Construction Law

FRIVOLOUS LIEN MOTIONS BRING RISKS

Washington State recognizes many different types of liens — the familiar mechanic’s lien in the construction industry, at RCW 60.04, plus at least 30 other varieties of lien devices to secure payment for various types of services rendered.  Almost all of those lien statutes bring with them the opportunity for the owner of the liened-upon property to bring a motion to expeditiously dismiss a frivolous lien.

Such motions are available, but as the saying goes, “Just because you CAN, does not necessarily mean that you SHOULD.”  Motions to dissolve liens as frivolous entitle the prevailing party to an award of attorney fees.  Therefore, before one files a motion to dismiss a lien as frivolous, a close examination of all the facts is required.  You may think that you have all the evidence necessary to immediately prevail, but if you are wrong, such motions can typically cost from $3,000 to $8,000.

Moreover, the case law runs strongly in favor of the lien claimant.  While the courts have said that such motions are heard as a “trial by affidavit,” the courts have also stated that the summary procedure does not replace a full trial on the merits where the matters in issue are not clear-cut.  A review of Washington case law, both published and unpublished opinions, reflect that such motions are rarely successful.

In my practice, I have asked other attorneys to send me their briefings and Orders on such motions.  I have encountered only two successful motions briefings in the last five (5) years.  I brought one, and a colleague brought the other.  Both were on facts that show successful motions rest upon the lien itself being invalid on its face.  For example, one lien clearly included amounts earned over the preceding five years relating to multiple projects, but liened against only one property.  Moreover, the owner of the single property was completely unrelated in any way to the owners of the other parcels where work had been performed that was being claimed.

The second lien that was dismissed as frivolous described work performed that could not have been performed on the liened-upon property.  There, the lien sought payment for work performed in common areas of the condominium, where the liened-upon property was a single family residence.  The case law makes it clear that an invalid lien is not necessarily frivolous, but a truly frivolous lien is one so wholly devoid of merit that its dismissal is without question.

Be wary of filing such motions, and be willing to assume the risk of an additional $3,000 to $8,000 in your gamble.  If you haven’t been to the casino lately, perhaps you do not want to play this game, either.

ENGINEER SUED FOR REFUSING TO ALTER REPORT DISMISSED FROM CASE

I recently had the pleasure of giving my client the good news that he was dismissed from litigation “with prejudice.”  This meant that he was out, for good.  The homeowner that sued him could not re-file the claim against him after trying to find evidence to support her claim.

The homeowner bought the house as a “tear down.”  However, her project turned more expensive and complicated than she had anticipated.  After firing the first contractor, she engaged a new general contractor.  That general decided to hire an engineer to monitor progress on the project.

As the homeowner believed the second contractor also did not perform well, she terminated him.  She then demanded that the engineer alter his report to reflect her own view about the second general contractor’s work on the project.  If he refused, she would sue the engineer.  The engineer responded that the report was accurate, and he refused to alter it, even to avoid being sued.   Eventually the project ended up in litigation, and the homeowner sued three of several contractors she had hired on her project, and the engineer.

As they say, “Happiness is not whether you win or lose, it’s how you place the blame.”

In this case, however, the engineer had no contract with the homeowner, and had not designed the plans and specifications for the project.  Those recommendations that the engineer had made after the homeowner expressed her unhappiness had been rejected, because they would have required even further investment in the project.  The engineer engaged me to defend him in the suit.

The engineer argued that he had no contractual duty to the homeowner, as his client was the second general contractor.  He argued further that the real reason he was sued was not because he did anything wrong on the project, but because he had refused to cave to the homeowner’s pressure to alter his reports.  The engineer maintained that his reports were accurate and therefore he had no duty to alter them.  Accurate reports could not form the basis of any misrepresentation claim, either.

After filing the motion for summary judgment, the homeowner’s attorney acknowledged the complete lack of evidence supporting the claim against my client.  Although a year to defend an unwarranted suit was too long (the plaintiff changed attorneys three times), the final result was complete and total vindication for the engineer.

I am very happy to have been able to provide this result to my engineer client.  The cost to defend the litigation for over a year, including multiple sets of discovery, a site visit, and the drafting of the motion for summary judgment,  came to less than $10,000.  While that seems like a lot to an engineer that was paid far less than that on the project, his reputation and professional integrity emerged intact.  Sometimes, happiness IS whether you win!

 

PAY IF PAID, PAY WHEN PAID, PAY WHEN THE GENERAL FEELS LIKE IT?

“Pay if Paid” clauses impose the risk of an Owner’s nonpayment upon the subcontractor, at least with respect to that portion of the work.  For example, if the Owner approves, accepts and pays the general contractor for 70% of the payment application, but withholds 20% due to a claim that the installation of the tile in the rotunda was defective, (and then holds 10% for retainage), every subcontractor that performed work within the 70% that was approved is entitled to prompt payment.  The tile subcontractor is entitled to Notice that its work was not accepted, specific information as to the basis for the rejection, and the prime contractor must follow the notice provisions for rejecting the work as set forth in the parties’ subcontract.

That analysis is not difficult.  But what happens when the Owner does not reject the work, but the subcontractor is advised that the Owner has simply not paid the prime contractor, and accordingly, the prime asserts that it does not owe the subcontractor?  Is the “pay if paid” provision sufficient to deny prompt payment to the subcontractor?  ANSWER:  It depends, but I personally believe that it is very risky for a prime contractor to refuse payment to a subcontractor absent specific evidence that the Owner has reasonably rejected the subcontractor’s work directly related to the payment being withheld.

A “pay if paid” clause must be very specific to be enforceable.  Amelco v. Drake, 20 Wn. App. 899, 583 P.2d 648 (1978)(a “pay when paid” clause means that payment is still due within a reasonable period of time).  Specifically, the phrase “condition precedent” must be used.  However, the issue of whether “pay if paid” contract clauses are valid has not yet reached the Supreme Court of Washington.  In W. States Paving Co. v. Pease & Sons, Inc., 132 Wash. App. 1034 (2006) the issue came up, but the Court of Appeals declined to address it directly.

The cases so far reflect that “pay if paid” clause and “pay when paid” clause are two contract provisions that Washington courts view skeptically, and interpret narrowly.  The evidence of the following questions should be reviewed in determined the course of action each party is entitled to take:

1.  Is the contract payment clause clear, certain and unambiguous?  [If not, then the court can consider the entire context of the parties’ negotiations, and can interpret any uncertainty against the party that drafted the agreement — usually, the prime contractor.  This is known as the Berg rule].   In Washington, several statutes require prompt payment of construction work, including:

a.  RCW 60.04 — mechanic’s lien statutes.  There is a specific statute invalidating any contract clause that would prohibit assertion of mechanic’s lien claims in advance of those claims arising.  Thus, a “pay if paid” clause would appear to be in contravention of that statute for all contracts on private construction.  This assumes that the anticipated work would otherwise be lienable (permanent improvements to real property and structures upon real property).

b.  RCW 39.04.250  is the Washington State Prompt Payment Statute governing public work.  While it doesn’t specifically prohibit any particular contract clause, the public policy to encourage good contractors to continue working upon public projects is only furthered when such contractors can be assured of reasonably prompt payment.  Contract clauses that subvert that purpose should be (and are) viewed very skeptically by the courts.

c.  RCW 4.24.360 prohibits any  “no damages for delay” clause  eliminating claims for delayed performance in advance of that occurrence.  The prime contractor’s performance includes payment to the subcontractor(s).  Therefore, any construction clause that prevents the subcontractor from asserting claims for delayed payment would be void.

d.  Cases governing sureties as insurance companies in Washington have imposed attorney fees upon payment bond sureties that forced claimants to file litigation to obtain the benefits of the bond.  The attorney fees are called, “Olympic Steamship” fees.  Washington law requires prompt investigation of payment bond claims, and a prompt “pay– or deny and explain” approach to claims handling practices.  See, e.g., RCW 48.01.030.  Payment bonds are typically available only on public work projects or very large private projects in Washington state.  They stand in the place of mechanic’s lien rights, available on private work.

2.  Additionally, even if the contract language itself clearly and unambiguously places the risk on the subcontractor, one will want to consider whether the subcontractor agreed to the “pay if paid” clause prior to submitting its bid and having its bid accepted?  IF NOT, did the prime contractor offer any specific new consideration to support this change in the contract terms?  (Usually, contract change orders require the parties to exchange something new for the contractual amendment to be effective).

3.  Do other circumstances indicate a wrongful purpose in the withholding of payment?  If so, any litigation will involve the facts and evidence to support or oppose such claims, making the liklihood that the litigation will be more costly and protracted for the parties.  This takes the profit out of delayed payment for the contractor and gives the payment bond surety or the Owner facing mechanic’s liens reason to believe that it will be paying claims, and seeking recovery from the possibly insolvent prime contractor.  Prompt payment of the legitimate documented claim is usually the wiser course for every party above the claimant on the contracting chain.

 

 

PROMPT PAYMENT ACT – PUBLIC WORKS CONSTRUCTION

All subcontractors in Washington state should be familiar with our “Prompt Payment Act,” below.

It grants the subcontractor a right to be paid within TEN DAYS of the prime contractor’s receipt of payment from the public body owner for that scope of work.

If not, both attorney fees and interest are conferred by this statute, even if the contract is silent on those rights.

Today, “pay if and when paid” clauses are abundant in public works contracts. If you have performed work on a public project, and your work has been accepted, use this statute in every demand letter.

Remember to copy the prime contractor’s surety. If they are from out of state, they may not know about this law.

Also, do not forget to file your payment bond claim with the public owner. After 30 days, you can file suit and have a second statutory basis to recover your attorney fees. This increases your legal team’s ability to negotiate from a position of strength, and to get full recovery for you should negotiation fail.
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39.04.250
Payments received on account of work performed by subcontractor — Disputed amounts — Remedies.

(1) When payment is received by a contractor or subcontractor for work performed on a public work, the contractor or subcontractor shall pay to any subcontractor not later than ten days after the receipt of the payment, amounts allowed the contractor on account of the work performed by the subcontractor, to the extent of each subcontractor’s interest therein.

(2) In the event of a good faith dispute over all or any portion of the amount due on a payment from the state or a municipality to the prime contractor, or from the prime contractor or subcontractor to a subcontractor, then the state or the municipality, or the prime contractor or subcontractor, may withhold no more than one hundred fifty percent of the disputed amount. Those not a party to a dispute are entitled to full and prompt payment of their portion of a draw, progress payment, final payment, or released retainage.

(3) In addition to all other remedies, any person from whom funds have been withheld in violation of this section shall be entitled to receive from the person wrongfully withholding the funds, for every month and portion thereof that payment including retainage is not made, interest at the highest rate allowed under RCW 19.52.025. In any action for the collection of funds wrongfully withheld, the prevailing party shall be entitled to costs of suit and reasonable attorneys’ fees.
[1992 c 223 § 5.]

LIENING FOR PROFESSIONAL SERVICES

Architects, engineers and others may provide services that are vital to a construction project.

Whether residential, commercial, industrial, or public works, the professional is entitled to secure payment for the services provided.

However, those services are often “invisible” to anyone monitoring the construction project.

Therefore, Washington law (RCW 60.04) requires that professionals file a pre-lien notice. The statutory mandate is quoted here:
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Every potential lien claimant providing professional services where no improvement as defined in RCW 60.04.011(5) (a) or (b) has been commenced, and the professional services provided are not visible from an inspection of the real property may record in the real property records of the county where the property is located a notice which shall contain the professional service provider’s name, address, telephone number, legal description of the property, the owner or reputed owner’s name, and the general nature of the professional services provided. If such notice is not recorded, the lien claimed shall be subordinate to the interest of any subsequent mortgagee and invalid as to the interest of any subsequent purchaser if the mortgagee or purchaser acts in good faith and for a valuable consideration acquires an interest in the property prior to the commencement of an improvement as defined in RCW 60.04.011(5) (a) or (b) without notice of the professional services being provided.
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This is a more burdensome requirement than notices required of material suppliers and others, who simply need to mail their pre-lien notices to the owner and general contractor.

If you have questions about this, please do not hesitate to contact us.

PRIVATE MECHANIC’S LIEN BASICS

Be aware that the RIGHT to file a mechanic’s lien must be secured, in some cases, BEFORE you begin the work.

The law of mechanic’s liens is different in every state. DO NOT rely on forms, advice, or internet posts relating to mechanic’s liens that are not specific to the state in which you performed the project.

Residential projects for four (4) or fewer homes / units, require a “Notice to Owner” – RCW 18.27, and at http://www.lni.wa.gov.

Commercial projects for less than $50,000, may also require pre-lien notices.

This is a SEPARATE requirement from the mechanic’s lien statutory notice requirements found at RCW 60.04.

Be safe. Send out both the RCW 60.04 and the RCW 18.27 pre-lien notices on every project. It is good business, not a comment on your customers’ integrity. Arguing about whether notice was required in court and through attorneys is expensive.

IF YOU WISH TO FILE YOUR OWN LIENS, AND YOU HAVE SENT ANY REQUIRED NOTICES:

1. Review RCW 60.04 at http://www.leg.wa.gov. Then find the lien form on http://www.lni.wa.gov

2. Sign and date the claim under penalty of perjury before a notary.

3. Lien only for work that is a permanent improvement to the property — not cleaning, mowing, advertising, etc. Separate property parcels require separate liens.

4. File the lien(s) within 90 days of your last work ON EACH SITE (removing the job trailer or tools doesn’t count).

5. Send the lien by CERTIFIED MAIL to the property owner, general contractor (if that isn’t you), and any financing bank for the construction project of which you are aware. You must do this within 14 days of filing your claim, or you lose the right to claim attorney fees.

6. Public works projects have a different form and different requirements. You must file your lien on the retainage and/or payment bond claim within 30 / 45 days after the project is closed and accepted. Contact the owner to find out if the project has closed. Look on the L&I website (URL above) under “prevailing wage” to see if any affidavits have been filed. If it closed more than 30 days ago, you are left with only a private lawsuit against the party with whom you contracted –an entity that may or may not be solvent.

7. On private work, you must file suit within 8 months of filing your lien. On public work, you must file suit within 4 months of filing your lien claim / bond claim.

*Mechanic’s liens can be tricky, and the above basics are exactly that — very basic. But many contractors routinely file their own mechanic’s liens.

You may want to have an attorney walk through the first one with you, then update your notices and forms on your own computer, and take it from there.

Lien and bond claims are the best protection for contractors performing work in a complicated financial construction industry. When you do the work, you deserve to be paid. Protect your rights!

Hiring a Contractor

Whoever you hire, make sure that you check them out at: www.lni.wa.gov

There is a lot of good information there about hiring contractors. Roofing and siding contractors have additional legal requirements, and that is because homeowners have had notoriously bad luck with fly-by-night outfits in those particular trades. They MUST enter into a written contract with you, whereas other trades can legally go forward on a verbal contract.

If you run the name in the L&I database, you will learn: (a) if their license is current; (b) if they have had any lawsuits filed against them — but be fair. Folks get sued all the time, and win at trial. So look for actual judgments, or payments by their bonding company, before deciding that you should or shouldn’t hire them.

The contractor should give you a document BEFORE they start, entitled: “Notice to Owner.” It is required under RCW 18.27. That document will advise you concerning liens, and what you can do to protect yourself against a lien filing on your property. If they don’t give you one, this is not necessarily an indication that they don’t do good work. It just means that maybe they don’t have a great lawyer (which may mean they haven’t had legal problems!). They can’t file a lien against your property if they don’t give you this notice, though (if the bid or contract is for more than $1,000). So…it isn’t necessarily a document you want to ASK for! [If you are a contractor reading this, and don’t know about this statute…it is relatively new, and it is separate from the notice requirements under RCW 60.04. You can email me or call me for a copy of the two separate notices and compare how they are very different].

However, if their license is not current, do not hire. They probably will not have a bond, that covers breach of contract. They may not have insurance, which covers accidents and negligence.

This summary is not intended to be legal advice. You should consult an attorney in regard to your particular situation.

Prevailing Wage Announcements – new rules

We received the following announcement from the Department of Labor & Industries concerning changes to how contractors performing public work must file Intents and Affidavits.  Rather than summarize, please see the announcement below.

 

This email is to inform you about an update that will occur to the Labor & Industries (L&I) Prevailing Wage Intents and Affidavits online filing system the evening of January 21, 2010.  This update will make the fields “Agency Contact Name” and “Agency Contact Phone” mandatory fields when completing the Intent to Pay Prevailing Wages and the Affidavit of Wages of Paid forms.

 

During the implementation phase of this change, there will be a transitional period of time when this new information may not be available online.  This is because some prime contractors and upper-tier contractors may have filed their Intent/Affidavit prior to the change and when they completed the form, they did not insert the agency information which is now required. In such circumstances the filing contractor will need to contact their upper-tier subcontractor or the prime contractor to obtain the necessary information in order to complete the form accurately.

 

Additionally, when submitting a form that references employees and/or apprentices, you must complete the “Industrial Insurance Acct ID” field prior to submitting the form.  There are rare instances when an employer will have made arrangements with L&I covering their employees without having an Industrial Insurance account directly with L&I, e.g., a reciprocity agreement between L&I and an out-of-state employer.  If this is the case, you must include “See Notes” in the “Industrial Insurance Acct ID” field and then include the pertinent information in the “Notes” section.  For instructions on how to use the “Notes” field, please follow the attached link or cut and paste the link into your browser (it should be one line with no spaces starting with “http” and ending with “.pdf”):

http://www.lni.wa.gov/TradesLicensing/PrevWage/files/PWIAInstructionsWithChart.pdf

 

Please be aware that all of the requirements listed above will also be implemented for paper forms on the same date.

 

If you have any questions concerning this change please email pw1@lni.wa.gov.

This summary is not intended to be legal advice. You should consult an attorney in regard to your particular situation.

New Health Bill to Single out Small Construction Firms?

The Wall Street Journal reported on December 23, 2009 that construction firms are being singled out in the latest Senate version of the health-care bill. This version requires construction companies with five or more employees AND a payroll of $250,000 or more, to provide health insurance for employees, or pay a $750 fine per employee, per year, if the employees receive tax credits. This compares to other companies that have 50 or more employees. According to the article, the Associated Builders and Contractors state that 95% of its members already provide employees with coverage. The National Electrical Contractors Association was quoted as supporting the provision.

This is a provision that small construction companies need to watch. Final votes will follow the House-Senate conference negotiations.

This summary is not intended to be legal advice. You should consult an attorney in regard to your particular situation.