FLORIDA’S LIEN LAW AND SUBSTANTIAL COMPLIANCE VS. STRICT COMPLIANCE

Posted on April 14, 2017April 14, 2017 by Edward Garber

There are literally some (or, perhaps, many!) disputes that will make you say “hmm!” The “hmm” is a euphemism for “what is a party thinking?!?” The case of Trump Endeavor 12 LLC v. Fernich, Inc., 42 Fla. L.Weekly D830a (Fla. 3d DCA 2017) is one of these cases because a party (the owner) is banking its defense on a technical “all-or-nothing” argument pertaining to whether a lienor (a supplier) substantially complied with Florida’s Lien Law because a supplier’s Notice to Owner identified the wrong general contractor. This is a challenging argument because the owner has to prove how they were adversely affected / prejudiced by the lack of substantial compliance, which is not an easy burden.

This case concerns the Trump National Doral Miami project. The project consisted of a lodge project and a separate clubhouse project, both of which had different general contractors. On the lodge project, the general contractor hired a painter which, in turn, procured paint from a supplier (the lienor). The supplier visited the project and obtained the Notice of Commencement from the owner so that it could perfect its lien rights. The owner furnished the supplier the Notice of Commencement for the clubhouse project that had a different general contractor. Relying on this Notice of Commencement, the supplier served a Notice to Owner. The Notice to Owner was timely serviced however it identified the wrong contractor – it identified the general contractor for the clubhouse project instead of the lodge project. Although the supplier later learned there was a different general contractor on the lodge project, it did not remedy the issue by serving a Notice to Owner on the correct contractor. Indeed, the contractor for the lodge project learned of the Notice to Owner furnished by the supplier and that the supplier was furnishing paint to the painting subcontractor for purposes of that project.

The supplier was owed approximately $32,000 and recorded a lien against the lodge project. The owner countered that the supplier did not have lien rights because its Notice to Owner incorrectly identified the wrong contractor. The supplier argued that it substantially complied with the Notice to Owner requirements and there was no prejudice to the owner as the result of it identifying the wrong contractor. The court sided with the contractor.

The court held that if the supplier substantially complied with the Notice to Owner requirements then such errors do not prevent its enforcement against a person who has not been adversely affected (prejudiced) by the error. Based on the facts, the supplier substantially complied with the Notice to Owner requirements and the owner could not establish how it was remotely prejudiced by the error.

Banking on certain technical arguments is literally banking on an “all-or-nothing” argument because if you lose that argument, then you lose the dispute and are likely liable for the prevailing party’s attorney’s fees. Here, the owner relied on a technical argument regarding the fact that the supplier failed to identify the correct general contractor on the Notice to Owner even though it knew the supplier was furnishing paint on the project. Why did the owner bank its entire case on such a technical position for an approximate $32,000 lien, especially when the owner could not prove how it was prejudiced by the supplier’s omission of the correct contractor? While there is strict compliance with the time requirements under Florida’s Lien Law, a party needs to substantial comply with other requirements. Substantial compliance will then shift the burden to the other party to prove how it was prejudiced by the substantial compliance versus strict compliance. This can be a heavy burden. Probably not worth banking an entire defense on this technical argument, particularly for a $32,000 lien.

Obviously, strict compliance is always best to avoid dealing with these technical arguments. For this reason, there is always value consulting with an attorney regarding perfecting and preserving your lien rights.

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.

RESIDENTIAL CONSTRUCTION – SHOULD BOTH HUSBAND & WIFE SIGN THE CONTRACT?

Posted on June 7, 2015June 7, 2015 by Edward Garber

It is always good practice for residential contractors to get both husband and wife to sign the residential construction contract. But, even if only one spouse signs the contract, Florida’s Lien Law doesn’t really punish the contractor when its comes to construction liens.

Florida Statute s. 713.12 provides:

When the contract for improving real property is made with a husband or wife who is not separated and living apart from his or her spouse and the property is owned by the other or by both, the spouse who contracts shall be deemed to be the agent of the other to the extent of subjecting the right, title, or interest of the other in said property to liens under this part unless such other shall, within 10 days after learning of such contract, give the contractor and record in the clerk’s office, notice of his or her objection thereto.

In other words, one spouse is deemed the agent of the other spouse when it comes to subjecting the other to construction liens. This makes sense because generally when one spouse signs a contract for construction at his/her property, the other spouse has knowledge and is on board of the construction project. But, assuming the other spouse wasn’t aware, Florida’s Lien Law allows that spouse to provide the contractor an objection to the contract and record that objection in the public records in order for any construction lien not to impact that spouse’s interest in the property.

However, the statute only applies to real property and doesn’t apply to personal liability relating to the non-signing spouse. See Mullne v. Sea-Tech Const. Inc., 84 So.3d 1247, 1249 (Fla. 4^th DCA 2012); Meadows Southern Const. Co. v. Pezzaniti, 108 So.2d 499, 502 (Fla. 2d DCA 1959). This is why it is good practice for the contractor to get both spouses so sign the contract because while the contractor may be able to lien the non-signing spouse’s interest, that will be about it because it will not be able to impose personal liability against the non-signing spouse.

DO NOT BANK ON RECOVERING YOUR ATTORNEYS’ FEES IN A CONSTRUCTION LIEN FORECLOSURE ACTION

Posted on August 7, 2011August 7, 2011 by Edward Garber

A party should never bank on recovering their attorneys’ fees when prosecuting or defending a construction lien foreclosure action.

In a construction lien action, the prevailing party has been statutorily entitled to recover their reasonable attorneys’ fees. Fla.Stat. §713.29. This is important since a party can only recover their attorneys’ fees if there is a statutory or contractual basis to do so.

The Florida Supreme Court in Trytek v. Gale Indus., Inc., 3 So.3d 1194 (Fla. 2009), analyzed what it meant to be a prevailing party for purposes of attorneys’ fees in a construction lien action and held that that the significant issues test is the test to determine the prevailing party. Under this test, the prevailing party is not necessarily the party that wins a sum of money at trial, but, rather, the party that wins the significant issues in the case. Hence, it is more than possible that the party that wins the significant issues based on the circumstances of the case is not the party that wins money. The Florida Supreme Court further held that a court can rule that no party is the prevailing party in this case.

The decision in Trytek has led to confusion, as well as consternation, because there is no objective or qualitative standard to determine the prevailing party for purposes of attorneys’ fees under the significant issues test. Instead, a pure subjective standard is used to determine the prevailing party that is not necessarily tied to the outcome of the case; and, importantly, this decision permits the trial court to find no prevailing party. This is noteworthy because the recovery of attorneys’ fees oftentimes drives the outcome of a case because the fees can be more than the amount in controversy. Now, with a subjective test used to determine whether a party can recover their attorneys’ fees, a party must consider that they may not be entitled to their attorneys’ fees when deciding how to pursue or defend a construction lien foreclosure action.

The recent case of Sheppard v. M&R Plumbing, Inc., 36 Fla. L. Weekly D1697b (Fla. 1st DCA 2011), elaborates on the confusion of the significant issues test and the reason why a party should not bank on recovering their attorneys’ fees in a construction lien foreclosure action. In this case, a plumber installed a water treatment system in a house. Apparently, there was no written contract and there was no meeting of minds with respect to the costs to install this water treatment system. The plumber recorded a construction lien and foreclosed the lien and, as an alternative cause of action, sued the owner for quantum meruit (unjust enrichment) for the reasonable value of labor, services, and materials it provided to the owner.

The reason the plumber sued the owner to foreclose a construction lien and for quantum meruit is because there was uncertainty as to whether a contract existed between the owner and the plumber. A construction lien, however, can only arise if there is a contract (oral or written)—no contract means no lien rights. Under a quantum meruit action, there is an acknowledgment that a contract does not exist, but because value was allegedly provided, the party should be entitled to the reasonable cost of that value.

Whether the plumber prevailed on its construction lien action or alternative quantum meruit action should have been crucial for a determination of which party should be deemed a prevailing party for purposes of recovering its attorney fees. The reason being that a party does not have any legal basis to recover their attorneys’ fees in a quantum meruit action since there is no statutory or contractual basis to recover fees in this type of action.

At trial, a jury decided that a contract did not exist between the plumber and the owner. Because a contract did not exist, the plumber could not prevail on its construction lien action. However, the jury did decide that the plumber did provide value to the owner of approximately $13,000 and ruled in favor of the plumber on its alternative quantum meruit action.

The issue on appeal to the First District was whether the owner or the plumber should be deemed the prevailing party for purposes of fees. From a practical standpoint, it would make sense that the owner prevailed on the significant issues test because the owner prevailed in entirety on the construction lien foreclosure action, importantly, the only count that entitled a party to recover attorneys’ fees. But, this rationale is not the rationale employed by the First District. Instead, the First District maintained:

“While we agree the Shephards [owner] must now be deemed the prevailing parties on the lien foreclosure count, entry of the money judgment in favor of M&R [plumber] on the quantum meruit count made M&R, not the Shephards, the prevailing party in the litigation, viewing the entire ‘action brought’ as a whole.”

Neither party was deemed the prevailing party for purposes of attorneys’ fees. This ruling, unfortunately, leads to further confusion and frustration on when a party will be deemed the prevailing party in a construction lien action. Here, the plumber lost in entirety its lien action despite being awarded some money in its quantum meruit action (again, an equity action that does not afford the prevailing party to attorneys’ fees). This was overlooked by the First District leaving an owner that prevailed on the significant issues of the lien action to bear all of its attorneys’ fees. The only conclusion that can be reached from this decision is that, again, there is no objective or qualitative way to determine the prevailing party in a construction lien foreclosure action, especially given the ruling in this case where a party can win the lien action but lose an alternative equity action and still not be deemed the prevailing party.