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,

Slander of Title is Almost Always an Inappropriate Response to a Mechanic’s Lien

On rare occasions, I have had to contend with a claim of “slander of title” being filed in response to a mechanic’s lien. A slander of title claim requires:

  • The making of a false statement pertaining to the owner’s title;
  • The making of the false statement must have been made “with malice”; and
  • The false statement must result in actual damages.

Neri Corp. v. McDermott Rd., LLC, 2016 Conn. Super. LEXIS 2067, *18 (Conn. Super., July 26, 2016). The requirement for the statement to have been made “with malice” means that the lienor either had acknowledged that the statements in its mechanic’s lien were false or that the lienor acted with “a reckless disregard of the truth.” Id. Both are very unlikely in the context of a mechanic’s lien.

As stated previously in this blog, the purpose of a mechanic’s lien is to provide security for an alleged debt arising out of work performed. Notwithstanding the foregoing, the “[f]iling of a mechanic’s lien like that of any other lien can be the basis of a slander of title action as long as all of the elements of the tort are met.” Id.

Recent Decision Demonstrates the Importance of Complying with Contract Notice Provisions

A common provision in construction contracts requires a contractor to give notice to the owner within a certain number of days of an event giving rise to a claim. Such provisions have a reasonable basis insofar as they ensure an owner will have a reasonable opportunity to investigate the conditions for which a claim for additional compensation is being made. Traditionally, such notice provisions were not strictly enforced. The general approach seemed to be that — provided the owner was not prejudiced by any delay in giving notice of claim — a claim that was not submitted within the specified time limit would not be barred. The more recent trend, however, has been to more strictly construe such provisions.

In J. Wm. Foley, Inc. v. United Illuminating, the Appellate Court held that the contractor’s failure to submit its delay claim within the ten-day time limit specified by the contract was a bar to the claim. This decision is potentially troublesome for a couple of reasons: First, there is no reference to the owner suffering any prejudice as a result of the delay. Second, the decision indicated that the submission of the delay claim required a critical path analysis of the delay.

There’s a New Proposed Law Regarding Emergency Services That Everyone Should Support

Parties are free to enter into contracts with any terms and conditions to which they both agree — but that right is not absolute. Certain contract terms are void by statute or case law based upon public policy considerations. For example, in Connecticut, the General Statutes do not allow contractors to prospectively waive their mechanic’s lien rights and the General Statutes do not allow contracting parties to have another state’s laws govern a dispute arising out of a construction project within Connecticut. However, the most onerous example of a statute that potentially voids an otherwise enforceable contract is the Home Improvement Act.

As previously discussed here, the Home Improvement Act can lead to unfair results. As upheld by the Connecticut Supreme Court, any contract that does not contain certain elements required by Conn. Gen. Stat. § 20-429 is unenforceable and the contractor that enters into such an agreement with an owner may also be held liable for a violation of the Connecticut Unfair Trade Practices Act. Under the terms of the Home Improvement Act, a contract that does not include notice of cancellation rights violates the statute. Thus, the owner of any home improvement project must be allowed three business days to cancel a home improvement contract after it is executed.

The Importance of Determining the Amount to Which You May Be Entitled After the Breach of a Construction Contract

Litigation is expensive. Before pursuing any particular claim, you need to determine if pursuing the claim makes economic sense. Standing on principle sounds good initially but often starts to seem like less of a good idea as the litigation costs mount.

The value of a claim is referred to as the “measure of damages.” In every lawsuit, the plaintiff has to prove that the defendant did something wrong that injured the plaintiff, i.e. establish the defendant’s “liability”; and the plaintiff has to prove the amount of money to which it is entitled to receive as a result of the defendant’s wrongful conduct to a reasonable certainty, i.e. establish the plaintiff’s “damages.”

Proving damages is just as important as proving liability. The failure of a plaintiff to prove its damages will result in the claims against the defendant being dismissed. See e.g. Shoreline Care Ltd. P’Ship v. Jansen & Rogan Consulting Eng’rs, P.C., 2002 Conn. Super. LEXIS 3715, *15, (Conn. Super. Ct. Nov. 15, 2002). In Shoreline Care Ltd. P’Ship, the project was constructed in phases but, because of the procedural history of the case,

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.

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. 760, 791-792 (Conn. 2013). In other words, unlike an insurance claim that will be paid if based upon a covered loss,

Contractual Time Limits for Providing Notice of Claim Must be Taken Seriously

The Connecticut Appellate Court recently issued a decision that should cause every contractor some concern.  In J. WM. Foley Inc. v. United Illuminating Co., 158 Conn. App. 27 (Conn.App. 2015), the Appellate Court upheld a decision that denied a contractor’s $4.7 million delay claim because the contractor did not provide proper notice of the claim within the 10 days required by the contract.  The case is disconcerting because the court’s decision appears to be based upon the contractor’s failure to strictly comply with the contract’s notice provision.  There is no discussion indicating that the owner was harmed or prejudiced by the delay in receiving notice of the claim.  Moreover, the decision acknowledges that the contractor had provided the owner with notice of events giving rise to the claim.  In fact, despite denying the delay claim, the trial court awarded the plaintiff over one million dollars for its direct costs, which arose out of the same facts as the delay claim.

 

The project underlying the dispute in J. WM. Foley Inc. was the construction of a utility pipeline.  The parties’ agreement stated that the contractor was expected to encounter subsurface obstructions and that the contractor would be entitled to additional compensation associated with same.