Service Area: Collection Services

Don’t Ignore Contractor Licensing Requirements

Posted on December 7, 2018 by - In Other Commercial Credit News, Mechanic's Liens & Bond Claims

Be Careful, Don’t Ignore Contractor Licensing Requirements – Your Lien Rights May Depend on It

Don’t ignore contractor licensing requirements; your mechanic’s lien rights may depend on it. Sounds a bit like a public service announcement, right? Well, it should. Don’t let the mistakes of other contractors be in vain — this week we shared two articles about neglecting licensing requirements and the consequences it brings.

Do Not Pass “Go” You Out-of-State, Unlicensed Contractor

In this article, author Matthew Devries reviewed a North Dakota Court of Appeals case. The contractor, with a principal place of business in Washington, provided labor and materials to a project in North Dakota. The contractor began furnishing to the North Dakota project in December 2011, but didn’t obtain a license for the state of North Dakota until February 2012.

In 2012, the contractor was paid for furnishings provided through February 1st, then received a portion of its claim for furnishings between February 2nd and March 15th, and received no payment for furnishings from March 16th through November 30th. Because the contractor remained unpaid, it filed a mechanic’s lien. The owner argued the contractor’s lien was invalid because the contractor didn’t meet the proper licensing requirements at the time it entered into the contract.

Per Devries, “On appeal, the owner argued that North Dakota Code requires a contractor be licensed at the time of contract formation or commencement of work under the contract to maintain a claim or action related to the work performed under the contract. Because the contractor did not obtain a license until after it had entered into the contract with the owner and started working on the project, the owner claimed that the contractor (was) barred from bringing any claim.”

Ultimately, the contractor was able to recover its claim, with the exception of furnishings provided during the period when it was not properly licensed (it received its license February 6th). But, why risk it? Ensure you are meeting licensing requirements BEFORE furnishing!

Contractor Licensing Requirements: Ignore at Your Peril

Author, Amandeep Kahlon, reviewed a Georgia Court of Appeals case, Baja Properties, LLC v. Mattera. The property owner hired the contractor for the construction of the owner’s residence. The contractor began construction, but not long after, the owner terminated the contract. When the contractor filed a lien (among several other issues in this case), the owner argued the contractor’s lien was unenforceable because the contractor was not licensed.

It’s true, the contractor was not licensed at the time of the contract and did not obtain a license during the actual construction. Georgia is a no-nonsense state: no license, no lien rights. Per the court opinion “OCGA § 43-41-17 (a) provides, in pertinent part, that no person shall have the right to engage in the business of residential or general contracting without a current valid contractor license.”

Although this case is “unremarkable in its result,” it’s Kahlon’s recommendations that struck a chord with me:

“Securing contractor licenses can take time, and requirements vary across states. So, pay attention early on when determining whether to pursue work in a new state or with a subcontractor with which you don’t have prior experience. You may not be able to remedy any licensing deficiency post-contract execution or even post-submission of a bid, so you want to make sure any potential issues are known and dealt with well before then. Additionally, most states allow you to check a party’s licensing status online, so you can verify quickly whether a particular subcontractor is appropriately licensed before soliciting a proposal from them.”

Perhaps it’s my propensity for the proactive approach, but I think this is excellent parting advice from Kahlon: “A proactive and conscientious approach to licensing on the front end of any project will help you preserve your bargained-for contract rights and avoid substantial penalties or other damages later on.”

What Does It Mean to “File” a Lien?

Posted on December 3, 2018 by - Mechanic's Liens & Bond Claims

What Does It Mean to “File” a Lien? Is that Different than “Recording” a Lien? According to One Case in Ohio, They’re Different.

In legal decisions, the court relies on the “plain text” of statute when it issues a decision. Interpreting plain text can be a challenge when seemingly innocuous words force us to pull out a dictionary to determine the true meaning. Today’s innocuous, yet critical, word? File.

The Ohio Court of Appeals recently heard the case, Kirk Excavating & Constr., Inc. v. RKJ Ents., LLC, in which the lien claimant argued its mechanic’s lien was filed when the affidavit was delivered to the country recorder’s office, despite the document being returned to the lien claimant for not complying with statutory requirements.

First, Filing Deadlines in Ohio (private commercial projects)

In Ohio, you should serve a preliminary notice upon the owner, lessee, designee and prime contractor within 21 days from first furnishing. A late notice may be served, however, the lien will only be effective for furnishings provided 21 days prior to serving the preliminary notice and thereafter.

The mechanic’s lien should be filed within 75 days from last furnishing and claimants must file suit to enforce the mechanic’s lien within 6 years from the filing of the lien and within 60 days from being served with a notice to commence suit.

The mechanic’s lien deadline is a bit longer for projects on oil or gas well facilities, which is the project type in this case. When furnishing to an oil or gas well facility, the mechanic’s lien should be filed within 120 days from the date of last furnishing.

Case Synopsis

The lien claimant, Kirk Excavating & Construction, Inc. (Kirk), contracted with general contractor, RKJ Enterprises, LLC (RKJ) to perform oil and gas construction work. Kirk furnished between April 21, 2014 and May 12, 2014 and invoiced RKJ for $332,320.

When RKJ failed to pay Kirk, Kirk sent an affidavit of lien to the country recorder’s office. The affidavit was sent sometime between July 1st and July 23rd. Unfortunately, Kirk did not provide a proper legal description of the property within its lien, so the recorder’s office returned the affidavit to Kirk.

Based on its furnishing dates, Kirk’s lien needed to be filed by September 9, 2014 (120 days from May 12). It wasn’t until December 8, 2014, that Kirk’s second affidavit was recorded. Clearly, the deadline for filing the lien had passed and Kirk’s lien was untimely. Kirk proceeded with a suit action, at which time RKJ disputed the validity of Kirk’s lien.

The court stated, “the affidavit is required to be filed for record within 120 days from the date the last labor or work was performed.”

Kirk claims the initial affidavit, the one returned by the recorder’s office for insufficient property description, was delivered to the recorder’s office within 120 days of Kirk’s last furnishing.

Now to Define File

First Kirk stated the words “filing” and “recording” are two separate actions. Specifically calling out the statute text “shall make and file for record”:

“…shall make and file for record in the office of the county recorder in the counties in which the improved property is located, an affidavit showing the amount due over and above all legal setoffs, a description of the property to be charged with the lien, the name and address of the person to or for whom the labor or work was performed or material was furnished, the name of the owner, part owner, or lessee, if known, the name and address of the lien claimant, and the first and last dates that the lien claimant performed any labor or work or furnished any material to the improvement giving rise to the claimant’s lien.”

The court agreed; “to file” and “to record” are two different actions.

Next, Kirk contended that “filing” and “delivery” are the same action. Kirk “asserts all it was required to do was to have the affidavit delivered to the recorder’s office for the lien to be considered filed.”

Unfortunately for Kirk, the court disagreed with this argument for two reasons. The first reason gets a bit muddied, bear with me. In its decision, the court relied on two separate sections of the Ohio Revised Code, the one regarding the mechanic’s liens and chapter 317, which governs the county recorder’s offices.

In chapter 317 the four following words are used: filing, recording, presentation and received. The court states that presentation and received are “more akin” to delivery and “one might conclude filing is more than delivery and if the statute meant delivery was all that was required the word presented or received would have been used.”

OK: filing and delivery are not synonymous.

There is additional discussion in the case, of whether the recorder’s office could reject the affidavit based on missing/inaccurate information. Obviously, the recorder’s office can reject documents. You may recall, Kirk failed to properly identify the liened property, which caused the recorder’s office to return the document. While the affidavit was incorrect, the true issue is that despite having plenty of time to correct the affidavit and refile in a timely manner, Kirk waited until December.

“[Kirk] also did not attempt to correct the alleged deficiencies in the affidavit within the prescribed time, even though [Kirk] had ample time to do so. [Kirk] had close to two months to add the information the recorder requested to the affidavit and this matter would have been resolved. Instead, [Kirk] waited approximately three months after the expiration of the 120 day time limit to file a corrected affidavit.”

File Documents Timely

If a document must be filed by a specific date, ensure the document is filed. In this case, that means you ensure the statutorily correct document is in the hands of the county recorder by the deadline. Don’t assume that dropping something in the mail means it will make it to its destination timely. Carefully track deadlines; if you receive returned mail, review it immediately and act where appropriate.

Perfecting UCC Collateral Descriptions

Posted on November 16, 2018 by - In Other Commercial Credit News, UCC Financing Statements

Perfectly Imperfect Collateral Descriptions within Your UCC Financing Statement: It’s a Delicate Balance.

A properly perfected security interest is nothing without a collateral description. In fact, it’s not properly perfected at all – it’s unperfected. A properly perfected security interest requires compliance with Article 9, which includes a Security Agreement and the subsequent filing of the UCC-1 Financing Statement.

Contents of a Security Agreement

What information should the Security Agreement contain? A Security Agreement should include the following:

  • The name & address of the debtor
    • The name for an organization must be the name as it appears in the public organic record
    • The name for an individual, depending on the state, should be the name as it appears on the unexpired driver’s license
  • A granting clause
  • A collateral description
  • Reference to governing law
  • The date of the agreement
  • Signatures from authorized individuals

Contents of the UCC Financing Statement

Article 9-502 clearly identifies the information that is to appear in the Financing Statement: the name of the debtor, the name of the secured party and the collateral description.

(a) [Sufficiency of financing statement.] Subject to subsection (b), a financing statement is sufficient only if it:

(1) provides the name of the debtor;

(2) provides the name of the secured party or a representative of the secured party; and

(3) indicates the collateral covered by the financing statement.

What Constitutes a Sufficient Collateral Description?

Article 9-108 provides the following:

(a) Except as otherwise provided… a description of personal or real property is sufficient, whether or not it is specific, if it reasonably identifies what is described.”

(b) [Examples of reasonable identification.]

Except as otherwise provided in subsection (d), a description of collateral reasonably identifies the collateral if it identifies the collateral by:

(1) specific listing;

(2) category;

(3) except as otherwise provided in subsection (e), a type of collateral defined in [the Uniform Commercial Code];

(4) quantity;

(5) computational or allocational formula or procedure; or

(6) except as otherwise provided in subsection (c), any other method, if the identity of the collateral is objectively determinable.

Be careful, there’s a fine line between being too specific and too generic.

Can I Attach My Collateral Description as an Exhibit to the UCC Filing?

Yes, you could attach an exhibit to your filing. But… just because you can, doesn’t mean you should. Authors from Troutman Sanders LLP explained in their recent article UCC Incorporation by Reference: An Imperfect Way to Perfect: “Generally, a UCC-1 financing statement’s collateral description is sufficiently descriptive when it refers to details provided in an attachment.” And, they further stated “a collateral description that refers to an unattached, lapsed financing statement may be sufficient when the UCC-1 includes the financing statement’s filing number.”

However, a bankruptcy court recently deemed a security interest unperfected, because the document which identified the collateral was not available at the local clerk’s office (interestingly, it was available on other websites – just not the local clerk’s). According to the authors, the court “held that a UCC-1 financing statement is ineffective to perfect a security interest if the public document to which its collateral description referred is not available at the local clerk’s office where UCC records are maintained.”

A Bit of Background

The debtor issued bonds pursuant to a “pension funding bond resolution.” The debtor & secured parties executed Security Agreements accordingly. The resolution was posted publicly online and provided the pledged property in detail, but did not provide a description of the collateral.

The bond holders filed UCC-1s to properly perfect their security interest, and within the UCC-1 they described the collateral as the “pledged property described in the Security Agreement attached as Exhibit A hereto and by this reference made part hereof.” The UCC was then filed with a copy of the Security Agreement, although, it did not include the separate resolution that identified the collateral.

So, what’s the problem? Without the resolution document, “an interested third party reading the financing statement and the attached security agreement would know to look for the resolution to find a detailed description of the collateral but would not be able to find the resolution at… the applicable financing statement filing office.” The court further noted it would be out of scope to have an interested third party tracking down a document — even if it is just a matter of going to a different website.

Be Careful, Because Perfect Can Quickly Be Imperfect

UCC filings can be quite precarious. Again, there is a fine line between a collateral description that is too specific or one that is too generic.  Just as it is debatable whether a court will uphold a security interest as perfected if the collateral is identified within an exhibit. Be careful, be thorough, don’t take short cuts and always review.

Parting thoughts from Troutman Sanders LLP:

“Although this bright-line rule tightens court oversight of the incorporation by reference doctrine, it provides needed clarity moving forward for practitioners — particularly those looking to save a bit of work or time by not including a full collateral description on the financing statement itself. Lenders should refrain from drafting collateral descriptions that rely on extrinsic documents, especially when the referenced document is not attached as an exhibit to the financing statement. Lenders should take particular care when using collateral descriptions that contain terms that are defined in nonpublicly available documents, such as credit agreements and security agreements, if those documents are not attached to the financing statement, and this decision suggests that financing statements may be insufficient to perfect if not all applicable defined terms are specifically included on the financing statement itself or on an exhibit annexed to the financing statement. Lenders should ensure that interested third parties can sufficiently identify the covered collateral without having to take additional steps in the search process. If further sleuthing is needed, the UCC-1, and the drafting skills of its scribe, may be deemed imperfect.”

Miller Act May Not Cover Unused Labor

Posted on November 12, 2018 by - Mechanic's Liens & Bond Claims

Furnishing to a Federal Construction Project? Beware, the Miller Act May Not Cover Unused Labor

The Miller Act is federal statute that requires payment bonds on projects contracted by the United States. We’ve previously discussed the Miller Act, but this post is going to take a look at something that isn’t covered under the Miller Act: unused labor.

Goose Creek Nuclear Power Facility

The United States Department of the Navy hired general contractor, Caddell Construction Co. (DE), LLC (Caddell), to construct the Goose Creek Nuclear Power Facility near Charleston, South Carolina. In accordance with statute, Caddell obtained the appropriate payment bond.

Caddell hired Allan Spear Construction, LLC (ASC) to provide “supplemental concrete” to the project. Within the contract, there is a provision that “[ASC] will have a minimum of 12 consecutive weeks to provide a minimum of 20 workers over the 12 weeks period.”

ASC interpreted this provision as a minimum – as in, “for a minimum of 12 weeks, the GC will pay for at least 20 workers, even if the GC doesn’t use the 20 workers.” Of course, this is not the same provision interpretation that Caddell had – but we’ll come back to that.

According to the court opinion, Caddell initially used at least 20 workers. But as time went on the number of needed workers dropped. Caddell continued to pay ASC as though it were using the 20 workers, but eventually Caddell stopped paying for the 20 workers & began paying for only the workers used.

When payments dropped, ASC made a demand upon Caddell for payment and then filed suit against the payment bond, seeking claims just under $600,000.

May Be Valid Breach of Contract Claim, But Not Under Miller Act

ASC filed suit (and additional breach of contract claims) to recover the funds ASC believed it was owed by Caddell, based on ASC’s interpretation of the contractual provision: ASC will be paid for 20 workers per week for 12 weeks.

Caddell contested this claim, arguing ASC’s claim does not fall within the parameters of the Miller Act, because the claim is not based on labor/materials provided, rather it’s based on labor not used.

3133. Rights of persons furnishing labor or material

(b) Right To Bring a Civil Action –

(1) In general.-Every person that has furnished labor or material in carrying out work provided for in a contract for which a payment bond is furnished under section 3131 of this title and that has not been paid in full within 90 days after the day on which the person did or performed the last of the labor or furnished or supplied the material for which the claim is made may bring a civil action on the payment bond for the amount unpaid at the time the civil action is brought and may prosecute the action to final execution and judgment for the amount due.

The court observed “the surety of a bond furnished by the Miller Act may not be held liable for claims which a subcontractor may have against the prime contractor not based on labor or materials furnished.” To be within the scope of the Miller Act, the claim must be for labor or materials that were actually furnished.

The court decided ASC’s claims may be appropriate for a breach of contract claim, but not a Miller Act claim.

“Here, by ASC’s own allegations, Caddell paid for the laborers actually used but breached their contract by refusing to meet the twenty-laborer-minimum provision. Because ASC seeks damages arising out of an agreement to pay for twenty laborers not actually used—rather than “labor performed” or “materials furnished”—the Miller Act does not provide the remedy. Accordingly, the Court finds that ASC’s only cause of action against the Moving Defendants fails as a matter of law. Therefore, the Court grants the Moving Defendants’ Motion for Summary Judgment.”

Securing Rights Under the Miller Act

For those who have furnished labor or materials to a federal project, and have not been paid, the bond claim should be served after your last furnishing, but within 90 days from your last furnishing. If serving the bond claim does not prompt payment, file suit to enforce the Miller Act Bond Claim in U.S. District Court after 90 days from last furnishing materials or services, but within 1 year from last furnishing materials or services.

Questions about securing rights under the Miller Act? Contact us today!

Backup Documentation & Mechanics Lien Filing

Posted on November 5, 2018 by - Mechanic's Liens & Bond Claims

The Critical Role of Backup Documentation in Your Mechanic’s Lien Filing

Never underestimate the value and necessity of documentation supporting your mechanic’s lien claim. When assisting our clients with mechanic’s lien filings, we always review backup documentation. Backup documentation may include invoices, statement of accounts, a copy of the contract, bills of lading etc. Backup documentation provides a bigger picture.

Backup documentation isn’t just used for preparing a document, there are states that require copies of open invoices and/or a copy of the preliminary notice to be attached to the lien. And, as one subcontractor has learned, backup documentation can play a vital statutory role in supporting a claim.

We will address recent case law, where a subcontractor filed a mechanic’s lien in the amount of $287,212.28 and included an itemized statement in accordance with statute; however, the itemized statement was for $6,574.69. First, we’ll review the statutory requirements for Kansas, and then the fate of the subcontractor’s lien.

Mechanic’s Lien Rights & Requirements for Kansas

Commercial and residential projects have separate statutory requirements in Kansas. For commercial projects, claimants do not need to serve a preliminary notice. Residential projects, however, have a notice requirement.

New Construction: file a Notice of Intent to Perform no earlier than 18 months prior to filing a lien, but prior to title passing to the buyer.

Improvement: serve warning statement upon the owner or obtain and retain a statement signed by the owner that states they were given warning statement.

The lien deadline, for commercial & residential projects, is different for general contractors versus subcontractors and material suppliers.

General Contractors: file the lien within 4 months from last furnishing materials or services.

Subcontractors/Material Suppliers: file the lien within 3 months from last furnishing materials or services.

For parties proceeding with suit to enforce the lien, file suit within 1 year from filing the lien or if a promissory note was attached to the lien in lieu of a statement, file suit within 1 year from the maturity date of the promissory note.

The Contents of a Kansas Mechanic’s Lien

Key to the case at hand is that Kansas mechanic’s lien statute dictates a mechanic’s lien must include the following:

(1) The name of the owner,

(2) the name and address sufficient for service of process of the claimant,

(3) a description of the real property,

(4) a reasonably itemized statement and the amount of the claim, but if the amount of the claim is evidenced by a written instrument, or if a promissory note has been given for the same, a copy thereof may be attached to the claim in lieu of the itemized statement.

It’s also important to note, mechanic’s liens can be amended, if within the time allotted and/or by judge’s approval. But, statute specifically states a mechanic’s lien cannot be amended for an increased claim amount.

60-1105. Limitations and amendment. (b) Amendment. Where action is brought to enforce a lien the lien statement may be amended by leave of the judge in furtherance of justice, except to increase the amount claimed.

OK, On to The Case!

In Madison, Inc. v. Western Plains Regional Hospital, LLC, Dist. Court, D. Kansas 2018, there are a lot of issues up for debate, but the focus for this post is on the validity of the subcontractor’s lien.

The subcontractor, Madison, Inc. (Madison), contracted with general contractor, Sanderling Healthcare, LLC (Sanderling). Sanderling was hired by project owner, Western Plains Regional Hospital (Western). The project was an improvement to a medical complex in Dodge City, Kansas.

Madison claimed its last furnishing was August 3, 2016. Based on Kansas’ statute, Madison’s lien (or an extension to file lien) should have been filed by November 3, 2016. Madison did file its lien timely on October 18, 2016. Madison’s lien for $287,212.28 was accompanied by an itemized statement showing $6,574.69.

Based on a lien filing date of October 18, 2016, Madison needed to file suit by October 17, 2017. Again, Madison was timely with its action, filing suit to enforce its lien on May 1, 2017. Then, on May 18, 2017, Madison filed a motion to amend its mechanic’s lien. Specifically, to “add additional itemization left out of the initial lien.”

As I mentioned earlier in the post, Kansas statute does permit liens to be amended within the statutory period, however, not if it is to increase a claim amount. In the court opinion, the judge mentions cases where an amended lien was permissible to correct the name of the owner, correct the incorrect use of the term “subcontractor,” and to correct the project description. Adding, the difference between Madison’s request to amend, and the cases cited in support of amendments, is that the other liens provided “sufficient information to give the property owners notice of the claims.”

In other words, how could the general contractor or owner review Madison’s itemized statement for accuracy when Madison failed to include the itemization for over 90% of its claim?

The court deemed Madison’s lien invalid based on its failure to include a “reasonably itemized statement.” Madison tried a last-ditch effort to save its lien, arguing that even if Madison can’t have a lien for $287,212.28, Madison should have a valid lien for the itemized statement amount of $6,574.69.

Well? According to the legal opinion, neither the Judge nor parties could find case law which addressed reducing the claim as Madison proposed. However, the judge did refer to a recent Court of Appeals decision, which essentially said “secure the lien according to statute, or don’t bother.”

“It is a settled rule in this state that equitable considerations do not ordinarily give rise to a mechanic’s lien. Being created by statute, a mechanic’s lien can only arise under the circumstances and in the manner prescribed by the statute. A lien claimant must secure a lien under the statute or not at all.”

Unfortunately, Madison’s lien did not comply with statute, thus failing the “all or nothing” comment from the Court of Appeals.

What did the judge say? “Because Madison’s lien was vitally defective as filed, it cannot be found to be partially valid. Severing defective portions of liens would not give defendants proper notice of the claim against them and would circumvent the strict requirements of the statute by creating liens without statutory compliance. For these reasons, Western’s Motion to Dismiss the claim for enforcement and foreclosure of the lien is granted.”

Never Underestimate the Power of Paper

When assisting with lien filings, sometimes clients push back when NCS requests backup documentation, e.g. “You don’t need to review my statement of account, I know what I’m owed.” We certainly don’t want to invade your privacy or second guess the information you provided. We request the documentation because we want to assist in ensuring your lien meets the statutory requirements.

Maintaining comprehensive and complete records can be a challenge. But, losing lien rights and potential payment security can put a burden on your cash flow.

An Excessive Mechanic’s Lien in Nevada

Posted on October 29, 2018 by - Mechanic's Liens & Bond Claims

How Much Money Does it Take to Make a Mechanic’s Lien Excessive in Nevada?

How much money makes a mechanic’s lien claim excessive or frivolous? According to one Nevada court, $1,371,187.44. In this case, the subcontractor filed a lien for $2,117,602.78, which was contested by the general contractor. The court deemed the subcontractor’s mechanic’s lien excessive and ordered the claim to be reduced to $746,415.34. Let’s review mechanic’s lien rights in Nevada and the case at hand.

Securing a Mechanic’s Lien in Nevada

For private commercial projects in Nevada, would-be lien claimants should serve a preliminary notice upon the owner and prime contractor after first furnishing materials or services, but within 31 days from first furnishing materials or services. In the event of non-payment, the lien should be filed within 90 days from last furnishing or 90 days from project completion, whichever is later. Suit to enforce the mechanic’s lien should be filed after 30 days from filing the lien, but within 6 months from filing the lien.

SMC Construction Co., v. Rex Moore Group, Inc., Dist. Court, D. Nevada 2017

In 2015, Edgewood Companies (Edgewood) hired SMC Construction Co. (SMC) to build a hotel in Lake Tahoe. SMC then hired subcontractor, Rex Moore Group, Inc. (Rex), to provide “the electrical system and electrical fixtures for the project.” The original subcontract was for $5,464,364, included terms for 10% retainage and stated only written change orders would be accepted. The subcontract also included verbiage that Rex “…would not be entitled to any monetary damages or other compensation or damages resulting from delays to the project.”

The court makes mention of the damage clause because, as you’d imagine, the story takes a turn.  In the winter of 2016/2017, significant project delays prompted SMC to tell Rex to put in the time & resources to speed up the project. The delays and subsequent “hurry up!” resulted in 20 change orders. These change orders increased the subcontract from $5.4M to a little over $6.1M.

In early spring 2017, Rex submitted a claim for damages due to, among several items, delays on the project. The additional claim was for $927,000, and, based on the subcontract, SMC denied Rex’s claim. In turn, Rex filed a lien for $2,117,602.78. Here’s how Rex arrived at that claim amount:

“Rex Moore calculated its lien as follows: $5,464,364 under the original contract plus $1,941,710.74 in additional work (including approved change orders up to that time) and damages for breach of contract minus $5,288,471.93 for payments received for a lien of $2,117,602.78.”

Here’s the court’s review of Rex’s math:

“Here, it is undisputed that there is a subcontract and twenty written change orders between the parties which sets forth an agreed upon price of $6,184,183.00 for Rex Moore’s work on the project. SMC contends that Rex Moore has been paid $5,470,580.63 on the project leaving an amount due of $713,602.37.”

Now, there is apparently an extraneous change order floating about, and the parties further agree that Rex’s claim amount is no more than $746,415.34.

Continuing our math lesson, Rex’s lien was filed for nearly 3 times the amount of its actual claim. SMC argued Rex’s claim is “frivolous and made in bad faith.” Rex, of course, argues its lien is not frivolous and Rex has email communication to back up its claim.

In the email, Rex asks SMC if it should track its costs (during the delays and “hurry ups”): “[SMC] responded to [Rex]’s e-mail about tracking costs and possible delay issues by telling [Rex] that “tracking [Rex] costs is a good idea” and to have “[SMC’s construction supervisors] sign off tickets as the work is happening so we know they are valid if/when we need to talk about money.” Id.”

Rex considers this email exchange a waiver of the damage’s clause in the subcontract.

“Rex contends that this e-mail establishes that SMC agreed to pay Rex for delay related costs and damages and waived the subcontract requirement of written change orders for all changes in compensation… Rex argues that once SMC agreed to allow Rex track its additional expenses, this additional compensation became part of the agreed upon contract price even if it was not specifically identified by any change order and thus, the additional compensation is lienable under Nevada’s mechanic’s lien statute.”

Except… in its original lien filing, Rex claimed some amounts were owed due to breach of contract. And, as the court points out, damages resulting from breach of contract are not lienable under Nevada statute. “Thus, Rex’s own lien statement establishes that the lien requests compensation for aspects of the project outside the scope of the subcontract and which are not lienable under the mechanic’s lien statute. As such, Rex’s recorded lien is excessive as a matter of law.”

OK, but what about the email? Well, the court didn’t agree with this single email being a waiver of the damage clause, because the email didn’t actually say it was a waiver. The court furthered that if this email did constitute as a valid waiver, it still wouldn’t matter, because Rex’s claim was outside the strict limitations of Nevada’s mechanic’s lien statute.

Lucky? Maybe.

On the upside, Rex’s lien was not entirely expunged. The court kindly reduced Rex’s lien claim amount to the $746,415.34 owed, because the court did not believe or have enough evidence to prove that Rex filed its excessive claim in bad faith.

Documentation, yet once again, proves to be vital in supporting a lien claim. Review contracts carefully, execute change orders properly and never ever assume anything!

Notice of Non-Payment May Not Be Required in Louisiana

Posted on October 26, 2018 by - In Other Commercial Credit News

Notice Non-Payment May Not Be Required for Louisiana Public Projects

For material suppliers furnishing to public projects in Louisiana, one court recently handed down a decision that notices of non-payment aren’t required. Even though the court has deemed a notice of non-payment optional, should you still serve the notice of non-payment? Yes!

Securing Bond Claim Rights in Louisiana

In Louisiana, on public projects, a payment bond is generally required for general contracts exceeding $25,000. As a best practice, you should attempt to obtain a copy of the payment bond at the beginning of the project. Louisiana is one of the handful of states that has a recurring notice, based on months furnished.

You should serve a notice of non-payment upon the owner and prime contractor within 75 days from the last day of the month for EACH month in which materials were furnished, but within the period in which a sworn statement must be filed. It’s a bit confusing – here’s an example:

Let’s say I furnished in October. If I have not been paid, I need to serve my notice of non-payment within 75 days from October 31st, which makes my notice deadline January 14, 2019. If I also furnish in November, and am unpaid for November, an additional notice of non-payment would be due February 13, 2019 (75 days from November 30th).

Generally, a notice of non-payment is not required when contracting directly with the prime contractor, when providing labor and materials or only labor, when the general contract has not been recorded, or to protect your rights under the payment bond.

The Court Says…

Jacob E. Roussel reviewed the recent case in his blog post, Court Rules That Supplier Notices of Non-Payment Are Not Required.

A material supplier contracted with a subcontractor who contracted with the GC, hired by the owner. The material supplier did not serve notices of non-payment, yet, when it remained unpaid, the material supplier filed a timely sworn statement of amounts due (aka bond claim).  The claim made it to trial court, where the judge determined the subcontractor did owe money to the material supplier. However, the material supplier’s claim against the GC/owner was void, because the material supplier hadn’t served the notices of non-payment.

Then came the appeal…

The appellate court reversed the trial court’s decision, by clarifying “…a supplier’s failure to furnish the 75 day notice of non-payment only results in the supplier losing its right to a privilege against any unexpended funds in the possession of the owner.” According to Roussel, “The court stated that its interpretation of the statutes was consistent with the purpose of the Public Works Act, which is to protect those performing labor and furnishing materials for public works.”

While this decision has proven beneficial to the material supplier, it may not be in the best interest of all parties going forward. Roussel’s take for the GC:

“From a practical standpoint, this decision could result in suppliers no longer providing notices of non-payment to general contractors on public projects. Suppliers may conclude that the hassle of timely providing the notices is not worth of the benefit of preserving a privilege against any funds in the possession of the owner since the supplier can maintain a claim against the general contractor and surety regardless of whether it sends the notice of non-payment. As such, a general contractor may receive no notice throughout a project that a subcontractor has failed to pay a supplier, yet the general contractor can ultimately be liable to the supplier despite only learning of the unpaid amounts following substantial completion of the project.”

My take for the subcontractor/material supplier? It’s an avoidable risk. If a notice isn’t served, how will the owner and/or GC know you are on the job & expecting payment? Sure, you could just wait and serve up the bond claim, but does that make good business sense? Maintain open lines of communication with all parties: serve the notice.

Which leads me to an opportunity to repeat myself…

Why Serve a Notice if It’s Not Required?

Why not? I know – I shouldn’t answer a question with a question. Truthfully, serving a notice, even if it’s not required, increases the likelihood that you will be paid.

New York Residential Projects & Your Lien Rights

Posted on October 22, 2018 by - Mechanic's Liens & Bond Claims

Your Mechanic’s Lien Rights on Residential Projects in New York

The Supreme Court in New York County has vacated one claimant’s lien for failure to file the lien timely based on New York statute. This case provides additional insight into New York residential projects and lien rights.

Mechanic’s Lien Rights on New York Residential Projects

New York statute defines residential as a “single family dwelling.” For residential projects, the mechanic’s lien should be filed within 4 months from last furnishing. The lien should be served upon the owner, prime contractor & your customer, within 5 days before or 30 days after filing the lien. You should file proof of service with the County Clerk within 35 days after the lien is filed.

“§ 10. Filing of notice of lien. 1. Notice of lien may be filed… where the improvement is related to real property improved or to be improved with a single family dwelling, the notice of lien may be filed at any time during the progress of the work and the furnishing of the materials, or, within four months after the completion of the contract, or the final performance of the work, or the final furnishing of the materials, dating from the last item of work performed or materials furnished”

According to § 9. Contents of notice of lien, you should include the following in your lien:

  • Your name & address (as lien claimant)
  • Property owner’s name
  • Your customer’s name
  • Description of materials/services provided
  • Contract & claim amounts
  • The date of last furnishing
  • The project address and/or description identifying the property

Premium Millwork, Inc. v Great American Insurance Company

In Premium Millwork, Inc. v Great American Insurance Company, Great American Insurance Company (GAI) filed a motion to have Premium Millwork, Inc.’s (Premium) lien vacated for failure to comply with statute.

But first, the back story –

Premium furnished to the improvement of Apartment 5S at 133 Greene Street. The property, according to the court record, is a “single residential coop unit.” Premium’s last furnishing date was June 15, 2014. When the property owner failed to pay Premium for its services, Premium filed a lien for $58,335. The lien was dated October 30, 2014; however, the lien was stamped by the New York County Clerk on November 25, 2014.

May 22, 2015, the property owner & GAI filed a discharge bond to have the lien released from the property. Premium filed a complaint to commence suit against the discharge bond on May 3, 2018. The story would be boring, except GAI filed a counter complaint arguing Premium’s lien is invalid because Premium’s lien was filed beyond the four month mark, as required by statute.

Based on a last furnishing date of 6/15/2014, the lien for a New York residential project should have been filed by 10/15/2014. Premium’s lien was dated 10/30/2014 and filed with the county 11/25/2014. The date of the lien was already beyond the four month window, not to mention the actual recording date of the lien.

Premium argued the lien needed to be filed within 8 months of last furnishing, claiming it believed the project to be commercial. GAI came prepared for that argument! “GAI has resolved that issue in reply by annexing the property data sheet indicating that the Premises are a single residential coop unit relating to property connected to Jean Chalopin, who signed the Bond on behalf of Greenhope, with GAI as surety.”

Much to Premium’s chagrin, the court agreed with GAI, the project is residential & the lien was late, thus invalid.

“Where a notice of lien encompasses a single condominium unit or cooperative apartment, such unit or apartment is a single-family dwelling under the Lien Law, regardless of whether the larger building or property constitutes a multiple dwelling, and the four-month limitations period applies.”

Take Heed

Tracking deadlines is critical. Missing a deadline, or filing a late document, could easily wipe out your mechanic’s lien rights. In this case, not only has Premium lost its rights to the debt of over $50,000, but it has also likely lost significant money in legal fees.

NCS is here to help, we track all deadlines throughout the overall mechanic’s lien & bond claim processes. Questions? Contact us today!