Oral arguments are set to take place before the Fourth Circuit Court of Appeals in Richmond, Virginia on March 20, 2012 in connection with an appeal asserted by several environmental groups seeking to stall construction of the Monroe Connector Bypass (commonly known as the “Monroe Bypass”) in Union County. If the Fourth Circuit rejects the appeal and allows the project to move forward, a groundbreaking is expected in August of this year, as reported late last week by the Charlotte Observer.
Tag Archives: N.C. construction law
Here’s a fact pattern worthy of a bar exam question:
A Trust intends to convey to Developer a 100%, undivided fee simple interest in a tract of land (for the non-lawyers, Trust seeks to convey the whole kit-and-kaboodle to Developer). Unfortunately, whoever prepares the deed effectuating this transaction is a tad sloppy, and mistakenly describes the estate conveyed as a “one-half fee simple interest,” rather than the full, undivided interest actually intended by the parties.
Along comes Lender, apparently unaware of the scrivener’s error, who provides construction financing to Developer for planned improvements to the parcel. The loan is secured by a deed of trust, of course, which describes Lender’s collateral as Developer’s full, undivided interest in the parcel (which, unbeknownst to Lender, Developer does not actually have, at least not yet).
Contractor then begins making improvements to the parcel, under the belief that Lender has a first-position priority interest in the parcel that pre-dates Contractor’s commencement of work. Contractor, however, is completely unaware of the scrivener’s error in the deed from Trust to Developer.
In time, Trust and Developer realize the error and record a corrected deed. When Lender catches wind of what has occurred, it, too, heads to the Registry of Deeds, re-recording its original deed of trust on the parcel. Ultimately, Contractor alleges it’s been stiffed by Developer, files a claim of lien, and then files a civil action to enforce its mechanic’s lien rights. The action names Lender for the purpose of determining the relative priorities in the parcel, as Contractor seeks a judgment that its mechanic’s lien rights are superior to Lender’s deed of trust, at least with respect to the one-half undivided interest that was not originally conveyed from Trust to Developer. Which party stands higher on the priority ladder with respect to that one-half interest — Lender or Contractor?
Pens down, bar examinees!
According to AGC’s Chief Economist, Ken Simonson, construction material prices for the 12-month period from October 1, 2010 – September 30, 2011 increased 8.1%, while the prices charged by general contractors for non-residential construction increased between 2% – 3%. In the AGC’s October 18, 2011 press release, Mr. Simonson was quoted as saying the following: “Feeble demand for construction is forcing contractors to absorb the bulk of materials price hikes, instead of passing them along to owners. This pattern has persisted for more than two years, and many contractors are increasingly at risk of going under.”
The AGC’s press release reminded me of 2003-2006, when the price of steel in particular was going through the roof, driven to a large extent by international demand (I’m looking at you, China!). While material cost escalation today may not be quite as dramatic as what the industry went through in the middle of the last decade, it does beg the question: what can the law do to help alleviate the pinch?
Short answer: not much. Contractors resorting to common law contractual defenses (such as impossibility, impracticability and frustration of purpose) and contract provisions (such as force majeure clauses) have found little success shifting the risk of cost increases on fixed price contracts to project owners. Part II of this series will discuss the limitations of existing law in obtaining judicial relief for material price increases. Part III will discuss how to manage your risk in light of these limitations.
Stay tuned in the days ahead for more.
I just caught this article from the Rocky Mount Telegram regarding last Thursday’s decision by the Rocky Mount City Council to award the $6.1 million Downtown Streetscape project to the apparent low bidder, T.A. Loving Construction Co., despite an objection from the third-low bidder, PLT Construction, that T.A. Loving’s bid was non-responsive.
At issue was T.A. Loving’s inclusion in its bid of a light fixture that did not comply with the project specifications and for which T.A. Loving failed to obtain pre-bid approval as required by the bidding instructions. Although the City Council initially considered re-bidding the project, it ultimately awarded the project to T.A. Loving, requiring in exchange that the contractor install spec-compliant light poles at the reduced price for the fixtures recited in its non-compliant bid.
The Telegram’s story suggests this arrangement will save the City of Rocky Mount $138,000 on the light fixture component of the project — i.e., more than 2% of the total value of the contract to be awarded. Simply put, not a bad deal for the City. But what about for the larger North Carolina contracting community? I have my doubts.
November 1, 2011 Update: Lawyers from the Southern Environmental Law Center have appealed Judge Dever’s decision to the 4th Cirtcuit Court of Appeals. As the Charlotte Observer notes, the appeal is not expected to postpone construction of the bypass. Also in today’s Charlotte Observer is this story regarding the potential far-reaching impact of the project, including for area construction crews.
Original October 25, 2011 Story: Earlier today, summary judgment entered in favor of the N.C. Department of Transportation (“NCDOT”) in a lawsuit brought by lawyers from the Southern Environmental Law Center seeking to stop the Monroe Bypass project in Union County from moving forward. As reported by News 14 Carolina (story and video here), work can now begin on the $824 million project. The new toll road will run approximately 20 miles from Highway 74 at I-485 to Highway 74 between Wingate and Marshville.
Based on my cursory review of the Monroe Bypass opinion, it appears the attorneys for the Southern Environmental Law Center advanced arguments that are substantially similar to those they are making in a separate litigation concerning the planned Bonner Bridge replacement project in Dare County, on which I commented back in September. Specifically, counsel argued that NCDOT did not carefully analyze the potential environmental impacts of the project, thereby violating the National Environmental Policy Act (“NEPA”) of 1969. Judge James C. Dever III disagreed in a 28-page Order reciting, in a fair amount of detail, the steps taken by NCDOT to analyze the environmental impacts of the project and comply with NEPA.
Since both the Monroe Bypass and Bonner Bridge matters are pending in the U.S. District Court for the Eastern District of North Carolina, Judge Dever’s ruling is likely to cast a long shadow over the OBX litigation. Indeed, unless NCDOT handled the environmental impact studies for the OBX project in a substantially less comprehensive manner than Judge Dever describes with respect to the Monroe Bypass project, it is difficult to envision a scenario where the Southern Environmental Law Center prevails in stopping the Bonner Bridge replacement project from moving forward.
In an unpublished decision released this past Tuesday, the N.C. Court of Appeals (“COA”) has construed a letter by an electrical subcontractor announcing its transition from a corporate entity to a limited liability company as a guarantee of obligations incurred by the corporate predecessor. The letter announced as follows:
Let it be known that on the 8th Day of September, 2006 WielTech Electric Company became a manager-managed Limited Liability Company between organizers Benjamin Joseph Wieland and Jennifer Dawn Fortenberry. From this date forward any and all business transactions, accounts or any other business relationship formed for WielTech Electric Co. by Tony C. Height, Catherine Robertson or any other person shall be transferred wholly into the newly formed LLC and the two individual organizers.
A supplier of WielTech sued the successor entity, its managers and others for past due invoices owed by WielTech. The supplier argued that the announcement letter constituted a personal guarantee satisfying North Carolina’s statute of frauds. For the non-lawyers who may be reading this, the “statute of frauds,” codified at NCGS c. 22-1 (2009), requires a “special promise to answer the debt … of another person” to be in writing. The successor entity and its managers defended the lawsuit on the grounds that the letter was too ambiguous to serve as a “special promise” to answer for the debts of the predecessor. The COA sided with the supplier, holding that the language in the announcement letter stating that all accounts “shall be transferred wholly” to the individual organizers constituted a payment guarantee satisfying the statute of frauds.
I don’t want to speculate too much about the motivations of the organizers of the successor LLC in the WielTech decision, other than to say that based on an affidavit I have read in the record on appeal, WielTech and its principals may have been maneuvering to salvage their business after being stiffed by a bankrupt general contractor to the tune of just under $200,000. In any event, and to the extent the WielTech folks were attempting to wrap-up the business affairs of one corporate entity and transfer assets to another entity without also assuming the obligations of the predecessor, suffice to say, mission most definitely not accomplished.
The takeaway? In an environment where getting paid for labor provided and materials furnished isn’t getting any easier, creditors and their attorneys will aggressively utilize all legal remedies available to them — piercing the corporate veil, successor liability theories such as the “mere continuation” doctrine, personal guarantees, the Uniform Fraudulent Transfer Act, etc. — to track down sources of potential recovery. To those trying to avoid payment obligations, caveat scriptor. That letter you want to send to retain your customer base in the midst of a corporate transition might say a whole lot more than you think.
CASE LAW SPOTLIGHT: Court of Appeals Holds That Partial Lien Waivers Do Not Reset The Date-of-First-Furnishing Clock
Fall is here, and in four short weeks, daylight savings time will “fall back” to eastern standard time. Many of us will mark the occasion by checking the batteries in our smoke detectors, getting a much-deserved extra hour of sleep, and then awakening to the harsh reality that darkness will arrive an hour earlier than the day before, and will continue to descend earlier and earlier until Old Man Winter is finally upon us. After enduring that chilling thought, we’ll walk through our respective homes and make sure all of our clocks, appliances and VCR’s (yep, I still have one) are set back an hour, to the proper time.
Filing a mechanics’ lien is a little bit like setting the clock back each Fall. Sure, the date stamp applied by the clerk of court upon docketing a Claim of Lien bears the date of filing, but the contractor’s security interest in the property actually “falls back” to an earlier point in time — specifically, the date of the contractor’s first performance as recited in the Claim of Lien itself. It is that date — and not the date of filing — that will establish the contractor’s priority in the property that is the subject of the contractor’s improvement vis-à-vis all other competing interests.
Or so we all thought, before the Business Court ruled in April 2010 that every partial lien waiver executed by a contractor in exchange for periodic payment effectively resets the date of first furnishing. In all candor, many of my fellow construction law practitioners and I were shocked by that result. Fortunately, order was restored this past July, when the Court of Appeals reversed the Business Court and held that a partial lien waiver does not affect a contractor’s place in the priority line. Still, the Wachovia v. Superior Construction case discussed in this Case Law Spotlight article should serve as a “check-the-batteries-in-the-smoke-detector” moment for all contractors across the State: now would be a good time to make sure the partial lien waivers you execute every month aren’t too overbroad. Details and analysis follow after the jump.
Creative carpool-lane scofflaws, like this artiste from New York, might soon be able to retire their mannequins, at least in the Charlotte area. As reported in today’s Charlotte Observer, N.C. Department of Transportation Secretary Gene Conti informed the Charlotte City Council on Monday that a contractor could be selected to convert high-occupancy vehicle (“HOV”) lanes to high-occupancy toll (“HOT”) lanes on I-77 as soon as this time next year. Once the conversion is complete, high-occupancy vehicles would be authorized to use the HOT lanes without charge, but solo motorists trying to shorten their morning and evening commutes would have to pay a toll via electronic transponder.
The project could cost upwards of $200 million, but it wasn’t the price tag that caught my eye. Rather, I’m interested in the possibility that the conversion could be financed through a public-private partnership. A number of other states have either utilized or are considering utilizing “PPP’s” in developing HOT lanes. In fact, Georgia appears primed to build new toll lanes alongside I-75 and I-575 in Cobb and Cherokee counties through a PPP, at a price tag over $1 billion.
Which got me to thinking:
- What are the potential legal issues that must be considered before the NCDOT engages in a PPP for an HOT?
- What are the public policy considerations?
- Might the politics of developing so-called “Lexus Lanes” be too HOT to handle?
I hope to give these questions some additional thought in the days ahead and provide some additional insights in a subsequent blog post.
In a pair of recent decisions, the N.C. Court of Appeals has clarified that an “accident“ or “occurrence” may arise from faulty construction, ruled that the “your work” exclusion is not so broad as to exclude from CGL coverage damage to property other than the faulty work product itself, and held that lost revenue and other consequential damages may be recoverable against a CGL policy, even if such damages arise from the defective construction itself. Taken together, the two opinions narrow the reach of the “your work” exclusion in North Carolina, and should preclude the type of firestorm that engulfed the contracting community, insurance industry and legislature in South Carolina earlier this year, when its Supreme Court came to virtually opposite legal conclusions.
You’ll find a full discussion and analysis of both decisions, including their potential impact on the construction industry here in North Carolina, after the jump.
Earlier this week, the Durham City Council voted unanimously to approve a “university zoning” policy that could permit North Carolina Central University to avoid having to obtain a special-use permit each time the university plans to erect a new building on campus.
The policy shift could have the effect of expediting approval of new construction on campus, assuming a zoning ordinance codifying the new policy is ultimately ratified by the council. Click here for the full scoop from the Durham Herald-Sun.