QUICK NOTE: LIS PENDENS BOND WHEN LIS PENDENS NOT FOUNDED ON RECORDED INSTRUMENT OR STATUTE

If a lis pendens is recorded and the lis pendens is NOT founded on a duly recorded instrument (e.g., mortgage) or a statute (e.g., construction lien), a lis pendens bond should be recorded.  The lis pendens bond should cover prospective damages associated with the wrongful / unjustified recording of a lis pendens that were suffered by the property owner.  The reason being is that the lis pendens has an effect on the title to the property as long as the lis pendens is recorded.  Damages could stem from a decline in the market value of the property, continued upkeep and maintenance of the property, and there may also be (and, really, should be) consideration for loss of investment return associated with the equity in that property.  Finally, prospective attorney’s fees that could be incurred in discharging the lis pendens should also be included. For more information on this, please check out this article.   

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

ARBITRATION PROVISIONS ARE CHALLENGING TO CIRCUMVENT

Arbitration provisions are enforceable and they are becoming more challenging to circumvent, especially if one of the parties to the arbitration agreement wants to arbitrate a dispute versus litigate a dispute.  Remember this when agreeing to an arbitration provision as the forum for dispute resolution in your contract.  There is not a one-size-fits-all model when it comes to arbitration provisions and how they are drafted.  But, there is a very strong public policy in favor of honoring a contractual arbitration provision because this is what the parties agreed to as the forum to resolve their disputes.  

 

By way of example, in Austin Commercial, L.P. v. L.M.C.C. Specialty Contractors, Inc., 44 Fla.L.Weekly D925a (Fla. 2d DCA 2019), a subcontractor and prime contactor entered into a consultant agreement that contained the following arbitration provision:

 

Any controversy or claim arising out of or relating to this Agreement or the breach thereof shall be subject to the dispute resolution procedures, if any, set out in the Prime Contract between [Prime Contractor] and the [Owner]. Should the Prime Contract contain no specific requirement for the resolution of disputes or should the [Owner] not be involved in the dispute, any such controversy or claim shall be resolved by arbitration pursuant to the Construction Industry Rules of the American Arbitration Association then prevailing, and judgment upon the award by the Arbitrator(s) shall be entered in any Court having jurisdiction thereof.

 

The prime contract between the owner and prime contractor did not require arbitration.

 

The prime contractor initially hired the subcontractor during the design phase of the project as a consultant.  The consultant agreement contained the aforementioned arbitration provision. Then, during the construction phase, the prime contractor and subcontractor entered into a work order that incorporated the terms of the consultant agreement, meaning the arbitration provision was incorporated into the work order.  

 

A payment dispute arose during the construction phase and the subcontractor sued the prime contractor.  The prime contractor moved to compel the dispute to arbitration per the terms of the arbitration provision in the consultant agreement.  The trial court denied the prime contractor’s motion to compel.   This was reversed on appeal – and it was probably an easy reversal for three main reasons:

 

One:  Florida has a strong public policy in favor of enforcing arbitration provisions, as mentioned above.  Remember this. 

 

Two:  the work order between the prime contractor and subcontractor for the construction phase incorporated the terms of the consultant agreement that contained an arbitration provision.  Thus, the consultant agreement with the arbitration provision had to be interpreted together with the work order.  Remember that a document or contract can incorporate another document or contract. 

 

Three:  the dispute was between the subcontractor and prime contractor.   The owner was NOT “involved” in the dispute because it was not a party to the lawsuit and the payment dispute the subcontractor initiated against the prime contractor did not involve the owner considering the owner did not need to participate in the dispute.   “[O]ne would not ordinarily understand an entity to be ‘involved’ in a dispute where that entity is neither drawn into the dispute nor affected by the dispute. Only an impermissible, strained textual interpretation of ‘involved in the dispute’ would yield a conclusion that HCAA [Owner] would be affected by a financial dispute between Austin [Prime Contractor] and Mims [Subcontractor].”  Austin Commercial, supra.   Remember this that the word “involve,” as this word is used in the arbitration provision, is not going to be read so broadly to render inconsequential the prime contractor’s right to arbitrate disputes with its subcontractor. 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

 

ATTORNEY’S FEES ENTITLEMENT AND APPLICATION UNDER SUBCONTRACT DEAULT PROVISION

Many subcontracts contain a provision in the default section that reads something to the effect:

 

Upon any default, Subcontractor shall pay to Contractor its attorney’s fees and court costs incurred in enforcing this Subcontract or seeking any remedies hereunder.” 

 

Oftentimes, a party may wonder as to the enforceability of the provision and how it is applied in the context of a dispute between a contractor and its subcontractor where both parties have asserted claims against the other.   

 

In an opinion out of the Middle District of Georgia, U.S. f/u/b/o Cleveland Construction, Inc. v. Stellar Group, Inc., 2019 WL 338887 (M.D.Ga. 2019), a subcontractor and prime contractor on a federal construction project each asserted claims against the other in the approximate amount of $4 Million, meaning there was a potential $8 Million swing in the dispute.

 

The subcontract contained a provision entitling the contractor to recover attorney’s fees incurred in enforcing the subcontract or seeking remedies under the subcontract upon any default, identical to the provision above. 

 

The case proceeded to a jury trial and a general verdict form was presented to the jury that did not differentiate between the claims each party sought.  The jury found the contractor was liable to the subcontractor for approximately $2.5 Million and the subcontractor was liable to the contractor for approximately $1.3 Million, leaving a net verdict in favor of the subcontractor for approximately $1.2 Million.

 

The contractor, however, sought its attorney’s fees (and costs) pursuant to the default provision since the jury found the subcontractor was liable to it for approximately $1.3 Million.   The subcontract provided that upon a default, the contractor is entitled to attorney’s fees incurred in (i) enforcing the subcontract or (ii) seeking remedies under the subcontract.  But, to be entitled to fees, there had to be a subcontractor default. 

 

The trial court found the subcontract was unclear as to the actual connection that needed to exist between the default and what is actually recoverable at trial.  In other words, it was unclear whether there needed to be a relationship between the default and the recoverable attorney’s fees or whether the contractor could recover attorney’s fees upon any default regardless of whether the attorney’s fees incurred related to that specific default.  The trial court did not interpret the default attorney’s fees provision that broadly and held the contractor must show a causal connection between the default, the enforcement of the subcontract or remedies sought under the subcontract, and the attorney’s fees incurred.  “Under the [subcontract] enforcement prong, [Contractor] would be expected to show that the fees it incurred related to the successful pursuit of the claim for default.  Similarly, under the remedies [sought under the subcontract] prong, [Contractor] would only be entitled to fees incurred in the actual obtaining of a remedy for [Subcontractor’s] default.”  Stellar Group, 2019 WL at *2.  

 

This is not an easy feat, and here lies the problem.    Based on a general jury verdict form, the jury was not asked to make specific findings as to facts that could support the issues relating to the default or the claims prevailed on.  Thus, allocating those attorneys’ fees incurred to the default and enforcement of the subcontract it prevailed on is taking a shot in the dark.

 

Notwithstanding, there are lessons learned from this case.  First, the trial court did not find the attorney’s fees provision unenforceable even through the net judgment went in favor of the subcontractor,  That is promising.  Second, for purposes of a jury trial, had the contractor objected to a general verdict form and requested special interrogatories in the verdict form relating to this issue, the contractor may have been able to allocate certain attorney’s fees incurred to the claims or issues it prevailed on at trial.  And, third — perhaps the most important — this subcontract language can be revisited to make the entitlement and application of attorney’s fees more clear in favor of the contractor.   With that said, the trial court’s interpretation that the fees incurred should have a causal connection to the default and enforcement / remedies under the subcontract prevailed on is not an unreasonable application by any means. 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

DESIGN PROFESSIONAL ASSERTING COPYRIGHT INFRINGEMENT AND CONTRIBUTORY COPYRIGHT INFRINGEMENT

Standard form construction contracts between an owner and design profesional will address copyright protection, as well as other contractual protections, associated with a design professional’s “instruments of service.”   An owner negotiating an agreement with a design professional should consider alternative language that broadens the scope of the contractual license given to it with respect to the use of the design.  Regardless, a design professional’s copyright infringement claim is still a challenging claim to ultimately prevail on.   While a design professional may likely survive the motion to dismiss stage in a copyright infringement claim, whether it survives the summary judgment stage is another, more challenging, story.

 

To state a claim for copyright infringement a plaintiff [design professional] must assert [and prove the following two prongs]: ‘(1) ownership of a valid copyright, and (2) copying of constituent elements of the work that are original.’” Robert Swedroe Architect Planners, A.I.A., P.A. v. J. Milton & Associates, Inc., 2019 WL 1059836, *3 (S.D.Fla. 2019) quoting Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., Inc., 499 U.S. 340, 361 (1991).  

 

In the first prong, the design professional must establish it complied with statutory formalities to own a valid copyright. Id.

 

In the second prong, the design professional must establish that the defendant copied constituent elements that are originalId.

 

There is also a claim known as contributory copyright infringement.  

 

Contributory copyright infringement occurs where a party with knowledge of infringing activity materially contributes to the infringing conduct of another.” Robert Swedroe, 2019 WL at *4.   Actual knowledge is not required – it just needs to be shown the defendant had reason to know (i.e.,knew or should have known) of the copyright infringement.  Id. (citations omitted). 

 

For example, in Robert Swedroe, an architectural firm was hired by a developer to prepare plans and specifications in connection with a residential building project.  The contract was based off an AIA B141 agreement between an owner and architect. The architect was to initially prepare plans to obtain approval of the governing Planning Board and, upon approval, prepare the permit plans for the residential building.    Once the Planning Board approved the project, the developer sold the property to another developer. The new developer, however, hired another architectural firm–that was provided and had access to plans from the initial architect–with the intent on moving forward with the design and construction of the residential building.

 

The original architect submitted its technical drawings and architectural work to the United States Copyright Office and obtained a Certificate of Registration.   (Notably, this satisfied the first prong on the copyright infringement claim as the original architect satisfied statutory formalities).  The original architect sued the new developer and new architect for copyright infringement asserting the new architect copied original elements of its design for the residential building project.  The original architect also sued the new developer for contributory copyright infringement.  The new architect and new developer moved to dismiss the copyright infringement claims. Although the trial court denied the motion to dismiss, the original architect will still need to support the burden of its copyright infringement claims.  For more information on the difficulties proving a design professional’s copyright infringement claim, review this article.  

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.