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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,

A Cautionary Tale for All Subcontractors

The Connecticut Appellate Court recently handed down a decision that should have all subcontractors carefully reviewing their subcontracts. In Suntech of Connecticut, Inc. v. Lawrence Brunoli, Inc., 143 Conn. App. 581 (2013), Suntech of Connecticut, Inc. (“Suntech”) agreed to “provide glass doors, glass, glazing, an aluminum framing system, and a metal framing system” as a subcontractor on a state project. Id. As a result of an error in the plans and specifications, Suntech incurred substantial additional costs. Typically, when an error in the plans and specifications results in a contractor incurring additional costs, the contractor is entitled to a change order but that is not what occurred in this case.

The Suntech decision appears to go against two principles of Connecticut construction law. First, in Southern New England Contracting Co. v. State, 165 Conn. 644, the Connecticut Supreme Court issued a decision consistent with the Spearin doctrine which states that, because the contractor agrees to build the project in accordance with the plans and specifications, the contractor will not be held responsible for damages should the plans and specifications end up being defective. Second, while not conclusively determined,

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,

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.

Another Step Closer to Understanding Pay-When-Paid Clauses

No provision in a standard construction contract has been more debated than the requirement for the general contractor to pay its subcontractors after its receipt of payment from the owner. In situations where the owner does not pay the general contractor, the general contractor typically argues that it has no obligation to pay the subcontractor even if the reason for the owner’s nonpayment had nothing to do with the subcontractor. Conversely, the subcontractor argues that – when the reason for the owner’s nonpayment is not the subcontractor’s fault – the general contractor must pay the monies the subcontractor is due. Generally, the courts have said that contract language which states that the subcontractor shall not be paid until after the general contractor’s receipt of payment from the owner merely sets forth the time for payment and does not transfer the risk of the owner’s insolvency from the general contractor to the subcontractor. “Normally and legally, the insolvency of the owner will not defeat the claim of the subcontractor against the general contractor.” Sil/Carr Corp. v. Bartlett, 2012 Conn. Super. LEXIS 1665 (Conn. Super. Ct. June 26, 2012). It is, however, possible for the contractor to transfer the risk of the owner’s nonpayment to the subcontractor.

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.

Payment Bond Claimants Should Consider Additional Causes Of Action

It is not uncommon for sureties that issue payment bonds to deny claims brought by subcontractors and suppliers. After an “investigation”, a surety’s typical response is that the claim is denied because the debt is the subject of a good faith dispute between the bond claimant and the surety’s principal. Of course, questions often arise regarding the thoroughness and completeness of the surety’s investigation. For example, no one expects the surety’s bond principal to state that there was no legitimate reason for its nonpayment and that the surety should pay the subcontractor or supplier whatever amount it claims due, which raises the question of whether the surety should have to do more than ask its principal why the bill was not paid. Moreover, sureties – like everyone else – do not want to part with money unless they are forced to do so.

I recently handled a matter where a general contractor did not pay a subcontractor more than half a million dollars. There was no justification for the nonpayment. The surety, however, still failed to pay or deny the claim within 90 days as required by Conn. Gen. Stat. Sec. 49-42. Instead, the surety took no action.

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

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