Service Area: Notice and Mechanic’s Lien Services

Serving a PA Mechanic’s Lien: Sheriff or Public Posting

Posted on July 30, 2018 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Be Sure to Serve the Mechanic’s Lien via Sheriff or Publicly Post It

In Pennsylvania, statute dictates a mechanic’s lien be served by a sheriff. If the sheriff is unable to serve the lien, the lien claimant has an opportunity to meet statutory requirements by posting the lien “upon a conspicuous public part of the improvement.” The Superior Court of Pennsylvania says claimants must strictly adhere to statutory requirements.

Mechanic’s Liens in Pennsylvania

Pennsylvania rolled out statute changes the end of 2016. While there were significant overall changes, the statute dictating the service of the mechanic’s lien remained the same.

1502. Filing and notice of filing of claim

(c) Manner of service. Service of the notice of filing of claim shall be made by an adult in the same manner as a writ of summons in assumpsit, or if service cannot be so made then by posting upon a conspicuous public part of the improvement.

“Adult in the same manner as a writ of summons in assumpsit” means sheriff. If the sheriff is unable to successfully serve the mechanic’s lien, the claimant can still meet statutory requirements, by posting a copy of the document on the jobsite.

There are several states whose statute can be quite confusing or convoluted. But, all in all, Pennsylvania’s statute is quite clear: serve the lien via sheriff or post it at the jobsite. Unfortunately, it appears this statutory requirement is frequently managed incorrectly by claimants. In fact, in May, the Superior Court of Pennsylvania heard the appeal of one subcontractor and confirmed the subcontractor failed to comply with statute.

The Cost of Failing to Properly Serve the Lien

$581,840.39 = the cost of failing to properly serve the lien.

In Forbes Excavating, LP v. Weitsman New Castle Realty, LLC, Pa: Superior Court 2018, lien claimant, Forbes Excavating, LP (Forbes) filed a lien on 10/28/2016 for a claim of $581,840.39. According to statute, Forbes need to serve the notice of filing upon the owner within 1 month from filing the lien, which would have been by 11/28/2016.

On 11/15/2016, the sheriff attempted service of Forbes’ notice upon Weitsman New Castle Realty, LLC (Weitsman). The sheriff was unable to complete service, because the individual at the address advised it was not the correct address for Weitsman.

This is a portion of text from the sheriff’s affidavit:

[Sheriff Sigler] made a diligent search and inquiry for the within named Defendant [Weitsman Realty] … but was unable to locate them… nor to ascertain the Defendant[‘s] present whereabouts, and I do therefore return the within Mechanics Lien, NOT FOUND.

Reason:

The above address is Ben Weitsman of New Castle, per Ron Saley, general manager there. [Weitsman Realty] is not known there[.]

Once service failed, Forbes could have attempted service again, or it could have posted a copy of the document on the premises in plain view.

On 1/10/2017, service was attempted again, to the same address as before, and was successfully delivered to the office manager at the address.

The Battle of Complaints Ensues

As with most legal situations, there was back & forth between parties. Forbes filed suit to enforce its mechanic’s lien and in response, Weitsman contested, stating Forbes failed to comply with statute. Weitsman argued that Forbes failed to serve a copy of the lien timely and once the document was successfully served, it was given to an “individual who was not authorized to accept service” – the office manager.

Weitsman didn’t need its second argument regarding the office manager, because its first argument was more than enough for the court. However, this was not before Forbes lodged an argument that when the sheriff originally attempted service, the person at the address lied to the sheriff when stating Weitsman wasn’t located at that address.

Forbes claimed “…that Weitsman Realty’s ‘refusal to accept service on November 15, 2016 constituted valid service under Pennsylvania law’ and, thus, it properly served Weitsman Realty with timely notice of the Claim on November 15, 2016.” Forbes further argued that Weitsman was “constructively served;” however, if Forbes had wanted that argument to work, it should have filed an affidavit of service within 20 days from the attempted service of the document. At least, that was what the court said.

“This claim immediately fails because, even if the Mechanics’ Lien Law permitted the type of constructive service [Forbes] advocates, [Forbes] did not file “an affidavit of service of notice, or the acceptance of service” within 20 days of November 15, 2016.”

There are additional technicalities at play, such as when service failed, the sheriff indicated the party was “not found,” not that “service was refused,” indicating there is no way to prove the person at the address lied to or refused to avoid receiving the document. But, technicalities like this were nothing more than another proverbial nail in Forbes’ coffin.

Despite the drama with service by sheriff, Forbes did have another option: Post. Document. At. Jobsite. Forbes wasn’t without options when original service was unsuccessful, Forbes just failed to execute the options.

The Court’s Parting Advice

Statute is to be strictly interpreted & failing to follow the law means failing to secure a mechanic’s lien. Must be a painful $581,840.39 lesson.

“…this Court specifically held… the service requirements under the Mechanics’ Lien Law are not subject to the doctrine of substantial compliance — and that they must be strictly construed. Appellant’s claim to the contrary is thus meritless…”

Mechanic’s Liens and Bond Claims are a Right

Posted on July 27, 2018 by - In Other Commercial Credit News

Mechanic’s Liens & Bond Claims are a Right, Not a Blanket

If you have supplied materials or labor to a construction project, you have a right to be paid. If you have complied with the state’s statute, you have a right to file a mechanic’s lien.  You can’t see my face, but right now I am fired up!

Fired up over a right to lien? Not exactly.

Truth is, I read a great article this week, but the title of the article initially bothered me: “Lien and Bond Claims: A Subcontractor’s Security Blanket.”

The title bothered you? Yes, and I think it’s because I immediately pictured Linus, famous Peanuts’ character, helplessly clinging to his blanket for solace. That’s not what mechanic’s liens and bond claims are. They aren’t a weakness we cling to, hoping for payment!

Mechanic’s liens and bond claims are built on a firm foundation of law and the law is representative of strength, and if used properly, you will protect your Right. To. Be. Paid!

Pardon me as I step off my soapbox.

A Little Dramatic, I Know

Before my little soapbox moment, I did say “I read a great article this week.” And that is the truth. In his article, Marc J. Felezzola Esq., of Babst Calland, discusses the common mistakes made by subcontractors when trying to secure mechanic’s lien/bond claim rights.

Before he dives into the pitfalls, the attorney provides an overview of the rights afforded to those furnishing to private and public construction projects. As I read further, breezing through the general information on liens and bonds, I see it.

Security.

And then I realize, Felezzola isn’t using the term “security” in a weak manner. Rather, he reminds me that “security” is protection, safety or, as Google puts it, “the state of being free from danger or threat.”

“Thus, generally speaking a subcontractor or material supplier (collectively, a “subcontractor”) always should have security for the work it performs. For a private project, that security comes in the form of a mechanic’s lien. For a public project, the security generally comes in the form of a payment bond.”

Felezzola’s Warnings

Felezzola warns would-be claimants of the importance of complying with preliminary notice requirements and subsequent lien and bond claim requirements, and, he further cautions about waiving claim rights within a contract:

“Blanket lien waivers are enforceable in approximately 20 states, and in those states, signing a subcontract with a blanket lien waiver will automatically deprive a subcontractor of mechanic’s lien rights all of its work. Thus, in states where blanket lien waivers are valid, subcontractors who sign contracts containing them will have no payment security for their work unless the project is bonded.”

Another piece of advice? Don’t assume a payment bond has been issued on a public project. Yes, in most states, there are statutory requirements for contractors to obtain proper payment bonds. However, as Felezzola points out, there aren’t always consequences for folks that fail to obtain a bond.

“…[A]lthough all states have some law requiring prime contractors to post payment bonds as security for subcontractor work, not all of those laws provide consequences in the event the prime contractor does not actually post a payment bond. For example, although Pennsylvania law requires payment bonds for all public projects, the law provides no penalty in the event the prime contractor simply fails to post the requisite payment bond, and Pennsylvania courts have held a subcontractor has no redress against the government for failing to ensure the required bond was posted. Thus, at least in Pennsylvania, a subcontractor working on a public project may find itself working without payment security despite laws requiring payment bonds.”

As a best practice, always obtain a copy of the payment bond BEFORE furnishing or at the time you sign the contract.

A Security Blanket It Is

Felezzola is right. Liens and bond claims are a security blanket for those furnishing to a construction project. Just be careful; the security blanket only exists if you take the proper steps to secure your rights. If you fail to take the proper steps, that strong security blanket will quickly become a useless wet blanket.

Subcontractor Granted New Hampshire Mechanic’s Lien

Posted on July 23, 2018 by - Mechanic's Liens & Bond Claims

Subcontractor on New Hampshire Project Granted $4.9M Mechanic’s Lien

In a recent New Hampshire case, the subcontractor alleged the general contractor & owner withheld payments for completed subcontract work. The general contractor & owner tried several arguments, but failed to foil the subcontractor’s lien.

Read on to learn more about the court’s decision to uphold the subcontractor’s mechanic’s lien for $4,917,122.02.

Fraser Engineering Company, Inc. v. IPS-Integrated Project Services, LLC, 2018

In September 2014, property lessee, Lonza Biologics, Inc. (Lonza) hired general contractor, IPS-Integrated Project Services, LLC (IPS), for the design and construction of a manufacturing facility in Portsmouth, New Hampshire. IPS, in turn, hired subcontractor, Fraser Engineering Company, Inc. (Fraser), to furnish mechanical and plumbing services to the project.

59,845 Hours of Overtime?!

Apparently, by December 2015, IPS and Fraser discussed accelerating the project work, though Fraser was hesitant and warned of potential labor inefficiencies. Nonetheless, IPS told Fraser to put in the overtime and after several months of overtime, Fraser’s employees had clocked an additional 59,845 hours.

In August 2016, Fraser submitted a final invoice to IPS in the amount of $4,006,505.72, which included $3,324,083.30 in labor overtime and change orders for $682,422.42, plus retainage in the amount of $1,554,867.29. As you can imagine, IPS rejected this final invoice, so, in January 2017, Fraser served IPS & Lonza with a notice of intent to lien.

Time Out for The National Lien Digest

Here’s a quick review of the mechanic’s lien requirements for New Hampshire.

For private projects in New Hampshire, you should serve a preliminary notice upon the owner prior to your first furnishing. Then, you should serve a statement of account upon the owner at least once every 30 days, showing an account of materials or services furnished during the preceding 30 days for which payment has not been received. (Similar to a notice of non-payment.)

Did you serve the preliminary notice & subsequent statements of account, but still haven’t been paid? Under New Hampshire statute, you should file suit to establish and enforce the lien within 120 days from your last furnishing date. In other words, you can’t simply go to the recorder’s office & file a mechanic’s lien — you need to file suit with the court first.

Back to Fraser

Two days after serving its notice of intent, Fraser filed a motion with Rockingham County Superior Court to file a mechanic’s lien. The court granted Fraser’s motion – here’s the breakdown of the lien amount, as it increased from the final invoice Fraser had submitted to IPS:

“Fraser specifically sought a lien totaling $4,917,122.02, including $3,324,083.30 in unpaid man-hours resulting from the labor inefficiency, $682,422.42 caused changes to the scope of Fraser’s work, $593,155.13 in outstanding subcontract balance, and $317,461.17 in outstanding change order requests.”

Fraser’s mechanic’s lien was filed against the property; in this case, it attached to the leasehold (Lonza is the lessee).

IPS Objects: Timeliness, Waiver, Incorrect Lien Amount

IPS contested Fraser’s lien, claiming Fraser failed to file its lien timely, waived its right to lien and filed the lien for the incorrect amount. The court first addressed the issue of timeliness.

As I mentioned above, suit to establish & enforce the mechanic’s lien must be filed within 120 days of last furnishing. Fraser submitted its final invoice to IPS in August 2016, however, Fraser continued furnishing through October 2016.

“The subcontract required Fraser to tag valves and mark pipes. Fraser started this work on August 9, 2016. The work continued through at least October 3, 2016. All told, Fraser employees spent 1,199 hours tagging valves and marking pipes in August, September, and October 2016.”

IPS argued the furnishings at the end of September and beginning of October weren’t substantial furnishings. Fraser counter-argued that because the work in September/October was required by the subcontract, it should count towards a later last furnishing date.

After considering previous cases and New Hampshire statute (which is quite brief), the court determined Fraser filed its lien timely.

“Here, Fraser has presented evidence that its employees tagged valves and marked pipes for 1,199 hours over a nearly two-month period, concluding less than 120 days before the date Fraser sought to perfect its lien. Additionally, there is no dispute that the subcontract expressly required valve tagging and pipe marking. Given the remedial nature of the mechanics lien statute, and the absence of any authority compelling a different outcome, the court cannot conclude that this work was so de minimis that it did not extend Fraser’s lien. The court therefore overrules the defendants’ objections insofar as they contend that Fraser failed to timely perfect the mechanics lien.”

Next up, the court reviewed the argument that Fraser waived its lien rights. While this section of the decision is a bit murky, the court ultimately rejected IPS’ argument and determined Fraser did not waive its lien rights.

Lastly, the court tackled the claim amount. IPS argued “(1) that Fraser overstated its claim to include disputed amounts; (2) that the lien is limited by law to the amount Lonza owed IPS at the time of Fraser’s notice of lien; and (3) that Fraser’s claim prematurely includes unpaid retainage.”

Ultimately, the court declined to reduce the claim amount of the lien and rejected IPS’ argument that the lien was limited to the amount Lonza owed IPS ($1,866,961.87).

But, New Hampshire is an unpaid balance lien state, right? It is! Except, in this case, the owner’s contract with the general contractor does not identify a dollar amount, it simply states that Lonza would pay IPS for “the cost of trade labor including the indirect costs, overhead and profit for all [s]ubcontractors and equipment necessary for construction.” The court stated it could not determine the total due to IPS from Lonza and, therefore, declined to reduce Fraser’s lien amount.

So, That’s It?

Not quite. The court states the “merits” of Fraser’s claim have yet to be determined; these merits will be decided by an arbitrator. For now, Fraser’s lien remains in place for $4,917,122.02, because IPS failed to sway the court.

“It is up to the arbitrator, not this court, to determine the relative merits of Fraser’s claims and the defendants’ defenses to those claims…the court concludes that the defendants have not demonstrated that Fraser’s lien should be discharged or reduced. The court therefore overrules the defendants’ objections and grants Fraser’s motion to perfect the lien in the amount of $4,917,122.02.”

Waiving Bond Claim Rights Under The Miller Act

Posted on July 20, 2018 by - In Other Commercial Credit News

Are You Waiving Your Bond Claim Rights Under The Miller Act?

If you furnish to a federal construction project, and your contract includes a provision for claim resolution outside of the Miller Act, are you prohibited from pursing a claim under the Miller Act? Are you waiving your rights? Short answer: No. Unless…

Miller Act Statute

The statute for federal projects is relatively straightforward and applies to all states; meaning unlike state statutes which vary, federal statute is the same across the board. U.S. Federal projects in foreign lands may also fall under the protection of the Miller Act.  Those furnishing to a federal project are not required to serve a preliminary notice, but a bond claim should be served with 90 days after the date of last furnishing, and suit should be commenced within one year after the date of last furnishing.

Typically, the general contractor is required to obtain a payment bond if the construction contract exceeds $100,000. And, would-be claimants can request a certified copy of the payment bond from the contracting agency.

3133. Rights of persons furnishing labor or material

(a) Right of Person Furnishing Labor or Material to Copy of Bond. – The department secretary or agency head of the contracting agency shall furnish a certified copy of a payment bond and the contract for which it was given to any person applying for a copy who submits an affidavit that the person has supplied labor or material for work described in the contract and payment for the work has not been made or that the person is being sued on the bond…

Waiving Rights in a Contract

If your contract calls for alternative dispute resolution or waives rights in lieu of action under the Miller Act, does this mean you have lost your rights under the Miller Act?

This is a hot topic in construction: waiving rights to mechanic’s liens and bond claims. Some statutes clearly define whether rights are waived or if the waiver of rights is enforceable, while others are clear as mud. Fortunately, for federal projects, it’s not overly complicated. Yes, rights can be waived; however, the waiver must be in writing and it can’t be executed until after the claimant has completed furnishing.

3133. Rights of persons furnishing labor or material

(c) Waiver of Right to Civil Action. – A waiver of the right to bring a civil action on a payment bond required under this subchapter is void unless the waiver is-

(1) in writing;

(2) signed by the person whose right is waived; and

(3) executed after the person whose right is waived has furnished labor or material for use in the performance of the contract.

Earlier I said that federal statute is the same in all states, and while this is true, the courts hearing federal cases may not make the same decisions. So, when I say “Yes, rights can be waived” I’m taking statute at its word – no gray area. But, as you know, in construction credit, there is a LOT of gray area.

Christopher M. Horton, associate with Smith Currie, recently wrote an article, Does the Miller Act Trump Subcontract Dispute Provisions? In his article, Horton discusses a few examples of different states and their stance on whether a contract can prevent someone from pursuing a Miller Act claim.

“…[C]ourts have considered whether subcontract provisions requiring exhaustion of dispute procedures prior to initiating a Miller Act suit conflicts with the waiver provisions of the Miller Act. Only a few federal courts have addressed this issue… (D.C., Maryland, Nebraska, New Jersey, Pennsylvania, Virginia), have found that such provisions are unenforceable and do not require dismissal or stay of a Miller Action lawsuit.

A minority of courts (Louisiana, California, and Hawaii) have upheld dispute exhaustion provisions and entered dismissals or stays of Miller Act. Contrary to the decisions referenced above, the courts rendering these decisions based their rulings upon the fact that the provisions at issue included express language that required a stay for Miller Act claims pending exhaustion of the dispute procedures…. The subcontractor’s Miller Act remedies remained intact pending exhaustion of the contractual dispute procedures.”

OK, so, perhaps my statement about federal statute being clear was a tiny bit inaccurate — turns out, it can get quite muddy. Though, it seems, at least based on Horton’s article, that courts may allow claimants to pursue a Miller Act claim even if alternative dispute options are identified in the contract.

Best advice? Before you sign the contract, carefully review it with legal counsel. Do not blindly sign a contract, assuming it will all pan out.

Unsecured Creditors in Retail Bankruptcy Lose Out

Posted on July 16, 2018 by - Credit Risk Management, Mechanic's Liens & Bond Claims, UCC Financing Statements

The Importance of Being a Secured Creditor in Today’s Retail Climate

In today’s highly credit-based economy, the looming threat of debtor bankruptcy is more prominent than ever.  A number of well-known retailers, such as Bon Ton, Toys R Us, Nine West and Winn Dixie, have recently succumbed to insolvency, leaving their creditors in a vulnerable position.

As a creditor, it is important to ask yourself “In what ways can our company mitigate risk in today’s volatile credit environment?” To answer this, let’s tackle two key questions:

  • What is the difference between a secured & an unsecured creditor?
  • Do secured creditors actually get paid more in the event of customer bankruptcy?

Secured vs Unsecured

It’s essential to start by understanding the fundamentals; specifically, the difference between a secured and unsecured creditor.

A secured creditor has a security interest over some or all the assets of its debtor. A security interest can be obtained through prominent credit tools such as Mechanic’s Liens, Bond Claims and UCCs (just to highlight a few). In the event of the debtor’s bankruptcy or default, secured creditors:

  • Have payment priority over their unsecured counterparts
  • Are in the best possible position for getting paid

An unsecured creditor is a party who extends credit without a collateral security. If the debtor files for bankruptcy, it’s only after the claims of secured creditors are satisfied that the unsecured creditor will receive payment.  Oftentimes, those who fall under the unsecured creditor group collect very little money, if any, from the distribution of assets.

While the bankruptcy code is fairly complex, and insolvencies vary case by case, here is payout priority in its simplest form:

Payout Priority in Chapter 11 Bankruptcy

  1. Secured Creditors (e. creditors who have a perfected security interest)
  2. Administrative Expenses (e. costs associated with filing & processing the bankruptcy)
  3. Unsecured Creditors (e. creditors without a security interest)

Secured Creditor Success Stories!

In recent bankruptcy news, Rue21, inc. ET AL., a specialty fashion retailer of girls’ and boys’ apparel, filed for protection under Chapter 11 of the U.S. Bankruptcy code.  This was largely attributed to a challenging commerce environment characterized by increased pressure from competitors, changing consumer tastes, and an under-performing online presence.

When Rue21 filed for bankruptcy protection on May 15, 2017, it had just over $300,000,000 in assets, and nearly $700,000,000 in liabilities.  Obviously, there were not enough funds to pay all creditors their owed amounts, however, in this case and many others, the secured creditors were first to get paid.  With this particular example, under the Rue21’s reorganization plan, secured creditors recovered 100 percent of the allowed claims while the unsecured creditors only recovered about 3 percent.

We see a similar scenario play out with Katy Industries, a leading manufacturer, importer, and distributor of commercial cleaning and consumer storage products, who filed for bankruptcy on May 14, 2017. The company was unable to meet the obligations of its creditors, with nearly $56 million of debt! In this case, secured creditors recovered the total amount of allowed claims (100 percent) while unsecured creditors faced a recovery rate of only 9.6 percent.

As with many other things in life, when it comes to debtor bankruptcy, not much is guaranteed. However, case after case we see secured creditors having payment priority and receiving greater funds than unsecured creditors.  Simply speaking, the bankruptcy laws require that secured creditors are paid first; take the steps needed to secure your rights!

Pennsylvania Strengthens Payment Act (CASPA)

Posted on July 13, 2018 by - In Other Commercial Credit News

Pennsylvania HB566: Strengthens Contractor and Subcontractor Payment Act (CASPA)

Early June, Pennsylvania enacted amendments to its Contractor and Subcontractor Payment Act (CASPA). The changes will become effective October 10, 2018. Read on to learn more about these amendments and the impacts they may have on you.

Timely Payment = Provisions of CASPA Can’t Be Waived in a Contract

These amendments include a specific clause prohibiting the waiver of CASPA provisions. In fact, the clause is “Prohibition on Waiver.”

“(c) Prohibition on waiver. — Unless specifically authorized under this act, parties to a contract or other agreement may not waive a provision of this act by contract or other agreement.”

Short, sweet & straight to the point.

No Payment, it’s OK to Stop Work, with Proper Notification

Under CASPA, contractors and subcontractors now have statutory support to suspend their work on the project, if they haven’t received payment.

Prior to suspending working, contractors must notify the project owner or the owner’s agent:

“(II) … the contractor shall provide written notice to the owner or the owner’s authorized agent, via electronic mail or postal service, stating that payment has not been made and… (III) … the contractor shall provide at least 10 calendar days’ written notice, via certified mail, of the contractor’s intent to suspend performance to the owner or the owner’s authorized agent.”

The same time frame & requirements apply to subcontractors, however, instead of notifying the project owner, the subcontractor would notify the general contractor.

Withholding if in Good Faith

Project owners can withhold funds, if they have a good faith reason and if they provide “…a written explanation of its good faith reason within 14 calendar days of the date that the invoice is received.” If the owner does not provide the written notification explaining why it is withholding funds, the owner will need to pay the contractor for the full amount of the invoice.

Timely Payment, Kind of Like Prompt Payment?

Section 7 of the statute has been amended as well. If the subcontractor completes work under a contract, the general contractor is to remit payment to the subcontractor “14 days after receipt of each progress or final payment or 14 days after receive of the subcontractor’s invoice, whichever is later.” The same then applies for subcontractors paying sub-subcontractors etc.

Retainage Time Limit

If the contract calls for retainage, the retainage must be released within 30 days after final acceptance.

“(a) If payments under a construction contract are subject to retainage, any amounts which have been retained during the performance of the contract and which are due to be released to the contractor upon final completion shall be paid within 30 days after final acceptance of the work.”

If the project owner is not withholding retainage, the general contractor may withhold retainage from the subcontractor. If the general contractor withholds retainage, the retainage must be released within 30 days after final acceptance. However, if the owner is withholding retainage, the general contractor must release funds to the subcontractors within “14 days after receipt of the retainage.”

Want retainage released prior to final acceptance? OK, but a bond must be posted as security.

“…a contractor or subcontractor may facilitate the release of retainage on its contract before final completion of the project by posting a maintenance bond with approved surety for 120% of the amount of retainage being held.”

In Pennsylvania Strengthens Contractor and Subcontractor Rights and Remedies Relating to Nonpayment in Recent Amendments to CASPA, John Gazzloa warns contractors and subcontractors must comply with these new amendments, or they may forfeit rights.

“In order to perfect these new rights, however, contractors and subcontractors must satisfy the requirements set out in the amendments. To perfect suspension, contractors and subcontractors must follow closely the terms of their contracts and the notice timeline set out above. While the amendments remove much of the risk associated with suspending performance, contractors and subcontractors must follow the conditions of suspension closely and provide notice in the form and manner required. Failure to do so may prevent the contractor or subcontractor from exercising its suspension rights.”

Here’s the Recap

Pennsylvania–HB566–Timely Payment (Private Projects)

The amendments include:

  • if payment is not received, performance may be suspended after giving proper notification;
  • owner and contractor must make payment for successful completion of work under a contract, or provide notice to explain the reason for amounts being withheld;
  • a bond may be posted by the contractor or subcontractor to facilitate early release of retainage;
  • retainage must be paid within 30 days after final acceptance; and
  • the provisions of the Contractor and Subcontractor Payment Act cannot be waived in a contract.

Residential Construction Projects & Liens in New Jersey

Posted on June 29, 2018 by - In Other Commercial Credit News

Compare & Contrast | Commercial & Residential

New Jersey is one of 17 states with mechanic’s lien statute specific to residential projects. In New Jersey, a residential project is defined as one – two – or three-family residences or a residential unit within a real property development (i.e. condominiums). If you are furnishing to a residential project in New Jersey, read on!

How to Secure Rights on a Residential Project

To secure your lien rights on a New Jersey residential project, you must file a Notice of Unpaid Balance and Right to File Lien within 60 days from last furnishing materials or services.

This is different from commercial projects, where a Notice of Unpaid Balance and Right to File Lien may be filed. For commercial projects, if the Notice of Unpaid Balance and Right to Lien is filed, the lien when later filed would have priority over conveyances after the filing of the notice.

Back to Residential: The Notice of Unpaid Balance and Right to File Lien should be served upon the owner or community association, prime contractor, and subcontractor, along with a demand for arbitration, within 10 days from filing the Notice of Unpaid Balance and Right to File Lien.

Wait, submit for arbitration? Yes! In his article, Filing a Residential Construction Lien in New Jersey, Paul W. Norris states the arbitrator will then determine whether a lien can be filed.

“At the arbitration hearing, which must be conducted within 30 days of the filing of the Demand, the arbitrator will decide whether the lien claim meets with the requirements of the New Jersey Lien Statute. If so, the arbitrator will grant the lien claimant the ability to file the lien claim with the county clerk.”

What is the Arbitrator Looking for?

As provided by New Jersey statute, the arbitrator will decide whether the Notice of Unpaid Balance and Right to File Lien was drafted and served in compliance with statute, the validity of the lien claim amount, the validity of liquidated/unliquidated setoffs or counterclaims and the arbitrator will decide the allocation of costs for arbitration. (See 2A:44A-21 (4) Legislative findings, additional requirements for lodging for record of lien on residential construction)

Did the Arbitrator Approve?

If the right to lien is granted by the arbitrator, you must file the lien within 10 days from the date of the arbitrator’s decision. Fail to file the lien within 10 days? According to Norris, “If the lien claim is not filed with the county clerk within 10 days of the arbitrator’s decision, the lien claim will be deemed invalid.”

Statute is quite clear:

  1. J. 2A:44A-21 (8)   Upon determination by the arbitrator that there is an amount which, pursuant to a valid lien shall attach to the improvement, the lien claimant shall, within 10 days of the lien claimant’s receipt of the determination, lodge for record such lien claim in accordance with section 8 of P.L.1993, c.318 (C.2A:44A-8) and furnish any bond, letter of credit or funds required by the arbitrator’s decision.  The failure to lodge for record such a lien claim, or furnish the bond, letter of credit or funds, within the 10-day period, shall cause any lien claim to be invalid.

Did the Arbitrator Determine the Notice is “Without Basis?”

It’s in your best interest to ensure all statutory requirements are met for the Notice of Unpaid Balance and Right to File Lien, otherwise, you will ‘pay the piper.’

According to N. J. 2A:44A-21 (12), claimants who fail to comply with the notice requirements and/or serve/file the notice without basis “…shall be liable for all damages suffered by the owner or any other party adversely affected by the Notice of Unpaid Balance and Right to File Lien, including all court costs, reasonable attorneys’ fees and legal expenses incurred.”

Just another reason to be careful and cautious when protecting lien rights!

Court Says It’s a Ripe Claim Under the Miller Act

Posted on June 25, 2018 by - Mechanic's Liens & Bond Claims

Court Says It’s a Ripe Claim Under the Miller Act

Two subcontractors pursued recovery of unpaid funds under the Miller Act, while simultaneously pursuing claims through administrative proceedings. The contractor and surety argued the Miller Act claims are void, because both subcontractors waived their rights to claim within their respective subcontracts. When that argument failed, the contractor and surety argued the Miller Act claims were premature, stating the subs should have to wait until the administrative proceedings have been resolved.

What does the court say? Read on to learn more.

The Case: Pinnacle Crushing and Construction LLC v. Hartford Fire Insurance Company, Dist. Court, WD Washington 2018

The United States Army Corp of Engineers (Corps) hired general contractor, Cherokee General Corporation (Cherokee) for the demolition and reconstruction of an existing airfield. Cherokee provided a payment bond, issued by surety Hartford Fire Insurance Company (Hartford).

Cherokee subcontracted with SCI Infrastructure, LLC (SCI) and SCI subcontracted with Pinnacle Crushing and Construction LLC (Pinnacle).

According to the legal decision, Cherokee allegedly owed Pinnacle $1,057,597.95 and SCI $2,595,116.96. SCI and Pinnacle submitted pass-through claims for non-payment via Cherokee, which Cherokee passed to Corps. (Within both subcontracts, there was language regarding pass-through claims.) In addition to the pass-through claims, SCI and Pinnacle filed suit under the Miller Act.

 “Claims are Unripe” … Like a Green Banana?

Cherokee and Hartford argued the federal court “lacks subject matter jurisdiction” and SCI and Pinnacle’s “claims are unripe.” Before we get to the green banana, let’s address subject matter jurisdiction.

Cherokee and Hartford argued that SCI and Pinnacle should not be permitted to pursue claims under the Miller Act, because SCI and Pinnacle were actively “…pursuing their claim[s] administratively using the subcontracts’ pass-through mechanisms.”

Which leads to the green banana, aka, the unripe claim. Because SCI and Pinnacle were actively pursuing administrative claims, Cherokee and Hartford argued that SCI and Pinnacle’s claims under the Miller Act were premature — SCI and Pinnacle should wait until the administrative claims were resolved before pursuing the Miller Act.

The court disagreed.

Ripeness – No Really, that’s a Subheading in the Legal Opinion

The court confirmed SCI and Pinnacle were permitted to pursue recovery of their claims under the Miller Act, because SCI and Pinnacle were unpaid for completed work.

“‘[A] subcontractor’s right of recovery on a Miller Act payment bond is conditioned on the passage of time from completion of work or provision of materials.’ The case therefore presents concrete legal issues that are ripe for review.”

The court further clarified that SCI and Pinnacle didn’t waive their right to claim under the Miller Act just because SCI and Pinnacle are actively seeking payment via administrative claims. In fact, according to the court decision “The Miller Act also provides that a waiver must be in writing, signed by the person whose right is waived, and executed after that person has furnished labor or material used in performing the contract.”

Did the Subcontracts Include a Waiver of Rights?

Nope. Well, SCI’s subcontract didn’t explicitly waive rights of a Miller Act bond claim. Pinnacle’s subcontract, on the other hand, did include language regarding the waiver of rights.

Fortunately for Pinnacle, the Miller Act permits the waiver of rights only AFTER the subcontractor has furnished to the project. In this case, the subcontract was signed prior to Pinnacle furnishing.

“Defendants are correct that the SCI-Pinnacle Subcontract explicitly purports to waive Pinnacle’s Miller Act claim during any dispute resolution between SCI and Cherokee… However, a subcontractor can waive its Miller Act rights only after furnishing labor or material used in performing the contract… Pinnacle executed the subcontract before it provided labor or materials, and the waiver is therefore invalid.”

“But, but, but… SCI and Pinnacle said they wouldn’t pursue the Miller Act while Cherokee and Corps resolved issues”

Cherokee and Hartford wanted the court to stay the Miller Act proceedings, because allegedly SCI and Pinnacle agreed to hold off on pursuing the Miller Act until Cherokee and Corps worked out the administrative claims.

Court denied Cherokee and Hartford’s request to the stay the Miller Act proceedings, due to language within the subcontracts.

Take Heed

Let this case serve as a reminder of the importance of understanding the terms of your contract. Watch for clauses waiving your rights to pursue a claim and be cautious with pass-through claims. Also, never underestimate the power of the Miller Act.

As always, if in doubt, seek legal guidance.