NEGOTIATING A CONSTRUCTION CONTRACT CLAIM CAN FEEL LIKE LEGALIZED EXTORTION

Contractors often end up with monetary claims for nonpayment, changed conditions and/or additional work that are difficult to negotiate. Such claims are often met with counterclaims for defective work, and/or contractual defenses such as lack of notice and/or the lack of a written change order. Defeating such counterclaims are often difficult, but, when it comes to negotiating a settlement of a contractor’s monetary claim, the real difficulty is with the potential attorneys’ and/or costs associated with litigation or arbitration. Even a contractor with a six figure claim amount must seriously consider the attorney’s fees associated with litigating a matter to a final judgment or award in addition to the costs associated with the time its organization spends preparing for and attending any dispute resolution proceeding not to mention the risks associated with putting your fate in the hands of a third party whether that be a judge, jury or arbitration panel.

Anyone who has participated in a mediation has likely heard a mediator say, “Well, if you don’t like that offer, you are going to have to pay your attorneys a majority and/or all of the difference between your claim amount and what is being offered now, and,

DON’T LET YOUR MECHANIC’S LIEN RIGHTS LAPSE DURING THE COVID-19 PANDEMIC

Because of the current crisis, the state has closed the courts to all activities except essential functions. Almost the entire civil docket has been suspended. In order to mitigate those effects, the Governor’s Executive Order No. 7G (the “Executive Order”) suspends “all time requirements, statutes of limitation or other limitations or deadlines relating to service of process, court proceedings or court filings” including “all time limitations in Chapters 959, 959a, 960 and 961 of the General Statutes.” The problem is that a mechanic’s lien is recorded on the land records (not in court) and mechanic’s liens are discussed in Chapter 847 of the General Statutes, instead of the chapters specifically mentioned above. Thus, regardless of whether the omission was intentional, mechanic’s liens are not expressly covered by the Executive Order.

Because land records are maintained by Connecticut’s municipalities, the Executive Order does not extend the deadline to record a mechanic’s lien. However, the problem with recording mechanic’s liens during the pandemic is that most City and Town Clerk’s offices are not open to the public. Each City and Town is handling the situation differently. Some are accepting submissions online. Others have a drobox outside City Hall or Town Hall.

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,

FILING A MECHANIC’S LIEN WITHOUT AN ATTORNEY IS ALLOWED BUT DIFFICULT TO DO SO CORRECTLY

I don’t recommend that contractors file their own mechanic’s liens without the aid of an attorney. Every client and/or potential client that has ever come to me asking that I foreclose a mechanic’s lien that they filed on their own had some fatal defect. The reason for that is the arguably conflicting laws in the statutes and in the court decisions interpreting those laws.

A prime example of something that is not readily apparent by reading the mechanic’s lien laws is the notice and service requirements. According to our courts, “[r]ead together, [Sections] 49-34 and 49-35 [of the Connecticut General Statutes] require the [contractor filing the lien] to serve a copy of the certificate upon each owner of the property within 90 days after he ceased performing services or furnishing materials.” Steeltech Bldg. Prod., Inc. v. Viola, 2000 WL 726367, at *2 (Conn. Super. Ct. May 16, 2000). Of course, one may not reach that same conclusion reading [Sections] 49-34 and 49-35 on their own. According to Connecticut General Statutes § 49-34, “[a] mechanic’s lien is not valid unless the person performing the services or furnishing the materials [records a certificate of mechanic’s lien in the land records] within ninety days after he has ceased to do so…” However,

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.

An Interesting Decision Discharges a Mechanic’s Lien

As discussed numerous times on this blog, the mechanic’s lien laws provide a security interest in privately owned real property in favor of those that improve it. According to Conn. Gen. Stat. §49-33, “[i]f any person has a claim for more than ten dollars for materials furnished or services rendered in the construction, raising, removal or repairs of any building or any of its appurtenances or in the improvement of any lot or in the site development or subdivision of any plot of land …then the plot of land, is subject to the payment of the claim.” While it is true that the type of work for which a mechanic’s lien may be enforced is sometimes subject to dispute, prior to the recent decision in CLW Real Estate Developments, LLC v. SAB Construction Management, LLC, the issue had been fairly well resolved.

Generally speaking, the types of services that support a mechanic’s lien are those that substantively improve the property. The Connecticut Appellate Court has “observed that a ‘mechanic’ has been defined as ‘a skilled worker who brings about a result by the use of tools, machines or equipment.’” Weber v.

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 …;

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. 

Only the “Owner” may seek Judicial Discharge of Mechanic’s Liens

The Connecticut Superior Court recently decided a case of first impression regarding the right to file an application for discharge of mechanic’s liens.  The court in Grade A Mkt., Inc. v. Surplus Contrs., LLC held that a lessee did not have “standing” to file an application for discharge of mechanic’s liens and dismissed the tenant’s application.  Grade A Mkt., Inc. v. Surplus Contrs., LLC, 2015 Conn. Super LEXIS 1342 (Conn. Super. May 26, 2015).  In layman’s terms, “standing” is the right to have the court decide your case.  The Grade A Mkt decision is interesting because it limits the ability of a tenant to obtain a discharge of mechanic’s liens even though the tenant’s lease with the owner may require the tenant to obtain a discharge of mechanic’s liens filed by contractors performing work for the tenant.

Mechanic’s liens are a statutory right that the legislature created to provide contractors and/or suppliers that furnish labor, materials, and/or services to a property with security for the alleged debt but mechanic’s liens were not intended to prevent the free transfer of property rights.  For that reason, the statutes provide a few different mechanisms by which an appropriate individual or company may obtain a release of the mechanic’s lien.