Brian Edlin of Jordan Price recently obtained a unanimous jury verdict in Chatham County Superior Court against homeowners who had asserted various counterclaims against a contractor including fraud, unfair and deceptive trade practices and punitive damages. The case arose out of a cost plus project that initially started as a gazebo and retaining wall project and morphed into substantial improvements to the homeowners’ property, including the labor and materials necessary for various water features, an arbor, an elevator shaft, and the labor for preparation and placement of a large cabana, among other improvements to the defendant’s property.  When the homeowners refused to pay the contractor the contractor removed himself from the project and removed his license from the permit issued by Chatham County for the work.  The contractor filed a lien against the property and sued in Wake County Superior Court for breach of contract, unjust enrichment and conversion of certain tools the contractor contended the homeowners’ kept and refused to allow the contractor obtain after he left the project.  The case was subsequently transferred to Chatham County and the homeowners asserted various counterclaims against the contractor. Among other claims, the homeowners alleged claims of fraud in the contractor’s billing practices and unfair and deceptive trade practices and punitive damages.  The homeowners also contended there were various deficiencies in the contractor’s work and claimed damages against the contractor for such alleged defective work.  The homeowners also alleged the contractor had committed an assault against one of the homeowners.  The homeowners’ fraud and unfair and deceptive trade practices claims were dismissed on summary judgment.  The homeowners’ assault and punitive damages claims were dismissed on directed verdict and did not reach the jury.  Thus, the only counterclaims submitted to the jury were the issues of the cost to complete or repair the contractor’s work after he left the jobsite for non-payment.   The case was tried for four (4) days in Pittsboro and the jury deliberated for several hours.  After deliberation, the jury came back with a unanimous verdict in favor of the contractor on both its claims unpaid work and the conversion of its tools.  The jury awarded nothing on the homeowners’ counterclaims.

The Supreme Court has recently held that a default judgment in favor of an owner against a general contractor cannot form the basis for extinguishing a subcontractor’s lien on property under N.C.G.S. §44A-23.

In the case of Carolina Building Services v. Boardwalk, LLC, the Supreme Court was faced with this issue after a general contractor abandoned a job project before completion of the project.  An unpaid subcontractor filed a lien on the project after the abandonment by the general contractor.  The subcontractor filed suit against the general contractor and owner to perfect the lien and the owner asserted a claim against the general contractor.  The owner moved for default judgment against the general contractor and presented affidavits that the cost to complete the project exceeded the balance of contract owed to the general contractor, effectively nullifying the subcontractor’s lien on funds.  The subcontractor presented competing affidavits showing the owner completed the project for less than the balance of contract, thus preserving the subcontractor’s lien rights.  The trial court indicated the subcontractor did not have standing to challenge the default judgment against the general contractor on the owner’s claim and entered judgment in favor of the owner, effectively cutting off the subcontractor’s subrogation lien rights.  On appeal, the Court of Appeals affirmed the trial court’s ruling.  However, on discretionary review, the Supreme Court held that the general contractor’s default on the owner’s crossclaim was an “action” prejudicing the subcontractor’s lien rights under the mechanics lien statute and the subcontractor should have had an opportunity to prove its entitlement to a lien on funds owed to the general contractor.  Writing for the Supreme Court, Justice Newby indicated, “[subcontractor] presented an affidavit that raised a genuine issue of material fact concerning [the owner’s] liability to [the general contractor] based on a lien against [the owner’s] real property. Rather than consider this affidavit, the trial court focused on the default judgment for [the owner] against [the general contractor]. By its plain meaning, an action is ‘[a] thing done.’  Thus, [the general contractor’s] choice not to defend [the owner’s] claims constituted an “action” which prejudiced the rights of [subcontractor] contrary to the statutory mandate of N.C.G.S. § 44A-23.  [Subcontractor] should have an opportunity to present its evidence concerning the merits of recovery under its lien on real property.”

On July 31, 2007 the North Carolina General Assembly ratified Senate Bill 1245 (A Act to Amend the Laws Relating to Retainage Payments on Public Construction Contracts), which will significantly change the law of public construction in North Carolina. The legislation will become effective on January 1, 2008.

New Requirements For Retainage

The legislation divides public construction projects into two types: (1) projects where the total project costs are less than $100,000.00, and (2) projects where the total project costs are equal to or greater than $100,000.00. No retainage may be held on projects less than $100,000.00. With regard to the larger projects, retainage is still allowed, but will now be subject to statutory requirements. The most important statutory rules, generally, are that: (1) no more than 5% retainage may be withheld from any payment, and (2) no further retainage may be withheld when the project is 50% complete. (more…)