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.

FILING LIEN FORECLOSURE LAWSUIT AFTER SERVING CONTRACTOR’S FINAL PAYMENT AFFIDAVIT

Posted on May 21, 2022May 21, 2022 by Edward Garber

If you are an unpaid contractor in direct contract with the owner of real property, you should be serving a Contractor’s Final Payment Affidavit prior to foreclosing on your construction lien. This should extend to any trade contractor hired directly by the owner. As a matter of course, I recommend any lienor hired directly by the owner that wants to foreclose its lien to serve a Contractor’s Final Payment Affidavit. For example, if you are a plumbing contractor hired by the owner and want to foreclose your lien, serve the Affidavit. If you are a swimming pool contractor hired by the owner and want to foreclose your lien, serve the Affidavit. You get the point. (If you are not in direct contract with the owner, you do not need to serve the Affidavit, but you need to make sure you timely served your Notice to Owner; when you are in direct contract with the owner, you do not need to serve the Notice to Owner because the owner already knows you exist.)

The Contractor’s Final Payment Affidavit is a statutory form. I suggest working with counsel to help execute to avoid any doubts with the information to include. The unpaid amount listed should correspond with the amount in your lien and you want to identify all unpaid lienors (your subcontractors and suppliers) and amounts you believe they are owed.

If you are in direct contract with the owner, serving the Contractor’s Final Payment Affidavit is a condition precedent to foreclosing your lien. To this point, Florida Statute s. 713.06(3)(d)(4) provides:

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.

In a recent case, A. Alexis Varela, Inc. d/b/a Varela Construction Group v. Pagio, 47 Fla. L. Weekly D1112b (Fla. 5^th DCA 2022), the appeal was based on whether the contractor filed suit one day before it should have filed suit after serving the Contractor’s Final Payment Affidavit. The Affidavit was served on 5/5/21. The contractor then filed its lien foreclosure lawsuit on 5/10/21. The trial could dismissed the lien action claiming the contractor did not properly comply with the 5-day condition precedent because the earliest it could have foreclosed its lien was 5/11/21. The appellate court reversed. The plain reading of the statue provides it should be delivered to the owner “at least 5 days before instituting an action.” The statute does not require the lien foreclosure lawsuit to be filed no earlier than the 6^th day and does not specifically preclude the lawsuit from being filed on that 5^thday.

FILLING OUT THE CONTRACTOR’S FINAL PAYMENT AFFIDAVIT

Posted on November 9, 2019November 9, 2019 by Edward Garber

When preparing a contractor’s final payment affidavit, I always suggest for a contractor (or anyone in privity of contract with the owner) to identify the undisputed amounts their accounting reflects is owed to ALL subcontractors, etc., regardless of whether that entity preserved their lien rights. If the contractor provided a payment bond, I footnote this simply to support that none of the lower-tiered subcontractors have lien rights or are the traditional “lienor.” (Thus, there is no prejudice to the owner if an entity is inadvertently omitted from the affidavit.)

There are times, however, where a contractor does not identify a subcontractor that did not serve a notice to owner and, therefore, has no valid lien rights. Or, a contractor omits a lienor that actually did serve a notice to owner and preserve its lien rights; this happens.

There was an older First District Court of Appeals case that harshly (and, quite, unfairly) held that the contractor must identify everyone in the final payment affidavit regardless of whether that entity timely served a notice to owner or their lien is invalid. This case, however, predated, a 1998 statutory change to Florida’s Lien Law.

Today, the statute (in Florida Statute s. 713.06) currently provides:

(d) When the final payment under a direct contract becomes due the contractor:

1. The contractor shall give to the owner a final payment affidavit stating, if that be the fact, that all lienors under his or her direct contract who have timely served a notice to owner on the owner and the contractor have been paid in full or, if the fact be otherwise, showing the name of each such lienor who has not been paid in full and the amount due or to become due each for labor, services, or materials furnished….

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.

Fla. Stat. s. 713.06(d)(1).

The Fourth District Court of Appeals in Fetta v. All-Rite Paving Contractors, Inc., 50 So.3d 1216 (Fla. 4^th DCA 2010), claimed that the purpose of the statute is for the contractor to identify all lienors who have timely served a notice to owner that has not been paid in full. (Hence, you do not need to identify those that did not timely serve a notice to owner even though, from a practical standpoint, identifying all makes sense as a just-in-case.). Further, even if there was an omission, that would not render a lien invalid unless the owner can prove prejudice and prejudice is not so easy to prove.

When in doubt, consult counsel when finalizing or filling out a contractor’s final payment affidavit. Rights can be preserved and items footnoted as appropriate for clarification purposes, such as the fact that the amount in the affidavit may not include amounts that are not available under the lien law (i.e., delay damages).

QUICK NOTE: DON’T FORGET TO SERVE THE CONTRACTOR FINAL PAYMENT AFFIDAVIT

Posted on June 2, 2019April 24, 2020 by Edward Garber

If you are a contractor in DIRECT CONTRACT with an owner, serve a contractor final payment affidavit on the owner, as a matter of course, and without any undue delay, particularly if you are owed money and have recorded a construction lien. In numerous circumstances, I like to serve the contractor final payment affidavit with the construction lien.

The contractor final payment affidavit is not a meaningless form. It is a statutory form (set forth in Florida Statute s. 713.06) required to be filled out by a lienor in direct privity of contract with an owner and served on the owner at least 5 days prior to the lienor foreclosing its construction lien. The contractor final payment affidavit serves as a condition precedent to foreclosing a construction lien. Failure to timely serve a contractor final payment affidavit should result in a dismissal of the lien foreclosure lawsuit, presumably by the owner moving for a motion for summary judgment. This should not occur.

I always suggest working with a lawyer to finalize a contractor final payment affidavit (as well as the lien in order to utilize the advice of counsel defense) for two reasons. First, you will ideally want the amount in the affidavit to be the same as the lien amount. Second, you may want to include certain clarifications or exceptions in the final payment affidavit for amounts not included in the lien (e.g., delay-type damages or certain disputed change orders that you do not feel comfortable including in the lien).

OWNER REQUESTING PROGRESS PAYMENT AFFIDAVITS FROM CONTRACTOR

Posted on June 3, 2015June 3, 2015 by Edward Garber

Florida’s Lien Law provides an owner, in particular, an infrequently used tool to take advantage of before making a progress payment to a contractor.

Previously, I talked about a contractor’s requirement to furnish the owner with a final payment affidavit before foreclosing on its construction lien.

But, an owner can request for a contractor to serve a progress payment affidavit before making a progress payment to a contractor. The owner, however, seldom requests this progress payment affidavit before making a progress payment.

Florida Statute s. 713.06(3)(c) provides:

(c) When any payment becomes due to the contractor on the direct contract, except the final payment:

1. The owner shall pay or cause to be paid, within the limitations imposed by subparagraph 2., the sum then due to each lienor giving notice prior to the time of the payment. The owner may require, and, in such event, the contractor shall furnish as a prerequisite to requiring payment to himself or herself, an affidavit as prescribed in subparagraph (d)1., on any payment made, or to be made, on a direct contract, but the furnishing of the affidavit shall not relieve the owner of his or her responsibility to pay or cause to be paid all lienors giving notice. The owner shall be under no obligation to any lienor, except laborers, from whom he or she has not received a notice to owner at the time of making a payment.

2. When the payment due is insufficient to pay all bills of lienors giving notice, the owner shall prorate the amount then due under the direct contract among the lienors giving notice pro rata in the manner prescribed in subsection (4). Lienors receiving money shall execute partial releases, as provided in s. 713.20(2), to the extent of the payment received.

3. If any affidavit permitted hereunder recites any outstanding bills for labor, services, or materials, the owner may pay the bills in full direct to the person or firm to which they are due if the balance due on the direct contract at the time the affidavit is given is sufficient to pay the bills and shall deduct the amounts so paid from the balance of payment due the contractor. This subparagraph shall not create any obligation of the owner to pay any person who is not a lienor giving notice.

4. No person furnishing labor or material, or both, who is required to serve a notice under paragraph (2)(a) and who did not serve the notice and whose time for service has expired shall be entitled to be paid by the owner because he or she is listed in an affidavit furnished by the contractor under subparagraph (c)1.

One reason an owner should want to comply with these provisions in Florida’s Lien Law and request a progress payment affidavit is to safeguard what is known as the proper payments defense. Under the proper payments defense, an owner will not be liable for construction liens that exceed the owner’s contract price with its contractor. See Continental Concrete, Inc. v. Lakes at La Paz III Ltd. Partnership, 758 So.2d 1214 (Fla. 4th DCA 2014) (“The [proper] payment defense provides that where an owner fulfills all the duties the Mechanics’ Lien Law places upon him, his liability for all mechanics’ lien claims cannot exceed the contract price.”) (internal citation omitted). But, for the proper payments defense to apply, an owner is required to comply with the requirements of Florida’s Lien Law. An owner makes proper payments by obtaining progress payment affidavits in consideration of each progress payment made to the contractor (and a final payment affidavit in consideration of the final payment) and by getting progress / partial lien wavers and releases from the contractor and subcontractors and suppliers that preserved their lien rights (and a final lien waiver / release in consideration of final payment).