The Mississippi Legislature has passed and on April 2, 2018, sent to the Governor HB 1306 for his signature. [Click here for link to House Bill 1306.] This legislation provides that "[a] provision in any contract, subcontract, or purchase order for the improvement of real property in this state or to provide materials therefor, is void and against public policy if it makes the contract, subcontract, or purchase order subject to the laws of another state, or provides that the exclusive forum for any litigation, arbitration or other dispute resolution process be located in another state." This means that Mississippi residents do not have to travel to foreign jurisdictions to have disputes resolved on projects located in Mississippi or have the laws of a foreign jurisdiction apply to a dispute arising out of or related to the improvement [construction or repair] of real property in this state.

This legislation provides Mississippi residents with a "home court" advantage that previously did not exist. HB 1306 will be effective for contracts entered into on or after July 1, 2018.

Representative Bell has introduced House Bill No. 1306 [Click here to view House Bill No. 1306] that would require construction claims for projects located in Mississippi be litigated or arbitrated in Mississippi. This requirement would apply regardless of whether or not the contract had a provision that required the claims to be resolved in another jurisdiction. This is an important bill for Mississippi contractors since many foreign contractors frequently include a venue provision forcing Mississippi contractors to litigate or arbitrate their claims in the foreign contractor’s home state. Without this legislation, the cost to pursue a claim against a foreign contractor could be cost prohibitive and potentially force Mississippi contractors to settle their claim for pennies on the dollar. Mississippi Contractors should keep their eye on this litigation and encourage its passage.

Just because you have included an arbitration provision in your contract does not mean that any dispute arising out of or related to the contract will be arbitrated. The Mississippi Supreme Court found in Sanderson Farms, Inc. v. Gatlin, that the refusal to pay the required share of the American Arbitration Association ("AAA") fee resulted in Sanderson Farms, Inc. ("Sanderson") waiving its right to arbitration. In that case, the arbitration clause provided in pertinent part as follows:

The cost of such arbitration will be divided equally among the parties to the arbitration. Each party will bear the costs of their own expenses and attorney’s fees. Failure to arbitrate all such claims or controversies arising under or related to this Agreement shall be deemed a breach of the Agreement.

Gatlin paid its share of the arbitration fees but Sanderson failed to pay its share. Gatlin filed suit in circuit court against Sanderson who filed a motion to dismiss arguing that the dispute was subject to arbitration. The circuit court denied Sanderson’s motion to dismiss. On appeal the Supreme Court held:

Sanderson farms waived its right to arbitrate by refusing to pay its one-half of the cost associated with the filing and administrative fees and/or the additional charges presented for payment one month before the scheduled arbitration hearing. This refusal amounts to an act inconsistent with the right to arbitrate. By waiving its right to arbitrate, Sanderson Farms has relinquished the right to seek the protections of the arbitration provision in the boiler contract.

It should also be noted that Rule 54 of the AAA Commercial Rules and Rule 56 of the AAA Construction Industry Arbitration Rules provide for procedures where a party has not paid its share of the arbitrator compensation or administrative charges.

The bottom line is a party may waive its right to arbitration if it does not comply with the requirements set forth in the arbitration clause and find itself in court rather than in arbitration.

If you are a contractor and submitted an application for a progress payment on a private construction project the owner should make timely payment under the terms of the contract.  However, all too frequently the owner does not make that timely payment.  If this occurs, contractors should look to Miss. Code Ann. §87-7-3 for relief.  It provides, with regard to progress payments as follows:

…If they [partial, progress or interim payments] are not paid within thirty (30) calendar days from the day they were due and payable, then they shall bear interest from the due date at the rate of one percent (1%) per month until fully paid.

Miss. Code Ann. §87-7-3(a).

This statute also provides the same relief where final payment is requested by the contractor and payment is not made within thirty (30) calendar days from the first occurrence of either (1) substantial completion under the terms of the contract, (2) beneficial use and occupancy by the owner, or when the project is certified as complete by the architect or engineer. Miss. Code Ann. §87-7-3(b).

Unfortunately, this interest is not automatic unless the amount requested is liquidated.  This was made clear by the Mississippi Supreme Court in a recent decision.  There was a dispute between the owner and the contractor concerning the amount due and owing under the contract.  The contractor demanded pre-judgment interest under Miss. Code Ann. §75-17-1 Ann. and late payment interest under Miss. Code Ann. §87-7-3.  In denying both of these requests the Court concluded:

Neither Section 75-17-1 nor Section 87-7-3 mentions whether monies owed contractors must be liquidated in order for the respective statute’s grant of prejudgment interest to apply.  However, the same considerations which preclude a recovery of prejudgment interest for unliquidated amounts owed under Section 75-17-1 apply to Section 87-7-3.  Therefore, Stubbs [the contractor] must show that his claims against the Falkners [the owner] were liquidated prior to the judgment in order to recover prejudgment interest under either statute.

Falkner v. John E. Stubbs d/b/a Mississippi Polysteel, 121 So.3d 899, 903 (Miss. 2013).  Damages are considered unliquidated if they are not set forth in the contract or cannot be established by a fixed formula. Id.

The bottom line is that contractors need to make sure that the payment provisions of the contract are clear and that any schedule of values is sufficiently detailed to identify the item of work and the value which the parties have agreed to assign to this item.  Of course, any change order work should also be priced and agreed to avoid creating a disputed and unliquidated amount.

 

 

 

 

Recently the United States Supreme Court took a close look at the enforceability of forum selection clauses in Atlantic Marine Construction Co. v. U.S. District Court for the Western District of Texas.  In that decision, the Supreme Court found that such forum selection clauses, when properly drafted, are enforceable.  Only where there is an overwhelmingly strong public interest should a venue selection provision be ignored.

Notwithstanding the Supreme Court’s decision, there are some twenty-four (24) states that have enacted statutes which render such forum selection clauses void.  Whether these statutes can withstand constitutional scrutiny was not addressed by the Supreme Court in Atlantic Marine.  An example is Arizona’s statute that provides as follows:

A. The following are against this state’s public policy and are void and unenforceable:

1. A provision, covenant, clause or understanding in, collateral to or affecting a construction contract that makes the contract subject to the laws of another state or that requires any litigation arising from the contract to be conducted in another state.

2. A provision, covenant, clause or understanding in, collateral to or affecting a construction contract stating that a party to the contract cannot suspend performance under the contract or terminate the contract if another party to the contract fails to make prompt payments under the contract pursuant to section 32-1129, 32-1129.01 or 32-1129.02.

B. Any mediation, arbitration or other dispute resolution proceeding arising from a construction contract for work performed in this state shall be conducted in this state.

A.R.S. §32-32-1129.05.

It may be time for Mississippi to consider adopting a similar statute to protect resident contractors from having to pursue remedies against a non-resident contractor in a foreign jurisdiction and also being subjected to that state’s laws.

If you have any thoughts or comments on this issue, please contact Lee Nations, Executive Director for Associated General Contractors of Mississippi at (601) 9811-1144 or at lee@msagc.com.

Today the Small Business Administration issued an interim final rule that increases revenue-based size standards.  The adjustment is made, in part, to take account of inflation since the last inflation-adjustment in 2008.  In Sector 23, Construction, for example, the $35 million size standard increased to $36.5 million.

To see all size standard adjustments in the interim rule, click here.  The interim final rule takes effect July 14, 2014, but the SBA will receive comments on it through August 14, 2014.

Contractors frequently require subcontractors to specifically name the contractor as an additional insured in the subcontractors’ commercial general liability (CGL) policies. The "proof" of compliance frequently provided to the contractor is the Certificate of Insurance. Contractors can generally rely upon benefits of being an additional insured when there is a problem with the subcontractor’s work that causes property damage. It may also provide the contractor with the cost of a defense where it has been sued by the owner for the subcontractor’s defective work and property damages. However, timing is critical. Both the Mississippi Supreme Court and the Firth Circuit Court of Appeals have opined that "ongoing operations" coverage may not give the contractor coverage as an additional insured for damage that arises after the subcontractor has completed its work.

In Noble v. Wellington Assoc., Inc, [Link to Decision] the contractor hired a subcontractor to perform site work for a home. After the home was completed the owners experienced settlement and substantial cracks in the home. The contractor claimed the insurance carrier had a duty to defend it against claims for defective construction under the subcontractor’s CGL policy as an additional insured. The insurer argued that the defects did not develop until after the subcontractor had completed its site work and there was no duty to defend or coverage. The contractor argued it was the subcontractor’s "ongoing operations" during construction that ultimately resulted in the damage to the home. The Mississippi Supreme Court concluded "in order for ‘ongoing operations’ to have any meaning, it cannot encompass liability arising after the subcontractor’s work was completed".

The same conclusion was reached by the Fifth Circuit Court of Appeals in Carl E. Woodward, L.L.C v Acceptance Indemnity Insurance Company. [Link to Decision] Here, the allegation was that the subcontractor’s failure to comply with the plans and specifications caused the construction defect which manifested after a condominium complex was completed. The subcontractor’s additional insured endorsement limited coverage to "ongoing operations". The Fifth Circuit found, much like the Court in Noble, that "liability for construction defects, while created during ongoing operations, legally arises from completed operations." The contractor was therefore left to pay the defense cost when it believed it would be protected by the subcontractor’s additional insured endorsement.

The lesson to be learned from these decisions is that contractors must obtain a copy of the insurance policy and additional insured endorsement to ensure that there is coverage not only for "ongoing operations" but also "completed operations". Relying upon a certificate of insurance alone as evidence of coverage may lead to an unhappy finding that there is no coverage at the very time you need it. Further, absent an additional insured endorsement that includes "completed operations" coverage, the contractor may be left without the insurance coverage for defective construction by its subcontractor.

California’s Business and Professions Code bars a non-licensed contractor from an action to collect for unpaid services. However, the Ninth Circuit Court of Appeals recently held that this state law ban on such actions has no application if the services were provided to a federal project and suit is filed to collect under a Miller Act payment bond.

Plaintiff Technica, Inc. was a sub-subcontractor to Candelaria Corporation, a prime contractor on a federal fence replacement contract. Carolina Casualty Insurance Company issued the payment bond required by the Miller Act (40 USC § 3131 et seq.). Technica submitted invoices in excess of $800,000 to Otay Group, Inc. (a subcontractor) and Candelaria. After Candelaria terminated Otay and full payment had not been made to Technica, Technica sued Candelaria and Carolina Casualty in federal district court under the Miller Act.

The district court granted the prime contractor and surety’s motion for summary judgment on grounds that Technica did not hold a California contractor’s license. The Ninth Circuit reversed, following United States Supreme Court precedent and decisions by the Eight and Tenth Circuits. Distinguishing this case from others that dealt with the substantive law of contracts, the Ninth Circuit held that the California statutory limitation on the right to maintain an action "does not apply to an action under the Miller Act." The rationale was that "application of California’s licensing statute as a defense to a Miller Act claim would…condition the rights of a subcontractor on the procedural requirements of state law … and … result in the nullification of those rights entirely." The Ninth Circuit’s opinion is attached here for convenience.

The Legislature has completely rewritten the Mississippi lien law for commercial and residential projects.  Senate Bill 2622 has now been sent to the Governor for his signature and provides lien rights to prime contractors, subcontractor and material suppliers. [Link to SB 2622]  The new lien law will require those seeking to file a lien to comply carefully with strict notice and filing requirements.  An error in complying with these requirements could lead to a “claim of lien” being ineffective or unenforceable. 

Some of the key points in the new lien law are:

     

  • There are no lien rights if a contractor has provided a payment bond. (Miss. Code Ann. §85-7-431)

     

  • To have lien rights the party filing a "claim of lien" must be properly licensed by the Mississippi State Board of Contractors.  However, it should be noted that there are counties and municipalities that also have licensing requirements. (Miss. Code Ann. §85-7-403)

There are numerous ways that a contractor and/or subcontractor or materialman can lose its "claim of lien", including:

     

  • If the contractor fails to provide a list of subcontractors to the owner within a reasonable period of time after requested or if the subcontractor fails to furnish a list of its subcontractors to the contractor within a reasonable period of time after requested (Miss. Code Ann. §85-7-407).

     

  • If lien claimant fails to file its "claim of lien" within ninety (90) days following the last labor, services or materials provided (Miss. Code. Ann. §85-7-405(1)(b)).

     

  • If a subcontractor not in privity with the contractor fails to send written notice to the contractor, or, if there is no contractor, to the owner, within thirty (30) days after the first delivery of labor, services or materials to the property. (Miss. Code. Ann. §85-7-407(2))

     

  • If the owner has made payment to the contractor in reliance upon a lien waiver issued by the lien claimant (Miss. Code Ann. §85-7-413(1)(a)).

     

  • If a "payment action" is not commenced within one hundred eighty (180) days after the "claim of lien" is filed, the "claim of lien" is unenforceable (Miss. Code Ann. §85-7-421(1)).

The basic requirements for filing a "claim of lien" are set forth in Miss. Code Ann. §85-7-405.  If a party fails to comply with any of the requirements the "claim of lien" shall not be effective or enforceable.  The filing of a "claim of lien" is not intended to prejudice a party’s right to arbitration.

     

  • The right to claim a lien cannot be waived in advance of furnishing labor, service or materials (Miss. Code Ann. §85-7-419).

     

  • The "special lien" granted by the statue to contractors, subcontractors and materialmen is limited to the amount due and owning under the terms of the express or oral contract, subcontract or purchase order (Miss. Code Ann. §85-7-403(3)).  The "special lien" also includes interest (Miss. Code Ann. §85-7-403(4)).

     

  • A judgment secured in a "payment action" to enforce a "claim of lien" is limited to a judgment in rem against the property and does not impose any personal liability upon the owner (Miss. Code Ann. §85-7-405(1)(d)(ii)).

     

  • If payment is made by the owner in reliance of a lien waiver or statements of the contractor, the aggregate lien amount of the subcontractors and materialmen not in privity with the contractor shall not exceed the unpaid balance of the contract price between the owner and the contractor at the time the first notice of lien is filed (Miss. Code Ann.§85-7-405(5)(a)).

     

  • Party seeking to assert a "claim of lien" must be in "substantial compliance" with the contract, subcontract or purchase order (Miss. Code Ann. §85-7-405(1)(a)).

     

  • "Claim of lien" must be filed in the chancery court of the county by a contractor, subcontractor or materialman where the property is located and within ninety (90) days of the last labor, services or materials provided.  It must also contain certain language notifying the owner of its right to contest the lien and be sent to the owner and contractor within two (2) days after it is filed (Miss. Code Ann. §85-7-405(1)(b)).

     

  • A subcontractor or material supplier not in privity with the contractor, or, if there is no contractor, with the owner, must provide notice within (30) days following the first delivery of labor, services, or materials as a condition precedent to filing a "claim of lien" (Miss. Code Ann. §85-7-407(2)).

     

  • The "claim of lien" can be amended at any time provided there is compliance with certain procedures (Miss. Code Ann. §85-7-405(1)(e)).

     

  • All liens under Miss. Code Ann. §85-7-403 have equal priority.  If the proceeds are insufficient to satisfy all liens, distribution is on a pro-rata basis (Miss. Code Ann. §85-7-403(3)(d)).

     

  • A "payment action" (lawsuit) to enforce the "claim of lien" must be commenced within one hundred eighty (180) days from the date of the filing of the "claim of lien" (Miss. Code Ann. §85-7-405(1)(c)).  This period can be shortened by the owner or contractor filing a "Notice of Contest of the Lien". (See, Miss. Code Ann. §85-7-423(1))

     

  • A lis pendens notice must be filed with commencement of the "payment action" and furnished to the owner and contractor (Miss. Code Ann. §85-7-405(1)(d)(ii)).

     

  • The court in its discretion may award reasonable costs, interest and attorney’s fees to the prevailing party in an action against the owner to enforce a lien against the property (Miss. Code Ann. §85-7-405(3)(c)).

     

  • The statute provides a procedure for "bonding off" a lien.  The amount of the bond is required to be one hundred ten percent (110%) of the amount of the "claim of lien" (Miss. Code Ann. §85-7-415).

There are also substantial penalties for not complying with certain aspects of the lien law and filing a false "claim of lien".

     

  • The penalty for filing a knowingly false "claim of lien" is three (3) times the value of the "claim of lien" (Miss. Code Ann. 85-7-429).

     

  • The penalty for not paying a subcontractor after securing a waiver and release of lien without good cause is three (3) times the amount claimed on the face of the waiver and release (Miss. Code Ann. §85-7-407(3)).

     

  • There is a penalty of three (3) times the actual damages suffered by an owner, purchaser or lender if the contractor falsely and knowingly submits a statement that the agreed price or reasonable value of the labor, services or materials has been paid or waived in writing by the lien claimant. (Miss. Code Ann. §85-7-413(1)(b))

     

  • There is a penalty for failing to cancel a "claim of lien" if not accomplished within fifteen (15) days after fully paid of not less than $500/day plus reasonable attorney’s fees and costs. (Miss. Code Ann. §85-7-421(3))

Residential projects require a slightly different process.  Lien claimants on residential projects must give the residential owner a pre-lien notice at least ten (10) days notice before filing a "claim of lien". (Miss. Code Ann. §85-7-409(2))

This is just a taste of what the new Mississippi lien law contains and is neither intended to be a complete summary of the new lien law nor should it be solely relied upon in filing a "claim of lien".  The new statues are filled with hoops to jump through and hazards for those who have not carefully read it.  If you have any questions about this Mississippi’s new lien law you can contact Christopher Solop at csolop@bislawyers.com, Lynn Thompson at lynnthompson@bislawyers.com or go to the website for Biggs, Ingram & Solop, PLLC at www.bislawyers.com.

The Mississippi construction industry is about to undergo a radical change to its lien law in response to the Fifth Circuit’s decision in Noatex Corp. v. King Construction of Houston, LLC, 732 F.3d 479 (5th Cir. 2013). Noatex affirmed a district court’s ruling that Mississippi’s "stop payment" statute was unconstitutional because it included no due process.  Construction Law Toolbox reported on this decision on October 15, 2013 [Click here to view Noatex post].  Rather than revise the "stop payment" law to cure the due process issue, legislators have decided to re-write Mississippi’s lien laws.  Senate Bill No. 2622 was introduced and would extend lien rights to second tier subcontractors and suppliers who currently have no lien or "stop payment" rights in Mississippi. [Click here to view SB No. 2622] This legislation can be followed by logging into www.legislature.ms.gov/. ‎

Biggs, Ingram & Solop, PLLC’s construction attorneys Christopher Solop and Lynn Thompson are closely monitoring the legislation. When a new lien law is passed lenders, owners, contractors, subcontractors and suppliers will need to understand the intricacies of all lien rights, including effectively filing a lien, penalties for false representation of actual and conditional payments; defending or eliminating a claim of lien, deadlines for initiating litigation or arbitration of a claim of lien, and penalties for false liens.