Construction Law Blog
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For several years, the requirements for which parties must be named in a lien foreclosure action when a release of lien bond is in place have been cloudy. RCW 60.04 et seq., the “mechanics’ lien” or “construction lien” statute, provides protection for a party or person who provides labor, materials, or equipment to a construction project. That person or party, if not paid, can file a lien against the construction project property to secure recovery. As the lien impacts the property by “clouding title” and could potentially result in foreclosure of the property, the statute sets forth strict requirements with respect to timing, notice, and parties. For example, the lien must be recorded within 90 days of the person or party’s last day of work or materials or equipment supplied, and the lien claimant must then give a copy of the claim of lien to the owner or reputed owner within 14 days of the lien recording. RCW 60.04.081.
General Construction v. Grant County PUD: Chalkboard Notice is Invalid and Engineer Cannot Waive Notice Requirements
I previously posted a blog about the General Construction v. Grant County PUD case and the Court of Appeals’ rulings regarding notice and claim procedures.[i] The General Construction case is also noteworthy for two other issues that were raised in that case.[ii] The first issue involved whether a contractual written notice requirement is satisfied when the notice is provided on a chalkboard only. The second noteworthy issue is whether the Public Utility District’s (“PUD”) own in-house engineer could waive the contractual notice and claim procedures in the PUD’s contract.
Another court in Washington was asked to apply the Mike M. Johnson[i] decision to a contractor’s claim for extra work. This time it was the Division III Court of Appeals in Washington. The Division III Court of Appeals, which covers all of Eastern Washington, had a hand in the original Mike M. Johnson case. That court is the intermediary court that ruled in favor of the contractor in Mike M. Johnson. It held that there were issues of fact as to whether Spokane County, in the Mike M. Johnson case, had actual notice of the changed conditions and, thus, waived the notice and claim procedures that the County was attempting to rely upon. The Division III Court of Appeals was later overruled by the Washington State Supreme Court, which held as a matter of law that the County of Spokane had not waived the notice and claim procedures. This time around, the Division III Court of Appeals, for the most part, ruled in favor of the public entity and followed the Mike M. Johnson decision.
As discussed in previous blog posts, a Termination for Convenience (“TforC”) clause allows a party (generally, the owner or general contractor) to stop work for just about any reason without having to pay for anticipated profit or unperformed work. Read more here and here. Recently, the Washington Court of Appeals decided SAK & Associates, Inc. v. Ferguson Construction, Inc. in which the Court held that all that is required to trigger a TforC clause is a statement that termination is being invoked for the convenience of the terminating party. Read more here.
Washington Court Strictly Enforces Default Provision, But a Material Breach Can Still Excuse Performance
The Washington Court of Appeals strictly enforced a default provision requiring notice and the opportunity to cure, but found that the party who failed to provide the notice could still contend a material breach occurred that excused its performance. In DC Farms LLC v. Conagra Foods Lamb Weston, Inc., a food processor was not excused from providing a contractually-required notice of default and opportunity to cure because it maintained that a farmer’s breach was incurable. 179 Wn. App. 205, 317 P.3d 543 (Div. 3, January 30, 2014). Failure to provide the notice of default and opportunity to cure was a breach of contract by the food processor.
Many contractors now carry professional liability insurance in addition to their commercial general liability insurance because of the prevalence of alternative procurement delivery methods, such as general contractor/construction manager and design-build contracts. In the wake of the recent Washington Supreme Court decision in W.G Clark Constr. Co. v. Pac. Nw. Reg'l Council of Carpenters, ___ P.3d ___ (Docket No. 88080-8) (2014), a decision by the United States District Court of Western Washington may give general contractors who do not already carry professional liability insurance another reason to think about procuring such insurance. Read more about the W.G. Clark Constr. Co. decision here.
Washington Supreme Court Overturns 30-Year Law Protecting General Contractors From Trust Fund Liens on Public Works Projects
Under Washington’s Public Works Statutes (RCW 39.08 and 60.28), general contractors who perform public works are legally required to post payment bonds and have retainage withheld from progress payments. The purpose of these laws is to protect the public entity (owner) from subcontractor and supplier claims against the public project, while preserving the interests of mechanic’s lien rights (subcontractors and suppliers are provided bond claim and retainage rights, but have no lien rights in the public property).
This is the second post in a two-part blog addressing construction contract terminations. Read our previous post on "Terminations for Convenience" here.
Lien Claimants Have a Right to be Paid Directly from the Construction Loan on Private Projects. This process is commonly referred to as a "Stop Payment Notice."
Recent Unpublished Washington Court of Appeals Opinion Concludes that Absent Waiver Language, Failure to Comply with a Contractual Claim Procedure Will Not Result in Forfeiture
This blog has frequently addressed contractual notice and claim procedures and the Mike M Johnson[i] line of decisions (for example, see blog articles from January 2, 2008, February 15, 2011, July 10, 2012). A recent unpublished decision by the Division I Court of Appeals is noteworthy because it holds that if a contract has a mandatory procedure for resolving claims, but does not state that the failure to follow that procedure will operate as a waiver of such claim, then a forfeiture will not be found despite lack of compliance.
Shepler Construction, Inc. v. Leonard,[ii] involves a residential construction dispute over a project performed in 2000 with an incredibly long litigation history dating back to 2002. The decision that is the subject of this article is the Court of Appeals’ third decision in the matter!
In 2001, the Contractor (Shepler) sent the Owner (Leonard) a letter recommending that the Owner should initiate the contractual dispute resolution process with respect to the Owner's allegations of construction defects. The Owner admittedly failed to respond and did not initiate the contractual process. The Contractor then filed a lien and brought a foreclosure action. In 2008, the Contractor obtained a Summary Judgment Order precluding the Owner from asserting counterclaims for construction defects on the grounds that the Owner failed to initiate binding arbitration as required by the parties' contract in order to resolve allegations of construction defects. That order is the subject of the appellate decision that is the subject of this article.
In dismissing the Owner's claims for construction defects, the trial court was persuaded that the Owner's breach of the agreement by failing to seek arbitration required dismissal of all of the Owner's claims for construction defects that should have been arbitrated. The Contract clause at issue provided:
If a dispute arises between owner and contractor as to the performance of contractor's obligations under this agreement, such disputes shall be resolved as follows:
Each party shall employ a contractor of his or her choice to evaluate the work completed. The contractors then will select a third contractor to act as an impartial arbiter. This contractor shall, likewise, inspect the construction to determine if the work has been performed in accordance with this agreement, applicable building codes and in a good workmanlike manner as provided hereinabove. If two of the three contractors determine that the work is not in conformity with the provisions of this agreement, then they shall state in writing the work in need of repair or replacement and contractor shall undertake to perform same as soon as reasonably practical. Contractor shall be responsible for owner's fees and costs associated with this arbitration as well as the impartial contractor's fees and costs. If no remedial work is recommended by the contractors, then the owner shall pay for the costs of the arbitration. The owner shall forthwith pay the amounts due to the contractor as established by a majority of the arbiters.
The Contractor argued to the Court of Appeals that under Absher Const. Co. v. Kent School District,[iii] and Mike M. Johnson v. County of Spokane, that the Owner's admitted failure to arbitrate its construction defect claims operated as a waiver of those claims. Division One, however, disagreed, on the grounds that unlike the contract language at issue in Absher and Mike M. Johnson, the contract between the Contractor and Owner did not explicitly provide that the failure to follow dispute resolution procedures constituted a waiver of claims. Division One ruled:
Shepler relies on Absher and Mike M. Johnson, Inc. v. Spokane County. This reliance is misplaced. Absher and Mike M. Johnson are distinguishable from the contract at issue here, because the contracts in those cases explicitly provided that failure to follow dispute resolution procedures constituted a waiver of those claims.
In addition, Division One held that waiver of the right to arbitrate does not mean the underlying claims are waived:
...Washington courts have long held that the contractual right to arbitration may be waived through a party's conduct if the right is not timely invoked. The right to arbitrate is waived by conduct inconsistent with any other intention but to forego a known right. Simply put, a party waives a right to arbitrate if it elects to litigate instead of arbitrate. The [Owners] filed their counterclaims in 2002. [The Contractor] did not assert arbitration as a defense or move to dismiss the [Owner’s] arbitrable claims on that basis until 2008. Both parties waived the dispute resolution clause by conduct.
Comment: This unpublished case provides guidance that the failure to comply with a contractual claim procedure may not give rise to forfeiture of the underlying claim if the contract clause at issue does not include language stating that the failure to comply will operate as a waiver of the claim. In addition, the decision reinforces that a mandatory contract provision can be waived by the party it benefits, which is another basis to defeat an argument that the failure to comply results in forfeiture.
[i] 150 Wn.2d 375, 78 P.3d 161 (2003).
[ii] Shepler Construction, Inc., v. Leonard, 68227-0-I (unpublished 2013).
[iii] 79 Wn. App. 841, 917 P.2d 1086 (1996).