LIEN TRANSFER BONDS AND VENUE

theVenue(1)The Fourth District Court of Appeals in Attaway Electric, Inc. v. Kelsey Construction, Inc., 38 Fla. L. Weekly D1693a (Fla. 4th DCA 2013)  recently ruled that an action on a lien transfer bond (posted pursuant to Fla. Stat. s. 713.24 in the county where the project is located and lien recorded) needs to be initiated in the county where the bond is recorded. This means that even if there is a contract between the parties that requires a different venue outside of where the lien transfer bond is posted, that venue provision will not be enforced so that an action as to the lien transfer bond and an action under the contract can both be brought in the same county, i.e., where the lien transfer bond is posted.
In Attaway Electric, a subcontractor recorded liens for alleged nonpayment on Broward County projects with the same general contractor. The liens were transferred to lien transfer bonds by the general contractor. The subcontractor moved to foreclose the liens in Broward County and also sued the general contractor for breach of contract. The general contractor then moved to transfer venue to Orange County pursuant to a forum selection provision in the subcontract. The trial court granted the motion and transferred venue. The Fourth District, however, reversed finding that an action on a lien transfer bond must be brought in the county where it is recorded and “contract claims involving the same matters should be brought in the same place to avoid inconsistent rulings.Attaway Electric.

 
This recent decision is important because contractors that want to obtain the benefit of a forum selection provision in a subcontract probably need to have a payment bond and ensure in the subcontract that the forum selection provision covers claims as to the payment bond surety. If there is no payment bond, specifically for a private project, a subcontractor can lien the private project for monies owed. If the general contractor (or even perhaps the owner) then transfers the lien to a lien transfer bond, the subcontractor will be able to foreclose the lien as to the lien transfer bond in the county where the bond is recorded as well as pursue a breach of contract claim against the contractor in the same county, even if the subcontract contains a forum selection provision with a different venue.

 

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.

VENUE FOR PAYMENT BOND DISPUTES IN FLORIDA

theVenue(1)Two main Florida payment bond statutes are Florida Statute s. 713.23 (payment bonds for private projects) and Florida Statute s. 255.05 (payment bonds for Florida public projects-not federal projects). Both statutes prohibit a payment bond issued after October 1, 2012 from restricting venue. In other words, if the payment bond contains a venue provision after this date, it is not enforceable.

 

This prohibition is important because there are times where the project is located in a venue that is not where the subcontractor resides and/or is contrary to the venue provision in the subcontract (typically, a venue where the general contractor resides).

 

It is good practice for the general contractor to include in its subcontract a venue provision that applies to its surety such that the subcontractor must sue the payment bond in the same venue that governs the subcontract. While it is uncertain how the new prohibition from restricting venue in a payment bond will apply in this context, the counter-argument is that the payment bond is not restricting venue, rather the “negotiated” subcontract governs the venue of any and all disputes between the parties including claims against the general contractor’s surety (and the general contractor is indemnifying and defending the surety). Worst case scenario is that the venue provision is deemed inapplicable to the surety. However, courts do not favor splitting causes of action (due to, among other things, the concern for conflicting results over the same facts) and should not favor a subcontractor lawsuit against the general contractor in one venue and a simultaneous subcontractor lawsuit against the general contractor’s payment bond surety in another venue. Indeed, courts have refused to enforce venue provisions in subcontracts in order to avoid splitting of causes of action. See, e.g., Miller & Solomon General Contractors, Inc. v. Brennan’s Glass Co., Inc., 837 So.2d 1182 (2003) (refusing to enforce subcontract venue provision when action as to lien transfer bond was filed in correct venue). Including a venue provision that also covers claims against the payment bond surety is useful in the event the general contractor wants to countersue the subcontractor or simply wants to create an argument that its subcontractor disputes should be confined to its preferred venue versus the subcontractor’s preferred venue.

 

On the other hand, there are situations where a subcontractor may not want to sue the general contractor and strategically prefers to just sue the payment bond surety. One situation may be the subcontractor knows the general contractor was not paid and the subcontract contains a pay-when-paid provision which would be enforceable as to the general contractor, but not against the payment bond surety. Another situation may be due to the venue provision in the subcontract; the subcontractor prefers to sue in a venue outside of the venue provision in the subcontract and has a better argument around the venue provision if it does not join the general contractor. There is caselaw that supports an argument to sue a payment bond surety in a venue where the subcontractor (lienor) resides that, depending on the dispute, could be appealing to the subcontractor. See, e.g., American Insurance Co. v. Joyner Electric, Inc., 618 So.2d 799 (Fla. 1st DCA 1993) (finding that action under s. 255.05 public payment bond was proper where lienor / subcontractor resided); Coordinated Constructors v. Florida Fill, Inc., 387 So.2d 1006 (Fla. 3d DCA 1980) (finding that venue was proper under s. 713.23 private payment bond action where lienor / supplier resided).

 

Venue is a pretty heavily litigated procedural strategic issue.   Just like any dispute, venue as to a payment bond claim should not be ignored and should absolutely be considered at the onset of a dispute.

 

For more information on venue provisions, please see:

http://www.floridaconstructionlegalupdates.com/venue-provisions-read-what-you-sign/

and

http://www.floridaconstructionlegalupdates.com/subcontractors-read-and-understand-the-implications-of-venue-provisions/

 

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.

SUBCONTRACTORS – READ AND UNDERSTAND THE IMPLICATIONS OF VENUE PROVISIONS

imagesCA7D565LSubcontracts often have venue provisions. However, these are often overlooked until a dispute arises. In many instances, the venue provision requires disputes to be brought in a court in a different venue than where the project is located. This could have the adverse effect of exposing a subcontractor, in particular, to disputes in multiple forums. The recent case of East Coast Metal Decks, Inc. v. Boran Craig Barber Engel Construction Co., Inc., 38 Fla. L. Weekly D1061a (Fla. 2d DCA 2013), explains the undesirable dynamics of venue provisions.
In East Coast Metal Decks, the general contractor hired the subcontractor on two public projects in Brevard County and Sarasota County. The general contractor, however, sued the subcontractor in Collier County due to a venue provision in the subcontract. The subcontractor brought the general contractor’s payment bond surety into the fold and then tried to transfer the venue to Brevard County because the subcontractor was being sued by material suppliers in that County. The trial court denied the transfer of venue because of the Collier County venue provision in the subcontract.

 

On appeal, the Second District affirmed the trial court’s ruling. The Second District found that (i) the parties were bound by the subcontract venue provision as there was not a compelling reason not to enforce the provision and (ii) because the payment bond was a public payment issued under Florida Statute s. 255.05, venue for a claim against the bond did not have to lie in Brevard County (where the project was located).

 
What does this case mean? Well, it means that the subcontractor needs to litigate with the suppliers in Brevard County and litigate with the general contractor in Collier County even though the disputes are related. Most likely, the suppliers sued the subcontractor because they were not paid and the general contractor did not pay the subcontractor due to the facts related to the general contractor’s claim against the subcontractor in Collier County.
Litigation in different counties over a related dispute can become expensive and undesirable. It is important to understand and consider the impact of venue provisions in contracts. Sometimes, it makes sense to argue the compelling reasons why the venue provision should not be enforced. However, courts do favor venue provisions because that is what parties negotiated and agreed to on the front-end. Other times, it makes sense to resolve the smaller lawsuits or lawsuits where the facts may not be in your favor (such as a subcontractor’s lawsuit with a supplier) to focus on the lawsuit with more upside (the subcontractor’s lawsuit with the general contractor or payment bond surety).

 

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.

VENUE PROVISIONS – READ WHAT YOU SIGN!

UnknownVenue provisions, also known as forum selection provisions, are commonly included in contracts. These provisions state that if there is a dispute arising out of or relating to the contract, the dispute must be brought in the exclusive venue of a certain locale. (For example, the provision might say disputes must be brought in the exclusive venue of Miami-Dade County.) Parties should be aware of this provision when executing a contract.

 

In Espresso Disposition Corp. 1 and Rowland Coffee Roasters, Inc., 37 Fla. L. Weekly D2643a (Fla. 3d DCA 2012), the parties entered into a contract. However, the party that prepared the contract cut-and-pasted the venue provision / forum selection provision from another contract. In doing so, there was no realization that the venue provision required disputes to be brought in Illinois. When a dispute arose, the drafter filed suit in Miami and argued that the Illinois venue provision was in error because it was simply cut-and-pasted. The problem was that venue provisions are enforceable and presumptively valid. The Third District Court of Appeal ruled that the drafter’s lawsuit must be dismissed because according to the parties’ contract, disputes could only be brought in Illinois. In entering this ruling and enforcing the cut-and-pasted venue provision, the Third District maintained “be careful what you ask for!” In other words, review the contract you are preparing and executing.

 

This case stands for the important proposition that parties need to review the contracts they are executing. Failure to do so could result in you being required to resolve your dispute in a different state and inconvenient forum as was the circumstance in the above case.

 

 

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.