Author Archives: kenstephensesq

Do Not Pay Invalid Liens To Save Time

“Yea… some guy up and filed a lien out of nowhere. We’re probably just going to pay them and be done with it so that we can move on.”

Unfortunately, I hear this on a weekly basis. In construction, liens are a regular part of doing business. Sometimes, subcontractors file invalid liens on projects and general contractors must try to quickly resolve the lien in order to keep the project moving. Another scenario where a lien can be a headache is when it is preventing the sale of a property. These reasons and countless others result in contractors over paying for liens or paying to resolve invalid liens.

For the most part, the contractors’ reasons for paying invalid liens can be reduced to two things: time and money. General contractors figure that it costs too much and takes too long to contest a lien. This belief is based on their understanding of a typical litigation process. Undoubtedly, some of them have been through long, drawn-out litigation and believe that a lien contest situation will be the same. Others may not have personally experienced litigation, but have familiarized themselves with the process based on the media.

Of course, these beliefs are not completely false. Sometimes litigation can be a long and expensive process. However, what most contractors may not know is that it doesn’t always have to be. This is especially true when contesting an invalid lien. The Texas Property Code as well as flexible attorneys’ fees structures have greatly reduced the costs associated with lien removal.

Section 53.160 of the Texas Property Code is titled Summary Motion to Remove a Lien. Under this chapter, a contractor can contest  a lien by having their attorney file a verified motion attacking the lien’s validity. The motion can attack the lien on the following grounds:

(1) notice of claim was not furnished to the owner or original contractor as required by Section 53.056, 53.057, 53.058, 53.252, or 53.253;

(2) an affidavit claiming a lien failed to comply with Section 53.054 or was not filed as required by Section 53.052;

(3) notice of the filed affidavit was not furnished to the owner or original contractor as required by Section 53.055;

(4) the deadlines for perfecting a lien claim for retainage under this chapter have expired and the owner complied with the requirements of Section 53.101 and paid the retainage and all other funds owed to the original contractor before:

(A) the claimant perfected the lien claim; and

(B) the owner received a notice of the claim as required by this chapter;

(5) all funds subject to the notice of a claim to the owner and a notice regarding the retainage have been deposited in the registry of the court and the owner has no additional liability to the claimant;

(6) when the lien affidavit was filed on homestead property:

(A) no contract was executed or filed as required by Section 53.254;

(B) the affidavit claiming a lien failed to contain the notice as required by Section 53.254; or

(C) the notice of the claim failed to include the statement required by Section 53.254; and

(7) the claimant executed a valid and enforceable waiver or release of the claim or lien claimed in the affidavit.

Using this procedure, your attorney can set the motion for hearing after 21 days. Once the motion is set for hearing the burden is on the person claiming the lien to prove that the required notice and lien affidavit were furnished to the general contractor as is required by the Texas Property Code. The attorney can then argue that the lien is invalid for one of the seven reasons listed above. The statute then states that the court shall make a timely ruling and there is no ability to file an interlocutory appeal.

Essentially, by following this proceeding an attorney may be able to get an invalid lien removed as quickly as 21 – 30 days. Also, because the proceeding is not an actual trial and there is no need for the discovery process, the procedure can be done at a fraction of the cost of regular litigation.  No discovery means there are no depositions, no shuffling documents back and forth, and no hearings forcing the production of critical documents.  These things save contractors money.

In short, this procedure may be less expensive than simply paying for the lien and may not take as long as you think. In the future, when a lien is filed on one of your projects, weigh all the options and if you believe the lien is invalid, talk to your lawyer about this procedure. The more general contractors contest invalid liens, the less likely people are to continue to file them with the belief that they’ll immediately be paid so that the project can move along.

Nothing in this article is to be considered legal advice. If you have questions or need representation concerning a construction matter , please call 832-930-0529 or email us at info@stephensbell.com

Give Us a Break…Literally: Senate Bill Considers Mandatory Breaks for Construction Workers

It’s 2:00 pm on a sunny Friday in Houston, Texas. The temperature is 102 degrees with humidity thick enough to make you question why you elected to spend your summer in the city. You stop at a light downtown and see 20 or more guys in long sleeve shirts working diligently on a construction project. You think to yourself, “My goodness, how can they work out in that heat all day?”

Well, a Texas Senate Panel is considering taking an action that it believes will make those jobs safer for workers. In an effort to prevent illness and deaths from the Texas heat, the panel considered Senate Bill 473 which proposes a requirement that construction companies to give workers mandatory rest breaks. The legislation would require 15-minute rest breaks for every four hours of work on construction sites.

Some cities in Texas have already implemented a similar policy on work sites. In Dallas, construction workers are entitled to a 10-minute break every four hours. Austin is another Texas city that requires breaks. There are also a handful of states that require breaks at construction sites.

The Debate

There is a debate among builders and worker advocates regarding the bill. Builders argue that safety regulations regarding construction work sites should be left to OSHA. OSHA has safety guidelines that are recommended to builders. Builder advocates explain that failure to follow OSHA recommendations can result in fines and is typically strong evidence of negligence in workplace safety litigation which could result in big verdicts against companies. They believe that the threat of litigation and fines are strong enough incentives to push companies to provide a safe work site.  They also believe that the bill could result in over-regulation because the federal government already regulates safety through OSHA and cities could pass similar legislation. Compliance with all three regulations could increase construction costs which would be passed down to the buyer.

Construction worker advocates point out that OSHA does not have a specific heat stress standard. OSHA relies on Section 5(a)(1) of the Occupational Safety and Health Act of 1970 (OSH Act) (also known as the General Duty Clause) to require employers to provide a safe and healthy environment for all workers and recommends that employers, including roofing employers, implement policies to address working during hot weather conditions. OSHA uses a heat index to make suggestions to builders on what to do when the heat reaches certain temperatures. Proponents of the bill argue that companies are not required to follow OSHA’s suggestions and many do not.

Senate Bill 473 would do much more than suggest breaks. Breaks would be mandatory and failure to comply will afford workers a right to file a complaint through the Texas Workforce Commission. The complaints would be investigated and handled by the Commission. Then, the commission could potentially penalize companies through the same process it uses for wage disputes.

There are a number of questions regarding the way this bill would impact the industry. From a legal standpoint one can expect that if passed, the bill will have a significant impact on construction contracts. Specifically, delay and delay damages clauses could be affected. Project timelines could also be impacted.

Nothing in this article is to be considered legal advice. If you have questions or need representation due to nonpayment on a construction project , please call 832-930-0529 or email us at info@stephensbell.com

When Dreams Turn to Nightmares: Why You Should Never Bet The Business On A Single Project

It’s the kind of project a Texas contractor would love to be involved in. There’s a huge plant going up. The project is approved by all required government entities. The state governor endorses it and it appears to be backed by more money than the Dallas Cowboys! What’s not to love right? Well, unfortunately, all that glitters is not always gold and for a number of Texas companies, this dream project became a nightmare.

In 2011, Mossi & Ghisolfi Group, an Italian petrochemical company decided to bring a multibillion dollar plastic plant to Corpus Christi. The project started in 2013 and was supposed to be finished in 2016 but stalled due to non-payment issues. Now, over 40 mechanic’s liens worth more than 100 million dollars have been field on the project and Texas contractors are suffering.

As is the case in many of these situations, contractors cannot make payroll due to the fact that they scaled up their workforce for the project. Some are on the brink of going under due to the situation. For others the lack of cash flows has required them to turn down other work and they are forced to due small jobs to survive.

In looking at these situations, the question that we are typically asked is whether this situation is preventable and the unfortunate answer, is probably not. On a project this large, everything normally checks out during due diligence and contractors feel secure doing the project. Also, because the project is so large, it is unlikely that an owner or General Contractor will be willing to issue a lump sum payment. Progression invoices and payment applications (pay apps) are the standard in these situations.

The only silver lining is that with such a big company, solvency should not be an issue. If the liens are properly perfected and the contractor has good representation, they should eventually be able to collect payment. The challenge for the contractors will be in finding enough liquidity to afford to hire counsel and wait out the litigation.

It is not uncommon in these situations for a large non-paying entity to contest the quality of the work done by the contractor and use this as a reason to reduce the total amount owed. This is also grounds for the lien to be contested and litigated. A typical strategy is to try and drain the cash strapped contractor until it taps out by accepting a fraction of their original invoice in exchange for a lien release.

When this happens, it is important that the contractors stand behind the quality of their work and if necessary foreclose on their liens if they want to be paid in full. This is also why it is good practice for contractors to keep a pool of retained earnings and allocate a portion of the budget to dispute resolution.

Nothing in this article is to be considered legal advice. If you have questions or need representation due to nonpayment on a construction project , please call 832-930-0529 or email us at info@stephensbell.com

The Buck Stops Here: Buc-ees vs. Bucky’s

Drive down any Texas interstate long enough and you’ll run into Buc-ees. It is a Texas staple and many Texans’ favorite chain of convenience store. What most Texans don’t know is that there is a war brewing due to the arrival of Bucky’s, a Nebraska based chain of convenience stores.

Further complicating matters is the fact that the two companies have bumped heads in the past. Both companies sought trademark protection for their brands only a few months apart. In 2009, they entered into a consent agreement allowing them to both continue using their names due to the fact there was such a great distance between them.

However, Bucky’s has recently decided to play hardball and has already taken steps to bring six of its stores to Texas. Naturally, Buc-ees has filed suit to prevent their competitor from being able to operate in Texas. Buc-ees suit alleges that Bucky’s looking to confuse the market and asserts claims of trademark infringement and unfair competition.

Unfair Competition

What exactly is “unfair competition”?  In all competitive situations there is some degree of unfairness. However, what makes unfair competition a cause of action is that it is categorized as arising out of business conduct which is contrary to honest practices in industrial or commercial matters. U.S. Sporting Prods., Inc. v. Johnny Stewart Game Calls, Inc., 865 S.W.2d 214, 217 (Tex. App.–Waco 1993, writ denied) (quoting Am. Heritage Life Ins. Co. v. Heritage Life Ins. Co., 494 F.2d 3, 14 (5th Cir. 1974)). This includes

1) passing off or palming off;

2) trade secret misappropriation, and

3) common law misappropriation. Id.;

Conceal City, L.L.C. v. Looper Law Enforcement, LLC, 917 F.Supp.2d 611, 618 (N.D. Tex. 2013); see also Taylor Pub. Co. v. Jostens, Inc., 216 F.3d 465, 486 (5th Cir. 2000).

Obviously, Buc-ees will argue that if allowed to operate in Texas, Bucky’s will receive the benefit of 35 years of undeserved brand recognition. They’ll also probably assert that certain Bucky’s goods are going to be “passed off” as Buc-ees goods.

Stephens Bell Team Resolves Lien Dispute

Stephens Bell successfully resolved a lien dispute between client Tradewind Homes, LLC and one of its subcontractors. Tradewinds asserted that it had paid in full for the work performed while the subcontractor asserted that it was owed a great deal more money.

A lien filed by the subcontractor jeopardized Tradewinds ability to close on a sale of the property. Tradewinds believed that the defective work and inexcusable project delays caused by the subcontractor effectively avoided any claim for additional payment. However, their primary concern was closing on the property and not losing the buyer due to the lien.

Tradewinds retained Stephens Bell to quickly resolve the lien so that it could move forward with the sale. After investigating the lien notices and the contract, Attorney Kenneth Stephens determined that the notices were insufficient to perfect the lien.

Attorney Jeff Bell eventually took over as lead counsel on the matter and communicated the insufficient notice to the subcontractor’s counsel. He also made a nominal offer in an effort to extinguish the lien without litigation. After further negotiations, the subcontractor signed a lien release and Tradewinds closed on the sale.

“This one was all about moving quickly so that the client could close and get a ROI on the project. I would have been more than happy to litigate this case because I didn’t believe that the lien would hold up. However, the client’s primary concern was closing as quickly as possible and litigation fees would have cost more than what the client paid to resolve this situation. In all, I think this was the best result for everyone under the circumstance.”Jeff Bell, Partner| Stephens Bell, PLLC

The Texas Residential Construction Liability Act and Its Benefits to General Contractors: Part 1

If you’ve been building long enough, you know that every project comes with its challenges. Whether it’s unforeseen additional work requiring a change order or project delays due to material shortages, there is typically a fire to put out. Unfortunately, when it comes to residential construction defects, many challenges progress into full blown disputes that are eventually litigated.

Texas Residential Construction Liability Act

Chapter 27 of the Texas Property code is known as the Texas Residential Construction Law Act (RCLA). The RCLA was enacted in 1989 in response to a growing trend of favorable verdicts for homeowners when pursuing claims against contractors for defects.  The act is applicable to:

  • any action to recover damages or other relief arising from a construction defect, except a claim for personal injury, survival, or wrongful death or for damage to goods; and
  • any subsequent purchaser of a residence who files a claim against a contractor. Prop. Code § 27.002

The act requires the homeowner to take certain procedural steps before pursuing litigation against a contractor. In the past, homeowners have tried to bypass these requirements by alleging that the contractor responsible for the alleged defect is not a “contractor” as is defined by the statute. Fortunately, the act defines a contractor as follows:

any person contracting with an owner for the construction or sale of a new residence constructed by that person or of an alteration of or addition to an existing residence, repair of a new or existing residence, or construction, sale, alteration, addition, or repair of an appurtenance to a new or existing residence. Tex. Prop. Code Ann. §27.001(5)

As you can see, this definition is broad and covers nearly every possible person working on a residential project.

Owners have also tried to circumvent the requirements of the RCLA by alleging that the dispute is not as a result of a construction “defect” as is defined by the statute. However, defect is also defined by the act as:

a matter concerning the design, construction, or repair … of an alteration of or repair … to an existing residence … on which a person has a complaint against a contractor.” Tex. Prop. Code Ann. §27.001(4)

Again, the definition acts as a catch all definition concerning residential construction complaints. Given the broad definitions and applicability, it is very likely that if a contractor is sued by a homeowner concerning a residential project, the action falls under the RCLA. In part 2 of this series you will see why this benefits you as a contractor.

Nothing here is intended to be legal advice nor should it be construed as such. If you have questions or would like to discuss an issue with your company, please call 832-930-0529 or visit http://www.StephensBell.com

Using a Cost-Plus Contract? Here’s How to Avoid Litigation

There are a number of different  construction contracts used by general contractors. The differences in the contract are usually predicated on the type of project and the obligations of the parties. One construction contract that has become popular is the cost-plus contract.

In a cost-plus contract, the buyer pays the contractor for the cost of the materials and labor used to complete the project. A contractor’s fee is also charged to the buyer or developer on top of the costs and is usually calculated as a percentage of the total amount of the labor and materials. For example, if a home cost $100,000.00 to build. The general contractor may elect to charge a fee of 10% of cost and bring the total price of the project to $110,000.00.

As you can see, in a typical cost-plus contract, the more expensive the project the more money the general contractor makes.  It is for this reason that buyers and developers are becoming less comfortable with these agreements and more cost-plus contracts are becoming the subject of litigation. Contractors using these contracts needs to be prepared to litigate them and this is not always an easy task.

In cost-plus contract litigation, the developer typically alleges that the contractor reported inflated costs to inflate its fee or the contractor failed to act as a reasonable contractor in controlling cost on the project. A contractor can place themselves in a position to contest these allegations by following a few simple rules.

Get Approval

One way to be proactive and create a defense to allegations of cost inflation or failure to control costs is to require written approval from the developer or buyer for anything on the project that is more expensive than originally estimated. Make sure that the developer acknowledges that there is an increase in cost; that they have seen reasonable documentation confirming the increase in costs; that they do not want the contractor to seek a less expensive alternative; and they approve the work to be performed despite the increase in cost. This will make it very difficult for a developer or buyer to allege a lack of effort in controlling costs.

Explain Your Actions In Detail

It is important that contractors remember that buyers, developers, and contractors are sometimes on different frequencies. The buyer is simply looking to keep costs down so that they can get a good deal on the property and the developer is looking to keep costs down to increase profit margins when the property is sold.  Meanwhile, the contractor must concern its self with warranties and the meeting of certain statutory regulations because ultimately it is the contractor that will be liable for violating the law. Due to the need to comply with certain regulations and provide the best overall product, sometimes the contractor may elect to take an action that increases costs. In this scenario the costs should been agreed to by the developer. It is also important to explain to the developer why costs are increasing.

For example, assume a residential property is being built in an area and the price of the project is estimated at $5,000,000.00 with $500,000.00 allocated to the foundation. After running some tests, the general contractor realizes that the soil makes the home more prone foundational problems and as a result, it wishes to use the best foundation firm in town at a price of $250,000.00 more than the original foundation estimate. A simple written explanation to the owner and a written acknowledgment of the owner’s understanding would be very helpful in a litigation situation.

Be Diligent In Your Accounting

In a claim of fraud against a contractor due to an allegation of falsely reporting costs on a project, the easiest way to defeat the claim is to keep accurate accounting figures and maintain strict documentation to support the numbers. When working on a cost-plus contract, all receipts, check copies, invoices, and related documents should be filed and well maintained. Your ability to be completely transparent with the buyer or developer will help keep you from being a party to a fraud claim.

Nothing here is intended to be legal advice. If you are facing a construction issue and need representation information, visit our website http://www.StephensBell.com; call 832 930 0529; or email us at info@stephensbell.com