Articles Posted in Construction lien

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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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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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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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.

A recent case involving an engineering firm’s lawsuit for nonpayment against a Miami Beach condominium association illustrates the importance for contractors and engineers to file liens for work performed under a single contract as opposed to umbrella liens for services rendered under multiple contracts.

Pursuant to Florida law, construction liens may only be imposed for work performed under a single contract. However, an engineering firm sought to recover more than $107,000 for concrete and stucco remediation, replacement windows, sliding glass doors, cabanas and a new entrance as part of its work under nine separate contracts with the condominium association.

The Miami-Dade Circuit Court Judge overseeing the case issued partial summary judgment in favor of the condominium association. The decision extinguished the lien for failing to comply with Florida Statute §713.09, which states: “A lienor is required to record only one claim of lien covering his or her entire demand against the real property when the amount demanded is for labor or services or material furnished for more than one improvement under the same direct contract.”

It is well established in Florida that separate liens are required for claims attributable to separate contracts, yet filing mistakes such as this one by the engineering firm and its attorneys occur from time to time. flbarbcconstruction.jpg As liens can be filed against real estate only within 90 days of the final furnishing of non-corrective work being performed, the repercussions of flawed lien filings such as the one in this case can prove to be very costly for construction and design firms.

This case is yet another example of the importance of working exclusively with highly experienced construction attorneys for all matters involving construction-related liens and litigation. Our firm’s other construction attorneys and I write regularly in this blog about important legal and business issues for construction professionals 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.

MichaelKurzman_59661.jpgThe recent ruling by the Third District Court of Appeal that firm shareholder Michael Kurzman wrote about in the preceding blog post below was the subject of a front-page article in the Oct. 1 issue of the Daily Business Review. The article, which was titled “Third DCA Says Company Can’t Foreclose on Itself,” focused on the tactics used by a Coral Gables developer to attempt to eliminate the claims and liens filed against it by general contractor CDC Builders, Inc.

CDC Builders was represented on appeal by Michael Kurzman, together with John K. Shubin and Deana D. Falce of Shubin & Bass. The South Florida Chapter of the Associated General Contractors also provided an Amicus Curiae brief through Gary Stein of Pecar and Abramson.

The article reads:

. . . [Developer Brian] McBride struggled to repay SunTrust and took an “unusual step” of renegotiating the construction loan, court records show.

As a condition, SunTrust required curtailment payments that reduced its exposure. McBride authorized SunTrust to debit these payments from other accounts he owned or controlled at the bank.

“He specifically directed SunTrust that these payments should not be treated as reductions in the principal amount of the loan, which would have reduced the interest on the loans. Instead, he insisted the payments be treated as junior liens against the property,” Judge Thomas Logue wrote in a Sept. 17 opinion. “He took this unusual step, the SunTrust officials noted, in order to limit the equity available to satisfy the contractor’s construction liens.”

“These statements by SunTrust officials support an inference that McBride was taking affirmative steps for the express purpose of defeating the contractor’s construction liens in the event that a court upheld the liens,” Logue concluded.

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[Development company] Biltmore took one more step in its fight with the contractor.

Even though SunTrust was not marketing the construction loan, a Biltmore affiliate approached the bank to purchase the debt. McBride did not ask for extensions. Instead Biltmore used a new loan from Royal Bank of Canada to purchase the SunTrust loan at full face value in 2010, court records show.

“BSDI was able to obtain this loan although it had no assets,” Logue wrote. “When questioned, McBride could not recall where the collateral or guarantees for the Royal Bank loan originated. He could not recall whether he had guaranteed the $10 million loan.”

Once Biltmore gained control of the note, it moved to foreclose on the property, which would have wiped out secondary liens like the builder’s lien.

“They foreclosed on their own company and loan,” Kurzman said. “They realized they owed my client $2.3 million they didn’t want to pay, and that’s when they got crafty.”

As Michael concluded in his blog post about the case:

“A contrary decision at the appellate level could have proven to be particularly problematic for Florida’s construction industry, as it would have surely led to other developers applying this same scheme in order to terminate construction liens and avoid paying their contractors, subcontractors and material suppliers. Thankfully for CDC as well as for the health of the construction industry in Florida, that will not be the case.”

We congratulate Michael, John, Deana and Gary on this extremely important win for firm client CDC Builders as well as for the Florida construction industry.

Click here to read the complete article in the Daily Business Review website (registration required).

On behalf of my client CDC Builders, Inc., I was very pleased to have served as the company’s lead trial court counsel and appellate co-counsel (special thank you to John K. Shubin and Deana D. Falce with Shubin & Bass, P.A.for all of their hard work on this case) in its recent successful appeal before the Third District Court of Appeal. CDC appealed a trial court’s decision that could have had significant negative implications for Florida’s construction industry. Indeed, we were assisted on the appeal by the South Florida Chapter of the Associated General Contractors in an Amicus Curiae brief, as this case was of critical importance to the construction industry.

In the case of CDC Builders, Inc., v. Biltmore-Sevilla Debt Investors, LLC, the Third District Court of Appeal reversed the lower court’s summary judgment, which allowed a developer (through a newly created, developer controlled entity) to purchase its own construction loan from its lender and foreclose on the loan expressly for the purpose of:

  • eliminating the construction liens filed against it by CDC, and
  • transferring the developers’ only assets (the real property) to the newly created, developer controlled entity.

This had the effect of extinguishing CDC’s construction liens and rendering the developer entities judgment-proof, leaving CDC with no ability to get paid for work performed, while allowing the original developer to obtain ownership of the real property (through the newly created, developer controlled entity) with the benefits of CDC’s unpaid hard work. The trial court found that the developers’ brazen maneuver was legal and allowed for the foreclosure to proceed.

Fortunately for CDC as well as other members of Florida’s construction industry, the Third District Court of Appeal reversed the lower court’s decision and, in so doing, prevented the creation of a new formula for unscrupulous Florida developers to cheat their contractors, subcontractors or material suppliers out of payment for work performed or materials provided.

In this case, Riviera Biltmore, Riviera Sevilla and Riviera Almeria (all mostly owned and controlled by Brian McBride of Riviera Development, www.rivieradevelopment.com) retained CDC to build 25 luxury homes and townhomes on several parcels in the Biltmore Hotel area of Coral Gables. The developers then borrowed $20 million from SunTrust to finance the construction. To initiate the construction loan, SunTrust required that Brian McBride and McBride Family Properties provide personal guarantees. The McBride family (original owners of the NFL’s Cleveland Browns) is a wealthy and successful family with deep roots in Cleveland and Coral Gables.

Consistent with the construction loan documents which limited the number of spec homes that could be built at any one time, the developers directed CDC to begin construction on 8 of the 25 homes. When the economy soured, the developers exercised their contractual right to terminate the contracts for convenience but requested that CDC complete the eight homes under construction. CDC continued working and also presented the developers with a claim for lost profit on the 17 homes that were terminated for convenience, per the terms of the written contracts. To hedge their exposure, the developers began withholding payments from CDC for work being performed on the eight homes under construction. The developers asserted improper billings as a basis for withholding payments. Despite reduced payments and eventual non-payment of its monthly draws, CDC completed the eight homes and obtained certificates of occupancy from the City of Coral Gables.

CDC recorded claims of lien for the unpaid work performed on the constructed homes, and it filed suit seeking money for the work performed and unpaid, money for the lost profits on the homes not constructed, and foreclosure of its construction liens. The construction liens covered the work performed and unpaid on the homes, but they did not cover the claims for lost profits on work not performed, as those items are non-lienable under Florida law.

When the construction loan matured, McBride (as the personal guarantor of the loan) paid curtailment fees from his other companies to SunTrust to extend the loan several times. Then, rather than extending the loan further (which would have had the effect of reducing the loan and increasing equity in the property for the benefit of CDC), the developers took an extremely untoward and questionable next step. McBride created a new LLC owned by other LLCs made up of him and his family members, acquired a new loan from another lender and used the funds to have this new LLC acquire an assignment of the SunTrust construction loan and mortgages for the full amount owed to SunTrust. In internal documents, SunTrust stated that the loan was paid off by the borrower.

3rd district court of appeal.jpgMcBride’s new LLC then held a first priority interest because it had “purchased” the original SunTrust construction loan. McBride’s new LLC then filed a foreclosure action against the developers (McBride’s other developer entities) and CDC in order to eliminate CDC’s liens as subordinate liens, and to transfer the real property (developers’ only assets) to McBride’s new LLC. The trial court found the crafty maneuver to be legal, and thankfully for CDC as well as many other participants in Florida’s construction industry, the appellate court disagreed.

In a lengthy 16-page opinion, the Third DCA stated in relevant part as follows:

“The law does not permit a person to borrow money from a bank, give the bank a mortgage, incur additional liens and junior mortgages on the property, purchase the mortgage back from the bank, and then foreclose on the mortgage for the primary purpose of eliminating the additional liens and junior mortgages . . . [I]nvestors cannot grant mortgages, contract for the improvement of the property mortgaged, and then use a network of companies to purchase and foreclose the mortgage for the primary purpose of extinguishing the construction liens that increased the value of the property. To hold otherwise would undermine the long-standing principle . . . persons cannot do indirectly what they are not permitted to do directly.”

Unquestionably, fairness and justice prevailed in this case. Unfortunately, the developers delayed payment to CDC by years and caused CDC to incur significant attorney’s fees and costs, at great sacrifice, to right this wrong.

A contrary decision at the appellate level could have proven to be particularly problematic for Florida’s construction industry, as it would have surely led to other developers applying this same scheme in order to terminate construction liens and avoid paying their contractors, subcontractors and material suppliers. Thankfully for CDC as well as for the health of the construction industry in Florida, that will not be the case.

Florida’s Second District Court of Appeal recently issued an important opinion in the case of Snell v. Mott’s Contracting Services, Inc., over the issue of lien rights and the differences between arbitration and litigation.

The case involves a construction contract between homeowners and a contractor that included a provision calling for disputes to be resolved through arbitration. When a dispute arose, the contractor recorded its claim of lien, and the homeowners filed a lawsuit asking the court to determine that the lien was invalid. The contractor responded by asking the court to stay the litigation and compel the parties to arbitration, as stipulated under the contract, and the court agreed.

After the arbitration proceeding, the arbitrator found in favor of the contractor and determined that it was entitled to recover its attorney’s fees in accordance with the Florida Construction Lien Law.

2dca.jpgHowever, the appellate court found that the contractor did not bring an action “in a court of competent jurisdiction” within one year of recording its lien as required under the lien law because it had requested to have the dispute resolved through arbitration. The appellate panel found that the contractor’s rights under the construction lien law had expired, and it now had no legal basis for recovering its attorney’s fees.

Arbitration has become a popular and effective alternative to litigation in the construction field, and this recent decision now calls into question how contractors and other lienors in the industry can protect themselves if they turn to arbitration to resolve a dispute as stipulated by their contracts. Given this ruling, lienholders would now be well advised to first file an action in a court of competent jurisdiction within a year and promptly request that the court stay the proceedings so that the parties can turn to arbitration to resolve the dispute. Otherwise, they may risk losing their right to recover fees or even enforce a lien.

Michael Clark Gort photo.jpgOne of the most recent articles by our attorneys in publications covering the industries that we serve was authored by B. Michael Clark, Jr. and appeared on the cover page of the latest issue of the Newsletter from Division 7 of American Bar Association Forum on the Construction Industry. The article, titled “Subordinate Lienors Must Explore All Options for Payment,” focuses on one of perhaps the most pressing legal and business issue for contractors, subcontractors and suppliers today: securing payment in foreclosure cases in which they are a subordinate lienor to the foreclosing lender.

Michael writes in the article that the contractor, subcontractor or supplier in these cases may be able to impose an equitable lien in order to secure payment from undisbursed construction loan funds or the lender’s mortgage interest on the property. In some states, including Florida, the construction must be complete in order to impose an equitable lien upon undisbursed construction loan proceeds. In addition, Florida courts allow the imposition of an equitable lien superior to the lender’s mortgage interest when the lender has committed some fraud or misrepresentation, such as misrepresenting that the loan is not in default.

The article also notes that Florida law stipulates that lenders which fail to give the required notice to contractors that they intend to stop disbursing funds may be liable to contractors that continue working based upon the expectation of payment.

Michael concludes that the conduct or misconduct of the lenders in these cases must be closely scrutinized in order to determine whether they have an obligation to pay. Click here to read the full article, and please contact Michael with any questions regarding the information that he covers in the article via email at mclark@siegfriedlaw.com or by calling him at (305) 442-3334.

I recently had the honor of appearing as a special guest on the ArchiTalk radio show airing on 880-AM “The Biz” in South Florida on Mondays at 11 a.m. Local architects Sebastian Eilert and Jane Decker host the show, which focuses on what’s happening in the South Florida architecture world and beyond. Additional info on the show can be found at www.architalkradio.com.

My discussion with Sebastian and Jane focused on the current trends in South Florida real estate and related litigation, and how these trends impact architects. We discussed the statute of repose for design and construction defect claims for condominiums, which is ten years, and how litigation that commences before the ten year mark can continue for years after it. This served as a reminder about the importance of Errors and Omissions insurance for architects, who are often viewed as being a viable target for litigation by associations for latent defects in the years immediately prior to the expiration of the ten year statute of repose.

architalklogo.jpgWe discussed how architects should protect themselves and limit their liability by using the standard AIA contract provisions noting that they are not providing certification or supervisory services over the work of the general contractor at the jobsite.

We also discussed the importance for architects who are working on renovation projects at condominiums to ensure that their client, the unit owner, is aware of the association’s rules and regulations regarding repair work, including the time of day work can take place and the importance of ensuring that all necessary permits are in place before the start of the project. I also recommended that architects should include similar requirements in their plans and specifications to make certain that the contractor is bound to comply with these requirements, as the contractor will ultimately be performing the work.

Click here to listen to my appearance on the show, and feel free to contact me with any questions about the information that I cover via email at nsiegfried@siegfriedlaw.com or by calling me at (305) 442-3334.

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