QUICK NOTE: REMEMBER TO TIMELY FORECLOSE LIEN AGAINST LIEN TRANSFER BOND

When a construction lien is transferred to a lien transfer bond pursuant to Florida Statute s. 713.24, instead of foreclosing the lien against the real property, you are foreclosing the lien against the lien transfer bond.  This is not a bad deal and, oftentimes, is probably ideal.   Remember, however, just because a construction lien was transferred to a lien transfer bond (pre-lawsuit) does not mean you get more time to file your lien foreclosure lawsuit.  A lawsuit must still be filed within one year (short of that period being specifically shortened under operation of the law).  The only exception is that if the lawsuit is filed and the lien transfer bond is then recorded (post-lawsuit), the lienor has one year to amend its lawsuit to sue the lien transfer bond.

 

 

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.

 

 

PAROL EVIDENCE CAN BE USED TO DEFEAT FRAUDULENT LIEN

shutterstock_162610553Parol or extrinsic evidence can be used to defeat an argument that a lien is a fraudulent lien.  And, just because a lien amount exceeds the total contract amount does not presumptively mean the lien is willfully exaggerated or recorded in bad faith.  Finally, a ruling invalidating a construction lien can create the irreparable harm required to support a petition for writ of certiorari.  All of these issues are important when dealing with and defending against a fraudulent lien and are explained in a recent case involving a dispute between an electrical subcontractor and its supplier.

 

In Farrey’s Wholesale Hardware Co., Inc. v. Coltin Electrical Services, LLC, 44 Fla.L.Weekly D130a (Fla. 2d DCA 2019), there were various revisions to the supplier’s  initial purchase order, both from a qualitative and quantitative perspective, and a ninth-revised purchaser order was issued and accepted.  The electrical subcontractor claimed that deliveries were late, unassembled, and did not include the required marking (likely the UL marking), to pass building inspections.  As a result, the subcontractor withheld money from the supplier and the supplier recorded a lien in the amount of $853,773.16 and filed a foreclosure lawsuit.

 

The subcontractor moved for a motion for partial summary judgment that the lien should be deemed a fraudulent lien and invalid because it was overstated by approximately $32,000.  The subcontractor argued that taking the amount of the ninth-revised purchase order and deducting the undisputed amount paid to the supplier would result in a lien amount of $825,417.06, approximately $32,000 less than the supplier’s lien amount.  The supplier, through an affidavit, argued this delta is nothing more than a good faith dispute and can be explained because the total cost of materials furnished to the job site was based on its initial purchase order and its revised purchase order.  The subcontractor countered that the affidavit is  parol evidence and should be disregarded because the parties agreed on the total amount of the supplies through the ninth-revised purchase order and the supplier was trying to create a new contract through the affidavit.  The trial court agreed and found the lien fraudulent, and issued a partial summary judgment invalidating the supplier’s lien.  The subcontractor moved for a petition of writ of certiorari.

 

Parol Evidence Rule

 

“[T]he parol evidence rule prevents the terms of a valid written contract or instrument from being varied ‘by a verbal agreement or other extrinsic evidence where such agreement was made before or at the time of the instrument in question.’” Farrey’s Wholesale, supra(citation omitted). The parol evidence rule, however, is not applied to exclude evidence of subsequent agreements modifying the original agreement, or of fraud, accident, or mistake.  Id.  

 

The appellate court, reversing the trial court, found that the parol evidence rule “does not bar extrinsic evidence offered for the purpose of showing whether the filing of a construction lien was made in good or bath faith.  This is a separate and distinct inquiry that does not trigger the parol evidence rule.”   Hence, the appellate court maintained there were disputed issues of material fact as to whether the lien was fraudulent.

 

The appellate court further found that the trial court erred in finding the lien fraudulent in that just because the lien amount exceeded the ninth-revised purchase order does not mean it was willfully exaggerated.  In other words, even if the ninth-revised purchase order was the complete agreement, the lien, in of itself, is not willfully exaggerated just because the lien exceeded the total amount of the contract. 

 

Appeal of Lien

 

On another important point in this case, because the appeal was based on a writ of certiorari (versus a final appeal of a final dispositive judgment), there had to be irreparable harm to justify the basis of the appeal.  The appellate court held there would be irreparable harm if the supplier had to wait until the end of the litigation to appeal because its judgment would then be unsecured (it would be without a remedy to pursue its lien which had been transferred to a lien transfer bond).  See Farrey’s Construction Wholesale, supra  (“This means that on remand [back to the trial court], all matters pertaining to Farrey’s construction lien, which includes the status of the lien transfer bond, will be returned to their prejudgment postures.”). 

 

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.

PRE-SUIT SETTLEMENT OFFERS AND CONSTRUCTION LIEN ACTIONS

shutterstock_127849640It is unfortunate, but in certain matters, a construction lien foreclosure action is not actually driven by the principal amount in dispute.  Oh no.  Rather, it is driven by attorney’s fees.  That’s right.  Attorney’s fees. This is true even though Florida applies the significant issues test to determine the prevailing party for purposes of attorney’s fees.  However, oftentimes  the prospect of attorney’s fees is enough for parties to fear that exposure. 

 

There is a 1985 Florida Supreme Court case that I like to cite if applicable, C.U. Associates, Inc. v. R.B. Grove, Inc., 472 So.2d 1177, 1179 (Fla. 1985), that finds, “in order to be a prevailing party entitled to the award of attorney’s fees pursuant to section 713.29 [a construction lien claim], a litigant must have recovered an amount exceeding that which was earlier offered in settlement of the claim.”  Accord Sullivan v. Galske, 917 So.2d 412 (Fla. 2d DCA 2006) (explaining that although contractor is receiving a judgment in his favor, he may not be the prevailing party if the homeowner offered to settle prior to the lawsuit for an amount equal to or greater  than the award in the judgment).

 

If there is a pre-suit settlement offer on the table, and it is a good faith offer (which presumably it is), than that offer can very well come into play to determine whether the party that will the action should be deemed the prevailing party for purposes of attorney’s fees.  This is still good law.  Therefore, before readily dismissing a pre-suit offer, consider the potential ramifications if you are unable to beat this offer at trial. Banking on attorney’s fees may not be prudent if there is a pre-suit offer that is within striking distance from where you need to be or can very well be a likely outcome based on a reasonable argument raised by the opposing party.

 

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.

 

CONSTRUCTION LIEN NEEDS TO BE RECORDED WITHIN 90 DAYS FROM LIENOR’S FINAL FURNISHING

shutterstock_239963452A lienor needs to record its construction lien within 90 days of its final furnishing dateThis final furnishing date excludes punchlist, warranty, or the lienor’s own corrective work.   A lien recorded outside of ths 90-day window will be deemed invalid.

 

The opinion in In re: Jennerwein, 309 B.R. 385 (M.D. Fla. 2004) provides a good discussion of this 90-day window.  This matter dealt with a debtor / owner’s bankruptcy where the owner was contesting the validity of a construction lien by its pool contractor.  The owner contended that the lienor’s lien was recorded outside of this 90-day window thus rendering the lien invalid.  The bankruptcy court was determining the validity of the lien.

 

In this matter, the owner hired a swimming pool contractor to construct a pool.  On October 25, 2002, the pool contractor installed pavers around the pool.  After this was performed, the pool contractor realized the owner was unable to obtain the financing to pay for the pool.  As a result, the pool contractor ceased doing any more improvements.  But, neither the pool contractor nor the owner terminated the contract.  Then, on November 27, 2002, the pool contractor sent a supervisor to the property to inspect the pool (work-in-place), the pool equipment, the installed pavers, made a list of the unfinished work, and remove any debris.  On January 27, 2003, the pool contractor recorded its lien.

  

The issue is that if the last day the pool contractor did work was on October 25, 2002 which is when it installed the pavers (the final furnishing date), then the lien it recorded on January 27, 2003 was not timely.  The lien was recorded more than 90 days from October 25, 2002.  However, if the last day the pool contractor did work was on November 27, 2002 when it sent a supervisor to inspect the work and remove debris, then the lien was timely as it was recorded within the 90-day window.

 

In Florida, the test to determine whether labor, services, or materials were furnished is whether the work was: (i) performed in good faith; (ii) within a reasonable time; (iii) in pursuance of the terms of the contract; and, (iv) whether the work was necessary to a “finished job.”… The application of this fairly straight- forward four step test is fact driven, and the facts of each construction project vary widely.

In re: Jennerwein, 309 B.R. at 388.

 

The Bankruptcy Court applied this four step test to determine whether the pool contractor’s inspection / visit on November 27, 2002 constituted its final furnishing date.  Based on the facts, the Court held that November 27, 2002 did constitute a final furnishing date meaning the lien was valid.   Although the pool contractor’s visit on this day was limited, the contract was still in effect (i.e., it was not terminated).  The pool contractor was operating in good faith and the supervisor was conducting his normal job duties by checking on the status of the work. This visit was also deemed to occur within a reasonable time after the pavers were installed. Although the project remained idle after the pavers were installed, this was because the owner was trying to find financing to pay for the work.  Further, the supervisor’s inspection was performed in pursuance of its work and the contract.  Without a list as to the work that remained to be completed, the contractor would not have a schedule of work and materials needed to finish its job.

 

This factual-based finding is favorable to a lienor.  Between the October 25, 2002 date the pavers were installed and the November 27, 2002 date the supervisor visited the property, there was no work.  The pool contractor stopped work because it was not getting paid and it obviously did not want to perform more work knowing that work was not going to get paid for.  However, neither party formally terminated the contract.  The supervisor’s visit was nothing more than confirming the work it performed versus the work it did not perform and remove any debris, etc., that remained on the job.  In other words, the pool contractor was leaving based on the non-payment.  However, the Court deemed the visit to be in good faith and pursuant to the contract allowing this date to be deemed a final furnishing date.  That is a favorable finding when, in reality, the last date the lienor physically improved the property was a month earlier when the pavers were installed.

 

The final furnishing date, as you can tell, will be a fact-based determination.  And, the four step test will be applied to determine the merits of the final furnishing date.  However, I always try to operate conservatively; it is always safer to record the lien sooner than later to take away any close-call argument that the lien should be invalid because it was recorded outside of the 90-day window.

 

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.