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!