Owners Can Get Cake and Icing Under New Tennessee Lien Law

Seems like last week I was just celebrating one kid’s birthday and I had to do it again last night! Oh, that’s right, I have seven kids with two birthdays in September. So, it was not a dream?!?!?! Although they both got to choose their own family dinner destination, we are going to have one huge cake this weekend…with tons of icing!

Owners in Tennessee are celebrating a new law recently passed because they may get their icing, too! The new statute, signed into in May 2018, immediately created a cause of action providing for remedies for the successful challenge of the validity of a lien against a property. Under the new law, Tennessee Code Section 66-21-108 provides a description of the “icing” that the owner may recover:

[A] real property owner who prevails in an action challenging the validity of a lien, including in a slander of title proceeding, shall recover:

(1) The owner’s reasonable attorney’s fees;

(2) Reasonable costs incurred by the owner to challenge the validity of the lien;

(3) Liquidated damages in an amount equal to ten percent (10%) of the fair market value of the property not to exceed one hundred thousand dollars ($100,000); and

(4) Any actual damages incurred by the owner.

The banking industry was able to get a carve-out because the above remedies do not apply “if the action was brought to challenge a lien that is based on a loan agreement for which the encumbered property was listed as collateral to secure the repayment of the loan.”

While there were other remedies available to owners under Tennessee’s mechanic’s lien statutes (such as right to bond off enforcement, right to demand enforcement, or exaggeration of lien claims), this new section provides additional remedies in the form of liquidated damages and actual damages.

Slow as a Turtle? “No Damages For Delay” Clause Inapplicable to Contractor’s Claim Against Architect

By Matthew DeVries on September 5, 2018 Posted in Best Practices, Case Law, Claims and Disputes

On Saturday, I took the kids to the zoo for a day-long adventure. Faith’s favorite attraction was the turtle compound that was filled with about 20 slowpokes walking a circle. Like watching paint dry, we sat on the sidelines as these mini-dinosaurs trekked the park at a whopping .25 mph.

When we think of delays on a construction project, the first inquiry is to identify the turtle—the one party holding up progress or causing the delay. Many times, the parties’ contract will dictate whether the contractor can recover delay damages or will be limited to a time extension for delays beyond the contractor’s reasonable control. In Perez-Gurri v. McLeod, 238 So.3d 347 (Fl. Ct. App. 2018), the court examined whether a “No Damages for Delay” clause extended to parties other than the owner.

The general contractor in McLeod filed a malpractice action against the architect on a public contract for the City of Miami. The renovation project was located in the Caribbean Marketplace in an area known as Little Haiti. When the construction project was delayed, the general contractor filed suit against the numerous designers, architects, engineers and subconsultants.

The architect filed a motion for summary judgment, arguing that the general contractor’s delay claim was contractually barred by a “No Damages for Delay” clause in the contract between the general contractor and the City of Miami. The trial court granted summary judgment in favor of the architect. The appellate court reversed, finding that the owner-contractor agreement did not insulate the architect from liability.

The appellate court agreed with the trial—and so should you for that matter—that the general contractor waived any rights to seek delay damages from the owner. But the question is whether that waiver of delay damages extended to other parties such as the architect. The clause read as follows:

No claim for damages or any claim, other than for an extension of time, shall be made or asserted against City by reason of any delays except as provided herein. Contractor shall not be entitled to an increase in the Contract price or payment or compensation of any kind from City for direct, indirect, consequential, impact or other costs, expenses or damages, including but not limited to costs of acceleration or inefficiency, arising because of delay, disruption, interference or hindrance from any cause whatsoever, whether such delay, disruption, interference or hindrance be reasonable or unreasonable, foreseeable or unforeseeable, or avoidable or unavoidable . . .

The appellate court reasoned that the above emphasis language expressly state that the City is protected from delay damage claims, and there was no language that extends that protection to other parties. The court concluded: “If M2G2 Architects were intended to be protected by the no delay damages provision, one would expect some reference to that idea in this provision which otherwise precludes any third party beneficiaries to the contract.”

The McLeod decision reiterates yet one more time that “words have meaning.” More importantly, it is always advisable to think about and negotiate key provisions at the start of the project, rather than litigating the meaning of the provision during a dispute after the project is complete. Take a look at my Top 20 series where I blogged about key contract clauses and their meanings.

“Was Not” versus “Is So”: Court Clarifies Whether Exceeding Monetary License Limit Affects Contractor’s Recovery

By Matthew DeVries on June 18, 2018 Posted in Legal Trends, Tennessee

After a great extended weekend on the beaches of Florida, we embarked upon the drive back to Nashville with six kids. Despite the clearly defined travel rules, the antagonizing kid was putting his feet on the emotional kid. The creative kid was writing on the seat with markers, while the perfect kid screamed foul. The lazy teenagers slept. Mom and dad were triggered for eight hours.

Many Tennessee contractor’s have felt the same way with the changes in the licensing laws over the past few years. The rule relating to the effect of a contractor who exceeds its licensing limit is now clear based upon the decision in Clayton Pickens v. John R. Underwood (Tenn. Ct. App. June 12, 2018). In that case, the dispute was whether the “old law” or the “new law” applied. Here’s how it went down:

On June 2, 2008, contractor entered into an agreement with owner to construct house for $572,000, but at the time the contract was signed the contractor’s license limit was $350,000.
Under the prior version of Tennessee Code Section 62-6-103, an “unlicensed contractor” was limited to recover only the actual documented expenses that could be shown by clear and convincing evidence.
The question that often came up was whether a contractor who exceeds its monetary limit was “unlicensed” for purposes of this rule on damages.
The Legislature amended Tennessee Code Section 62-6-103(b) effective June 23, 2009, which clarified that: “[a]ny contractor required to be licensed under this part who is in violation of this part or the rules and regulations promulgated by the board shall not be permitted to recover any damages in any court other than actual documented expenses that can be shown by clear and convincing proof.”
In Anchor Pipe Company, Inc. v. Sweeney-Bronze Development, LLC (Tenn. Ct. App. Aug. 2, 2012), the court held that a licensed contractor who contracts above his or her monetary limit still is considered “licensed” for application of the rule on damages above. The Anchor Pipe court was interpreting and applying the prior version of Section 103.

In Clayton Pickens, the evidence showed that the parties signed the contract in 2008, which was one year before the statute changed, but filed the lawsuit one month after the statute was amended. The court held the old law applied:

We believe the date of the contract to be more significant here than the date of the filing of the complaint. By the time Pickens filed his complaint, all the operative, underlying events of this case had transpired. The amendment to Tenn. Code Ann. § 62-6-103 was substantive in nature. The effect of the amendment was to expand the limitation of actual documented expenses to any contractor required to be licensed under the statute and rules, whereas before this limitation applied only to unlicensed contractors. When Pickens signed the contract and performed the work for the Underwoods, he was not subject to that limitation as he was not unlicensed. Pickens is not limited retroactively by the provisions of the amended statute.

It appears that all of the loops have been closed. Currently, the law states that if you exceed your licensing limit or otherwise violate some provision of the licensing laws, you cannot file a lien and your damages will be limited to actual documented expenses proven by clear and convincing evidence.

Active Interference Wins Skee Ball Points and Precludes Enforcement of A “No Damages for Delay” Clause

By Matthew DeVries on May 22, 2018 Posted in Case Law, Claims and Disputes, Contract Docs, Legal Trends

Last week during family skate night, my daughter asked me for two quarters to play some Skee-Ball. I loved playing that game as a kid. But imagine my surprise when I turned the corner and witnessed her active interference with the rules of the game! (… Truly, you can’t script this stuff…)

In construction contracts, “active interference” is a recognized exception to the enforcement of what is known as a “no damages for delay” clause. This type of provision seeks to preclude any increased costs associated with delays on the project. For example, a traditional clause may read as follows:

“No claims for increased costs, charges, expenses or damages of any kind shall be made by the Contractor against the Owner for any delays or hindrances from any cause whatsoever; provided that the Owner, in the Owner’s discretion, may compensate the Contractor for any said delays by extending the time for completion of the Work as specified in the Contract.”

* * * * * *

“Should the Contractor sustain any damage through any act or omission of any other contractor having a contract with the Owner or through any act or omission of any Subcontractor of said other contractor, the Contractor shall have no claim against the Owner for said damage.”

In the a regularly cited case, United States Steel Corp. v. Missouri Pacific Railroad Company, 668 F.2d 435 (8th Cir. 1982), the court recognized that “no damages for delay” clauses are valid, but that there are numerous exception to the rule. In that case, the Owner issued a notice to proceed to the bridge superstructure contractor with knowledge that substructure work would not be completed on schedule. As a result, superstructure contractor was delayed for 170 days while waiting for access to work site. The contract contained a “no damages for delay” clause specifically making reference to delays caused by substructure contractor.

In the end, the court recognized that “no damages for delay” provisions are generally enforceable except as to delays: (1) not contemplated by the parties under the provision; (2) amounting to an abandonment of the contract; (3) caused by the owner’s bad faith; or (4) amounting to active interference. Since the Owner issued the notice to proceed with knowledge of the substructure delays, the Court concluded that the Owner was guilty of active interference. Accordingly, the superstructure contractor was entitled to recover on its delay damage claim.

Lesson Learned. The real lesson is to make sure to review your contract for these types of provisions and try to negotiate the terms. For example, the AIA A201 expressly provides that the owner and contractor may seek damages from each other in the event of a delay caused by the other party. There will be certain notice and substantiation requirements, but it is common to allow a party to seek damages for delay. If an owner is unwilling to remove a no-damages-for-delay clause in your contract, then you should try to limit its application to certain delays such as delays caused by others, leaving the owner liable for its own delays.

Words and Numbers: Contractor Forfeits Bid Bond When It Mistakenly Leaves Out “Thousand” Word

By Matthew DeVries on May 21, 2018 Posted in Alabama, Case Law, Legal Trends

Contractors make mistakes with words. Contractors make mistakes with numbers. And sometimes, a mistake with words leads to a mistake with numbers.

In Clark Construction Co. v. Alabama Highway Department, a highway contractor tried to withdraw its bid on public contract and have its bid bond returned after it made a mistake on a its written proposal. In its bid submission for a bridge construction project in Mobile County, the contractor had listed a total bid amount of $1,119,609. On a particular line item for Steel Bridge Superstructure, the contractor listed the amount of “$368,000” in numerical value, but had the words “Three Hundred Sixty Eight” immediately before the word “Dollars.” The contractor mistakenly left out the word “Thousand” from its written bid.

During the bid review, the Alabama Highway Department used the written words to calculate the total bid, as required by statute. Alabama Code Section 39-2-7 provided: “In case of a discrepancy between prices shown in the figures and in words, the words will govern.” The Department determined the contractor’s bid to be $816,977.60, as opposed to the $1,119,609 intended to be submitted by the contractor.

After learning about the error, the contractor asked permission to withdraw its bid on the basis of the mistake, but the Department refused to permit the bid to be withdrawn. The contractor then refused to accept the job, and so the Department forfeited the contractor’s $10,000 bid bond. The trial court ruled in favor of the Department.

The appellate court affirmed the decision, finding that the “words over numbers” statute was to be strictly construed. In light of the potential damages the contractor could have lost due to its mistake, the forfeiture of the bond (which was also required by the statute) was not excessive and otherwise fair.

Clark Construction is a good reminder to public contractors to pay close attention to bid tabulations. If there are errors in your written proposal, understand that the RFP or the applicable law will control how the error is to be resolved.

Say What? The Rise of Criminal Liability for Construction Accidents

By Matthew DeVries on May 18, 2018 Posted in Best Practices, Safety

Today’s guest post is by Chris Meyers and Cheri Gatlin, two of my fellow partners at Burr & Forman, LLP. Chris is a partner and Cheri Gatlin is Chair of the firm’s Construction and Project Development Practice Group. The Group counsels clients throughout the U.S. on safety policies, OSHA and regulatory compliance, contracts, disputes, and all areas where law and construction intersect.

“To err is human; to forgive divine.” – Alexander Pope, “An Essay on Criticism.”

Last week marked the end of Construction Safety Week 2018, a combined effort by the Construction Industry Safety (CISI) group and the Incident and Injury Free (IIF) CEO Forum. Together these entities are comprised of 80 national and global construction firms, with a goal of promoting safety in the construction industry. Concern for safety is apparent on construction projects throughout the country and world, as evidenced by daily/weekly construction briefings and the familiar “___Days Since a Lost Work Accident” signs. People that work in the Construction Industry know firsthand the dangers and want to see their co-workers go home safely to their families after a long day. In addition, time is money in this business. Safe projects are more likely to be profitable projects due to lack of delays and prevention of claims for jobsite injuries. For employers, criminal liability for job site construction accidents is more and more a concern. Mainstream headlines highlight several cases where construction accidents = criminal charges.

From the well-publicized October 21, 2016 drowning of two construction workers in Boston after a trench in which they were working collapsed, to the March 18, 2018 pedestrian bridge collapse at Florida International University (FIU), which killed 6 and injured 9 more, construction accidents that result in loss of life are commonly viewed as more than “accidents.” There appears to be a trend toward construction incidents being investigated by various agencies for criminal liability. Inevitably, accidents happen in every area of life, from “fender bender” automobile accidents to high profile construction accidents, which result in extensive property damage and, unfortunately at times, loss of life. When, though, is an accident something more?

With regard to the Boston trench collapse, the Suffolk County District Attorney’s office presented evidence of manslaughter against the employer—both as a corporate entity and the company’s owner—related to the accident. There, the deceased were killed when underground materials supporting a hydrant in an allegedly unshored hole they were digging gave way and the hydrant burst, flooding the trench. Prosecutors claim the employer was pushing the men to work faster because the project was behind schedule. Motions to Dismiss manslaughter charges were considered and denied, leaving the employer and its owner subject to criminal prosecution. In an industry where liquidated damages and other pressures lead to acceleration, this is a headline of note.

In Florida, we await all the facts on the FIU bridge collapse, a decision by the Dade County State Attorney’s office on possible criminal action. However, a charge of “Culpable Negligence” could be in play. In Florida, the crime of Culpable Negligence is defined as a course of conduct “showing reckless disregard for human life, or for the safety of persons exposed to its dangerous effects, or . . . which shows wantonness or recklessness . . . [or] an indifference to the rights of others as is equivalent to an intentional violation of such rights.”

As Construction Safety Week concludes, Burr congratulates all our clients that participated in the activities. Focusing on safety is critical to the industry’s success and the life and livelihood of those who rely upon it.

How Important Is That Little Green Card? Pretty Darn Important Says One Court.

By Matthew DeVries on May 17, 2018 Posted in Case Law, Claims and Disputes, Georgia, Legal Trends

We live in a world of e-mails, IMs, texts, Snapchats, Instagrams and the occasional fax. Although information is transmitted instantaneously in today’s environment, proof of receipt of that information (often called “Notice”) remains subject to some very strict rules imposed by contract, case law or statute.

Notice of Claims. In a recent transportation case involving a personal injury, Department of Transportation v. Jones, the Court of Appeals of Georgia explained the importance of strict compliance with certain notice provisions. The plaintiff was injured in a single-car accident on State Route 42 and he sued the Georgia Department of Transportation (“GDOT”). The plaintiff claimed that GDOT’s improper maintenance of the roadway led to an accumulation of water, which caused his truck to hydroplane into a tree, severely injuring him. GDOT filed a motion to dismiss, arguing that the plaintiff failed to strictly comply with the notice provisions of the Georgia Tort Claims Act (“GTCA”). The trial court denied that motion and the Court of Appeals reversed.

The Green Card. The GTCA requires that notice of the claim be sent to “the Risk Management Division of the Department of Administrative Services.” At the hearing, the plaintiff presented the following evidence: (a) the notice letter; (b) the green return receipt card sent to the Commissioner of GDOT; (c) a response letter from the Risk Management Division acknowledging receipt of the notice letter; and (d) a U.S. Postal Service tracking document showing that “something was sent by certified mail to the Department of Administrative Services.

The Holding. Despite this evidence, the Court held that the plaintiff failed to strictly comply with the statute because there was no proof by the plaintiff that the letter was sent by certified mail to the Risk Management Division. The green card submitted showed proof of delivery to the Commissioner of GDOT. The attorney for GDOT admitted in court that the notice letter received by the Commissioner of GDOT was then sent internally by the Commissioner’s office to the Risk Management Division, which then sent the acknowledgement letter. Nevertheless, the plaintiff did not comply with the statute requiring that he sent notice of the claim to the Risk Management Division.

So What? While this may seem like a hyper-technical application of the rule, that’s precisely what “strict construction” means according to one court in George. Whether you are contractor, developer, specialty subcontractor, or professional service provider in the construction industry, the real lesson learned is to read the express terms of any applicable contract or statute when a dispute arises, and follow both “the letter and the spirit” of the law.

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

By Matthew DeVries on March 20, 2018 Posted in Case Law, Legal Trends

I forgot how much fun it was playing family board games as a child. We recently dusted off some of the oldies like Sorry, Life and Monopoly to play with the kids. I laughed uncontrollably the first time I got to say, “Go directly to jail. Do not pass GO. Do not collect $200!”

A contractor in North Dakota wasn’t laughing when it was not allowed to pass “Go” and could not immediately collect its $200,000 for work performed. In Snider Construction v. Dickinson Elks Building, LLC, the court held a contractor was not entitled to recover for labor and materials during a time period when the contractor was unlicensed. There, the out-of-state contractor entered into the construction contract on December 26, 2011, but did not get its contractor’s license until February 5, 2012. The contractor later filed a lien for approximately $200,000. The trial court awarded the contractor its claim for damages, and the owner appealed.

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 barred from bringing any claim.

While the contractor was unable to pass “Go” to immediately collect its $200,000, its claims were not totally lost. The appellate court held that although the contractor could not recover for labor and materials during period that it had not received license (i.e., the lien claim), the contractor was entitled to recover in quantum meruit and unjust enrichment for labor and materials provided after it was granted a license.

Depending on your state, you may or may not be able to maintain an action as an unlicensed contractor. For example, Arizona requires a valid license at entry into contract and when cause of action arose; Utah requires a valid license at time of contracting and “[c]ontinuously while performing the work for which compensation is sought”; and North Dakota bars all claims only during a period of time the contractor was not licensed. If you work in another state, make sure you pass “GO” (…get licensed…) and collect your $200.

In Construction, There’s A Tattletale And There’s What is Right

By Matthew DeVries on March 5, 2018 Posted in Best Practices, Claims, Federal Construction

Sometimes, we avoid doing bad things because of the risk of getting caught. Other times, we avoid doing bad things because we simply choose to do right things. Whatever the camp you fall into, a recent government contracts case tells a story that should be avoided when submitting payment applications to the government.

In U.S. ex rel. Jesse Sloan v. Waukegan Steel, LLC, an employee brought a False Claims Act (FCA) against his employer for false billing and certification on a goverment project. The Attorney General has primary authority for enforcing FCA, but the law includes what is called a qui tam provision, which permits a private party to bring a civil action alleging fraud against the Government on its own behalf as well as on behalf of the United States. 31 U.S.C. § 3730(b). If the private party prevails, he receives a percentage of the recovery. 31 U.S.C. § 3730(d).

Waukegan was responsible for fabricating and installing the structural steel of project. The design specifications require that the contractors adhere to various professional codes, including those of the American Institute of Steel Construction (AISC), the American Society for Testing and Materials (ASTM), and the American Welding Society (AWS). The subcontractor was required to submit “fabrication quality control and weld inspection certificates” to the government before payment was issued. According to the employee, Waukegan did not have any of these certificates.

In Sloan, the president of the company allegedly asked the employee to fabricate the inspection certificates. When he refused, the president allegedly approached another employee who was not a qualified welding inspector. That employee fabricated the requested welding inspection certificates.

While the court’s decision focused on the type of allegations necessary to prove fraud on the FCA, the opinion is instructive to avoid FCA claims. To prove an FCA claim, a plaintiff must prove that (1) the defendant made a statement in order to receive money from the government, (2) the statement was false, (3) the defendant knew it was false, and (4) the statement was material to the decision to pay or approve the false claim.

Notably, the Court in Sloan rejected every defense raised by Waukegan and allowed the case to go forward. For example, the subcontractor argued that the funds were paid to the subcontractor by the prime contractor—as opposed to the Federal government—and thus there was no attempt to defraud the government. The Court disagreed: “Importantly, Congress subsequently amended the False Claims Act to clarify that the defendant need not intend for the government itself to pay the subcontractor’s claim; it would be contrary to Congress’s original intent in passing the law if even when a subcontractor in a large Government contract knowingly submits a false claim to general contractor and gets paid with Government funds, there can be no liability unless the subcontractor intended to defraud the Federal Government, not just their general contractor.”

In the end, you can choose to follow the law because you are fearful that one of your employees may become a tattletale, like the decision in Sloan, or because it is the right thing to do. Whichever the case, false and misleading statements submitted to the government will most likely be discovered and create problems for you.

Additional Insured Status: Playing the Speak-Out Game on a Construction Project

By Matthew DeVries on February 21, 2018 Posted in Best Practices, Case Law, Legal Trends

Last weekend we played Speak-Out: Kids versus Parents, a game where you use a plastic thingy to obstruct your speech capabilities. The winning team is the one that guesses the most phrases. Reading and understanding an insurance policy on a construction project can be a lot like understanding my kids playing Speak Out.

Proper insurance coverage is an important risk management tool for contractors, subcontractors, project owners/developers and design professionals. Whether you are required by contract or law, purchase and maintaining the appropriate coverage can help you avoid catastrophe on your project. Since there are so many types available, it is important to understand what is being covered…and what is not.

This was a hard lesson learned by a contractor recently in Vivify Construction v. Nautilus Insurance Co., a recent decision issued by the Appellate Court of Illinois. In that case, the contractor and subcontractor (and their insurance carriers) were pointing the finger at each other for injuries sustained by an employee of the subcontractor.

The subcontract agreement required the subcontractor to indemnify and hold harmless the contractor against claims of bodily injury resulting from the subcontractor’s work. The subcontract also required the subcontractor to include the contractor as an “Additional Insured” on its policy.

The insurance policy provided “Additional Insured” coverage for the contractor. But it also contained an endorsement that included an “employee exclusion,” which stated that the policy did not apply to bodily injury to the subcontractor’s own employees.

The Court was required to parse through the applicable contract and insurance provisions. In the end, the Court found that—despite the “Additional Insured” status of the contractor—the subcontractor’s insurance policy contained the broadened employee exclusion provisions. This ultimately negated coverage.

Vivify Construction addresses such a small portion of insurance coverage disputes on construction projects, but the lesson is far more impactful. Despite the difficulty in reading and understanding insurance coverages on a project, you are advised to specify in your contracts what types, amounts, and limitations are acceptable for a project. While cumbersome, don’t just rely on a certificate of insurance provided by a party, but ask them to get you a copy of the actual policy to review. Don’t try to figure out what was said after the dispute arises.

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