constructionattorneyblog

Subcontractor's Mechanics lien allowed where bank seized general's funds

The Illinois Supreme Court, in Weather-Tite v. University of St. Francis, No. 107108 (May 21, 2009), has ruled in favor of the subcontractor in enforcing a mechanics lien. The owner had hired a general contractor who, in turn, had subcontracted some of the work. In four instances, the general had submitted a sworn contractor's statement listing the subcontractor. The owner paid the amounts requested and the general paid the subcontractor. After the owner paid the fifth draw and the general deposited the funds into its bank account, the bank seized the funds in the account because of another debt owed by the general. The subcontractor was not paid, along with a number of other subcontractors.

The trial court held in favor of the owner's motion for summary judgment. The appellate court reversed, ordering entry of summary judgment in favor of the subcontractor. This was upheld:

Reading the Act as a whole, the purpose of the contractor’s sworn statement is to put the owner on notice of subcontractor claims and to create a duty upon the owner to protect the claims of the subcontractors named in the contractor’s sworn statement. The purpose of the contractor’s sworn statement is not, as advanced by the University, to provide an orderly method of making payments to subcontractors through the general contractor. What is clear from our reading of the Act is that the legislature intended the following orderly method of conducting construction transactions to protect subcontractor claims: (1) the owner and general contractor enter into a contract for the construction work; (2) as the work is completed, the general contractor submits a section 5 sworn affidavit that must list all subcontractors and the amount due, to become due, or advanced; (3) when the section 5 sworn affidavit lists an amount due or to become due a subcontractor, section 24 requires the owner retain sufficient funds to pay the subcontractor; and (4) section 27 requires the owner to make subcontractor payments upon receiving notice of a subcontractor claim pursuant to a section 5 sworn statement. Additionally, a lien waiver can be provided to the contractor when the subcontractor is paid, and the owner can require a lien waiver by every subcontractor when paying the contractor. Funds subject to a lien waiver are required to be held by the owner in trust for the subcontractor. See 770 ILCS 60/21.02 (West 2004).

This places a burden on an owner in Illinois who now must take extraordinary steps to make sure that each subcontractor is paid. Perhaps the only realistic way to assure that is to make direct payments to subcontractors in exchange for waivers of lien. This is already a fairly common practice, but may become the only way to handle payout procedures.

Liability for green design

Gary Cole has written an interesting blog entry about designers' liability for green projects here:  http://lawarkblog.blogspot.com/

Where owner does not pay undisputed amounts, contractor is entitled to attorneys fees

In a recent decision, an Illinois appellate court in O'Connor Construction Co., Inc. v. Belmont Harbor Home Development, LLC, No. 1-07-2346, remanded the case back to the trial court for a determination of attorneys fees. The court noted that the owner had held back retainage in an undisputed amount of some $47,000. The court held that the contractor was entitled to some amount of attorneys fees because the defendant owner did not offer a reasonable explantion for withholding the undisputed amount.

Risks in LEED design

There is an interesting discussion of some issues and risks to design professionals involving LEED projects at http://www.consilienceblog.org/. Here is a quote:

Lenders should review the owner-architect agreement and construction contract to make sure the responsibilities in planning and constructing the green building are clearly detailed. They will also want to make sure that there are penalties to the appropriate parties for failure to deliver the required green building. These penalties should correspond with the leases. For instance, if a lease requires a LEED Silver Commercial Interiors space and failure to provide such space will result in a two-month free rental period, the construction contract and owner-architect agreement should contain provisions that requires either a holdback or penalty in the amount of the loss of two months of rental payments to landlord, provided the failure to achieve the standard is not the fault of the property owner. The landlord may not be able to make the mortgage payments without such a provision, and the lender will obviously want to protect itself from such a possibility.

Architects often underestimate the risks associated with LEED projects. Having a knowledgeable attorney involved in the contract negotiations can be very helpful.

 

Cannot record Lis Pendens for arbitration case if no litigation has commenced

A California case, Manhattan Loft v. Mercury Liquor, 2009 WL 1219732 (May 6, 2009), has ruled that a lis pendens notice cannot be recorded unless an underlying court case has been filed. In this case, two arbitration proceedings were commenced and lis pendens notices were recorded.  Both arbitrations resulted in awards in favor of the respondent who had recorded the lis pendens. Thereafter, a slander of title action was filed against respondents alleging that the lis pendens had caused substantial damage. Respondent filed a motion to dismiss per California's anti-SLAPP statute. The trial court granted the motion and the appellate court reversed.

Non-signatories bound by arbitration agreement in wrongful death case

The Fifth Circuit Court of Appeals, in Graves v. BP America Inc., No. 8-40575 (May 6, 2009), has held that the surviving spouse and children of a worker killed in an accident were bound by the decedent's employment agreement that contained an arbitration provision. The plaintiffs claimed that their wrongful death action was not subject to arbitration. The appellate court found that a wrongful death action is derivative of a decedent's rights. Therefore, this action was also premised on the employment agreement and was subject to arbitration.

Appeal from order denying stay of arbitration is immediately appealable under FAA

The Supreme Court in Arthur Andersen v. Carlisle, No. 08-146 (May 4, 2009) held that a party in federal court can take an immediate appeal under section 3 of the Federal Arbitration Act from an order refusing a stay of arbitration. There will be jurisdiction in the appellate court regardless of the merits of the actual action. The only requirement for such jurisdiction is the denial of a stay.

The court also held that a litigant who is not a party to the arbitration agreement may invoke section 3 if the relevant state contract law allows him to enforce the agreement. Thus, non-signatories to the arbitration agreement such as third party beneficiaries and others entitled to enforce contracts under state law can request and obtain a stay under section 3, if permitted by applicable state law.

violation of building code insufficient to establish proximate cause for accident

The Illinois appellate court in Strutz v. Vicere, 2009 WL 1175107 (1 Dist., April 29, 2009), held that the plaintiff failed to establish proximate cause despite a medical expert who testified that the fall was consistent with a "head-first" type of fall, and an architect expert who testifed that the stairs were unsafe and failed to comply with the code. Nobody had observed the decedent fall down the stairs. There was other testimony that the stairs were in good condition and no one had ever complained about them. Summary judgment in favor of defendants was allowed.

Violation of "good engineering practice and ethics" does not equate to a breach of a duty of care

In Hamon Contractors, Inc. v. Carter & Burgess, Inc., 2009 WL 1152160 (Colo.App., April 30, 2009), the court reviewed an affidavit of the plaintiff's expert wherein he opined that the defendant had violated good engineering practice and ethics. This, by itself, does not establish that the defendant had violated a legal duty. The court relied on several cases in reaching this conclusion:

" State Bd. of Dental Examiners v. Savelle, 90 Colo. 177, 185, 8 P.2d 693, 696 (1932) (distinguishing between a violation of professional ethics and a breach of a legal duty); cf. Olsen & Brown v. City of Englewood, 889 P.2d 673, 676 (Colo.1995) (attorney ethics rules “are not designed to alter civil liability nor do they serve as a basis for such liability”); Michael v. Huffman Oil Co., Inc., 661 S.E.2d 1, 5-8 (N.C.Ct.App.2008) (code of ethics was improper basis for determining professional engineer's standard of care); Dukes v. Philip Johnson/Alan Ritchie Architects, P.C., 252 S.W.3d 586, 592-94 (Tex.App.2008) (professional code of ethics could not be considered in determining architect's duty of care), cert. denied, --- U.S. ----, 129 S.Ct. 1032 (2009). "

Trial court has jurisdiction to determine whether statute of limitations bars arbitration

In Day Masonry v. Independent School Dist. 347, 2009 WL 1182053 (Minn.App., May 5, 2009), the appellate court held that a trial court can stay arbitration if the movant can demonstrate that the applicable statute of limitations has expired. The court rejected the argument that only the arbitrator can decide such matters. A trial court may resolve factual issues that are necessary to determine if the demand for arbitration was timely.