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,

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.

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 Contractor May Still Recover Monies Due For Work Performed Pursuant to an Unenforceable Contract

Despite what might appear to be the parties’ intentions, courts sometimes find contracts unenforceable.  Courts may find contracts unenforceable for any number of reasons including, but not limited to, the contract omitting a material term; the contract having vague or indeterminate terms; the contract violating the statute of frauds; the contract lacking consideration; and/or the contract not reflecting the understanding of both parties.  In those situations, a party that provides labor, materials, and/or services may still be entitled to receive payment for its work under the legal theories of unjust enrichment or quantum meruit.

“[U]njust enrichment and quantum meruit are alternative theories of restitution.”  Nation Elec. Contracting, LLC v. St. Dimitrie Romanian Orthodox Church, 144 Conn.App. 808, 814, 74 A.3d 474, 478 (Conn.App., 2013).  “Unjust enrichment applies whenever justice requires compensation to be given for property or services rendered under a contract, and no remedy is available by an action on the contract.”  Gagne v. Vaccaro, 255 Conn. 390, 401, 766 A.2d 416, 424 (Conn.,2001).  “Quantum meruit is the remedy available to a party when the trier of fact determines that an implied contract for services existed between the parties, and that,

An Explanation of The Home Improvement Act’s Licensed Contractor Exception

Chapter 400 of the Connecticut General Statutes is known as the Home Improvement Act.  “The purpose of the Home Improvement Act is to ensure that home improvements are performed by qualified people.”  Santa Fuel, Inc. v. Varga, 77 Conn.App. 474, 495 (Conn.App.,2003).  A “[h]ome improvement contract” means an agreement between a contractor and an owner for the performance of a home improvement.”  Conn. Gen. Stat. § 20-419.  As a general rule, a home improvement contract is not enforceable against a homeowner unless the contract complies with the writing requirements of the Home Improvement Act.  Laser Contracting, LLC v. Torrance Family Ltd. Partnership, 108 Conn.App. 222, 226, (Conn.App.,2008).

The Home Improvement Act serves a valid purpose but may be heavy handed in its application.  In holding that the failure to comply with the statutory requirements for a home improvement contract bars all recovery, including claims sounding in implied contract and unjust enrichment, the Connecticut Supreme Court said the following:

We recognize that our decision may lead to a harsh result where a contractor in good faith but in ignorance of the law performs valuable home improvements without complying with § 20-429. 

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,

The Appeal of A Decision Discharging a Mechanic’s Lien Can Potentially Be Rendered Moot

As previously discussed in this blog, anyone that has furnished labor, materials, or services for the improvement of real property and has not been paid for its work may file a mechanic’s lien against the subject property.  The owner of said property may then make application to the court to obtain a discharge of said mechanic’s lien.  If the property owner prevails, the contractor that filed the mechanic’s lien has a statutory right to file an appeal.

As the Connecticut Supreme Court explained in Lichtman v. Beni, “an order entered pursuant to § 49–35b is a final judgment for the purposes of appeal.”  Lichtman v. Beni, 280 Conn. 25, 32 (2006).  Conn. Gen. Stat. §49–35c “requires that an appeal be taken within seven days of the court’s judgment, but provides an automatic stay during that period.”  Id.  However, a contractor seeking to appeal an order discharging its mechanic’s lien must also use to seven stay period to obtain an order preventing the owner from recording the court order discharging its mechanic’s lien.

If the contractor does not file an additional motion requesting that the court stay the order discharging the mechanic’s lien,

Understanding Unabsorbed Home Office Overhead

It is readily apparent that – if a project is delayed – the contractor is losing money.  The increased direct costs associated with the labor and equipment on site are obvious. The more complex question arises when considering the effect a delayed project has on a contractor’s recovery of its home office overhead, where “home office overhead” is defined as the cost of the contractor’s main office including, but not limited to, rent, utilities, executive and management salaries, staff, office equipment, office supplies, taxes, insurance, etc.  Everyone intuitively understands that a delayed project increases such costs in the same manner that that delays increase the project’s direct costs but increases in home office overhead cannot be directly correlated to any one project because a contractor typically has several projects with overlapping schedules underway at any given time.  Over the years, courts have attempted to determine the damages necessary “to compensate a contractor for its indirect costs that cannot be allocated to a particular contract for the period during which the government has made contractual performance impossible.”  Charles G. Williams Constr., Inc. v. White, 326 F.3d 1376, 1380-1381 (Fed. Cir. 2003).  “As a result, there are at least nine formulas that have been used,