Archive for the ‘Litigation’ Category

Commercial Debt Collection – How Do I Collect When A Company Owes Me Money?

 businessman with financial symbols coming from hand

In today’s business culture we call businesses working with other businesses B2B. It has always been a popular practice to the alternative, business to consumer. The rules are different governing B2B as opposed to B2C. The legal and business world assume that the B2B relationship and players are more sophisticated.

This post discusses what happens when the B2B relationship sours and one company must collect what it is owed from another company. The most important distinction between the rules of B2B and B2C is that consumers are much more protected by government regulation. The Fair Debt Collection Practices Act protects the consumer, not businesses.

Phases of Collection

Most business think that when an account is overdue, then they call up a debt collection agency and the debt will be collected or its deemed bad debt. Businesses write off huge percentages of accounts receivable every year based off this flawed thinking.

There are at least two phases of debt collection, each of which could arguably be broken down into subcategories. You have a pre-debt fact gathering and document filing stage, as the first phase. Then there is the actual debt collection which can consist of many different options and this occurs after the debt is due. So more of a pre/post mindset.

Pre-Collection Phase – Getting Your Ducks In A Row

The pre-collection phase is often over looked and much more important than the post-collection phase. It is the foundation for the collection. This is the fact gathering and organizational portion.

This phase includes the initial fact gathering on the business. Your business should have an in-take sheet whereby it gathers all important information from the other business. Some of my clients even go as far as running credit checks on the business or getting personal guarantees from its senior members.

For contractors, suppliers and equipment lessors that I represent, this pre-collection phase is essential to keeping the accounts receivable low. This phase also includes sending out notices and filing liens, in a timely manner and properly. All of these essential elements make the post-collection process much easier, more efficient and most importantly successful. The old adage that I preach, is an ounce of prevention equals a pound of cure.

Finally another important aspect of the pre-collection phase is a well written contract between you company and your business client. This contract should have specific default and attorney fee provisions.

Collection Phase – It’s Time To Get Paid

Now your company has all of its intake information, gathered credit reports, personal guarantees, sent your notices, filed your liens, and have a well written contract, but your business client refuses to pay on its obligation to your company, what do you do?

There are a few options here and  only one good solution. Your business could write off the debt, it could try to collect internally, hire a debt collection agency or contact an attorney to collect. Obviously I’m biased here, but I do see this often. Writing off the debt is never good. Collecting internally can be okay but its slightly less successful than a debt collector. Attorneys can do all of the following steps which make the percentage chance of collection go up.

Your commercial debt collection attorney has a number of weapons at his disposal to collect on the outstanding debt. Many of them have time delays built in by law, which slows the process. First is to send a demand letter which includes the Louisiana Open Account Statue language. This is another avenue to get attorney fees and costs associated with the debt collection.

After the demand letter is sent out and thirty (30) days elapse, then its time to file suit against the debtor. Many businesses balk at this option because litigation can be costly and risky. Depending on the size of your debt, you attorney will likely take it on contingency which will minimize the litigation costs. From there your attorney will get a judgment, either by default or after trial.

Once the judgment is obtained, there are a number of possible means of collection. The attorney can examine the assets of the debtor, in a judgment debtor rule hearing whereby the debtor will be sworn-in and give testimony as to what the business owns. Further, the attorney can garnish banking and physical assets of the business. The judgment will be good for ten years and can thereafter be reinscribed. Once a judgment is granted collection chances go up.

Conclusion

In the end, some debts are simply bad and cannot be collected. Others, however may just be tricky or require persistence. Having a good commercial debt collection attorney at your side will greatly increase your collection rates and keep your accounts receivables low.

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The Best Time to Mediate A Dispute is Yesterday

Eviction ImageHere on ConstuctionLawMonitor.com I like to blog about non-traditional ways to settle disputes between contractors and other feuding parties. Mediation is my favorite because I am a mediator. Its also my favorite because, generally, its the best and most efficient way to resolve disputes. There are circumstances whereby mediation will not work but that usually happens when irrational parties come to the table.

In this post I will explore the element of “when” is a matter ripe for mediation.

Timing Issues For Mediation

As discussed in other posts, there can be clauses within construction contracts wish mandate mediation. This type of clause is called a mediation or alternative dispute clause. In this instance, the contract will lay out exactly how the mediation and/or arbitration process should be handled when an dispute occurs between the parties.

So the timing element of a contractually mandated mediation is spelled out in the construction contract. Many times mediation is a precursor to any litigation or arbitration hearings. This basically works as to when there is a dispute, parties look to the contract to see how the mediation should be initiated.

Outside of contractually mandated mediation there is also voluntary mediation. By definition, all mediation is voluntary. The premise of all mediation proceedings is that the parties are there voluntarily. Otherwise the mediation will not work.

Once the parties are both there in good faith and voluntarily, then the process can work properly. Most mediation proceedings can be completed in one day. Sometimes more complex issues with numerous parties may take a bit longer and may span over a number of days. Either way is fine and the process is designed to facilitate both simple and complex.

Its Okay To Mediate A Dispute More Than Once

Often times parties think they only get one bite at the apple when it comes to mediation. Mediation is different than trial or an arbitration where there does not have to be a final decision made by the neutral party. A mediator is merely a facilitator to settlement. When parties mediate, they have to be the ones who make the final decision to settle.

In my experience, I have seen parties try to mediate disputes early on in the dispute and it did not work out. There was simply an impasse which could not be worked out that particular day. Then the parties dig back in and litigate or negotiate independently. Months and even years later, the parties will come to the table again to mediate and try to work out a deal. As long as the parties are engaged and willing to compromise there is always hope that mediation will work.

Other More Expensive Alternatives To Mediation

There are two main alternatives to mediation. Litigation and Arbitration are what I will discuss.

Litigation

As you may or may not know, litigation is the standard practice here in the United States, but it is old and antiquated. Litigation is also extremely expensive and slow. If a party files suit on a hundred thousand dollar construction dispute it will likely take years to completed. The process is slow and the parties know how to exploit the process so that it will move even slower. The only parties who make money off litigation are attorneys.

One of my favorite quotes regarding how bad litigation is from the French scholar Voltaire,

“I was never ruined but twice; once when I lost a lawsuit and once when I won one.”

Even as far back as the seventeenth century people were opposed to litigation. Needless to say, the process has become worse, not better.

Arbitration

Next is the somewhat better and more favored, arbitration. Arbitration is good because it is more efficient and cost effective than litigation. Parties get to select an arbitrator and then proceed ahead with more relaxed rules than traditional litigation. The problem here is that the arbitrators ruling in binding. Binding is scary because its all left to the discretion of one person.

I’ve experienced a number of arbitration rulings that have left me scratching my head wondering what the arbitrator was listening to. There is the possibility of appeal, but the standard is overwhelming and the ruling is rarely overturned.

Mediation is a voluntary negotiation process where a neutral third party helps to facilitate the parties making an agreement. In my mind this choice is clear to mediate.

 

 

 

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Louisiana Litigation Strategy: Offer of Judgment

Final OfferWhen litigating in Louisiana, both in State and Federal court there are some interesting tools that can be deployed by both sides of the dispute in order to encourage settlement.

The Louisiana version of this codification is more robust than the Federal one, but both are appropriate for discussion in this post. Federal Rule of Civil Procedure 68 will be talked about in more detail in future posts. For now we will focus on the Louisiana offer of judgment.

Louisiana Civil Code of Procedure Article 790

Even the title of this code article seems a bit confusing, which must be a precursor to the actual article itself. The Louisiana Civil Code Article 790 is entitled “Motion for judgment on offer of judgment.”

I had to sit down and read through this article a few times and read some case law on it to fully get the gist of what the Louisiana Legislature was trying to do when they passed a vote on the language of this article. Surely, the Legislature wanted to create a rule similar to the Federal Rule of Civil Procedure 68. But in true Louisiana fashion, we had to take things a step further.

The most interesting and controversial section is located in subsection C. La CCP 790(c) is creatively written text, it reads:

“C.  If the final judgment obtained by the plaintiff-offeree is at least twenty-five percent less than the amount of the offer of judgment made by the defendant-offeror or if the final judgment obtained against the defendant-offeree is at least twenty-five percent greater than the amount of the offer of judgment made by the plaintiff-offeror, the offeree must pay the offeror’s costs, exclusive of attorney fees, incurred after the offer was made, as fixed by the court.”

Layman’s Reading of Louisiana Offer of Judgment Article

In an effort to clear c0nfusion here, I have broken down the language above into the following formula like sentence:

(1) If the Plaintiff makes an offer to settle to the Defendant, and the final judgment equals more than 25% more than that offer, the Plaintiff is entitled to its costs to be paid by the Defendant for not accepting.

(2) If the Defendant makes an offer to settle and the final judgment equals 25% less than that offer, the Defendant is entitled to its costs to be paid by the Plaintiff for not accepting.

There are a few caveats here. The offer must be made more than 20 days before trial. If a party is awarded costs based on La CCP 970, then its only costs from after the offer is made. Costs are specifically exclusive of attorney fees according to the article.

If the offer is accepted, then the judgement is considered final, but neither party can appeal it due to the fact they both agreed to the offer. In essence, both sides to the litigation can use this article to its favor.

Case Law on Offer of Judgment

The Louisiana Fifth Circuit described the nature of La CCP 970 and what type of costs are included in the Hacienda Construction v. Newman decision from 2010. The court opined:

“These costs refer to costs of litigation, including court costs. Further, the court may include litigation expenses necessary to bring the case to trial after the offer was rejected, which may include the offeror’s evidence, experts, and deposition fees… The function of Article 970 is to compensate the rejected offeror who was forced to incur greater trial litigation costs than he would have if the offeree had accepted his settlement offer. The article is punitive in nature and therefore must be strictly construed.” Hacienda Constr., Inc. v. Newman, 44 So. 3d 333, 337 (La.App. 5 Cir. 2010). [Internal citations omitted]

To add even another twist, if the Defendant prevails in the suit, La CCP 970 does not apply. There is no need if the Defendant wins the suit. If the Defendant wins and is awarded a judgment then the awarding court has discretion to award costs and fees under La CCP 120. See the Broussard v. Martin Operating P’ship, 103 So. 3d 713, 741 (La.App. 3 Cir. 2012), case for further explanation. The court there looked at FRCP 68 case law and did not stray from previous jurisprudence.

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Construction Contracts: Mediation Is A Great Alternative To Litigation

Mediation bigstock-Attorney-at-Law-sitting-at-des-49285283 copyMediation and Construction Law are two of my favorite topics to discuss. These are my favorite aspects of the practice of law. Every construction law dispute I encounter starts with the premise of getting contractors paid. No matter the dispute, the underlying factor is withholding of money along the hierarchical chain of characters.

Owners need to get cash from the lenders. General Contractors need to get progress payments from the Owner. Subs are always waiting on the GC to pay out. Suppliers provide goods on credit with the hopes of getting paid once the other parties take their share. There are small margins for error and high possibility of dispute.

With such small percentage of money actually going to profits its no wonder owners, general contractors, subcontractors and suppliers cannot afford expensive litigation. There are efficient and cost effective means to settle disputes without having to tee it up in the courts, Mediation and Arbitration. For the purposes of this blog, I will be speaking to the more flexible of the two forms of alternative dispute resolution methods, Mediation.

Do Construction Contracts Contain Mediation Clauses?

It depends on the contract. Many American Institute of Architects (AIA) form contracts will allow for an option to include both a mediation and arbitration clause for alternative dispute resolution. If you are unsure if your contract has  mediation clause you should look to see if there is some type of language like the following provided by the American Arbitration Association (AAA), who is the leader in the arbitration and mediation space.

If a dispute arises out of or relates to this contract, or the breach thereof, and if the dispute cannot be settled through negotiation, the parties agree first to try in good faith to settle the dispute by mediation administered by the American Arbitration Association under its Construction Industry Mediation Procedures before resorting to arbitration, litigation, or some other dispute resolution procedure.” AAA Construction Industry Arbitration Rules and Mediation Procedures (pg 14).

There are many variations on this type of clause. Courts are very keen on upholding mediation clause language because courts favor resolving disputes through other means.

Construction Disputes Settle With Mediation

Some disputes will never settle. The parties are so entrenched to a position that they become irrational and will not compromise. The construction industry is different. Contractors tend to want to continue doing business and therefore do not want to burn bridges.

I have personally been witness to numerous construction disputes setting through mediation. The parties agree to meet with a neutral third party, the mediator, and go through the process until a compromise is reached. Conventional wisdom states that the best settlements are those where both sides leave unhappy.

Construction disputes are no different. Each party negotiates some give and take until a compromise is reached. I see it all the time. Have your attorney put mediation clauses in your company’s contracts. Do not sign contracts unless they have a mediation clause. Finally, even if there is not a specific clause mandating mediation, you can still mediate! All that is required are two parties who want to solve a dispute.

 

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Construction Contracts – What is My Scope of Work?

English: Contractor-led design-build, architec...

(Photo credit: Wikipedia)

The importance of your construction contract cannot be understated. Surprisingly, people on all ends of the contracting process don’t always understand the importance of the words chosen in their agreement. Whether you’re a general contractor, subcontractor or homeowner, you should be familiar with all aspects of your construction contract. Most importantly, you should be able to understand and answer “what is my scope of work?”

What is the Scope of Work Generally

While this might not seem like a difficult question to answer, it often times lies at the heart of any construction litigation: determining what the scope of work on a particular project is, generally. The scope of work section of a construction contract varies greatly. Here at Wolfe Law Group, we have pretty much seen them all. These provisions can range from the incredibly vague and brief (I’ve seen scope of work provisions that are just two bullet points), to the exceptionally detailed and verbose. Regardless of the length or detail of this construction contract provision, the scope of work section generally serves one overarching purpose: it establishes the duty owed by one party to another.

This is the first answer to “what is my scope of work?” It is the basis of your contract. Without it, it would be impossible to determine where a contractor’s liability  begins or ends. Of course, this is the general “contracts law” answer. After realizing the general importance of this contract provision, we then are able to see how we can manipulate those terms in order to have the most efficient contract possible.

What is the Scope of Work Specifically

As we have written before, the scope of work provision in each contract can, and should, vary. This variation will make a great difference depending on your status in the construction project. A general contractor, for example, benefits from a vague scope of work provision in its subcontracts, but would want specific provisions in its general contract. The subcontractor, necessarily, would want a very specific scope of work provision in its subcontracts. A homeowner would likely want the terms of the general contract to be as vague and inclusive as possible. Why? The short answer: liability.

As stated above, the scope of work provision serves as the basis of your contract. As such, it establishes the rights between the parties with regards to what work is expected and promised. The specificity of the scope of work provision, then, directly relates to a party’s liability. The general contractor would not want to sign a general contract with a broad, open-ended scope of work because then the homeowner could read much further into the provision than was intended. Should a conflict arise, the general contractor wants those terms to be as narrow and precise as possible so that they are not “on the hook” for much more than was anticipated. This mindset is what governs the scope of work determination in subcontracts as well. There, the general is going to want the broad terms so that the subcontractor is potentially responsible for more than they intended. It is important, therefore, to outline your scope of work deliberately and specifically, because it will be a determining factor in one’s liability to another party.

Extra-Contractual Provisions

Rarely, though, are contracts permanently fixed and limited to its original terms. Certain instances do arise where changes are made to the contract as the work progresses. Those become part of the scope of work as you continue working, and will dictate one party’s liability to another should a conflict arise. Sometimes, there are third party agreements that people wish to be considered part of a contractor’s scope of work. I mention this because of how frequently this situation has been coming across my desk with regards to the Hazard Mitigation Grant Program (HMGP).

While the HMGP warrants a whole blog to itself (not just a post, but a WHOLE blog), there is one particular provision that I have had numerous parties contact us about here at Wolfe Law Group: scope of work. Through the program, a contractor would execute an agreement with the homeowner which contained the scope of work. The difference, though, is that these two parties are not the only parties to ultimately define what that scope of work actually is! Instead, the HMGP has a separate scope of work that was/is eligible to receive grant payments. This is causing some severe issues between contractors and homeowners because people are not sure what they are responsible for and owners are not sure what they are entitled to. These problems could be resolved if parties paid closer attention to their scope of work provisions.

The short answer is that HMGP will pay for items contained in the general contract’s scope of work that is contained in the HMGP scope of work guidelines. Anything beyond that will not be eligible for payments. However, contractors need to be careful because even if the terms of their scope of work are not included in the HMGP scope, they are still bound by their contract with the homeowner. It’s a very tricky situation that involves various presumptions, but it is a reality. The best advice I can give to deal with issues as complicated as the scope of work is the advice I give all the time: contact an attorney that handles these things. It’s your safest bet.

 

 

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