 
Appeals only specified that the hearing must be either a 
pre or prompt post-deprivation hearing. The Court of 
Appeals stated that the State should manage its own 
affairs in a manner consistent with the Constitution. 
G&G, 156 F.3d at 905. (Pet. App. A-40).

Generally, the Court balances several factors when 
considering what process is due: (1) The private interests, 
(2) the governmental interest, (3) administrative burden, 
and (4) risk of an erroneous decision. See, Mathews v. 
Eldridge, 424 U.S. 319, 335 (1976); Cleveland, supra, at 543. 
Consideration of the aforesaid factors in this case, estab
lishes that the right to a lawsuit is not adequate process 
for the seizure, pending completion of the lawsuit to 
recover.

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42

A. The Private Interest Is Substantial

The private interest at stake was aptly stated in Bailey 
v. Secretary of the United States Department of Labor, 810 
F.Supp. 261 (D. Alaska 1993) as follows:

"It is undisputed that plaintiff received no 
due process hearing by a neutral decision maker 
prior to suspension of the payments due her for 
contract work performed for the government. 
While the Department of Labor has commenced 
an administrative proceeding against plaintiff, it 
is undisputed that these proceedings will take 
from six months to a year to reach a conclusion 
as to whether or not plaintiff was in fact under
paying her employees and, if so, in what 
amount.

It is undisputed that without the cash flow 
from the contracts, plaintiff will not be able to 
continue to perform the contracts. She will in 
substance be put out of business; and the ten 
employees who are employed under the two 
contracts in question will be out of work.

In order to recover immediately (and hold 
for six months to a year) the sums of money 
arguably due plaintiff's employees, defendant 
has come perilously close to destroying plain
tiff's business and, in the process, terminating 
the jobs of the ten employees who defendant 
would theoretically benefit -  six months to a 
year from now."
Id. at 262-263.
The California procedure creates the same risk to the 

business of the targeted contractor. Jt. App. 193-194 
[G&G's business threatened], Jt. App. 341 [contractors 
often go out of business after prevailing wage claims].

The failure to provide a prompt hearing causes sub
stantial harm to an important private interest. Cutting off

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4 3

the cash flow to a contractor causes substantial injury, 
and can even force the contractor out of business. Cf. 
Labor Code §1777.1 [debarment from public works based 
on prevailing wage violations requires a pre-deprivation 
hearing]. See, Berlanti v. Bodeman, 780 F.2d 296, 300 (3rd 
Cir. 1985) [the right to bid on public works projects is a 
property right]; Cal. Pub. Cont. Code §4107 [public works 
subcontract can be terminated only on statutory grounds, 
after a hearing].

B. The Governmental Interest Is Not Affected By 
A Hearing

The governmental interest is in enforcing the Labor 
Code. A hearing to determine probable validity does not 
conflict with the governmental interest. The State has no 
legitimate interest in the baseless seizure of money. See, 
Bell, supra, at 540.

DLSE claims an interest in seizing the money before 
it is dissipated. Wage claims are protected by a surety 
bond (Cal. Civ. Code §§3247, 3248). Civil penalties are 
deposited in the State general fund. Labor Code §1731. 
"The purpose of an adversary hearing is to ensure the 
requisite neutrality that must inform all governmental 
decisionmaking. That protection is of particular impor
tance here, where the Government has a direct pecuniary 
interest in the outcome of the proceeding. See, Harmelin v. 
Michigan, 501 U.S. 957, 979 n.9, 111 S.Ct. 2680, 2693, n.9, 
115 L.Ed.2d 836 (1991) (opinion of SCALIA, J.) ('[I]t 
makes sense to scrutinize governmental action more 
closely when the State stands to benefit')." James Daniel 
Good, supra, at 55-56. Contract payments on a construc
tion project are made progressively over a substantial 
period of time. The risk that DLSE will not be able to
recover civil penalties is minimal. A pre-deprivation

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4 4

hearing is appropriate. When extraordinary circum
stances justify foregoing a pre-deprivation hearing, the 
statute must be "narrowly drawn to meet any such 
unusual condition." Sniadach, supra, at 339. DLSE's inter
est in avoiding dissipation of funds cannot be impaired 
by the Court of Appeals requirement of a prompt post
deprivation hearing.

C. A Right To Hearing Would Impose No Admin
istrative Burden

The procedure that had been provided by the State 
was a lawsuit. The law provides that the money must be 
held until the lawsuit is complete, pending appeal. Pro
viding a hearing for probable validity could not be a 
burden. The hearing would only serve to weed out claims 
without merit.

D. The Risk Of Error Is Substantial With A Notice 
To Withhold

The risk of erroneous deprivation is high where the 
underlying determination involves factual disputes. 
Cleveland, at 543; Chalkboard v. Brandt, 902 F.2d 1375, 1381 
(9th Cir. 1989). The risk of error is less "where the factual 
issue to be determined was susceptible of reasonably 
precise measurement by external standards." Chalkboard, 
supra, at 1381. For example, chemical testing of a horse 
for drugs, Barry v. Barachi, 443 U.S. 55, 65; 99 S.Ct. 2642, 
2649; 61 L.Ed.2d 365 (1979); suspension of a driver's 
license for prior convictions, Dixon v. Love, 431 U.S. 105, 
113; 97 S.Ct. 1723, 1727; 52 L.Ed.2d 321 (1979); prior 
issuance of a criminal indictment, Federal Deposit Insur
ance Corporation v. Mallen, 486 U.S. 230, 242; 11 L.Ed.2d 
265; 108 S.Ct. 1780 (1988).

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4 5

The determination of purported prevailing wage vio
lations generally involves hotly contested factual dis
putes. See, Part III.A.

The balancing test weighs heavily in favor of a hear
ing to determine whether the Notice to Withhold has 
probable validity. The private interest is of critical impor
tance. The public interest is completely satisfied by a 
prompt post-deprivation hearing, and not seriously effec
ted by a pre-deprivation hearing. A hearing imposes no 
burden on the State at all. There is great risk of an 
erroneous deprivation.

The cases relied on by DLSE are not applicable to this 
case. DLSE cites Parrat v. Taylor, 451 U.S. 527, 101 S.Ct. 
1908, 68 L.Ed.2d 420 (1981) and Hudson v. Palmer, 468 U.S. 
517, 104 S.Ct. 3194, 82 L.Ed.2d 393 (1984), but DLSE 
acknowledges that these cases are distinguishable. DLSE 
concedes that in Parrat and Hudson, "the alleged destruc
tion of the property did not stem from the proper imple
mentation of an established State procedure, but rather, 
from the unauthorized and unanticipated acts of State 
employees." (DLSE's brief, p. 39). Parrat and Hudson 
involved claims for damages for torts of State officials. In 
fact, Parrat was overruled on the grounds that mere negli
gence does not constitute a deprivation of property. Dan
iels v. Williams, 474 U.S. 327, 330-331; 106 S.Ct. 662; 88 
L.Ed.2d 662 (1986).

Unlike Parrat and Hudson, this case involves a con
tinuing injury from a temporary, non-final seizure. In 
Parrat and Hudson a pre-deprivation hearing was not 
possible, and a prompt post-deprivation hearing unneces
sary, as there was no ongoing injury. A State Court law
suit was all that was possible, and all that was necessary 
to redress the injury. In this case, the State Court lawsuit 
does not address the injury from a wrongful seizure 
pending trial and appeal.

235



46

DLSE cites Ingraham v. Wright, 430 U.S. 651, 97 S.Ct. 
1401, 51 L.Ed.2d 771 (1977). Ingraham held that a pre
deprivation hearing was not required before administer
ing corporal punishment in a public school. Ingraham is 
distinguishable for several reasons.

In Ingraham, the court held that a pre-deprivation 
hearing was impractical because of the enormous burden 
which it would place on the schools. A prompt-post- 
deprivation hearing was unnecessary because there was 
no ongoing injury. The problems of excessive burden and 
impracticability faced in Ingraham do not exist in this 
case.

In Ingraham the Court noted that excessive corporal 
punishment can result in civil and criminal liability. 
Hence, there was a substantial deterrent to erroneous 
acts. DLSE officials are immune from civil lawsuits for 
damages, and are not criminally liable for wrongful 
Notices to Withhold. No substantial deterrent exists.

Ingraham distinguished property right cases.
Ingraham involved the unique circumstances of 

school discipline.
The right to a civil lawsuit is not adequate process. In 

fact, it is no process at all with regard to the seizure 
pending the litigation. It is the substantial injury for this 
"temporary" seizure which the Court of Appeals 
remedied. A hearing is required to determine if grounds 
exist for the seizure, pending the State Court lawsuit.

X. THE LEGISLATIVE CHANGES REFERRED TO IN
THE PETITIONERS' BRIEF SHOULD NOT
AFFECT THE JUDGMENT
The DLSE's brief revealed, for the first time, legisla

tive changes scheduled to take effect in July 2001. G&G 
was not previously aware that legislative changes had 
been proposed. The judgment in this case remains as vital

236



4 7

as ever, even if the legislative changes take effect. The 
case is not moot. If the Writ is dismissed because of 
legislative changes, the judgment should remain in effect.

"It is well settled that a defendant's voluntary cessa
tion of a challenged practice does not deprive a federal 
court of its power to determine the legality of the prac
tice." City of Mesquite v. Aladdin's Castle, 455 U.S. 283, 289 
(1982). Where a case is moot because of the Petitioner's 
action, the judgment should not be vacated. U.S. Bank 
Corp. v. Bonner, 513 U.S. 18 (1994).

The anticipated legislation does not necessarily elimi
nate the challenged practice. Moreover, if the judgment 
were vacated, the legislation could be repealed. Mesquite, 
supra, at 289 [City could reenact the provision if judgment 
vacated]. Also, a case and controversy exists as to G&G's 
award of attorney fees, and as to pending proceedings 
under the existing law. Whether moot or not, the judg
ment should not be vacated.

The "new" legislation is not in effect. The legislative 
history establishes that it was a response to the judgment 
in this case (legislative history lodged with the Court). 
The expected legislative changes do not eliminate the 
need of prospective relief. The Notice to Withhold Pro
cedure remains under the new statutes. The statutes are 
vague in numerous respects with regard to the right to a 
hearing. DLSE continues to assert that the Notice to With
hold does not implicate the Due Process Clause. The 
statutes provide that DLSE shall adopt regulations to 
implement the statutes. It is important that DLSE do so in 
the context of a judgment declaring that due process 
concerns must be honored.

The statutes provide for a new hearing procedure. 
The statutes are silent as to whether the time frames 
therein are mandatory or directory, whether money 
seized must be released if a hearing is not timely granted,

237



4 8

what is meant by "commencing a hearing", and when a 
hearing must be concluded. If the time frames in the new 
statutes are applied strictly, money seized can be held 
more than six months. A loose interpretation could allow 
a much longer seizure, without any hearing. These issues 
are not before the Court, and are not specifically a part of 
this action. They are relevant only in explaining why the 
judgment, determining that due process applies, is neces
sary and important. The judgment will guide DLSE's 
conduct, which is the purpose of declaratory relief. Fur
thermore, the statutes are not in effect, and can be 
repealed or modified.

This case has been pending for more than five years, 
even with a relatively quick summary judgment. If the 
judgment were vacated, DLSE could ignore the Constitu
tion, and it could take another five years to address the 
issue. DLSE could then change the law again, and evade 
the judgment again.

G&G obtained a judgment for attorney fees. 
Although the amount of attorney fees was set by stipula
tion, DLSE appealed. The appeal is stayed, pending this 
Writ. DLSE has stated that if DLSE prevails, they will 
argue the attorney fee award should be vacated. In addi
tion to the prospective relief discussed above, a case and 
controversy remains as to G&G's recovery of attorney 
fees. DLSE states in its brief that many cases under the 
existing law remain. Pet. Brief at 11. G&G has cases 
pending in state court with regard to Notices to Withhold 
issued under current law. The case is not moot as to G&G.

If the Court considers the case moot, it is respectfully 
submitted that the Writ should be dismissed as improvi- 
dently granted, but the judgment should not be vacated. 
To the extent the case is moot, it is because of the State's 
action, taken in response to the judgment in this case. 
DLSE participated in the legislative changes. A judgment

238



49

should not be vacated as a result of the Petitioner render
ing it moot. U.S. Bank Corp., supra.

XI. THE JUDGMENT DOES NOT DEPEND ON ANY
UNCERTAINTIES IN STATE LAW

The brief of Amicus Curiae United States suggests 
that the judgment in this case rests on forecasts of uncer
tain state law. The argument is incorrect.

The interpretation of state law was set forth as an 
uncontroverted fact in the motion for summary judg
ment, and not disputed by DLSE. Jt. App. 182, 332-335. A 
different interpretation of state law may not be urged in 
this Court, as a basis to reverse the judgment. Bishop v. 
Wood, 426 U.S. 341 (1941). The state law issues raised 
could not be determinative in any event.

The doctrine of abstention was never raised in the 
five years this case has been pending, except for a men
tion in the brief by the United States. The doctrine does 
not apply, and reliance thereon by DLSE has been 
waived.

XII. DLSE'S CONTENTION THAT G&G DID NOT 
PLEAD AND PROVE AN ENTITLEMENT IS 
INCORRECT

The factual pleadings regarding specific projects 
were relevant only to bolster G&G's standing to challenge 
the DLSE procedure. The arguments not raised in the 
District Court, in either DLSE's motion to dismiss, or 
opposition to motion for summary judgment, regarding 
the pleadings or evidence, were waived, and cannot be 
raised on appeal in this Court. Singleton v. Wulf, 428 U.S. 
106, 49 L.Ed.2d 826 (1976).

The withholding of money from G&G was ade
quately plead, and proved, for purposes of this action.

239



50

With regard to the pleading -  See, Jt. App. 68 [money 
presently withheld due to notices to withhold]; Jt. App. 
69 [G&G deprived of earned progress payments]; jt. App. 
69-70 [G&G deprived of money by pass through with
holding]. With regard to proof -  See, Jt. App. 174-185, 
332-335 [G&G's statement of uncontroverted facts, and 
response by DLSE]; Jt. App. 191 [money withheld from 
prime contractor and G&G by pending Notices to With
hold]; Jt. App. 193 [G&G's negotiated payment not 
received as had been agreed because of Notice to With
hold, not less that $120,000 being held, effect of notices to 
withhold is to cut off payments for work performed]; Jt. 
App. 195-222 [notices to withhold issued as to G&G and 
DLSE memorandum to awarding body state money due, 
or which becomes due must be held for transmittal to 
DLSE, letter from DLSE to awarding body and prime 
contractor states "Transmitted herewith is a copy of 
DLSE's Notice to Withhold with respect to subcontractor 
G&G Fire Sprinklers, Inc."].

G&G did plead, and prove that it disputed the asser
tion that it violated the prevailing wage law. See, Jt. App. 
69 [complaint alleges Notices to Withhold were wrongful, 
incorrect, excessive]; Jt. App. 191 [declaration supporting 
summary judgment states G&G disputes and denies the 
alleged violations of prevailing wage laws]. The District 
Court did not litigate specific disputes regarding alleged 
prevailing wage violations, and had no reason to do so.

Respectfully submitted,

S tephen A . S eideman, E s q .
Levin, Stein, C hyten & S chneider

12424 Wilshire Boulevard,
Suite 1450

Los Angeles, CA 90025-1048
Telephone: (310) 207-4663

240



No. 00-152

In The

Supreme Court of the United States

ARTHUR S. LUJAN, an individual, in his official 
capacity as Labor Commissioner of the State of 

California; LLOYD W. AUBRY, JR., an individual, in 
his official capacity as Director of the Department of 

Industrial Relations of the State of California; DANIEL 
DELLAROCCA, an individual, in his official capacity 

as Deputy Labor Commissioner of the State of 
California; ROGER MILLER, an individual in his 

official capacity as Deputy Labor Commissioner of the 
State of California; ROSA FRAZIER, an individual in 

her official capacity as Deputy Labor Commissioner of 
the State of California; DIVISION OF LABOR 

STANDARDS ENFORCEMENT, an agency of the State 
of California; DEPARTMENT OF INDUSTRIAL 

RELATIONS, an agency of the State of California,
P e t it io n e r s ,

G&G FIRE SPRINKLERS, INC.,
R es p o n d en t .

On Writ Of Certiorari To The United States 
Court Of Appeals For The Ninth Circuit

REPLY BRIEF

T homas S. Kerrigan 
C o u n s e l  o f  R ec o rd  
D ivision of L abor S tandards 

E nforcement
D epartment of Industrial 

Relations
State of California 
6150 Van Nuys Boulevard, 

Suite 100
Van Nuys, CA 91401 
Telephone: (818) 901-5482
Attorney for P e t it io n e r s

241



1

INTRODUCTION.................................................................  1

(A) G&G's Request for a Pre-deprivation
Hearing..................................................................... 1

(B) Other Issues Raised by G&G..............................  2

I. THE REMEDIES PROVIDED TO G&G ARE SUF
FICIENT TO MEET THE REQUIREMENTS OF 
DUE PROCESS...........................................................  4

(A) State Procedures Affording A Post-depri
vation Hearing Are Sufficient To Comply 
With Due Process Requirements..................  6

(B) G&G's claim that a pre-deprivation hearing is 
required is not properly before this Court and
is without merit in any event........................ 11

II. THE DEPRIVATION OF PROPERTY COM
PLAINED OF WAS NOT PURSUANT TO 
STATE ACTION.........................................................  12

III. G&G FAILED TO SUSTAIN ITS BURDEN TO
SHOW AN ENTITLEMENT TO THE FUNDS 
WITHHELD................................................................. 15

IV. G&G DID NOT SUSTAIN ITS BURDEN OF
SHOWING IT WAS A "TARGETED" CON
TRACTOR..................................................................... 17

CONCLUSION..................................................................... 19

TABLE OF CONTENTS
P a g e

242



11

Cases

Alabama Federation of Labor v. McAdory, 325 
U.S. 450, 65 S. Ct. 1384, 89 L. Ed. 1725 (1945)........7

American Manufacturers Mutual Insurance Co. v. 
Sullivan, 526 U.S. 40, 119 S. Ct. 977, 143 
L. Ed. 2d 130 (1999)...................................... 8, 12, 15, 16

Calero-Toledo v. Pearson Yacht Leasing Co., 416 
U.S. 663, 94 S. Ct. 2080, 40 L. Ed. 2d 452 (1974)........7

Fahey v. Mallonee, 332 U.S. 45, 67 S. Ct. 1552, 91 
L. Ed. 2030 (1947) .............................. ...............................  19

Flagg Bros., Inc. v. Brooks, 436 U.S. 149, 98 S. Ct.
1789, 56 L. Ed. 2d 185 (1978).......................................  12

Imbler v. Pachtman, 424 U.S. 409, 96 S. Ct. 984, 47 
L. Ed. 2d 128 (1976).........................................................  15

J&K Painting Co., Inc. v. Bradshaw, 45 Cal. App.
4th 1394, 53 Cal. Rptr. 2d 496 (1996)........... . . . . . 5 ,  14

Logan v. Zimmerman, 455 U.S. 422, 101 S. Ct.
1148, 71 L. Ed. 2d 265 (1982)......................................... 9

Mitchell v. W.T. Grant Co., 416 U.S. 600, 94 S. Ct.
1895, 40 L. Ed. 2d 406 (1974)..........................................9

Neely v. Eby Construction Co., 386 U.S. 317, 8 
S. Ct. 1072, 18 L. Ed. 2d 75 (1967).............................. 11

O'Bannon v. Town Court Nursing Center, 447 U.S.
773, 100 S. Ct. 2467, 65 L. Ed. 2d 506 (1980).. .17, 18

Phillips v. Commissioner, 283 U.S. 589 (1934)................9

TABLE OF AUTHORITIES
Page

243



iii

Reichert v. General Insurance Co., 68 Cal. 2d 822,
69 Cal. Rptr. 321 (1968)................................................... 16

Sniadach v. Family Finance Corporation, 395 U.S.
337, 89 S. Ct. 1820, 23 L. Ed. 2d 349 (1969) . . .  6, 7, 8, 9

United States v. James Daniel Good Real Property,
510 U.S. 43, 114 S. Ct. 492, 126 L. Ed. 2d 490

TABLE OF AUTHORITIES -  Continued
P a g e

(1993)........................................................................ 6, 7, 8, 9

University of Texas v. Camerisch, 451 U.S. 390, 101
S. Ct. 1830, 68 L. Ed. 2d 175 (1981).............................8

Wall v. Parrot Silver & Copper, Inc., 244 U.S. 407,
37 S. Ct. 609, 61 L. Ed. 1229 (1917).............................4

CoNsrrrunoNAL P rovisions

U.S. Constitution, Fourteenth Amendment..................... 9

Statutes

California Labor Code 1722...............................................14

California Labor Code 1729........................................... 6, 12

244



1

INTRODUCTION

(A) G&G's Request for a Pre-deprivation Hearing

G&G, in what appears to be a major shift in its 
position in this case, raises some new arguments and 
relinquishes some of its previous contentions, including a 
substantial part of the rationale articulated by the Ninth 
Circuit in rendering the judgment below. While the State 
concedes that G&G is entitled to advance any argument 
for affirming the judgment which finds support in the 
record, and may even disengage and distance itself from 
the reasoning of the Circuit Court altogether to the extent 
it finds it unpersuasive, G&G goes one step too far. Thus, 
it now argues, without having sought review of the decision 
below, that it is entitled to relief beyond that ultimately 
granted by the Ninth Circuit.

G&G is therefore seeking nothing less than a ruling 
from this Court that a pre-deprivation hearing is manda
tory in this case (Res. Br. 40 et seq.), despite the fact the 
Ninth Circuit expressly determined after granting the 
State's Petition for Rehearing in 1998 that a post-depriva
tion hearing was all that was constitutionally required to 
satisfy G&G's due process rights (Pet. A-18).1 In other 
words, G&G is not simply asking this Court to affirm the

1 To bolster the new grounds it argues for upholding the 
judgment in place of the grounds adopted by the Ninth Circuit, 
G&G has improperly attempted to augment the record by 
lodging new documents at the time it filed its brief. Some of 
these documents relate to transactions other than the three 
projects (California State University at San Bernardino, Culver 
City City Hall, and San Joaquin Hospital) which are the subject 
matter of this case (Pet. A-23, Jt. App. 191). Petitioners recently 
filed a motion objecting to the consideration of these new 
documents.

245



2

existing judgment -  it is asking for a new judgment 
which will be much more favorable to its interests.

The fact that G&G failed to file a petition for rehear
ing of its own in the Ninth Circuit following this deter
mination, neglected to file a cross-petition for writ of 
certiorari in this Court, and did nothing to preserve the 
issue during the more than two years that have elapsed 
between the Ninth Circuit's modification and the submis
sion of G&G's brief in the present proceeding, forecloses 
it from making such an argument at this time. In short, 
G&G must be deemed to have waived its rights by not 
timely asserting this point immediately after the modified 
opinion was issued.

As authority for its position that a pre-deprivation 
hearing is required in this case, G&G cites decisions of 
this Court involving the direct seizure of vested assets 
through state sanctioned forfeiture procedures (such as 
garnishment). Even assuming, for purposes of argument, 
that G&G had not waived the right to make this argu
ment, its contention is nevertheless doomed to fail on the 
merits. Thus, the factual setting of the present case, 
involving a routine withholding of funds held by a party 
to a contract disputing the other party's entitlement to 
such funds, is in no way analogous to the special circum
stances reflected in the cases upon which G&G relies. The 
two types of cases are, in fact, manifestly poles apart.

(B) Other Issues Raised by G&G

G&G contends as well that state action is present in 
this case because the withholding of funds from the 
prime contractor by the public entity which awarded the 
contract results in what it characterizes as an automatic 
"pass through" to the subcontractor (Res. Br. 20 et secj.)-

246



3

No evidentiary support is cited to corroborate the exis
tence of this purported unvarying pattern or practice and 
none appears in the record. It is significant that this is the 
first time in these proceedings that G&G has made this 
argument and that, even now, no proof is cited to in the 
record. At the same time, G&G does not seem to dispute 
that prime contractors who have had money withheld by 
the contracting government agencies under the provi
sions of the prevailing wage law have the discretion to 
withhold or not withhold the same amount of money 
from their subcontractors. No attempt is made, moreover, 
to reconcile the existence of such discretion with the 
alleged automatic nature of the withholding practices of 
the prime contractor in practice.

G&G responds to the State's claim that its pleadings 
in this case are defective by again insisting that the 
Amended Complaint filed in the District Court ade
quately sets forth a prima facie claim entitling it to relief. 
Once again it makes much of its allegation that the with
holding of funds was "wrongful, incorrect, and exces
sive" (Res. Br. 49 et seq.). Established rules of pleading 
clearly require much more, however. G&G was at the 
very least legally obligated to allege 1) the existence of 
contracts with the prime contractors; and 2) that it had 
met all conditions precedent to payment under these 
contracts, including compliance with the prevailing wage 
law. The Amended Complaint alleges neither of these 
critical elements, does not sufficiently describe a valid 
property interest, and accordingly cannot serve as the 
basis for relief in favor of G&G. By failing to identify the 
nature of the property interest in question, G&G has 
effectively precluded the Court from analyzing the scope 
of this purported right for due process purposes.

247



4

Though G&G's abandonment in part of the reasoning 
of the Ninth Circuit is understandable in many respects 
in light of the major pitfalls it faces,2 the new grounds it 
raises are no more persuasive or well taken than the 
erroneous grounds they replace, and are likewise utterly 
unsubstantiated by the record in this case. Furthermore, 
G&G has not undertaken to respond to other arguments 
contained in the Petitioner's Brief, and has fallen far short 
of establishing that the purported property rights it 
claims to possess are significant enough to warrant con
stitutional protection.

For the reasons stated herein, as well as for the 
reasons set forth in its initial brief, the State submits that 
the judgment below must be reversed.

I

THE REMEDIES PROVIDED TO G&G ARE SUFFI
CIENT TO MEET THE REQUIREMENTS OF DUE PRO
CESS

The Ninth Circuit found the pertinent provisions of 
the California Labor Code unconstitutional as applied

2 G&G does, however, adhere to the position of the Ninth 
Circuit that the claim is based on statute and not on contract. 
But G&G's rights, if any, are necessarily conditioned on the 
terms of the undisclosed subcontracts, even though the prime 
contractors may assign to G&G their own contractual rights 
against the State. The mere fact that certain of the terms of the 
contract between the public entity and its prime contractor is 
codified in the California Labor Code does not change the 
consensual nature of the legal relationships of the parties. 
Furthermore, if G&G agreed to withholding as part of its 
subcontract, it is bound by that agreement. Constitutional rights 
may be knowingly waived by contract. Wall v. Parrot Silver & 
Copper Co., 2 4 4  U .S . 4 0 7 , 4 1 0 , 61 L. E d . 1 2 2 9 , 3 7  S . C t. 6 0 9  (1 9 1 7 ).

248



5

because it determined that there was no available state 
remedy for G&G to contest the withholding of funds by 
the prime contractors on the three projects in question. 

"In this case, subcontractors like G&G are 
afforded neither a pre- nor post-deprivation 
hearing when payments are withheld."

(Pet. A-69)

This critical statement, which is at the core of the 
Ninth Circuit's determination that there was a due pro
cess violation, is clearly erroneous. As the State has 
repeatedly shown, there is an entire arsenal of contractual 
and other remedies under California law at the disposal 
of public works subcontractors who find themselves in 
the position that G&G did here (see discussion at p. 34 et 
seq. of Petitioner's Brief).

These remedies, include, in the absence of an assign
ment of rights by the prime contractor, contractual claims 
for damages, recission, restitution, declaratory and 
injunctive relief, etc., an action for equitable subrogation, 
a petition for writ of mandate (J&K Painting Co., Inc. v. 
Bradshaw, 45 Cal. App. 4th 1394, 1402, 53 Cal. Rptr. 2d 
1415), an action based on the statutory stop notice pro
cedure, and a claim against the prime contractor's pay
ment bond (see discussion in Pet. Br. 36-37). G&G needed 
only to avail itself of any one of these familiar remedies 
to secure a full and fair hearing on the merits of the 
dispute. It chose not to do so, envisioning its relief in the 
federal courts instead.

Conspicuous by its absence from G&G's Brief is any 
argument challenging the State's position regarding the 
existing availability of these enumerated remedies for 
public works subcontractors under state law. As we have 
seen, G&G appears, on the contrary, to have eschewed

249



6

the Ninth Circuit's determination that no valid state rem
edy exists in the present situation as an untenable argu
ment, and to have conceded, as it must, that viable 
remedies exist under state law.3

(A) State Procedures Affording A Post-deprivation 
Hearing Are Sufficient To Comply With Due Pro
cess Requirements

While abandoning the Ninth Circuit's rationale that 
no available remedies exist under state law, G&G nev
ertheless argues that state remedies must be provided at a 
pre-deprivation stage to be adequate for purposes of due 
process. In support of its position that all existing state 
remedies are insufficient to satisfy due process require
ments to the extent they do not mandate a pre-depriva
tion hearing, G&G relies on Sniadach v. Family Finance 
Corporation, 395 U.S. 337, 89 S. Ct. 1820, 23 L. Ed. 2d 349 
(1969) and United States v. james Daniel Good Real Property, 
510 U.S. 43, 114 S. Ct. 492, 126 L. Ed. 2d 490 (1993) (Res. 
Br. 40-41, 43-44).4

3 For example, G&G states "[t]he right to a hearing for a 
prime contractor remedies G&G's problems as a prime 
contractor, and mostly as a subcontractor, since DLSE concedes 
an equitable right of subrogation for participation by a 
subcontractor, and a subcontractor may well be able to 
participate, in any event, as an assignee, witness or joint 
participant in such a hearing" (Res. Br. 32-33); and "equitable 
subrogation permits the subcontractor to stand in the shoes of 
the prime contractor" (Res. Br. 23, 24).

4 G&G does not advance the argument of the Ninth Circuit 
that section 1729 of the Labor Code would somehow ultimately 
impair G&G's contractual rights of recovery in the state courts 
(Pet. A-20). A careful and fair reading of this section leads to 
only one reasonable conclusion: that though the prime

250



7

Even assuming G&G could sit back more than two 
years, seek no review, and now contend it is entitled to a 
more favorable result than the one issued by the Ninth 
Circuit, its argument would necessarily fail on the merits 
based on the clear weight of authority to the contrary.

Sniadach (a garnishment case) and James Good (where 
the federal government required forfeiture of real prop
erty based on drug activity), the cases in which G&G 
places its reliance, each involved the summary divestiture 
of established property interests. In James Good, it was 
emphasized that the requirement of a pre-deprivation 
hearing rested primarily on the fact that real property is 
unmovable and indestructible. The Court noted that it 
had not generally required pre-deprivation hearings in 
cases involving other types of property, even those 
including large items like yachts (citing Calero-Toledo v. 
Pearson Yacht Leasing Co., 416 U.S. 663, 40 L. Ed. 2d 452, 94 
S. Ct. 2080 (1974)).

The relatively rare cases mandating pre-deprivation 
hearings are clearly no authority for the proposition that 
the same type of hearing is required, where, as here, a

contractor's withholding is made lawful by that section where 
the subcontractor has failed to comply with the prevailing wage 
law, no presumption is made concerning ultimate ownership 
and liability regarding these funds. The Ninth Circuit's 
interpretation of this provision was tantamount to treating it as 
a conclusive presumption against the liability of the prime 
contractor for the funds. This construction was not warranted 
by the language of this section and was inconsistent with the 
well-established principle that state statutes are to be 
interpreted where possible in favor of their constitutionality. 
A la b a m a  F e d e r a t io n  o f  L a b o r  v . M c A d o r y ,  325 U.S. 450, 461, 89 
L. Ed. 1725, 65 S. Ct. 1384 (1945).



8

governmental agency has possession of money and with
holds payment to the other party based on a legitimate 
and good faith dispute concerning entitlement to this 
money. G&G has not cited and could not cite any author
ity to the effect that the requirement of a pre-deprivation 
hearing is necessary or appropriate in this latter situation.

A party in possession of disputed money or property 
would, in most cases, be deemed imprudent if he turned 
the money or property over to the other party solely 
because that party had made a claim. Principles of equity, 
for example, have long recognized the need for preserva
tion of the status quo during the pendency of disputes 
between litigants over money or property. University of 
Texas v. Camerisch, 451 U.S. 390, 395, 68 L. Ed. 2d 175, 101 
S. Ct. 1830 (1981). Furthermore, it has long been standard 
commercial practice in this country for a person or entity 
who possesses money or property claimed by another, 
and who disputes that other's claim, to withhold pay
ment pending a resolution of the underlying dispute by a 
court or arbitrator. Expressing what can be argued to be a 
part of the underlying philosophy of American Manufac
turer's Mutual Insurance Co. v. Sullivan, 526 U.S. 40, 119 
S. Ct. 977, 143 L. Ed. 2d 130 (1999), Justice Stevens wrote 
in his concurring opinion in that case, "[i]t is not unfair, 
in and of itself, for a State to allow either a private or 
publicly owned party to withhold payment of a state- 
created entitlement pending resolution of a dispute over 
its amount." 143 L. Ed. 2d at 153.

G&G has mistakenly taken the broad pronounce
ments of Sniadach and fames Good and misapplied them to 
a situation involving significantly distinct facts. Neither 
of these cases constitutes authority for the proposition 
G&G advances because there was no direct seizure by the

252



9

state of a vested property interest in the possession of the 
other party in the case at bench.

Years ago Justice Powell warned, in a well-reasoned 
concurring opinion in Logan v. Zimmerman, 455 U.S. 422, 
443, 101 S. Ct. 1148, 71 L. Ed. 2d 265 (1982), about the 
pitfalls of the broad application of due process principles 
articulated in cases involving certain facts to other cases 
involving markedly different facts, urging that the deci
sion in each case must be governed by the individual 
circumstances of each case. That admonition is as apt an 
observation concerning the application of due process 
principles now as it was then. A careful reading of 
Sniadach and James Good can only lead to the conclusion 
that the requirements they articulate do not extend 
beyond the context of the fact situations posed. Principles 
that are developed in cases involving seizures of vested 
property interests simply have no application to a situa
tion, as here, where a government agency in possession of 
funds merely refuses in good faith to pay a disputed bill.

Thus, in Mitchell v. W.T. Grant Co., 416 U.S. 600, 611, 
40 L. Ed. 2d 406, 94 S. Ct. 1895 (1974) this Court stated 
that "[t]he usual rule has been [w]here only property 
rights are involved, mere postponement of the judicial 
inquiry is not a denial of due process if the opportunity 
given for ultimate judicial determination of liability is 
adequate." (Quoting Phillips v. Commissioner, 283 U.S. 589, 
596-597 (1931)).

If G&G has a property right within the meaning of 
the Due Process Clause of the Fourteenth Amendment at 
all, a proposition the State vigorously opposes (see Pet. 
Br. 24, et seq.), that disputed right is fully and adequately 
protected at a post-deprivation hearing of the kind pro
vided under California law. Thus, G&G could have had

253



1 0

its day in court and a judgment on the merits of this 
dispute long ago had it simply invoked one or more of 
these straightforward remedies.

While it is to be expected that there may be delays in 
the processing and resolution of cases in the court sys
tems of any local jurisdiction, most of these delays are 
generally not unreasonable. The State of California, the 
largest state in the union, will without doubt remain a 
solvent entity at the time a final judgment is entered in 
the case. Building subcontractors, on the other hand, as 
experience has repeatedly shown, are far less stable and 
predictable than other types of businesses.

"[T]he vast majority of construction contractors, 
especially the smaller contractors are under
capitalized and may have virtually no assets. It 
is not uncommon for these contractors, may [sic] 
of whom have incorporated, to cease doing 
business the minute a claim for unpaid wages 
comes forth only to reopen under a different 
corporate entity the next day."

(Jt. App. 341)

G&G, like many building subcontractors, who 
according to its own admission "often go out of business" 
(Res. Br. 42), might have vanished from the scene itself if 
prompt withholding had not been implemented in this 
case, a development that would have been to the signifi
cant financial detriment of G&G's workers. While a pre
deprivation hearing benefits contractors like G&G, it is 
inherently subject to abuse and often ends in penalizing 
the workers -  the people the prevailing wage law was 
enacted to protect.

254



1 1

(B) G&G's claim that a pre-deprivation hearing is 
required is not properly before this Court and is 
without merit in any event

After granting the State's Petition for Rehearing, the 
Ninth Circuit amended its prior decision on September 
10, 1998, holding for the first time that a post-deprivation 
hearing met the requirements of due process (Petition 
A-18). In its initial decision in this case, the panel did not 
commit to which type of hearing was mandated (Petition 
A-69-70). The Court stated:

"Here, we have no doubt that the state's interest 
in ensuring the payment of prevailing wages is 
sufficiently 'important,' see Mallen, 486 U.S. at 
240, to justify the withholding of funds pending 
the outcome of whatever kind of hearing may be 
afforded."
G&G did not seek review of the Ninth Circuit's deter

mination that a post-deprivation hearing was adequate 
either in that court or this Court. Nevertheless, more than 
two years later, having done nothing to preserve the issue 
in the interim, it now argues that this Court should 
impose the requirement of a pre-deprivation hearing in 
these cases.

While, as mentioned above, G&G is entitled to dis
tance itself from the reasoning of the Ninth Circuit if it 
sees fit to do so, and may advance any alternative argu
ment that finds support in the record to urge that the 
judgment be affirmed, it cannot play fast and loose with 
this Court and petitioners by demanding relief greater 
than that prescribed in the judgment issued by the Ninth 
Circuit, especially after having taken no steps previously 
to challenge that court's determination. Neely v. Eby Con
struction Co., 386 U.S. 317, 330, 18 L. Ed. 2d 75, 87 S. Ct. 
1072 (1967).

255



1 2

It is submitted that under no circumstances should 
G&G's request on appeal for a modification of the judg
ment, requiring a pre-deprivation hearing before funds 
may be withheld, be considered by this Court, the oppor
tunity to relitigate this same issue having been waived by 
G&G's failure to seek review earlier.

II

THE DEPRIVATION OF PROPERTY COMPLAINED OF 
WAS NOT PURSUANT TO STATE ACTION

G&G argues for the first time that the procedure by 
which the prime contractor withholds monies from the 
subcontractor constitutes "state action" because the with
holding results in an automatic "pass through" to the 
subcontractor (Res. Br. 20-22). No citation is made either 
within or outside the record in substantiation of this 
dubious proposition.

In American Manufacturers Mutual Insurance Co. v. Sul
livan, supra, 526 U.S. 40, 53, this Court held, quoting Flagg 
Bros., Inc. v. Brooks, 436 U.S. 149, 166, 98 S. Ct. 1789, 56 
L. Ed. 2d 185 (1978), that the State can only be held 
responsible for private action "when it has exercised 
coercive power or has provided significant encourage
ment, either overt or covert, that the choice must be 
deemed that of the State."

While section 1729 of the California Labor Code 
plainly authorizes a prime contractor to withhold from a 
subcontractor a sum equivalent to that withheld from 
him, to the same extent as the Pennsylvania law autho
rized a workers compensation insurer to withhold medi
cal benefits claimed, the prime contractor who withholds 
under section 1729 has no more been coerced or signifi
cantly encouraged to do so than the insurer in Sullivan

256



13

because without question, each acts at his own discre
tion.5 *

To assume, moreover, that the prime contractor will 
in all instances withhold a like amount from the sub
contractor not only lacks documentation in the record, it 
is contrary to human experience and common sense. 
Many considerations necessarily enter into this kind of 
determination on the part of the prime contractor. An 
obvious factor is the strong possibility that if the prime 
contractor withholds from his subcontractor he will be 
buying all the expenses and nuisance of a lawsuit. Long 
term relationships exist in this, as well as other, indus
tries, so that it is reasonable to expect that different 
treatment may be given to subcontractors who have a 
long history of dealing with a prime contractor. Instead of 
passing on the withholding, the prime contractor might 
agree to give the subcontractor additional time to correct 
a disputed item or items. The prime contractor may be 
holding substantial sums in progress payments payable 
to the subcontractor and therefore may defer passing 
through the sum withheld from it by the state because it 
is not at risk in recouping these withheld funds from the 
subcontractor in the future. In other words, the prime 
contractor is not always in the position of having "to 
absorb the loss" as G&G contends (Res. Br. 21-22), if it 
decides not to withhold itself. There are, no doubt, many 
other circumstances that come to mind which might

5 G&G confuses the test for determining standing to sue
with the test for determining state action. 257



14

influence a prime contractor to decide not to withhold 
from his subcontractor.6

As the party attacking the withholding process, it 
was the burden of G&G to present competent evidence 
showing the existence of a custom and practice in the 
public construction industry of prime contractors auto
matically passing these sums through to their subcontrac
tors. G&G has failed to plead or substantiate this claim 
and accordingly cannot prevail on this point.7

6 The argument that the Court should assume that the 
payments withheld were “due” and therefore established 
property interests (Res. Br. 29 e t  s e q . )  because the notices to 
withhold and some of the pertinent statutory language refers to 
them as such has at most a kind of surface appeal. The context is 
perhaps temporal, i.e. the payments were due at some point in 
time. Certainly in view of the clear requirements of the 
prevailing wage law we can assume that the Legislature and 
DLSE meant otherwise due because there is no doubt that 
compliance with the prevailing wage requirements was a 
condition precedent to payment. This seizing on a word to 
construct an entire legal theory is typical of G&G's reluctance to 
deal with the significant underlying facts in this case.

7 G&G goes to great lengths to distinguish the so-called 
proprietary and regulatory functions of petitioner and the 
awarding bodies, incorrectly defining their roles in the process 
(Res. Br. 6-9, 14-15, 26-30). Thus "awarding body" is defined in 
section 1722 of the California Labor Code as a governmental

department, board, authority, officer or agent awarding a 
contract work public work." Clearly both are agencies of the 
State of California or its political subdivisions. The awarding 
body, moreover, has an independent duty to withhold funds for 
violations of the prevailing wage law even if not notified of 
these violations by petitioners. J & K  P a i n t i n g  C o . ,  I n c .  v. 
B r a d s h a w , 45 Cal. App. 4th 1394, 1408, 53 Cal. Rptr. 2d 505 
(1996). G&G also makes much of the fact that the Division of 
Labor Standards Enforcement sought "prosecutorial" immunity 
in another case with G&G, going outside the record in this case

258



15

III

G&G FAILED TO SUSTAIN ITS BURDEN TO SHOW 
AN ENTITLEMENT TO THE FUNDS WITHHELD

G&G filed this action seeking declaratory and injunc
tive relief. The allegations of the First Amended Com
plaint merely identify the parties, allege that G&G 
performed work on certain public works projects; that 
Petitioners issued notices to withhold under color of law; 
and that not less than $135,000 was withheld from prime 
contractors on the project who withheld a like sum from 
G&G; that no notice or hearings were given in connection 
with the withholding of these sums; and that the with
holding was unconstitutional and was "invalid, illegal, 
and in deprivation" of G&G's rights (Jt. App. 63-70).

Conceding that it has the burden of proof in an action 
of this kind (Res. Br. 40), G&G asserts that these allega
tions are sufficient to establish its entitlement, sufficient 
to "clear" the necessary pleading "hurdles" (Sullivan, 
supra, 526 U.S. at 561) to establish a claim upon which 
relief can be granted (Res. Br. 49-50). This assertion, upon 
careful examination, proves to be little more than bluster.

Thus, nowhere in this First Amended Complaint does 
G&G allege that it was a party to a contract, let alone 
whether the contract was written or oral. Significantly, 
while G&G claims a property right for due process pur
poses, it does not even allege the terms of the contract,

to establish this fact. The so-called "prosecutorial" immunity 
under federal law, however, extends far behind those who 
prosecute civil or criminal actions, and includes persons and 
agencies performing supportive and clerical functions. I m b l e r  v. 
P a c h t m a n , 424 U.S. 409, 47 L. Ed. 2d 128, 96 S. Ct. 984 (1976).

259



16

essential information to the ascertainment of the nature of 
this purported property right. Nowhere does G&G allege 
it performed all conditions necessary to be performed on 
its part under such contract, if any. Finally, G&G does not 
even allege that it complied with the prevailing wage 
provisions of its purported contract. G&G does not deny, 
furthermore, that it has bargained away its rights by 
contractually agreeing that the prime contractors could 
summarily withhold funds which might have been other
wise due.

The necessary elements required to be alleged in 
pleading a claim based in whole or in part upon a con
tract in California and virtually all other jurisdictions are: 
(1) the existence and nature of the contract, (2) plaintiff's 
performance or excuse for nonperformance of all condi
tions, (3) defendant's breach, and (4) the resulting dam- 
age to plaintiff. See, e.g., Reichert v. General Insurance Co., 
68 Cal. 2d 822, 830, 69 Cal. Rptr. 321 (1968).

These fundamental elements of G&G's case had to be 
pleaded and proved, just as the claimants in Sullivan were 
required to plead and prove that the medical care they 
received was reasonable and necessary. The failure to 
allege these elements, which are the very foundation of 
its case, is fatal to the subcontractor plaintiff's right to 
proceed and can result in the dismissal of his case.8

8 Another of G&G's unconvincing arguments is the 
contention that it was both a prime and a subcontractor. While 
G&G may have filled the role of a prime contractor on other 
projects, none of these projects were involved in the present 
case. The Declaration of Itai Ben-Artzi submitted in connection 
with G&G s summary judgment motion clearly identifies the 
three projects (California State University at San Bernardino, 
Culver City City Hall, and San Joaquin General Hospital)

260



17

IV

G&G DID NOT SUSTAIN ITS BURDEN OF SHOWING 
IT WAS A "TARGETED" CONTRACTOR

Parroting the Ninth Circuit's unsupported and insup
portable characterization of it as a targeted company (Pet. 
A-33-34, Res. Br. 39-40), while disputing the undeniable, 
that the withholding of funds from the prime contractor 
only affected it indirectly, G&G once more argues that it 
is not subject to the doctrine of O'Bannon v. Town Court 
Nursing Center, 447 U.S. 773, 100 S. Ct. 2467, 65 L. Ed. 2d 
506 (1980) because it falls within the so-called "targeted" 
exception to that doctrine.

In deciding, based on this exception, that O'Bannon 
did not apply, the Ninth Circuit merely stated, "[ujnlike 
the nursing home residents in that case, G&G is the target 
of the state's action here" (Pet. A-33-34). No explanation 
has ever been given and no evidence has ever been 
identified which would show how the panel reached this 
singular conclusion. (The determination was made sua 
sponte, G&G only taking up the argument after the panel 
did.) Not only do the Ninth Circuit and G&G fail to 
substantiate this conclusion, though the State has contin
ued to call on them to do so (see Petitions for Rehearing 
in Ninth Circuit), a careful perusal of the record in this

covered in the present lawsuit. Paragraph 8 of that Declaration 
recites that "the prime contractors for each of the respective 
projects have withheld payment from G&G on account of the 
notices to withhold" (Jt. App 191). Furthermore, it is academic 
whether G&G was a prime or subcontractor since in either case 
it possessed a right to review under a variety of legal theories 
(see discussion in Petitioner's Brief at p. 32 et set].).

261



18

case fails to turn up any evidence worthy of the name to 
support this allegation. In arguing this point again in its 
brief, the best G&G seems capable of mustering is the 
lame statement, urged for the first time in this Court, that 
it "believed it was being targeted by DLSE, because of its 
non-union status" (Res. Br. 2). Supposition, which is no 
substitute for evidence, appears to have been the source 
of this tenuous theory from its inception.

Both the Ninth Circuit and G&G may have confused 
the foreseeable with the intentional. The mere fact that a 
government agency has reason to believe that its actions 
will have an impact on a third party does not, in and of 
itself, subject it to liability (see, for example, the series of 
federal decisions previously discussed where though an 
impact on a third party or third parties was indeed fore
seeable, the courts found no targeting of the third party 
or parties (Pet. Br. 44)).

In view of the patent absence of any evidence in the 
record to support a finding that G&G was targeted, 
O'Bannon obviously applies and G&G must be barred 
from any relief since its injuries, if any, suffered as a

262



19

result of the withholding from the prime contractor are 
by definition indirect and, therefore, not actionable.9 

--------------- ♦----------------

CONCLUSION

The State of California struck a bargain with the 
prime contractors who successfully bid on its public 
works projects, a bargain that was based on enumerated 
specifications. Part of that bargain was that these prime 
contractors guaranteed that both they and the sub
contractors under their control would pay prevailing 
wages to all workers employed on the job site. Having 
paid a premium to obtain this concession, the State had 
an absolute right to insist on full performance of these 
terms. In view of the well-known propensities of sub
contractors toward insolvency, the State had reason to 
insist on a procedure where payments could be withheld 
in the first instance to insure that workers on the project 
would not suffer injury.

With a kind of "sinking ship" desperation, G&G 
abandons some of the central rationale of the Ninth Cir
cuit, especially the indefensible finding of that Court that

9 The Amicus Brief submitted by the Solicitor General notes 
in passing two provisions of section 1775 of the California Labor 
Code which became effective January 1,1998, opining that these 
provisions "might now support a finding of state action." (Sol. 
Br. 29-30). The constitutional im plications of this 1998 
enactment are clearly not before the Court here because the 
complained of withholdings in this case all took place in 1995. 
Moreover, these 1998 provisions also require inclusion of the 
new withholding obligations in the subcontract, raising again 
the issue of waiver of constitutional rights (see footnote 2, 
su p r a ) .  F a h e y  v. M a l lo n e e ,  332 U.S. 245, 255, 91 L. Ed. 2030, 67 
S. Ct. 1552 (1947).



2 0

adequate state remedies are nonexistent, and offers as a 
substitute a position that finds little support in logic or 
precedent, and which relies too much on "evidence" out
side the record.

For the reasons advanced herein and in Petitioner's 
initial brief, it is submitted that the Ninth Circuit's deci
sion in this case is without evidentiary support, has no 
foundation in established law, and must be reversed. A 
Fortiori, G&G's belated attempt to "sweeten" the judg
ment by requiring a pre-deprivation hearing must be 
rejected out of hand.

Respectfully submitted,

T homas S. K errigan 
Counsel of Record
D ivision of L abor Standards E nforcement

D epartment of I ndustrial R elations
State of California
6150 Van Nuys Boulevard
Van Nuys, California 91401
(818) 901-5482

264



N o . 0 0 - 1 5 2

In T he

Supreme Court o! tfje fHmteti States*

Victoria Bradshaw, et ah.
Petitioners,

v.

G & G Fire Sprinklers. Inc.
Respondent.

On Writ of Certiorari to the 
United States Court of Appeals 

for the Ninth Circuit

MOTION FOR LEAVE TO FILE A 
BRIEF A M IC U S CU R IA E  AND 

BRIEF OF THE
AMERICAN FEDERATION OF LABOR AND 

CONGRESS OF INDUSTRIAL ORGANIZATIONS 
AS A M IC U S CU R IA E  

IN SUPPORT OF PETITIONERS

Jonathan P. Hiatt 
James B. Coppess 
815 Sixteenth Street, NW 
Washington, DC 20006
SCOTT A. KRONLAND
177 Post Street
San Francisco, CA 94108
Laurence Gold *
805 Fifteenth Street, NW 
Washington, DC 20005 
(202) 842-2600
* Counsel of Record

265



TABLE OF CONTENTS

STATEMENT.................................................................  I

1. The Statutory Scheme.............................................  1

2. The Facts................................................................... 4

3. The District Court’s Ruling.................................... 5

4. The Ninth Circuit’s Rulings..........................    6

SUMMARY OF ARGUMENT....................................... 8

ARGUMENT............. ..............................   10

CONCLUSION................................................................. 19

Page

T A B L E  O F  A U T H O R I T I E S ......................................................  ii

266 (0



A m erican M anufacturers M utual Ins. C o. v.
Sullivan, 526 U.S. 40 (1999)..............................passim

B leech er v. C on te, 29 Cal.3d 345, 698 P.2d 1154
(1981) .............................    16

Bradshaw  v .G  & G F ire  Sprinklers, In c ., 526 U.S.
1061 (1999)........ ................................................ 7, 13

California Lettuce G row ers v. Union S u ga r C o ., 45
Cal.2d 474, 289 P.2d 785 (1955)....................... 16

G oldberg  v. Kelly, 397 U.S. 254 (1970)................ 14
J  & K  Painting C o. v. Bradshaw , 45 Cal.App.4th

1394(1996)........................................................  17
K endall v. Ernest Pestana, In c., 40 Cal.3d 488

P.2d 837 (Cal. 1985)..........................................  16
L ogan  v. Zim m erm an B rush C o ., 455 U.S. 422

(1982) .......................................................... 12, 14, 15
Lyng  v. Payne, 476 U.S. 926 (1986)...................... 15
M athews v. E ld rid ge, 424 U.S, 319 (1976)...........  10
N evada v. United States, 463 U.S. 110 (1983).....  14, 15
Sniadach  v. Fam ily F in a n ce C o rp ., 395 U.S. 337

(1969)................   14
United States v. C alifornia, 507 U.S. 746 (1993).. 17

FEDERAL STATUTES AND REGULATION
40 U.S.C. § 276a....................................................  1
42 U.S.C. § 1983....................................................  5
5C.F.R. §5.11.......................................................  18

CALIFORNIA LABOR CODE
§ 90.5(b).................................................................  4
§ 1726.....................................................................  3
§ 1727.....................................................................  5
§ 1729.....................................................................  3
§ 1727.....................................................................  3

ii
T A B L E  O F  A U T H O R I T I E S

C A S E S  P a g e

267



i i i

T A B L E  O F  A U T H O R I T I E S — C o n t in u e d

§ 1729_
§ 1730.... 
§ 1731.... 
§ 1732.... 
§ 1733.... 
§ 1771.... 
§ 1772.... 
§ 1773.2. 
§ 1774..., 
§ 1775.... 
§ 1776... 
§ 1813...

........ 4

........ 5

........ 4,5

........ 3,5

.3, 4, 5, 9, 15

......... 1

......... 2

......... 2

......... 2

......1,2, 3,5

........  3,5

........  5

P age

268



BRIEF OF THE
AMERICAN FEDERATION OF LABOR AND 

CONGRESS OF INDUSTRIAL ORGANIZATIONS 
AS AMICUS CURIAE 

IN SUPPORT OF PETITIONERS

The American Federation of Labor and Congress of 
Industrial Organizations (“AFL-CIO”), files this brief amicus 
curiae contingent on the granting of the forgoing AFL-CIO 
motion for leave to file said brief.'

STATEMENT

1. The Statutory Scheme.

At the federal level, the Davis-Bacon Act, 46 Stat. 1494, as 
amended, 40 U.S.C. § 276a, provides that contractors and 
subcontractors on federal public works projects must pay 
their employees at least the same wages paid in the project’s 
locality on similar, private construction projects. Many 
states, California among them, have followed the same course 
by providing that all contractors and subcontractors on state 
and local public works projects must pay their employees 
“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.” Cal. Labor Code § 1771.

The obligation to pay prevailing wages is a material term 
of California public works contracts. When a public agency 
awards such a contract to a general contractor, the agency 
must “cause to be inserted in the contract a stipulation” that 
the general contractor will ensure that all employees on the 
project are paid prevailing wages. Cal. Labor Code § 1775. 
State law further requires the awarding body to specify “in 
the call for bids for the contract, and in the bid specifications 1

1 No counsel for a party authored this brief amicus curiae in whole or 
in part, and no person or entity, other than the amicus curiae, made a 
monetary contribution to the preparation or submission of this brief.

269



2

and in the contract itself’ the applicable prevailing wage rates 
(or provide notice that the wage rates are available upon 
request) and to post those rates at the job site. Id. § 1773.2. 
Public works contracts must also include a stipulation by the 
general contractor that, if prevailing wages are not paid to all 
employees on the project, the general contractor will be liable 
to the awarding body for back wages and penalties. Id.
§ 1775.

The California prevailing wage law contemplates that a 
general contractor on a public work project may, as is typical 
in the construction industry, retain subcontractors to carry out 
various aspects of the contracted-for work. The California 
Labor Code provides that “[wjorkers employed by con
tractors or subcontractors in the execution of any contract for 
public work are deemed to be employed upon public work,” 
§ 1772 (emphasis added), and, accordingly, requires that both 
“[t]he 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,” § 1774 (emphasis added).

That being so, the California law includes several pro
visions designed to insure that subcontractors on public work 
projects pay their employees the prevailing wage. The law 
requires that “[t]he contract executed between the contractor 
and the subcontractor for the performance of work on the 
public works project shall include a copy of the provisions of 
[the prevailing wage statute].” Cal. Labor Code § 1775(b)(1). 
The law also requires that “[e]ach contractor and subcon
tractor shall keep accurate payroll records" for “each 
journeyman, apprentice, worker, or other employee employed 
by him or her in connection with the public work,” and that 
“[a] certified copy of [these] payroll records . . . shall be 
made available for inspection or furnished upon request to a 
representative of the body awarding the contract, the Division 
of Labor Standards Enforcement, and the Division of

270



3

Apprenticeship Standards of the Department of Industrial 
Relations.” Id. § 1776 (a). And, the law provides that “[t]he 
contractor shall monitor the payment of the specified general 
prevailing rate of per diem wages by the subcontractor to the 
employees, by periodic review of the certified payroll records 
of the subcontractor.” Id. § 1775(b)(2).

Once the project begins, the awarding body must “take 
cognizance of violations o f ’ the prevailing wage law, Cal. 
Labor Code § 1726, and “[bjefore making payments to the 
contractor of money due under a contract for public work, the 
awarding body shall withhold and retain therefrom all wages 
and penalties which have been forfeited pursuant to any 
stipulation in a contract,” id. § 1727. Where payments have 
been “withheld from [the general contractor] by the awarding 
body on account of the subcontractor’s failure to comply with 
the [prevailing wage requirements],” the contractor is given 
permission to ‘‘withhold from [the] subcontractor . . . 
sufficient sums to cover [the amount so withheld].” Id. 
§ 1729. In other words, payment of the prevailing wage by 
the general contractor and the subcontractor is a condition 
precedent to the general contractor’s or the subcontractor’s 
entitlement to the full contract price.

If the awarding body withholds from the payments on a 
public works project an amount covering wages and penalties 
owed because of the general contractor’s or the subcon
tractor’s failure to pay prevailing wages, and the general 
contractor or subcontractor wishes to challenge that 
withholding, state law specifies the remedy. “Suit may be 
brought by the contractor or his or her assignee” against the 
awarding body for “recovery of the wages and penalties” 
being withheld. Cal. Labor Code § 1733. Such a “suit on the 
contract for alleged breach thereof in not making the payment 
is the exclusive remedy of the contractor or his or her 
assignees with reference to those wages and penalties.” Id. 
§ 1732. “No other issues shall be presented to the court” in

271



4

such a lawsuit, and the suit is “without prejudice to the 
contractor’s or assignee’s rights in regard to other matters 
affecting the contract.” Id. § 1733.

If a lawsuit is filed by a general contractor or subcontractor 
to recover withheld wages and penalties, the awarding body 
must retain custody of the amount in dispute until that suit is 
resolved. Cal. Labor Code § 1731. If no suit is filed, or the 
lawsuit is unsuccessful, the back wages are distributed to 
workers, and the penalties are paid to the State. Id.

2. The Facts.

Respondent G & G Fire Sprinklers, Inc. (G&G) performed 
work as a subcontractor on three public works projects in 
California. Pet. App. 23. On each of those projects, the 
awarding body withheld payment from the general contractor, 
pursuant to the prevailing wage stipulation in the contracts, 
based on G & G’s failure to pay the prevailing wage in 
performing its work on the subcontract. Id. The awarding 
bodies had been directed to withhold these funds by the 
state’s Division of Labor Standards Enforcement (Labor 
Standards Division or DLSE), which serves as the lead 
agency for the enforcement of the prevailing wage laws. Id.; 
Cal. Labor Code § 90.5(b). DLSE sent to G & G and to the 
general contractor a copy of each notice it sent to the 
awarding body. See LA. 195-222.

After the awarding bodies withheld payments from the 
general contractors, these general contractors, in turn, 
withheld the same amounts from their payments to G & G on 
the subcontracts. Pet. App. 23. California law provides that 
“[i]t shall be lawful for any contractor to withhold from any 
subcontractor under him sufficient sums to cover any 
penalties withheld from him by the awarding body on account 
of the subcontractor’s failure to comply with” the prevailing 
wage law. Cal. Labor Code §1729.

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5

3. The District Court’s Ruling.
After the general contractors withheld payment on the 

subcontracts, G & G brought suit in the United States District 
Court against the California Labor Standards Division and 
various State officials under 42 U.S.C. § 1983. J.A. 16. 
G & G alleged that it had been deprived of property without 
due process because, as a result of the issuance of notices to 
withhold by DLSE to the awarding body: i) payments that G 
& G claimed to be due under its subcontracts had been 
withheld by the general contractors; and ii) G & G had not 
been provided with a hearing on whether it had failed to pay 
the prevailing wage or to contest the amount of the wages and 
penalties withheld. J.A. 62-78.

G & G did not put into the record the awarding- 
body/general-contractor contracts or the G & G/general- 
contractor subcontracts. Nor did G & G make any claim that: 
i) those contracts did not contain the mandated stipulation 
requiring the payment of prevailing wages and stating that, if 
the prevailing wages were not paid, the awarding body was 
entitled to withhold payments from the general contractor to 
cover the unpaid portion of wages and penalties; ii) G & G 
had a right to full contract payment even if G & G had not 
paid prevailing wages in carrying out the subcontracts; or iii) 
G & G had taken any action to challenge the withholding of 
payment on the subcontracts and to secure full payment prior 
to filing its due process suit in federal court.

The district court granted G & G’s motion for summary 
judgment, striking down California Labor Code §§ 1727, 
1730-33, 1775, 1776(g) and 1813 as in violation of the Due 
Process Clause. Pet.App. 86. The district court also enjoined 
the Labor Standards Division from enforcing those provisions 
against G & G, and declared the notices to withhold issued by 
DLSE for the three projects to be invalid. Id. The district 
court did not issue an opinion explaining the basis for its 
decision.

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6

4. The Ninth Circuit’s Rulings.

a. In its first decision in this matter, the Ninth Circuit in a 
2-1 panel decision (Circuit Judges Hawkins and Reinhardt in 
the majority, Circuit Judge Kozinski in dissent) reversed the 
district court’s injunction as overbroad but affirmed the 
summary judgment below insofar as it held that California 
had denied G & G due process. Pet. App. 39-41.

The court of appeals concluded that G & G had a 
“property interest in being paid in full for the construction 
work it has completed,” and that “[t]he state’s withholding 
. .  . has deprived G &.G of its interest.” Pet. App. 30.

Having concluded that “G & G has suffered a deprivation 
of a protectible property interest as a result of the state’s 
action,” the Ninth Circuit turned to consideration of “whether 
the state accorded G & G due process when it effected this 
deprivation.” Pet. App. 34. The court of appeals held that the 
Due Process Clause would be satisfied by either a “pre
deprivation” hearing or a reasonably prompt “post
deprivation” hearing, but that California’s statutory scheme 
was deficient because it did not provide either type of hearing 
to subcontractors. Pet. App. 34-37. And, the majority 
concluded that, in any event, the availability under state law 
of a lawsuit to recover the withheld funds would not satisfy 
the requirements of due process, apparently because such a 
suit would not provide a sufficiently prompt hearing to 
remedy the “deprivation” of G & G’s “property.” Pet. App. 
36-37 n.9.

Judge Kozinski dissented, stating that the case presented a 
“run-of-the-mill” contract dispute and that a contractor is not 
deprived of “property” for due process purposes simply 
because the State as party to a contract chose to withhold a 
contract payment on account of non-compliance with a term 
of the contract. Pet. App. 49-50. The dissent also disputed 
the majority’s premise that state law provided a subcontractor

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7

like G & G with no remedy at all to recover the sums it 
claimed to be owed. Pet. App. 50.

b. California petitioned this Court for a writ of certiorari.
While that petition was pending, this Court issued its decision 
in American Manufacturers Mutual Ins. Co. v. Sullivan, 526 
U.S. 40 (1999), rejecting a procedural due process challenge 
to a state statutory scheme for providing workers’
compensation benefits. After the Sullivan decision issued, 
this Court granted the State’s certiorari petition, vacated the 
Ninth Circuit’s decision, and remanded the case for
reconsideration in light of Sullivan. Bradshaw v. G & G Fire 
Sprinklers, Inc., 526 U.S. 1061 (1999).

c. Following the remand, the Ninth Circuit panel (again in
a 2-1 decision) issued an order “reinstating [its] judgment and 
opinion” based on its “determinfation] that Sullivan is fully 
consistent with our analysis.” Pet. App. 3. In this
reinstatement order, the court of appeals characterized its 
earlier opinion as “adopting] the approach explicitly
preserved by the Sullivan majority and unequivocally adopted 
in Justice Ginsburg’s concurrence,” viz. that G & G did not 
have a property interest in payment of the disputed funds, but 
rather had such an interest in its claim for payment. Pet. App. 
5-6. According to the majority, “G & G’s due process rights 
were violated, . . . not because it was denied immediate 
payment, but because the California statutory scheme 
afforded no hearing at all when state officials directed that 
payments be withheld.” Pet. App. 6 (emphasis supplied).

Judge Kozinski dissented from the reinstatement order, 
pointing out, among other things, that

The majority’s current position is that its holding is in 
line with previous Supreme Court precedent protecting 
plaintiffs’ “property interest in their claims for 
payment.” . . . .  If the property interest at stake here is G 
& G’s claim for payment, however, when and how was 
G & G deprived of it? . . . .  G & G has yet to attempt to -

275



8

file a claim in state court. [Pet. App. 13 (emphasis in 
original).]

SUMMARY OF ARGUMENT

The threshold issue in this case is whether provisions of the 
California prevailing wage law violate the federal Consti
tution by depriving respondent G & G Fire Sprinklers, Inc. of 
property without due process. The first inquiry under this 
Court’s precedents is whether G & G has been deprived of 
any “property.” G & G’s due process claim fails this first 
inquiry and the court below erred in concluding otherwise.

G & G claims to have been deprived of a property interest 
because i) the State withheld payment from its general 
contractors on public works projects on account of the failure 
of G & G, a subcontractor, to make required prevailing wage 
payments, and ii) those general contractors, in turn, withheld 
the same amounts from G & G.

When this case was first before the Ninth Circuit—prior to 
this Court’s decision in American Manufacturers Insurance 
Co. v. Sullivan, 526 U.S. 40 (1999)—the Ninth Circuit, in a 
2-1 panel decision, concluded that G & G had a property 
interest in the immediate payment of the amounts “to which it 
claims it is entitled” for performing work on the subcontracts. 
The Sullivan decision renders that conclusion untenable.

The contracts and subcontracts for the public works 
projects made G & G’s compliance with the prevailing wage 
law a condition precedent to G & G’s entitlement to contract 
payments. The awarding body, and apparently the general 
contractor, disputed that G & G had satisfied this contractual 
obligation. Sullivan makes clear that there is no property 
interest in the immediate payment of amounts claimed to be 
due until the claimant has cleared the hurdles necessary for its 
entitlement to payment to attach under state law. In this case, 
G & G has not yet cleared that hurdle by showing that it met 
the contractual requirement to pay prevailing wages.

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9

After this Court vacated the Ninth Circuit’s first decision 
here and remanded this case for reconsideration in light of 
Sullivan, the court of appeal shifted the locus of G & G’s 
property interest. The court below correctly acknowledged 
that, under Sullivan, G & G had no property interest in the 
immediate payment of the disputed amounts to which G & G 
claimed entitlement. The court of appeals concluded instead 
that G & G had a property interest in its claim for payment of 
those amounts, and that the State had destroyed that property 
interest by denying G & G any opportunity to present its 
claim of entitlement to the withheld contract payments. 
California law is to the contrary. The prevailing wage law 
provides expressly for a suit “by the contractor or his or her 
assignee . . .  to establish his or her right to” the amounts 
withheld. Cal. Labor Code § 1733. G & G  could have 
secured assignments from its general contractors and pursued 
such suits. So far as the record shows, G & G  did not do so 
and has offered no explanation for its failure.

The Ninth Circuit focused not on the case before it but on 
the purely hypothetical scenario of a subcontractor that 
requests and is unable to obtain an assignment from a general 
contractor and therefore, in the court of appeals’ view, is left 
holding “an empty bag.” Under California law, however, this 
hypothetical subcontractor would have perfectly adequate 
legal and equitable means to bring its claim for the withheld 
contract payments. The point here is that G & G—which had 
ample opportunity to make its claims under state law—did 
absolutely nothing to make, much less perfect, those claims.

On the foregoing analysis, the question whether the 
decision of the general contractor to withhold payment from 
G & G  constitutes “state action” is no longer in the case. The 
only plausible post-Sullivan procedural due process argument 
is that the State has destroyed G & G’s claim to the withheld 
contract payments. That argument fails not because of the 
absence of state action but because the State did not, in fact, 
destroy G & G’s claim.

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10
ARGUMENT

In this case, “G & G challenges the constitutionality of 
several provisions of the California Labor Code as violative 
of its federal due process rights.” Pet. App. 32.

The California statutory provisions in question, which are 
“incorporated by state law into all public works contracts, 
authorize the state to withhold payment of money owed to 
contractors or subcontractors for alleged violations of the 
state prevailing wage law.” Pet. App. 32. The events 
precipitating this due process challenge to the State’s 
prevailing wage law occurred when: i) the State withheld a 
portion of the payments otherwise due to general contractors 
on various public work projects on the ground that G & G, a 
subcontractor, had not paid its employees on the projects at 
the prevailing wage rates; and ii) the general contractors, in 
turn, withheld a corresponding portion of the amounts 
otherwise due to G & G under the subcontracts.

“Procedural due process imposes constraints on 
governmental decisions which deprive individuals of ‘liberty’ 
or ‘property’ interests within the meaning of the Due Process 
Clause of the Fifth or Fourteenth Amendment.” Mathews v. 
Eldridge, 424 U.S. 319, 332 (1976). Accordingly, “[t]he first 
inquiry in every due process challenge is whether the plaintiff 
has been deprived of a protected interest in ‘property’ or 
‘liberty.’” American Manufacturers Insurance Co. v. 
Sullivan, 526 U.S. 40, 59 (1999).

As we now show, G & G’s due process claim fails this 
“first inquiry” and the court below erred in concluding to the 
contrary.

A. The Ninth Circuit’s first—prt-Sullivan—due process 
ruling in this case cannot be squared with this Court’s due 
process analysis in Sullivan.

In its first decision, the court of appeals identified G & G’s 
property interest as follows: “G & G’s interest arises from its

278



11

public works contract; it has a property interest in being paid 
in full for the construction work it has completed.” Pet. App. 
30. Having so framed the issue, the Ninth Circuit concluded 
that “[t]he state’s withholding of [the disputed portion of the 
amount otherwise due under the contract] has deprived G & 
G of its interest in full payment for services rendered.” Pet. 
App. 30.

In other words, the “property interest” identified by the 
first Ninth Circuit decision here was G & G's interest in 
receiving immediate payment of the full amount “it claims it 
is entitled” to under the subcontracts, even though it is the 
position of the State—and, apparently of the general 
contractors—that, under the contracts, G & G is no! entitled 
to such full payment. Pet. App. 25.

As Judge Kozinski points out in his dissenting opinion 
below, this dispute between the State, the general contractors, 
and G & G over the amount G & G is to be paid and the 
action of the State and the general contractors in withholding 
a portion of the payments otherwise due on the grounds that 
G & G has not fully complied with the prevailing wage 
provisions of its contracts “is no different from a builder’s 
refusal to make progress payments when he discovers (or 
believes he has discovered) a failure of performance on any 
other term of a standard construction contract.” Pet. App. 49. 
Indeed, “[withholding payments under such circumstances is 
the standard remedy.” Id. at 50.

The proposition that a person—like G & G—who has a 
claim on the withheld payment has a property interest in the 
immediate payment of the disputed amount cannot survive 
Sullivan. In that case this Court rejected a procedural due 
process challenge to a state statutory scheme for providing 
workers’ compensation benefits and did so in terms that 
govern here.

Under the scheme in Sullivan, insurers are required to pay 
for medical treatment for eligible employees that is

279



12

“reasonable and necessary.” Insurers may, however, with
hold payment if the insurer disputes that a certain treatment is 
“reasonable and necessary,” pending resolution of the 
dispute. Sullivan rejected the employees’ contention that the 
withholding of a disputed payment is a deprivation of 
“property” within the meaning of the Due Process Clause. 
526 U.S. at 60-61.

There was general agreement among members of the Court 
that the employees could not be regarded as having a property 
interest in the payments themselves before the dispute as to 
whether the treatment was “reasonable and necessary” had 
been resolved. 526 U.S. at 60 (majority opinion); id. at 62 
(Ginsburg, J. concurring); id. at 63 (Breyer, J., concurring). 
See also id. at 63-65 (Stevens, J., concurring and dissenting). 
At the same time, Sullivan does not reach the separate 
question whether the employees “had a property interest in 
their claims for payment, as distinct from the payments 
themselves, such that the State, the argument goes, could not 
finally reject their claims without affording them appro
priate procedural protections. Cf. Logan v. Zimmerman 
Brush Co., 455 U.S. 422, 430-31 (1982).” Sullivan, 526 U.S. 
at 61 n.13. See also id. at 62 (Ginsburg, J., concurring in the 
majority opinion on the understanding that it was not 
reaching the issue whether due process required fair 
procedures for the adjudication of worker’s claims for 
benefits).

Under Sullivan, then, there is no “property interest in the 
payment of [amounts claimed to be due],” until the claimant 
has “clearfed] [the] hurdles” necessary for the “property 
interest in the payment of [the claimed amount] to attach 
under state law.” 526 U.S. at 60-61.

In this case, G & G does not dispute that the obligation to 
pay the prevailing wage was a material term of the 
subcontracts. Thus, the hurdle that G & G must clear for its 
asserted “property interest in the payment of [the full amount

280



13
provided in the contracts] to attach under state law” is a 
showing that the subcontractor met the condition in the 
subcontracts to pay prevailing wages. But G & G has not yet 
made any such showing and thus has not yet cleared that 
hurdle. Thus, the subcontractor does not have a ‘‘property 
interest” in the immediate payment of the contested amount, 
or a due process claim based on the State’s refusal to make an 
immediate payment of that amount—any more than the 
Sullivan employees had a property interest in the withheld 
insurance payments at issue in that case so long as there was a 
dispute over whether their medical treatments were 
“reasonable and necessary.” See Sullivan, 526 U.S. at 60-61.

B. When this case returned to the Ninth Circuit, following 
this Court’s remand “for further consideration in light of . . . 
Sullivan,” Bradshaw, 526 U.S. at 1061, the court of appeals 
shifted the locus of G & G’s property interest in an attempt to 
bring its ruling for G & G into line with Sullivan. But the 
Ninth Circuit’s second due process analysis is as unsound as 
its first.

With respect to the question “whether the claimant has a 
property interest in the matter complained of,” the Ninth 
Circuit acknowledged that this Court “found that the Sullivan 
plaintiffs did not possess a property interest in the immediate, 
unconditional payment for all medical treatment under the 
Pennsylvania statute,” while adding that the Court “went out 
of its way to make clear that its holding did not upset 
previous Supreme Court precedent supporting the conclusion 
that the plaintiffs had a property interest in their claims for 
payment.” Pet. App. 4-5 (emphasis in original). In this 
regard, the court of appeals further observed that “Justice 
Ginsburg, who provided the fifth vote necessary to make the 
due process discussion in Sullivan an opinion of the Court, 
further clarified this distinction” between “a property interest 
in the immediate, unconditional payment” and “a property 
interest in the[] claims for payment.” Id. (emphasis in 
original).

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14
Having thus analyzed this Court’s decision in Sullivan, the 

Ninth Circuit stated that it was “adopting] the approach 
explicitly preserved by the Sullivan majority and 
unequivocally adopted in Justice Ginsburg’s concurrence.” 
Pet. App. 5-6. The court of appeals then concluded that “G & 
G’s due process rights were violated, . . . not because it was 
denied immediate payment, but because the California 
statutory scheme afforded no hearing at all when state 
officials directed that payments be withheld.” Id. at 6.

In terms of this Court’s precedents, the Ninth Circuit’s due 
process analysis shifted from its pre-Sullivan reliance on 
cases such as Sniadach v. Family Finance Corp., 395 U.S. 
337 (1969), and Goldberg v. Kelly, 397 U.S. 254 (1970)— 
where the issue was the temporary deprivation of funds in 
which the individual had a vested entitlement—to Logan v. 
Zimmerman Brush Co., 455 U.S. 422 (1982)— where the 
issue was the complete destruction of a legal claim. Compare 
Pet. App. 29-30 (relying on Goldberg and Sniadach) with id. 
at 5 (relying on Logan).

The theory of Logan v. Zimmerman Brush Co., is that “a 
cause of action is a species of property protected by the 
Fourteenth Amendment’s Due Process Clause,” 455 U.S. at 
428, and that “the State may not finally destroy a property 
interest without first giving the putative owner an opportunity 
to present his claim of entitlement,” id. at 434. In Logan, the 
claim of a complainant under the Illinois Fair Employment 
Practices Act was “terminatfed] . . . because of the [Illinois 
Fair Employment] Commission’s failure to convene a timely 
conference” as required by the state statute. Id. at 426. The 
complainant’s “property interest . . . [wa]s destroyed when 
[his] case [wa]s terminated,” id. at 434 n. 8, because he could 
not “obtain judicial review of the Commission action,” id. at 
434, and was relegated by the state law to the “lengthy and 
speculative process” of a “tort suit” that would “never make 
the complainant entirely whole,” id. at 437. See Nevada v.

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15
United States, 463 U.S. 110, 144 n. 16 (m 3)C L ogan  . . . 
was a suit where the complaining party would be left without
recourse.”)-2

In the instant case, California law provides G & G ample 
“opportunity to present [its] claim of entitlement,” Logan, 
455 U.S. at 428, to the withheld contract payments at issue. 
That being so, the Ninth’s Circuit’s invocation of Logan to 
uphold G & G’s due process claim is, completely misplaced.

As an initial matter, it is clear that California’s statutory 
scheme contemplates that the State’s decision to withhold 
payments is open to challenge. The Labor Code expressly 
provides for a suit “by the contractor or his or her assignee 
. . . to establish his or her right to the wages or penalties 
withheld.” Cal. Labor Code § 1733. The reference in § 1733 
to a suit by an “assignee” is an obvious reference to a suit by 
a subcontractor to establish its right to the withheld contract 
payments.

Thus, G & G could have requested assignments from the 
general contractors and filed a § 1733 lawsuit. So far as the 
record shows, G & G did not make any such request and 
offered nothing in the way of an explanation for its failure to 
do so. And, G & G could have secured an express ex ante 
contractual promise by the general contractor to make such an 
assignment. Again, the record is silent as to whether G & G 
sought or secured such an express promise and if not, why 
not.

The Ninth Circuit bypassed this point entirely by posing 
the purely hypothetical situation in which the State withholds

2 It is not altogether dear that a contract claim of the sort held by G & 
G constitutes a property interest for purposes of due process analysis. See 
L yn g  v. P a y n e , 476 U.S. 926, 942 (1986). We nonetheless proceed on the 
assumption that G & G’s claims do constitute a property interest that 
cannot be extinguished without due process, and demonstrate in text, that 
G & G's claims for payments under its subcontracts have n o t been 
extinguished.

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16
contract payments from a general contractor, the general 
contractor withholds payments from a subcontractor, and the 
general contractor then refuses the subcontractor’s after-the- 
fact request for an assignment, thereby, as the court of 
appeals put it, leaving the subcontractor “holding a quite 
empty bag.” Pet. App. 28. Contrary to the court of appeals’ 
hypothesis, California law does not leave this hypothetical 
subcontractor without legal recourse.3

First of all, under California law there is in every contract 
“an implied covenant of good faith and fair dealing that 
neither party will do anything which injures the right of the 
other to receive the benefits of the agreement.” Bleecher v. 
Conte, 29 Cal.3d 345, 698 P.2d 1154, 1156 (Cal. 1981); 
California Lettuce Growers v. Union Sugar Co., 45 Cal.2d 
474, 289 P.2d 785 (Cal. 1955). In the absence of an express 
ex ante contractual promise to provide an assignment, then, a 
general contractor could not arbitrarily refuse a sub
contractor’s request: “Where a contract confers on one party a 
discretionary power affecting the rights of another, a duty is 
imposed to exercise that discretion in good faith and in 
accordance with fair dealing.” Kendall v Ernest Pestana, 
Inc., 40 Cal.3d 488, 709 P.2d 837, 845 (Cal. 1985) (emphasis 
supplied).

Even on the attenuated and unwarranted assumption that a 
general contractor would breach that contract duty, well- 
established principles of California equity law would assure 
the subcontractor the right to bring its claim for withheld 
contract payments, as Judge Kozinski pointed out in dissent:

If the contractor refuses to assign its right to sue for the
money withheld to the subcontractor, the subcontractor

3 The Ninth Circuit did n ot hold, in its p re-S u lliv an  opinion, that no  
state law remedies existed for its hypothetical subcontractor, the majority 
instead expressed “doubt” about the “viability” of such remedies. Pet. 
App. 36-37 n. 9. This state law issue was not revisited in the majority’s 
post-Su llivan  reinstatement order.

284



could sue under the theory of equitable subrogation, 
which the California Supreme Court has held “is broad 
enough to include every' instance in which one person, 
not acting as a mere volunteer or intruder, pays a debt 
for which another is primarily liable, and which in equity 
and good conscience should have been discharged by the 
latter.” Caito v. United California Bank, 20 Cal.3d 
694, 704 (1978) (quoting Rhine v. Kemmerrer, 114 
Cal.App.2d 810, 814 (1952)). [Pet. App. 50.]

See also United States v. California, 507 U.S. 746 (1993) 
(state imposed a tax on a federal contractor; contractor sought 
indemnification from the United States; having indemnified 
the contractor, the United States was, pursuant to California 
law, subrogated to the contractor’s claims against the State 
for a refund).

Indeed, in J  & K Painting Co. v. Bradshaw, 45 Cal.App.4th 
1394, 53 Cal.Rptr.2d 496 (1996), the state court of appeal 
allowed a public works subcontractor challenging the 
calculation of the penalty amount figured into a withheld 
payment to proceed directly against the State by filing a 
petition for a writ of mandate.

The sum of the matter is that California, far from 
destroying a subcontractor’s claim for withheld contract 
payments, provides the subcontractor an ample “opportunity 
to present [its] claim of entitlement.” The salient point here is 
that G & G never took any action at all to make, much less 
perfect, its claim.

While the foregoing is more than sufficient to demonstrate 
that the Ninth Circuit’s “empty bag” hypothetical rests on an 
erroneous account of present California law, we would be 
derelict if we failed to add that the California Legislature 
recently acted to add express language in the prevailing wage 
law stating that public works contractors and subcontractors 
each have an equal, independent—and legally proper— 
opportunity to present and perfect a claim for withheld

17

285



18
contract payments. An amendment to the prevailing wage 
law, operative on July 1, 2001, grants general contractors and 
subcontractors alike the right to a prompt administrative 
hearing to contest the State’s withholding of contract 
payments and/or the amount of the wages and penalties 
withheld and the right to judicial review of the administrative 
determination. See Cal. Stats. 2000, ch. 954 (A.B. 1646), 
reprinted in West’s California Legislative Service 5320-29 
(2000). Upon a decision to withhold payment, the amended 
law requires the awarding body or the Labor Stand
ards Division to serve written notice on the “contractor and 
the subcontractor” to “advise [them] of the procedure for 
obtaining review.” Stats. 2000, ch. 954 §§ 9, 16.4

C. On the foregoing analysis of G & G’s due process 
claim, the state action question that divided the Ninth 
Circuit—viz. whether the general contractors were engaged in 
“state action” when they withheld a portion of the contract 
payments from G & G—drops entirely out of the case. It is 
the State that is alleged to have destroyed G & G’s legal 
claims for full contract payment and only the State that could 
conceivably do so. Action that destroys a legal claim is, by 
definition, “state action” for purposes of due process analysis. 
And, G & G’s “destruction of a legal claim” due process 
theory fails not for a lack of “state action” but because the 
State has not, in fact, destroyed the claim.

To be sure, the state action question debated in the court of 
appeals was relevant under the analysis of the first Ninth 
Circuit decision here, which identified G & G’s property 
interest as an interest in receiving immediate payment under

4 T h is  am endm ent to the C a lifo rn ia  sta tu te  b rin g s the S ta te ’s 

p ro ced u res into  line with the fed eral p ro ced u res. W h e re  the fed eral 

go v ern m en t w ithholds p aym en t from  co n tra c to rs  w h o h av e fa iled  to 
co m p ly  w ith the fed eral p rev ailin g  w age re q u irem en ts, bo th  general 
co n tra c to rs  and su b co n tracto rs  have the righ t to  an  a d m in istra tiv e  h earin g 

to esta b lish  th eir righ t to the w ithheld funds. See 2 9  C .F .R .  § 5 .1 1 .

286



1 9

the contract. This was so, because it was only the private 
party with which G & G contracted that was withholding 
payment from G & G. While we agree with Judge Kozinski 
that the decision of a private contractor to refuse to pay the 
disputed portion of an amount otherwise due under a contract 
with a private subcontractor generally does not constitute 
state action, we do not believe that this question survives the 
shift in analysis by the court of appeals majority.

CONCLUSION

The judgment of the courts below should be reversed.

Respectfully submitted,

Jonathan P. Hiatt 
James B. Coppess 
815 Sixteenth Street, NW 
Washington, DC 20006
SCOTT A. KRONLAND
177 Post Street
San Francisco, CA 94108
Laurence Gold *
805 Fifteenth Street, NW 
Washington, DC 20005 
(202) 842-2600
* Counsel of Record

287



No. 00-152

In The

Supreme Court of the United States
---------------«---------------

ARTHUR S. LUJAN, el a l,
Petitioners,

vs.

G&G FIRE SPRINKLERS, INC.,
Respondent.

-------------- ♦ ---------------
On Writ Of Certiorari To The 

United States Court Of Appeals 
For The Ninth Circuit
------------------ e -------------------

BRIEF OF AMICI CURIAE THE PORT OF OAKLAND 
AND 54 CALIFORNIA CITIES 

IN SUPPORT OF PETITIONERS
-------------- 1 ---------------

D avid L. A lexander, Port Attorney 
C hristopher H. A lonzi,

Deputy Port Attorney 
Counsel o f Record 
Port of Oakland 
530 Water Street, 4th Floor 
Oakland, California 94607 
(510) 627-1572
H. J ames W ulfsberg
E ric J. F irstman
W ulfsberg, R eese & S ykes, P.C.
300 Lakeside Drive, 24th Floor 
Oakland, California 94612-3524 
(510) 835-9100
Attorneys for Amici Curiae 

In Support of Petitioners 
Arthur S. Lujan, et al.

289



1

TABLE OF CONTENTS
Page

STATEMENT OF AMICI CURIAE.................................  1

A. Identity of Amici........................................................  1

B. Interest of A m ici........................................................  1

C. Source of Authority................................................... 2

SUMMARY OF ARGUMENT........................................... 2

I. A PUBLIC WORKS CONTRACT DOES NOT
CREATE "PROPERTY" WITHIN THE MEAN
ING OF THE FOURTEENTH AMENDMENT 
BECAUSE THE CONTRACTOR'S RELATION
SHIP WITH THE PUBLIC AGENCY IS INHER
ENTLY TEMPORARY, NON-EXCLUSIVE AND 
SUBJECT TO LIMITLESS VARIATIONS.............. 3

II. ANTICIPATED PAYMENTS UNDER A PUBLIC 
WORKS CONTRACT ARE NOT PROPERTY 
WITHIN THE MEANING OF THE FOUR
TEENTH AMENDMENT BECAUSE AS A MAT
TER OF LAW THE CONTRACTOR IS NOT 
ENTITLED TO PAYMENT UNTIL IT SATISFIES
THE TERMS OF THE CONTRACT........... 9

A. Satisfactory Performance of a California 
Public Works Contract is a Condition Prece
dent to Any Entitlement to Payment..........  12

B. With Respect to "Disputed Amounts" The
Public Agency May Withhold Anticipated 
Payments Pending Resolution of the Dis
pute........................................................................  12

C. Payments Under Public Works Contracts
Are Subject to Withholding of Liquidated 
Damages..............................................................  14

2S0



ii

TABLE OF CONTENTS -  Continued
Page

D. All Progress Payments Under a Public 
Works Contract Are Subject to Retention of 
Five Percent.........................................................  14

III. THE DECISION BELOW WILL SERIOUSLY 
IMPEDE THE DEVELOPMENT AND MAINTE
NANCE OF VITAL PUBLIC INFRASTRUC
TURE BY C O N V ER TIN G  O R D IN A R Y  
CONTRACT DISPUTES INTO FEDERAL CIVIL 
RIGHTS CLAIMS WHICH ALLOW FOR INDI
VIDUAL LIABILITY AND PREVAILING 
PLAINTIFF ATTORNEY'S FEES UNDER 42
U.S.C. SECTION 1988.  .................................. 17

CONCLUSION..................................................................... 20

291



I l l

Cases

American M anufacturers Mutual Insurance Co. v. 
S ullivan , 526 U.S. 40, 119 S. Ct. 977, 143

TABLE OF AUTHORITIES
Page

Board o f  Regents o f  State Colleges v. Roth, 408 
U.S. 564, 92 S. Ct. 2701, 33 L. Ed. 2d 548

Breda Costruzioni Ferroviarie v. Los Angeles County 
M e tr o p o l i t a n  T r a n s p o r ta t io n  A g e n c y ,  56 
Cal.App.4th 1433, 66 Cal.Rptr.2d 416 (1997)............ 13

Capital Elec. Co. v. United States, 729 F.2d 743 (Fed.
Cir. 1984)................................................................................6

City o f  Oakland v. Hogan, 41 Cal.App.2d 373, 106
P.2d 897 (1940)......................................................................2

Cleveland Board o f Education v. Loudermill, 470 U.S.
532, 105 S. Ct. 1487, 84 L. Ed! 2d 494 (1985)....5 , 10

College Savings Bank v. Florida Prepaid Postsecondary 
Education Expense Board, 527 U.S. 666, 119 S. Ct.
2219, 144 L. Ed. 2d 605 (1999)............................... 14, 16

E xcess E lectron ix x  v. H eger R ealty  C orp ., 64
Cal.App. 4th 698, 75 Cal.Rptr. 2d 376 (1998).......... 18

G & G Fire Sprinklers, Inc. v. Bradshaw, 156 F.3d 893
(9th Cir. 1998) (vacated and reinstated)........9, 17, 18

G & G Fire Sprinklers v. Bradshaw, 204 F.3d 941 (9th 
Cir. 2000 )............................................................................... 9

Green v. Soule, 145 Cal. 96, 78 P. 338 (1904)..................7

Goldberg v. Kelly, 397 U.S. 254, 90 S. Ct. 1011, 25 
L. Ed. 2d 287 (1970)............................... ..................... 4, 11

292



IV

Hafer v. Melo, 502 U.S. 21, 112 S. Ct. 358, 116
L. Ed. 2d 301 (1991)........................................................  18

Howard Contracting, Inc. v. G.A. M cDonald Con
stru ction  Co., Inc., 71 CaI.App.4th 38, 83 
Cal.Rptr.2d 590 (1998)...................... ............................... 7

Martz v. Incorporated Village o f  Valley Stream, 22
F.3d 26 (2nd Cir. 1994)...................................................  17

M athews v. Eldridge, 424 U.S. 319, 96 S. Ct. 893, 47
L. Ed. 2d 18 (1976)......................................................4, 11

Paul v. Davis, 424 U.S. 693, 96 S. Ct. 1155, 47
L. Ed. 2d 405 (1976)...................................................... 8, 17

Reich v. Beharry, 883 F.2d 239 (3rd Cir. 1989).............. 18

San Bernardino Physicians' Services Medical Group v.
County o f San Bernardino, 825 F.2d 1404 (9th Cir.
1987)................................................................................... 9, 17

S & D Maintenance Co., Inc. v. Goldin, 844 F.2d 962
(2nd Cir. 1988)................................................................9, 17

Souza & McCue Constr. Co. v. Superior Court, 57
Cal.2d 508, 20 Cal. Rptr. 634 (1962)..............................6

Sparks v. Folsom Co., 217 Cal.App.2d 279, 31
Cal.Rptr. 640 (1963)...............................................................7

Unger v. National Residents Matching Program, 928
F.2d 1392 (3d Cir. 1991)..................................................... 17

Walentas v. Upper, 862 F.2d 414 (2nd Cir. 1988)..........  18

C onstitutions, S tatutes and R ules

U.S. CONSTITUTION
Amendment XIV..........................................   passim

42 U.S.C. § 1983..................................................................... 18

TABLE OF AUTHORITIES -  Continued
Page

293



V

42 U.S.C. § 1988.........................................................2, 17, 18

U.S. Supreme Court Rules, Rule 3 7 ................................. 2

C alifornia

Business & Professions Code
Section 7025................................................................................8

Section 7028.15 .......................................................................... 7

Section 7029................................................................................8

Section 7029.1 ..........................................................................8

Section 7076..............................................   8

Civil Code
Section 1436............................................................................  12

Section 1717..............................................................................18

Section 3179..............................................................................13

Section 3186...................................................................... 13, 19

Section 3196..............................................................................13

Section 3260............................................................................ 13

Section 3320............................................................................ 13

Government Code
Section 926.19 ...................................................................... 13

Section 927.3 .. .. i ....................................................................13

Section 13332.19 ........................................................................ 8

TABLE OF AUTHORITIES -  Continued
Page

294



VI

TABLE OF AUTHORITIES -- Continued
Page

Section 14661 ......................................... ..................................8

Section 53069.85 ................................... ..........................14, 19

Public Contract Code
Section 7107........................................... ..........................13, 19

Section 9203........................................... ....................7, 12, 15

Section 10164......................................... ............................... 19

Section 10226......................................... ..........................14, 19

Section 10258......................................... ............................... 16

Section 10261 ......................................... ....................7, 12, 15

Section 10261.5 ..................................... .............................. 13

Section 10262.5 .................................... ......................... . . . 1 9

Section 10263......................................... ............................... 16

Section 10781 ......................................... ............................... 19

Section 10782......................................... ................................19

Section 10826......................................... ............................... 19

Section 10851 ......................................... ............................... 15

Section 10853 ......................................... ............................... 13

Section 20103.5 ..................................... ............................... 19

Section 20104.50 .................................. ............................... 13

Section 20172......................................... ............................... 19

Section 20418......................................... ............................... 19

Section 20490......................................... ............................... 16

295



vn

TABLE OF AUTHORITIES -  Continued
Page

Section 20670........................................................................... 8

Section 22300..........................................................................  16

O ther A uthorities

Acret ]., California Public Construction Contract Law
Handbook, § 4.04 (BNI Publications -  2000) . . .  13, 14, 15

McQuillin, E., Municipal Corporations, § 137.132
(3rd Ed.) Clark, Boardman, Callaghan..........12, 14, 15

Martin, J., Management o f Public Works Construction 
Projects (American Public Works Assoc. 1999) 

....................................................................................1, 6, 7, 14

Miller, Cities by Contract: The Politics o f  Municipal
Incorporation, (MIT Press 1981)....................................... 1

Public Works Standards, Inc., Greenbook: Standard 
Specifications fo r  Public Works Construction (2000 
ed.) (BNI Publications 1999)........................................  19

Sweet & Sweet, Sweet on Construction Industry 
Contracls-Major A1A Documents § 15.11 (4th Ed.)
(Aspen Law & Business 1999).....................................  19

Terrell, Timothy P., "Property", "Due Process" and 
the Distinction Between Definition and Theory in 
Legal Analysis, 70 Geo. L.J. 861 (Feb. 1982)................7

296



1

BRIEF OF AMICI CURIAE 
THE PORT OF OAKLAND AND 

54 CALIFORNIA CITIES 
IN SUPPORT OF PETITIONERS

The Port of Oakland and the 54 cities as listed on 
Attachment A ("Amici") submit this brief of amici curiae 
in support of petitioners Victoria Bradshaw, et al.

STATEMENT OF AMICI CURIAE
A. Identity of Amici

Amici are 54 California public entities responsible for 
building and maintaining roads, bridges, buildings, har
bors and airports for use by the public. In fulfilling these 
responsibilities, Amici award and execute numerous pub
lic works contracts in the manner specified by state law 
and local charters.

B. Interest of Amici
Amici have concluded that this case presents an issue 

of exceptional importance to municipalities because the 
holding that an ordinary public works contract creates a 
protected property interest under the Fourteenth Amend
ment to the U.S. Constitution holds the potential to open 
an entirely new realm of municipal liability. All cities 
utilize contractors to deliver municipal services; indeed 
some cities use contractors for all of their services. (See, 
Miller, Cities by Contract: The Politics o f M unicipal Incor
poration (MIT Press 1981).) Unfortunately, disputes with 
contractors are an unavoidable part of contemporary 
public works administration. (See, Martin, Management o f  
Public Works Construction Projects, pp. 121-122 (American 
Public Works Assoc. 1999).) If the decision below stands, 
state and local governmental agencies will face the threat 
of a federal civil rights suit, and a potential attorneys fees

297



2

award under 42 U.S.C. § 1988, in every dispute with a 
contractor.

C. Source of Authority
Amici are authorized by state law or local charter to 

participate in any judicial proceedings related to their 
operations. This brief is filed under the authority of U.S. 
Supreme Court, Rule 37.1 Both Petitioner and Respondent 
have consented to the filing of this brief.

SUMMARY OF ARGUMENT
Under this Court's precedents, the concept of a 

"property interest" protected by the Fourteenth Amend
ment is not strictly limited to real estate, chattels or 
money. But, this Court has also recognized that the range 
of protected interests is not infinite; the term "property" 
must be given some meaning. As Amici explain here, the 
decision below recognizing that an ordinary public works 
contract may create a protected property interest is erro
neous for two reasons. First, a public works contract is 
fundamentally different from a contract of employment -  
the only type of contract recognized to create a property 
interest. Most significantly, the relationship between a 
public works contractor and the public agency is strictly 
limited at its inception to a limited time period and 
provides absolutely no assurance of continued work.

1 Amici are cities, towns, or similar entities organized 
pursuant to the Constitution and laws of the State of California. 
The Board of Port Commissioners of the City of Oakland 
possesses exclusive control over the city's maritime and 
aviation matters. (C ity  o f  O a k la n d  v. H o g a n , 41 Cal.App.2d 373, 
342-725, 106 P.2d 897 (1940).) Counsel for a party did not author 
this brief in whole or in part. No person or entity, other than 
Amici, or their counsel, made any monetary contribution to the 
preparation and submission of this brief.

298



3

Additionally, the relationship between the public works 
contractor and the public entity is by definition one of 
hirer and independent contractor, non-exclusive, subject 
to numerous permutations and variations, and provides 
for payments contingent upon satisfactory performance. 
Second, even if the contractor's interest is characterized 
as receiving payment for its work, the California Legisla
ture has chosen not to confer a property interest in antici
pated payments under a public works contract. The 
contractor's entitlement to payment is by law contingent 
upon its satisfactory performance, including payment of 
sub-contractors and suppliers, and upon timely comple
tion of the project. Finally, as a matter of public policy, the 
decision below will seriously impede the development 
and maintenance of vital public infrastructure.2

I .

A PUBLIC WORKS CONTRACT DOES NOT CREATE 
"PROPERTY" WITHIN THE MEANING OF THE FOUR
TEENTH AMENDMENT BECAUSE THE CONTRAC
TOR'S RELATIONSHIP WITH THE PUBLIC AGENCY IS 
INHERENTLY TEMPORARY, NON-EXCLUSIVE AND 
SUBJECT TO LIMITLESS VARIATIONS.

"The first inquiry in every due process challenge is 
whether the plaintiff has been deprived of a protected 
interest in 'property' or 'liberty'." (American Manufac
turers Mutual Insurance Co. v. Sullivan, 526 U.S. 40, 59, 119

2 Amici agree with Petitioner's argument that G & G failed 
to prove the required element of state action as necessitated by 
A m e r ic a n  M a n u fa c t u r e r s  M u t u a l  I n s u r a n c e  C o . v. S u l l iv a n ,  526 U.S. 
40, 119 S. Ct. 977, 143 L. Ed. 2d 130 (1999). However, as Amici 
explain, the majority opinion is also fatally flawed in that it 
holds that an ordinary commercial contract with a public entity 
creates a protected property interest, sufficient to create a 
federal cause of action in an ordinary contract dispute.

299



4

S. Ct. 977, 143 L. Ed. 2d 130 (1999).) As explained below, 
the transitory commercial interests of a public works 
contractor are fundamentally different from the types of 
interests that this Court has previously recognized as 
"property."

Since 1970, the conceptual contours of protected 
property interests have expanded beyond tangible prop
erty to embrace various species of government-created 
benefits, such as welfare and social security benefits. 
(Goldberg v. Kelly, 397 U.S. 254, 90 S. Ct. 1011, 25 L. Ed. 2d 
287 (1970); Mathews v. Eldridge, 424 U.S. 319, 96 S. Ct. 893, 
47 L. Ed. 2d 18 (1976).) Amici do not dispute the correct
ness of this Court's decisions recognizing an individual's 
property interests in welfare or social security benefits. 
Instead, Amici contend that the transitory commercial 
interests of a public works contractor fall well outside the 
boundaries of this Court's past precedents.

There is a fundamental distinction between welfare 
and social security recipients on the one hand, and public 
works contractors, on the other. The welfare or social 
security recipient is under no reciprocal obligation to the 
government in exchange for the benefits received; having 
met the statutory eligibility criteria, the recipient need 
not provide any service or commodity to the government. 
The amount of a recipient's benefits does not vary 
depending upon the quality and quantity of his or her 
performance. In contrast, award of a public works con
tract does not immediately entitle the contractor to 
receive payment of the contract price. The contractor 
must first deliver complete performance as defined by the 
terms and conditions of the contract. The public works 
contract strictly specifies the quantity, quality and sched
ule for the work. Until the contractor has performed to 
the satisfaction of the public agency, it has only a "uni
lateral expectation" of payment, but not a "legitimate 
claim of entitlement." (C/. Board o f  Regents o f State Colleges 
v. Roth, 408 U.S. 577, 92 S. Ct. 2701, 33 L. Ed. 2d 548.)

300



5

It has long been recognized that a contract with a 
public entity may provide the source for a protected 
property interest. {Roth, supra, 408 U.S., at 570, 572, 92
S. Ct. 2701, 33 L. Ed. 2d 548.) To date, however, this Court 
has found only that contracts of employment are suffi
cient to create a protected property interest. {Id., see also, 
Cleveland Board of Education v. Loudermill, 470 U.S. 532, 105 
S. Ct. 1487, 84 L. Ed. 2d 494 (1985).) In determining 
whether an interest rises to the level of "property", this 
Court must examine not the "weight" of the asserted 
interest, but "the nature of the interest at stake." {Roth, 
supra, 408 U.S. 564, 92 S. Ct. 2701, 33 L. Ed. 2d 548.) The 
employee tenure cases may be explained by the impor
tance of employment to the individual in modern society: 
"It is a purpose of the ancient institution of property to 
protect those claims upon which people rely in their daily 
lives, reliance that must not be arbitrarily undermined." 
{Roth, supra, 408 U.S., at 577, 92 S. Ct. 2701, 33 L. Ed. 2d 
548 [emphasis added].) Contemporary employment rela
tionships provide the employee more than simple mone
tary remuneration; an employees's health care, retirement 
pension, investments and, sometimes, even sense of iden
tity are also bound up in the relationship.

In Roth, this Court considered the claim of a non- 
tenured college professor hired for a fixed annual term. 
Under the relevant rules of the Board of Regents, Roth 
was notified that he would not be retained for the follow
ing academic year. The only question considered by this 
Court was whether the Fourteenth Amendment required 
the Board to provide Roth with notice and a hearing prior 
to making the non-retention decision. This Court held 
that the Board was not required to provide notice and a 
hearing because it did not deprive Roth of "property" 
within the meaning of the Fourteenth Amendment. The 
applicable state laws and regulations provided Roth with 
only a fixed annual term of employment and "secured 
absolutely no interest in re-employment for the next

301



6

year." (Roth, supra, 408 U.S., at 578, 92 S. Ct. 2701, 33 
L. Ed. 2d 548.)

The transitory commercial interests of a public works 
contractor are of a qualitatively different nature from the 
individual interest of an employee.

First, like the fixed annual contract considered in 
Roth, a public works contract creates an inherently tem
porary commercial relationship between the contractor 
and the public agency that lasts only until the project is 
complete. (See, Martin, J., Management o f  Public Works 
Construction Projects, pp. 114-116 (American Public Works 
Assoc. 1999).) The inherent temporal limitation in a pub
lic works contract is indistinguishable from the one-year 
employment contract at issue in Roth. Standing alone, this 
fundamental feature disqualifies a public works contract 
from the category of protected property interest. (Roth, 
supra, 408 U.S., at 578, 92 S. Ct. 2701, 33 L. Ed. 2d 548.) 
However, the public works contractor's claimed property 
interest is even weaker than that asserted by Professor 
Roth because the contractor's scope of work is also pre
cisely defined to a degree that would be intolerable in an 
employment relationship. The strict limits upon the con
tractor's scope of work are highlighted by the fact that, 
unlike an employee, a public works contractor is entitled 
to equitable adjustments in its payments when the nature 
of the work deviates from the contractually defined scope 
of work. (Souza & McCue Constr. Co. v. Superior Court, 57 
Cal.2d 508, 20 Cal.Rptr. 634 (1962).)

Second, the relationship between the public entity 
and the contractor is rarely exclusive; the contractor is at 
liberty to work on other projects simultaneously.3 As a

3 It is this fact that necessitated the recognition of the 
"Eichleay formula" for apportioning a contractor's lost home 
office overhead among numerous projects in order to measure 
indirect damages caused by the contracting agency. (S e e ,  C a p it a l

3G2



7

result, public works contractors have a greater ability 
than public employees to protect themselves from unfair 
treatment by public agencies either by adjusting their 
bids or simply avoiding bidding in the first instance.4 
Indeed, in formulating their bids, public works contrac
tors consider an agency's (positive or negative) reputa
tion for fair dealing, the agency's reputation for making 
prompt payments, the reasonableness of liquidated dam
ages measures and the availability of other, more attrac
tive, projects. (Martin, supra, pp. 54, 65, 95.)

Third, by definition a public works contractor acts as 
an independent contractor whose payments are measured 
by its satisfactory performance. Contractors and sub-con
tractors are engaged in a distinct, legally defined, occupa
tion or calling. (Green v. Soule, 145 Cal. 96, 99, 78 P. 337 
(1904); Sparks v. Folsom Co., 217 Cal.App.2d 279, 288, 31 
Cal.Rptr. 640 (1963).) Only licensed contractors may be 
awarded a public works contract. (Cal. Bus. & Prof. Code, 
§ 7028.15 (Deering's 1993).) Payments to the public works 
contractor are based only upon estimates of the work 
completed as determined by the public agency. (Cal. Pub. 
Con. C. §§ 9203, 10261 (Deering's 1994 and 2000 pkt. 
supp.), see also, Part II, infra.)

Elec. Co. v. United States, 729 F.2d 743 (Fed. Cir. 1984); Howard 
Contracting, Inc. v. G.A. McDonald Construction Co., Inc., 71 
Cal.App.4th 38, 83 Cai.Rptr.2d 590 (1998).)

4 Professor Terrell argues that the Due Process Clause’s 
function of discouraging arbitrary government action is of 
limited importance when external constraints have the same 
effect: "The most important external constraint for our purposes 
is the general effect that marketplace competition has on 
government behavior and individual choice." (Terrell, Timothy 
P., "Property", "Due Process” and the Distinction Between 
Definition and Theory in Legal Analysis, 70 Geo. L.J. 861, 901 (Feb. 
1982).)

303



8

Finally, interests that are by their nature amorphous 
and limitless are outside the original intent that animated 
the drafters of the Fourteenth Amendment. (Paul v. Davis, 
424 U.S. 693, 698-699, 96 S. Ct. 1155, 47 L. Ed. 2d 405 
(1976).) While the concept of "property" has not been 
strictly limited to actual ownership of real estate, chattels 
or money, this Court has acknowledged that "the range of 
interests protected by due process is not infinite", for the 
term "property" as used in the Fourteenth Amendment 
"must be given some meaning." {Roth, supra, 408 U.S., at 
570, 572, 92 S. Ct. 2701, 33 L. Ed. 2d 548; see, Paul, supra, 
424 U.S., at 698-699, 96 S. Ct. 1155, 47 L. Ed. 2d 405.)

Employment relationships all share the common 
structure of an individual person's commitment to per
form generally described duties in exchange for defined 
pay and benefits. This structural consistency ensures that 
the term "property" is applied to interests with definite 
form and substance. In contrast, the structure of a rela
tionship between a public works contractor and a public 
agency, as well as the form of the contractor, is subject to 
myriad variations spawned by the commercial mar
ketplace. A public works contractor may assume the form 
of a sole proprietorship, partnership, corporation, or a 
joint-ventures of each. (Cal. Bus. & Prof. C. §§ 7025, 
7029-7079.1, 7076 (Deering's 1993.) They may consist of 
joint-ventures between design professionals and licensed 
builders. (Cal. Bus. & Prof. C. § 7029.) To an even greater 
degree, the nature of the commercial terms is also highly 
variable and includes such options as building according 
to prepared plans and specifications, design-build, sale 
and lease-back arrangements, and design-build-operate 
agreements. (See, Cal. Gov. C. §§ 13332.19 (Deering's 2000 
pkt. supp.), 14661 (Deering's 1999), Cal. Pub. Con. C. 
§ 20670 et secj. (Deering's 1994).) Applying the term 
"property" to an interest subject to such kaleidoscopic 
variations serves only to dilute the meaning of the term.

304



9

Together or individually, the inherent features of 
public works contracts distinguish them from the individ
ual contract-based interests that have thus far received 
constitutional protection. In contemporary society, 
employment may be properly characterized as a property 
interest given its overriding importance to the individual. 
(San Bernardino Physicians' Services Medical Group v. 
County of San Bernardino, 825 F.2d 1404 (9th Cir. 1987); 
S & D Maintenance Co., Inc. v. Goldin, 844 F.2d 962 (2nd 
Cir. 1988).) To extend such protection, however, to ordi
nary commercial contracts simply because one of the 
parties is a public agency is unwarranted given the fun
damental differences in the duration and scope of the 
relationship, the non-exclusive nature of the relationship, 
the fact that an independent contractor whose payments 
are measured by the agency's satisfaction is legally dis
tinct from an employee and the limitless variation in the 
forms of public works contractors and their commercial 
relationships with public agencies. Amici therefore urge 
this Court to hold that a public works contract cannot be 
the source of a property interest under the Fourteenth 
Amendment. II.

II.
ANTICIPATED PAYMENTS UNDER A PUBLIC  
WORKS CONTRACT ARE NOT PROPERTY WITHIN 
THE MEANING OF THE FOURTEENTH AMEND
MENT BECAUSE AS A MATTER OF LAW THE CON
TRACTOR IS NOT ENTITLED TO PAYMENT UNTIL 
IT SATISFIES THE TERMS OF THE CONTRACT.

In its decision below, the majority suggest that the 
locus of the contractor's property interest is its interest in 
"being paid in full for the construction work it has com
pleted." (G & G Fire Sprinklers v. Bradshaw, 156 F.3d 893, 
901 (9th Cir. 1998) reinstated, G & G Fire Sprinklers v. 
Bradshaw, 204 F.3d 941 (9th Cir. 2000).) Therefore, the

305



1 0

lower court held that the State was required to provide 
due process prior to withholding G & G's anticipated 
payments. As described above, Part I, the inherent fea
tures of a public works contract bar its characterization as 
property. However, even characterizing the contractor's 
interest as one in anticipated payments is unavailing 
because a property interest is created and defined in 
statutory terms and a state legislature may elect not to 
confer a property interest at all. (C/. Cleveland Bd. Of Ed., 
supra, 470 U.S., at 541, 105 S. Ct. 1487.). As Amici explain 
next, the California Legislature has elected not to confer a 
property interest in anticipated payments under a public 
works contract.

In California, anticipated payments under a public 
works contract fall into the same constitutional category 
of "non-property" as the disputed workers' compensa
tion benefits at issue in American Manufacturers Mutual 
Insurance Co. v. Sullivan, 526 U.S. 40, 119 S. Ct. 977, 143 
L. Ed. 2d 130 (1999) ("American Manufacturers"). In Ameri
can Manufacturers, this Court considered whether the Due 
Process Clause permits workers' compensation insurers 
to unilaterally withhold disputed medical treatment prior 
to a determination that the medical treatment was reason
able and necessary. Under the insurance program at issue 
in American Manufacturers, state law entitled injured 
workers to receive all "reasonable" and "necessary" med
ical treatment for work-related injuries. The insurer, how
ever, was authorized to dispute the amount of medical 
payments if they were deemed unreasonable or unnecess
ary. Moreover, pending a determination of the issue by a 
neutral party, state law authorized the insurer to with
hold payment for medical treatment. Respondent 
employees filed suit alleging that the medical benefits 
constituted "property" that could not be withheld with
out first affording the injured worker due process.

In rejecting the employees' claims, this Court distin
guished the asserted property interest from other types of

306



1 1

government payments, such as welfare payments and 
social security disability payments, which have achieved 
the status of property. (American Manufacturers, supra, 526 
U.S., at 60, 119 S. Ct. 977, 143 L. Ed. 2d 130; citing, 
Goldberg, supra, 397 U.S. 254, 90 S. Ct. 1011, 25 L. Ed. 2d 
287 and Mathews, supra, 424 U.S. 319, 96 S. Ct. 893, 47 
L. Ed. 2d 18.) The employees' claims for medical benefits 
were "fundamentally different" from such statutory enti
tlements because state law expressly limited the 
employee's entitlement to reasonable and necessary med
ical treatment. Most significantly, state law required that 
disputes over the reasonableness of and necessity of a 
particular treatment be resolved before an employer's 
obligation to pay -  and an employee's entitlement to 
benefits -  arose. (American Manufacturers, supra, 526 U.S., 
at 60, 119 S. Ct. 977, 143 L. Ed. 2d 130.) The injured 
employee's property interest arose, if at all, only after he 
or she established both that the employer was liable and 
that the medical treatment was reasonable and necessary. 
The result reached in American Manufacturers is an elab
oration of this Court's previous observation that the 
Fourteenth Amendment provides a safeguard of "the 
security of interests that a person has already acquired in 
specific benefits." (Roth, supra, 408 U.S., at 576, 92 S. Ct. 
2701, 33 L. Ed. 2d 548 [emphasis added].)

As explained in detail below, four features of public 
works contracting in California establish that the Legisla
ture has elected not to confer a property interest in antici
pated payments under a contract: 1) satisfactory 
performance of the contract is a condition precedent to 
any entitlement to payment, 2) public agencies are autho
rized to withhold disputed payments pending resolution 
of the dispute, 3) payments are subject to withholding of 
liquidated damages, and 4) public agencies must retain a 
portion of each progress payment until the project is 
accepted as complete. Considered together or individu
ally, these statutory features establish contingencies that

307



1 2

are indistinguishable from the "reasonable and neces
sary" requirement at the center of this Court's holding in 
American Manufacturers.

A. Satisfactory Performance of a California Public 
Works Contract is a Condition Precedent to Any 
Entitlement to Payment.

"As a general proposition, complete performance of a 
public improvement contract is a condition precedent to 
the right to recover compensation." (McQuillin, E., Muni. 
Corp., § 137.132 (3rd Ed.) Clark, Boardman, Callaghan.) A 
condition precedent is an act which must be performed 
before the promisor's duty of performance arises. (Cal. 
Civ. C. § 1436 (Deerings 1994).) Therefore, as a general 
matter, a contractor has no legitimate claim of entitlement 
to being paid until it has delivered satisfactory perfor
mance under the contract. This principle is embodied in 
the California Public Contract Code under various provi
sions that condition payment to the contractor on satisfy
ing the public agency. For example, payments upon 
contracts must be made based on estimates of work com
pleted which are made and approved by the agency. (Cal. 
Pub. Con. C. §§ 9203 (local agencies), 10261 (state agen
cies) (Deerings 1994 and 2000 pkt. supp.).) Significantly, 
the State Controller is authorized to make payments to 
contractors only upon the State-approved estimates. (Cal. 
Pub. Con. C. § 10261.)

Thus, at the outset, the contractor's entitlement to 
payment does not arise until its performance is satisfac
tory to the public agency.

B. With Respect to "Disputed Amounts" The Public 
Agency May Withhold Anticipated Payments Pend
ing Resolution of the Dispute.

California law requires public agencies to promptly 
make progress payments to prime contractors, and that

308



1 3

prime contractors make prompt payments to sub-contrac
tors. The Legislature, however, has unambiguously 
exempted "disputed amounts" from this requirement. 
(Cal. Pub. Con. C. §§ 7107 (Deering's 2000 pkt. supp.), 
10261.5 (Deering's 1994), 10853 (Deering's 1994), 20104.50 
(Deering's 1994), Cal. Civ. C. § 3320 (Deering's 2000 pkt. 
supp.), Cal. Gov. C. §§ 926.19, 927.3 (Deering's 2000 pkt. 
supp.)5 Moreover, state law provides that in the event of a 
dispute between the public agency and the contractor, the 
agency may "withhold from the final payment an amount 
not to exceed 150 percent of the disputed amount." (Cal. 
Pub. Con. C. §§ 7107, subd. c.) Even on projects con
structed under private contract, the owner may withhold 
from the contractor 150% of disputed amounts if the 
project is ultimately intended for use by the public. (Cal. 
Civ. C. § 3260, subd. c(3) (Deering's 2000 pkt. supp.)

Similarly, state law imposes a duty on a public 
agency to withhold payments from the prime contractor 
upon the request of an unpaid sub-contractor or material 
supplier. (Cal. Civ. C. § 3179, el seq. (Deering's 1986).) 
Upon receipt of a "stop notice" from the unpaid sub
contractor, the public agency is required to withhold the 
disputed amount pending resolution of the dispute. (Cal. 
Civ. C. § 3186 (Deering's 2000 pkt. supp.).) The contractor 
may obtain release for the withheld payment, but only if 
it first submits to the public agency a bond equal to 125% 
of the disputed amount. (Cal. Civ. C. § 3196, (Deering's 
1986).)

5 Breda C o stru z ion i  F e r ro v ia r ie  v. Los A n g e le s  C ou n ty  
Metropolitan Transportation Agency,  56 Cal.App.4th 1433, 66 
Cal.Rptr.2d 416 (1997), is not to the contrary. There, the court 
held only that interest earned on temporarily withheld funds 
under a public contract must be paid to the contractor. One 
commentator has criticized the decision as "based on 
uninform ed assum ptions." (A cret C a l i f o r n ia  P u b l i c  
C o n s tru c t io n  C o n tra c t  Law  H a n d b o o k ,  191 (BN1 Publica- 
tions-2000).)

309



1 4

C. Payments Under Public Works Contracts Are Sub
ject to Withholding of Liquidated Damages.

The Legislature's requirement that the public agen
cies include in their contracts liquidated damages provi
sions is yet another signal of its intent not to confer 
property status on anticipated payments to a public 
works contractor.

The decision below cannot be reconciled with the fact 
that the Legislature has mandated that state agencies 
include liquidated damages provisions in all public 
works contracts. Liquidated damages clauses "are 
intended as a more direct, faster and cheaper alternative 
than litigation for setting time-related financial dam
ages." (Martin, supra, 54, see also, McQuillin, § 137.141.) 
Acret opines that "liquidated damages provisions are 
particularly appropriate to public contracts" in light of 
the difficulty of establishing damages for lost use. (Acret, 
supra, § 4.17, p. 46.) The State must include in its public 
works contracts provisions permitting the forfeiture of 
liquidated damages for late completion -  "to be deducted 
from any payments due or to become due." (Cal. Pub. 
Con. C. § 10226 (Deerings 1984).) Any city, county or 
district may include in its public works contracts a late- 
completion provision under which a specified sum of 
money is to be "deducted from any payments due or to 
become due to the contractor." (Cal. Gov. C. § 53069.85 
(Deering's 2000 pkt. supp.)

D. All Progress Payments Under a Public Works Con
tract Are Subject to Retention of Five Percent.

"The hallmark of a protected property interest is the 
right to exclude others." (College Savings Bank v. Florida 
Prepaid Postsecondary Education Expense Board, 527 U.S. 
666, 672, 119 S. Ct. 2219, 144 L. Ed. 2d 605 (1999).) For 
public works contracts, the Legislature has mandated that 
a portion of the contractor's earned progress payments be

310



15

withheld during the project -  these funds are known as 
"the retention." As a matter of law, the public works 
contractor is neither entitled to, nor in exclusive control 
of, the retained funds until its total performance is com
plete according to the terms of the contract.

A leading authority on California construction law 
explains, "[Tjhe purpose of the retention is to provide 
economic motivation for the contractor to complete the 
project and to give the public agency financial secu
rity . . . [F]or example, the agency could use the retained 
funds to repair defective work." (Acret J., California Public 
Construction Contract Law Handbook, § 4.04 (BNI Publica
tions -  2000); see also, McQuillin, supra, Muni. Corp., 
§ 37.179.) Under California law, local agencies must retain 
"not less than five percent of the contract price until final 
completion and acceptance of the project.” (Cal. Pub. Con. C. 
§ 9203 (Deering's 1994) [emphasis added].) The require
ment to include retention provisions in public contracts 
also applies to state agencies and the California State 
University (Cal. Pub. Con. C. §§ 10261, 10851 (Deering's 
1994).) Thus, like the injured workers considered in Amer
ican Manufacturers, a California public works contractor 
does not possess a fully matured entitlement to receive 
even its earned, but retained, funds until final completion 
and acceptance of the project. Similarly, the very purpose 
for which funds are retained, to motivate the contractor 
and provide potential compensation to the public agency 
for defaults, establishes that where a dispute exists as to 
the contractor's entitlement, there can be no constitu
tionally protected property interest in the retained funds. 
(C/. American Manufacturers, supra, 526 U.S., at 60, 119 
S. Ct. 977, 143 L. Ed. 2d 130.)

The retention escrow provisions of state law further 
highlight both the contractor's contingent entitlement to 
the retained funds and its lack of exclusive control of the 
retained funds. Contractors may substitute securities for 
the retention amount, but only if the securities are held in

311



16

escrow by a state or federally chartered bank. (Cal. Pub. 
Con. C. §§ 10263, 22300 (Deering's 2000 pkt. supp.).) Only 
upon "satisfactory completion of the contract" can the secu
rities be returned to the contractor. (Cal. Pub. Con. C. 
§§ 10263, 22300, subd. (a) [emphasis added], see also, the 
terms of the mandated Escrow Agreement included with 
the statute.) Under this Court's holdings in American 
Manufacturers, supra, and College Savings Bank, supra, the 
retention provisions of California law are additional indi
cia of the Legislature's intent not to confer a property 
interest in anticipated payments under a public works 
contract.6

In sum, like the medical benefits in American Manu
facturers, anticipated payments under a California public 
works contract cannot constitute "property" until all stat
utory conditions precedent for their payment are satis
fied. Under California law, the contractor does not have a 
legitimate claim of entitlement to payments until it satis
factorily performs according to the contract terms, as 
approved by the public agency, resolve disputes, pay its 
sub-contractors and suppliers, and completes the work 
on schedule. The decision below simply cannot be recon
ciled with the clear intent of the California Legislature 
not to confer the status of "property interest" on pay
ments under a public works contract. Therefore, Amici 
urge this Court to hold that anticipated payments under a 
public works contract do not constitute a property inter
est under the Fourteenth Amendment.

6 It may be the case that the retention is insufficient to 
compensate the contracting agency for contractor caused 
damages. Therefore, in the event that the public agency suffers 
damages in excess of the retention amount, the contractor and 
its surety are liable to the agency for the excess. (Cal. Pub. Con.
C. §§ 10258, 20490.)

312



III.

17

THE DECISION BELOW WILL SERIOUSLY IMPEDE 
THE DEVELOPMENT AND MAINTENANCE OF 
VITAL PUBLIC INFRASTRUCTURE BY CONVERTING 
ORDINARY CONTRACT DISPUTES INTO FEDERAL 
CIVIL RIGHTS CLAIMS WHICH ALLOW FOR INDI
VIDUAL LIABILITY AND PREVAILING PLAINTIFF 
ATTORNEY'S FEES UNDER 42 U.S.C. SECTION 1988.

In his dissenting opinion in the original G & G Fire 
Sprinklers decision, Judge Kozinski identified with strik
ing clarity the detrimental impact the majority opinion 
will have on state and local governments. (G & G Fire 
Sprinklers, supra, 156 F.3d, at 909-910.) Amici share Judge 
Kozinski's concern that the majority holding will hobble 
the ability of public entities to construct and maintain 
vital public improvements.

The identical concern expressed by this Court in Paul 
v. Davis is presented in the decision below. (Paul, supra, 
424 U.S., at 698-699, 96 S. Ct. 1155, 47 L. Ed. 2d 405.) To 
paraphrase this Court's holding in Paul v. Davis, the 
reasoning of the majority opinion below would seem 
almost necessarily to result in every breach of a public 
works contract by a state or local agency establishing a 
violation of the Fourteenth Amendment. As noted by 
Judge Kozinski, the result adopted by the majority opin
ion will effectively "constitutionalize" a broad swath of 
garden variety contract disputes simply because one of 
the parties is a government agency. (G & G Fire Sprinklers, 
supra, 156 F.3d, at 909.) At least 16 other federal judges 
have expressed the same concern.7

7 See, S & D, supra,  844 F.2d 962 [Feinberg, Newman, Winter, 
JJ. ] ;  Unger v. National Residents Matching Program,  928 F.2d 1392 
[Hutchinson, Resenn, JJ.]; Martz v. Incorporated Village o f  Valley 
Stream, 22 F.3d 26 [Miner, Mahoney, Restani, JJ.); San Bernardino 
Physicians, supra,  825 F.2d 1404 [Hug, Canby, Norris, JJ.];

313



1 8

In particular, two aspects of § 1983 liability will fun
damentally alter the dynamics of public works adminis
tration to the detriment of the public. First, the decision 
below will discourage vigorous protection of the public 
fisc by permitting imposition of individual liability upon 
project managers, engineers and administrators. (See, e.g., 
Hafer v. Melo, 502 U.S. 21, 112 S. Ct. 358, 116 L. Ed. 2d 301 
(1991).) As noted by Judge Kozinski, "when the govern
ment is acting as a commercial entity, taxpayers cajole it 
to act with all the ferociousness the marketplace 
demands." (G & G Fire Sprinklers, supra, 156 F.3d, at 910, 
n.2.) Self-evidently, the prospect of individual liability 
under § 1983 will be a disincentive for public works 
managers to vigorously enforce the terms of commercial 
contracts in order to obtain complete performance. The 
taxpayers will bear the consequences in the form of 
higher costs and delayed completion of critical public 
improvements.

Second, as the instant case illustrates, liability under 
§ 1983 carries with it the right to prevailing plaintiff 
attorney's fees under 42 U.S.C. § 1988. Under California 
law, parties to an ordinary breach of contract action are 
entitled to recovery of attorney's fees only if their con
tract specifically provides such a remedy. (Cal. Civ. C. 
§ 1717 (Deerings 1994); Excess Electronixx v. Heger Realty 
Corp., 64 Cal.App.4th 698, 75 Cal.Rptr.2d 376 (1998).) 
However, as a practical matter, the majority opinion may 
result in the imposition of a significant contract remedy 
in every public works contract, regardless of the mutual 
assent of the parties.

The contours of the expanded zone of § 1983 liability 
which might result if the decision below is allowed to

Walentas v. Upper, 862 F.2d 414 (2nd Cir. 1988) [Mahoney, Winter, 
JJ.J; Reich v. Beharry, 883 F.2d 239 [Seitz, Stapleton, Cowan, JJ.].

314



19

stand are suggested by the frequency with which pay
ments are withheld from contractors in the course of a 
construction project. The withholding or partial with
holding of payments by a project owner is an inherent 
feature of construction projects, whether privately or 
publicly owned. (See, Sweet & Sweet, Sweet on Construc
tion Industry Contracts-Major A1A Documents, § 15.11 (4th 
Ed.) (Aspen Law & Business 1999).) Moreover, in Califor
nia numerous statutes authorize or require state and local 
agencies to withhold funds from a contractor for such 
reasons as failure to execute a contract after award (Cal. 
Pub. Con. C., §§ 10164, 10781, 10782, 20103.5, 20172, 20418 
(Deering's 1994)), as liquidated damages (Cal. Pub. Con. 
C. §§ 10226, 10826 (Deering's 1994)), Cal. Gov. C. 
§ 53069.85 (Deering's 2000 pkt. supp.), due to disputes 
regarding amounts due (Cal. Pub. Con. C. § 7107, 
§ 10262.5 (Deering's 2000 pkt. supp.)), and in order to 
protect the rights of a sub-contractor or supplier (Cal. 
Civ. C. § 3186 (Deerings 2000 supp.)). Indeed, the con
struction industry's own standard contract specifications 
make frequent use of this commercially accepted practice. 
(Public Works Standards, Inc., Greenbook: Standard Speci
fications for Public Works Construction (2000 ed.) § 4-1.1 
(deduction for defective materials or work); § 6-2 (deduc
tion for failure to provide for public safety, traffic and 
protection of work); § 6-9 (liquidated damages) (BNI Pub
lications, 1999).)

In sum, if the decision below is allowed to stand, 
disputes surrounding the administration of public works 
contracts will escalate into civil rights litigation. Public 
project managers will find themselves threatened with 
personal liability for decisions that are a common practice 
in the private sector. Public agencies will encounter 
greater difficulty in resolving disputes informally where 
the promise of an attorney's fee award awaits the success
ful contractor. Ultimately, the public will suffer the effects 
in delay, expense and substandard infrastructure.

315



20

CONCLUSION

Based on the foregoing, Amici urge the Court to hold 
that neither a public works contract, nor anticipated pay
ments under such a contract, constitute "property" under 
the Fourteenth Amendment. The decision below should 
therefore be reversed.
Dated: December 4, 2000

Respectfully submitted,

D avid L. A lexander,
Port Attorney 

C hristopher H. A lonzi,
Deputy Port Attorney 

Counsel of Record 
Port of Oakland 
530 Water Street, 4th Floor 
Oakland, California 94607 
(510) 627-1572

H. J ames W ulfsberg
Eric J. F irstman

W ulfsberg, R eese & S ykes, PC.
300 Lakeside Drive, 24th Floor 
Oakland, California 94612-3524 
(510) 835-9100
Attorneys for Amici Curiae 

In Support of Petitioners 
Arthur S. Lujan, et al.

316



in  tlje Supreme Court of tlje Um'trb States
No. 00-152

A r th u r  S. L u ja n , L a bo r  C o m m issio n e r  o f  
Ca l if o r n ia , e t  a l ., p e t it io n e r s

v.
G & G F ir e  S p r in k l e r s , I n c .

O N  W R IT  O F  C E R T IO R A R I  TO 
T H E  U N IT E D  S T A T E S  C O U R T  O F  A P P E A L S  

F O R  T H E  N IN T H  C IR C U IT

BRIEF FOR THE UNITED STATES AS AMICUS 
CURIAE SUPPORTING PETITIONERS

Seth P. waxman 
S o l i c i t o r  G e n e r a l  

DAVID W. Or,DEN 
A s s i s t a n t  A t t o r n e y  G e n e r a l

EdwinS. Kneedler 
D e p u t y  S o l i c i t o r  G e n e r a l  

J effrey A. Lamken 
A s s i s t a n t  to  t h e  S o l i c i t o r  

G e n e r a l

Mark B. Stern 
J acob M. Lewis 
Daniel L. Kaplan 

A t t o r n e y s

317



QUESTIONS PRESENTED
California’s Labor Code includes provisions requiring 

workers on publicly funded construction projects to be paid 
no less than the prevailing rates determined by the State’s 
Labor Commissioner. The Code specifies that, if a prime 
contractor or one of its subcontractors fails to pay its 
workers the specified wages, the amount of the underpay
ment plus penalties must be withheld from contract pay
ments to the prime contractor on the project. A prime con
tractor subject to such withholding may, in turn, withhold 
the same amounts from contract payments to any sub
contractor that has failed to pay its employees the prevailing 
wage. Respondent, a subcontractor that has been subject to 
withholding by prime contractors on three public works 
contracts, filed this action against various state officials, 
seeking a declaration that the withholding procedures vio
late due process. The questions presented are:

1. Whether respondent is deprived of a protected pro
perty interest, for Fourteenth Amendment Due Process 
Clause purposes, when a prime contractor withholds from 
respondent contract payments because of respondent’s 
alleged failure to pay its employees the prevailing rate as 
required by respondent’s contract.

2. Whether respondent has shown state action such that 
the alleged deprivation may be fairly chargeable to the 
State.

318 ( 1 )



TABLE OF CONTENTS

Interest of the United States ...................................................  1
Statement.................................................................................... 2
Summaiy of argument...............................................................  9
Argument:

I. Respondent has not established a violation of 
its Fourteenth Amendment due process 
rights...........................................................................  11
A. Respondent has no constitutionally protect

ed property interest in full payment under
its public works contracts..................................  11

B. The State has not deprived respondent of
any property interest in claims for with
held payments.....................................................  21

II. The court of appeals' state action analysis is
unpersuasive...........................................   27

Conclusion .................................................................................. 30

TABLE OF AUTHORITIES

Cases:
A m e r i c a n  M fr s .  M itt. I n s .  C o . v. S u l l i v a n ,  52G U.S.

40(1999).......................................................................  p a s s i m

A r iz o n a n s  F o r  O f f i c i a l  E n g l i s h  v, A r iz o n a ,

520 U.S. 43 (1997).............................................................. 26-27
A r n e t t  v. K e n n e d y ,  416 U.S. 134 (1974)............................  20
A t k in  v. K a n s a s ,  191 U.S. 207 (1903).....................  2,20,21
B a b b i t t  v. U n it e d  F a r m  W o r k e r s ,  442 U.S. 289

(1979)...................................................................................  26
B a r t  A r c o n t i  &  S o n s ,  In c . v. A m e s - E n n i s ,  I n c . ,

340 A.2d 255 (Md. 1975).....................................................  16
B lu m  v. Y a r e t s k y ,  457 U.S. 991 (1982) ............................  80
B o a r d  o f  R e g e n t s  v. R o t h , 408 U.S. 564 (1972)............ 11,21

Page

III1) 319



I V

C a l i f o r n i a  D io . o f  L a b o r  S t a n d a r d s  E n f o r c e m e n t  v.
D i l l in g h a m  C o i is t r . ,  N .A ., I n c . ,  519 U.S. 316
(1997)...................................................................................  2

C a r e y  v. S u g a r ,  425 U.S. 73 (1976)............................................  26
C ity  o f  T o r r a n c e  v. W o r k e r s ’ C o m p e n s a t i o n

A p p e a l s  B d ., 185 Cal. Rptr. 645 (1982)..............................  15
C l e v e l a n d  B d . o f  E d u c .  v. L o u d e r m i l l ,  470 U.S.

532(1985)............................................................................. 20
D e p a r t m e n t  o f  t h e  A r m y  v. B lu e  F o x ,  I n c . ,  525

U.S. 255 (1999)........................................................    23
D e p a r t m e n t  o f  I n d u s .  R e l a t i o n s  v. F i d e l i t y  R o o f

C o ., 70 Cal. Rptr. 2d 465 (Ct. App. 1997).............................  24
D i f f e n d e r f e r  v. C e n t r a l  B a p t i s t  C h u r c h ,  404 U.S.

412 (1972)............................................................................. 2
F l a g g  B r o s .  v. B r o o k s ,  436 U.S. 149 (1978)..........................  28
G ilb e r t  v. t l o m a r ,  520 U.S. 924 (1997) .................................. 21
G r e e n  v. M u n s o u r , 474 U.S. 64 (1985)..............................  2
H a r m a n v .  F o r s s e n i u s ,  380 U.S. 528 (1965)..................... 26

r H o m e  B ld g .  &  L o a n  A s s 'n  v. B l a i s d e l l ,  290 U.S. 398
(1934)........................................................................................ 15

H o w a r d  S. L e a s e  C o n s t r .  C o . v. H o l ly ,  725 P.2d
712 (Alaska 1986)................................................................    16

J  &  K  P a i n t i n g  C o . v. B r a d s h a w ,  53 Cal. Rptr. 2d
496 (Ct. App. 1996) ............................................................. 24

K  & G  C o n s t r .  C o . v. H a r r i s ,  164 A.2d 451 (Md.
1960) ......................................................................................... 16

L a k e  C a r r i e r s ' A s s ’n v. M u c M u lla n , 406 U.S. 948
(1972)...................................................................................  26

L o g u u  v. Z i m m e r m a n  B r u s h  C o ., 455 U.S. 422
(1982)...................................................................................  22

L u j a n  v. D e fe n d e r s  o f  W ild l i f e , 504 U.S. 555
(1992)...................................................................................  28

M o r g a n  v, S in g le y ,  560 S.W.2d 746 (Tex. Civ. App.
1977) ......................................................................................... 16

Cases—Continued; Page

320



V

O ’B a n n o n  v. T o w n  C o u r t  N u r s in g  C tr . , 447 U.S.
773 (1980).............................................................................  29

O P M  v. R i c h m o n d ,  496 U.S. 414 (1990) ................   18
O g d e n  v. S a u n d e r s ,  25 U.S. (12 Wheat.) 213 (1827) .......... 15
P e r k in -s  v. L u k e n s  S t e e l  C o ., 310 U.S. 113 (1940) ....... 20, 21
R a i l r o a d  C o m m ’n  v. P u l l m a n  C o ., 312 U.S. 496

(1941)...................................................................................  25
S h v a i i s m a n  v. A p f e l ,  138 F.3d 1196 (7th Cir.

1998)....................................................................................  22
S n i a d a c h  v. F a m i l y  F in .  C o r p . ,  395 U.S. 337

(1969)...................................................................................  IT
T h o m p s o n  v. R a i l r o a d  C o s . , 73 U.S. (6 Wall.) 134

(1867)....................................................... ...........................  18
U n it e d  S t a t e s  v. A l iv e ,  73 U.S. (6 Wall.) 573

(1867)...................................................................................  18
U n it e d  S t a t e s  v. T e s ta J i , 424 U.S. 392 (1976).................... 18
U n it e d  S t a t e s  T r u s t  C o . v. N e w  J e r s e y ,  431 U.S. 1

(1977)..............................................................................    15
U n it e d  S t a t e s  v. W in s t a r  C a r p . , 518 U.S. 839

(1996)..............................................................   18
V o n  H o f f m a n  v. C it y  o f  Q u in c y , 71 U.S. (4 Wall.)

535 (1867).......................................................................   15
W il l i a m s o n  C o u n t y  R eg ' l  P la n n in g  C o m m ’n v.

H a m i l t o n  B a n k ,  473 U.S. 172 (1985) .................................. 25

Constitution, statutes, regulation, and rule:

U.S. Const.:
Amend. XI ..............................................    2
Amend. XIV (Due Process Clause).......................  11,12, 27

Davis-Bacon Act, ch. 411, 46 Stat. 1494, 40 U.S.C.
2 1 tn \ e t s e q ............................................................................. 1.2

Service Contract Act, 41 U.S.C. 351 e t  s e q ...........................  1
Tucker Act:

28 U.S.C. 1346 .................................................................  18
28 U.S.C. 1491 ..........................................................    18

42 U.S.C. 1983 ........................................................................  6

Cases—Continued: Page

321



Statutes, regulation, and rule—Continued: Page

Cal. Civ. Code § 3210 (West 1993) .......................................  24
Cal. Civ. Proc. Code § 1085 ..................................................  24
Cal. Lab. Code (West 1989):

§ 1720 .................................................................................. 2
§ 1727 .............................................................  3,4,13,15,19
§ 1729 ...........................................  3,4,13,15,24,26,28,29
§§ 1730-1733 ........................................................................  4
§ 1732 ...................................................................  4,23,24,26
§ 1733 .................................................  2,4,13,22,23,24,26
§ 1771 ........................................................................  2,15,19
§ 1774 ...............................................................................  2,19
§ 1775 (1989)......................................................................  19
§ 1775 (1989 & Supp. 2000) ................................  3,15,19,29
§ 1775(a) (Supp. 2000).....................................................  3,19
§ 1775(b) (Supp. 2000)...................................................... 3
§ 1775(b)(1) (Supp. 2000)......................................  15
§ 1775(b)(2) (Supp. 2000)......................................  29
§ 1775(b)(3) (Supp. 2000)......................................  29
§ 1775(b)(4) (Supp. 2000)...,..................................  13
§ 1775(c) (Supp. 2000)..................................................  '3,30
§ 1775(d) (Supp. 2000)...............................................  3,19, 29

2000 Cal. Legis. Serv. Ch. 954 (A.B. 1646) (West)........... 4, 30
Cal. Pub. Cont. Code (West Supp. 2000):

§ 7107(c)............................................................................... 13
§ 9203 ..................................................................................  13

29 C.F.R. 5.1(a) (1998)...........................................................  1
Cal. Rules of Court 29.5(a) ...................................................  26

Miscellaneous:
A. Corbin, C o r b in  o n  C o n tr a c tu :

Vol. 3A (1960) .....................................................................  16
Vol. 5A (1964).....................................................................  13

3 E.A. Farnsworth, F a r n s w o r t h  o n  C o n t r a c t s
(1990)......................   18

11 R. Lord, W il l is t o n  o n  C o n t r a c t s  (4th ed. 1999)............. 15
Restatement (Second) of Contracts (1979) ....................  16,18

VI

322



i n  tlje S u p r e m e  C o u r t  of tljc (Hm 'trb IsUnte#

No. 00-152

Arthur S. L ujan, Labor Commissioner o f  

California, et al., petitioners

v.
G & G F ire Sprinklers, Inc.

ON W R IT  O F C E R T IO R A R I  TO 
T H E  U N IT E D  S T A T E S  C O U R T  O F  A P P E A L S  

F O R  T H E  N IN T H  C IR C U IT

BRIEF FOR THE UNITED STATES AS AMICUS 
CURIAE SUPPORTING PETITIONERS

INTEREST OF THE UNITED STATES
T h i s  c a s e  c o n c e r n s  t h e  c o n s t i t u t i o n a l i t y  o f  p ro v is i o n s  of  

C a l i f o r n i a  law  t h a t  a u t h o r i z e  s t a t e  a g e n c i e s  to  w i th h o ld  

p a y m e n t s  fro m  p r im e  c o n t r a c t o r s  on p ublic  w o r k s  p r o j e c t s  

w h e r e  a  s u b c o n t r a c t o r  fails to  p a y  th e  m a n d a t e d  p re v a i l in g  

w a g e s  to  i t s  e m p lo y e e s ,  and  t h a t  p e r m i t  th e  p r im e  c o n t r a c 

t o r ,  in t u r n ,  to  w ithhold  s im ila r  s u m s  fro m  th e  s u b c o n t r a c t o r .  

A  n u m b e r  of  fe d e ra l  s t a t u t e s  r e q u i r e  e m p lo y e e s  on fe d e ra l ly  
fu n ded  p r o je c t s  t o  be  paid th e  p re v a i l in g  w a g e  and a u th o r iz e  

f e d e r a l  officials  t o  w ith h o ld  u n d e r p a y m e n t s  f ro m  th e  c o n 

t r a c t o r .  S e e  D a v i s -B a c o n  A c t ,  4 0  U .S .C .  2 7 6 a  et seq.; S e r v i c e  

C o n t r a c t  A c t ,  41  U .S .C .  3 5 1  et seq.; 2 9  C . F . R .  5 .1 ( a )  ( 1 9 9 8 )  

( c o l le c t in g  r e l a t e d  s t a t u t e s ) .  A l th o u g h  th e  c o u r t  o f  a p p e a l s  

s t a t e d  t h a t  i ts  h old in g w ould n ot e x t e n d  to  th e  D a v i s - B a c o n  

A c t  b e c a u s e  o f  th e  D e p a r t m e n t  of  L a b o r ' s  “ e x t e n s i v e  

h e a r i n g  a n d  a p p e a l  s t r u c t u r e , ” B e t .  A p p .  A 3 7  n . l l ,  th e  

U n i t e d  S t a t e s  lias  an  i n t e r e s t  in w h e t h e r ,  an d  in w h a t  

fa s h io n ,  c o n s t i t u t io n a l  d u e  p r o c e s s  r e q u i r e m e n t s  a p p ly  to  

g o v e r n m e n t  c o n t r a c t  a c t i v i t i e s  a n d  t h e  w i t h h o l d i n g  o f  

p a y m e n t s  pend in g  reso lu tio n  o f  c o m p lian ce  d isp u te s .

(1)
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STATEMENT
2

1. F o r  o v e r  a  c e n t u r y ,  S t a t e s  h a v e  s o u g h t  to  e n s u r e  t h a t  

w o r k e r s  e m p lo y e d  on th e  p ub lic  w o r k s  p r o j e c t s  t h e y  fund,  

like w o r k e r s  e m p lo y e d  on s im ila r  p r i v a t e  p r o j e c t s ,  a r e  paid  

th e  locally p re v a il in g  w a g e  fo r  t h e i r  la b o r .  S e e ,  e.g., Atkin  v. 

K ansas, 191 U .S .  2 0 7 ,  2 0 8  ( 1 9 0 3 )  ( a d d r e s s i n g  1 8 9 1  K a n s a s  

s t a t u t e ) .  C o n g r e s s  a d o p t e d  s u c h  a  r e q u i r e m e n t  in 1 9 3 1 .  

D a v i s -B a c o n  A c t ,  ch. 4 1 1 ,  4 6  S t a t .  1 4 9 4 ,  4 0  U .S .C .  2 7 6 a  et seq. 
C a lifo rn ia ’s p re v a i l in g  w a g e  s t a t u t e  d a t e s  f r o m  1 9 3 7 ,  an d  is 

p a t t e r n e d  on th e  D a v i s - B a c o n  A c t .  S e e  C aliforn ia  Div. o f  
L abor Standards Enforcem ent  v. D illingham  Constr., N.A., 
Inc., 5 1 9  U .S .  3 1 6 ,  3 1 9  (1 9 9 7 ) ;  P e t .  A p p .  A 3 7  n . l l .

U n d e r  th e  C a l i f o r n i a  L a b o r  C o d e ,  w o r k e r s  on  “ p ublic  

w o r k s ” p r o je c t s  m u s t  be paid “ n o t  le s s  th a n  t h e  g e n e r a l  p r e 

vailing  r a t e  of p e r  d ie m  w a g e s  fo r  w o r k  o f  a  s im ila r  c h a r a c t e r  

in th e  locality  in w hich  th e  public  w o r k  is p e r f o r m e d .” Cal.  

L a b .  C o d e  § 1 7 7 1 ;  s e e  id. § 1 7 2 0  (d e f i n i n g  p ub lic  w o r k s ) .1 

T h e  re q u ire d  p re v a i l in g  w a g e s  a r e  s e t  b y  t h e  D i r e c t o r  of  th e  

D e p a r t m e n t  o f  In d u s tr ia l  R e la t io n s .  Id. § 1 7 7 3 .  T h e  o b lig a 

tion to  pay  no less  t h a n  th e  sp e c if ie d  r a t e s  e x t e n d s  b o th  to  

th e  p rim e  c o n t r a c t o r ,  w hich h a s  a  d i r e c t  c o n t r a c t u a l  r e l a t io n 

ship w ith  th e  c o n t r a c t - a w a r d i n g  b o d y ,  a n d  to  a n y  s u b c o n 

t r a c t o r s  th e  p rim e  c o n t r a c t o r  h ire s .  Id. § 17 7 4 .

W h e n  a  p r im e  c o n t r a c t o r  o r  its  s u b c o n t r a c t o r  fails to  pay  

a n  e m p l o y e e  t h e  r e q u i r e d  p r e v a i l i n g  w a g e ,  t h e  p r im e

1 C e r ta in  p ro v isio n s o f  th e  C a lifo rn ia  L a b o r  C o d e w e re  a lte re d  e f fe c 
tiv e  Ja n u a r y  1, 1098. B e ca u s e  re sp o n d e n t s e e k s  on ly  p ro s p e c tiv e  r e lie f  (a 
d e c la ra to ry  ju d g m e n t and an in ju n c tio n )— and is p re clu d ed  b y  th e  E le v 
en th  A m en d m en t from  u sin g  th is  s u it  to  o b ta in  an  aw ard  o f  m on ey  from  
th e  S t a te  T r e a s u r y  fo r p a st w ro n g s, s e e  Green v . Mansour, 474  U .S . 64 , 
7 2 -7 3  (1 9 8 5 )— w e b e lie v e  th a t  th e  c u r r e n t  v e rs io n  o f  th e  C a lifo rn ia  L a b o r  
C od e is  re le v a n t for p re se n t p u rp oses. S e e  Diffenderfer v. Central Baptist 
Church, 404 U .S . 412 , 414 (1 9 7 2 ) (w h e re  p la in t iff  s e e k s  p ro s p e c tiv e  re lie f, 
C o u rt “m u st re v ie w  th e  ju d g m e n t *  *  *  in lig h t o f  [th e ]  law  a s  i t  now 
s ta n d s ”). W h e re  th e  C od e has ch an g ed  o v e r  tim e , w e h av e a tte m p te d  to 
in d ica te  w h eth e r  w e a re  citin g  th e  p re -1 9 9 8  or th e  c u rr e n t versio n .

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3
c o n t r a c t o r  " f o r f e i t s ] ” a  p e n a l ty  of  u p  to  $ 5 0  p e r  c a le n d a r  clay 

( o r  p o r t i o n  t h e r e o f )  p e r  a f f e c t e d  w o r k e r .  C a l .  L a b .  C o d e  

§ 1 7 7 5  ( W e s t  1 9 8 9  & S u p p . 2 0 0 0 ) .  In ad d itio n ,  th e  d iffe re n ce  

b e t w e e n  t h e  p r e v a i l i n g  w a g e  an d  th e  a m o u n t  a c tu a l l y  paid  

m u s t  “be paid t o  e a c h  w o r k e r  b y  th e  [p r im e ]  c o n t r a c t o r ” ; and  

e v e r y  p u b lic  w o r k s  c o n t r a c t  m u s t  c o n ta in  a s t i p u la t io n  to  

t h a t  e f f e c t .  Ibid..2 S t a t e  law , m o r e o v e r ,  e x p r e s s l y  p r o v id e s  

t h a t ,  “ [b ]e f o r e  m a k in g  p a y m e n t s  to  th e  c o n t r a c t o r  o f  m o n e y  

d u e  u n d e r  a  c o n t r a c t  f o r  p u b lic  w o r k , ” th e  c o n t r a c t i n g  

a g e n c y  “shall w ith h o ld  an d  r e t a i n  t h e r e f r o m ” th e  a m o u n t  o f  

a n y  p re v a i l in g  w a g e  u n d e r p a y m e n t s  by  th e  c o n t r a c t o r  or  its  

s u b c o n t r a c t o r ,  p lu s  p e n a l t i e s ,  a s  p r o v id e d  b y  la w  an d  th e  

“c o n t r a c t  fo r  public w o r k .” Id. § 1 7 2 7 .  W h e r e  m o n e y  is w i t h 

held f r o m  a  p r im e  c o n t r a c t o r  on a c c o u n t  of a s u b c o n t r a c t o r ’s 

fa i lu re  t o  p a y  p r e v a i l i n g  w a g e s ,  C a l i f o r n i a  la w  m a k e s  it  

“ la w fu l” fo r  th e  p r im e  c o n t r a c t o r ,  in t u r n ,  to  w ith h o ld  like  

a m o u n t s  fro m  p a y m e n t s  o t h e r w i s e  d u e  to  th e  s u b c o n t r a c t o r .  

Id. § 1 7 2 9 ;  s e e  P e t .  A p p . A 2 2 ;  P e t .  5. C o n t r a c t i n g  a g e n c i e s  

g e n e r a l l y  m a y  n o t  w ith h o ld  p a y m e n t s  u n d e r  S e c t i o n  1 7 2 7  

“w i t h o u t  a  full in v e s t i g a t io n  by  e i t h e r  th e  D ivision  o f  L a b o r

2 S e c t io n  1775 w as am en d ed  in 1998  to  re v is e , am on g o th e r  th in g s, th e  
p ro v is io n s  r e g a rd in g  a s u b c o n tr a c to r 's  fa ilu re  to  p ay  p re v a ilin g  w a g e s . 
S e e  P e t .  A pp. A 1 1 5 -A 1 1 9 ; C a l. L a b . C od e § 1775 (W e s t Su p p . 2 0 0 0 ). T h e  
am en d ed  se c tio n  p ro v id es : w h e re  th e  s u b c o n tra c to r  fa ils to  pay p re v a ilin g  
w a g e s , th e  am o u n t o f  u n d erp aid  w a g e s  sh all b e  paid to  th e  e m p lo y e e s  by 
e ith e r  th e  c o n tra c to r  o r  th e  su b c o n tra c to r  (id. 5 1775(a )); in o rd e r  to  avoid 
lia b ility  fo r  th e  s u b c o n tra c to r 's  a c tio n s , th e  c o n tr a c to r  m u st m o n ito r  th e  
s u b c o n tr a c to r 's  p e r fo rm a n c e  and ta k e  c o r r e c t iv e  a c tio n  (in clu d in g  w ith 
h o ld in g  fu n d s from  th e  s u b c o n tr a c to r )  i f  th e  p rim e  c o n tr a c to r  b e co m e s  
a w a re  o f  th e  s u b c o n tra c to r 's  fa ilu re  to  pay th e  w a g es (id. § 1 775(b )); th e  
c o n tra c to r  m u st w ithh old  p a y m en ts  from  th e  su b c o n tra c to r  i f  th e  D iv ision  
d e te r m in e s  th a t th e  s u b c o n tra c to r  did n ot p ay  p re v a ilin g  w a g e s  and th e  
c o n tr a c t-a w a r d in g  a g e n c y  did n o t re ta in  su f f ic ie n t m o n e y  to  p ay  th e  
em p lo y e es  (id. § 1775(c)); an d , to  th e  e x te n t  th e r e  is in su ffic ien t m oney due 
a c o n tr a c to r  to  c o v e r  a ll p e n a ltie s  and unpaid w a g es, th e  c o n tr a c to r  and 
s u b c o n tr a c to r  a re  jo in t ly  and s e v e r a l ly  l ia b le  fo r  th e  a m o u n t o f  th e  
sh o rtfa ll in an y  co lle ctio n  a ctio n  b ro u g h t b y  th e  D iv isio n , a lth o u g h  co lle c 
tion  e f fo r ts  a re  to  b e  b ro u g h t f i r s t  ag a in st su b c o n tra c to rs  (id. S 1775(d )).

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4

S t a n d a r d s  E n f o r c e m e n t ” o r  t h e  c o n t r a c t i n g  a g e n c y ,  e x c e p t  

w ith  r e s p e c t  t o  th e  final c o n t r a c t  p a y m e n t .  C a l .  L a b .  C ode  

§ 1729 .

I f  a  c o n t r a c t i n g  a g e n c y  w ith h o ld s  p a y m e n t s  f r o m  a  p rim e  

c o n t r a c t o r  u n d e r  S e c t i o n  1 7 2 7 ,  t h e  “ c o n t r a c t o r  o r  [ i t s ]  a s 

s ig n e e ” m a y  b r in g  s u it  a g a in s t  t h e  a w a r d i n g  b o d y  t o  r e c o v e r  

w ithheld  w a g e s  and  p e n a ltie s .  C a l .  L a b .  C o d e  § 1 7 3 3 ,  S u ch  a  

su it  m u s t  be b r o u g h t  “ w ith in  t h e  9 0 - d a y  p e r io d ” follow ing  

th e  “co m p letio n  of th e  c o n t r a c t  an d  th e  fo rm a l  a c c e p t a n c e  of  

th e  j o b ” by  th e  c o n t r a c t i n g  a g e n c y ,  id. §§ 1 7 3 0 - 1 7 3 3 ,  and th e  

c o n t r a c t o r  o r  a s s ig n e e  h a s  th e  b u r d e n  “to  e s ta b lis h  [ i ts ]  r ig h t  

to  th e  w a g e s  o r  p e n a l t ie s  w i th h e l d ,” id. § 1 7 3 3 ,  T h e  C o d e  

p ro v id e s  t h a t  su ch  a  s u it  “on t h e  c o n t r a c t  fo r  a l le g e d  b re a c h  

t h e r e o f  in n o t  m a k in g  th e  p a y m e n t  is t h e  e x c lu s iv e  r e m e d y  

o f  th e  c o n t r a c t o r  o r  [ i ts ]  a s s i g n e e s  w i th  r e f e r e n c e  t o  th o s e  
w a g e s  o r  p e n a ltie s .” Id. § 1732 .

C alifo rn ia  h a s  r e c e n t l y  r e v i s e d  i t s  L a b o r  C o d e ,  e f f e c t iv e  

J u l y  1, 2 0 0 1 .  S e e  2 0 0 0  C al.  L e g i s .  S e r v .  C h .  9 5 4  ( A .B .  1 6 4 6 )  

( W e s t ) .  T h o s e  a m e n d m e n t s  r e p e a l  S e c t i o n s  1 7 3 0 - 1 7 3 3  (a d 

d r e s s i n g  th e  m a n n e r  in w h ic h  w i th h o l d i n g  m a y  b e  c h a l 

le n g e d ) ,  an d  add a  n e w  S e c t i o n  1 7 4 2 ,  w h ic h  e n t i t l e s  b o th  

p rim e  c o n t r a c t o r s  and s u b c o n t r a c t o r s  t o  c h a lle n g e  a  n o tice  of  

a s s e s s m e n t  r e g a r d i n g  fa i lu re  t o  p a y  t h e  p r e v a i l i n g  w a g e  

th r o u g h  a d m in is t r a t iv e  p r o c e e d in g s ,  w ith  a  r i g h t  o f  ju dicial  
re v ie w .

2. R e s p o n d e n t  is a  f i r e - p r o t e c t i o n  f i rm  t h a t  h a s  w o r k e d  

a s  a  p r im e  c o n t r a c t o r  o r  s u b c o n t r a c t o r  on  a  n u m b e r  o f  C a lL  

fo rn ia  public w o r k s  p r o j e c t s .  T h e  D ivis ion  o f  L a b o r  S t a n 

d a r d s  E n f o r c e m e n t  c o n c l u d e d  th at ;  r e s p o n d e n t  h a d ,  a s  

s u b c o n t r a c t o r  on t h r e e  s u c h  p r o j e c t s ,  fa i led  t o  p a y  i t s  e m 

p lo y e e s  th e  re q u ire d  p re v a i l in g  w a g e s .  T h e  D ivision  issued  

n o tic e s  to  th e  c o n t r a c t i n g  a g e n c ie s  on th o s e  p r o j e c t s  d i r e c t 

in g  t h e m  to  w ithhold  p a y m e n t s  f r o m  t h e  p r im e  c o n t r a c t o r s  

p u r s u a n t  to  L a b o r  C o d e  S e c t io n  1 7 2 7 ,  , T h e  p r im e  c o n t r a c 

t o r s  in tu r n  w ith held  a t  l e a s t  $ 1 2 0 ,0 0 0  f r o m  r e s p o n d e n t .  P e t .  
A p p . A 2 3 .

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5

R e s p o n d e n t  filed  a  c o m p l a i n t  in f e d e r a l  d i s t r i c t  c o u r t  

a g a i n s t  th e  C a lifo rn ia  L a b o r  C o m m i s s i o n e r  and  o t h e r  public  

officials  an d  s t a t e  a g e n c ie s .  T h e  c o m p la i n t  a l le g e d  t h a t ,  b y  

i s s u in g  n o t ic e s  d i r e c t i n g  c o n t r a c t i n g  a g e n c i e s  to  w ith h o ld  

m o n e y  f r o m  p r im e  c o n t r a c t o r s  on th e  a f f e c te d  p r o j e c t s ,  p e t i 

t i o n e r s  d e p r iv e d  r e s p o n d e n t  o f  a  p r o p e r t y  i n t e r e s t  w i th o u t  

d ue p r o c e s s  of  law . R e s p o n d e n t  s o u g h t  d e c l a r a t o r y  and  in 

j u n c t i v e  re l ie f .  P e t .  A p p .  A 9 0 - A 1 0 6 .  T h e  d i s t r i c t  c o u r t  

g r a n t e d  r e s p o n d e n t ’s m otion  fo r  s u m m a r y  j u d g m e n t ,  h old in g  

t h a t  t h e  p e r t i n e n t  p ro v is io n s  o f  th e  C a lifo r n ia  L a b o r  C o d e  

vio la te  re s p o n d e n t ’s d ue p ro c e s s  r ig h ts .  Id. a t  A 8 6 .
3 .  T h e  c o u r t  o f  a p p e a ls  a ff irm e d  t h a t  holding. P e t .  A p p .  

A14-A48. T h e  c o u r t  f i rs t  r e j e c t e d  p e t i t i o n e r s ’ a r g u m e n t  t h a t  

r e s p o n d e n t  had  failed  to  s a t i s f y  t h e  c a u s a t io n  a n d  r e d r e s s -  

a b ili ty  e le m e n t s  o f  s ta n d in g .  T h e  c o u r t  found th e  c a u s a t io n  

e l e m e n t  s a t i s f ie d  b e c a u s e ,  in i t s  v ie w ,  t h e  S t a t e ’s a c t i o n  

“t a r g e t e d ” re s p o n d e n t  and “th e  p r im e  c o n t r a c t o r s ’ on ly  ro le  
in t h e  d is p u te  is t h a t  o f  a  c o n d u it .” Id . a t  A2G. T h e  c o u r t  

also  con clu d ed  t h a t  r e s p o n d e n t 's  in ju ry  in a n y  e v e n t  “c a n  be  

d i r e c t l y  t r a c e d  to  th e  s t a t e ’s c o n d u c t ” in is s u in g  th e  n o tic e s  

t h a t  c a u s e d  c o n t r a c t i n g  a g e n c ie s  to  w ith h o ld  p a y m e n t s  f ro m  

p r i m e  c o n t r a c t o r s ,  an d  p r i m e  c o n t r a c t o r s  t o  w i t h h o l d  

p a y m e n t s  fro m  r e s p o n d e n t .  S e e  id. a t  A 2 8 .  T h e  c o u r t  

f u r t h e r  fou n d  t h a t  i n j u r y  t o  be r e d r e s s a b l e  b e c a u s e ,  if  

r e s p o n d e n t  p r e v a i l s ,  w i th h e ld  m o n e y  m u s t  be  r e l e a s e d  to  

p rim e  c o n t r a c t o r s  “w h o  will b e  o b lig a te d  by  c o n t r a c t  to  p a y  

i t  t o  [ r e s p o n d e n t ] .” Ibid.
T u r n i n g  to  t h e  d u e  p r o c e s s  i s s u e ,  th e  c o u r t  o f  a p p e a l s  

found t h a t  r e s p o n d e n t  had  a  co n s t i tu t io n a lly  p r o t e c t e d  p r o p 

e r t y  i n t e r e s t  “a r is [ in g ]  from  its  public w o r k s  c o n t r a c t  * *  * 

in b e i n g  p aid  in full f o r  t h e  c o n s t r u c t i o n  w o r k  it  h a s  

c o m p l e t e d .” P e t .  A p p . A 3 0 .  A n d  th e  c o u r t  found t h a t  th e  

w ith h o ld in g  of  p a y m e n t s  f ro m  p r im e  c o n t r a c t o r s  had  c a u s e d  

r e s p o n d e n t  to  be d e p r iv e d  of  t h a t  “ i n t e r e s t  in full p a y m e n t  

for  s e r v i c e s  r e n d e r e d .” Ibid. A c c o r d i n g  to  th e  c o u r t  o f  a p 

p eals ,  th e  S t a t e ’s p r o c e d u r e s  w e r e  u n c o n s t i tu t io n a l  b e c a u s e

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th e y  affo rd ed  r e s p o n d e n t  no p r e -d e p r iv a t io n  o r  p r o m p t  p o s t

d e p r iv a t io n  h e a r in g  a t  w hich  it could c h a lle n g e  t h e  w ithhold

ing. In p a r t i c u l a r ,  th e  c o u r t  co n clu d ed  t h a t ,  u n d e r  California  

law , s u b c o n t r a c t o r s  “a r e  n o t  g iv e n  th e  r i g h t  t o  b r i n g  su it ,” 

id. a t  A 2 2 ,  and  th u s  “ h a v e  no o p p o r t u n i t y  t o  b e  h e a r d ” on 

w h e t h e r  th e  violation s o c c u r r e d ,  id. a t  A 3 6 .  In  r e a c h i n g  th a t  

con clu sion , th e  c o u r t  did n o t  r e l y  on C a lifo r n ia  s t a t e  c o u r t  

d e cis io n s .  I t  in s te a d  re l ie d  on i ts  ow n  c o n s t r u c t i o n  of th e  

r e l e v a n t  s t a t u t e s ,  r e j e c t i n g  p e t i t i o n e r s ’ c o n t e n t i o n  t h a t  

C a l i f o r n i a  la w  p r o v i d e s  s u b c o n t r a c t o r s  w i t h  m e a n s  of  

r e d r e s s .  Id. a t  A 3G -A 37 & n.9.

J u d g e  K ozinsk i d is s e n te d .  T h e  S t a t e ,  he  e x p la in e d ,  had  

included a  p re v a i l in g -w a g e  r e q u i r e m e n t  as  a  t e r m  o f  its  con

t r a c t s .  P e t .  A p p . A 4 8 .  W h e n  th e  S t a t e  c o n clu d e d  t h a t  the  

p r e v a i l in g -w a g e  t e r m  had  b e e n  b r e a c h e d ,  i t  w a s  e n t i t le d —  

like a n y  o t h e r  c o n t r a c t i n g  p a r t y — to  w ith h old  p r o g r e s s  p a y 

m e n ts  for  t h a t  failure o f  p e r f o r m a n c e .  Id. a t  A 4 9 - A 5 0 .  N o r  

had th e  S t a t e  d e p r iv e d  re s p o n d e n t  of  a  m e a n s  th r o u g h  which  

it could c h a lle n g e  th e  w ith holding . R e s p o n d e n t ,  J u d g e  K oz

inski co n clu d ed , could sue th e  c o n t r a c t - a w a r d i n g  b od y  u n d e r  

a  th e o r y  of eq u ita b le  su b ro g a tio n . Id. a t  A 5 0 .

4. F o l l o w in g  th e  c o u r t  o f  a p p e a l s ’ d e c is io n ,  th is  C o u r t  

d ecid ed  Am erican M anufacturers M utual Insurance Co. v. 

Sullivan, 5 2 6  U .S .  4 0  (1 9 9 9 ) .  Sullivan  c o n c e rn e d  th e  co n s t i 
tu t io n a l i ty  o f  a  P e n n s y lv a n ia  w o r k e r s ’ c o m p e n s a t io n  s t a t u t e  

t h a t  a u th o riz e d  in s u r e r s  to  w ithhold  p a y m e n t s  fo r  th e  t r e a t 

m e n t  of  w o r k - r e la te d  in ju ries  p e n d in g  in d e p e n d e n t  r e v i e w  of  

w h e t h e r  t h e  t r e a t m e n t  w a s  “ r e a s o n a b l e ” an d  “ n e c e s s a r y . ” 

Id. a t  4 4 -4 7 .  T h is  C o u r t  held t h a t  a  p r iv a t e  i n s u r e r ’s decision  

to  w i th h o ld  p a y m e n t  fo r  a  d i s p u t e d  m e d ic a l  t r e a t m e n t  

p e n d in g  r e v i e w  did n o t  c o n s t i t u t e  a c t i o n  “ u n d e r  c o lo r  of  

s t a t e  la w ” c o v e r e d  by 4 2  U .S .C .  1 9 8 3 .  S e e  5 2 6  U .S .  a t  4 9 -5 8 .  

T h e  C o u r t  a lso  held t h a t  t h e  p r o c e d u r e  p e r m i t t i n g  w i t h 

h olding did n ot v io la te  d ue p r o c e s s .  T h e  P e n n s y l v a n i a  law  

did n ot g iv e  e m p lo y e e s  an u nconditional r i g h t  to  p a y m e n t  for  

m edical t r e a t m e n t s ,  b u t r a t h e r  m a d e  p a y m e n t  conditional on 

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th e  e m p lo y e e  “e s t a b l i s h i n g ] ” t h a t  t h e  t r e a t m e n t  w a s  “r e a 

so n a b le  an d  n e c e s s a r y .” Id. a t  6 0 - 6 1 .  A c c o r d i n g l y ,  th e  C o u r t  

held, e m p lo y e e s  w h o  a r e  t e m p o r a r i l y  d e n ie d  p a y m e n t  p e n d 

in g  a n  in q u iry  in to  r e a s o n a b l e n e s s  and  n e c e s s i t y  w e r e  n ot  

d e p r iv e d  o f  a n y th in g  in w h ich  t h e y  had  a  p r o t e c t e d  p r o p e r t y  

i n te r e s t .

T h is  C o u r t  th e n  g r a n t e d  a  p e t i t io n  for  a w r i t  o f  c e r t i o r a r i  

in th is  c a s e ,  v a c a t e d  th e  j u d g m e n t  o f  th e  c o u r t  o f  a p p e a l s ,  

an d  r e m a n d e d  th e  c a s e  fo r  f u r t h e r  c o n s id e r a t i o n  in lig h t  o f  

Sullivan. 5 2 6  U .S .  1 0 6 1  ( 1 9 9 9 ) .  On r e m a n d ,  t h e  c o u r t  of  

a p p e a l s  r e i n s t a t e d  i ts  j u d g m e n t  and  opinion, d e c l a r i n g  t h a t  

th is  C o u r t ’s Sullivan  d ecis ion  w a s  “ fully c o n s i s t e n t "  w ith  its  

a n a ly s is .  P e t .  A p p .  A 3 .  W i t h  r e g a r d  to  s t a t e  a c t i o n ,  th e  

c o u r t  n o te d  t h a t  Sullivan's h o ld in g  p e r t a i n e d  t o  a c t i o n s  

“c a r r i e d  ou t by a  p r i v a t e  in s u r e r  e x e r c i s i n g  i ts  d is c re t io n  in a  

w a y  p e r m i t t e d  b y  S t a t e  la w .” Id. a t  A 6 .  In th is  c a s e ,  th e  

c o u r t  s t a t e d ,  th e  w i th h o ld in g  o f  m o n e y  w a s  “ sp e c if ica lly  di

r e c t e d  b y  S t a t e  o ff ic ia ls  in a n  e n v i r o n m e n t  w h e r e  t h e  

w ith h o ld in g  p a r t y  h a s  no d is c re t io n  a t  a ll ,” and  r e s p o n d e n t ’s 

co m p la in t  had “d ire c t ly  a t t a c k [ e d ]  th e  n o t ic e s  o f  w ith h o ld in g  

issued  by th e  s t a t e  a g e n c y .” Id. a t  A 6 - A 7 .
T h e  c o u r t  of  a p p e a ls  a lso  d is tin g u ish e d  Sullivan ’s  d ue p r o 

c e s s  a n a ly s is .  T h e  c o u r t  o f  a p p e a l s  d e c l a r e d  t h a t  i t s  p r i o r  
opinion in fa c t  w a s  p r e d i c a t e d  on a t h e o r y  t h a t  th is  C o u r t  

had “ p r e s e r v e d ” in f o o tn o te  13 o f  Sullivan. In t h a t  fo o tn o te ,  

th e  C o u r t  declined t o  a d d r e s s  (a s  w a iv e d )  th e  a r g u m e n t  t h a t  

e m p l o y e e s  m i g h t  h a v e  “a p r o p e r t y  i n t e r e s t  in t h e i r  c la im s  
fo r  p a y m e n t ,  a s  d i s t i n c t  f r o m  th e  p a y m e n t s  t h e m s e l v e s , ” 

s u c h  t h a t  t h e  S t a t e  m i g h t  be  p r e c l u d e d  f r o m  “ fin a l ly  

r e j e c t i n g ]  t h e i r  c la im s  w i t h o u t  a f f o rd in g  t h e m  a p p r o p r i a t e  

p r o c e d u r a l  p r o t e c t i o n s .” 5 2 6  U .S .  a t  61 n .1 3 .  In th is  c a s e ,  

th e  c o u r t  o f  a p p e a ls  s t a t e d ,  re s p o n d e n t  had  a p r o p e r t y  r i g h t  

in i ts  “c la im  for  p a y m e n t .” P e t .  A p p . A 5 - A 6 ;  s e e  id. a t  A 6  

( r e s p o n d e n t  d o e s  “ n o t  h a v e  a  r i g h t  to  p a y m e n t  of  th e  d i s 

p u te d  funds p e n d in g  t h e  o u tc o m e  o f  w h a t e v e r  kind o f  h e a r 

ing w ould be a f f o rd e d ”). T h e r e  w a s  a  d ue p r o c e s s  vio lation

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8

h e r e ,  th e  c o u r t  d e c la re d ,  n o t  b e c a u s e  r e s p o n d e n t  w a s  denied  

im m e d ia te  p a y m e n t ,  b u t  b e c a u s e  “th e  C a lifo r n i a  s t a t u t o r y  

s c h e m e  a f f o r d e d  no h e a r i n g  a t  all w h e n  s t a t e  o ff ic ia ls  

d ire c te d  t h a t  p a y m e n ts  be w ith h eld .” Ibid.
J u d g e  K o zin sk i d i s s e n t e d  a g a i n ,  f in d in g  t h e  m a j o r i t y ’s 

n ew  opinion ir re co n cila b le  w ith  Sullivan. P e t .  A p p . A 7 - A 1 3 .  

U n d e r  Sullivan, J u d g e  K o z in sk i  m a i n t a i n e d ,  t h e r e  is no 

s t a t e  ac tio n  h e re ,  b e c a u s e  th e  C a lifo rn ia  L a b o r  C o d e  le a v e s  
p rim e  c o n t r a c t o r s  “ fre e  to  p a y  [ r e s p o n d e n t ]  t h e  full a m o u n t  

sp e c if ie d  by th e  c o n t r a c t , ” e v e n  if  th e  c o n t r a c t i n g  a g e n c y  

w ith h o ld s  p a y m e n t s  fro m  th e  p r im e  c o n t r a c t o r .  Id. a t  A 8 .  

Sullivan, in his  v i e w ,  a ls o  p r e c l u d e s  r e s p o n d e n t  f r o m  

c la im in g  a p r o p e r t y  i n t e r e s t .  J u s t  a s  P e n n s y l v a n i a  e m p l o y 

e e s  could  h a v e  no p r o p e r t y  i n t e r e s t  in p a y m e n t  fo r  t r e a t 

m e n ts  not y e t  sh o w n  to  h a v e  b e e n  “r e a s o n a b l e ” a n d  “n e c e s 

s a r y , ” r e s p o n d e n t  in th is  c a s e  could h a v e  no p r o t e c t e d  p ro p 

e r t y  i n t e r e s t  in p a y m e n t  fo r  w o r k  n o t  s h o w n  t o  h a v e  

sa tis f ie d  “th e  c o n t r a c t u a l  co n d itio n  t h a t  it b e  c o m p l e t e d  in 

a c c o rd a n c e  w ith  p rev ail in g  w a g e  r e q u i r e m e n t s .” Id. a t  A l l .

J u d g e  Kozinski also  r e j e c te d  th e  m a j o r i t y ’s re l ia n c e  on th e  

p r o p o s i t io n  t h a t  r e s p o n d e n t  had  b e e n  d e p r i v e d  o f  a  p r o 

t e c t e d  p r o p e r t y  in t e r e s t  in its  c la im s fo r  p a y m e n t ,  a s  d is tin ct  

fro m  t h e  p a y m e n t s  t h e m s e l v e s .  E v e n  if r e s p o n d e n t  h ad  a 

p r o p e r t y  i n t e r e s t  in c la im s  fo r  p a y m e n t ,  he  e x p la in e d ,  th e  

m a j o r i t y ’s  j u d g m e n t  a m o u n te d  to  “ p r e m a t u r e  r e m e d i a t i o n ,” 

b e c a u s e  r e s p o n d e n t  had n o t  b e e n  f inally  d e p r i v e d  o f  a n y  

su ch  claim . P e t .  A pp. A l l .  T h e  re a s o n  su ch  c la im s  had  not  

b e e n  a d ju d i c a te d ,  J u d g e  K ozinski n o te d ,  is t h a t  r e s p o n d e n t  

had n ot a t t e m p t e d  to  a s s e r t  th e m .  U n ti l  su ch  t im e  a s  it w as  

c l e a r  t h a t  re s p o n d e n t  could e x e r c i s e  n one  o f  s e v e r a l  possible  

o p tio n s ,  he s t a t e d ,  “ it s im p ly  c a n n o t  be  sa id  t h a t  th e  s t a t e  

h as  ‘finally r e j e c t f e d ] ’ ” r e s p o n d e n t ’s  “c la im s  w i t h o u t  a f f o rd 

ing [it] a p p r o p r ia te  p ro ce d u ra l  p ro te c t io n s .” Id. a t  A 1 3 .

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SUMMARY OF ARGUMENT
9

I. A .  R e s p o n d e n t  h a s  no c o n s t i t u t io n a l ly  p r o t e c t e d  p r o p 

e r t y  i n t e r e s t  in p a y m e n t  u n d e r  i t s  p ublic  w o r k s  c o n t r a c t s .  

C a li f o r n i a ’s L a b o r  C o d e  m a k e s  i t  c l e a r  t h a t  a  c o n d itio n  to  

r e s p o n d e n t ’s r i g h t  to  full p a y m e n t  is co m p lia n ce  w ith  all c o n 

t r a c t u a l  r e q u i r e m e n t s ,  in c lu d in g  p a y m e n t  o f  t h e  p re v a i l in g  

w a g e ;  t h a t ,  in c a s e s  o f  d i s p u t e ,  p a y m e n t  will be w ith h e ld  

p e n d in g  a  reso lu tio n ; and  t h a t ,  in su ch  c a s e s ,  re s p o n d e n t  h as  

th e  b u r d e n  o f  p ro v in g  c o m p lia n c e .  In th is  c a s e ,  r e s p o n d e n t  

h a s  n o t  y e t  sh ow n  t h a t  i t  co m p lie d  w ith  th e  p r e v a i l in g -w a g e  

r e q u i r e m e n t .  A s  a  r e s u l t ,  i t s  r i g h t  to  full p a y m e n t  u n d e r  its  

c o n t r a c t s  h a s  y e t  to  a t t a c h ,  an d  th e  w ith h o ld in g  of  p a y m e n t s  

d o e s  n o t  d e p r i v e  r e s p o n d e n t  o f  a n y t h i n g  to  w h ic h  it  is  

e n tit led .

O r d i n a r y  c o n t r a c t  p r in c ip le s  lead  to  th e  s a m e  r e s u l t .  In  

c o n t in u in g  c o n t r a c t s ,  p e r f o r m a n c e  b y  o n e  p a r t y  is a  c o n 

s t r u c t i v e  condition  o f  th e  o t h e r  p a r t y ’s o b ligation  to  p ay .  In  

th is  c a s e ,  re s p o n d e n t  v o lu n ta r i ly  e n t e r e d  in to  an  a g r e e m e n t  

th a t ,  a m o n g  o t h e r  th in g s ,  re q u ir e d  it to  p a y  p re v a i l in g  w a g e s  

and p r o v e  its  co m p lia n ce  if a  d is p u te  a r o s e .  B e c a u s e  r e s p o n 

d e n t ’s p e r f o r m a n c e  in c o n f o r m i t y  w i th  t h o s e  t e r m s  is a  
c o n s tr u c t i v e  co n d itio n  o f  th e  o b lig a t io n  to  p a y ,  n e i t h e r  th e  

S t a t e ’s a s s e r t e d  p a y m e n t  o b lig a t io n  n o r  r e s p o n d e n t ’s a s 

s e r t e d  r i g h t  to  p a y m e n t  h a s  y e t  a t t a c h e d .  I n d e e d ,  a s  a 

h is to r ic a l  m a t t e r ,  p a r t i e s  c la i m in g  a r i g h t  to  p a y m e n t  on a  

c o n t r a c t  h a v e  b e e n  r e m i t t e d  to  a  la w s u i t— a b r e a c h -o f - c o n -  

t r a c t  a c t i o n — in w h i c h  t h e y  m u s t  p r o v e  e n t i t l e m e n t  to  

p a y m e n t .  N o m o r e  p r o c e s s  is d u e  s im p ly  b e c a u s e  on e  p a r t y  

to  th e  c o n t r a c t  is th e  g o v e r n m e n t .

R e s p o n d e n t ,  m o r e o v e r ,  e f f e c t i v e l y  is s e e k i n g  to  p r e v e n t  

th e  S t a t e  from  e x e r c i s i n g  its  b a r g a i n e d - f o r  c o n t r a c t u a l  self-  

help r i g h t  to  w ith hold  p a y m e n t s  fro m  p r im e  c o n t r a c t o r s  for  

b r e a c h  o f  th e  p r e v a i l i n g - w a g e  r e q u i r e m e n t ,  s im p ly  b e c a u s e  

p rim e  c o n t r a c t o r s  m i g h t ,  in t u r n ,  w ith h o ld  p a y m e n t s  from  

s u b c o n t r a c t o r s  like r e s p o n d e n t .  N o t h i n g  in th e  C o n s t i tu t io n

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10

p r e c lu d e s  a  S t a t e  f ro m  b a r g a i n i n g  fo r  a n d  o b t a i n i n g  in its  

c o m m e rc ia l  c o n t r a c t s  th e  s a m e  s o r t  of  p a y m e n t  w ith h o ld in g  

r i g h t s  t h a t  p r i v a t e  p a r t i e s  m a y  in c lu d e  in t h e i r  c o n t r a c t s .  

N o r  is th e  S t a t e ’s r i g h t  to  e n f o r c e  su ch  c o n t r a c t  co n d itio n s  

lim ited w h en  it e s ta b lis h e s  t h e m  b y  s t a t u t e .  T h o s e  w h o  find 

th e  t e r m s  d e m a n d e d  by th e  S t a t e  u n d e s i r a b le  a r e  f r e e  to  

av o id  c o n t r a c t i n g  w i th  th e  S t a t e ,  o r  t o  d e m a n d  g r e a t e r  

co m p e n sa tio n  a s  th e  p rice  o f  a g r e e m e n t .
B . R e s p o n d e n t  lik ew ise  h as  n o t  b e e n  d e p r iv e d  o f  a  p r o p 

e r t y  i n t e r e s t  in a “c la im ” for  p a y m e n t .  R e s p o n d e n t  h a s  not  

s u b m it t e d  a  c la im  and had  it r e j e c t e d ;  r e s p o n d e n t  in s te a d  

n e v e r  s u b m i t t e d  a  c la im  o f  a n y  v a r i e t y .  A s  a  r e s u l t ,  it  is 

difficult to  co n clu d e  t h a t  r e s p o n d e n t  h a s  s u f f e r e d  a  d e p r i v a 

tion of a n y  claim  it m a y  h a v e .  I n d e e d ,  a l t h o u g h  t h e  N in th  

C i r c u i t  d e c i d e d  t h a t  C a l i f o r n i a  p r o v i d e s  n o  m e c h a n i s m  

th r o u g h  w h ich  r e s p o n d e n t  ca n  a s s e r t  i ts  a l l e g e d  c la im  for  

p a y m e n t ,  re s p o n d e n t  m a y  well be a b le  to  p r e s e n t  a n y  su ch  

claim  th r o u g h  s t a t e  p r o c e s s e s  an d , upon p r o v i n g  co m p lia n ce ,  

c o n v e r t  it into a r ig h t  to  p a y m e n t .

In a n y  e v e n t ,  to  th e  e x t e n t  th e  sc o p e  o f  a v a ila b le  re m e d i e s  

u n d e r  C a lifo rn ia  law  is u n c l e a r ,  d e c l a r a t o r y  a n d  in ju n c t iv e  

re l ie f  w a s  in a p p r o p r ia te .  T h is  C o u r t  r e p e a t e d l y  h a s  e m p h a 

sized t h a t  fe d e ra l  c o u r t s  should n ot d e c id e  fe d e r a l  c o n s t i t u 

tional q u e s t io n s  t h a t  d e p e n d  on u n c e r t a i n  f o r e c a s t s  r e g a r d 

ing th e  m e a n in g  of  s t a t e  law . A b s t e n t i o n  o r  c e r t i f i c a t io n  to  

th e  s t a t e  s u p r e m e  c o u r t  w ould  h a v e  b e e n  a p p r o p r i a t e  in 

th e s e  c i r c u m s t a n c e s ;  d ecid in g  th e  c a s e  b a s e d  on q u e st io n a b le  

a s su m p tio n s  a b o u t  C alifornia  law  w a s  not.

II .  In  addition  to  sh o w in g  d e p r iv a t io n  o f  a  p r o p e r t y  i n t e r 

e s t ,  r e s p o n d e n t  m u s t  sh ow  t h a t  th e  d e p r i v a t i o n  w a s  fa ir ly  

a t t r ib u ta b le  to  th e  S t a t e .  T o  th e  e x t e n t  C a lifo rn ia  law  le a v e s  

d ecis ion s  on w h e t h e r  to  w ith h old  p a y m e n t s  f r o m  a  s u b c o n 

t r a c t o r  to  t h e  b u s in e s s  d is c r e t io n  o f  th e  p r i m e  c o n t r a c t o r ,  

r e s p o n d e n t  c a n n o t  sh ow  s t a t e  ac tio n .  T h e  f a c t  t h a t  th e  S t a t e  

h as  a u th o riz e d  p r i v a t e  p a r t i e s  to  e m p lo y  t r a d i t io n a l  self-help  

r e m e d i e s  like w i th h o l d i n g  d i s p u t e d  p a y m e n t s  d o e s  n o t

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c o n v e r t  t h e  e s s e n t i a l l y  p r i v a t e  e x e r c i s e  o f  t h a t  r i g h t  in to  

s t a t e  a c t io n .  T o  t h e  e x t e n t  t h e  S t a t e  c o m p e ls  p r im e  c o n 

t r a c t o r s  to  w ith h o ld  p a y m e n t s  f r o m  s u b c o n t r a c t o r s ,  h o w 

e v e r ,  s t a t e  action  is p r e s e n t .

ARGUMENT
I. RESPONDENT HAS NOT ESTABLISHED A VIO

LATION OF ITS FOURTEENTH AMENDMENT D U E

PROCESS RIGHTS
B e c a u s e  th e  “r e q u i r e m e n t s  o f  p ro c e d u r a l  d ue p r o c e s s  a p 

ply on ly  to  th e  d e p r iv a t i o n  of  i n t e r e s t s  e n c o m p a s s e d  by  th e  

F o u r t e e n t h  A m e n d m e n t ’s p r o t e c t i o n  o f  l i b e r t y  an d  p r o p 

e r t y , ” B oard o f  Regents  v . Roth, 4 0 8  U .S .  5 6 4 ,  5 6 9  ( 1 9 7 2 ) ,  th e  

“First in q uiry  in e v e r y  d u e  p r o c e s s  c h a lle n g e  is w h e t h e r ” th e  

i n t e r e s t  a s s e r t e d  b y  th e  plaintiff, and t h a t  w a s  a lleged ly  s u b 

j e c t  to  d e p r i v a t i o n ,  c o n s t i t u t e s  “ a  p r o t e c t e d  i n t e r e s t  in 

‘p r o p e r t y ’ o r  ‘l i b e r t y ’ ” w ith in  th e  m e a n in g  o f  th e  D ue P r o c 

e s s  C la u s e .  A m erican  Mfrs. Mut. Ins. Co. v . Sullivan, 5 2 6  

U .S .  4 0 ,  5 9  (1 9 9 9 ) .  T h e  c o u r t  of  a p p e a ls  identified tw o  d iffe r

e n t  p r o p e r t y  i n t e r e s t s  h e r e —- f i r s t ,  r e s p o n d e n t ’s s u p p o s e d  

r i g h t  t o  full p a y m e n t  u n d e r  i t s  c o n t r a c t s ,  an d  s e c o n d ,  its  

“c la im ” fo r  full p a y m e n t .  A s  to  th e  First, re s p o n d e n t  h as  no  

p r e s e n t  p r o p e r ty  i n t e r e s t .  A s  to  th e  se co n d ,  re s p o n d e n t  has  

n ot e s tab lish ed  a  d e p r iv a tio n .

A. Respondent Has No Constitutionally Protected Prop
erty Interest In Full Payment Under Its Public Works 
Contracts

C o n s i s te n t  w ith  th e  a l le g a t io n s  in re s p o n d e n ts '  co m p la in t ,  

th e  c o u r t  of ap p e a ls  initially co n clu d e d  t h a t  r e s p o n d e n t  had a  

“p r o p e r t y  i n t e r e s t  in b e in g  paid  in fu ll for  th e  c o n s t r u c t i o n  

w o r k  it  h a[d ]  c o m p l e t e d ,” d e c l a r i n g  t h a t  su c h  an i n t e r e s t  
“ a r i o s e ]  fro m  [ r e s p o n d e n t ’s ]  p ub lic  w o r k s  c o n t r a c t . ” P e t .  

A p p . A 3 0  ( e m p h a s is  a d d e d ) .  S e e  id. a t  A 9 8  ( c o m p l a i n t ’s 

a l le g a tio n  t h a t  r e s p o n d e n t  w a s  “d e p r iv e d  of p r o p e r t y  in th e  

fo r m  o f  s u b s ta n t ia l  s u m s  o f  m o n e y ” u n d e r  i ts  c o n t r a c t s ) .

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1 2

T h a t  con clu sion  is im p ossib le  t o  re c o n c i l e  w i th  t h e  r e l e v a n t  

C a lifo r n i a  s t a t u t e s ,  is c o n t r a d i c t e d  b y  r e s p o n d e n t ’s co n 

t r a c t s ,  and is in co n sis te n t  w ith  g e n e r a l  c o n t r a c t  p rin cip les .

1. In  Sullivan, th is  C o u r t  c o n s i d e r e d  w h e t h e r  P e n n 

s y l v a n i a ’s w o r k e r s ’ c o m p e n s a t i o n  s t a t u t e  c r e a t e d  a  F o u r 

t e e n t h  A m e n d m e n t  “ p r o p e r t y  i n t e r e s t ” in p a y m e n t  fo r  th e  

t r e a t m e n t  o f  w o r k - r e l a t e d  in ju r ie s .  5 2 6  U .S .  a t  4 4 .  U n d e r  

th a t  law , e m p lo y e r s  and t h e i r  in s u r e r s  w e r e  r e q u i r e d  to  pay  

— and e m p lo y e e s  w e r e  c o r r e s p o n d in g ly  e n ti t le d  to  p a y m e n t  

fo r— th e  c o s t  o f  r e a s o n a b l e  an d  n e c e s s a r y  t r e a t m e n t s  for  

su ch  in ju r ie s .  Ibid. P e n n s y l v a n i a  la w ,  h o w e v e r ,  p ro v id e d  

t h a t  i n s u r e r s  w i s h i n g  to  d i s p u t e  t h e  r e a s o n a b l e n e s s  o r  

n e c e s s i t y  of  t r e a t m e n t s  (a n d  th u s  t h e i r  o b lig a t io n  to  p a y )  

could  r e q u e s t  r e v i e w  by a  u t i l iz a tio n  r e v i e w  o r g a n iz a t io n ,  

and w ithhold  p a y m e n t  p en d in g  t h a t  r e v i e w .  S e e  id. a t  4 5 -4 6 .  

T h e  p la in t i f f s  in Sullivan  a r g u e d  t h a t  p e r m i t t i n g  su ch  

w ith h o ld in g  o f  p a y m e n t  d en ied  th e  e m p l o y e e s ,  w i th o u t  due  

p ro c e s s ,  a s t a t e - c r e a t e d  p r o p e r ty  i n t e r e s t  in p a y m e n t  fo r  th e  

t r e a t m e n t  of th e i r  w o r k - re la te d  in juries .  Id. a t  5 9 -6 0 .

T his  C o u r t  r e j e c t e d  t h a t  a r g u m e n t .  T h e  P e n n s y l v a n i a  law  

n o t  only co n dition ed  th e  p laintiffs ’ r i g h t  t o  p a y m e n t  on “r e a 

s o n a b l e n e s s ” and  “n e c e s s i t y ,” b u t  a lso  e x p r e s s l y  p ro v id e d  

th a t ,  in d isp u te d  c a s e s ,  r e a s o n a b le n e s s  and  n e c e s s i t y  had  to  

be e s ta b lish e d  b e fo re  th e  i n s u r e r ’s p a y m e n t  o b lig atio n  would  

a t t a c h .  5 2 6  U .S .  a t  5 8 -6 1 .  T h e  C o u r t  ex p la in e d :

U n d e r  P e n n s y lv a n ia  law , an  e m p lo y e e  is n o t  e n t i t le d  to  

p a y m e n t  fo r  all m ed ical  t r e a t m e n t  o n c e  t h e  e m p l o y e r ’s 

initial l iability  is e s ta b l i s h e d  *  *  * .  I n s t e a d ,  t h e  law  

e x p r e s s l y  lim its  an  e m p l o y e e ’s e n t i t l e m e n t  t o  “ r e a s o n 

a b le ” and  “ n e c e s s a r y ” m e d ica l  t r e a t m e n t ,  a n d  r e q u i r e s  

t h a t  d is p u te s  o v e r  th e  r e a s o n a b l e n e s s  an d  n e c e s s i t y  of  

p a r t i c u l a r  t r e a t m e n t  m u s t  be  r e s o l v e d  before  a n  e m 

p l o y e r ’s o b lig a t io n  to  p a y — an d  an  e m p l o y e e ’s e n t i t l e 

m e n t  to  b e n e f i ts — a rise .  * * * T h u s ,  fo r  a n  e m p l o y e e ’s 

p r o p e r t y  i n t e r e s t  in th e  p a y m e n t  o f  m e d ic a l  b e n e f i ts  to

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13
attach under state law, the employee must clear two 
hurdles: First, he must prove that an employer is liable 
for a work-related injury, and second, he must establish 
that the particular medical treatment at issue is 
reasonable and necessary.

Id. at 60-61. The Court concluded that, because the plaintiffs 
in Sullivan had yet to clear the second hurdle—“to make 
good on their claim that the particular medical treatment 
they received was reasonable and necessary”—they lacked 
“a property interest in” payment and could not assert a due 
process claim for the deprivation thereof. Id. at 61.

The California laws at issue in this case similarly make it 
clear that respondent has no unconditional entitlement to full 
payment. California law generally makes full performance of 
all material obligations on a public works project, including 
compliance with prevailing-wage requirements, a condition 
precedent to the right to receive full payment. See, e.g., Cal. 
Pub. Cont. Code §§ 7107(c), 9203 (West Supp. 2000); Cal. 
Lab. Code § 1775(b)(4) (West Supp. 2000) (before “making 
final payment to the subcontractor * * * the contractor 
shall obtain an affidavit * * * from the subcontractor that 
the subcontractor has paid the specified general prevailing 
rate of per diem wages”). And California law provides that, 
if the contracting body or the State concludes that the pre
vailing-wage requirement has not been met, then “[b]efore 
making payments to the contractor,” the contracting body 
“shall withhold and retain” from any such payments the 
amount by which workers have been underpaid and any 
penalties. Cal. Lab. Code § 1727 (emphasis added). Califor
nia law further provides that, if the State withholds payment 
from a prime contractor because of a subcontractor’s failure 
to pay prevailing wages, the prime contractor is authorized, 
before making payment, “to withhold from [the] subcontrac
tor under him sufficient sums to cover any penalties with
held from him * * * on account of the subcontractor's

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14

failure to comply.” Icl. § 1729. Finally, California law pro
vides that, if the contractor (or its assignee) wishes to 
contest the withholding, it must bring a breach of contract 
action, and that it bears the burden in that action of proving 
full compliance and thus “establish[ing] [its] right to the 
wages or penalties withheld.” Id. § 1733.

Thus, just as the employees in Sullivan were not entitled 
to full payment for the medical treatments unless they were 
“reasonable” and “necessary,” 526 U.S. at 61, respondent is 
not entitled to full payment on its subcontracts unless it fully 
complies with California’s prevailing-wage requirement. 
Just as the Pennsylvania law in Sullivan “require[d] that 
disputes over the reasonableness or necessity of particular 
treatment * * * be resolved before an employer’s obligation 
to pay—and an employee’s entitlement to benefits— 
ar[o]se,” ibid., so too California law requires that disputes 
over respondents’ compliance with the prevailing-wage law 
be resolved before the contracting body’s and the prime 
contractor’s obligations to pay (and thus respondent’s right 
to be paid) arise. And, just as the employees in Sullivan had 
yet to prove their entitlement by establishing reasonable
ness and necessity, respondent here has yet to make good on 
its claim that it complied with the prevailing-wage law that 
is a condition to final payment. See Pet. App. All (Kozinski,
J., dissenting).

2. Respondent in any event does not contend that Cali
fornia statutory law provides it with a property interest in 
full payment. Instead, respondent contends—and the Ninth 
Circuit in its now-reinstated pre-Sullivan opinion held— 
that respondent’s contracts with prime contractors provided 
respondent with a property interest. See Pet. App. A30 
(respondent’s “interest arises from its public works con
tract”). But neither respondent nor the court of appeals 
identified the relevant contractual provisions giving rise to 
that alleged property right. It is difficult to see how respon
dent could claim (and the Ninth Circuit could find) the dep-

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rivation of a property right arising from a contract without 
reference to the terms and conditions of the contract itself.

Besides, it is well established that “the laws which subsist 
at the time and place of the making of a contract, and where 
it is to be performed, enter into and form a part of it, as if 
they were expressly referred to or incorporated in its 
terms.” United States Trust Co. v. New Jersey, 431 U.S. 1, 
20 n.17 (1977) (quoting Home Bldg. & Loan Ass'n v. 
Blaisdell, 290 U.S. 398, 429-430 (1934), and Von Hoffman v. 
City o f Quincy, 71 U.S. (4 Wall.) 535, 550 (1867)).3 Conse
quently, as a matter of law, the relevant portions of Califor
nia’s labor statutes are part of respondent’s contracts. And 
as explained above, those statutes preclude respondent from 
claiming an unqualified right to full and final payment from 
the prime contractor, since they make respondent’s compli
ance with the prevailing-wage law a condition precedent to 
its right to receive full payment, and authorize the with
holding of payment in disputed cases until respondent has 
established entitlement. Moreover, in this case, the Ninth 
Circuit did not disagree with petitioners’ contention that 
“the withholding procedure” respondent challenges as de
priving it of property “is contained in” respondent’s subcon
tracts, Pet. App. A31, and it noted respondent’s “con- 
ce[ssion] that the express terms of the contract grant the 
state the authority to withhold funds for wage violations,” id. 
at A32.4 Surely respondent cannot claim that it has a

3 S e e  a lso  O gden v. S a u n d e r s , 25  U .S . (12  W h e a t.)  2 1 3 . 2 5 9 -2 6 0 , 2 9 7 - 
2 9 8  (1827) (opin ions o f  W a sh in g to n  and T h o m p so n , J J . ) .  T h a t  p rin c ip le  is  
w ell a c ce p te d  b o th  a s  a m a t t e r  o f  s ta n d a rd  c o n tr a c t  law , 11 R . L o r d , 
W illiston  on C o n tra cts  § 3 0 :1 9 , a t  203 -2 0 4  (4 th  ed. 1999), and as a  m a tte r  o f  
C a lifo rn ia  law , C ity  o f  T o r ra n c e  v. W orkers' C o m p e n sa t io n  A p p e a ls  B d .,  
185 C al. R p tr . 6 4 5 ,6 4 8  (1982).

4 S e e  P e t .  A pp. A 3 2  (w ith h o ld in g  p ro v is io n s  “in c o rp o ra te d  b y  s t a te  
law  into  all pu blic w ork s c o n tr a c ts ’’); id . a t  A 22  (S e c t io n s  1771 , 1727, 1729, 
and 1775 "m u s t b e  in co rp o ra te d  in to  all pu blic w o rk s c o n tr a c ts ”). S e e  a lso  
C a l. L a b . C o d e § 1 7 7 5 (b )(1 ) (W e s t .  Su p p . 2 0 0 0 ) (fo r  p rim e  c o n tr a c to r  to  
avoid p e n a ltie s  for su b c o n tra c to r 's  fa ilu re  to  pay p re v a ilin g  w a g e , i t  m u st

337



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protected property right to full payment under its contracts 
where those very contracts permit prime contractors to 
withhold the payments; as in Sullivan, “[t]o state the 
argument is to refute it.” 526 U.S. at 61.

3. Respondent’s claim that it has a protected property 
right in payment under its subcontracts, moreover, cannot 
be reconciled with general principles of contract law. It is by 
now well settled that one party’s fulfillment of its obligations 
under a contract is a constructive condition of the other 
party’s obligation to pay. See Restatement (Second) o f  Con
tracts § 237 cmt. a (1979) (“[A] material failure of perform
ance * * * operates as the non-occurrence of condition” and 
thus “prevents]” the corresponding “performance” of the 
other party “from becoming due, at least temporarily.”); 3A 
A. Corbin, Corbin on Contracts § 708, at 333 (1960) (“If the 
refusal to pay an installment is justified” by the failure of 
substantial performance, the unpaid party cannot declare 
breach.).6 In this case, after respondent voluntarily agreed 
to a contract term requiring it to “pay a prevailing wage to 
[its] employees,” the State “determined that [respondent] 
did not comply with its prevailing wage obligation, and thus 
withheld payments.” Pet. App. A49 (Kozinski, J., dissent
ing). Because respondent’s performance in conformity with 5

com p ly w ith  r e q u ir e m e n t  th a t  ‘‘[ t )h e  c o n tr a c t  e x e c u te d  b e tw e e n  th e  
co n tra c to r  and th e  su b c o n tra c to r  fo r th e  p erfo rm a n ce  o f w ork  *  *  *  shall 
include a copy o f  th e  p rov isions o f  S e c tio n s  1 7 7 1 ,1 7 7 5 ,1 7 7 6 , [an d] 1777 .5”).

5 T h is  ru le  r e p e a te d ly  h a s  b e e n  ap p lied  in  th e  c o n te x t  o f  p ro g re ss  
p a y m en ts  on c o n s tru ctio n  c o n tra c ts . S e e , e.g., H o w a rd  S. L e a s e  C on str . 
Co. v. H olly , 72 5  P .2d  7 12  (A la sk a  1986) (c o n tra c to r  e n tit le d  to  w ithh old  
a m o u n t o f  b a ck  c h a r g e  fo r  fin e  g ra d in g , w h ich  had b e e n  c o n tra c tu a l 
ob ligation  o f  su b c o n tra c to r , from  p ro g re ss  p a y m en ts); M org an  v. S in g ley , 
560  S .W .2 d  74 6  (T e x . C iv . A pp. 1977) (a ffirm in g  fin d in g  th a t  d e fe c tiv e  
p e r fo rm a n c e  o f  s u b c o n tr a c to r  ju s t i f ie d  w ith h o ld in g  o f  p a y m e n t) ; B a r t  
A r c o n t i X S o n s , In c . v. A m es -E n n is , In c ., 3 4 0  A .2d  2 2 5  (M d . 1975) 
(a ffirm in g  fin d in g  th a t  w ith h o ld in g  w as ju s t i f ie d  w h e re  s u b c o n tr a c to r  
b re ach ed  c o n tra c t) ; K  X  G C on str . Co. v. H a r r is , 164 A .2d  451 (M d. 1960) 
(su b co n tra c to r ’s  n e g lig e n t o p era tio n  o f h eav y  eq u ip m en t a m a te r ia l b re a ch  
ju s tify in g  su sp en sion  o f  p ro g re ss  p aym en ts).

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17
that term (and in cases of dispute, proof of performance) was 
a constructive condition of the obligation to pay, the with
holding did not deny respondent a property right guaranteed 
by the contract. See Sullivan, 526 U.S. at 57 (noting 
traditional rule that, although one can “become liable * * * 
if the refusal to pay breached the contract,” the “obligation 
to pay would only arise after” the claimant had “initiated a 
claim and reduced it to a judgment”).

In that respect, the State’s withholding of payment here is 
“no different from a builder’s refusal to make progress pay
ments” on any other commercial construction contract “when 
he discovers (or believes he has discovered) a failure of per
formance on any other term.” Pet. App. A49 (Kozinski, J., 
dissenting). Where a private builder refuses to pay because 
of an alleged breach, the party claiming injury is generally 
remitted to a lawsuit, in which it must prove performance 
and entitlement to payment. We see no reason why the 
Constitution should forbid a similar approach in the context 
of voluntarily undertaken commercial construction contracts, 
like those at issue here, merely because they concern public 
works.6

4. For the same reasons, even if there were a consti
tutionally protected interest in payment, there is no due 
process violation so long as the State provides some form of 
post-deprivation process, in the form of a breach of contract 
action or otherwise. At common law, the only remedy for

c B e ca u se  re sp o n d e n t’s e n t it le m e n t  to  p a y m e n t h as n o t b e e n  le g a lly  
e s ta b lish e d , th e  co u rt o f  a p p e a ls ’ re lia n c e  (P e t .  A pp. A 3 0 ) on Snindach v. 
Family Fin. Corp., 3 9 5  U .S . 33 7  (19(59), w as m isp laced . In  Snindacli, th e  
S t a t e  p e r m itte d  th ird -p a r ty  c r e d ito r s  to  g a rn ish  e m p lo y e e  w a g e s . B e 
ca u se  th e  em p lo y e e  had  a lre a d y  b e co m e  e n tit le d  to  p a y m e n t fro m  th e  
e m p lo y e r— g a r n is h m e n t e f fe c t iv e ly  in te r c e p ts  p a y m e n ts  t h a t  n o t o n ly  
h av e  b e e n  earn e d  b y  th e  em p lo y e e , b u t th a t  th e  e m p lo y e r  in fa c t  is  m akin g  
to  th e  em p lo y e e — th e  p ro ce d u re  did d e p riv e  th e  em p lo y e e  o f  a  p re s e n t 
p ro p e r ty  in t e r e s t  in p a y m e n t. H e r e , in c o n tr a s t ,  re s p o n d e n t  h a s  n o t 
e s ta b lish e d  e n tit le m e n t to  p a y m e n t u n d e r its  c o n tr a c ts ,  and  it  is  fo r  th a t  
v e ry  reaso n  th a t  th e  p ay o r i t s e lf  h as  ch osen  to  w ithh old  p ay m en t.

339



1 8

breach of contractual obligations was a suit for monetary 
compensation, 3 E.A. Farnsworth, Farnsworth on Contracts 
§ 12.4, at 159 (1990), and the suit for such a judgment is still 
“usually regarded as adequate to satisfy the requirements of 
justice,” 5A A. Corbin, supra, § 1139, at 111 (1964). Thus, 
courts generally will not grant other relief for breach of con
tract if a suit for monetary relief is adequate. See Restate
ment (Second) o f Contracts, supra, § 359. See also United 
States v. Winstar Corp., 518 U.S. 839, 885 (1996) (opinion of 
Souter, J.) (“[D]amages are always the default remedy for 
breach of contract.”); Thompson v. Railroad Cos., 73 U.S. (6 
Wall.) 134, 137 (1867) (suit in equity barred where “an action 
at law * * * to recover damages for a breach of contract” 
would have permitted “the railroad companies to collect 
their debt”). Thus, even in clear cases of breaches of con
tractual rights, historical practice has been to remit the 
party claiming breach to a suit seeking compensation after 
the fact. There is no reason why the Constitution should 
require any more process for parties who voluntarily enter 
into a commercial contract with the government. Thus, for 
example, Congress—although providing a specialized forum 
and waiver of immunity for breach-of-contract suits against 
the United States under the Tucker Act, 28 U.S.C. 1346, 
1491—still largely precludes relief other than monetary com
pensation after a breach has occurred. See United States v. 
Testan, 424 U.S. 392, 397-398 (1976); United States v. A lire, 
73 U.S. (6 Wall.) 573, 575-577 (1867).7

That rule is especially sound here, since respondent does 
not so much seek to prevent the State from breaching a 
contractual obligation as it attempts to preclude the State 
from exercising its own bargained-for contract rights. When

7 In d eed , b e fo re  th e  T u c k e r  A c t, a c o n tra c to r  s e e k in g  to  r e c o v e r  on a 
b re a ch -o f-co n tra c t claim  a g a in st th e  U n ite d  S t a te s  had no a u to m a tic  r ig h t 
to  a ju d ic ia l foru m , and w as re m itte d  in s te a d  to  s e e k in g  a p r iv a te  bill. S e e  
OPM v. Richmond, 49<> U .S . 414, 430-431  (1990).

340



19

prime contractors enter into public works projects in Califor
nia, they undertake an obligation to ensure that all workers 
on the project are paid the prevailing wage. See Cal. Lab. 
Code §§ 1771, 1774. Thus, when project employees are not 
paid that wage—whether the employees are the prime con
tractor’s or those of its subcontractor—the prime contractor 
is contractually obligated to pay them the difference itself. 
See id. § 1775 (West 1989) (“The difference between the 
prevailing wage rates and the amount paid to each worker 
* * * shall be paid to each worker by the contractor, and 
the body awarding the contract shall cause to be inserted in 
the contract a stipulation that this section will be complied 
with.”) (pre-1998 statute); id. § 1775(a) (West Supp. 2000) 
(same, but payment must be made by prime contractor or 
subcontractor); id. § 1775(d) (West Supp. 2000) (prime 
contractor jointly and severally liable for nonpayment). 
And, if the prime contractor fails to do so, the State has a 
right to withhold payment to the prime contractor on 
account of that breach. See id. §§ 1727, 1775. We fail to see 
how the State’s enforcement of its bargained-for contractual 
right—to withhold payment on account of the prime con
tractor’s breach of an obligation to ensure that all project 
employees are paid the prevailing wage—could conceivably 
violate the subcontractor’s constitutional rights.

Perhaps recognizing as much, the Ninth Circuit attempted 
to recharacterize this suit as a challenge to the State’s 
exercise of its “regulatory power,” because California law 
mandates inclusion of the prevailing-wage requirement and 
the withholding provisions in all of the State’s public works 
contracts. Pet. App. A32. But the fact that the State has 
statutorily established the terms on which it is willing to 
enter into commercial contracts for public works (rather 
than leaving the terms to the discretion of individual state 
contracting bodies) does not make a constitutional differ
ence. Private parties too may declare in advance certain 
contract conditions that are not subject to negotiation. In

341



20

either event, those who find the required conditions undesir
able can decline to contract or insist on greater compensa
tion. Id. at A49, A51 (Kozinski J., dissenting). As this Court 
explained in upholding a similar statutory scheme almost a 
century ago, “we can imagine no possible ground to dispute 
the power of the State to declare that no one undertaking 
work fo r  it” must undertake particular obligations, for it is 
not “part of the liberty of any contractor that he be allowed 
to do public work in any mode he may choose to adopt, 
without regard to the wishes of the State.” Atkin v. Kansas, 
191 U.S. 207, 222 (1903). Instead, each State has the unques
tioned power “to prescribe the conditions upon which it will 
permit public work to be done on its behalf * * *. No court 
has authority to review its action in that respect.” Id. at 222- 
223. Accord Perkins v. Lukens Steel Co., 310 U.S. 113, 127 
(1940) (“Like private individuals and businesses, the Gov
ernment enjoys the unrestricted power * * * to determine 
those with whom it will deal, and to fix the terms and 
conditions upon which it will make needed purchases.”). In 
this case, respondent voluntarily chose to enter into a con
tract containing the terms and conditions the State requires 
for all public works contracts. Having done so, respondent 
cannot complain that it has been deprived of a contract- 
based property right to full payment where the contract 
itself simply does not provide that right.8

8 T h is  ca se  d oes n o t im p lica te  th e  C o u r t ’s  p re v io u s  r e je c t io n  o f th e  
p rin c ip le  th a t ,  “ w h e re  th e  g r a n t  o f  a s u b s ta n tiv e  r ig h t  is  in e x tr ic a b ly  
in te r tw in e d  w ith  th e  l im ita tio n s  on th e  p ro c e d u r e s  w h ich  a r e  to  be 
em ployed in d e te rm in in g  th a t r ig h t, a l i t ig a n t *  * * m u st ta k e  th e  b it te r  
w ith  th e  s w e e t” fo r du e p ro c e s s  p u rp o se s . Cletwland Bd. o f  Educ. v. 
LoudermilL, 4 7 0  U .S . 532 , 54 0  (1985) (q u o tin g  Arnett v. Kennedy, 41 6  U .S . 
134, 153-154 (1974) (p lu ra lity  opin ion )). F o r  on e th in g , th is  c a se  d oes not 
in v o lv e  th e  d is tr ib u tio n  o f  e n t it le m e n ts  o r  s t a tu t o r y  b e n e f it s ,  n o r th e  
p ro v isio n  o f s t a te  jo b s  to  in d iv id u als; in s te a d , i t  co n c e rn s  c o n stru ctio n  
co n tra c ts  for public w orks, an  a re a  in w h ich  th e  S t a te  tra d itio n a lly  h as had

342



2 1

B. The State Has Not Deprived Respondent Of Any 
Property Interest In Claims For Withheld Payments

Following this Court’s grant, vacatur, and remand of the 
Ninth Circuit’s initial decision in light of Sullivan, see pp. 6- 
7, supra, the Ninth Circuit identified a different property 
interest. Although the Ninth Circuit reinstated its earlier 
opinion, it acknowledged that respondent does not “have a 
right to payment of the disputed funds pending the outcome 
of whatever kind of hearing would be afforded to determine 
whether [respondent] complied with the California pre
vailing wage laws.” Pet. App. A6. But it concluded that 
respondent had a property interest in a “claim” for payment. 
Ibid. The Ninth Circuit explained that this Court, in Sulli
van, 526 U.S. at 61 n.13, had reserved judgment on whether 
plaintiffs could have a property interest in their claims for

g r e a te r  d isc re tio n  to  e s ta b lis h  th e  te rm s  u n d e r w h ich  i t  is w illin g  to  do 

b u sin ess . S e e  A tk in , su p ra ; L u k e n s  S tee l, su p ra .

M o re  fu n d a m e n ta lly , re co g n iz in g  th a t  a p ro p e r ty  in t e r e s t  in a c tu a l 
r e c e ip t  o f  a  p aym en t d oes n o t “a tta c h  u n d er s t a te  law ,” S u lliv a n , 52 6  U .S . 
a t  6 0 , u n til  th e  c la im a n t’s e n t i t le m e n t  th e r e to  h a s  b e e n  d e te r m in e d  
th ro u g h  S ta te -s p e c if ie d  p ro ced u res  is  n ot an in v o ca tio n  o f  th e  b it te r -w it  h- 
th e -s w e e t p rin cip le . In  S u lliv a n , th is  C o u rt re co g n ized  th a t  no p ro p e rty  
in t e r e s t  in th e  r e c e ip t  o f  e v e n  a s ta tu to r y  b e n e f it  can  a r is e  u n til th e  
c la im a n t’s e n t it le m e n t  to  th e  b e n e fit  h as  b e e n  e s ta b lis h e d . Id . a t  6 0 -6 1 . 
B e fo r e  th e  S t a te  h as sa t is f ie d  i t s e l f  o f  an in d iv id u a l’s e n t i t le m e n t  to  a 
b e n e fit , th e  ind ividu al h as a t  m o st a m e re  “u n ila te ra l e x p e c ta t io n ” o f  r e 
ce iv in g  it ,  w hich  d oes n ot co n s t itu te  “p ro p e rty ."  R oth , 4 0 8  U .S . a t  577 . R y  
c o n tr a s t ,  an  in d iv id u al's  e x p e c ta tio n  o f  co n tin u ed  r e c e ip t  o f  a b e n e fit  to  
w hich  th e  S t a t e  h as a lre a d y  found him  or h e r  e n tit le d  m ay c o n s t i tu te  a 
re a so n a b le , n o n -u n ila tera l re lia n c e  in te r e s t  o f  th e  s o r t  “upon w h ich  p eop le  
r e ly  in th e ir  d a ily  l iv e s ,” and w h ich  “ ( i j t  is  a p u rp o se  o f th e  a n c ie n t  
in s titu tio n  o f  p ro p erty  to p r o te c t .” Ib id . S e e  a lso  S u lliv a n , 52 6  U .S . a t  60  
(re sp o n d e n ts ’ p ro p e rty  in t e r e s t  w as “fu n d am en ta lly  d if fe re n t” fro m  th o se  
in v o lv ed  in ca se s  in w h ich  th e  in d iv id u a ls ’ “ e n tit le m e n t  to  b e n e f it s  had 
b een  e s ta b lish e d ,” and w hich involved  th e  p ro ced u res  n e c e s s a ry  in co n n ec
tio n  w ith  te r m in a t in g  th e  “co n tin u ed  p a y m e n t o f  b e n e f i t s " ) ;  G ilb er t v. 
H o m a r , 5 2 0  U .S . 924 , 9 2 8  (1997). In  th is  ca se , s ta n d a rd  c o n tra c t  p rin c ip le s  
con d itio n  re sp o n d e n t's  r ig h t  to  re ce iv e  full p a y m e n t on i ts  full p e r fo rm 
an ce ; b e c a u se  re sp o n d en t failed to  p erfo rm  as re q u ire d , i t s  r ig h t to  re ce iv e  
th e  co rresp o n d in g  full p a y m en t n e v e r  m atu red . 343



22

benefits, as distinguished from the benefits themselves, 
“such that the State, the argument goes, could not finally re
ject their claims without affording them appropriate proce
dural protections.”

1. As we explained in our brief as amicus curiae in 
Sullivan (97-2000 U.S. Br. at 21-22), an individual who has 
applied for statutory benefits, but who has not yet received a 
determination of entitlement, may well enjoy a constitu
tionally protected property interest in his or her claim for 
benefits (so long as the statute providing the benefits re
mains in effect), even though he or she has no protected 
interest in the immediate receipt of the benefits themselves. 
Such a claim for payment is akin to a “chose in action,” which 
may be a species of property. See, e.g., Logan v. Zimmer
man Brush Co., 455 U.S. 422, 431 (1982); see Shvartsman v. 
Apfel, 138 F.3d 1196, 1199 (7th Cir. 1998) (discussing Zim
merman). Thus, state action bringing about the final and 
irrevocable denial of the claim for the benefit—as distin
guished from regulating the individual’s access to the benefit 
in a manner that does not destroy the value of the claim 
altogether—is subject to due process scrutiny.

We do not believe, however, that invocation of such a 
property interest supports the Ninth Circuit’s judgment 
here. This is not a case in which a party actually filed a claim 
of some variety—or a lawsuit—only to have it rejected arbi
trarily or adjudicated through unfair procedures. Pet. App. 
A ll (Kozinski, J., dissenting) (contrasting Logan, 455 U.S. 
422). Instead, respondent has yet to file a claim of any 
variety; nor has respondent established the absence of a 
practicable forum to which such a claim could be submitted. 
Under these circumstances, it cannot be said that the State 
has deprived respondent of a “claim” for payment.

The Ninth Circuit appears to have assumed that respon
dent need not submit a claim for payment through state 
processes because California has not provided a mechanism 
by which such claims may be adjudicated. But Section 1733 

344



23
of the California Labor Code provides a specialized breach- 
of-contract action through which the prime “contractor or 
fits] assignee" may challenge withholding and obtain funds 
mistakenly withheld. Cal. Lab. Code § 1733 (emphasis 
added). Respondent nowhere alleges that it sought an as
signment from the prime contractor to permit it to bring suit 
under Section 1733. Pet. App. A12-A13 (Kozinski, J., dis
senting). Nor does respondent explain why a prime con
tractor that withheld payments from its subcontractor would 
resist such an assignment.9 Indeed, respondent nowhere 
claims that such assignments are difficult to obtain, or that 
respondent cannot protect itself from the prospect of a 
refusal to assign by requiring assignment as a condition of its 
contracts. Finally, it is far from clear that state courts would 
refuse to require an express assignment in the event that a 
prime contractor unreasonably refused to assign the right, or 
effect an “equitable assignment” through the doctrine of 
subrogation.10 It is difficult to credit the contention that 
respondent's purported “claim” for payment has been unlaw
fully extinguished when respondent does not allege that it 
has made any effort to assert it.

Moreover, the Ninth Circuit assumed—without citation to 
California case law—that Section 1732 makes Section 1733

n R e sp o n d e n t o b s e r v e s  th a t  a p rim e  c o n t r a c to r  s u b je c te d  to  w ith 
hold ing th a t  has in tu rn  w ith h eld  p a y m e n ts  fro m  a s u b c o n tra c to r  "h a s  no 
fin an cia l in cen tiv e  to  c o n te s t  th e ” S t a te 's  “a c tio n .” B r . in O pp. 16. B y  th e  
sa m e to k e n , h o w ev er, su ch  a p rim e c o n tr a c to r  lo ses  n o th in g  b y  a ss ig n in g  
th e  r ig h t  to  sue to  its  su b c o n tra c to r , and p re su m a b ly  w ould b e  w illin g  to 
do so  in o rd er to  p re se rv e  i ts  re la tio n sh ip  w ith  its  c o n tra c tin g  p a r tn e r , as 
wTell as i t s  re p u ta tio n  in th e  in d u s try , an d  to  avo id  th e  p r o s p e c t  o f  a 
b re a ch -o f-co n tra c t actio n  fo r  u n re a so n a b ly  w ith h o ld in g  a ss ig n m e n t (se e  p. 
23 , supra) o r  for fa ilin g  to m ake final p a y m en t (se e  p. 24 & n o te  12, infra).

10 F e d e r a l  c o u rts  could  n o t e f fe c t  su ch  an  e q u ita b le  a s s ig n m e n t o f  
r ig h ts  a g a in st th e  fed era l g o v e rn m e n t u n d e r th e  T u c k e r  A c t. T h e  T u c k e r  
A c t s t r ic t ly  lim its  th e  ca u s e s  o f  a c tio n  th a t  m ay  b e  b ro u g h t, and su b 
ro g a tio n  su its  a re  n o t a m o n g  th o s e  l is te d . S e e ,  e.g., Department o f  the 
Army v. Blue Fox, Inc., 525  U .S . 25 5  (1999).

345



24

the exclusive remedy for any person seeking to challenge 
withholding. Pet. App. A22. But Section 1732 makes suit 
under Section 1733 “the exclusive remedy o f the [prime] 
contractor or [its] assignees,” Cal. Lab. Code § 1732 (empha
sis added), and thus does not, by its terms, preclude suit by a 
subcontractor that has not obtained an assignment of the 
prime contractor's rights. See J  & K Painting Co. v. Brad
shaw, 53 Cal. Rptr. 2d 490, 500 (Ct. App. 1996). For that 
very reason, at least one California appellate court has per
mitted a subcontractor to bring a challenge through a writ of 
mandate under Cal. Civ. Proc. Code § 1085. J  & K Painting 
Co., 53 Cal. Rptr. 2d at 499-501.“ Finally, the Ninth Cir
cuit’s conclusion that the Labor Code would preclude the 
subcontractor from bringing a common-law breach-of-con- 
tract action against the prime contractor (Pet. App. A28, 
A37 n.9) is not a self-evidently correct reading of California 
law.11 12 Thus, given the general reluctance of California courts 
to read legislation as providing only a “patently inadequate” 
remedy, J  & K Painting, 53 Cal. Rptr. 2d at 501 n.7, there is 
reason to doubt that respondent lacks any mechanisms 
through which it may assert a “claim” for payment.

11 A s th e  p e titio n  e x p la in s  (a t  6 ), a s u b c o n tra c to r  a lso  could  s e e k  to 
re c o v e r  w ith h e ld  p a y m e n ts  u n d e r C a lifo rn ia ’s s ta tu to r y  “s to p  n o tic e ” 
p ro ced u re . S e e  C al. C iv . C od e it 3 2 1 0  (W e st 1993); D ep a r tm en t  o f  In d u s .  
R e la t io n s  v. F id e lity  R o o f  C o., 70 C a l. R p tr . 2d 465 , 47 0  (C t. A pp. 1997).

12 T h e  N in th  C ircu it read  S e c tio n  1729 o f th e  C a lifo rn ia  L a b o r  C od e as 
p rov id in g  p rim e c o n tra c to rs  w ith  an a b so lu te  d e fen se  a g a in s t su ch  actio n s. 
P e t .  A pp. A 2 8 , A 37  n .9 . B y  its  te rm s , h o w e v e r, S e c t io n  172 9  m a k es it 
“ law fu l” fo r a p rim e c o n tra c to r  to  w ithhold  p ay m en ts  from  a  su b c o n tra c to r  
w h e re  su m s h av e  b een  “w ith h eld  from  [th e  p rim e  c o n tr a c to r ]  b y  th e  
aw ard in g  body o il a c c o u n t  o f  th e su b c o n tr a c to r ’s f a i l u r e  to c o m p ly "  w ith 
p re v a ilin g -w a g e  r e q u ire m e n ts . W h e re  th e  s u b c o n tr a c to r  in fa c t  h as 
com p lied  w ith  th o se  r e q u ire m e n ts , w ith h o ld in g  b y  th e  S t a t e  could  be 
re g ard ed  as n ot “on acco u n t o f th e  su b c o n tr a c to r ’s f a i l u r e  to  com p ly ,” b u t 
r a th e r  on a cco u n t o f  th e  S ta t e ’s  m is ta k e  re g a rd in g  co m p lia n ce , and th e  
p rim e c o n tr a c to r ’s fa ilu r e — b y  n e ith e r  c h a lle n g in g  th e  e r r o r  i t s e l f  n o r 
a ssig n in g  th e  l ig h t  to  do so— to  se e k  a co rre ctio n .

346



25
For present purposes, however, it is sufficient to note that 

the burden is on respondent to establish a violation of its due 
process rights, and that respondent has failed to carry that 
burden. Simply put, any violation of respondent’s rights 
would not be complete until the State has both deprived 
respondent of its interest in “property,” and the process that 
is respondent’s due has been denied. Cf. Williamson County 
Reg’l Planning Comm’n v. Hamilton Bank, 473 U.S. 172, 
193-195 (1985). Here, respondent cannot argue that either 
has occurred with respect to its purported property interest 
in a claim for payment. There has been no deprivation of any 
such interest because the claim has yet to be asserted in any 
state forum, much less rejected or terminated by the State. 
And, although state law in this area is not certain, 
respondent may well be able to present its claim through 
state processes and, upon proving compliance, convert that 
claim into the payment that is its ultimate goal. Only if 
respondent makes an effort to do so and is rebuffed, or has 
affirmatively established that no procedure is available, will 
it be possible to conclude with assurance that respondent has 
been deprived of any claim for payment it may have, and 
that any such deprivation occurred without the process that 
is constitutionally due. That respondent has not done.

2. There is an additional infirmity in the court of appeals’ 
reliance on suppositions regarding California law to invali
date this important statutory scheme. As this Court ex
plained over half a century ago, “important considerations of 
policy in the administration of federal equity jurisdiction” 
weigh against federal court relief against state action on 
constitutional grounds where the ultimate holding rests on a 
“forecast” as to how state courts would resolve particular 
questions of state law. Railroad Comm’n v. Pullman Co., 
312 U.S. 496, 499-501 (1941). Indeed, this Court repeatedly 
has relied on the strong federal interests in avoiding “unnec
essary friction” in federal-state relations, preventing inter
ference with “important state functions,” and avoiding both

347



26

“tentative decisions on questions of state law” and “pre
mature constitutional adjudication” as grounds for refusing 
federal decision on constitutional questions where the state 
laws in question are “fairly subject to an interpretation 
which w[ould] render unnecessary or substantially modify 
the federal constitutional question.” Harman v. Forssenius, 
380 U.S. 528, 534, 535 (1965). See, e.g., Babbitt v. United 
Farm Workers, 442 U.S. 289, 305-312 (1979); Lake Carriers’ 
Ass 'n v. MacMullan, 406 U.S. 498, 510-513 (1972).

To the extent state law regarding the availability of 
remedies is unclear, this is precisely the sort of case in which 
Pullman abstention is appropriate, since any decision 
invalidating California’s statutory scheme would necessarily 
rest on the questionable “forecast” that no state remedies 
exist. The court of appeals in this case nonetheless invali
dated a prevailing wage enforcement scheme that has been 
in place in California for over 60 years. In so doing, the court 
took at face value respondent’s assertions as to the meaning 
of the California Labor Code §§ 1729, 1732, and 1733, see Pet. 
App. A22, A28, A37 n.9; relied on the very absence of 
controlling judicial precedent as a basis for concluding that 
respondent had no available remedies under state law, see 
id. at A37 n.9; and disregarded the position of the state 
agency responsible for enforcing the Labor Code that other 
remedies were available. See generally pp. 22-24 & notes 11- 
12, supra. This Court itself has abstained in such circum
stances. See Carey v. Sugar, 425 U.S. 73 (1976) (per curiam) 
(abstaining in procedural due process challenge to state pre
judgment attachment statute, noting that injunctive relief 
was “particularly inappropriate” in light of state officials’ 
claim that state law made available procedures of the sort 
the plaintiffs demanded).

Nor did the court of appeals consider the ordinary alter
native to Pullman abstention, which is certification of the 
relevant state law questions to the state supreme court. See 
California Rules of Court 29.5(a); Arizonans For Official

348



27

English v. Arizona, 520 U.S. 43, 76 (1997). Invocation of that 
procedure would have been superior to premature adjudica
tion of a federal constitutional question (and invalidation of 
an important state statute) based on what may have been an 
inappropriately parsimonious construction of the relevant 
state laws. Moreover, we note that California has recently 
revised its Labor Code, effective July 1, 2001, to add a new 
Section 1742, which entitles both prime contractors and 
subcontractors to challenge a notice of assessment of unpaid 
wages through administrative proceedings, with a right of 
judicial review. See p. 4, supra. That new provision will 
eliminate (as of its imminent effective date) any basis for the 
court of appeals’ belief that a subcontractor like respondent 
has no means of challenging the State’s withholding of pay
ments from a prime contractor, where the prime contractor 
in turn withholds payments from the subcontractor.

For the foregoing reasons, if this Court does not reverse 
the judgment of the court of appeals, it may wish to consider 
vacating that court’s judgment and remanding with direc
tions to dismiss the case, in view of the absence of any sig
nificant continuing justification for an award of prospective 
equitable relief, and the presence of uncertain questions of 
state law that would otherwise appear to call either for 
Pullman abstention or for a certification to the California 
Supreme Court that probably could not be completed before 
the new law becomes effective on July 1, 2001.
II. THE COURT OF APPEALS’ STATE ACTION 

ANALYSIS IS UNPERSUASIVE
In order to state a claim for the deprivation of a right 

protected by the Fourteenth Amendment, respondent must 
establish “state action” implicating the due process guaran
tee. Sullivan, 526 U.S. at 49-50. Respondent’s primary 
contention is that it suffers injury when prime contractors 
withhold final payments from respondent under its public 
works contracts. According to petitioners, however, Section

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28

1729 of the California Labor Code permits but does not 
compel prime contractors to withhold those payments; prime 
contractors, petitioners therefore argue, are not properly 
characterized as “state actors.” To the extent that descrip
tion of prime contractors’ discretion is correct, we agree. As 
this Court explained in Sullivan, the fact that the State has 
authorized private parties (like the prime contractors here) 
to employ traditional self-help remedies (such as withholding 
disputed payments) “without participation by any public 
official” does not itself convert essentially private conduct 
into state action. 526 U.S. at 57 (quoting Flagg Bros. v. 
Brooks, 436 U.S. 149, 162 n.12 (1978)). Nor do we think that 
Sullivan can be meaningfully distinguished on the ground 
that, in this case, respondent has sued only state officials, 
and has challenged their withholding of payments from the 
prime contractor in the first instance. The conduct of state 
officials did not injure respondent; the prime contractor’s 
independent decision to withhold payments from respondent 
did. At least so long as the prime contractor was free to pay 
respondent notwithstanding the State’s action of withhold
ing payment (as the prime contractor might do to ensure 
respondent’s continued performance despite a breach), and 
so long as the prime contractor was free to withhold 
payments even if the State did not do so first (as the prime 
contractor might do in the event of breach), respondent’s 
injury would appear to be properly attributed to the prime 
contractor’s business judgment, not to action of the State. 
Cf. Lujan v. Defenders o f Wildlife, 504 U.S. 555, 560-561 
(1992) (standing requires the injury to be “fairly traceable” 
to the defendant’s conduct rather than to “independent 
action of some third party not before the court”).

We likewise do not agree with the court of appeals’ 
conclusion that state action exists here because respondent 
was the “target of the state’s action” of withholding payment 
from prime contractors. Pet. App. A67. Although this Court 
has left open the possibility that state action could be

50



29

established by a plaintiff who is indirectly affected when the 
government “actfs] against” a third party “for the purpose of 
punishing or restraining” the plaintiff, O'Bannon v. Town 
Court Nursing Ctr., 447 U.S. 773, 789 n.22 (1980), the 
operation of Section 1729 does not depend on such a purpose. 
The State’s withholding of payment from the prime con
tractor is justified by—and designed to redress—the prime 
contractor’s breach of its oum obligation to ensure that its 
subcontractors comply; and the State’s withholding also 
serves to isolate project funds that can be used to com
pensate the underpaid workers on the project, without 
regard to whether those funds are withheld in the end only 
from the prime contractor or whether the prime contractor 
in turn withholds payments from the subcontractor. See Cal. 
Lab. Code § 1775(b)(2) (West Supp. 2000) (prime contractor 
obligated to monitor subcontractor’s compliance with pre
vailing wage law); id. § 1775(d) (withheld funds paid to un
dercompensated workers); p. 19, supra (prime contractor’s 
obligation to ensure payment).

Nonetheless, there are two provisions of the California 
Labor Code that might now support a finding of state action. 
Although Section 1729 of the Labor Code does not require 
prime contractors to withhold payments from subcontractors 
—and nothing in the pre-1998 version of the California Labor 
Code appears to have done so either—an amendment to Sec
tion 1775 of that Code, effective January 1, 1998, suggests 
that California law in fact may require prime contractors to 
withhold payments from subcontractors under certain 
circumstances. In particular, the currently effective Section 
1775(b)(3) of the Labor Code states that, when a contractor 
becomes aware of a subcontractor’s failure to comply with 
prevailing-wage requirements, “the contractor shall dili
gently take corrective action to halt or rectify the failure, 
including, but not limited to, retaining sufficient funds due 
the subcontractor for work performed on the public works 
project.” Cal. Lab. Code 1775(b)(3) (West Supp. 2000) (em-

351



30

phasis added). In addition, a new Section 1775(c) provides 
that, if a subcontractor has not paid the prevailing wage and 
the contracting agency does not retain sufficient funds to pay 
those employees the balance of their wages, “the contractor 
shall withhold” from the subcontractor “an amount * * * 
sufficient to pay those employees the general prevailing rate 
* * * i f  requested by the Division of Labor Standards
Enforcement.” Id. § 1775(c) (emphasis added). To the ex
tent those provisions are at issue here and compel prime 
contractors to withhold payments once the State notifies the 
prime contractor of a subcontractor’s noncompliance, we 
believe that state action is present. As this Court has 
explained, a State can be held responsible for a private deci
sion when it “has exercised coercive power or has provided 
such significant encouragement, either overt or covert, that 
the choice must in law be deemed to be that of the State.” 
Sullivan, 526 U.S. at 52 (quoting Blum v. Yaretsky, 457 U.S. 
991,1004 (1982)).

CONCLUSION
The judgment of the court of appeals should be reversed. 

In the alternative, the Court may wish to vacate the 
judgment of the court of appeals and remand the case with 
directions to vacate the judgment of the district court and 
remand the case to that court with directions to dismiss the 
complaint for want of a basis for prospective equitable relief 
in light of the enactment of 2000 Cal. Legis. Serv. Ch. 954 
(A.B. 1646) (West), and the presence of uncertain questions 
of state law.

Respectfully submitted.

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31

Seth P. Waxman 
Solicitor General 

David W. Ogden 
Assistant Attorney General 

Edwins. Kneedler 
Deputy Solicitor General 

J effrey A. Lamken 
Assistant to the Solicitor 

General
Mark B. Stern 
J acob M. Lewis 
Daniel L. Kaplan 

Attorneys

December 2000

353



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