Articles Posted in Construction Law

Nick-Siegfried-2013-thumb-160x240-60131For insight into the ramifications of important court rulings involving construction law in South Florida, the region’s most widely read and highly regarded business and real estate media outlets often turn to the expertise of our firm’s construction lawyers.  The latest example can be found in articles on an appellate ruling against the Trump National Doral golf resort that appeared today in the Daily Business Review, The Real Deal and South Florida Business Journal.  Journalists from all three of these outlets interviewed firm partner Nicholas D. Siegfried, who is board certified in construction law by The Florida Bar, and quoted him in their articles.

The litigation stems from The Paint Spot’s 2014 lien against Trump National Doral Miami, which is owned by companies belonging to President Donald Trump.  The paint supplier claimed it was due a final payment of approximately $32,000 from the resort.  The renovation project utilized two contractors, and a Trump representative inadvertently handed The Paint Spot incorrect contractor information for its pre-suit notice to owner.

The Trump company argued the lien was invalid because The Paint Spot had served the wrong contractor.  However, the appellate court ruled that the resort had actual knowledge of the supplier’s “notice to owner,” which had “substantially complied with statutory requirements.”

dbr-logo-300x57The end result for the Trump company is that by fighting the $32,000 bill, it will now end up paying well over 10 times as much just for the plaintiff’s attorney fees.  According to the report by the Daily Business Review, South Florida’s exclusive business daily and official court newspaper, the resort is now facing a legal tab of approximately $390,000 to cover the prevailing party’s attorneys’ fees and costs.

That’s because the circuit court ruling applied a risk, or contingency fee, multiplier of 1.75 to calculate The Paint Spot’s reasonable attorney rates, which amounted to approximately $284,000 prior to the appeal.  Now the company expects to tack on the multiplier for the appellate proceedings, multiplying the $75,000 it incurred on appeal also by 1.75.  In addition, the amount for the lien itself has ballooned with interest to about $50,000, and the costs for the resort’s own legal fees undoubtedly are also very substantial.

The article concludes:

“This is what happens in these cases.  Legal fees start to drive it,” said construction attorney Nicholas Siegfried, who was not involved in the litigation. “It appears that it got to a point where the parties were really fighting about the fees, and both sides dug in on their position,” he said.

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A 2015 opinion by the Fifth District Court of Appeal had significant ramifications for the application of the statute of repose in construction defect cases.  In response to the uncertainty created by the ruling, Florida lawmakers have introduced a bill to clarify one the trigger dates for the tolling of the statute of repose.

In Cypress Fairway Condominium v. Bergeron Construction Co., the condominium association brought suit on February 2, 2011 on behalf of the condominium, and as assignee of claims held by the general contractor, for recovery of more than $15 million in damages caused by construction defects.  Da Pau Enterprises, Inc., the only remaining defendant after other parties reached settlements, moved to dismiss and/or for summary judgment against the association, alleging that the statute of repose expired three days prior to the date the litigation commenced.

The statute of repose in Section 95.11(3)(c) provides that actions for latent construction defects must commence within 10 years of the last of the following four events:

  • the date of actual possession by the owner;
  • the date of the issuance of a certificate of occupancy;
  • the date of abandonment of construction if not completed; or
  • the date of completion or termination of the contract between the professional engineer, registered architect or licensed contractor and their employer.

At issue was the last of the four trigger events under Section 95.11(3)(c).  The defendant argued that the statute of repose commenced the date the contractor submitted its Final Application for Payment on January 31, 2001, which represented the “completion of construction.”  However, the association contended that the repose period did not begin until the date final payment was actually paid by the owner on February 2, 2001, which represented the date of the “completion of contract.”  The trial court disagreed with the association and granted summary judgment to the defendant, dismissing its claims.

5DCA-Court-House-300x183The Fifth DCA reversed, reasoning that the unambiguous statutory language of Section 95.11(3)(c) required the completion of performance of the contract by both parties, and not just the completion of the performance of the contractor’s duties under the contract.  The appellate panel concluded that the statute of repose was not triggered upon completion of construction.  It found that the final act for the “completion of the contract” was final payment, and not three days earlier when the Final Application for Payment was submitted.

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Nick-Siegfried-2013-200x300The firm’s Nicholas D. Siegfried authored an article that appeared as a “Board of Contributors” guest column in today’s edition of the Daily Business Review, South Florida’s exclusive business daily and official court newspaper.  The article, which is titled “Contractor’s Fraudulent Lien Doesn’t Mean Owner Automatically Wins,” focuses on the surprising results of a recent ruling by the Fourth District Court of Appeal involving a contractor’s lien that the lower court found to be fraudulent.  His article reads:

For those in the construction industry, the right to impose a lien against the improved property in the event of nonpayment is an effective tool to get paid. Chapter 713, Florida Statutes, as well as countless cases require lienors to prepare their liens accurately and to include only lienable items. The failure to properly prepare a claim of lien can result in a claim for punitive damages and exposure to attorney fees and costs.

However, based upon a Fourth District Court of Appeal case, not all is lost if a contractor’s lien is discharged as fraudulent. In fact, despite a contractor’s fraudulent lien, a contractor can still be deemed the prevailing party in an action against an owner and avoid a claim for attorney’s fees.

In Scott Newman v. Sony Construction et al., the homeowner retained the general contractor to build an addition to his home. When the owner failed to pay, the contractor ceased work, recorded a claim of lien for approximately $134,000 and later recorded a partial release of lien reducing the lien to about $100,000.

The contractor filed suit against the owner for foreclosure of the construction lien, breach of contract and quantum meruit (payments due that are not enforceable under contract). The owner filed a counterclaim against the contractor for fraudulent lien and breach of contract, and the parties subsequently agreed to a bifurcated proceeding whereby the trial court would first determine whether the claim of lien was fraudulent prior to a trial on the remaining issues.

The trial court found that many of the charges included in the lien amount by the contractor were not lienable. These included a charge for approximately $15,000 for supervision and an additional $22,200 for the contractor’s 20 percent profit margin. The trial court found that these charges, which represented a large percentage of the lien, were not supported by the contract between the parties and therefore were not lienable items. dbr-logo-300x57 It also found other charges included in the lien for pool cleaning chemicals and services, hand tools purchased for use at the job site but not left on the premises after completion, air-conditioning warranty work and rental equipment abandoned by the contractor at the job site were “not lienable by any stretch of the imagination.”

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LindseyTLehr-200x300The firm’s Lindsey Thurswell Lehr authored a guest column that appeared in the “Board of Contributors” page of today’s Daily Business Review, South Florida’s exclusive business daily and official court newspaper.  The article, which was titlted “Ruling Reinforces Need to Abide by Contracts in Construction Disputes,” focused on a recent Florida appellate court ruling finding that property owners which forgo the contractual mechanisms for resolving construction disputes will not prevail in the state’s courts.  Her article reads:

Strictly adhering to the modus operandi for addressing and resolving disputes that is codified in construction contracts is essential to prevailing in any resulting litigation.

The Florida Third District Court of Appeal recently reinforced the obligation of construction defect litigants to adhere to the terms of their contract, finding that property owners which forgo the contractual mechanisms for resolving disputes will not succeed in Florida’s courts.

The ruling by the Third DCA in the case of Magnum Construction Management v. City of Miami Beach relieved the contractor of liability for alleged safety concerns with a playground that it installed at the city’s South Pointe Park. The appellate panel ruled that the city did not give the contractor the opportunity to fix the purported issues with the playground as required under its contract. Instead, the court stated that the city replaced the playground in its entirety without considering that the safety concerns could have been corrected by the contractor.

dbrlogo-thumb-220x41-94239The court’s decision in this case reinforces the importance of abiding by all contract terms and requirements in construction disputes. Construction contracts often allow the contractor which performed the work to have the opportunity to fix and cure any purported problems and defects. If a property owner ignores this contractual stipulation, as the city of Miami Beach appears to have done in this case, Florida’s courts are very likely to rule against them.

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Steve Siegfried 2013 srhl-lawFirm partners Steven M. Siegfried, Stuart Sobel and Berenice M. Mottin-Berger were featured in an article about their work on behalf of one of the firm’s construction clients that appeared in today’s Daily Business Review, South Florida’s exclusive business daily and official court newspaper.  The report, which was titled “Caribbean Construction Firm Scores $4M Judgment,” chronicles the highly contentious litigation and arbitration that led their securing a $4.3 million judgment against DeVry Education Group (NYSE: DV) for Moorjani Caribbean Ltd., a Barbados-based construction company.  The article reads:

Stuart Sobel 2013-thumb-180x270-86799Coral Gables lawyers won a $4.3 million award against a subsidiary of for-profit college company DeVry Education Group in what they say was one of the nastiest arbitration battles they’ve ever fought.

Barbados-based construction company Moorjani Caribbean Ltd. sued over alleged underpayment for the construction of student housing and classroom projects at DeVry’s St. Kitts veterinary school.

Although both parties admitted some aspects of their work relationship was relaxed, with unsigned contracts and loose deadlines, the father-and-son construction company claimed it submitted detailed accounting for both projects and spent years trying to get payment before filing suit.

DeVry Medical International Inc. fought back with counterclaims, alleging it spent more than $1 million fixing design and construction defects in Moorjani Caribbean’s work on the student housing project.

BerenicMottinBergerBut arbitrators found DeVry made improvements to the residence hall so that it could qualify as a place of refuge during a hurricane, not because of deficient construction.

By the time the 2009 bills for the two projects came to the arbitration panel this year, interest and attorney fees made the award much larger than it might have been, Moorjani Caribbean’s lawyers said. Interest on the award continues to grow at a rate of about $593 per day, according to the Aug. 19 final arbitration award.

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Michael Clark Gort photo-thumb-160x240-13551Firm partner B. Michael Clark, Jr. authored an article that appeared in today’s edition of the Daily Business Review, South Florida’s exclusive business daily and official court newspaper.  The article, which was titled “Ruling Creates Opening for Property Owners to Escape from Liens,” focuses on the implications of a recent ruling by the Second District Court of Appeal that has created a potential new opening for property owners to quickly wipe away the lien rights of unwary lienors.  Michael’s article reads:

The decision came in the case of Georgia Hiller v. Phoenix Associates of South Florida. Hiller, a homeowner, contracted Phoenix for work on her home and then allegedly failed to pay. Phoenix recorded a lien against her property, and Hiller responded by posting a transfer bond to remove the cloud of the encumbrance from the property.

Hiller proceeded to record a notice of contest under section 713.22(2), shortening the time frame for Phoenix to commence an action against the transfer bond to 60 days.

The contractor had already filed a complaint against Hiller to foreclose the lien as well as for breach of contract and unjust enrichment. However, despite having notice of the transfer and the contest, it failed to commence an action against the surety within the 60-day deadline. Instead, after the passage of more than 60 days, it filed a motion to amend its complaint to add the surety of the transfer bond to the suit.

dbrlogo-thumb-220x41-94239Hiller, presuming that the transfer bond automatically extinguished after the 60 days elapsed, filed a motion for the release of the transfer bond, which was denied by the trial court and became the basis for her appeal.

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Stuart Sobel 2013-thumb-180x270-86799Firm shareholder Stuart Sobel authored a guest column that appeared in the May issue of Construction Executive magazine, one of the leading construction industry trade publications in the country.  His article, which was titled “Dispute Review Boards: An ADR Technique That Works,” focused on the use of DRBs for major projects as an effective means to avoid or resolve disputes that may arise during construction.  Stuart’s article reads:

Disputes are endemic to the collaborative nature of construction. It seems prudent to anticipate the disputes, even where the precise nature of the dispute is unknowable, and create a structure for proactively addressing and resolving them when they do arise. Traditional dispute resolution, whether arbitration or litigation, when invoked at the end of the project, takes place too late to save it or get it back on track. Instead, proactive onsite real-time dispute resolution is warranted to protect working relationships, cash flows and schedule progress.

Arbitration has become the preferred alternative dispute resolution forum for resolving construction disputes because it is private, streamlined and presided over by experienced construction professionals.

However, just as with litigation, arbitration only comes into play after a dispute has ripened. The arbitration process usually extracts a considerable toll on the project participants through damaged relationships and expenses. The parties involved are very unlikely to continue doing business together in the future. In addition, discovery in arbitration proceedings is now wider, longer and more expensive, and its growing resemblance to litigation has become unmistakable. Thus, despite its reputation as a cheaper alternative to litigation, arbitration has become more expensive as the process permits more litigation-like discovery, with attendant administrative costs and arbitrators’ fees.

Instead, consider the scenario where an independent person or board, respected by all project participants, is designated in the operative construction contracts to stay abreast of the design and construction and to attend and observe all pertinent meetings (owner/architect/contractor meetings, change order meetings and even important contractor/subcontractor meetings). Through this process, the dispute resolution neutral or, where there is more than one, the Dispute Resolution/Review Board (DRB), can quickly understand theConstruction-Executive-Logo nature and genesis of disputes that are blossoming — before they slow or stop the construction progress.

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StuartSobel2013.jpgThe firm’s Stuart Sobel has once again written an article that appeared in the annual special report on Alternative Dispute Resolution published by the Daily Business Review, South Florida’s exclusive business daily and official court newspaper. Stuart’s article, which was published in today’s edition of the DBR and also appeared in Texas Lawyer and the Daily Report (Atlanta), focused on the use of formal mediation proceedings to resolve claims involving catastrophic construction accidents. Earlier this year he represented Miami Dade College in a $33.5 million mediated settlement that included 22 defendants for the collapse of a parking garage during construction.

Stuart’s article reads:

Tragically, a collapsed structure introduces personal injuries, wrongful deaths, economic losses and disappointed expectations on top of the impact to the completion of the project. As such, any formal dispute resolution, whether it be arbitration, litigation or several of both types of proceedings, will involve many parties and claims as well as many issues related to each party and each claim.

Add to this, many parties will have insurance available, but the coverage may be offered in layers, with underlying and surplus policies introducing even more grist for the dispute mill. Insurance policies may have several of the construction participants as additional insureds, and they may also have subrogation waivers and other nuances that must be considered in working toward a just resolution. Additionally, there will also likely be performance bond sureties that will have indemnity rights to bring to the party.

Consider then what the trial or arbitration hearing will look like. How long will it take to select a jury given the number of peremptory challenges? How long will a simple side-bar in a jury trial take? How long do depositions take to conclude, with 20-plus parties each having the opportunity to question important lay and expert witnesses? And, how much will all this cost?

How then best to manage this not so rare occurrence? At the risk of being accused of blasphemy, the answer is to run a mediation track parallel to the formal dispute resolution track.

Statistics tell us that nearly 99 percent of all filed lawsuits are settled. The settlement rate of arbitrations is not quite as high, but we should take some solace in the fact that, in all likelihood, a well-managed mediation process can also resolve our catastrophic construction claim.

So then, what is a well-managed mediation process? It must begin with the recognition that mediation is, itself, a process, not an event. Mediation is most effective when the parties understand the process, which calls for everyone to be brought together with a common goal — settling the claim — even if the goals diverge when each party wants someone else’s money to be used. Still, with everyone in the room, the opportunity for cooperative compromise in furtherance of the common goal becomes possible.

His article concludes:

When successful, mediation also allows for creative solutions that may not be available through formal dispute resolution. Correction of work, rather than the payment of money, may prove an attractive piece of a settlement. Resolutions may be kept confidential and private, while a jury verdict is never confidential.

Successful mediation requires a clear vision of what success will look like on paper. With so many parties, claims and issues, documenting a settlement reached in principle presents its own challenges.

Will all the insurers join in the settlement, disclosing their contributions and submitting to the jurisdiction of the court for the purpose of enforcement? If not, what default mechanism will work best to ensure that all of the parties pay, so that the plaintiff is not left with some paying, some not, and questions about collectability? Consider bringing a draft settlement agreement, leaving numbers blank, to the mediation so that it too can be negotiated, rather than leaving that task, with its own hazards, for the days or weeks after the dollar settlement is achieved.

Mediation provides parties the opportunity to see how their presentation of their case is received by others, and also to see their opponent’s case articulated in a manner that allows for more objective consideration. The process enables principals to sit across from each other with the ability to control the outcome of the dispute — as opposed to placing their fate in the hands of a judge, a jury or a panel of arbitrators. That control is appealing, and it has led the construction industry to embrace mediation as an important tool for the resolution of disputes involving construction catastrophes.

Our firm congratulates Stuart for sharing his insights into this important topic with the readers of the Daily Business Review, Texas Lawyer and the Daily Report. Click here to read the complete article in the DBR’s website (registration required).

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In a recent appellate ruling with significant precedential implications for litigation by contractors against construction lenders in Florida, the court found that Florida’s Construction Lien Law bars common law remedies for contractors to sue lenders for work performed by the contractors and other lienors. The court affirmed the lower court’s summary judgment for a lender over a contractor’s claims stemming from a failed housing development.

The case of Jax Utilities Management, Inc. v. Hancock Bank involved contractor Jax Utilities, developer Plummer Creek, LLC and successor lender Hancock Bank. In 2009, after the developer suffered financial difficulties it failed to pay Jax. As a result of the developer’s financial difficulties, Hancock Bank obtained a final judgment of foreclosure against Plummer Creek and the project in September 2011. Subsequent to that, in December 2011, Jax filed a claim for breach of contract against Plummer Creek as well as claims for unjust enrichment, and it sought to impose an equitable lien against Hancock Bank.

The trial court issued a final judgment for Jax against Plummer Creek for more than $587,000, but it also granted a summary judgment to Hancock Bank finding that the contractor’s equitable lien claim was barred by the one-year statute of limitations which governs actions to enforce equitable liens. It also found that §713.3471 of Florida’s lien law precluded Jax’s common law remedies.

On appeal, Jax and Hancock disagreed as to when the statute of limitations began to run to enforce an equitable lien. Jax took the position that it did not begin to run until the bank had instituted foreclosure proceedings. The First District Court of Appeals disagreed, holding, “By its plain language, section 95.11(5)(b) requires that a claim for equitable lien be brought within one year of the last furnishing of labor, services, or material for the improvement of real property.”

1dca.jpgThe First District Court of Appeal also agreed with Hancock Bank’s arguments that the lien law precluded Jax’s common law claims for equitable lien and unjust enrichment. §713.3471 establishes the proper procedures for lenders to notify contractors if they decide to cease disbursing funds under a construction loan, and it also sets the damages for a bank’s failure to provide notice. The court concluded that:

Section 713.3471(2) expressly immunizes lenders who provide notice, prescribes the damages where notice is not provided, and states that the cause of action cannot become the basis for an equitable lien claim. Moreover, a common law claim would conflict with the statute. If a lender complies with the statute, it has no liability. If the lender fails to comply, a contractor may seek damages as prescribed by the statute.

The court also noted that its holding was reinforced by the lack of a provision preserving common law remedies in the statute.

For contractors such as Jax, which had apparently earned the funds that it was not paid, the court’s holding delivers a clear message that they cannot forgo their rights under the lien law in favor of common law claims against lenders. Even in cases in which a construction lender disregards the requirements under the lien law by not issuing the proper notice to the contractor when it decides to stop disbursing loan proceeds, the lender’s liability is delineated solely by the statute.

Our firm’s other construction law attorneys and I work very closely with contractors, subcontractors and other lienors to enable them to utilize all of their rights to recover the funds that they are owed. We write in this blog on a regular basis about important legal and business matters for the construction industry in Florida, and we encourage industry followers to submit their email address in the subscription box at the top right of the blog in order to automatically receive all of our future articles.

NSiegfried2013.jpgThe firm’s Nicholas D. Siegfried was interviewed as part of the Expert Interview Series for the Surety Solutions blog. Nicholas discusses construction law and some of the elements of the Florida Construction Lien Law in the article. Surety Solutions specializes in the Surety Bonds and has over 50 years of experience in the industry. Its clients range from local construction contractors to Fortune 500 companies, foreign conglomerates to financial institutions, government entities to hedge funds, and both public and privately held companies.

Click here to read the feature in the company’s blog.

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