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Missouri Lien Law 201

November 10, 2015 No Comments

From the Court of Appeals of Missouri, Eastern District, came a case of “first impression,” on 2 different issues concerning mechanic’s liens in Missouri. The case is Midwest Floor Co. v. Micelli Development Co., 304 S.W.3d 243 (Mo. Ct. App. E.D. 2009), for those who care to find and read the entire case. Various plaintiffs and defendants from the lower court decision were not parties to the case reviewed by the Court of Appeals, which was between Kelpe Contracting, who had filed a mechanic’s lien against property of some home owners (the Preckels) and their builder (Miceli). The holdings were both contractor friendly. And while neither holding may be a surprise to constructors, they are worth reviewing to remind us all that nothing should be taken for granted when it comes to lien laws. The facts of the case are that in May 2006 Kelpe Contracting was hired by Miceli, a developer, to stabilize a steep slope so that a rear entry garage could be constructed on a new home being built for sale by Miceli. The contract was set for $116,650. The work was started by Kelpe, but Kelpe could not locate stable ground and work temporarily halted to assess the situation and design. On September 21, 2006 Kelpe offered a second proposal in the amount of $45,894 related to a retaining wall to accommodate the rear entry garage. One day later, on September 22, 2006, the Preckels purchased the property and filed their deed. When Kelpe was not paid for the work done under either proposal, a lien was filed by Kelpe against the property, which then owned by the Preckels. Kelpe filed and won summary judgment, and the Preckels appealed. The basis of the Preckel’s appeal was two fold. First, they contended the lien was fatally defective because it contained “non-lienable items.” They correctly cited RSMo § 429.101, which states that a mechanic’s lien is only available for a person who “shall do or perform any work or labor upon the land.” Their argument was that Kelpe had subcontracted the work and, therefore, did not themselves perform work or labor upon the land. Amazingly, this was the first time this angle had ever been brought up to the court for interpretation. Thankfully the Court held Kelpe did in fact perform the work by furnishing labor through subcontractors and that to accept the Preckel’s interpretation of the lien law would deny Kelpe security for the labor it had furnished (through subcontractors). The Court held lien claimants may include the work performed by subcontractors in their mechanic’s liens. Whew…that’s great to know considering the hundreds, if not thousands, of liens that have been filed over the years by general contractors for work performed many times, if not most of the time, by subcontractors! Had the Court found otherwise, there would most certainly have been an immediate move in the Missouri legislature to amend the lien laws to correct what would have been the new interpretation of Missouri’s lien laws. There would have been numerous invalid liens in the pipeline, potentially leading to just as many claims of legal malpractice. So it’s easy to see why the holding of this case was just as important to construction lawyers as it was to the constructors. Thank you Court of Appeals! The second holding from the Court concerns the timing of the lien statement. The Preckels argued that there were two contracts for the work performed by Kelpe and, as a result, Kelpe was required to file two separate liens on the property instead of just the one that was filed. The Preckels argued the first work was abandoned before the second work began, so Kelpe should have filed a lien on the first work within 6 months from the last day on phase 1, and then another lien should have been filed on the retaining wall work within 6 months after the last day worked on phase 2. Again the Court of Appeals came through with a logical (and correct in the eyes of constructors everywhere) holding. First know this, if there are been two distinct, unrelated contracts, the Court may well have sided with the home owners; however, ultimately the court held that the work performed by Kelpe under both contracts was “necessary to accomplish one goal.” The Court found the work was never abandoned, just temporarily stopped to formulate plans to overcome unforeseen obstacles. The important thing from the holding is the “necessary to accomplish one goal.” That made the single lien for both contracts appropriate and enforceable in the eyes of the Court. Because both contracts were performed to “accomplish one goal,” the timing of the lien was tied to the last day worked on the second contract, and the lien was timely filed. This is but another example of how mechanic’s lien laws are like an onion…just when you think you know how to read and interpret the statutes, you have to peel back another layer and go deeper into the cases to find how the courts have interpreted those very statutes. Mechanic lien laws vary from state to state…so the very best advice and counsel I can leave you with is to always consult with a well-qualified, experienced construction lawyer that is familiar with the laws in the state where the project is located.

Meet MSB Law, LC’s Newest Paralegal

October 27, 2015 No Comments

MSB Law, LC is pleased to welcome paralegal Aimee Burton to the MSB family. Aimee received her Associate of Arts degree from Coastal Carolina Community College. She gained valuable paralegal experience while volunteering for a criminal defense attorney in North Carolina before moving back to Overland Park, Kansas. She joined MSB Law, LC in September 2015 and has already proven herself to be a valuable addition to the firm.

Why Haven’t I Been Paid And What Can I Do About It?

August 3, 2015 No Comments

If there is one thing every construction company wants to know it’s this…when am I going to be paid? Many states have enacted what are commonly known as “prompt payment” laws, and Kansas and Missouri have them. In fact, Kansas and Missouri each have two prompt payment laws, one set for public projects (i.e. funded by tax payer dollars) and another set for private projects. Both sets are for commercial construction only; there are no prompt payment laws for non-commercial construction at the present time. In the following article I provide for you the major points to be taken from the Kansas and Missouri Prompt Payment Acts. But before you get too excited about your rights under the Acts you must know Commandment #1: “Thou Shall Know Thy Contract.” What I mean by this is simple. All of the Kansas and Missouri Prompt Payment Acts do not, let me repeat, DO NOT alter the payment terms agreed to between the parties in the contract. All four statutes, say the payment terms “shall be pursuant to the terms of the contract” or something to that effect. So if you have a legally enforceable “pay when” or “pay if” paid clause, then you will have to abide by that term in the contract. Nothing in the Prompt Payment statutes provide any relief from such a clause. “Pay when” and “pay if” clauses are prevalent in almost all commercial construction subcontracts and are not the subject of this newsletter (note to self for future article subject matter). Just remember as you negotiate your contracts that, even though these clauses are not favorably looked upon by the Courts, they are enforceable if properly written. So now you know why Commandment #1 is “Thou Shall Know Thy contract,” because, “The Courts Shall Enforce Thy Contract!” So, what do the Kansas and Missouri prompt payment acts cover? The following are bullet points of the laws: Kansas Fairness in Private Construction Contract Act (KSA §§16-1801 et seq.): Terms of the Act cannot be waived by contract Covers all types of commercial construction Does not cover single family or multi-family residential housing of 4 units or less Payment must be made per contract terms Contract terms cannot waive right to resolve disputes through litigation (but may instead require arbitration) Contract terms cannot waive right to file lien (but may require lien release in consideration for payment) “Pay when” or “Pay if” clauses not allowed as defense of Mechanic Lien claim or Payment Bond claim Owners must pay contractor within 30 days of receipt of proper, undisputed request for payment Owner shall pay 18% per annum interest on the late, undisputed amount Contractor must pay subcontractor within 7 days of receipt of payment from Owner on undisputed amounts Contractor must pay subcontractor 18% interest per annum on late, undisputed amounts Subcontractor must likewise pay sub-subcontractors within 7 days of receipt, subject to 18% interest per annum on late payments of undisputed amounts Retainage shall not exceed 10% Payment of retainage also must be made pursuant to the terms of the contract or within 7 days after receipt, subject to 18% per annum interest If any undisputed payment is not made within 7 business days, contractor or subcontractor, regardless of tier, may suspend performance of the work upon seven additional day’s written notice If work is rightfully suspended as described above, party affected by the suspension is entitled to a time extension and increase in contract sum for reasonable costs of demobilization, delay and remobilization Venue for litigation or arbitration hearings shall be in the county where the project is located In any litigation or arbitration to enforce the payment laws, the court or arbitrator “shall” award costs and reasonable attorney fees to the prevailing party Kansas Fairness in Public Construction Contract Act (KSA §§16-1901 et seq.): Same as Private Construction Act EXCEPT it basically only covers buildings (i.e. not roads, highways or bridges) Owner must pay within 30 days unless there are “extenuating circumstances”, and even then within 45 days (note: “extenuating circumstances is not defined) “substantial completion” is defined (not so in the private act), and Owners must release retainage within 30 days of substantial completion, subject to the 18% per annum interest Early completing subcontractors “may” be paid retainage prior to substantial completion, but it is not mandatory Missouri Private Construction Contracts Prompt Payment: (RSMo § 431.180): Payments must be made in accordance with contract terms In an action to collect payment the Court or Arbitrator may require the award interest at a rate up to 1.5% per month (note…the Court has the discretion whether or not to award this enhanced interest rate) In an action to collect payment the Court or Arbitrator may award reasonable attorney fees to the prevailing party (again note the Court has the discretion whether to award attorney fees) Missouri Public Works Contracts Prompt Payment (RSMo § 34.057): All contracts issued by public body must include the language requiring “prompt payment” Payment must be made to contractor at least monthly by public owner (unless a lump sum contract stipulates a lump sum payment) Payment is to be made to the contractor by the public owner within 30 days of approval Architect/Engineer is the responsible party to approve pay applications each month Retainage is to be no more than five percent unless the architect or engineer determine a higher amount (not to exceed 10%) is required to ensure performance Early release of retainage is allowed but not mandatory Payment of retainage shall be made by public owner to contractor within 30 days of substantial completion subject to completion of all project close out requirements If there is any punchlist work remaining, the public owner shall hold back a sum of 200% of the value of the remaining work to be completed Owner shall pay 1.5% interest per month interest on late payments Contractor retainage held on subcontractors cannot exceed 10% Upon receipt of payment that is applicable to the work performed by

Digital Assets: Valuable Dead or Alive

July 1, 2015 No Comments

Like many soon-to-be or just-turned “40-somethings”, my wife is a child of the ’80s. With that comes a love for all things Bon Jovi. I, myself, was more of a Sugar Hill Gang, Run DMC, Beastie Boys kind of kid. Yet I can’t deny catching myself belting a karaoke version of “Wanted: Dead or Alive” whenever it begins to play at a Royals game (or Chiefs game, or the mall, or the grocery store, or the drive-thru……. Well, you get the picture). So, in homage to my wife and all those like her, here are a few thoughts to consider about “Digital Assets: Valuable Dead or Alive.” This post was inspired by an excellent article I read in the May-June 2015 edition of the Journal of the Missouri Bar, entitled “Counseling Clients for #DigitalDeath” by Jennifer A. Davis. In her article, Jennifer discussed “digital assets” in the context of ever-expanding forms of electronic media, and defined digital assets to include e-mail accounts, social networking accounts, photo and video sharing accounts, online sales accounts, websites, blogs, online financial/banking/investment accounts, credit cards, auto bill-pay agreements, and much more. Her article resonated with me when I started thinking about all the clients we represent in wrongful death claims after the passing of a loved one caused by someone else’s negligence or other wrongful conduct. Families dealing with the recent wrongful death of a spouse or child face many difficulties before even considering how to deal with digital assets, which makes it all the more important for each of us to intentionally take the time to organize our digital assets, including access to those assets (URL, username, password, etc.), in a way that would allow a trusted confidant to access and manage those digital assets if we were to become suddenly unavailable. Here are three of Jennifer’s thoughts that I intend to start sharing with my own family and friends, and every client whom we represent in a claim for the wrongful death of their loved one: 1. Digital assets have sentimental value. Today, photos, videos, letters (e-mails) and even recipes are stored online — replacing the albums, journals, and recipe boxes of the past. Blogs, websites, and social network pages may likely have very personal value to family members. If family members are unable to access these sentimental items, a deceased’s family history, and possibly heirlooms traditionally passed down from generation to generation, could be lost. 2. Digital assets may have financial value. Recent studies have shown that most people value their digital assets at approximately $55,000. There may be intellectual property rights of value. The domain name itself may be valuable, and may be an asset which could be sold for a windfall. Likewise, blogs (although probably not this one) have been sold for significant value. Additionally, a Web page or social media account may produce a revenue stream. There may also be value in items not traditionally thought of as valuable, such as a virtual sword for an online game sold for $16,000, or the parcels of virtual real estate sold in 2010 for $635,000. 3. Digital assets may be valued by measuring the money saved by accessing and controlling financial accounts online. Many people now receive and pay bills electronically, with no written record in existence of the location of the account, the bills due, or how to access either one. The failure to pay these bills online, or the account fees incurred from failing to manage the financial account, can all lead to serious consequences. In addition to thinking through the impact digital assets have on people dealing with the wrongful death of a loved one, I also found my thoughts drifting to the larger ways digital assets impact and contribute to, and sometimes dictate and control, all our daily lives. I also see the impact digital assets, primarily social networking, have in the personal injury and business litigation cases we handle. Right or wrong, the first thing I do at the beginning of any new case is google both my client and the opposing party. I am continuously amazed at what I find, from people claiming severe shoulder injuries posting pictures of pitching at softball games, to businessmen/companies pleading poverty while writing blogs about the new deal they just closed that will secure their company’s financial stability for the next decade. I also see the impact of digital assets in my own personal life. My pastor recently cited statistics showing that, not only in-spite-of but often because-of the explosion of electronic media and social networking, we are living in one of the most isolated and individualistic societies in history. People are more and more eschewing personal human interaction for the “convenience” of clicking a button or tapping a keyboard. Instead of shopping at stores and interacting with the cashier, we add items to our Amazon Prime “shopping bag” and then wait at home for them to magically appear on our doorstep in 3-5 business days. Instead of going to the bank to make a deposit or withdrawal and saying hello to one of the other moms from the little league team who manages that branch, we set up auto-deposit or just drive through an ATM. We sit alone on the couch and tweet about “life,” or post cute videos and pics from other people’s lives and adventures, instead of scheduling a cookout with friends and leaving the phone in the bedroom, or taking our own adventure “to where no cell tower has gone before.” I’m not a culture basher. I not only use, but thoroughly enjoy, digital assets such as social media and the convenience of online shopping and banking. But I also like to look a person in the eye and share a meal, or take a road trip and really hear about how they are doing and who/where they want to be in the future. We were created to live in a community, and are always better together than living as an island. My hope

Kansas Construction Projects: Liquidated Damages or Unenforceable Penalty?

June 23, 2015 No Comments

In a case handed down by the KS Supreme Court a few years ago, the Court effectively ruled that, in Kansas, liquidated damages will be strictly enforced without regard to whether or not they are later found to be excessive in relationship to what the damages for delay actually were. See, Carrothers Const. Co., L.L.C. v. City of South Hutchinson, 288 Kan. 743 (2009). In Carrothers, the issue for the Court boiled down to whether it was legally correct to look back “retrospectively” at the liquidated damage amount in a construction contract, after the fact and upon conclusion of a project, to determine if the damages were in effect “penalties” rather than damages. Generally, penalties are not allowed in contract law and are unenforceable. In the past there had been differing results in the lower Kansas Appellate Courts where some had allowed a “look back” to determine if the liquidated damages, in hindsight, had a reasonable relationship with the actual damages incurred due to the delays. Other Appellate Courts had not allowed the “look back.” In the Carrothers Construction case the Kansas Supreme Court put these differing lower court holdings to rest stating that no longer would Kansas courts allow a “retrospective analysis” to determine whether the liquidated damages were a penalty, overruling any prior holdings to the contrary by the lower courts. For all future analysis of liquidated damages, only a “prospective analysis” of whether the liquidated damages are reasonable at the beginning of a contract will be allowed. In the Carrothers Construction case, the parties agreed the project was completed late. The issue was whether the liquidated damages were fair. Carrothers argued the City had not been damaged due to the late completion because the City was able to continue to operate in its existing facilities while the new facility was being completed. In other words, Carrothers argued the City really suffered no damages and to assess liquidated damages would, in effect, be a penalty. The Court left no doubt that in Kansas, between consenting, legally sophisticated, otherwise equal parties, liquidated damages will be strictly enforced. No longer would Kansas courts look back, at the conclusions of a construction project, to make a determination whether the damages as actually applied were a penalty. Provided the liquidated damages are a reasonable estimate of what the damages might possibly be, as determined when the parties agree to the liquidated damages in the contract, they will be enforced, period. But a word of parting caution…this is Kansas law only and other states differ. On top of that, the location of a construction project is not necessarily the state law that may apply. Many contracts contain a choice of law clause, which may dictate what state law applies to that specific contract. As usual the best advice is to seek the advice and counsel of a good construction lawyer to review the terms of the contract before the contract is signed, and certainly when faced with being assessed any type of damages, including liquidated damages for delay.

Congratulations to Stan Bachman and Rick Morefield

June 11, 2015 No Comments

Stan Bachman and Rick Morefield have been selected for inclusion in the 2015 Kansas and Missouri SuperLawyers publication. This honor is limited to no more than 5% of the lawyers in each state.