Louisiana Supreme Court Decides Ebinger Case Proving The Law Can Be Unfair

On July 1, 2011, the Supreme Court of Louisiana decided a case, Charles Ebinger, et ux. v. Venus Construction Corporation, et al., that focused on the interpretation of La. R.S. 9:2772. This Louisiana statute has established a specific time limit of five years to bring an action against residential building contractors.  Here, the Supreme Court reversed the decision of the Third Circuit Court of Appeals, making it very clear where the law stands regarding this issue.

Let’s get our feet wet with the facts of the case to better understand the real issues and implications of this case.

The Ebinger family hired Venus Construction to build their home. Venus then hired Post-Tension Slabs, Inc. to supply the foundation. In 1997, the Ebingers moved into their home and obtained a certificate of occupancy. Six years later, the Ebingers decided to sue Venus for certain construction defects, like cracks in the wall, brick, and floors.

Before the case between the Ebingers and Venus was decided with finality by the court, Venus filed a “third-party demand” in 2006 seeking indemnification from Post-Tension. In other words, because Venus believed Post-Tension was partially responsible for these defects it was being sued for, Venus attempted to bring Post-Tension into the suit to share the potential liability if the court did end up ruling against it.

The real question that this case presents is two-fold: when does the time frame to sue under La. 9:2772 begin and does one always have the right to bring a cause of action against a residential building contractor within that time frame?

This court determined that the time frame for Venus’ third-party indemnification action against Post-Tension began when the Ebingers obtained a certificate of occupancy in 1997.

Which brings me to the second fold of this two-fold issue: one does not always have the right to a cause of action under this statute. Your right must be “vested.” Whether a right to take action is vested is contingent on the outcome of the original claim itself. At the time Venus’ attempted the third-party action against Post-Tension, the outcome of the Ebinger suit was not settled. And by the time that suit was settled, the five-year time period had passed. So, tough luck for Venus, as they are basically punished because the Louisiana court system can be so slow…

Two bottom lines here:

The five-year time period for actions involving construction defects by residential building contractors always begins when the building is first occupied, i.e. when the certificate of occupancy is obtained; but

Just because the time period starts to run does not mean that you, as a contractor being sued for defects, have a right to bring a third-party contractor into the same suit for indemnification; your right is established if and when the original case is settled against you.
Remembering these nuances as a residential building contractor can make all the difference when it comes to how much liability you will bear if you are ever sued for construction defects.

Finally…Our Email Newsletters Are Coming Back

It’s been quite a while since we sent out an email newsletter, and we’re happy to announce that starting today, we’re bringing these email updates back.

When Wolfe Law Group first opened, these email updates were a staple.  Our newsletter email would get sent about once a month, and would provide clients, colleagues and friends updates on construction law issues that affected their business or practice. We always got great compliments on the email campaign, but over the years we stopped sending them as we focused more and more on our blogs.

The blogging will continue, but we recognize that some folks rather get updated via email.

If you want to get email updates, please sign up below.  We look forward to corresponding with you.

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New California Business? Knowledge is the key…

Most attorneys, myself included, take for granted how little most individuals know about corporation law and business entities. The distinctions between the different types of entities that can be created are substantial and have a tremendous legal effect on how the business operates from year to year.

There are four basic categories of business that can be formed by an individual or groups of individuals: 1) sole proprietor, 2) partnership, 3) limited liability company (aka LLC) and 4) corporation (aka Inc.). All of these entities have varying degrees of complexity regarding start-up and more importantly varying degrees of liability toward the persons in charge and who started the entity.

A sole proprietor is the most simple way one can start up a business, yet it can be the most dangerous for the person who starts it because the individual assumes all of the company’s liabilities. If the company gets sued or defaults on a loan then the assets of the sole proprietor is not protected. A sole proprietor is typically when you will have a person’s name, example: John Smith d/b/a Smith’s Painting. Any suit against Smith’s Painting will be against Smith personally. This is not a safe strategy if a person is trying to protect his assets. In the business world, sole proprietors are not the way to grow a strong and thriving business. For more click here.

Partnerships at one time were very popular and they are very easy to start. Partners share liability according to their partnership agreement, which is the framework for how the partnership operates. In the absence of an operating agreement the business code (Title 2 of the California Business Code) has default rules on how this type of entity operates. Here, liability is still personal but it is shared between the partners only involving partnership business. If one partner commits a tort or acts outside of the partnership agreement other partners may not be liable for the faulty partner’s debt.  Over the years there have been many types of variations to the partnership model including, general partnerships, limited partnerships and limited liability partnerships. For more on how partnerships function in California click here.

The next two types of business entities are the limited liability company (“LLC”) and corporation (“Inc”) can be very complex and warrant a much further in depth analysis that this medium can offer. Luckily for all non-lawyers who did not have to sit through hours of class on the subject, the California Secretary of State offers a wealth of information on existing LLC’s and Inc’s but more information on how to start your own business. The glory of the LLC and the Inc is that there is a corporate shield of liability for members (LLC) and directors/shareholders (Inc.). This means that if the entity is sued then the individuals who started have their assets protected. The only way this shield can be breached is through a theory called piercing the corporate veil.

Overall the Inc is much more complex and has many more formalities than does an LLC. The LLC was created in the 1990’s hybrid of the partnership ease of formation and lack of formalities and the Inc’s limited liability status. Today the LLC is vastly becoming the most popular entity formed California and nationwide, for good reason. Unless you plan on starting a complex, potentially large company the LLC is the way to go. Contact an attorney to best advise you on which entity is best for your new business. See Title 1 for Inc and Title 2.5 of the California Corporations Code for more detailed information.

 

Leasing Equipment in Louisiana? How To Protect Your Lien Claim

You are in the business of leasing heavy equipment to contractors. You are beginning to provide more and more machinery to jobsites. You just hit your first snag with payment. What do you do?

Chances are you are stuck in rough spot and have to defer to your contract for remedy. There is likely no answer for you under the lien law – unless you filed a notice of lease agreement with the owner within the appropriate time frame.

Lessors often do not learn about the dreaded notice provision until after they have been bitten by a bad customer. Both the Private Works Act and the Public Works Act each require that the Lessor of equipment to a construction project provide advance notice to the owner of the equipment’s use and existence at the jobsite.

Luckily, satisfaction of this requirement is quite simple. Under both Acts, a Lessor of movables (equipment, vehicles, etc.) must “deliver a copy of the lease to the owner not more than ten days after the movables are first placed at the site of the immovable for use in the work.” La. R.S. 38:2242(c). If the job is private and not public, you must also provide a copy of the lease to the contractor. La. R.S. 9:4802(G)(1).

The official comment for subsection G of La. R.S. 9:4802 states that the purpose of this law is to give notice to the owner and the contractor that equipment being used by a contractor is leased and thus potentially creating liability under the Private Works Act.

Though the type of delivery is not specified, it is commonplace to use hand delivery or certified mail. If hand delivery is utilized, it is important that the courier fill out a simple affidavit specifying what was delivered, when it was delivered, who it was delivered to, and where it was delivered.

Finally, the Notice of Lease Agreement does not have to be in any specific form – simply a copy of the contract should suffice. We do prefer that you use a cover sheet to inform the owner and contractor of the purpose of the delivery, reserving your rights under either La. R.S. 9:4802 (Private Works) or La. R.S. 38:2242 (Public Works).

Think Different To Send Notices of Lease Easily

So, now you know about this notice of lease requirement…but really, does your company have the time or attention to detail required to send these notices to each and every customer every time you sign a rental agreement?  It’s likely that you either don’t have the time, or if you can make the time, that it’s a waste of time for your company.

Think different about these notices…how about outsourcing them?

A company like zlien (which was started by Wolfe Law Group founder Scott Wolfe Jr) is in the business of sending notices like the Louisiana Notice of Lease. They have many equipment rental companies who simply send them a copy of each new rental agreement, and Zlien prepares and sends the preliminary notice for them, keeping evidence of its delivery and a copy of the notice for you to access within your account at anytime.  It’s a great alternative to trying to send all of these complex notices yourself, and can be done so it will actually save you money.

Washington Law Protects Contractors from Dangers of Frivolous Lien Statute

A quick word from the construction law case files:

The Court of Appeals, Division 1, out in Washington state, has refused to deem a construction lien as frivolous based upon the complexity of the construction contract at dispute. The court in SD Deacon Corp. of Washington v. Gaston Bros. Excavating, Inc., decided back in May of 2009, that the state’s “frivolous lien” statute, coded under RCW 60.04.081, requires a more in-depth analysis of factual circumstances surrounding the substance of the contract and the lien.

The court in SD Deacon further reasoned that a court can only evaluate in a frivolous lien proceeding are, by way of example, whether the lien was properly filed, signed by the proper party, properly served, and meets the statutory form requirements. Issues of substance of the lien (i.e. the contract amount, amount due or change orders) are issues which require more substantive proceedings to analyze factual circumstances.

Because the frivolous lien procedure codified in RCW 60.04.081 does not provide for such proceedings, a party seeking to extinguish a lien filing will be unsuccessful in attempting to show to the court that the lien was frivolous.

Essentially, the court’s rule is that the “lien must be so devoid of merit that the claim has no possibility of succeeding” and that “there must be findings supporting the conclusion that the lien is invalid beyond legitimate dispute.”

The Court’s ruling provides some hope for “fringe” contractors who’s claims hold some element of uncertainty, but who desperately need the security provided by a lien in order to collect payment from an uphill contractor or owner.

The frivolous lien statute was enacted to prevent fraudulent claims against contractors, by awarding successful parties attorneys fees. The ruling in the case shows that the award of fees will not be granted unless your lien fails to meet statutory form requirements.

Survey Of Immigration Law Changes Published on Construction Law Musings – Thanks!

Thanks to my friend Chris Hill and his Construction Law Musings for allowing me to publish a guest post on this blog this morning survey the nation’s changing immigration laws.

The post titled “The Landscape of US Immigration Laws and How It Affects The Construction Industry,” reviews the states that have and are considering immigration law reform, and discusses how these new laws can possible effect your construction business.

We’ve talked about these immigration laws a good bit on this blog in our discussion of the E-Verify system.  You can more of these posts under the tag: E-Verify.

Big thanks to Chris Hill for the opportunity to do another guest post on his blog.

California’s Contractors State Licensing Board – Very Useful Tool

The Wolfe Law Group, LLC (WLG), has two attorneys (Scott G. Wolfe, Jr., and Seth J. Smiley) that are barred in the state of California. As a California attorney, I want to share some of the excellent resources available to contractors through the licensing board.

California has over 300,000 licensed contractors, all of which had to be licensed through the state licensing board. Many contractors do not know all the resources which this arm of the Department of Consumer Affairs makes available to contractors and the public. Some of the more popular features include:

For the consumer there are tutorials on hiring a licensed contractor, knowing the risks of being an owner/builder, filing complaints, legal issues for construction consumers. California CSLB is also very proud of its SWIFT program. SWIFT stands for Statewide Investigative Fraud Team, where the government performs sting operations to catch unlicensed contractors. This team plays the double roll of protecting the consumers from unlicensed contractors, but it also protects those contractors who are playing by the rules from having business stolen from them by their unlicensed counterparts.

For contractors there are links to leading industry bulletins, the very helpful “Contractors Guide to Licensing” which after taking a look is very informative for all contractors, big or small, in educating them on the licensing process. There are also other links regarding out-of-state contractors obtaining reciprocity.

The hearty list of online services offered by CSLB includes, checking on a license, filing a complaint, the full database of all licensed contractors, processing times, searches for surety bond companies and workers comp insurance companies.

I found that the email alerts are very helpful on keeping up with current events and breaking news. Much of the news thus far has been updates on unlicensed contractors who have been caught by the SWIFT program.

As always seek the advice of legal counsel when contemplating licensing, contracting, and negotiating. The California Contractors State Licensing Board has a very top notch site dedicated to aid both the consumer and its professional contractors. This resource should not be overlooked when deciding to get your license or maintaining it. The attorneys at Wolfe Law Group, LLC are experienced in all areas of construction law including contractor licensing.