contract law Archives - Page 3 of 3 - Attorney Scott S. Orenstein

A Connecticut Court Grants Defendant’s Motion To Stay An Application To Discharge Mechanic’s Lien Pending Arbitration

As regular readers of this blog know, a mechanic’s lien provides a contractor with a security interest in the real property where its work was performed. Because, however, it is not the intent of the mechanic’s lien laws to restrict the free transfer of title of real property, there are two statutory procedures by which an owner may obtain a release of a mechanic’s lien. Specifically, the property owner may seek to substitute a surety bond for the lien or the property owner may seek an order discharging or reducing the lien. In CDO Properties, LLC v. Bogaert Construction Co., Inc., Docket No. CV 13-6018411 (JD of New London), the Court issued a decision staying the property owner’s application for discharge of a mechanic’s lien. Based upon this decision, an owner’s attempt to promptly discharge a lien may be thwarted or delayed by a court and an owner may be forced to live with a lien until after arbitration.

The decision was based upon the Connecticut General Statutes, which require the court to stay any legal proceeding if the dispute is subject to an agreement to arbitrate. Conn. Gen. Stat. § 52-409 states:

If any action for legal or equitable relief or other proceeding is brought by any party to a written agreement to arbitrate,

Construction Claims May Come From A Variety of Sources

Most construction claims arise out of the contractual relationship between the parties. Some arise out of claims of negligence. There are other situations where a contractor may be held liable for damages that stem from nothing more than having engaged in certain activities. Such claims are based upon the idea that “strict liability” applies to “ultra-hazardous activities.” In both situations, i.e. claims based upon negligence and claims based upon strict liability, the first party performs an act or omission that results in damage to the life or property of the second party. With a negligence claim, in order to be held liable, the first party must owe the second party a duty that is breached by the first party’s act or omission. For example, if a contractor is working on scaffolding above a sidewalk, the contractor must use reasonable care to make sure that nothing falls on the people below and, in that situation, the contractor would only be held liable if something fell due to the failure to exercise reasonable care and not solely because something fell. With a strict liability claim, however, all that is required is for the contractor to be held liable is for the contractor to be engaged in the activity that caused the harm.

Contractors Have Statutory Rights That They May Assert During Payment Disputes

A recurring problem in the construction industry is the failure of owners to issue timely payments. The problem not only affects contractors but also the subcontractors and/or suppliers who have to wait for the money to pass through the project’s general contractor and/or a higher tier subcontractor. Most contractors are aware of their right to secure payment of the monies owed through a mechanic’s lien (private work) or by filing a payment bond claim (public work or private work if applicable) but there are statutory rights of which contractors should be aware.

Connecticut General States § 42-158i defines a “construction contract” as “any contract for the construction, renovation or rehabilitation in this state on or after October 1, 1999, including any improvements to real property that are associated with such construction, renovation or rehabilitation, or any subcontract for construction, renovation or rehabilitation between an owner and a contractor, or between a contractor and a subcontractor or subcontractors, or between a subcontractor and any other subcontractor” but excludes contracts between a contractor and any local, state, or federal government, and it excludes contracts for building residential structures with less than 4 units. Id.

According to § 42-158i,

Connecticut Statutes Provide Assistance with Receiving Prompt Payment on Public and Private Construction Projects

Under Connecticut law, an owner should pay its general contractor within 30 days of having received the general contractor’s application for payment; the general contractor, in turn, is required to pay its subcontractors and suppliers within 30 days of having received payment from the owner; and the subcontractors should then pay their sub-contractors and suppliers within 30 days of having received payment from the general contractor and so on down the line. See Gen. Stat. § 49-41a and Conn. Gen. Stat. § 42-158j.

The provisions in § 49-41a and § 42-158j are substantially similar except that:

1.) Only private owners are required to make payment to their general contractors within a specified number of days after receiving an application for payment; and

2.) The statute only applies to public projects for which a payment bond is required, which is any public works project whose contract amount exceeds $100,000.

Both statutes also have similar enforcement procedures. Either a subcontractor on a public project to which the statute applies or general contractors and subcontractors on a private project can make demand for payment by way of registered or certified mail and, within 10 days,

Court Upholds A Mechanic’s Lien Served More Than A Year After It Was Filed

Under Connecticut Law, “a mechanic’s lien shall not continue in force for a longer period than one year after the lien has been perfected unless the party claiming the lien commences an action to foreclose it.” Conn. Gen. Stat. § 49-37. Similarly, “[w]henver a bond has been substituted for any [mechanic’s] lien . . . , unless an action is brought to recover upon the bond within one year from the date of recording the certificate of lien, the bond shall be void.” Thus, in both instances, the law requires a lawsuit to be commenced within one year of the mechanic’s lien having been recorded or the right to make a claim on the lien or a bond substitute therefor is gone. In Connecticut, a lawsuit is commenced when the Writ, Summons and Complaint is served upon the defendant by a marshal. Yet, recently, a Superior Court Judge refused to dismiss an action on a bond substituted for a lien that was not served until after the one year time limit had expired. See Frank Lill & Son, Inc. v. O&G Indus., 2012 Conn. Super. LEXIS 2844 (Conn. Super. Ct. Nov. 26, 2012)

The Lill decision is surprising because it is often said that,

Pending Legislation Concerning Mechanic’s Liens

Right now, the Connecticut Legislature is considering Proposed Bill No. 5682 (the “Proposed Act”), which states as its purpose “[t]o establish a process for the holder of a mechanic’s lien to establish priority for the lien effective upon the filing of a ‘Notice of Commencement of Work’ with the town clerk for recording with deeds of land.” The text of the Proposed Act states, however, that the lienor must be an architect and that the lienor’s priority is established upon the date of filing. Such language raises many questions.

The “priority” of a mechanic’s lien pertains to where the mechanic’s lien stands in line with regard to the other claims against a property such as mortgages and other interest should the property go into foreclosure. Presently, the priority of a mechanic’s lien relates back to the first date that the lienor, i.e. the person filing the mechanic’s lien, worked on the project. There is some logic in creating a separate statute for design professionals because – unlike an excavation contractor – no one can see when a design professional starts work but, if that were the reason for the change, why does the Proposed Act only pertain to architects and not engineers as well.

Arbitrability: Who Decides Who Gets To Decide?

Arbitration has become a popular alternative to traditional courtroom litigation for construction contract disputes; however, arbitration is a creature of contract. No one can be forced to arbitrate an issue that they have not agreed to arbitrate. The problem is that the parties sometimes disagree over what issues they have agreed to arbitrate. In those instances, the issue is whether the court or the arbitrator(s) get to decide whether any specific dispute is subject to the contract’s arbitration clause. The Superior Court addressed this issue most recently in Montowese Industrial Park, LLC v. The Thomas W. Golden Realty Company.

In Montowese, the Court started with the general rule, which states that it is for the Court to decide whether a specific dispute is arbitrable based upon the Court’s authority to interpret contracts. The Court then went on to state that the parties had the authority to transfer that authority to the arbitrator(s) if they chose to do so. In other words, the parties could, by contract, allow the arbitrator(s) to decide whether a particular dispute was within the subject agreement’s arbitration clause.

The Court then went on to state that the Court could imply that the parties had intended to leave the issue of arbitrability up to the arbitrator(s).

A Contractor That Acts as His Own Expert Witness May Inadvertently Waive Attorney Client Privilege

The general rule is that a party does not have to disclose communications with its attorney seeking legal advice. A recent Superior Court decision, Noble v. the City of Norwalk, 2012 Conn. Super. LEXIS 2017, however, has found an exception to the attorney client privilege that contractors need to be aware about.

During a trial, witnesses are not allowed to give their opinion unless they are qualified as an “expert.” Under the legal definition, an “expert” is anyone that has knowledge through education, training or experience that would be helpful to the jury given the subject matter of the lawsuit. Based upon the foregoing definition, almost anyone can qualify as an expert if the right case came along. For example, my 13-year-old daughter has been taking ballet lessons since she was 3. If ballet ever became relevant to a key issue in a lawsuit, my daughter would qualify as an expert on that subject.

In construction litigation, there are always questions that are not clearly fact or opinion. For example, the amount of time that the forms have to remain in place after a concrete pour is a subject upon which there is disagreement and often depends upon the structure that was poured and the conditions under which the concrete was placed.

Don’t Get Creative When Attempting To Enforce Mechanic’s Lien Rights

In Connecticut, the law pertaining to mechanic’s liens is well settled. You will not come across many issues of first impression while trying to enforce a mechanic’s lien and, therefore, practitioners should not attempt to drive the proverbial square peg into a round hole. Such an attempt was made (and failed) in a matter recently decided by the Connecticut Superior Court.

In that case, an assignee of a mortgage brought a foreclosure action and named a contractor as a defendant because the contractor’s mechanic’s lien was subsequent in right to the interest being foreclosed. Normally, if the property proceeds all the way through the foreclosure process, a contractor holding a subordinate lien allows his interest in the property to expire because the only way to maintain the lien is to pay off the foreclosing mortgage but , in this case, the contractor did not give up that easily.

Here, the contractor alleged that the assignee became the “owner” of the property by virtue of the construction mortgage and, as such, was responsible to pay for the work that the contractor performed. The court identified 2 issues that allowed the court to dispose of the contractor’s claim on summary judgment.

Scott Orenstein
06.18.2011
Construction Law, mechanic's lien, notice

What to Do When You Don’t Have Time to Wait for a Written Change Order

One of the most litigated construction law issues is whether a contractor is entitled to payment for additional work performed without a fully executed written change order. Most construction contracts state that the contractor is not entitled to payment for any additional work, unless the additional work is performed pursuant to a written change order that has been sign by the owner, contractor and the architect. The problem is that — because time is money — waiting for a signed change order is often costly so most contractors move forward with additional work based upon verbal agreements with the intention of executing a written change order at a later date.

Most of the time, no problems arise from having performed additional work without first having a written change order. The parties abide by their verbal commitments, which are then incorporated into the written change order required by the contract. Once in a while, however, an owner will refuse to issue payment for work that was performed without a written change order despite an oral agreement being reached during the project. In these situations, some courts have enforced the contract provision requiring written change orders and have denied the contractor the right to recover payment for his work.

Scott Orenstein
10.27.2010
Construction Law, Contract Law, Contractor Defenses, Public Owner

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