A Promise to Pay Doesn’t Extend Lien Deadlines

Stan Martin | Commonsense Construction Law | January 24, 2018

Mechanic’s lien rights arise from the laws of each state; there is no common-law right to unilaterally lien someone else’s property. As such, compliance with statutory requirements and deadlines is paramount. Thus, when an owner promised to pay a sub, and the sub elected not to pursue lien rights based on that promise, the sub lost out on its lien when it missed the statutory deadlines.

This case is in Massachusetts, but it is likely the same outcome would result in all other states. Equitable theories that might apply in other circumstances (e.g., equitable tolling of statutes of limitation when one forebears based on promises from another) do not apply when the underlying right is based on compliance with lien law standards and deadlines.

The sub was owed $196,500. It took the first two steps (out of three) under the Massachusetts lien law, to secure a mechanic’s lien. The third step was to file a lawsuit, but the sub didn’t file based on what it claimed were promises of payment. In the meantime, the deadline to file a lawsuit (90 days after the second step) came and went. When no payment was made, the sub tried to resurrect its lien rights by taking steps 1 and 2 again, but by now the deadline for those steps had passed under the lien law.

The sub argued that the lien law deadlines should be equitably extended, but the trial court, and then the Appeals Court, disagreed. “A mechanic’s lien is not a common-law right but a creature of statute, which ‘compels strict compliance in order to obtain relief.’” The sub’s lien rights had lapsed when the deadlines passed, regardless of any promises of payment that may have been made.

The lesson? Ignore lien law deadlines at your peril. The case is D5 Iron Works v. Danvers Fish & Game Club, 2018 Mass. App. Unpub. LEXIS 60 (Jan. 22, 2018).

Bad Facts Make Bad Law – Condo Version

Stan Martin | Commonsense Construction Law LLC | January 20, 2018

Condo bylaws that restrict the ability of a condo board to sue the developer came in a for a beating by the Massachusetts Supreme Judicial Court. While refusing to prohibit all restrictive bylaws, the Massachusetts high court roundly criticized the bylaws in question. Deservedly so.

The condo bylaw restricted the ability of the condo board to sue the developer as follows:

neither the Trustees acting in their capacity as such Trustees or acting as representatives of the Unit Owners, nor any class of the Unit Owners shall bring any litigation whatsoever unless a copy of the proposed complaint in such litigation has been delivered to all of the Unit Owners, and not less than eighty (80%) of all Unit Owners consent in writing to the bringing of such litigation within sixty (60) days after a copy of such complaint had been delivered to the Unit Owners and specifying as part of the written consent a specific monetary limitation to be paid as legal fees and costs and expenses to be incurred in connection therewith, which amount shall be separately assessed as a special assessment effective forthwith at the time of said affirmative consent.

Thus – 80% of all unit owners had to sign on affirmatively, they had to be given a cap on the legal fees to be incurred, and they had to agree to an immediate assessment covering the entire legal budget at the outset.

The underlying facts included an engineering investigation of building envelope problems and an estimate of repair costs exceeding $2 million. And the original developer still holds more than 20% of the units, and could easily continue to thwart any attempt by the condo board to sue the developer. There is little wonder that the Massachusetts court held that this provision to be “void because it contravenes public policy.”

The court did refuse to ban any limitation in condo bylaws that might establish hurdles for pursuing litigation. It refused to adopt the argument of the condo association that any such restriction was per se in violation of the Massachusetts condo law. But the hurdles presented by the condo bylaws in question were simply too high and too onerous. This was not a good set of facts upon which to decide whether condo bylaws can be more restrictive than the condo laws.

Massachusetts courts have consistently upheld contract terms in commercial settings, even when those terms caused a severe hardship to one party. But in a consumer setting – which would include condo matters – the courts have normally sided with the consumer. And the developer’s attempts in this case to insulate itself from claims of deficiencies were too high-handed for the court to stomach. This is yet another example of bad underlying facts – overreaching by a business against consumers – giving the court an opportunity to cut down the developer’s efforts. The saving grace is that the court refused to prohibit any such limitations across the board.

The case is Trustees of the Cambridge Point Condominium Trust v. Cambridge Point, LLC, et al., SJC-12327 (Jan. 19, 2018).

Why is this on a construction law blog site? The claims most likely to be affected by any such bylaw restrictions would concern design and construction of a condo project.

What Happens in Mediation Stays in Mediation

Andrew G. Wailgum and Sara P. Bryant | Murtha Cullina | November 1, 2016

The Massachusetts Appeals Court recently held that statements made by a party during mediation cannot be used later in a lawsuit to support a claim of fraud or similar claims.  ZVI Construction Co. v. Levy, et al., 90 Mass. App. Ct. 412 (2016).  In ZVI, a general contractor brought a suit for payment against the project owner and the parties settled in mediation.  The parties’ settlement agreement provided that the owner would make the $250,000 settlement payment once it received an anticipated payment in the same amount from a third party.  The owner represented to the contractor that the third party would send the money to the owner’s lawyer, who would then distribute the payment to the contractor.  Although the third party did send the payment to the owner’s lawyer, the owner then directed its lawyer to pay other creditors with that money, including the owner’s lawyer.  The contractor received nothing.  Shortly thereafter the owner filed for bankruptcy.  The contractor then brought this action against the owner’s lawyer and his law firm claiming, among other things, fraud, conversion, breach of fiduciary duty and unfair trade practices in violation of M.G.L. c. 93A.1

The contractor’s claims were based primarily on statements purportedly made by the owner’s lawyer during mediation.  The owner’s lawyer filed a motion in the Superior Court to strike the allegations in the contractor’s Complaint that contained the alleged mediation communications.  The motion relied on the confidentiality provision in the parties’ mediation agreement, which provided:

The parties further agree that the mediation, including all communications, documents and other materials, used during said mediation, including all communications between and among the parties and their counsel, shall be confidential and shall not be used for any purpose other than for said mediation.

The Superior Court granted the motion to strike the mediation communications and also granted the owner’s lawyer’s motion to dismiss the claims that relied on those statements.  The contractor’s remaining claims were subsequently dismissed on summary judgment.

On appeal, the contractor urged the Appeals Court to adopt a fraud exception to the confidentiality provision in the mediation agreement.  In declining to recognize such an exception, the Appeals Court first examined the Massachusetts mediation statute, which provides in pertinent part:

Any communication made in the course of and relating to the subject matter of any mediation and which is made in the presence of such mediator by any participant, mediator or other person shall be a confidential communication and not subject to disclosure in any judicial or administrative proceeding….

M.G.L. c. 233, § 23C.2  The Appeals Court noted that the legislature intended to keep mediation communications confidential and that there was no fraud exception in the statute.  The Court also examined the Uniform Mediation Act3 and observed that it too did not have an exception for fraudulent communications.  In addition, the Court’s review of the relevant case law did not reveal a single case adopting such an exception.

The Appeals Court examined another court’s decision refusing to recognize such a fraud exception and found instructive the following factors considered by that court: the sophistication of the parties; whether the parties were represented by counsel; and, the amount of information the parties possessed regarding the issue at hand.  In applying those factors to this case, the Appeals Court found that both parties were sophisticated business people and represented by counsel, and that the contractor had sufficient information regarding the owner’s ability to pay such that it could evaluate the viability of any assurances of payment.  Therefore, the Appeals Court held that the contractor failed to establish a basis for adopting an exception to the confidentiality provision in the mediation agreement and the agreement was therefore enforceable.

Takeaways

The ZVI case reminds us and reinforces that mediation truly is meant to be a confidential process that encourages an open exchange of communications in an effort to resolve a dispute.  It also underscores that parties should not rely solely on statements made during mediation and that they should verify information pertinent to the settlement before reaching an agreement.  Last, this case also teaches us that when settling for a future payment from a party in a financially precarious position, the party to receive the payment should insist on terms in the agreement that in some way secure the payment.

 

 


 

[1] The plaintiff also sued two members of the owner LLC, but those claims were not at issue in this decision.

[2] Note, the Court concluded that M.G.L. c. 233, § 23C did not apply here because the alleged communications were not made in the presence of the mediator.

[3] The Uniform Mediation Act has been adopted by 11 states and the District of Columbia.