Category Archives: State law, policy & news

Your Forum Selection Clause Might Not Be As Strong As You Think It Is

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Last week, I blogged about the Southeast Caissons, LLC v. Choate Construction Company case, in which the North Carolina Court of Appeals held that a general contractor could not enforce a forum selection clause in a subcontract that was never signed.

And now, the rest of the story (with apologies to Paul Harvey).

Even if the subcontract HAD been signed, the forum selection clause would not have accomplished the general contractor’s goal of having all disputes resolved in the Wake County Superior Court.  You might find that ruling surprising after reading the following excerpt from the decision:

The subcontract also contained a clause in Article X, Section 3(b) entitled “Additional Dispute Resolution Provisions.”  This clause stated: “Venue for any arbitration, settlement meetings or any subsequent litigation whatsoever shall be in the city of Contractor’s office as shown on page 1 of the Subcontract.”  [The GC’s] office was shown on page 1 of the subcontract as being located in Raleigh, Wake County, North Carolina.

Huh?  A clause stating that disputes “shall” be resolved in a particular location is not sufficient to require dispute resolution in that locale?

That’s right, folks!  In order for one party to secure home field advantage in construction dispute resolution, North Carolina’s appellate courts consistently require that the applicable forum selection clause contain words like “exclusive,” “sole” or “only” to indicate that both parties intended to make jurisdiction exclusive in a certain place.   That means the GC in Southeast Caissons could only require its sub to litigate in Wake County if the forum selection clause had read something like this: “The parties agree that Wake County, North Carolina shall be the sole and exclusive venue for the resolution of any and all disputes arising out of or related in any way to this Subcontract.”  (And, of course, if the GC had secured its sub’s John Hancock on the subcontract’s signature page — per my previous blog post).

Bottom line?  If you use a form subcontract that includes a forum selection clause, you might want to review it and make sure it includes magic words like “exclusive,” “sole” or “only” in describing where venue is proper.  Better still, have your construction attorney review your forum selection clause and evaluate whether it’s likely to be enforced as you intend it to be.

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Filed under Forum Selection Clauses, State law, policy & news, Subcontractors

The Subcontract’s Unsigned, the Work is Complete and a Dispute Has Arisen — Now What?

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In order for an agreement to constitute a valid contract that courts or arbitrators will enforce, both parties to the agreement must mutually assent to all of the terms of the deal.  The fancy Latin term for this mutuality requirement is “aggregatio mentium;” we Americans call it a “meeting of the minds.”  And as between general contractors and subcontractors in the construction industry, the signatures of the parties typically signify their mutual intent to be bound.

But what if the subcontract isn’t signed, and the parties proceed with performance of the underlying scope anyway?

That’s the conundrum the North Carolina Court of Appeals (“COA”) confronted in its April 19, 2016 decision in Southeast Caissons, LLC v. Choate Construction Company.

The general contractor and caisson subcontractor in that case went back and forth repeatedly on various drafts of a written subcontract.  The sub’s scope was commenced — and completed about three months later — without a final deal being reached on all terms.

When the subcontractor wasn’t paid, it sued for breach of contract (among other claims) in the Forsyth County Superior Court.  The unsigned subcontract called for dispute resolution in Wake County, prompting the general contractor to move for dismissal of the sub’s suit or, in the alternative, a change in venue.  The trial court determined that the subcontractor was not bound by the unsigned subcontract, and that venue was proper in Forsyth County.  The GC appealed.

In affirming the trial court’s Order, the COA relied on the rule that the absence of a signed, written instrument is evidence of the parties’ intentions not to be bound by the proposed contract.  On  the rights set of facts, that evidence could be outweighed by other evidence demonstrating that both parties accepted and acted upon the unsigned terms.  That wasn’t the case in Southeast Caissons, however — to the contrary, the COA concluded that virtually all of the evidence suggested that the parties never achieved a “meeting of the minds” on all of the subcontract’s terms.

Does that mean no deal existed between the GC and the sub?  Not necessarily.  The COA remanded the case back to the trial court for a determination of whether a contract “implied-in-fact” existed between the parties by virtue of their actions.  Even in the absence of a contract implied-in-fact, the subcontractor might still prevail on its payment claim under an equitable quantum meruit (i.e., unjust enrichment) claim for relief.

The takeaway?  Southeast Caissons makes it clear that general contractors seeking to utilize their standard subcontract forms should insist upon a signed agreement before permitting work to begin.  Allowing your subcontractor to proceed with its scope without first obtaining its “John Hancock” risks losing the benefits of those favorable subcontract terms your construction attorney spent so long drafting for you.

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Filed under Construction Risk Management, Forum Selection Clauses, Local law, policy & news, NC case law, State law, State law, policy & news, Subcontractors

Courts Generally Will Enforce North Carolina’s Anti-Indemnity Statute, But How Far?

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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):

Anti-Indemnity Statute

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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N.C. Construction Industry First Fractures, Then Coalesces, Around Prequalification Legislation

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By a whopping 116-0 margin, the N.C. House of Representatives yesterday passed House Bill 1043 (“HB 1043”), aimed at bringing objectivity and uniformity to the prequalification of contractors on public construction projects in the Tar Heel State.

Don’t let yesterday’s vote tally deceive you, however; the legislation was not without its share of controversy.

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Why Yesterday’s 4th Circuit Lien Law Decision Is a Mammoth Victory for Contractors & Suppliers

Image by Shirley v. Pixabay.com

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?

Here’s why:

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Filed under Federal case law, Federal law, policy & news, Lien Law, State law, policy & news, Subcontractors

Lienguard, Inc. Found Itself in the N.C. State Bar’s Crosshairs; Might LiensNC, LLC Be Next?

LienguardCrosshairs

As the Lienguard case discussed in my prior blog post (immediately below) makes abundantly clear, the North Carolina State Bar is willing to prosecute unauthorized practice of law (“UPL”) claims against online mechanics’ lien service providers lacking a license to practice law in North Carolina.

Friday ForumThere’s been a boisterous reaction to the decision in the blogosphere, and in the Friday Forum spirit, I commend to your reading the following: “Business Court Makes North Carolina Safe for Construction Lawyers” by Mack Sperling of Brooks Pierce; “Can Software Practice Law? The Unauthorized Practice of Law and Technology” by Nate Budde of zlien.com; and “NC Business Court Enjoins National Lien Filing Firm for UPL” by Brian Schoolman of Safran Law, all of which were promoted on Twitter over the past 10 days or so:

I also highly recommend checking out the Comments section of my previous blog post.  Among the thoughts posted there are those of Scott Wolfe, Jr., founder of zlien.com, one of Lienguard, Inc.’s competitors.  Scott makes a number of thought-provoking and response-worthy arguments in support of his belief that online lien filing services do not engage in UPL.

The subject of this blog post is Scott’s argument that under the logic of the Lienguard decision, LiensNC, LLC, the limited liability company which operates the LiensNC.com website created to facilitate the filing of Designations of Lien Agent and Notices to Lien Agent under North Carolina’s new Mechanics’ Lien Agent statute, engages in UPL:

As to preliminary notices — the NC court in this case does not, and really cannot not, distinguish between preparing a preliminary notice versus preparing a lien notice. They are both legal documents.

This case calls LienGuard’s preparation of notices illegal, but the UPL statute clearly enables or allows LiensNC, LLC – “a coalition of title insurance underwriters” – to assist contractors and suppliers with the state’s preliminary notices. See: http://www.liensnc.com/LiensNC__LLC.html

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[T]here is some momentum to distinguish between “serious” legal documents and maybe “easy” legal documents.  The UPL “practice of law” definition and the case law surrounding it offers no opportunity to make this distinction.  Preliminary notices … are all “legal documents.”

I’ve given a fair amount of thought to these comments over the past week in trying to predict whether LiensNC.com might be among the State Bar’s next targets.  For the three reasons set forth below, I highly doubt it: Continue reading

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Filed under Lien Law, NC case law, State law, policy & news

N.C. Business Court: Online Lien Filing Service Engaged in Unauthorized Practice of Law

Screen shot of Lienguard's home page

Screen shot of Lienguard, Inc.’s home page on April 9, 2014. Click image to explore the site.

In a decision likely to impact out-of-state suppliers furnishing materials to North Carolina construction projects, the North Carolina Business Court ruled on April 4, 2014 that Lienguard, Inc., an online mechanics’ lien filing service, engaged in the unauthorized practice of law by preparing liens for others without first acquiring a license to practice law in the Old North State.

In The North Carolina State Bar v. Lienguard, Inc., Judge Jim Gale declared that Lienguard violated North Carolina’s statutes governing the licensure of attorneys (Chapter 84 of the N.C. General Statutes) by preparing liens, providing advice about liens and holding out that it was competent to file liens in North Carolina, all without being licensed to do so.  Judge Gale also ruled that the State Bar was entitled to a permanent injunction prohibiting Lienguard from engaging in similar acts in the future, giving the parties 20 days to draft and submit an appropriate order for the Court’s consideration. Continue reading

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Filed under Lien Law, NC case law, State law, policy & news, Subcontractors

Is Bidder Prequalification Reform Within Reach in North Carolina?

Senator Neal Hunt, Chair and Representative Dean Arp, House Co-Chair, helm the Purchase and Contract Study Committee, which is currently considering prequalification reform.

Senator Neal Hunt, Chair, and Representative Dean Arp, House Co-Chair, helm the Purchase and Contract Study Committee, which is currently considering prequalification reform in North Carolina.

Statutes governing the procurement of public construction contracts are intended to promote honest and open bidding procedures, thereby placing interested contractors on an equal footing when competing for the work.  A Pennsylvania court observed way back in 1908 that it is the duty of public awarding authorities “to see that the purposes aimed at by the laws shall be effected in good faith.”

Monday MemoMany contractors are skeptical that standard is being met in North Carolina.

As I’ve previously written, a number of prime contractors recently testified before the General Assembly’s Purchase and Contract Study Committee about how the statute permitting prequalification of bidders is often misused so that certain contractors are favored over others, particularly in the construction management at-risk context.  The opportunity for misuse arises from the utter lack of any statutory direction for exercising the right to prequalify under existing law (click image below for larger version):

PrequalStatute

Thankfully, the Committee appears ready to recommend extensive and significant modifications to this bare-bones statute.

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Filed under Project Delivery Systems, Public Bidding, State law, policy & news

As North Carolina’s Lien Agent Statute Turns 1, Three Tips for Soothing the Growing Pains

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North Carolina’s lien agent statute, which went into effect on April 1 last year, celebrated its first birthday yesterday.

Didn’t join the party?  I can’t say I’m surprised.

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Legislative Committee Set to Vote on Recommendations for Strengthening Liens on Leaseholds in North Carolina

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UPDATE 4/8/2014 9:45 a.m.: The Committee voted yesterday, April 7, 2014, to embrace only the second of the three recommendations discussed in my original blog post below.  I have struck through the recommendations that did not survive the final draft of the report, which is now in the hands of the Legislative Research Commission for further action.  Many thanks to Raleigh construction attorneys Jason Herndon and Brian Schoolman for alerting me to the Committee’s vote, as a trip out-of-state prevented my attendance at yesterday’s meeting.

The Legislative Research Committee charged with studying the lien rights of contractors and materialmen on tenant improvement projects meets a week from today, on April 7, 2014, to vote on a series of recommendations to the 2014 Session of the North Carolina General Assembly.  The Committee’s recommendations can be found in its recently released draft report.

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