A Mechanic’s Lien: Something Simple That’s Been Made Complicated

One of the first things I was ever taught about mechanic’s liens is that the legislation’s original intent was for a contractor to be able to perfect a mechanic’s lien without the aid of an attorney. If that’s true, the system is not working as intended. Of course, that is not surprising given the complicated legislation and its arguably inconsistent interpretation.

 

A mechanic’s lien is unique insofar as it allows a contractor to obtain an interest in real property without requiring any kind of hearing or notice. As long as the lien documents are properly prepared, recorded, and served, the lien is in place. In addition, the fact that mechanic’s liens have priority dates that relate back to the first day that the contractor performs work and/or supplies materials, mechanic’s liens that did not exist when a mortgage was given or the property was sold can appear on the land records after such transactions and take priority over an earlier filed mortgage and/or encumber property owned by someone who was not the property owner at the time the work was performed, materials were supplied and/or services were rendered.

 

An Owner’s Refusal to Issue Payment Might Amount to a Violation of the Unfair Trade Practices Act — But That’s Not Usually the Case

Litigation arising out of construction contract disputes obviously will include claims for breach of contract, but also tend to include claims that are based upon alleged violations of the Connecticut Unfair Trade Practices Act (CUTPA). Because there must be a good faith basis for any alleged claim, a set of facts should exist that reasonably supports any such allegations. However, given the requirements of a CUTPA claim and the frequency with such claims are alleged, a cynical person might suspect that CUTPA claims are often asserted merely as a way to circumvent the “American Rule,” which requires each party to be responsible for its own attorneys’ fees and costs.

The cost of litigation can make pursuing certain claims cost prohibitive. However, a plaintiff that prevails in a CUTPA claim may be awarded punitive damages and/or its reasonable attorneys’ fees and costs. Conn. Gen. Stat. § 42-110g. In addition, the mere threat of this additional liability may intimidate an opposing party into entering a settlement that it would not otherwise consider. Thus, alleging a violation of CUTPA may give a plaintiff a strategic advantage in litigation but such a claim is not likely to succeed in most situations.

Expansion of State’s Affirmative Action Program Remains in Effect

In a prior posting on this blog, I explained that a Connecticut program, which requires contractors on state public works construction projects to submit affirmative action plans to the Commission on Human Rights and Opportunities (the “Commission”) for approval, was being expanded to include projects administered by municipal and quasi-governmental agencies, and that the program’s expansion would be a problem because the Commission was already experiencing a backlog of submitted affirmative action plans requiring approval.  The Commission’s backlog has a significant impact on the construction industry because the “[f]ailure to develop an approved affirmative action plan … shall act as a bar to bidding on or the award of future contracts [and the Commission’s approval] shall be prima facie proof of the contractor’s eligibility to bid or be awarded contracts.”  Conn. Gen. Stat. § 46a-68c.  Thus, at a minimum, until the Commission is in a position to handle the required workload, the expanded program will significantly impact the state’s construction industry.

 

Due to the current situation, legislation was proposed last session that, if it had been passed, would have delayed the implementation of the expanded program until July 1, 2019. H.B.-5049.  The proposal to delay the expansion of the program was supported by trade associations and governmental agencies alike.

The City of Hartford Stadium Authority Has Terminated the Developer of Dunkin Donuts Park — Here’s What Comes Next

If you are a trade contractor or supplier working on Dunkin Donuts Park in Hartford, Connecticut, you have undoubtedly heard that the City of Hartford Stadium Authority (Authority) has terminated the developer and made claim against its insurer. Although the news reports are referring to the situation as an “insurance claim,” those reports are inaccurate. The Authority has submitted a bond claim. If your work is currently in limbo because of the Authority’s termination, your next steps depend upon how the surety that posted the subject bonds intends to respond.

 

As more fully explained below, there are different types of bonds that were most likely posted by the developer.

 

[T]here are important differences between performance bonds and commercial general liability contracts… The purpose of a performance bond is to guarantee the completion of the contract upon default by the contractor. Accordingly, suretyship is properly viewed as a form of credit enhancement in which premiums are charged in consideration of the fundamental underwriting assumption that the surety will be protected against loss by the principal.

 

Capstone Bldg. Corp. v. Am. Motorists Ins. Co., 308 Conn.

Quick Connecticut Legislative Update

Connecticut’s governor has recently signed two bills into law that pertain to the construction industry.

Public Act No. 16-35

According to Public Act No. 16-35, (Effective January 1, 2017), restoration and remediation work will fall within the definition of a “home improvement” pursuant to Conn. Gen. Stat. § 20-419. As a result, water, fire, and storm restoration and mold remediation contractors will have to register as Home Improvement Contractors and have contracts that meet all the requirements of the Home Improvement Act. As more fully explained in my other posts, the Home Improvement Act is an onerous piece of legislation that may bar a contractor’s right to recover the monies it is due simply because there is a technical defect in its contract. The Home Improvement Act is overly burdensome because it does not stop at invalidating the subject contract. If violated, all forms of recovery in law and in equity are prohibited. A contractor subject to the Home Improvement Act cannot even successfully file a mechanic’s lien if its contract does not have a required provision.

Notwithstanding the foregoing, Public Act No. 16-35 does take into account the fact that restoration and/or remediation work is often performed on an emergency basis.

Basing a Claim on the Total Cost Approach is Likely Throwing Good Money After Bad

Construction projects never go completely as planned. Construction managers, general contractors, subcontractors and suppliers all realize that changes in the work may be required for any number of reasons. For example, an area of the site may not become available due to the lack of an easement; there may be poor communication and/or coordination between trades; plans and/or specifications may contain certain deficiencies; critical shipments may be delayed; or, as allowed by most construction contracts, the owner simply may make design changes after the commencement of the work. One or more of the foregoing situations arises on almost every project. As a result, it is expected that construction schedules will be periodically updated during a project to address where the actual performance of the work was not completed in accordance with the original schedule.

 

Schedule revisions are so commonplace that some specifications require construction schedules to be updated on a monthly basis with two or three-week “look aheads” provided in between schedule revisions. The goal is not to complete the work in accordance with some original plan that Nostradamus would not be able to accurately create. The goal is to complete the work by the completion date no matter what problems arise.

Design Professional Liability Raises Interesting Questions

Today, in many instances, the design/bid/build project delivery system has been modified through the use of construction managers (either at-risk or advisors) and owner’s representatives, or has been entirely usurped by a design-build arrangement. However, there are still many projects constructed using the traditional approach, where an owner first contracts with a design professional (either an engineer or an architect); the design professional then prepares a complete set of construction documents that the prospective general contractors rely upon to submit their bids; and the owner awards the contract for the project’s construction to the successful general contractor. The general contractor, in turn, hires various subcontractors and suppliers who then hire their sub-subcontractors and suppliers. As a result, there are a great number of individuals and entities relying upon the design professional’s work. The question is whether all these individuals and entities may hold the design professional liable for its negligence.

This blog post will focus on the traditional design/bid/build approach, but the principles stated herein can be applied to other delivery methods.

Under the traditional approach, one may expect that the owner could hold the design professional liable for any damages it incurs arising from defective plans and specifications by virtue of their contractual relationship but that is not the case.

Expansion of State’s Affirmative Action Program May Be Problematic

In Connecticut, the state’s Commission on Human Rights and Opportunities administers an affirmative action program that has, until recently, only applied to state public works construction projects whose cost is greater than $50,000. Although the program has admirable goals, its implementation has been inconsistent. Part of the problem is the Commission’s inability to effectively administer the program. For example, effective January 1, 2015, the Commission instituted a “temporary policy” that allowed it to retain 2 percent retainage for a period of at least 120 days while the Commission “works diligently to eliminate of its backlog” of affirmative action plans requiring approval. Almost a year later, that temporary policy remains in effect despite its questionable validity.

Section 46a-68j-26 requires the Commission to review affirmative actions plans within 60 days of receipt; yet, it has failed to do so. As a result, by executive fiat, the Commission gave itself the right to retain a contractor’s funds while it takes more than twice the time allowed by its own regulations to perform its designated function. Moreover, if the Commission was experiencing a backlog at the beginning of the year, that problem must be getting worse. Effective October 1, 2015, the affirmative action requirements now apply to every “municipal public works contract or contract for a quasi-public agency.” Conn.

The Little Miller Act Time Limits are Only Mandatory for the Claimant and Not the Surety

Every state in the country allows those that supply labor, materials, and/or services for the improvement of private property to claim an interest in the improved property as security for their payment. Although the procedure for perfecting those interests vary from state to state, each state does provide for such security devices, which are generally known as mechanic’s liens. However, the governments, which created these statutory rights that encumber privately held property, have exempted publicly owned land from any such claims.

Notwithstanding the foregoing, the statutory schemes that exempt public lands from the mechanic’s lien laws do not leave claimants without a remedy. The governments that have created a system where mechanic’s liens may be filed against privately owned land require general contractors on public projects to post surety bonds know as “payment bonds” or “labor and materials bonds,” that guarantee the payment for all those that supply labor, material, and/or services to the subject project.

The laws governing the payment bonds that are required on federal projects are known as the Miller Act and the laws governing such bonds for projects owned by the 50 states are known as the “Little Miller Acts.” As with mechanic’s liens,

A Recent Supreme Court Decision Found an Owner of a Construction Company Personally Liable to the Owners of a Project

As most people are aware, one of the benefits of doing business as a corporation or limited liability company is that, generally speaking, the owners of the company cannot be held personally liable for the company’s debts. The exception to that general rule is that a court may pierce the corporate veil and hold the company owners personally liable if the company owners are found to have improperly used the corporate form, or have used the corporate form to commit wrongful acts. Nonetheless, even a cursory of the caselaw indicates that plaintiffs do not often prevail when they are attempting to pierce the corporate veil.

The statement of the law with regard to piercing the corporate view is quite simple. In All Phase Builders, LLC v. New City Rests., 2011 Conn. Super. LEXIS 1793, *20-21, 2011 WL 3483368 (Conn. Super. Ct. July 12, 2011), the court ruled:

“In order to pierce the corporate veil, a plaintiff must plead and prove that the corporate shield can be pierced under either the instrumentality rule or the identity rule. The instrumentality rule requires… proof of three elements: (1) Control …; (2) that such control must have been used by the defendant to commit fraud or wrong …;