With a growing number of projects facing financial difficulty, the importance of maintaining leverage for securing payment is greater than ever. The project itself remains a prime security target for any contractor, subcontractor or supplier for assuring appropriate attention is given to their claims and that payment will be forthcoming in a timely and unencumbered manner. Some very recent developments in the lien realm emphasize the ongoing attention that is being given to lien statutes and the opportunity they provide for maximizing those considerations of security and leverage.
Construction disputes often boil down to a single issue: “show me the money.” Experienced contractors, owners and financiers understand the risks that come with unfinished projects and unpaid work; best practices have long included tracking first visible work, last day of work, and other issues critical to perfecting and enforcing mechanic’s lien rights. But a bankruptcy or a potential bankruptcy of a project participant introduces a new set of challenges and risks to construction projects.
Late this summer, the United States District Court for the Northern District of Illinois, Eastern Division, took on an issue of first impression – whether the fraud of one partner can be imputed to an “innocent” partner in order to render a judgment non-dischargeable.
1 Loranger v Jones, 184 Cal App 4th 847 (3d Dist May 2010)
Jones, a licensed contractor, had a workers' compensation policy covering his employees. Jones unknowingly used an unlicensed subcontractor and knowingly permitted two minors without work permits, and another person without a contractor's license, to help perform work for Loranger. Loranger refused to pay the final invoice and Jones filed suit for breach of contract. Loranger cross-complained alleging defects and sought disgorgement of monies paid.
The debtor made claims against a surety that issued a performance bond in connection with a construction contract. The surety contended that it was not liable for the consequential damage claims.
Waldschmidt v. Singletary Construction LLC (In re Tackett), 516 B.R. 498 (Bankr. M.D. Tenn. 2014) –
A bankruptcy trustee sought turnover of profits from the sale of homes constructed by a contractor. The trustee contended that there were contracts between the debtor and the contractor pursuant to which the debtor agreed to reimburse the contractor for its costs plus pay a $15,000 contractor’s fee for each home.
The rate of bankruptcies among construction industry participants is higher than some think. The bankruptcy of a developer creates an “automatic stay” under federal law preventing almost all collection activities, including actions to perfect a lien.
Liability insurance policies typically exclude coverage for obligations arising out of the insured’s “assumption of liability in a contract or agreement.” Earlier this year, the Texas Supreme Court took a narrow view of this exclusion: in the landmark decision in Ewing Construction Co. v. Amerisure Insurance Co., 420 S.W.3d 30 (Tex.
In a decision released on June 25, 2014, the US Court of Appeals for the Second Circuit held that ASARCO LLC could not maintain CERCLA cost recovery actions against the trustees of residuary trusts created by the will of John D. Rockefeller, Sr. ASARCO, as part of its emergence from Chapter 11 bankruptcy, paid the US, the State of Washington, and the Port of Everett, Washington $50.2 million to settle pending CERCLA claims at two Superfund sites in Washington State.