March/April 2012

TO BE OR NOT TO BE?

SUBCONTRACTOR OR MATERIAL SUPPLIER?

 

This particular case deals with the public works realm, although the outcome can affect private works projects as well. Flintco was the prime/original contractor who entered into a contract with Architectural Security Products (ASP) to provide more than 250 custom doors on the project. ASP then contracted with Eggers Industries, Inc. (Eggers) to manufacture those doors. Eggers delivered all of the doors but was only partially paid for the contract. ASP filed bankruptcy so Eggers only recourse was to file a claim against Flintco's payment bond. Would you agree that it appears as if ASP is a material supplier to Flintco? Which would make Eggers a material supplier to a material supplier? Thereby leaving Eggers no bond rights? Think again!

 

The Appellate Court relied on a prior court decision (Theisen v. County of Los Angeles) in order to make their determination and agreed with the Superior Court that ASP was a subcontractor to Flintco, thereby making Eggers a first-tier material supplier and eligible to collect on the payment bond. The court's reasoning is that since ASP agreed with Flintco to perform a substantial specified portion of the work in accordance with the plans and specifications, thereby being in charge of the construction of the work of improvement, ASP was a subcontractor to Flintco. Since the portion of the work that ASP was "in charge of" was so substantial to the work of improvement the usual entering the jobsite and adding to the work of improvement was determined not to be a factor of being a subcontractor.

This ruling applies to not only payment bond rights but Mechanic's Lien and Stop Notice rights as well. The moral of the story? Know what your contract is for. Know who your contract is with. Know what your rights are!

 

If my body was a car, this is the time I would be thinking about trading it in for a newer model.

 

I've got bumps and dents and scratches in my finish and my paint job is getting a little dull.

 

But that's not the worst of it...

 

My headlights are out of focus and it's especially hard to see things up close.

 

My traction is not as graceful as it once was. I slip and slide and skid and bump into things even in the best of weather.

 

My whitewalls are stained with varicose veins.

 

It takes me hours to reach my maximum speed. My fuel rate burns inefficiently.

 

But here's the worst of it...

 

Almost every time I sneeze, cough or sputter, either my radiator leaks or my exhaust backfires!

The case of Forsgren Associates, Inc. v. Pacific Golf Community Development LLC basically came about because of a dispute on a large multi-phase, multi-owner project. The initial plans for the overall project included a golf course, residential homes, and commercial buildings. The property that compiled the whole project was actually owned by various owners. The first phase of the project was to be the golf course, which was mostly owned by one entity.

Forsgren was the general contractor on the golf course. There were change orders on the project modifying the plans so the golf course would also serve as a flood channel. These change orders made it necessary for Forsgren and its subcontractors to work outside of the initial project's property lines, thereby doing work on adjacent properties which were owned by other entities. These entities are affiliates of the entity that owned the majority of the golf course property.

 

There are many facts of this case that are irrelevant to this article so we will skip them. Ultimately, Forsgren was

unpaid, filed a Mechanic's Lien and proceeded with a court action to foreclose on the Mechanic's Lien. The Mechanic's Lien not only included the golf course property but the adjacent property that work was done on as well. There was no dispute that Forsgren was owed the money he was asking for. The trial court found in favor of Forsgren including the right to foreclose on the golf course as well as all of the adjacent properties that work was performed on.

 

The Court of Appeal reversed the trial court's decision with respect to the Mechanic's Lien. The Court ruled that under the convenient use doctrine, Forsgren's lien attached only to a portion of the adjacent properties and gave instructions for the trial court to determine what portion of the adjacent property was required for the convenient use and occupation of the golf course and flood channel.

 

The moral of the story... when working on a project that may involve work on adjacent properties as well; make sure that you do everything possible to keep your lien rights intact.

 

 

 

• Hear about the 2011 and 2012 changes to the mechanic's lien laws
• Understand the new mechanic's lien procedural requirements and forms and how to comply
• Learn how to make your mechanic's liens collectible
• Identify time limits and deadlines for recording mechanic's liens
• Identify time limits and deadlines for filing mechanic's lien lawsuits

 

 

 

 

 

 

 

Email any questions to mca@agrlaw.com