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I’ve Received Contractor Lawsuit. What Happens Next?

Builder Ripping Up A Contract Lawsuit

The project is either over or it is winding down, money and tensions are getting tight. Contractors know this scenario very well. The problem arises when a lawsuit is delivered because of the dispute. Many contractors do not know what to do once they receive a lawsuit. This post will outline the possibilities of what happens after the lawsuit is received.

Why Did I Receive A Lawsuit?

On a typical construction project, whether public or private, commercial or residential, there are typical players. These players include: the owner, general or prime contractor, subcontractors, laborers, suppliers and equipment lessors. All of these parties have the ability to file a lawsuit and/or receive a lawsuit, depending on the facts of the situation.

In actuality, you have received this lawsuit because of your involvement in the project and someone in this group has alleged that you are liable for some type of damage. This undoubtedly will be money damages. Other types of damages exist but courts like to compensate with money.

What Happens Once I Am Served With The Lawsuit

The clock starts running! No matter the jurisdiction, whether it be state or federal court or in Louisiana or another state, the time to respond to the lawsuit begins to run once service is made. Depending on the jurisdictions for which I am familiar you have anywhere from ten to sixty days to respond. The usual here in Louisiana is fifteen days from service in a state court, see La. C.C.P. 1001.

Many times if you contact an attorney they can get an extension of time for which to file and answer or other responsive pleadings. This is customary in our business.

Options With The Lawsuit

There are a few options that I see people do when they receive a lawsuit, some are advisable and others are inadvisable.

Hire An Attorney: The first, most logical and most advisable option is to contact your attorney and retain his services to defend you in the lawsuit. An attorney will know the landscape of the Court procedures and assure that you will be protected within the confines of the law. Attorneys are not miracle workers, but they have a number of strategic and tactical maneuvers which can be deployed to protect you or your company’s interests.

The flaw here is that lawyers are not cheap. A good lawyer will tell you whether the amount and nature of your dispute are worth fighting over. Many times its a better business choice to work out a deal and move on with making money.

Self-representation: I see this more and more these days. A person can always represent themselves in a court of law. The Fourteenth and Sixteenth Amendments have been interpreted through the years to allow individuals to represent themselves pro se in court. The key here is individuals representing themselves. A corporation or limited liability company is not an individual. They are juridical entities, which cannot be represented in court unless by an attorney.

Due to the fact that most smart business owners are some type of business entity, courts will not allow for self-representation. Self-representation can be advisable in some situations, but most of the time it is not.

Do nothing: This option is popular, but it is disfavored and inadvisable. When a party who is sued does nothing, the suing party can get a judgment by default. Once a judgment is rendered against the party who is sued, then bank accounts, garnishments and property are all options for a quick collection.

Instead of doing nothing, if you file and answer or other responsive pleading, the judicial process will take much longer and you have many other legal moves at your disposal.

Other options: – Informal negotiations or ADR clause are other options. Once you have been sued and within the time frame to answer, you and/or your company could engage in informal negotiations with the adversary. I always encourage my clients to work out a deal and move on. This can be with informal meetings or telephone calls. Its always smart to bring in an attorney to help here, even if not for the full lawsuit.

Finally, many construction contracts have some type of alternative dispute resolution (ADR) clause. Even with these clauses present an adversary may still file suit contrary to the contract. This can be done for a number of legitimate reasons. All you or your attorney have to do is enforce the ADR clause. This can be done informally or via formal court Motion.

Conclusion

Once a lawsuit is received by a party to a construction project, there are a number of options, as discussed above, which can be implemented. The key here is to do something and avoid a default judgment. Contacting an attorney for advice is a smart play, even if it is to decide which of the above methods is best for you.

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Attorney Demand Letter – Will It Get You Paid?

lawyer letter

Everyone in the construction industry has trouble getting paid at some point. In fact, when Construction Week Online conducted a poll inquiring who in the industry had payment problems, it found that a whopping 0% – that’s right, zero percent – reported they were always “paid in full and on time.”

Payment applications and invoices get sent out, and then it’s unfortunately a battle to always get cash flowing. What can you do to mitigate these circumstances and get paid more and more often?

The answer may be quite simple – sending a demand letter, and then sending an attorney demand letter / lawyer letter.

Getting Your Account Paid Means Prioritizing Your Invoice With Your Customer

First, non-paying customers are not uncommon, nor is it a problem unique to the construction industry.  One website I really love is the “World’s Longest Invoice,” which is just an on-going list of people and companies across the country who are not paying their bills.

If you’re going to turn a non-paying account into a paying account, you must first ask why the customer isn’t paying.  In most cases, it’s because your invoice is not a priority for that customer. This frequently boils down to something very simple: following up on invoices and amping up the pressure to pay.

Make your invoice or payment application top of mind. How? Make sure they have the invoice. Followup with phone calls and emails. Followup, followup, followup…and let us suggest sending a demand letter.

Payment Demands From Attorneys Presses The Right Buttons To Get You Paid

When followup phone calls, emails, and correspondence just doesn’t work, it’s time to start considering your other options. At the end of the tunnel is litigation, and you’ll want to avoid that at all costs. You can also file a mechanics lien to bridge the gap. Before these legal remedies, however, you may get good results from a simple and ineffective step: sending an attorney demand letter.

An attorney demand letter will accomplish two very important things:

  1. It will communicate to your customer that you are serious about the debt, and it will prioritize your account;
  2. The lawyer letter will put you in your best collectable position by availing you of all laws on your side to protect your right to payment.

There’s no reason why you should avoid sending a lawyer letter. It’s easy, and can be very affordable. Take our firm – Wolfe Law Group – for example. We have a flat fee to send an attorney demand letter. You don’t need to sign a complicated fee agreement, do a formal consultation, and worry about an hourly bill adding up.

You simply put your information into our online form and watch your letter get sent – it’s that easy. One flat fee and your customer gets the demand letter, and usually pays up.

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Getting Paid – Notice of Contract Filing

English: Discussion about the text Français : ...

(Photo credit: Wikipedia)

So you’ve completed your work but now you’re running into problems getting paid for the job. As most people in that situation are aware, the Private Works Act (should that be the applicable act) provides very specific instructions for preserving your claims and privileges in this situation. In common terms, the PWA allows you to lien property in order to secure your right to payment. What many people do not know, however, is that there are very specific limitations on this preservation of rights. The subject discussed here is one such limitation: the requirement of filing a notice of contract for certain projects. The notice of contract filing is important because, depending on the amount of the contract, the filing date will determine the time period in which one can file a lien. It is a rather nuanced area of the law, but here we’ll break it down piece by piece.

What is a Notice of Contract?

When the homeowner and the contractor execute a contract, in order for certain parties to later preserve their claims and privileges, a notice of contract must be filed with the mortgage office in the parish where the work is being performed. Louisiana Revised Statute 9:4831. The information required to be contained in the notice is outlined in Louisiana Revised Statute 9:4811, and includes: the signatures of the owner and the contractor; the legal property description of the immovable where work is being performed’ the parties to the contract and their mailing addresses; the price; when payment of that price is to be received; and a general description of the work to be done. When information is omitted, the notice will only be found improper if that incorrect or omitted information is either the parties and their addresses or if the immovable is incorrectly identified. In those two scenarios, the notice of contract will be deemed improperly filed.

An important element in determining just what the notice of contract is is also a discussion of what it is not. The notice of contract is not the contract document! When you look through the PWA, the above is the only required information that must be submitted as a “notice of contract.” Depending on the scope of work, the notice of contract might only be one page long! Why is this important? The short answer: money. Let’s use Orleans Parish as an example. In Orleans Parish, filing a notice of contract will cost you $60 for the first two pages and $13 for each page thereafter. If parties were required to file the contract as opposed to a notice of contract, they would be on the hook for hundreds of dollars just in filing fees. In paring down the information needed for the notice, though, the filing can be extraordinarily cheaper.

Why File a Notice of Contract?

The filing of the notice of contract is important because it will help determine when the tolling period begins for filing liens. This is where matters become complicated. First, we must understand that there are numerous parties involved and affected by the filing of the notice. Most straightforward is the contractor. If a contractor does not file a notice of contract for projects that exceed $25,000.00, then that contractor loses his right to later file a lien. La. R.S. 9:4811. Therefore, if the contractor wants to retain the rights granted to him by the PWA, on projects of a certain sum, the notice of contract must be filed before work begins, which is defined by Louisiana Revised Statute 9:4820. If the contractor is entitled to the rights granted by Louisiana Revised Statute 9:4801, and if they have filed the notice of contract properly, then that contractor will have until sixty (60) days after the filing of the notice of termination or after substantial completion to file their lien.

The trickier calculation deals with subcontractors. The first part of Louisiana Revised Statute 9:4822 states that when a notice of contract is filed properly, then those parties granted a privilege by Louisiana Revised Statute 9:4802 (subcontractors, as well as others) will only have thirty (30) days after the filing of the notice of termination to file their lien. Note the very important difference between those provisions. In the case of a subcontractor and a proper notice of contract, the time period to calculate your lien deadline starts when a notice of termination is filed and not when the project is substantially completed. If the notice of contract is not properly filed, then the subcontractor has sixty (60) days from the filing of the notice of termination or from substantial completion to file the lien.

What Does This Mean?

The notice of contract, therefore, is pivotal in determining when a lien period terminates. For example, if a notice of contract is properly filed, but there is never any termination of work filing, a subcontractors lien period might never end. This, obviously, greatly impacts the rights of the parties to the contract. However, it is not a simple issue.

The language of the Private Works Act is very particular and phrases and terms were chosen for a very specific purpose. There is a reason why some places use “filing of notice of termination of work” versus “substantial completion of work” – it is because they are different concepts. There is a reason why there is specific information that must be included in a notice of contract and why that impacts different parties. These statutes were crafted with care and intent. Considering how important they are in determining your rights, the safest thing you can do to protect your business is to discuss the matter with an attorney. After all, we’re here to help.

 

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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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Happy Holidays!

From all of us here at Wolfe Law Group, LLC and ConstructionLawMonitor.com, we would like to wish happy holidays to all. This is the time of year where we look back and reflect on the past twelve months and give thanks to all the good (and bad) that has transpired. Its a time to learn from the successes and the failures of the year and grow wiser and stronger.

In looking ahead, there are good things to come in 2013. Growth and expansion are on the horizon. The promise of new opportunity coupled with the solidification of past relationships makes for a great transition into the new year.

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