Mississippi Lien Law Passes Senate, Moves to House

February 19, 2014

The process of enacting a new lien statute in Mississippi took another important step forward this week as Senate Bill 2622 sailed through the State Senate, passing on a 48-2 floor vote. Three minor amendments were negotiated in advance and included in the legislation as approved, but none of them are expected to affect subcontractors and materials suppliers in a meaningful way.

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Arizona Abandons Registry Legislation, Urges Parties to Debate Over Summer

February 19, 2014

Companies in the construction industry operating in Arizona hoping for legislation that would consolidate the state's filing requirements into one online registry system will have to wait at least until next year for that to happen. A bill to establish just such a registry was sponsored in the state legislature by Representative Karen Fann, but after a meeting of stakeholders last week, the bill was withdrawn due to a number of significant issues with the legislation. Fann encouraged interested parties to continue negotiating over the summer so that a more agreeable bill can move forward in the state's next legislative session.

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Mississippi Lien Law Bill Introduced

January 30, 2014

Mississippi could soon greatly expand its application of lien rights to include subcontractors and materials suppliers by enacting a bill modeled on Georgia's lien statute, according to Chris Ring of NACM's Secured Transaction Services (STS).

Two bills were filed, one in the Mississippi House of Representatives and one in the State Senate, in response to a ruling last year by the U.S. Fifth Circuit Court of Appeals in Mississippi that affirmed a lower court's ruling that found the state's Stop Notice statute unconstitutional. The ruling stripped away a valuable payment protection for subcontractors and suppliers. Previously, "you could file what's referred to either as a stop notice or a public improvement lien, which put a lien on the funds that are owed from the owner to the general contractor," Ring said. "What that did for subs and materials suppliers is it gave them the ability to put pressure on the GC. It wasn't liening property, it was pressuring the GC so that you were getting paid, and then that was stripped away. Now, if you don't have a direct contract with the owner, you don't have anything."

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Arizona

January 27, 2014

Arizona could soon follow in Utah's footsteps by replacing its existing 20-day preliminary notice filing procedures with a central registry system instead. Sources within Arizona's construction community have noted that a rough draft of a bill expected to be introduced in the 2014 legislative session included language that would have Arizona adopt a computerized registry system for providing 20-day notices. Currently, under Arizona state law, as a necessary prerequisite to the validity of any claim of lien, such notice must be provided, in writing, to "the owner or reputed owner, the original contractor or reputed contractor, the construction lender, if any, or reputed construction lender, if any, and the person with whom the claimant has contracted for the purchase of those items."

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State Supreme Court Ruling Coming Soon on Risk Transfers to Subs

January 14, 2014

An important ruling in Transtar Electric, Inc. v. A.E.M. Electric Services Corp. on the issue of general contractors (GCs) using "pay-if-paid" clauses to sidestep lien rights and avoid paying subcontractors is expected to be handed down by the Supreme Court of Ohio by spring, sources in the state told NACM this week. Such a case is important to watch because, as NACM Secured Transaction Services' Chris Ring characterized it, such clauses are "a kissing cousin to a no lien contract" and an infringement on subcontractors' rights.

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Editorial: When Surety Fraud Goes Unpunished, Small Contractors Suffer

This email address is being protected from spambots. You need JavaScript enabled to view it., November 13, 2013

The forged Chubb bonds discovered this year provide evidence that the laws allowing individual sureties help criminals steal from the very companies individual surety is supposed to benefit: small and minority-owned contractors. More than 20 contractors have been defrauded of about $3 million by these bonds over an 18-month period, according to a new report on ENR.com .

The alleged forgers didn't bother to show up in federal court in Florida, where Chubb Group has won a civil judgment against them. The two defendants represented themselves to the world through websites as individual sureties.

Individual surety was intended to benefit small and minority contractors that had difficulty qualifying for a surety bond from a corporate surety, which is Treasury Dept.-listed and has substantial assets.

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UCC News Maker - 6th Circuit Appeals Court: UCC Filings Can Come Down to the Lowest Common Denominator

Recently the U.S. Court of Appeals for the Sixth Circuit, in 1st Source Bank v. Wilson Bank & Trust et al. (2013 WL 5942056 (No. 13-5088, Nov. 7, 2013)), ruled that even though a secured creditor had language on their security agreement that allowed them to take a security interest in certain intangible assets (accounts and accounts receivable), because that language did not make its way onto the financing statement, the secured creditor did not have a valid security interest in that collateral. This was a devastating blow to that secured creditor because accounts receivable is often a company's largest asset.

This was a blanket or basic UCC Filing which means the creditor did not have to search and notify previously secured creditors. Taking this example one hypothetical step further, if this had been a trade creditor taking a security interest in inventory through a Purchase Money Security Interest (PMSI) filing, the collateral description would've had to be an exact match on the security agreement, financing statement and search and notification letter. If the trade creditor had listed their inventory correctly on the security agreement and the financing statement, but failed to list their inventory on the search and notification letters, secured creditors who filed before that trade creditor could have argued, and most likely would have won the argument, that the trade creditor did not have a valid security interest in their inventory.

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News Maker – TEXAS

TEXAS – On November 6, 2013 the Texas Supreme Courts heard oral arguments in Zachry Construction Company v. Port of Houston Authority of Harris County, Texas, a case that could have severe ramifications for contractors and subcontractors state-wide. At issue is whether or not an owner can include clauses in their contracts that essentially protect them from ever having to pay delay damages, even when the owner's actions are intentionally or unintentionally responsible for the delay. In other words, the Texas Supreme Court will eventually rule whether "no damages for delay" clauses in construction contracts extend to delays caused, willfully, by the owner. A lower court, the 14th Court of Appeals of Texas, ruled that they did in August 2012: according to the American Subcontractor's Association (ASA), the court found that Zachry Construction Co. could not recover damages related to a delay that was caused by the owner's break of contract because of the presence of a "no damages for delay" clause. The court argued that "parties strike the deal they choose to strike and, thus, voluntarily bind themselves in the manner they choose."

According to Chris Ring of NACM's Secured Transaction Services (STS) "general contractors, subcontractors and material suppliers need to pay particular attention to and support ASA's arguments to overturn the "no damage for delay ruling," for if this ruling stands, an owner has the ability to willfully and negligently delay a project with limited or no recourse from downstream contractors and suppliers."

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News Maker – Louisiana

In J Reed Constructors, Inc. v. Roofing Supply Group, LLC, a split judicial panel in Louisiana's Court of Appeal for the First Circuit has affirmed a lower court ruling that says materialmen must provide notice to the general contractor and owner within 75 days of each month in which product was delivered or else they will lose the right to file a privilege or lien on the material from that time period.

Suppliers will have to file separate notice of nonpayment before 75 days from the last day of the month, every month, in which material was delivered instead of before 75 days from the final day it provided material, as most believed was the intent of existing statute. Both Daniel Lund III, Esq., partner with Shields Mott Lund LLP, and the lone dissenting judge on the panel criticized the ruling as a break from the logical, rational intent of the legislation. However, the other judges' reading of existing statute was consistent with that circuit's reputation of trying to avoid rewriting the law or acting as activist judges, said Lund. In essence, the ruling can be largely chalked up to vaguely written statutory language.

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Amendment to Virginia Mechanic’s Lien Code Approved

The Virginia General Assembly has adopted an amendment to the Mechanic's Lien Code providing that an unlicensed contractor may not claim a mechanic's lien if a valid contractor's license or certificate was required by law for the work performed. The bill also requires that the lien claimant place licensing information on the face of the lien memorandum, including the license number, the date that the license was issued, and the date it will expire, or certify in the affidavit that a license was not required by law for the type of work performed. This law firm did work with lobbyists and industry associations to get a revision that an inaccuracy in the license information on the lien memorandum does not invalidate the mechanic's lien if the lien claimant can otherwise be reasonably identified in the records of the Board of Contractors.

To see the text of the bill as currently drafted and adopted by both the House and the Senate, go to http://lis.virginia.gov/cgi-bin/legp604.exe?131+ful+HB1913S1

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