TIMELY AND PROPERLY ASSERT AFFIRMATIVE DEFENSES AND UNDERSTAND STATUTORY CONDITIONS PRECEDENT

Posted on July 14, 2024July 14, 2024 by David Adelstein

A recent case serves as a reminder to TIMELY and PROPERLY assert affirmative defenses and to understand statutory conditions precedent to construction lien claims. Failing to do one or the other could be severely detrimental to the position you want to take in a dispute, whether it is a lien foreclosure dispute, or any other dispute.

In Scherf v. Tom Krips Construction, Inc., 2024 WL 3297592 (Fla. 4^th DCA 2024), the president of a construction company and his wife were building a residence. They orally accepted the proposal from the concrete shell contractor and asked for invoices to be submitted to the president’s construction company. No written contract was memorialized. The president and his wife did not pay the concrete shell contractor and the contractor recorded a lien and sued to foreclose on the lien. Years later (the case had been stayed because the president and his wife filed for bankruptcy and the shell contractor had to get leave of the automatic bankruptcy stay to pursue the lien foreclosure), the shell contractor moved for summary judgment. The president and his wife moved for leave to file an amended answer and affirmative defenses. They claimed the oral contract was with the construction company and the shell contractor was required to serve a Notice to Owner under Florida Statute s. 713.06. Alternatively, they argued that if the oral contract was with the president and his wife, the shell contractor was required to serve a Final Contractor’s Payment Affidavit at least 5 days before filing its lien foreclosure claim, and did not, as required by s. 713.06.

Due to the length of time that had gone from the filing of the lawsuit to the motion for leave to amend to add affirmative defenses, the trial court denied the motion for leave and granted summary judgment in favor of the shell contractor. The trial court noted that had the defense on the final contractor’s payment affidavit been raised from the onset, the shell contractor could have cured the issue where, now, it was non-curable. In other words, granting the amendment would be prejudicial to the shell contractor:

In the years leading up to the motion for leave to amend, the [president and his wife] had consistently taken the position thatthey were not parties to the Construction Agreement, that the contract was with [the president’s construction company], and that[the shell contractor] had failed to serve the required notice to owner upon them. In their proposed amended answer, the[president and his wife] changed their position by adding the alternative argument that [the shell contractor] had failed to serve acontractor’s affidavit, which would only come into play if [the shell contractor’s] contract was with the [president and his wife].

Allowing the amendment would have prejudiced [the shell contractor] because the statute of limitations had run on the lien foreclosure claim, so it was too late to cure the notice problem. [The shell contractor] was required to file the foreclosure actionwithin one year of recording its claim of lien. [The shell contractor] recorded its claim of lien on February 8, 2016, and filed itsoriginal complaint on April 27, 2016. Before filing for bankruptcy, the [president and his wife] challenged the original complaint,but did not raise [the shell contractor’s] failure to provide the contractor’s affidavit. Had the issue regarding the contractor’s affidavit been raised at that time, [the shell contractor] would have had over seven months to cure a failure to serve the affidavit.

Scherf, supra, at *3-4 (internal citations omitted).

In affirming the trial court, the appellate court relied on precedent where leave to amend was denied “to assert a defect that could have been cured by the opposing party had it been raised earlier in the litigation.” Scherf, supra, at *4. In other words, the proposed amendment came too late and would have prejudiced the shell contractor due to the statute of limitations that the shell contractor could have cured (under existing precedent) had the president and his wife’s amendment come much earlier.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

VOLUNTARY PAYMENTS AFFIRMATIVE DEFENSE DOES NOT APPLY IN CONTRACT CASES

Posted on June 25, 2023June 25, 2023 by David Adelstein

In certain matters, there is an affirmative defense referred to as the “voluntary payments” defense. This defense states, “where one makes a payment of any sum under a claim of right with knowledge of the facts such a payment is voluntary and cannot be recovered.” Avatar Properties, Inc. v. Gundel, 48 Fla.L.Weekly D1272c (Fla. 6th DCA 2023) quoting City of Miami v. Keton, 115 So.2d 547, 551 (Fla. 1959). This voluntary payments defense could be construed as a “gotcha” defense, right? Unfair! You voluntarily made the payment with knowledge of the facts; therefore, you are s**t out of luck when it comes to recovering the potentially wrongful payment.

Well, guess what? This voluntary payments affirmative defense does NOT apply in contract disputes. This is codified by Florida Statute s. 725.04 which states: “When a suit is instituted by a party to a contract to recover a payment made pursuant to the contract and by the terms of the contract there was no enforceable obligation to make the payment or the making of the payment was excused, the defense of voluntary payment may not be interposed by the person receiving payment to defeat recovery of the payment.” Fla.Stat. s. 725.04. See also Avatar Properties, supra (explaining voluntary payment defense does not apply in contract cases and even in non-contract cases it doesn’t apply if payment made under coercion or compulsion).

Thus, if you wrongfully make a payment that you were not required to make under a contract, you are not s**t out of luck when it comes to legally pursuing the recovery of this payment. The voluntary payments affidavit defense does not apply to bar the claim. In contract disputes, you shouldn’t rely on this defense and you should be cautious about asserting it.

CONSTRUCTION LIEN FORECLOSURE ACTION MUST BE BROUGHT IN COUNTY WHERE PROPERTY LOCATED

Posted on January 26, 2020January 26, 2020 by Edward Garber

A construction lien foreclosure action is an action against the real property and MUST be brought in the county where the property is located. It is an action concerning subject matter jurisdiction (the jurisdiction of the court to hear the matter) and, thus, can be raised at any time in a proceeding. If you are looking to foreclose a construction lien, please make sure 1) the lien is recorded in the right jurisdiction and 2) the lien is foreclosed on in the right jurisdiction.

In a recent case, Prime Investors & Developers, LLC v. Meridien Companies, Inc., 2020 WL 355930 (4th DCA 2020), a dispute arose between a general contractor and subcontractor on a hotel project in Miami-Dade County. The general contractor filed suit against the subcontractor for untimely and defective installation in Broward County. The subcontractor counter-sued the general contractor for breach of contract and asserted a claim against the developer of the hotel to foreclose a construction lien. Remember, the property was located in Miami-Dade County but the lawsuit was in Broward County.

The trial court granted summary judgment in favor of the subcontractor and against the developer and contractor. The trial court entered a money judgment against the contractor and the developer, but did not initiate any foreclosure proceedings.

The appellate court reversed the summary judgment because there were genuine issues of material fact. The subcontractor, in its motion for summary judgment, did not address the general contractor’s affirmative defenses. (“When a party raises affirmative defenses, a summary judgment should not be granted where there are issues of fact raised by the affirmative defenses which have not been effectively factually challenged and refuted. The movant must disprove the affirmative defenses or show they are legally insufficient.”). Prime Investors & Developers, LLC, 2020 WL at *4 (citation omitted).

The appellate court did address the construction lien foreclosure issue by reminding “that “[a] lien against property is in rem, affecting title to the property, and must be brought in the circuit with jurisdiction over the property.” Prime Investors & Developers, LLC, 2020 WL at *4 (citation omitted). In other words, the subcontractor filed the construction lien foreclosure lawsuit in the WRONG jurisdiction. Oops!

However, the appellate court did not seem to challenge the right of the subcontractor to obtain a monetary judgment, absent the foreclosure proceedings, against the developer. While the subcontractor cannot foreclose its construction lien, it may have a basis to obtain a monetary judgment that excludes foreclosure against the developer if it prevails at trial. This is certainly not the same leverage the subcontractor wanted when it recorded the lien and initiated a construction-lien foreclosure.

DOCTRINE OF AVOIDABLE CONSEQUENCES AS AFFIRMATIVE DEFENSE

Posted on January 27, 2018January 27, 2018 by Edward Garber

The doctrine of avoidable consequences is an affirmative defense that can be used in certain property damage lawsuits. This is a defense that does not go to liability, but it goes to damages. This doctrine of avoidable consequences defense holds that a plaintiff cannot recover damages caused by a defendant that the plaintiff could have reasonably avoided. See Media Holdings, LLC v. Orange County, Florida, 43 Fla.L.Weekly D237c (Fla. 5^th DCA 2018). Stated differently, if the plaintiff could have reasonably avoided the consequences of the damages caused by the defendant then the plaintiff cannot recover those damages. However, the defendant needs to prove this defense — the burden is on the defendant to establish this defense (ideally through expert testimony).

For example, in Media Holdings, a party that was putting on a trade show at a convention center caused the fire sprinkler system to be set off causing substantial water damage. The owner of the convention center sued the party. The party argued the doctrine of avoidable consequences, i.e., that the convention center’s damages were caused by or exacerbated by its failure to shut down the sprinkler system as soon as reasonably possible; had the convention center done so, its damages would be much different. This defense was a question of fact. Remember, it is not a defense as to liability because the party did cause the sprinkler system to be set off. Rather, it went directly to the amount of damages the plaintiff was seeking.

ASSERT A PARTY’S NONCOMPLIANCE OF CONDITIONS PRECEDENT WITH PARTICULARITY

Posted on July 22, 2017July 22, 2017 by Edward Garber

Construction contracts oftentimes and should contain conditions precedent to payment. Conditions precedent apply to both progress payments and final payment. The conditions precedent operate such that payment is NOT due until the conditions are satisfied. The satisfaction of the conditions precedent triggers the payor’s obligation to pay.

If a dispute arises due to the payee’s noncompliance with conditions precedent to payment, the noncompliance should be asserted with particularity in the answer and affirmative defenses. For example, if a subcontractor was required to provide lien waivers and releases as a condition precedent to payment, then this should be asserted with particularity as an affirmative defense. If the contractor’s receipt of payment from the owner was a condition precedent to payment to the subcontractor (pay-when-paid), then this should be asserted with particularity as an affirmative defense. Any noncompliance with a condition precedent should be identified as an affirmative defense.

An example of not pleading failure to comply with conditions precedent with particularity can be found in the recent case of Don Facciobene, Inc. v. Hough Roofing, Inc., 42 Fla. L. Weekly D1627a (Fla. 5^th DCA 2017).

In this case, the contractor hired a roofer for a relatively quick job. The roofer started its work without a formalized subcontract (not uncommon). A subcontract was finally executed between the roofer and contractor when the roofer was virtually complete with its entire scope of work. The contract required conditions precedent to payment. The contractor did not pay the roofer due to the roofer’s failure to comply with the conditions precedent to payment and, then, certain offsets associated with alleged defective work.

The roofer initially claimed that the conditions precedent should not apply to work it performed and payments owed prior to the execution of the subcontract. The court dismissed this argument claiming that the subcontract applied retroactively (e.g., prior to the date the subcontractor started working) since the subcontract contained a merger clause. (Perhaps the parties could have even back-dated the subcontract which is not uncommon, e.g., “this subcontract is made and entered as of _______ [date]” even though it is signed after that date.) Nevertheless, the Fifth District held that the contractor failed to properly preserve its defense that the roofer failed to comply with conditions precedent because its affirmative defense stated that the roofer “failed to allege, nor can it establish that it met each and every condition precedent to recovering payment in this cause pursuant to its Complaint.” Because the contractor failed to allege with particularity which conditions precedent the roofer did not comply with or how the roofer failed to comply with them, the contractor failed to preserve its right to demand proof that the roofer satisfied conditions precedent to progress payments and final payment.

My guess is that it was apparent, and I mean apparent, that the contractor was relying on contractual conditions precedent. It is also unclear if the contractor recited the word “contractual” in this affirmative defense whether that would have been sufficient or the court specifically wanted the contractor to recite each and every condition precedent the roofer did not satisfy. Probably the latter. My guess is this issue was also fleshed out in written discovery, a deposition, or even at trial, meaning there was no surprise since the contractor had an affirmative defense on point. Regardless of whether this was a meritorious defense, the court was a stickler regarding the requirement to identify the noncompliance of the occurrence of conditions precedent.

Remember, when asserting a payee’s noncompliance with conditions precedent, identify the noncompliance with particularity! Do not generalize the defense!