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.

On February 2, 2009, I posted a blog on forum selection clauses and their enforceability. [Link to prior blog article] On May 10, 2016, in Rigsby v. American Credit Counselors, Inc., the Mississippi Court of Appeals found a forum selection clause included in American Credit Counselors, Inc.’s Program Guidelines unenforceable. In so doing, the Court provides an excellent analysis of when forum selection clauses may be found to be unenforceable. [Link to Decision]

Ms. Rigsby was in serious financial problems and decided to engage the assistance of American Credit Counselors, Inc. ("ACCI") to assist in managing the payment of her debts. She was provided "Program Guidelines" which included a forum selection clause. The clause provided in pertinent part as follows:

…the parties agree that any arbitration brought with respect to this Agreement shall be brought exclusively in The State of Florida, County of Palm Beach, and the parties irrevocably submit to the jurisdiction of Palm Beach County, Florida.

When a dispute developed between Ms. Rigsby and ACCI she filed suit in the County Court of Harrison County, Mississippi. In its answer, ACCI claimed the protection of the forum selection clause and filed a motion to dismiss which was granted by the county court and affirmed on appeal by the circuit court. The Court of Appeals reversed the circuit court finding the forum selection clause unenforceable.

The Court, citing Titan Indem. Co. v. Hood, 895 So. 2d 138, 145 (Miss. 2004), acknowledged that "[a] clause is ‘mandatory’ if it purports to require litigation in the specified forum only and to prohibit litigation in any other forum." It therefore found the use of the word "solely" to be "sufficient to make it [the forum selection clause] mandatory."

Nonetheless, the Court continued with its analysis to determine whether, although mandatory, the clause was enforceable. In doing so, the Court considered the following guidance from the Mississippi Supreme Court:

Forum selection clauses are ‘presumptively valid and enforceable’ unless the resisting party can show:

(1) Its incorporation into the contract was the result of fraud, undue influence or overweening bargaining power;

(2) The selected forum is so gravely difficult and inconvenient that the resisting party will for all practical purposes be deprived of its day in court; or

(3) The enforcement of the clause would contravene a strong public policy of the forum in which the suit is brought, declared by statute or judicial decision.

The Court then considered the facts presented to the trial court and decided that there was no evidence of fraud or overreaching associated in the inclusion of the forum selection clause. However, the Court did find that Ms. Rigsby had satisfied the second consideration because of her age and financial condition she ‘will for all practical purposes be deprived of [her] day in court.’ Titan Indem., 895 So. 2d at 146.

The lesson for any contracting party is to consider the forum selection clause in any contract before placing your signature on the dotted line. Verify whether the forum selection clause is mandatory or permissive and that you can follow the requirements if the clause is enforced. Finally, do not assume you will be able to get out of a mandatory clause under the "deprivation of day in court" exception as it is a higher burden to meet and will be easier to negotiate terms you can live with before you ever sign the contract.

There are plenty of different ways that a contractor can get in trouble with an owner or its subcontractors.  One is to talk too much and wind up entering into a separate enforceable oral contract.  The existence of an oral contract is a factual issue that will be decided by a jury or a judge in a trial without a jury, also known as a bench trial.  However, the formation of a contract requires three (3) simple elements: (1) an offer, (2) acceptance of the offer, and (3) consideration. If those elements are proven by one of the parties, an enforceable contract may have been formed and someone may have to pay.  There are some limited situations in which the law requires that a contract be in writing.  Nevertheless, the best course of action is to speak with caution so that there is no opportunity to argue that an oral contract was made.

And remember, the statute of limitations for an oral contract is three (3) years. Miss. Code Ann. §15-1-29. So, you may want to watch what you agree to do or you may lose sleep for quite some time until the statute of limitation expires.

On October 10, 2013, the Fifth Circuit Court of Appeals affirmed a district court determination that Mississippi Code Annotation § 85-7-181 is unconstitutional. As prime contractors and owners know, an owner’s receipt of a stop-payment notice or "stop notice" could bring the flow of contract payments to a grinding halt. Miss. Code Ann. §85-7-181 required an owner to hold sufficient funds, otherwise due to a prime, to cover the amount alleged to be due and owing to a first-tier subcontractor who sent written notice that it was claiming the benefits of the "stop-payment" notice statute. Depending upon the amount of contract funds still remaining in the owner’s hands, if the owner paid the prime over the notice and thereby diminished sufficient funds available to pay the subcontractor, the stop-payment notice statute made the owner directly liable to the subcontractor. Owner-compliance, as intended by the statute, gave subcontractors (at least the first-tier) their only powerful tool to enforce payment rights on private, un-bonded projects.

The "stop-notice" statute has been in place for year, but on April 12, 2012, the Northern District of Mississippi ruled the statue unconstitutional on its face because it deprived prime contractors of property without due process. Noatex, an unlicensed California prime contractor, was hired by Auto Parts Manufacturing Mississippi ("APMM") to build an auto parts manufacturing facility. Noatex got into a billing dispute with its Mississippi subcontractor, King Construction of Houston, L.L.C. When King Construction sent a stop-payment notice to APMM asserting it was due over $260,000 from Noatex, that amount became bound in the hands of APMM. Noatex filed a declaratory judgment action, challenging the stop-payment notice statute as facially invalid and invalid as applied. The State of Mississippi, through the Attorney General’s Office, intervened in support of the stop-payment notice statute. Judge S. Allan Alexander agreed with Noatex, holding that simply by giving written notice of an alleged debt a contractor’s payment became bound in the hands of the owner—with no hearing before the money was bound—and thus the contractor was deprived of its property without due process.

The Fifth Circuit upheld Judge Alexander’s analysis. Among other things, the Fifth Circuit noted that the statute is "profound in its lack of procedural safeguards": no posting of a bond, no showing of exigent circumstances, and no sworn statement setting out the facts of the dispute. You can read the decision here.

Unless there are changes to the current stop payment law or the United States Supreme Court agrees to consider this issue, if appealed by the Mississippi Attorney General, there will be no "lien rights" for first-tier subcontractors. Only contractors with a direct contractual relationship with the owner will have lien rights.  Subcontractors may want to seek legal counsel concerning how to address stop payment notices that were to be filed or have been filed and to determine other remedies that may be available if their prime has failed to make payment.   

A tolling agreement is an agreement to suspend or extend the statute of limitation (the time within which you are required to file a lawsuit or lose the right to sue). These types of agreements are typically proposed to delay the filing of a lawsuit while parties attempt to settle the matter in dispute. However, you should proceed with caution when considering such agreements, because Mississippi has another law that forbids changing certain statutes of limitation.

Recently, the Mississippi Supreme Court considered these types of agreements again. Although the Court decided that the statute of limitation could be tolled for certain kinds of actions, the Court also ruled that the statute of repose cannot be touched. The statute of repose is a maximum period of time under which a lawsuit can be filed no matter what the circumstances may be.

The Court also listed five requirements that must be met in those situations where a tolling agreement is allowed:

A tolling agreement may be enforceable if (1) it is not prohibited by statute; (2) it contains a definite and reasonable time period; (3) it is formed after the cause of action has accrued, or in the instance of a statute of repose, after the plaintiff has notice of the cause of action; (4) it is not made at the same time as, or part of , the obligation sued upon; and (5) it is entered into before the expiration of the applicable limitations period.

If you are considering entering into a tolling agreement, don’t make that decision alone. You can be giving up substantial rights if a Mississippi court refuses to recognize the agreement. Before signing, consult with legal counsel experienced in contract law.

In a case of first impression, the United States Civilian Board of Contract Appeals upheld a contracting officer’s final decision assessing damages against a prime contractor that failed to comply with the requirement to perform at least 50% of the on-site work. On a contract awarded by the Federal Highway Administration ("FHWA"), prime contractor, Singleton Enterprises ("Singleton") subcontracted the vast majority of its work to Talley Construction ("Talley"). Singleton’s only employees on-site were supervisors, which Singleton apparently borrowed from Talley but paid directly. It was unclear whether Singleton had paid for equipment used on the site, but the CBCA determined that whether or not Singleton had paid for equipment costs, it still performed substantially less than 50% of the value of on-site work.

The FHWA decided that if Singleton did not perform the on-site work, it was not entitled to the benefit of the unit prices it charged for that work. Talley was essentially acting as prime contractor so the FHWA decided it should only pay Singleton what Singleton was paying Talley. To calculate its damages, once the final quantities were determined, the FHWA multiplied Talley’s unit price to Singleton for the work, which was less than Singleton’s unit price to the FHWA for the work. Singleton had already been paid more than the FHWA would have paid based on Talley’s pricing. The appeal upheld not only the FHWA’s decision that it was entitled to recoup its "overpayment" damages from Singleton for not meeting the percentage of work requirement but also the reasonableness of the FHWA’s method of calculating its damages for that breach.

The decision notes that it has no precedential value. However, in similar circumstances, contractors should expect both the Department of Transportation and the Civilian Board of Contract Appeals to act as they did here. See Singleton Enterprises v. Department of Transportation, CBCA No. 2716, June 14, 2012.

It can be unclear when a contractor bidding on a public construction project actually has a binding contract with a public entity. This question appears to have been addressed by the Mississippi district court in Northeast Mississippi Community College District v. Vanderheyden Construction Company. In that case, the community college had issued an advertisement for bids from qualified contractors for the construction of a new science and math building. The advertisement reserved the right to reject any and all bids. After bids were opened, Vanderheyden was declared the low bid. The Board of Trustees ("the Board") voted to award the contract to Vanderheyden but after the board meeting the second low bidder challenged the award alleging a number of deficiencies in Vanderheyden’s bid. Rather than risk a lawsuit by the second low bidder, the Board decided to rescind the award and readvertise. At the second bid opening the protester on the original procurement was the low bidder and Vanderheyden was the second low bidder.

The issue presented to the district court was whether the Board could properly rescind its prior award to Vanderheyden and readvertise the project. The district court concluded that "a public entity cannot reject all bids and readvertise the project after it has already accepted the lowest responsible bidder." In analyzing the actions of the Board, the district court when on to state:

[T]he court is of the opinion that once the board chose to accept Vanderheyden’s bid, the reserved right to reject any and all bids had not been exercised and it was no longer operative. To hold otherwise would be contrary to well-established principles of contract law and would permit the possibility of favoritism in public bidding, the very evil which the bidding process statutes were enacted to prevent.

Therefore, once a public entity has officially accepted a bid, there is a binding contract between the parties unless the public entity has expressly conditioned the award upon certain requirements.

 

Parties frequently include arbitration clauses in their construction documents. In such instances, when a dispute arises, the party with a claim may ultimately need to pursue it by filing a demand for arbitration. When the arbitration clause requires compliance with the American Arbitration Association’s ("AAA") Construction Industry Arbitration Rules, or another alternative dispute organization, the claimant can simply file a demand for arbitration with that organization. When the agreement does not specify an alternative dispute organization or a method for the initiation of arbitration, the claimant must rely upon the procedures set forth in the Mississippi Construction Arbitration Act ("the Act"), Miss. Code Ann. §§ 11-15-101, et seq. (Rev. 2004). Under the Act, the claimant shall:

…within the time specified by the contract, if any, file with the other party a notice of an intention to arbitrate which notice shall contain a statement setting forth the nature of the dispute, the amount involved, and the remedy sought….

According to the Mississippi Court of Appeals, such a "demand for arbitration" must be initiated within three (3) years from the time the cause of action accrues. This issue was addressed by the Court of Appeals in Haycraft v. Mid-State Construction Company, Inc. In that case, Haycraft filed suit against Mid-State sometime in 1994. Mid-State filed a motion to have Haycraft’s complaint dismissed because the agreement between the parties included a provision that permitted Mid-State to require arbitration. The court therefore dismissed Haycraft’s lawsuit.

Approximately six years later Haycraft filed an application for arbitration. Mid-State filed an objection to Haycraft’s demand for arbitration with the circuit court. The court found Haycraft’s application for arbitration untimely based upon the general three (3) year statute of limitation found at Miss. Code Ann. §15-1-49 (Rev. 2003). The Court of Appeals agreed and found Haycraft’s right to demand arbitration began when its cause of action accrued. It was therefore Haycraft’s obligation to initiate an application for arbitration within three (3) years from that date or its cause of action would be barred by the statute of limitation. Because Haycraft did not timely pursue its right to arbitrate, Haycraft’s claim was barred.

The key point to remember is that a claimant must act timely to preserve its right to arbitration. A demand or application for arbitration must be timely submitted to the opposing party or the claim’s right to relief may be barred by the three (3) year statute of limitation.

The Mississippi Supreme Court handed down a decision this month upholding the proposition that an arbitration agreement can be enforced against someone who did not sign the agreement. However, the facts of the case were unusual in that the individual (Donna Stuckey) against whom arbitration was ordered presented evidence that at least some of the documents involved in the transactions contained forged signatures.

In this case, the defendants had pledged certain property to the bank as collateral for loans made to their cattle business. Mrs. Stuckey’s name appeared approximately fifty-five times on documents containing arbitration provisions. However, Mrs. Stuckey claimed the only document she actually signed was one deed of trust which did not include an arbitration provision. Mrs. Stuckey admitted she was one of the owners of the cattle business. She asserted numerous claims, including forgery, against the bank and one of its employees who was also an owner of the cattle business. She further claimed she suffered damages when the bank employee took profits from the sale of cattle without her knowledge or permission. Because the only document which Mrs. Stuckey admitted had been signed by her did not include an arbitration provision, she disputed the matter was subject to arbitration.

The Supreme Court disagreed, concluding that it did not matter whether Mrs. Stuckey’s signature was forged and it did not matter that the deed of trust had no arbitration clause. The Court held since Mrs. Stuckey was a co-owner in the cattle business she was a third-party beneficiary to the loan agreements which included arbitration provisions. The Court also concluded that Mrs. Stuckey was equitably estopped from claiming she was not subject to arbitration on the basis that she could not claim breaches of duties associated with the loan documents and at the same time claim that she was not bound by the provisions in those documents.

This decision serves as a reminder of two principles: (1) You can’t have your cake and eat it too. The Mississippi Supreme Court recognizes and disfavors simultaneous attempts to claim the benefits of a contract and to disclaim application of certain contract provisions. (2) Arbitration continues to be favored by courts.

On July 21, 2009, the Mississippi Court of Appeals made it clear that any contract entered into by a party with an unlicensed contractor is null and void. United Plumbing & Heating Company v. AmSouth Bank (Ct. App. No. 2007-CA-01194). This is the first reported decision that addresses the interpretation of Miss. Code Ann. § 31-3-15. This statute provides in pertinent part as follows:

No contract for public or private projects shall be issued or awarded to any contractor who did not have a current certificate of responsibility issued by said board [of contractors] at the time of submission of the bid…Any contract issued or awarded in violation of this section shall be null and void.

In United, the general contractor [United] entered into a contract with an owner [Wee Care] for the construction of a building. The contractor and its subcontractors were not paid for their work. The owner filed bankruptcy and the contractor filed suit against the lender [AmSouth] to recover its contract balance. AmSouth filed a motion for summary judgment arguing that because United did not have a valid certificate of responsibility, the contract was null and void. United argued that it did hold a certificate of responsibility, even though the certificate was issued in a classification different from the type of work being performed for Wee Care. The trial court granted summary judgment in favor of AmSouth. United appealed the decision but the Mississippi Court of Appeals affirmed the trial court’s ruling finding:

[T]he contract entered into between United and Wee Care was null and void because United failed to possess the appropriate certificate of responsibility for the type of work it undertook to perform. Having found that United’s contract with Wee Care was void, it follows that any contractual obligations AmSouth [the lender] may have owed [United or] the subcontractors are also void.

(emphasis added). If a contractor or subcontractor does not have a current certificate of responsibility, it may find itself in the position of having furnished labor and material on a project and not being paid. This could result in a financial disaster for one party and a windfall for the other party.

United makes it abundantly clear that owners, contractors and subcontractors should always check Mississippi State Board of Contractors to determine if the contractor or subcontractor holds a license for the work to be performed. It is also prudent for a party to confirm with the licensed entity that the qualifying party is currently an "owner, or a responsible managing employee, or a responsible managing officer, or a member of the executive staff…" See, Who Can be a "Qualifying Party" for a Contractor’s Certificate of Responsibility? Posted on this blog site by Christopher Solop, May 13, 2009.  (The State Board of Contractors has recently proposed an amendment to Rule L shortening the period to replace a qualifying party after the individual holding the certificate of responsibility leaves the employment of the company from 180 days to 90 days. This change will take effect on October 8, 2009.)