Monday, November 6, 2017

Maryland's Construction Trust Fund Statute has obvious limits.

We read almost all the cases published by Maryland's appellate courts, even the non-published ones. The non-published opinions cannot be cited as binding precedent in later cases, but they are important.  A case is sometimes not formally reported because it confirms basic things Maryland lawyers know, or should know.

The November 1, 2017 case entitled C&B v. Dashiell is a good review of some basic construction law. The case began with a very familiar situation:  A sub-contractor was not paid by a general contractor.

The sub-contractor had worked on six different jobs for the general contractor, but had not been fully paid. The sub sued for over $200,000.  As part of the lawsuit, the sub sued the owners of the general contractor, individually.

Maryland's Construction Trust Fund Statute can impose personal liability on the owners of a general contractor where money paid on behalf of a sub-contractor's work is wrongly used. For instance, a GC might use money paid by the owner based on the subs pay application to pay down a bank line of credit, or mounting supplier accounts. The GC might direct the subs money to pay rent, the light bill, or taxes.  The GC might also pay the subs money direct to individual owners to repay loans, or as salary and expense reimbursement. Just about all of this is improper.

But the sub-contractor lost on its claims against the individual owners of the GC  (after taking consent judgments against the GC corporate entity). The case was lost at trial, and lost again on appeal because the sub did not put on essential proof that the trust fund statute applied to this particular situation.

The mere fact that the sub was owed over $200,000 over multiple projects did not automatically qualify the claim under the trust fund statute. The sub had to demonstrate that the work for which the money is owed either 1) arose from a public project covered by Maryland's Little Miller Act; or 2) arose from a private project for which a mechanic's lien could be taken.

Why? Because the Maryland legislature put those limitations in the trust fund statute. In cases involving private construction projects you must put on proof that the work is lienable under the mechanic's lien statute before you may sustain claims under the trust fund statute for personal liability.

The  proof is not difficult-- It requires a demonstration that the total value of the project (and not just the unpaid balance sued upon) meets the percentage of value formula in the mechanic's lien statute:

Every building erected and every building repaired, rebuilt, or improved to the extent of 15 percent of its value is subject to establishment of a lien in accordance with this subtitle for the payment of all debts, without regard to the amount, contracted  for work done for or about the building and for materials furnished for or about the building, including the drilling and installation of wells to supply water, the construction or installation of any swimming pool or fencing, the sodding, seeding or planting in or about the premises of any shrubs, trees, plants, flowers or nursery products, the grading, filling, landscaping, and paving of the premises, the provision of building or landscape architectural services, engineering services, land surveying services, or interior design services that pertain to interior construction and are provided by a certified interior designer, and the leasing of equipment, with or without an operator, for use for or about the building or premises.
 This requires proof. The judge cannot speculate that because the amount sued upon is large that it must fall within the 15% rule. In this case, the $200,000 sum was not sufficient proof that the sub had a lienable claim, and thus it could not demonstrate standing to make claim against the individual owners of the GC under the trust fund statute.

Your construction lawyer should know this.

Thursday, October 19, 2017

Contracts shortening Maryland's Statute of Limitations are not always enforceable.

You are free to make a contract that cuts short Maryland's Statute of Limitations. But it will not be automatically enforced against you.

Most lawsuits for breach of contract and negligence must be filed in court within three years of a breach. There are many situations where the three year period can be delayed or temporarily stopped, but that is a topic for another article. This piece will focus on contract language that cuts a three year limitation period to something shorter, usually one year.

Maryland will enforce contracts that cut back on your right to sue, from three years to something shorter. But a recent opinion from the highest appellate court makes clear that this contract term will not always be blindly enforced.

In Ceccone v. Carroll Home Services the parties litigated this issue. A home repair company sought to block claims for damage to the homeowner's furnace caused by its neglect. The homeowner made a claim within one year of the breakage, but failed to file the lawsuit within that same one year period. The service company defended by simply asserting "you're too late."

The trial court and the intermediate appellate court applied the long recognized Maryland law and enforced the shortened limitations as written in the contract. A judgment in favor of the home service company, which kicked the claim out of court, was affirmed. It took the homeowner's second level of appeal, to the Maryland Court of Appeals, to get the correct result.

The highest Maryland court instructed that:

A provision of a contract that purports to shorten this period of limitations will be enforced in Maryland only if (1) there is no controlling statute to the contrary; (2) the provision is not the result of fraud, duress, misrepresentation, or the like; and (3) the provision is reasonable. In assessing the reasonableness of such a provision, the court should make an explicit determination whether the provision is reasonable, considering a variety of factors, including the subject matter of the agreement, the degree to which the provision shortens the applicable period of limitations, the relative bargaining position of the parties, and whether the shortened period of limitations is one-sided or applies equally to the parties to the agreement. 
In the Ceccone case, the trial court did not weigh the three factors-- the judge just applied the contract language. The intermediate appellate court did a similar "rubber stamp" analysis to affirm the trial court. It did not matter that the contract only limited the homeowner to one year within which to file a lawsuit, while reserving to the service company all rights under the law. 

The Court of Appeals vacated the judgment in favor of the service company and sent the case back to the trial level for witness testimony and further consideration.  The new trial date shown in the on-line docket is November 2, 2017, in the Circuit Court for Anne Arundel County.

The surprising thing about the case is that the homeowners are representing themselves- only the service company has a lawyer--and the homeowners won the appeal after losing in two lower level courts. And even more surprising is that the case involves a dispute worth less than $4,000 and which has surely cost the service company many times more than the homeowner is claiming.

Operating without a lawyer, Mr. and Mrs. Ceccone obtained a reported opinion that will become part of Maryland's body of jurisprudence. That is more than many, many lawyers can claim!

As the Japanese proverb goes- "fall down seven times, but stand up eight." Kudos to Mr. and Mrs. Ceccone!