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October 13, 2011
LAW under CONSTRUCTION is back to its regularly scheduled programming. Some interesting cases have been decided over the last few months, including a recent decision from the Indiana Court of Appeals on mechanic’s lien priority. You may recall a similar post here.
In City Savings Bank n/k/a LaPorte Savings Bank v. Eby Construction, LLC, a construction company sought to foreclose a mechanic’s lien related to costs and materials it provided during the construction of buildings and other facilities on some commercial real estate. The bank had previously loaned money to the owner of the property to fund the construction, loans which were secured by mortgages on the real estate. The construction company asserted that its mechanic’s lien had priority over the liens held by the bank.
The trial court held that although Indiana statutory and case law provides that the mortgages should have priority over the later-recorded mechanic’s lien, the mechanic’s lien has priority over the mortgages pursuant to principles of equity and on public policy grounds. Thus, the court ruled in favor of the construction company.
On appeal, the decision of the trial court was reversed. The Court of Appeals first noted that it has previously held “[w]ith regard to commercial property, where the funds from the loan secured by the mortgage are for the specific project that gave rise to the mechanic’s lien, the mortgage lien has priority over the mechanic’s lien recorded after the mortgage.” Citing Harold McComb & Son v. JP Morgan Chase Bank, 892 N.E.2d 1255 (Ind. Ct. App. 2008). Since it was undisputed that the mortgages were recorded before the mechanic’s lien, the Court of Appeals held that the mortgages were superior.
The court went on to say “[t]he trial court, although attempting to use its equitable powers to achieve what it believed to be a more fair and balanced result, failed to appreciate the importance of the doctrine ‘equity follows the law.’ While equity has the power, where necessary, to pierce rigid statutory rules to prevent injustice, where substantial justice can be accomplished by following the law, and the parties’ actions are clearly governed by rules of law, equity follows the law. Because there is nothing in the designated evidentiary material to indicate that substantial justice cannot be accomplished by following the law, and the parties‟ actions are clearly governed by our priority statutes, equity must follow the law.”
The full text is available here.
June 20, 2011
In one of my first posts, I discussed changes to the A312 Performance Bond. As I mentioned in that post A312 Bonds are widely used on many projects. The golden rule when facing a default on a project is to read the bond. Most bonds list certain conditions that must be met before an enforceable claim may be asserted against the bond. In a relatively new case, decided by the Indiana Court of Appeals, the Court has reinforced this mandate.
In the Town of Plainfield v. Paden Engineering Co., Inc. 943 N.E.2d 904 (2011), which can be found here, the Court granted partial summary judgment in favor of the surety. The Court held that the claimant did not satisfy conditions necessary to recover from the surety on an A312 Bond. Here are some of the most important points to take away from this case as it relates to making a claim against an A312 Bond:
- Read the Bond. In order to recover on a bond certain conditions must be met. In this case, an A312-1984 Performance Bond, the surety’s obligations is triggered only after (1) the Owner has notified the Contractor and the Surety that the Owner is considering declaring a Contractor in default and request and attempt to arrange a conference with the Contractor and Surety no later than 15 days after receipt of the notice from the Owner; (2) the Owner declares the Contractor in default and formally terminates the Contractor’s right to complete the contract. The Owner must not declare the Contractor in default earlier than 21 days after the Contractor and Surety have received the first notice; and (3) the Owner has agreed to pay the balance of the contract price to the Surety.
- In Indiana, there is a Rebuttal Presumption of Prejudice. Many times, if a claimant fails to meet the technical requirements of making a claim against the bond, such as late notice, the Court will look to see whether or not the surety was actually prejudiced by the technical failure. If the surety was not prejudiced, then the surety may still be liable under the bond. The Court in Paden Engineering affirmed Indiana’s position that if a surety asserts a defense of untimely notice there is a rebuttable presumption of prejudice in favor of the surety. The surety need not show actual prejudice. It is then the claimant’s responsibility to rebut this presumption of prejudice.
- A Contract of Surety is Not an Insurance Contract. The Court emphasized the unique nature of a surety contract. Insurance indemnifies another against loss, damage, or liability resulting from an uncertain event. A surety answers for the debt or default of another. Therefore, the Court held that a surety’s liability must be measured by the strict terms of the contract. (Insurance contracts are typically read in favor of the insured.) The Court summarized its position by stating “the Sureties are liable for no more than the contract provisions would dictate.”
Sureties have the unenviable job of taking responsibility where others have failed. Rightfully, before a surety is required to undertake responsibility it may dictate its rights and the terms for its takeover for payment or performance. I’ve said it once, and I’ll say it again and again, always read the Bond. There are steps that must be taken by a claimant before a surety is required to perform under the terms of the bond.
April 20, 2011
Back in October 2010, in our very first substantive post “OSHA crackdown coming?” (where oh where does the time go), Law under Construction reported the following:
OSHA announced on October 19, 2010 its intent to expand its interpretation of the word “feasible” as related to occupational noise exposure standards. Under current standards, a citation can be issued if a company fails to use engineering and administration controls (i.e. limit employee exposure) when they cost less than hearing conservation equipment or such equipment is ineffective. OSHA intends to update “feasible” to “capable of being done,” which will result in citations for not implementing engineering and administration controls unless such controls will put them out of business or threaten the company’s viability. OSHA is accepting comments on the proposed interpretation until December 20, 2010.
Well, it appears that the OSHA crackdown on this issue recently turned into an OSHA backdown, although those representing businesses and workers differ on whether this is a beneficial change. Earlier this year, OSHA withdrew this proposed change to workplace noise standards, which, if adopted, would basically have required employers to adopt increased safety measures to protect the hearing of employees instead of just providing them with ear protection gear, such as ear phones. It appears that OSHA is exploring how to address the hearing loss issue without incurring these types of significant costs.
We will keep you updated here at Law under Construction if the proposed change resurfaces in some other form.
February 23, 2011
I wanted to take a break from my usual posts about more traditional construction issues and address a problem that contractors (and businesses in general) are increasingly facing: how to properly secure your long-term digital presence.
As a personal intro, my father, the owner of a mechanical construction company, recently discovered the wonders of the internet, including “the Google” and YouTube (solely for guitar videos). Since pigs are officially flying, I figure it is only a matter of time before all contractors bring their presence online.
As a professional intro, I was recently involved with a matter that addressed many of these issues. Thus, hopefully this post will help organizations deal with these issues before they turn into litigation.
First Issue: Domain names
Securing the proper domain name (www.????.com) for your organization is often the first place to start when creating a website. Getting a domain name involves registering the name you want with an organization called ICANN (Internet Corporation for Assigned Names and Numbers, a non-profit company that contracts with the government) through a domain name registrar (like GoDaddy.com).
For instance, if you choose a name like “example.com”, you will have to go to a registrar, pay a registration fee that costs between $10-$35. That will then give you the right to the name for a year, and you will have to renew it annually for the same amount (generally).
If a domain name is available, it is yours. Basically, think of it as a digital version of the Oklahoma land rush. Domain names have been disappearing extremely fast. Thus, if you want a domain name for your site (or future site), act now, or face the agony of having someone else scoop it up first. After all, $10 for a year’s ownership of the domain name is minimal compared with losing the perfect name for your website. And, if the domain is already taken, you can always try to buy it from the current owner (but this is often cost prohibitive).
Now what if a domain name that clearly represents the trademark of your company, such as http://www.uniquecompanyname.com, is already taken. There are options to gain control if you think someone has registered your trademark with only the intent to profit by selling it to you (often referred to as “cybersquatting”). Note: generally, a trademark is a distinctive sign or indicator used to identify a company’s products or services to consumers, and to distinguish its products or services from those of other entities.
First, all registrars must follow the Uniform Domain-Name Dispute-Resolution Policy (“UDRP”). Under the policy, most types of trademark-based domain-name disputes must be resolved by agreement, court action, or arbitration before a registrar will cancel, suspend, or transfer a domain name. However, disputes alleged to arise from abusive registrations of domain names (i.e., cybersquatting) may be addressed by expedited administrative proceedings that the holder of trademark rights initiates by filing a complaint with an approved dispute-resolution service provider.
Second, you can also file a lawsuit in federal court under the Anticybersquatting Consumer Protection Act (“ACPA”). The purpose of the law is to thwart cybersquatters who register domain names containing trademarks with no intention of creating a legitimate web site, but instead plan to sell the domain name to the trademark owner or a third-party.
Generally, a UDRP proceeding can be faster and cheaper for trademark owners than an ACPA lawsuit
Second Issue: Dealings with information technology (“IT”) vendors
In creating and maintaining a website, organizations often rely heavily on internet consultants or vendors, as this is specialized knowledge and is generally better in the hands of professionals. However, there are risks to such relationships, which can be minimized. For example, when registering a domain name with a registrar (see above), you have to provide the name of the “registrant.” The registrant is generally presumed to be the owner, so if your vendor registers as the registrant, it may lead to issues later if you transfer vendors and want to take your domain name with you.
Also, vendors often contract with other third parties for hosting services or to acquire licenses and software on behalf of the client. These contracts could provide that ownership of the licenses or software is with the vendor.
Overall, any organization that outsources its IT work should have a clear contract that lays out the rights and liabilities of the parties, which may include: specifying what is being purchased, identifying the owner of all relevant items, providing for a smooth unwinding of the relationship at the end of the term, and requiring the vendor to help in a transition.
The irony of a post on an internet blog about helping companies get an online presence is not lost on me. However, my hope is that anyone with access to “the Google” can find this post and gain some helpful information.
February 4, 2011
As I am digging out from a trial (which explains my recent absence from the blogosphere) and digging out from the icepocolypse here in Indianapolis, I wanted to take a break and share some insight regarding document collection issues.
As is often the case in most lawsuits, parties are requested to search for and collect documents relevant or related to the issues in the lawsuit. Such requests are often called requests for production, document requests, or subpoenas (if you are not a party to the lawsuit).
Under Indiana law, a party has a responsibility to perform a reasonably diligent search to locate the requested documents. Now, what constitutes a reasonably diligent search is a very fact intensive inquiry depending on the specific situation, such as whether the documents are maintained in electronic or hard copy form, whether there is a document retention policy, and whether litigation is anticipated, to name a few.
Nowadays, with the emergence of smartphones, tablet PCs, on site wi-fi, etc., all of which are creating a paperless process for most contractors, the paper chase that has long been synonymous with construction is steadily decreasing. Thus, performing a reasonably diligent search for electronically stored information has becoming an even more challenging process.
While I strongly recommend consulting with a qualified attorney regarding the specifics of any document collection you may be facing, I wanted to share a few of the sanctions that can be imposed if a party fails to meet its diligence requirements. These aren’t meant to scare anyone, but rather to provide the possible sanctions, depending on the degree of disobedience. While these generally apply when a party refuses to produce requested documents pursuant to a court order, they can also apply when a party represents that they cannot locate documents, the documents were destroyed, or the documents do not exist, when, in actuality, the party failed to search for them.
Under Indiana law, if a party fails to make or cooperate in discovery it can be subject to the following sanctions:
- Certain designated facts can be taken as established without evidence;
- Refusing to allow the disobedient party to support or oppose designated claims or defenses;
- Prohibiting a party from introducing designated matters in evidence;
- Striking out pleadings or parts thereof;
- Staying further proceedings until the documents are produced;
- Dismissing the action or proceeding or any part thereof;
- Rendering a judgment by default against the disobedient party;
- Contempt of court;
- Requiring the disobedient party or the attorney advising him or both to pay the reasonable expenses, including attorney’s fees, caused by the failure.
On an additional note, absent exceptional circumstances, a court may not impose sanctions on a party for failing to provide electronically stored information lost as a result of the routine, good faith operation of an electronic information system.
Hopefully this post will help you avoid such perils. Now if only I can avoid the perils of my outdoor ice rink, a/k/a my driveway…
January 11, 2011
Happy 2011!! Now that the ball has dropped, the champagne is drunk, and the glitter is gone, it is time to commit to your New Year’s resolutions. One of my ongoing resolutions is stay on top of all deadlines. So, with my outlook calendar in hand and reminders popping up faster than popcorn, I wanted to remind all of our Indiana contractors of the deadlines for submitting payment bond claims and the suit limitations period for filing suit against sureties on various Indiana public projects. Again, it’s always a good idea to consult with an attorney to make sure that you have complied with all notice and suit requirements as well as any deadlines.
Indiana does not require payment bonds to be posted on private projects. If a bond is posted the deadlines for filing a claim and filing suit will be outlined in the bond. It is also essential that regardless of the statutory deadlines, you should always read the bond. If the bond enlarges these time periods, the deadlines in the bond will control.
There are four different types of public projects in Indiana. It’s important to know which type of project you are working on so that you are aware of your statutory rights and obligations. The four types of projects are:
Title 4 State Projects – Indiana Code §4-13.6-1-1 et seq.
Title 4 projects are Indiana state public works projects solicited by the Indiana Department of Administration, the Public Works Division. Unless the bond provides for a greater period of time, a claimant must file a claim with the Public Works Division and the surety within 60 days from the last date labor was performed, material furnished or service rendered. If you have submitted your notice of claim and have not yet been paid, you must wait at least 30 days before filing suit against the surety to recover under the Bond. However, any suit must be brought against the surety within 1 year after final settlement of the contract with the contractor.
Title 5 State Projects – Indiana Code §5-16-1-1 et seq.
Any Indiana state public works project not covered under Title 4 or Title 8 are Title 5 projects. In order to make a claim against the bond on a Title 5 project, the claimant must file a verified claim with the state agency that commissioned the project within 60 days after completing labor or furnishing materials. The state agency will furnish a copy of the claim to the surety. The claimant must then wait at least 30 days. If payment has not been received a suit may be filed against the surety. Any suit against the surety must be brought within 60 days from the date of the final completion and acceptance of the project.
Title 8 Indiana Department of Transportation Projects – Indiana Code §8-23-9-1 et. seq.
Title 8 covers any project for the Indiana Department of Transportation. In order to make a claim on a bond posted for a Title 8 project, a claimant must within 1 year after acceptance of the labor, material, or services by the Commissioner furnish the surety a statement of the amount due. The claimant must wait at least 60 days after furnishing the statement to file suit against the surety. The claimant must bring any action within 18 months from the date of final acceptance of the project by the Commissioner.
Title 36 Local Government Projects – Indiana Code §36-1-12-1 et. seq.
Title 36 projects are projects for local governments, political subdivisions or their agencies. A claimant must within 60 days of last performing labor or furnishing material file with the local government board a signed statement of the amount due. The board will forward the statement to the surety. The claimant must then wait 30 days. If payment has not been received, a suit may be filed against the surety. Any suit against the surety must be brought within 60 days after the date of the final completion and acceptance of the project.
Dizzy yet? It can be difficult to keep track of things. So here is a quick reference guide. LAW under CONSTRUCTION wishes you Happy and Profitable New Year!
|Project Type||Notice of Bond Claim Deadline||Grace period before filing suit||Suit Against the Surety Deadline|
|Title 4||60 days from the last date of labor performed, material furnished or services rendered||30 days after filing notice to file suit against the surety||1 year from final settlement with the contractor|
|Title 5||60 days after completion of labor or service or within 60 days after last item of material was furnished||30 days after filing notice to file suit against the surety||60 days from the date of final completion and acceptance of the project|
|Title 8||1 year after acceptance of the labor, material, or services by the Commissioner furnish the surety a statement of the amount due||60 days after furnishing the statement to file suit against the surety||18 months from the date of final acceptance of the project by the Commissioner|
|Title 36||60 days from the date of last performing labor or furnishing materials||30 days after filing the notice of claim||60 days after the date of final completion and acceptance of the project|
December 29, 2010
I hope everyone is having a nice holiday season. After digging out from a pile of work, and dusting the Christmas cookie crumbs off my keyboard, I was able to catch up on a few recent decisions from the Indiana Court of Appeals. And wouldn’t you know, the court left two decisions addressing the priority of mechanic’s liens under my tree. So I wanted to take a moment to update you on these two decisions before returning to the last of my Christmas cookies (if I can find where my wife hid them!).
On December 22, 2010, the court handed down Robert Neises Construction Corp. v. Grand Innovations, Inc, et al.
The facts: Grand Innovations borrowed money to construct a single family residence pursuant to a mortgage that was properly recorded. Neises was hired to help construct, and, yadda, yadda, yadda, filed a mechanic’s lien against the real estate and a complaint to foreclose the lien. The bank then filed to foreclose the mortgage.
Issue 1: The bank asserted that Neises “left the property in jeopardy of being destroyed or subject to significant damage due to the weather,” including a lack of roof and wrapping the exposed framing. The bank paid another contractor to install a roof and otherwise protect the structure. The bank sought priority over the mechanic’s lien for the expenses to protect the partially-constructed house. Neises opposed, citing the lack of any provision in the statute for such “super prioritization.”
The court noted that an action to foreclose on a mortgage is essentially equitable in nature and that the bank’s actions were for the “benefit of all” the lienholders and not unreasonable or ill-advised. Thus, because all parties were engaged in a “common enterprise” and each benefited from the measures, the preservation expenses properly received priority over Neises’ mechanic’s lien.
Issue 2: Neises also argued that its mechanic’s lien, filed in July, should have a higher priority than the mortgage lien because it began construction in April, which it argued should be the effective date of the lien. The court rejected because “the plain language of the statute provides that the lien is created when the statement and notice to intention to hold a lien is recorded.” Further, the “relation back” provisions of the mechanic’s lien statute apply to obtaining compensation for work done since the project began, not lien priority. Regardless, the court also found that it is well-settled that a mortgage lien for the construction of a house has the same priority as all mechanic’s liens. Thus, pro-rata distribution was appropriate.
On December 27, 2010, the court handed down McIntyre Brothers, Inc. v. Henderson, et al.
The facts: The Hendersons owned commercial property in Indiana that was destroyed by a fire. McIntyre has hired to clean up the debris and construct a new building on the property, and, yadda, yadda, yadda, filed a mechanic’s lien against the property. Subsequently, a bank loaned money to the Hendersons to pay off two mortgages that pre-dated the filing of the mechanic’s lien. The bank, however, failed to discover the mechanic’s lien held by McIntyre. In subsequent foreclosure proceedings, lien priority was disputed.
The issue: The bank claimed that the doctrine of equitable subrogation (lawyerese for “step in the shoes” of the mortgagee refinanced) granted priority to its mortgage lien, to the extent the funds were used to pay off one of the pre-existing mortgages. McIntyre countered that the bank was not entitled to equitable subrogation because of its culpable negligence in not discovering the lien when refinancing. The court, relying on Bank of New York v. Nally, found that the proper inquiry was not whether the bank had notice, but whether the intervening lienholder was prejudiced, (although “culpable negligence” on behalf of the bank was still relevant, although none existed in the case). Thus, since the mortgage existed prior to McIntyre’s work and McIntyre would have expected it to be superior, there was no prejudice and equitable subrogation applied.
Happy New Year from Law under Construction! Now… where are those cookies….
December 17, 2010
This post, which provides an overview of basic strategies for contractors, subcontractors and suppliers who are faced with non-payment from a bankrupt entity on a project, can be found on Construction Law Musings, Christopher Hill’s excellent construction law blog (our second guest posting honor) (click HERE). I hope you won’t have a construction project affected by a bankruptcy any time soon, especially as we emerge from the recession. But just in case you do, check out my post and be prepared for getting paid for work you performed or materials you supplied.
December 13, 2010
Well . . . a game-changer if you are a player in the expert-witness-in-federal-court game. So, for such experts out there, construction, design or otherwise, or anyone who regularly retains an expert, read on. Effective December 1, 2010, the Federal Rules of Civil Procedure were amended, and Rule 26 received several significant changes concerning experts.
The backdrop: Since 1993, Rule 26 has been interpreted to permit discovery of all communications between an attorney and expert witnesses, as well as all draft expert reports. As a result, some attorneys went to great (and often costly) lengths to avoid creating a discoverable record.
Two significant changes to the game:
First, draft expert reports are now protected under the work-product doctrine, which prevents most documents created in preparation of litigation from being discovered by opposing counsel. Rule 26(a) now expressly protects “drafts of any report or disclosure required under Rule 26(a), regardless of the form in which the draft is recorded.”
Second, the revised rule now limits the discoverability of communications between experts and attorneys who retain them. Most communications are now protected. As with most legal rules, there are exceptions: (1) communications related to an expert’s compensation; (2) communications regarding facts or data provided to the expert and the expert considering in forming the expert’s opinion; and (3) assumptions provided to the expert and the expert considering in forming the expert’s opinion.
These changes may enable attorneys to avoid engaging multiple experts (i.e., consulting, testifying) to avoid creating discoverable material. Also, they may open the door to qualified experts that were unwilling to serve as experts under the old rules. And more drafts could promote better final reports. Finally, these changes may help reduce costs for parties engaged in litigation involving experts, such as many construction disputes. Always a good thing.
Remember that these are amendments to the Federal Rules of Civil Procedure, and only apply in federal courts. It remains to be seen if states will adopt the same principles to govern experts in state courts. Indiana has generally modeled its rules after the Federal Rules, and perhaps will follow suit. We will keep you undated here at LAW under CONSTRUCTION if there are any further developments.
There are, of course, other changes to the Rules, so please consult a qualified attorney regarding all of the amendments to the Federal Rules. Also, the amendments to Rule 26 are not retroactive and, therefore, absent an agreement, communications and draft reports prepared before December 1, 2010, may still be discoverable, so again, consult with a qualified attorney.
Finally, these amendments are new and their bounds untested, so counsel and clients must still be careful when communicating with experts in connection with litigation.
All-in-all, the game has improved.