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Back in March, I wrote about the role of North Carolina’s anti-indemnity statute in the construction industry. The statute, codified at N.C. Gen Stat. § 22B-1, appears below (you can click the image for a larger version):
As my previous blog post indicated, the statute prevents “one party from shifting the entire risk of its own negligence to another.” A recent case from the U.S. Bankruptcy Court for the Eastern District of North Carolina demonstrates how courts utilize the so-called “blue pencil” doctrine to accomplish that goal.
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If you’re a lower-tier subcontractor or supplier on a public construction project, it might be tempting to calendar your notice-of-claim deadline 90 days (in the case of federal Miller Act projects) or 120 days (in the case of North Carolina “Little Miller Act” projects) from your last furnishing of labor and materials, regardless the nature of that last furnishing.
Resist that temptation.
It overlooks a few simple but critical words recited in the federal Miller Act, as well as similar language contained in North Carolina’s Little Miller Act.
Image by Shirley via Pixabay.com
I was out-scooped yesterday by good friend and fellow Raleigh construction lawyer Brian Schoolman, who announced via Twitter that the Fourth Circuit Court of Appeals has approved the filing of North Carolina mechanics’ liens even after a party higher up in the contractual chain seeks bankruptcy protection:
I highly recommend clicking the link and reading Brian’s blog post. It does a terrific job summarizing the Court’s rationale and discussing how CSSI puts the last nails in the coffins of the 2009 Shearin, Mammoth Grading and Harrelson Utilities decisions of a lower court that had reached the opposite result, before subsequently reversing itself a few years later in CSSI, which the 4th Circuit has now affirmed. (For additional legal context, check out my previous blog post on the Mammoth Grading and Harrelson Utilities cases.).
I write today to emphasize how important the 4th Circuit’s CSSI decision is to your construction business. Specifically, I write to answer this question: Why does having the right to file a mechanics’ lien, after the party immediately above you in the contractual chain seeks bankruptcy protection, matter?
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Construction is a relationships-driven business. The most successful companies understand that rising to the top requires developing and nurturing solid relationships up and down the contractual chain, both before the contract is signed and throughout the period of performance. It’s the ticket to generating repeat business, increasing bonding capacity, maximizing profit and thriving over the long haul.
Of course, a relationship between two corporate entities represents the sum of the interpersonal interactions between and among the owners and employees of the respective companies to the relationship. Unfortunately, those interactions might not always be pleasant. They might even become downright abusive. And when one company’s agent harasses another company’s employee, the employer of the aggrieved employee could face hostile workplace liability.
That’s the unmistakable message driven home by the April 28, 2014 Fourth Circuit Court of Appeals’ published decision in Freeman v. Dal-Tile Corporation.
Most second-tier Miller Act subs and suppliers understand that in order to recover under a prime contractor’s Miller Act payment bond, written notice of the claim must be made to the contractor “within 90 days from the date on which the person did or performed the last of the labor or furnished or supplied the last of the material for which the claim is made.” 40 U.S.C.A. § 3133(b)(2). With that 90-day rule in mind, consider the following hypothetical:
You’re a second-tier supplier who last furnished materials to a first-tier subcontractor on a Fort Bragg project on December 13, 2013. Today is the 89th day since your last furnishing, and you still haven’t been paid. Realizing your claim notice deadline is fast approaching, you send your claim to the prime contractor by certified mail, return receipt requested this morning. The prime will receive the notice and sign the green card on March 14, the 91st day after your last furnishing. Was your notice of claim timely?
Friends, underwriters, bond claim managers: lend me your eyes, and behold the saga of a surety that accepted collateral security from a financially unstable principal as an inducement for the issuance of new Miller Act performance & payment bonds. The drama unfolds when the principal files for bankruptcy protection within 90 days of the collateral transfer and the bankruptcy trustee — that most formidable of foes! — seeks to avoid the transfer as preferential. Fear not, dear readers! Our hero fights gallantly in In re ESA Environmental Specialists, Inc., and is richly rewarded in this Fourth Circuit Court of Appeals production.
One of the oft-cited advantages of arbitration is that it is simpler, cheaper and faster than litigation. Recent figures from the American Arbitration Association (“AAA”) suggest that while a commercial case may take up to two years to run its course through the judicial system, commercial cases can be resolved via arbitration between six months and a year.
Still not fast enough for you? Then perhaps you might be interested in the following fast-track alternative dispute resolution procedure:
1. Now that North Carolina lawmakers have embraced public-private partnerships as a project delivery option for public works, what size projects might we see developed via P3? Well, if the $4.8 billion (yes, that’s billion, with a “b”) expansion of I-35E in Texas is any indication, the sky’s the limit. Here’s AGC SmartBrief editor Jennifer Hicks’ tweet about the big news from the Lone Star State:
Virginia construction attorney Chris Hill
Last week, I reported that the U.S. Supreme Court had refused to hear the Jacobs Engineering Group, Inc. v. State of Minnesota case, which arises from a decision of the Minnesota Supreme Court allowing that state’s legislature to retroactively revive long-expired latent defect liability.
This week, I provide a summary of the Minnesota Supreme Court’s decision and prognosticate about its consequences over at Chris Hill’s excellent blog, “Construction Law Musings.” You can read my guest post on Chris’s site by clicking here.
Many thanks to Chris, a fellow Duke ’94 alum, for giving me the opportunity to guest blog at his place. I’ll be back here with original content early next week. Lots going on with mechanic’s lien law & policy to share…
As set forth in the attached order, The Supreme Court of the United States will NOT review the decision of the Minnesota Supreme Court upholding legislation by the Minnesota state legislature that revives long-extinguished design defect liability arising from the 2007 collapse of a portion of the I-35W bridge in Minneapolis.Prior to the collapse, Minnesota’s “statute of repose” (a statute that limits the time during which an action can arise) for design defects was 15 years. Despite the fact that the design work for the bridge in question was performed in the mid-1960’s, and despite the fact that the designer of record — Sverdup & Parcel and Associates, Inc. — had been bought out by Jacobs Engineering in 1999, the Supreme Court’s denial of certiorari means that Minnesota is now free to pursue $37 million in indemnity claims against Jacobs Engineering that had expired under the 15-year statute no later than the early 1980’s.
This is a scary outcome for participants in the construction industry, with potential insurance, contract drafting and document retention repercussions. I’ll be back in the days ahead with additional analysis. In the interim, you can read AGC’s brief in favor of review here, which sets forth quite eloquently the reasons why the Supreme Court should have reviewed and reversed the Minnesota Supreme Court’s decision.
UPDATE (5/29/12 1:38 p.m.): Coverage from Engineering News & Record can be found here.