by Mark A. Cobb
In its December 3, 2013 ruling, the U.S. Supreme Court took a very important stand in favor of subcontractors! For those of us watching Atlantic Marine Construction Co., Inc. v. United States District Court for the Western District of Texas, et al. closely, we were delighted to see that the Supreme Court upheld the laws of twenty-four states (which impacts every state) to limit the uses of forum-selection clauses in construction contracts.
What is a Forum Selection Clause? Forum selection clauses are very common in all types of contracts as they establish the jurisdiction where a dispute related to the contract will occur. In other words, for example, a California general contractor and a subcontractor from Alabama working on a project in Georgia might agree in their subcontract agreement that any and all disputes related to their contract will be resolved in Georgia as that is the project’s location. This makes sense as both parties were working in Georgia, the building in dispute is in Georgia, many of the witnesses were or are in Georgia, and it involves Georgia real estate.
Do Forum Selection Clauses in Construction Contracts Differ from Forum Selection Contracts in Other Business Agreements? Yes, and that’s the impact of this case. In the most general terms, forum selection clauses in commercial contracts tend to be enforceable. Construction contracts, however, have very significant public policy consideration as well as issues related to state and federal laws. Specifically, many states have enacted statutes which either void or make voidable forum selection clauses in construction contract. States have singled out construction contracts due to public policy related to the situs of the project among other reasons.
Why do Some States Limit the Terms of Forum Selection Clauses? Imagine in the example above regarding the California general contractor, that the contract selected California as the proper jurisdiction for all disputes. It might not be as fair for many reasons including California’s natural tendency to favor its citizens (in the case the general contractor); frequently, the general contractor has deeper pockets than the specialty subcontractor so to require the Alabama subcontractor to enforce its rights in California could be very expensive, the costs to fly witnesses located in the project’s location (Georgia) is time-consuming and expensive, and, frequently, subcontractors have limited opportunity to negotiate the terms of their contracts. Furthermore, and perhaps most importantly, the dispute would involve a construction site or building located in Georgia. Thus, many state legislatures have put limits onto the use of forum selection clauses in construction contracts.
What Happened in the Recent Case Decided by the Supreme Court? In Atlantic Marine Construction Co., Inc. v. U.S. District Court for the Western District of Texas, a Virginia-based general contractor, Atlantic Marine, hired a subcontractor named J-Crew Management, Inc, a Texas corporation, to build a child care facility in Fort Hood, Texas. And, the subcontract between Atlantic Marine and J-Crew contained a forum-selection clause requiring that all disputes “shall be litigated in the Circuit Court for the City of Norfolk, Virginia, or the United States District Court for the Eastern District of Virginia, Norfolk Division.”
J-Crew, in turn, subcontracted some of its work to sub-subcontractors who were located in or near Fort Hood, Texas (very close to the project). All of J-Crew’s work was performed in Texas, and all of the sub-subcontractors work was performed in Texas. At the close of the project, however, J-Crew was owed almost $160,000 even though it had timely completed its work. In order to recover the amount due, J-Crew brought suit against the general contractor in Texas (in the federal district where the project was located). The general contractor, Atlantic Marine, citing the forum-selection clause contained in the construction subcontract, moved to dismiss or transfer J-Crew’s case to federal court in Virginia.
The Trial Court’s Decision: Because the project occurred solely in Texas, the claim arose in Texas, all of the participants had been in Texas, and most of the evidence concerning the claim was located in Texas, the trial court agreed with J-Crew and refused to transfer venue to Virginia. Furthermore, the Texas legislature had enacted a statute which states that construction contracts for improvements to real property located in Texas are “voidable by the party obligated by the contract to perform the construction” if the contract requires litigation in another state.
Federal Appeals Court Upholds State Law: In response to the trial court’s ruling, Atlantic Marine appealed to the Federal Court of Appeals to seek enforcement of the forum-selection clause, but the appeals court agreed with the trial court. Finally, Atlantic Marine appealed to the U.S. Supreme Court, which granted review. The Supreme Court heard oral arguments in the case in October and handed down their ruling this week.
Why The U.S. Supreme Court Upheld the Trial Court’s Decision: The Supreme Court recognized states rights in not overruling the Court of Appeals Decision. And, in fact, the Supreme Court’s holding states that when a federal court considers the forum for a case, “the court should not consider the parties’ private interests aside from those embodied in the forum-selection clause; it may consider only public interests.” By authorizing public policy as a part of a court’s decision to transfer or dismiss a case, the Supreme Court recognized state sovereignty as well as the need for public interest to enforce states laws.
Important Lessons for Subcontractors and Suppliers: Although Atlantic Marine did not render all forum selection clauses in construction contracts unenforceable, it does permit a balance between parties’ rights to contract and public policy. In addition, Atlantic Marine is a great reminder of the importance that even a seemingly insignificant subcontract term can hold in a construction contract. Frequently, forum-selection provisions are buried deep within the “boiler plate” terms of the construction contract; parties entering into contract must pay attention to each of these terms including the forum selection clauses.
by Mark A. Cobb
A Georgia Court of Appeals recently published its opinion in Board of Regents of the University system of Georgia v. Brooks, and the holding impacts businesses providing janitorial and general maintenance on Georgia’s public buildings.
The Background Facts: The Plaintiffs’ employer entered into a maintenance and service contract with Georgia Southern University (“GSU”) which included the cleaning of rooms and the refinishing of floors. In order to secure the contract, the employer submitted a payment bond to GSU, and the employees began working on the campus. The employer, however, did not pay its employees; thus, the employees made a claim against the payment bond for payment of their past due wages. Upon further investigation, it was determined that the employer had forged the payment bond. Consequently, the employees became the plaintiffs in a lawsuit against the Board of Regents alleging that GSU owed a duty to the Plaintiffs to “obtain, confirm and [e]nsure the existence of a valid payment bond under O.C.G.A. §§ 13-10-62 and 13-20-63″ (which is often called “The Little Miller Act”).
GSU’s Argument: The Board of Regents denied all liability. Among its arguments, the Defendant argued that the suit was barred by the doctrine of sovereign immunity. More specifically, the Defendant argued that the claim was a tort claim based upon negligence, and, as such, the case was governed by the Georgia Tort Claims Act (and not by the payment bond requirements of the construction of public works projects of Title 13). Consequently, the Defendant argued that GSU was entitled to sovereign immunity from all tort suits, including this one, and that the doctrine of sovereign immunity extends to employees of the State of Georgia while acting within the scope of their official duties or employment.
The Court’s Ruling: Although the Plaintiffs insisted that O.C.G.A. §§ 13-10-62 and 13-10-63 required a payment bond for the Plaintiffs’ protection, the Georgia Court of Appeals found that the Plaintiff’s failed to demonstrate that these code sections were applicable in this specific instance. Since the requirement for a payment bond was not proven, then, the court reasoned, the doctrine of sovereign immunity applied.
When Are Payment Bonds Required on Georgia Public Works Projects? According to O.C.G.A. § 13-10-60, Payment bonds are required for “public works construction contracts with an estimated contract amount greater than $100,000.00.” Although the phrase “public works construction contracts” is not defined in Chapter 10 of Title 13, the Court of Appeals noted that the same phrase is defined in the statutory scheme governing local government public works construction (which is substantially similar to the statutory scheme governing public works owned by the State of Georgia). According to O.C.G.A. § 36-91-2(12), the term “public works construction” means “the building, altering, repairing, improving, demolishing of any public structure or building . … Such term does not include the routine operation, repair, or maintenance of existing structures, buildings, or real property.”
What is the Lesson for Subcontractors Working on Public Projects? In this case, Plaintiffs did not submit the entire GSU contract into the record, and the complaint and portions of the GSU contract which were included in the record show only that the contract was for maintenance and other services, such as cleaning services. Consequently, the Plaintiffs failed to establish that their contract was for public works construction and, accordingly, a payment bond was not required by law. Therefore, prior to bringing a suit against a payment bond, it is vital to determine whether or not a payment bond was required for a specific contract.
Are there Other Important Lessons from this Case? Yes! Since the original payment bond submitted by the Plaintiffs’ employer was forged, the Plaintiffs also argued that GSU had a duty to confirm the validity of the payment bond. The court also held that Plaintiffs failed to demonstrate the state’s duty to verify the accuracy of the payment bond and reminded us that when the Board of Regents takes a proper-form bond, it is “not required to make any further inquiry or investigation into the propriety of the information presented on the face of the payment bond.” It is incumbant upon the subcontractor or supplier to confirm the validity of the payment bond on which they work or supply materials.
by: Mark A. Cobb
As members of the American Subcontractor’s Association (“ASA”), the Cobb Law Group is pleased to pass along the following information from a recent ASAToday weekly news bulletin:
“ASA is asking the Georgia Supreme Court to overturn a decision that ASA warned ‘could result in increased liability to subcontractors, and the potential for greatly increased litigation costs and exposure’ in the Peach State and elsewhere. In a brief filed on July 2, ASA and other construction industry associations that joined the brief urged the high court to disallow third-party claims for damages related to work-related injuries that are normally addressed within the workers’ compensation system. In the underlying case, City of Atlanta, et al., Defendants-Appellants, vs. The Estate of Mack Pitts, the estate of a sub-subcontractor’s employee sued for recovery of damages from upper-tier contractors and the project owner after the employee was struck and killed by the sub-subcontractor’s vehicle and it was discovered that the sub-subcontractor had not obtained a contractually required $10 million automobile liability insurance policy. A trial court had entered a wrongful death judgment against the driver and the sub-subcontractor, but rejected the estate’s argument that the employee was a “third-party” beneficiary of the city’s ‘Owner’s Controlled Insurance Program,’ which was incorporated into the contracts and whose purpose was “to provide one master insurance program that provides broad coverages with high limits that will benefit all participants involved in the project.” An appeals court, however, held that employees such as Pitts working on the project were ‘participants’ and thus third-party beneficiaries of the contract entitled to sue all the other project contractors, even though the subcontracts contained a ‘No Third-Party Beneficiaries’ clause. ASA’s brief stated: ‘If it stands, the Court of Appeals’ decision will likely lead to successive waves of litigation seeking recovery from deep pockets in the construction process irrespective of fault or causation, as injured parties seek to capitalize upon the expanded application of the ‘third party beneficiary’ theory and the Court’s gutting of the workers’ compensation exclusive remedy defense.’
We’ll keep you up-to-date on the result!
As you are aware, Georgia’s lien statutes require that third tier suppliers and subcontractors (those not in privity of contract with either the general contractor or the owner) file Notices to Owners IF the general contractor or the project owner filed a Notice of Commencement. Furthermore, according to the Georgia statutes, the Notice of Commencement must be filed within fifteen (15) of the commencement of the project. The Georgia Code also states, “The failure to file a Notice of Commencement shall render the provisions of this Code section inapplicable.”
So, what happens when the Notice of Commencement is not filed within fifteen days?
In a recent court of appeals decision (Southeast Culvert, Inc. v. Hardin Bros., LLC), the Georgia Court of Appeals gave general contractors some guidance on this question. In the case, the general contractor had filed its Notice of Commencement approximately 23 days after commencing work on the project; thus, the lien claimant argued that (i) because the GC filed its lien more than fifteen days after beginning work, (ii) the Notice of Commencement was not valid, and (iii) suppliers and subcontractors do not have an obligation to file a Notice to Owner is the Notice of Commencement is not valid.
The Georgia Court of Appeals did not agree with this reasoning; instead, it held that an eight-day delay in filing the Notice of Commencement did not relieve the lien claimant of its obligation to provide a Notice to Contractor. The court reasoned that neither party disputed that a Notice of Commencement had been filed–it was disputed whether the delay in filing the Notice of Commencement invalidated the supplier’s obligation to send an NTO. The court held that the code section which states “The failure to file a Notice of Commencement shall render the provisions of this Code section inapplicable…” was not applicable to this case. The Court reasoned that this code section applies only when there has been a total failure to file a Notice of Commencement at the time when a materialman must give a written Notice to Contractor to perfect its lien. There was no such total failure to file a Notice of Commencement here, merely an untimely filing.
We would love to hear whether you think this is a wise decision so please leave a comment below! If you have any questions, please do not hesitate to contact us.
We are always on the lookout for cases which affect our clients’ right to file materialmen’s liens; last week, the Georgia Court of Appeals handed down a decision that allows general contractors a little leeway with getting their Notices of Commencement correct.
Basically, the fact of the case are very common: a supplier to a subcontractor was not paid on a construction project so the supplier filed a Georgia Materialmen’s Lien for the amount due. They sued the subcontractor and prevailed; however, the subcontractor was unable to pay the debt, so the supplier looked to the supplier’s lien which it had filed to pay the debt.
The Real Property Owner’s Argument: Unfortunately, the supplier had not sent out it’s Notice to Owner or Notice to Contractor (hereinafter “NTO”) which, as we know from other blog entries, is essential for all third tier subcontractors and suppliers. Thus, the owner of the property showed the court that (i) it had timely filed a Notice of Commencement, (ii) the supplier failed to send an NTO, and (iii) consequently, the supplier’s lien was invalid.
The Supplier’s Argument: The supplier acknowledged that when a Notice of Commencement is filed, all third tier suppliers and subcontractors must send an NTO within 30 days of beginning to work on the project in order to preserve their lien rights. However, as the supplier pointed out there is an exception to this requirement for an NTO: if the Notice of Commencement was not proper, then there is no obligation to send an NTO. In this particular case, the supplier argued that the Notice of Commencement failed to include the general contractor’s telephone number (which is statutorily required).
The Court’s Decision: The Georgia Court of Appeals noted a fundamental principal of Georgia’s mechanic’s and materialmen’s lien laws–that lien statutes in derogation of the common law must be strictly construed in favor of the property owner and against the materialman. The court then discussed the difference between absolute compliance and “substantial” compliance. The court, thus, comes to the conclusion that the Notice of Commencement which contained all the necessary information except for the general contractor’s telephone number substantially complied with the lien statutes. Therefore, the court reasoned, the Notice of Commencement was valid, and the supplier’s failure to send the Notice to Owner invalidated the mechanic’s lien.
Some good news for suppliers in Georgia: On a brighter note, the court underscored the difference between information which was vital to the success of the Notice of Commencement such as the owner’s information or the real property description and the missing telephone number.
Please let us know your opinion regarding the Georgia’s Court of Appeal’s interpretation of the Georgia lien statutes!
Before the weekend starts, we wanted to comment on the recent flurry of Georgia cases involving mechanics and construction liens. There have been multiple rulings, and I’m pleased to report that for the most part, they interpret Georgia’s lien laws in favor of material suppliers, subcontractors, and lien claimants!
In the next several posts, we’ll be giving you more details on at least four recent decisions affecting your ability to comply with Georgia’s Mechanics and Materialmen’s Statute. But, we are going to start with the one case which is not as favorable towards lien claimants as the other cases we will tell you about shortly.
You may remember from our blog post Some Bad News For Georgia Lien Claimants, that the Georgia Court of Appeals came down with a heavy hand regarding typographical errors contained in liens in the matter styled Handy Andy of Eastman, Inc. v. Evans. In that blog post, I expressed hope that the lien claimant would appeal the Court of Appeals ruling to the Georgia Supreme Court. They did! I am sad to say, however, that Georgia’s Supreme Court upheld the lower court’s ruling, and they found that the material supplier’s failure to strictly comply with the notice provision of materialman’s lien statute invalidated its claim of lien.
Regardless, this ruling is not as bad as it may seem at first blush.
In the written opinion of the Court of Appeals, the court seemed to place a great deal of emphasis on a typographical errors (see previous blog post for the factual background) which led them to the conclusion that typographical errors could be fatal to the enforcement of a supplier’s lien in Georgia. The Supreme Court, on the other hand, emphasized that the particular typographical error resulted in an incorrect notice to the real property owner. Thus, the Georgia Court did not say that any or all typographical errors could invalidate a mechanic’s lien; instead, it is the specific typographical mistake which might invalidate a lien.
In the Handy Andy case, the alleged typographical errors were contained in a statutorily mandated section. This section gives the owner of the real estate which is liened a notice about the applicable law. In fact, there were two such errors contained in this mandated section in the mechanics lien filed by Handy Andy. Thus, the Supreme Court found that Handy Andy’s lien as written gave the real estate owner misinformation regarding Georgia’s Lien Law. Since Handy Andy’s lien provided the owner with incorrect information, the court reasoned that the lien claimant (Handy Andy) did not “strictly comply” with the requirements for enforcing a materialmen’s lien in Georgia. The court went on to remind us all that, “Strict compliance with the materialman’s lien statutes is required because a materialman’s lien effectively permits the transfer of liability from the person who actually contracted with the materialman for materials to be used in improving real estate to the owner of the improved property, even though that property owner usually will have no relationship with the materialman, contractually or otherwise.”
Handy Andy lost its lien due to two errors contained in a very important part of the lien. Thus, it is incumbent on lien claimants to file their Georgia mechanics liens correctly. We cannot urge potential lien claimants to contact a Georgia construction law firm such as the Cobb Law Group to help them file a valid Claim of Lien.
Please leave your comments regarding the Georgia Supreme Court’s holding. Do you think it is fair?
In our last blog we told you about some bad news to Georgia’s Lien Claimants, but we promised to share some better news in this installment. In addition to the case discussed in our last article, a second Georgia Court of Appeals case styled, Georgia Primary Bank v. Atlanta Paving, Inc., offers some hope for those subcontracting or suppling on Georgia construction projects.
In this case, Atlanta Paving, Inc. performed work on a construction project, but it did not get paid; so, on June 5, 2008, Atlanta Paving filed its materialmen’s lien against real property located in Dawson County, Georgia. Five days prior to the lien’s filing, Georgia Primary Bank, as the construction lender for the project, closed on its loan with the project owner, and took a security interest in the project. The bank, however, did not file its Deed to Secure Debt in the real estate records until June 10, 2008. Thus, the materialmen’s lien was filed in the interim period between a loan closing and the recordation of the loan closing documents.
So, what’s a construction lender to do?! The bank sought to defeat the materialmen’s lien on two points: (i) that the bank’s deed to secure debt was superior to the materialmen’s lien, and (ii) that an affidavit the bank received as a part of its loan closing promised that “CONTRACTOR represents and certifies that it has been (or will be, upon receipt of the amount described in paragraph 2) paid in full all amounts and bills due for all labor, materials, fixtures and supplies …”
Thankfully for Georgia’s sub-contractors and suppliers, the Court Appeals upheld the trial court’s findings and agreed that Atlanta Paving’s lien was a valid lien subject to foreclosure!
Specifically, the Court of Appeals found that mechanic’s liens are “special liens” in Georgia, and as such, it is superior to all other liens not excepted by Georgia’s Lien Law (which construction mortgages as not). Thus, although the loan closing may have occurred on May 30, a materialmen’s lien filed on June 5 is superior to the loan closing documents filed on June 10. To quote the court, “It is well settled that ‘the filing and recordation of an instrument provides constructive notice to subsequent purchasers of the existence of a prior interest in the property’.”
PRACTICAL TIP NUMBER 1: File your Georgia Claim of Lien as quickly as you can.
The Appellate Court also found that the general contractor’s affidavit did not comply with the legal requirements of the Contractor’s Affidavit statutes. OCGA § 44–14–361.2(a) allows for the dissolution of a materialman’s lien only when the lien has been waived by the claimant or the contractor gives a sworn statement that “the agreed price or reasonable value of the labor, services, or materials has been paid or waived in writing by the lien claimant.” Here, the contractor swore that “all contractors, subcontractors, suppliers[,] and laborers have been ( or will be, upon receipt of the amount described in paragraph 2) paid in full. …” Thus, on its face, the release signed by the contractor was insufficient to satisfy the plain language of the statute, and the affidavit failed to extinguish Atlanta Paving’s lien.
PRACTICAL TIP NUMBER 2: Contractor Affidavits are tricky business so, if you are a contractor, make sure your affidavit conforms to Georgia’s requirements; if you are a subcontractor, don’t immediately assume that your lien has been voided just because you are presented with a Contractor’s Affidavit.
Please let us know about your thoughts and experiences!
Watch out for topographical errors in your Georgia liens!
There’s no way to say it, but we have some good news and some bad news for general contractors, suppliers, subcontractors and materialmen in Georgia. In the past month, two cases have been handed down by the Georgia Court of Appeals, and one of the cases has some bad news and the other case has some good news for Georgia’s lien claimants.
Typically, I think it’s a good idea to start with the bad news:
Every reader of this blog should know that anyone who files a materialmen or mechanic’s lien in Georgia must “strictly comply” with the Georgia lien statues. And, these statutes are precise and detailed, and we know that those who file liens are held to a very high standard. Recently, however, the case Handy Andy of Eastman, Inc. v. Evan, et. al. held “strict compliance” to an unbelievably high standard!
The facts are very simple, the Plaintiff (Handy Andy of Eastman, Inc.) supplied materials on a Georgia construction project; they were not paid, so they filed a supplier’s lien pursuant to the Georgia Mechanics and Materialmen’s Lien Statute. The lien, however, had to seemingly minor mistakes or typographical errors.
As we know, Georgia’s lien statute requires that any lien (filed after March 31, 2009), must contain the following notice in at least 12 point bold font: “This claim of lien expires and is void 395 days from the date of filing of the claim of lien if no notice of commencement of lien action is filed in that time period.” The failure to include this required language invalidates the lien. The materialmen’s lien filed by the Plaintiff included this phrase, but it differed in two respects:
First the Plaintiff’s lien said that the lien would be “void 365 days from the date . . . “ when it should have read that it would be “void 395 days from the date . . .”
Second, the Plaintiff’s lien omitted the word action so that it read that the lien expired “if no notice of commencement of lien” is filed within 365 days instead of “if no notice of commencement of lien action” is filed . . .
Although the Plaintiff argued that these changes were merely typographical errors and that the language in its liens not only substantially complied with the statute, but actually worked to the Defendant’s’ benefit, the Court of Appeals disagreed and held that the lien was invalid. This standard is extremely high, and if it becomes the precedent, liens may get invalidated to do the most trivial (and inevitable) human mistate. We can hope that the Plaintiff decides to appeal this matter to the Georgia Supreme Court, and trust that their decision will be more reasonable. Until then, you may ask, what are lien claimants supposed to do?
PRACTICAL TIP: Liens must be precise, it is very important that your liens do not contain any typographical errors!
Using the right Georgia lien forms is the first step to ensuring that your are on the right path to filing a claim of lien, but you must read and re-read the lien for accuracy in help improve the enforceability of your lien. Please contact the Cobb Law Group if you have any questions or need to file any materialmen’s liens anywhere in the State of Georgia.
Now the good news: You can almost stop reading as this blog entry has gone on too long. There is another case which includes some good news for lien claimants in Georgia, but I’m going to save that for next week’s blog!
Until then, I would like to hear your thoughts about this ruling!
We love writing this blog! Particularly when two entries in a row provide good news to some of our clients (and prospective clients!)
Recently, the Georgia Court of Appeals ruled on the matter 3400 Partners, LLC v. Chavez (No. A11A0554). In this lawsuit, a painting and concrete subcontractor had filed a materialmen’s lien against a condominium and retail complex which he, subsequently, attempted to foreclose upon. Unfortunately, the subcontractor filed his lien with a conflict as to which property against which he intended to place the lien. The face of the lien claimed to lien “all buildings and improvements” of the entire condominium complex, but the legal description of the property to be lien only identified one unit of the complex. Thus, when the subcontractor brought the foreclosure proceeding the owner of the complex argued that the lien only covered one individual unit. After hearing both sides, the court looked at all the evidence and held in favor of the subcontractor!
Although it is very good news that the Georgia Court of Appeals upheld a materialmen and mechanics lien which may have been ambiguous, there are at least two lessons which every supplier and subcontractor in Georgia should take away with them.
First, make sure that the real estate against which you want to lien is properly identified. Although the conflicting property identification in 3400 Partners was ultimately resolved in favor of the subcontractor, it probably took a lot of the subcontractor’s time and money to pursue their Georgia materialmen lien rights. If steps had been taken to file a lien with consistent real estate description, then the supplier would have prevailed sooner (i.e., no appeal!) and at a much lower cost. Contact a Georgia Construction Lawyer to help you correctly identify the real estate.
Second, although the court ruled in favor of the Georgia supplier/subcontractor when the real estate was, arguably, incorrectly or incompletely identified, the court might not always decide the matter in favor of the supplier or subcontractor. The court, in this case, looked at all of the facts some of which included the language of the lien, the language of the legal description, the plat referenced in the lien, correspondence between the parties, the value of the work performed vs. the value of the individual condominium unit. Thus, the court’s ruling was fact specific–different facts or unprovable facts may have resulted in a different opinion. As a result, we are reminded that there are few clear answers, and your need to consult a Georgia lawyer to help you decipher your specific fact pattern.
If you know about any materialmen’s liens which have been contested based upon a confusing, incomplete, or conflicting identification of the real estate, let us hear from you!