Tag Archives: construction lien

QUICK NOTE: REMEMBER TO TIMELY FORECLOSE LIEN AGAINST LIEN TRANSFER BOND

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When a construction lien is transferred to a lien transfer bond pursuant to Florida Statute s. 713.24, instead of foreclosing the lien against the real property, you are foreclosing the lien against the lien transfer bond.  This is not a bad deal and, oftentimes, is probably ideal.   Remember, however, just because a construction lien was transferred to a lien transfer bond (pre-lawsuit) does not mean you get more time to file your lien foreclosure lawsuit.  A lawsuit must still be filed within one year (short of that period being specifically shortened under operation of the law).  The only exception is that if the lawsuit is filed and the lien transfer bond is then recorded (post-lawsuit), the lienor has one year to amend its lawsuit to sue the lien transfer bond.

 

 

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.

 

 

PAROL EVIDENCE CAN BE USED TO DEFEAT FRAUDULENT LIEN

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shutterstock_162610553Parol or extrinsic evidence can be used to defeat an argument that a lien is a fraudulent lien.  And, just because a lien amount exceeds the total contract amount does not presumptively mean the lien is willfully exaggerated or recorded in bad faith.  Finally, a ruling invalidating a construction lien can create the irreparable harm required to support a petition for writ of certiorari.  All of these issues are important when dealing with and defending against a fraudulent lien and are explained in a recent case involving a dispute between an electrical subcontractor and its supplier.

 

In Farrey’s Wholesale Hardware Co., Inc. v. Coltin Electrical Services, LLC, 44 Fla.L.Weekly D130a (Fla. 2d DCA 2019), there were various revisions to the supplier’s  initial purchase order, both from a qualitative and quantitative perspective, and a ninth-revised purchaser order was issued and accepted.  The electrical subcontractor claimed that deliveries were late, unassembled, and did not include the required marking (likely the UL marking), to pass building inspections.  As a result, the subcontractor withheld money from the supplier and the supplier recorded a lien in the amount of $853,773.16 and filed a foreclosure lawsuit.

 

The subcontractor moved for a motion for partial summary judgment that the lien should be deemed a fraudulent lien and invalid because it was overstated by approximately $32,000.  The subcontractor argued that taking the amount of the ninth-revised purchase order and deducting the undisputed amount paid to the supplier would result in a lien amount of $825,417.06, approximately $32,000 less than the supplier’s lien amount.  The supplier, through an affidavit, argued this delta is nothing more than a good faith dispute and can be explained because the total cost of materials furnished to the job site was based on its initial purchase order and its revised purchase order.  The subcontractor countered that the affidavit is  parol evidence and should be disregarded because the parties agreed on the total amount of the supplies through the ninth-revised purchase order and the supplier was trying to create a new contract through the affidavit.  The trial court agreed and found the lien fraudulent, and issued a partial summary judgment invalidating the supplier’s lien.  The subcontractor moved for a petition of writ of certiorari.

 

Parol Evidence Rule

 

“[T]he parol evidence rule prevents the terms of a valid written contract or instrument from being varied ‘by a verbal agreement or other extrinsic evidence where such agreement was made before or at the time of the instrument in question.’” Farrey’s Wholesale, supra(citation omitted). The parol evidence rule, however, is not applied to exclude evidence of subsequent agreements modifying the original agreement, or of fraud, accident, or mistake.  Id.  

 

The appellate court, reversing the trial court, found that the parol evidence rule “does not bar extrinsic evidence offered for the purpose of showing whether the filing of a construction lien was made in good or bath faith.  This is a separate and distinct inquiry that does not trigger the parol evidence rule.”   Hence, the appellate court maintained there were disputed issues of material fact as to whether the lien was fraudulent.

 

The appellate court further found that the trial court erred in finding the lien fraudulent in that just because the lien amount exceeded the ninth-revised purchase order does not mean it was willfully exaggerated.  In other words, even if the ninth-revised purchase order was the complete agreement, the lien, in of itself, is not willfully exaggerated just because the lien exceeded the total amount of the contract. 

 

Appeal of Lien

 

On another important point in this case, because the appeal was based on a writ of certiorari (versus a final appeal of a final dispositive judgment), there had to be irreparable harm to justify the basis of the appeal.  The appellate court held there would be irreparable harm if the supplier had to wait until the end of the litigation to appeal because its judgment would then be unsecured (it would be without a remedy to pursue its lien which had been transferred to a lien transfer bond).  See Farrey’s Construction Wholesale, supra  (“This means that on remand [back to the trial court], all matters pertaining to Farrey’s construction lien, which includes the status of the lien transfer bond, will be returned to their prejudgment postures.”). 

 

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.

PRE-SUIT SETTLEMENT OFFERS AND CONSTRUCTION LIEN ACTIONS

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shutterstock_127849640It is unfortunate, but in certain matters, a construction lien foreclosure action is not actually driven by the principal amount in dispute.  Oh no.  Rather, it is driven by attorney’s fees.  That’s right.  Attorney’s fees. This is true even though Florida applies the significant issues test to determine the prevailing party for purposes of attorney’s fees.  However, oftentimes  the prospect of attorney’s fees is enough for parties to fear that exposure. 

 

There is a 1985 Florida Supreme Court case that I like to cite if applicable, C.U. Associates, Inc. v. R.B. Grove, Inc., 472 So.2d 1177, 1179 (Fla. 1985), that finds, “in order to be a prevailing party entitled to the award of attorney’s fees pursuant to section 713.29 [a construction lien claim], a litigant must have recovered an amount exceeding that which was earlier offered in settlement of the claim.”  Accord Sullivan v. Galske, 917 So.2d 412 (Fla. 2d DCA 2006) (explaining that although contractor is receiving a judgment in his favor, he may not be the prevailing party if the homeowner offered to settle prior to the lawsuit for an amount equal to or greater  than the award in the judgment).

 

If there is a pre-suit settlement offer on the table, and it is a good faith offer (which presumably it is), than that offer can very well come into play to determine whether the party that will the action should be deemed the prevailing party for purposes of attorney’s fees.  This is still good law.  Therefore, before readily dismissing a pre-suit offer, consider the potential ramifications if you are unable to beat this offer at trial. Banking on attorney’s fees may not be prudent if there is a pre-suit offer that is within striking distance from where you need to be or can very well be a likely outcome based on a reasonable argument raised by the opposing party.

 

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.

 

CONSTRUCTION LIEN NEEDS TO BE RECORDED WITHIN 90 DAYS FROM LIENOR’S FINAL FURNISHING

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shutterstock_239963452A lienor needs to record its construction lien within 90 days of its final furnishing date.  This final furnishing date excludes punchlist, warranty, or the lienor’s own corrective work.   A lien recorded outside of ths 90-day window will be deemed invalid.

 

The opinion in In re: Jennerwein, 309 B.R. 385 (M.D. Fla. 2004) provides a good discussion of this 90-day window.  This matter dealt with a debtor / owner’s bankruptcy where the owner was contesting the validity of a construction lien by its pool contractor.  The owner contended that the lienor’s lien was recorded outside of this 90-day window thus rendering the lien invalid.  The bankruptcy court was determining the validity of the lien.

 

In this matter, the owner hired a swimming pool contractor to construct a pool.  On October 25, 2002, the pool contractor installed pavers around the pool.  After this was performed, the pool contractor realized the owner was unable to obtain the financing to pay for the pool.  As a result, the pool contractor ceased doing any more improvements.  But, neither the pool contractor nor the owner terminated the contract.  Then, on November 27, 2002, the pool contractor sent a supervisor to the property to inspect the pool (work-in-place), the pool equipment, the installed pavers, made a list of the unfinished work, and remove any debris.  On January 27, 2003, the pool contractor recorded its lien.

  

The issue is that if the last day the pool contractor did work was on October 25, 2002 which is when it installed the pavers (the final furnishing date), then the lien it recorded on January 27, 2003 was not timely.  The lien was recorded more than 90 days from October 25, 2002.  However, if the last day the pool contractor did work was on November 27, 2002 when it sent a supervisor to inspect the work and remove debris, then the lien was timely as it was recorded within the 90-day window.

 

“In Florida, the test to determine whether labor, services, or materials were furnished is whether the work was: (i) performed in good faith; (ii) within a reasonable time; (iii) in pursuance of the terms of the contract; and, (iv) whether the work was necessary to a “finished job.”… The application of this fairly straight- forward four step test is fact driven, and the facts of each construction project vary widely.

In re: Jennerwein, 309 B.R. at 388.

 

The Bankruptcy Court applied this four step test to determine whether the pool contractor’s inspection / visit on November 27, 2002 constituted its final furnishing date.  Based on the facts, the Court held that November 27, 2002 did constitute a final furnishing date meaning the lien was valid.   Although the pool contractor’s visit on this day was limited, the contract was still in effect (i.e., it was not terminated).  The pool contractor was operating in good faith and the supervisor was conducting his normal job duties by checking on the status of the work. This visit was also deemed to occur within a reasonable time after the pavers were installed. Although the project remained idle after the pavers were installed, this was because the owner was trying to find financing to pay for the work.  Further, the supervisor’s inspection was performed in pursuance of its work and the contract.  Without a list as to the work that remained to be completed, the contractor would not have a schedule of work and materials needed to finish its job.

 

This factual-based finding is favorable to a lienor.  Between the October 25, 2002 date the pavers were installed and the November 27, 2002 date the supervisor visited the property, there was no work.  The pool contractor stopped work because it was not getting paid and it obviously did not want to perform more work knowing that work was not going to get paid for.  However, neither party formally terminated the contract.  The supervisor’s visit was nothing more than confirming the work it performed versus the work it did not perform and remove any debris, etc., that remained on the job.  In other words, the pool contractor was leaving based on the non-payment.  However, the Court deemed the visit to be in good faith and pursuant to the contract allowing this date to be deemed a final furnishing date.  That is a favorable finding when, in reality, the last date the lienor physically improved the property was a month earlier when the pavers were installed.

 

The final furnishing date, as you can tell, will be a fact-based determination.  And, the four step test will be applied to determine the merits of the final furnishing date.  However, I always try to operate conservatively; it is always safer to record the lien sooner than later to take away any close-call argument that the lien should be invalid because it was recorded outside of the 90-day window.

 

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.

ARE YOU A CONSTRUCTION LIENOR?

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shutterstock_98314763When it comes to construction lien rights, not everyone that touches the project is a proper lienor.  Forget about timely serving a Notice to Owner or recording a claim of lien, if you are not a proper lienor, it does not matter if you properly perfected your lien rights.  If you are not a proper lienor, you have NO lien rights under the law!

 

 

 

 

 

 

 

Florida Statue s. 713.01(18) defines a lienor as follows:

 

(18) “Lienor” means a person who is:

(a) A contractor;

(b) A subcontractor;

(c) A sub-subcontractor;

(d) A laborer;

(e) A materialman who contracts with the owner, a contractor, a subcontractor, or a sub-subcontractor; or

(f) A professional lienor under s. 713.03;

and who has a lien or prospective lien upon real property under this part, and includes his or her successor in interest. No other person may have a lien under this part.

 

Let’s break this down.

 

A contractor is one other than a materialman (supplier) or laborer that enters into a contract with the owner to improve the owner’s property.  A contractor can be a design-builder.   Fla. Stat. s. 713.01(8).

 

A subcontractor is one other than a materialman (supplier) or laborer who is hired by the contractor.   This definition would include a labor company that furnishes skilled or unskilled labor.  Fla. Stat. s. 713.01(28).

 

A sub-subcontractor is one other than a materialman (supplier) or laborer who is hired by the subcontractor. Fla. Stat. s. 713.01(29). This definition would also include a labor company.  

 

A laborer is a person (excluding a professional) that enters into a contract to personally perform improvements to the property.   Fla. Stat. s. 713.01(16).  This definition would not include a labor company.  See V L Orlando Bldg. Corp. v. Skilled Services Corp., 769 So.2d 526 (Fla. 5th DCA 2000). 

 

A materialman (supplier) furnishes materials to an owner, contractor, subcontractor, or sub-subcontractor but does not perform labor.  Fla. Stat. s. 713.01(20).  This includes a supplier of rental equipment.  Fla. Stat. s. 713.01(13). 

 

A professional lienor is an architect, landscape architect, engineer, interior designer, or surveyor and mapper who has a direct contract with the owner or performs professional services that improves the real property.  Fla. Stat. s. 713.03.

 

You can also check out this chart for guidance.  Make sure to consult with counsel if you have questions regarding your lien rights. There is no reason not to.

 

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.

 

APPELLATE ATTORNEY’S FEES AND THE SIGNIFICANT ISSUES TEST

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shutterstock_379140319The significant issues test to determine the prevailing party in construction lien actions (which, by the way, also applies to breach of contract actions) applies to appellate attorney’s fees too!  Under this test, the trial court has discretion to determine which party prevailed on the significant issues of the case for purposes of attorney’s fees.  The trial court also has discretion to determine that neither party was the prevailing party for purposes of attorney’s fees. 

 

In a recent decision, Bauer v. Ready Windows Sales & Service Corp., 42 Fla. L. Weekly D1417a (Fla. 3d DCA 2017), there were competing motions for appellate attorney’s fees.   Both parties believed they should be deemed the prevailing party under Florida Statute s. 713.29 (statute that authorizes prevailing party attorney’s fees under Florida’s Construction Lien Law).    The appellate court held that neither party was the prevailing party under the significant issues test:  “[W]e conclude that each party lost on their appeal, while each party successfully defended that part of the judgment in their favor on the other party’s cross-appeal. Because both parties prevailed on significant issues, this Court finds that appellate fees are not warranted for either party.” Bauer, supra. 

 

Attorney’s fees can very easily drive construction lien and bond disputes.  Just remember, the significant issues test to determine the prevailing party for purposes of attorney’s fees applies to fees incurred at the trial court and appellate court levels.  This test has a subjective component that gives a court an easy out—determine that neither party prevailed on the significant issues or, as in the above case, both parties prevailed on the significant issues, meaning neither party is entitled to attorney’s fees. 

 

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.

CONTRACTORS SHOULD NOT FORGET TO DELIVER CONTRACTOR’S FINAL PAYMENT AFFIDAVIT

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shutterstock_46898038If you are a contractor and entered into a contract with an owner, then you need to serve the owner with a Contractor’s Final Payment Affidavit at least 5 days before filing a lien foreclosure lawsuit.  Fla. Stat. s. 713.06(3)(d).    Many times, when I am preparing a lien for a contractor, I like to work with the contractor on the Contractor’s Final Payment Affidavit at the same time as the lien to (for lack of a better phrase) kill two birds with one stone.  This way, both the lien and Contractors’ Final Payment Affidavit can be served on the owner at the same time and the contractor has perfected its right to foreclose on the lien when it is ready to do so.

 

As Florida Statute s. 713.06(3)(d) states:

 

The contractor shall have no lien or right of action against the owner for labor, services, or materials furnished under the direct contract while in default for not giving the owner the affidavit; however, the negligent inclusion or omission of any information in the affidavit which has not prejudiced the owner does not constitute a default that operates to defeat an otherwise valid lien. The contractor shall execute the affidavit and deliver it to the owner at least 5 days before instituting an action as a prerequisite to the institution of any action to enforce his or her lien under this chapter, even if the final payment has not become due because the contract is terminated for a reason other than completion and regardless of whether the contractor has any lienors working under him or her or not.

Failing to serve the Contractor’s Final Payment Affidavit can be hugely detrimental to an otherwise valid lien.  Without serving the Contractor’s Final Payment Affidavit, the lien foreclosure lawsuit is not proper and should be dismissed.

 

For example, in Puya v. Superior Pools, Spas & Waterfalls, Inc., 902 So.2d 973 (Fla. 4th DCA 2005), a swimming pool contractor hired by a homeowner filed a lien foreclosure lawsuit and received a foreclosure judgment in its favor.  There was one huge problem.  The contractor never served a Contractor’s Final Payment Affidavit 5 days before filing the lawsuit.   The Fourth District reversed the foreclosure judgment because the contractor’s failure to serve the Contractor’s Final Payment Affidavit deprived the contractor of the right to foreclose on the lien:  “Where a contractor fails to timely furnish a final payment affidavit, the owner is generally entitled to dismissal of the contractor’s foreclosure lawsuit.”  Puya, 902 So.2d at 974.  See also Nichols v. Michael D. Eicholtz, Enterprise, 750 So.2d 719 (Fla. 5th DCA 2000) (affirming trial court’s dismissal of lien foreclosure action where contractor failed to properly provide contractor’s final payment affidavit).

 

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.

 

FLORIDA’S LIEN LAW AND SUBSTANTIAL COMPLIANCE VS. STRICT COMPLIANCE

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comp photoThere are literally some (or, perhaps, many!) disputes that will make you say “hmm!”   The “hmm” is a euphemism for “what is a party thinking?!?”  The case of Trump Endeavor 12 LLC v. Fernich, Inc., 42 Fla. L.Weekly D830a (Fla. 3d DCA 2017) is one of these cases because a party (the owner) is banking its defense on a technical “all-or-nothing” argument pertaining to whether a lienor (a supplier) substantially complied with Florida’s Lien Law because a supplier’s Notice to Owner identified the wrong general contractor.    This is a challenging argument because the owner has to prove how they were adversely affected / prejudiced by the lack of substantial compliance, which is not an easy burden.

 

This case concerns the Trump National Doral Miami project.  The project consisted of a lodge project and a separate clubhouse project, both of which had different general contractors.  On the lodge project, the general contractor hired a painter which, in turn, procured paint from a supplier (the lienor).  The supplier visited the project and obtained the Notice of Commencement from the owner so that it could perfect its lien rights.  The owner furnished the supplier the Notice of Commencement for the clubhouse project that had a different general contractor.  Relying on this Notice of Commencement, the supplier served a Notice to Owner. The Notice to Owner was timely serviced however it identified the wrong contractor – it identified the general contractor for the clubhouse project instead of the lodge project. Although the supplier later learned there was a different general contractor on the lodge project, it did not remedy the issue by serving a Notice to Owner on the correct contractor.  Indeed, the contractor for the lodge project learned of the Notice to Owner furnished by the supplier and that the supplier was furnishing paint to the painting subcontractor for purposes of that project.

 

The supplier was owed approximately $32,000 and recorded a lien against the lodge project.  The owner countered that the supplier did not have lien rights because its Notice to Owner incorrectly identified the wrong contractor.  The supplier argued that it substantially complied with the Notice to Owner requirements and there was no prejudice to the owner as the result of it identifying the wrong contractor.  The court sided with the contractor.

 

The court held that if the supplier substantially complied with the Notice to Owner requirements then such errors do not prevent its enforcement against a person who has not been adversely affected (prejudiced) by the error.  Based on the facts, the supplier substantially complied with the Notice to Owner requirements and the owner could not establish how it was remotely prejudiced by the error.

 

Banking on certain technical arguments is literally banking on an “all-or-nothing” argument because if you lose that argument, then you lose the dispute and are likely liable for the prevailing party’s attorney’s fees.  Here, the owner relied on a technical argument regarding the fact that the supplier failed to identify the correct general contractor on the Notice to Owner even though it knew the supplier was furnishing paint on the project.  Why did the owner bank its entire case on such a technical position for an approximate $32,000 lien, especially when the owner could not prove how it was prejudiced by the supplier’s omission of the correct contractor?  While there is strict compliance with the time requirements under Florida’s Lien Law, a party needs to substantial comply with other requirements. Substantial compliance will then shift the burden to the other party to prove how it was prejudiced by the substantial compliance versus strict compliance.  This can be a heavy burden.  Probably not worth banking an entire defense on this technical argument, particularly for a $32,000 lien.

 

Obviously, strict compliance is always best to avoid dealing with these technical arguments.  For this reason, there is always value consulting with an attorney regarding perfecting and preserving your lien rights.

 

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.