HERE’S AN UPDATE ON THE EFFECT OF PRIOR RULINGS ON SUBSEQUENT LITIGATION

In a prior post, this blog explained how the Supreme Court held that an owner’s claims against subcontractors were barred because they were either brought or could have been brought in the owner’s prior arbitration against the general contractor. Girolametti v. Michael Horton Assocs., Inc., 332 Conn. 67, 71 (2019). The court ultimately determined that the contractual relationship between a general contractor and its subcontractors was sufficient to determine that they were “sharing the same legal right.” Therefore, “the rule of claim preclusion,” which prevents the re-litigation of a claim once the claim has had a full and fair hearing “regardless of what additional or different evidence or legal theories might be advanced in support of it,” applied in this case even though the subcontractors did not participate in the arbitration. Id. at 75.

Girolametti involved a situation where the dispute between the owner and general contractor included claims that the work performed by subcontractors was defective. Although the subcontractors were not parties to the arbitration, they were no doubt happy with the result and more than willing to have that decision applied to the owner’s subsequent lawsuit against them.

In my prior post,

A RECENT SUPREME COURT DECISION DRAMATICALLY AFFECTS SUBCONTRACTORS’ RIGHTS

In Girolametti v. Michael Horton Assocs., Inc., the Supreme Court determined when a subcontractor’s rights will be affected by an arbitration in which the subcontractor did not participate. Girolametti v. Michael Horton Assocs., Inc., 332 Conn. 67, 71 (2019). This decision was based upon “the rule of claim preclusion,” which prevents the re-litigation of a claim once the claim has had a full and fair hearing “regardless of what additional or different evidence or legal theories might be advanced in support of it.” Id. at 75. In order for claim preclusion to apply, the following requirements must be met:
(1) The prior judgment must have been rendered on the merits by a court of competent jurisdiction;
(2) The parties to the prior and subsequent actions must be the same or in privity;
(3) There must have been an adequate opportunity to litigate the matter fully; and
(4) The same underlying claim must be at issue.
Id. After applying these requirements in Girolametti, the Supreme Court held that the owner’s claims against the subcontractors were barred because they were either brought or could have been brought in the owner’s arbitration against the general contractor.

When the Breach of a Construction Contract is not a Breach

The doctrine of substantial performance holds that a contractor’s breach of a construction contract does not entitle the owner to damages because the contractor’s performance was close enough to that which the contract required. “Technical violations are excused not because compliance [is] impossible, but because actual performance is so similar to the required performance that any breach that may have been committed is immaterial. Substantial performance occurs when, although the conditions of the contract have been deviated from in trifling particulars not materially detracting from the benefit the other party would derive from a literal performance, [the other party] has received substantially the benefit [it] expected, and is, therefore, bound to perform.” United Concrete Prod., Inc. v. NJR Constr., LLC, No. CV176011932S, 2018 WL 5733720, at *4 (Conn. Super. Ct. Oct. 17, 2018). The classic example of this doctrine is a situation where the contract specifies a product manufactured by Company A but the contractor provides the same product manufactured by Company B. Because the contract expressly stated that the product shall be manufactured by Company A, the installation of the same product manufactured by a different company is a breach of the contract. However, because the products are identical other than the name of the manufacturer,

Connecticut’s Procedure for Substituting a Bond for a Mechanic’s Lien Needs to be Changed

The purpose of a mechanic’s lien is to provide collateral for a contract debt. If you perform work on a project and are not paid, then the mechanic’s lien laws allow you to attach the property where the work was performed. In other words, a mechanic’s lien provides you with a property right you can foreclose in the same manner a bank can foreclose a mortgage. However, before you can force a sale of the property to collect your money, you have to prove you are entitled to the payment you claim. Therefore, a mechanic’s lien could be in place a long time.

Because the lien laws are intended to provide security for a debt, but are not intended to prevent the property from being transacted, most states, including Connecticut, have a procedure by which a surety bond can be substituted for a mechanic’s lien. The problem with Connecticut’s procedure is that it is too long and cumbersome.

While a mechanic’s lien is in place, a property cannot be refinanced, or sold – at least not without addressing the mechanic’s lien to a lender’s and/or buyer’s satisfaction. It is possible that the property might be refinanced or sold if the owner places the lien amount in escrow,

The Importance of Reading and Understanding Your Construction Contract

Everyone knows that they ought to eat right and exercise; yet, far too few of us do it. Similarly, proper construction contract management requires a contractor to thoroughly understand their contracts but many fail to do so. Of course, the reason that contractors are often largely ignored are understandable. Most construction contracts have the same substantive provisions with which contractors are already familiar; the specific requirements for any given project will be discussed at the preconstruction meeting; and the more specific details of any contract tend to only really matter in the rare occasions that the parties end up in a dispute they cannot resolve on their own. However, the few instances that result in litigation may make having proper practices in place for every project worthwhile.

On a positive note, most contractors that I encounter are now reading their contracts before signing them, as opposed to only reading them after a problem develops. As obvious as this may sound, actually taking the time to thoroughly read a contract before a project begins is the only way to be certain that you will fully comply with all your obligations. In addition, reading a contract before signing can prevent a contractor from experiencing an unfortunate surprise.

WHAT TO DO WHEN YOU ARE NOT BEING PAID

The most common issue I confront as a construction attorney is what to do when my client is not being paid. The standard approaches include sending a demand letter, making a demand for disputed funds to be placed in escrow in accordance with the prompt payment statute, and, of course, filing mechanic’s liens and/or bond claims. The larger issue becomes what to do when my client can no longer to perform its work without payment.

As a general rule, a contractor is better off completing its work, and then fighting about the monies due, as opposed to walking off the job. While it is true that there are Connecticut cases which hold that a contractor is excused from finishing its work if progress payments are not made when due, but reliance on such cases is fraught with potential problems.

If you ever forced to litigate, you want to be viewed as the one wearing the white hat. You want to be the injured party that is as pure as the driven snow. If at all possible, you do not want to give the other side any arguments to raise. Thus, if you walk off the job for nonpayment,

Remedial Work Does Not Extend the Deadline to Commence an Action on a Payment Bond

As most contractors are aware, if they are not paid for their labor, materials, and/or services, they can strengthen their position prior to filing a lawsuit by filing a mechanic’s lien, or by making a claim against the project’s bond claim. Of course, both options are not generally available. Typically, the choice is based upon whether the project is private or public. On private projects, a contractor (or supplier) is allowed to gain a security interest in the property by filing a mechanic’s lien. On public projects, federal and local governments passed laws requiring the general contractor on public projects to post “payment bonds,” which guarantee the payment of those who supply labor, materials, and/or services to the property. In other words, because governments were not willing to let public lands be subject to foreclosure, on public projects, statutorily required payment bonds were created to take the place of mechanic’s liens. Of course, private owners may require general contractors to post payment bonds on private projects as well, but this post only addresses the statutory payment bonds required on public projects.

The law that requires payment bonds on federal projects is known as the Miller Act. The various state laws that require payment bonds on state projects are often referred to as “Little Miller Acts.” The requirements are the Miller Act and the various Little Miller Acts are generally similar.

A Recent Superior Court Decision May Affect Subcontractor/Supplier Mechanic’s Liens

In a recent decision, the Superior Court discharged the mechanic’s liens of several subcontractors, because the general contractor had already filed a lien for the unpaid contract balance. Wegrzyniak v. Hanley Constr., LLC, WL 5706192 (Conn. Super. Ct. Oct. 30, 2017). Insofar as any substantial construction project will involve a general contractor, subcontractors, sub-subcontractors, and suppliers, there are obviously many potential lien claimants. Nonetheless, the court said that “[f]or good reasons, the mechanic’s lien statutes don’t permit multiple liens,” and with regard to the subcontractor whose lien included a claim for extra work, the court said that “[w]ithout an agreement to support the additional work…, [the subcontractor’s] lien must be discharge.” Id. In light of the foregoing, Wegrzyniak may stand for the proposition that subcontractors, sub-subcontractors, and/or suppliers are precluded from filing mechanic’s liens when the general contractor files a mechanic’s lien covering the entire project, but, in my opinion, subcontractors, sub-subcontractors, and suppliers should continue filing their own mechanic’s liens.

To summarize the reasoning of the Wegrzyniak decision in plain English, because the court understood that the property owner should not be held liable for more than the amount it agreed to pay the general contractor,

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.

Of course, reading the statutes is not sufficient to completely understand 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 …;