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Is the Futility Doctrine Futile?

The construction industry is not only riddled with a web of technical rules, regulations, and contractual scenarios, the lawyers in this industry often rely on such technicalities to prevail in litigation on behalf of their clients – occasionally contrary to what appears just and fair.  However, from time to time, the courts step up and say “enough! We must be governed by the spirit, not just the letter, of the law.”  This brief article discusses the United States District Court for the Middle District of Florida’s (Tampa Division) recent application of the futility doctrine in the context of a Miller Act claim in U.S. f/u/o Cemex v. EPB, 2012 WL 831610 (M.D. Fla. March 12, 2012).

In EPB, subcontractor, EPB, sub-subcontracted with John Carlo, Inc., to complete a portion of a government project for the United States Air Force.  John Carlo purchased materials from Cemex in connection with its sub-subcontract.  EPB and John Carlo’s contract provided that John Carlo was to supply EPB “with sworn statement(s), lien waiver(s), guarantee(s) and other reasonably requested documents,” as a condition precedent to final payment.  “EPB withheld Carlo’s payment because Carlo had not provided the lien waivers and all of the releases required” per their contract.  However, Cemex (John Carlo’s assignee) argued it had met the conditions precedent because it provided John Carlo with a lien waiver, conditioned upon EPB’s payment.  EPB argued the letter of the law; that John Carlo and other sub-subcontractors of John Carlo had not provided the required documentation and therefore John Carlo (and by extension)
Cemex were not entitled to payment.

Cemex argued it was entitled to summary judgment because the “lien” period had expired under the Miller Act and therefore providing lien waivers would be futile.  The Middle District noted that “[u]nder the doctrine of futility, a party may be excused from performing a condition precedent to enforcement of the contract, if performance of the condition would be futile.” Alvarez v. Rendon, 953 So. 2d 702, 708-709 (Fla. 5th DCA 2007).  However, the court held that genuine issues of material fact remained as to “whether there were other effectual purposes for the [subject] documents.”  The court further held that EPB could require John Carlo and its other sub-subs to provide general releases of liability.

While the Middle District denied Cemex’s motion for summary judgment, it recognized the futility doctrine in the Miller Act context and implicitly held that the futility issues could be addressed by the trier of fact and, ultimately, prove dispositive at trial.  Thus, the futility doctrine in this context is seemingly not futile.

S.O.L on Claims Against Subcontractors for Latent Defects

The case of Joel and Marcia Hochberg v. Thomas Carter Painting, Inc., 36 Fla.L. Weekly D1200f, addresses the point of time at which the statute of limitations begins to run in latent defects cases.  In 2000, homeowners, Joel and Marcia Hochberg, hired a general contractor to construct a new home for them, and the general contractor employed a number of subcontractors to perform certain aspects of the work.  In 2003, the Hochbergs took possession of the home, but weren’t able to move in because the homeowners immediately noticed mold in the home.

The homeowner then hired an engineer to investigate the extent of the mold problem, and the engineer presented a report to the homeowners which identified water intrusion throughout the home.  The homeowners demanded arbitration with the general contractor in 2004 in which they alleged water intrusion resulting from deficient work performed by the general contractor and its laborers, but the homeowners did not file suit against any of the subcontractors involved in the construction of the residence until 2008.

The subcontractors moved for summary judgment due to the expiration of the applicable four year statute of limitations, and the trial court granted summary judgment in the subcontractors’ favor.  Under section 95.11(3)(c), Florida Statutes, (2010) “an action founded on the design, planning or construction of an improvement to real property” must be brought within four years of the later date of the owner’s actual possession, the issuance of a certificate of occupancy, or the date of completion or termination of the contract.  The statute also provides that: “[W]hen the action involves a latent defect, the time runs from the time the defect is discovered or should have been discovered with the exercise of due diligence.”

On appeal, the homeowners argued that while they acknowledged that they were aware of the water intrusion and other construction defects since 2003 , under the latent defect provision of Section 95.11(3)(c), the statute of limitations only started to run once the homeowner discovered the precise nature of the defects, or more specifically, once the homeowner discovered that it was the negligence of the subcontractors which caused the defects.  The appellate court disagreed, noting that the law is clear that “where there is an obvious manifestation of a defect, notice will be inferred at the time of manifestation regardless of whether the plaintiff has knowledge of the exact nature of the defect.”  The appellate court held that the extent of the homeowners’ knowledge of the defects by, at the very latest in 2004, was sufficient to trigger running of the statute of limitations.  Because the homeowners alleged that there were water intrusion issues in its arbitration demand to the general contractor in 2004, the court determined that the homeowners had sufficient general knowledge of the defect issues at that time, making the date of the arbitration demand the latest conceivable date on which the statute of limitations began to toll, and therefore could not assert claims against the subcontractors.

Plaintiffs must take note of this decision and act diligently with respect to claims of which they become aware. The statute of limitations serves as an absolute bar on claims asserted untimely and claimants do not want to end up in the same position as Mr. and Mrs. Hochberg.

When It’s Necessary to Present Expert Testimony of Industry Standard to Establish the Standard of Care in Negligence Actions: The Case of the Roofer

The United States Court of Appeals for the Eleventh Circuit recently issued an opinion which has, in essence, confirmed the steps necessary in establishing a negligence action against a roofer in Florida.  While the standard of care necessary to prove whether a roof was negligent is a seemingly simple, everyday legal concept, proving it up is an altogether more challenging idea.

In 2007, Hawaiian Inn Beach Resort (“Hawaiian”), a Florida condominium, contracted with Island Dream Homes (“IDH”) for roof repair.  While IDH was conducting the repairs, a large stone veneer wall fell, causing $231,467.41 in property damage.  After paying Hawaiian for the damage under its property insurance policy, Hawaiian’s insurer, Insurance Company of the West (“ICW”), brought a subrogation action against IDH for negligence.  At the close of ICW’s case, the district court granted IDH’s motion for judgment as a matter of law, holding that no reasonable jury could find that IDH was negligent because ICW failed to present any evidence on the standard of care in the roofing industry.

IDH, in an effort to stop the roof leak at the south side of the reception area, began to install certain flashing to redirect water off the roof.  IDH presented evidence that, pursuant to roofing guidelines and the Florida Building Code, it was required to cut through the exterior veneer of of the building to reach a structural wall.  Prior to performing this cut of a several decades old, four (4) to six (6) inch wall, IDH failed to test the thickness of the veneer, perform tests on the structural integrity of the wall, review the building’s original plans, or consult with an engineer.  ICW took the position that IDH was negligent in failing to take these steps, however, ICW did not present evidence that these steps are customary or standard in the roofing industry.

At the close of ICW’s case, the district court granted IDH’s judgment as a matter of law, holding that ICW failed to present evidence that IDH breached the standard of care “that a roofer would exercise under the circumstances.”  ICW contends that the court erred by applying a “professional” standard of care in [the] case.”  Specifically, ICW argued that roofers are not “professionals” under Florida law, and, thus, IDH should be held only to the standard of an ordinary person, rather than to the standard of a professional.

The Eleventh Circuit opined that the problem with ICW’s argument is that roofers are not ordinary people who happened to be working on a roof – they are trained roofers. Accordingly, ICW was required to put forth some evidence of the standard of care in the roofing industry in order to meet its burden.  The Court further pointed out that ICW’s interpretation of Moransais v. Heathman, 744 So. 2d 973 (Fla. 1999) was misplaced.  Ultimately, the Court opined that Morainsais does not stand for the proposition that only persons engaging in vocations that require a four-year college degree may be held to a “standard of care used by similar professionals in the community under similar circumstances.” But the Court ruled that “regardless of whether roofers are considered ‘professionals’ in Florida, however, ICW was required to present evidence on the standard of care in the roofing industry – either by expert testimony or by presenting testimony of roofing custom.” If at trial, and the Plaintiff fails to introduce evidence of the standard of care for a roofer, judgment as a matter of law, as is the case here, may be appropriate.

When It’s Necessary to Present Expert Testimony of Industry Standard to Establish the Standard of Care in Negligence Actions: The Case of the Roofer

The United States Court of Appeals for the Eleventh Circuit recently issued an opinion which has, in essence, confirmed the steps necessary in establishing a negligence action against a roofer in Florida.  While the standard of care necessary to prove whether a roof was negligent is a seemingly simple, everyday legal concept, proving it up is an altogether more challenging idea.

In 2007, Hawaiian Inn Beach Resort (“Hawaiian”), a Florida condominium, contracted with Island Dream Homes (“IDH”) for roof repair.  While IDH was conducting the repairs, a large stone veneer wall fell, causing $231,467.41 in property damage.  After paying Hawaiian for the damage under its property insurance policy, Hawaiian’s insurer, Insurance Company of the West (“ICW”), brought a subrogation action against IDH for negligence.  At the close of ICW’s case, the district court granted IDH’s motion for judgment as a matter of law, holding that no reasonable jury could find that IDH was negligent because ICW failed to present any evidence on the standard of care in the roofing industry.

IDH, in an effort to stop the roof leak at the south side of the reception area, began to install certain flashing to redirect water off the roof.  IDH presented evidence that, pursuant to roofing guidelines and the Florida Building Code, it was required to cut through the exterior veneer of of the building to reach a structural wall.  Prior to performing this cut of a several decades old, four (4) to six (6) inch wall, IDH failed to test the thickness of the veneer, perform tests on the structural integrity of the wall, review the building’s original plans, or consult with an engineer.  ICW took the position that IDH was negligent in failing to take these steps, however, ICW did not present evidence that these steps are customary or standard in the roofing industry.

At the close of ICW’s case, the district court granted IDH’s judgment as a matter of law, holding that ICW failed to present evidence that IDH breached the standard of care “that a roofer would exercise under the circumstances.”  ICW contends that the court erred by applying a “professional” standard of care in [the] case.”  Specifically, ICW argued that roofers are not “professionals” under Florida law, and, thus, IDH should be held only to the standard of an ordinary person, rather than to the standard of a professional.

The Eleventh Circuit opined that the problem with ICW’s argument is that roofers are not ordinary people who happened to be working on a roof – they are trained roofers. Accordingly, ICW was required to put forth some evidence of the standard of care in the roofing industry in order to meet its burden.  The Court further pointed out that ICW’s interpretation of Moransais v. Heathman, 744 So. 2d 973 (Fla. 1999) was misplaced.  Ultimately, the Court opined that Morainsais does not stand for the proposition that only persons engaging in vocations that require a four-year college degree may be held to a “standard of care used by similar professionals in the community under similar circumstances.” But the Court ruled that “regardless of whether roofers are considered ‘professionals’ in Florida, however, ICW was required to present evidence on the standard of care in the roofing industry – either by expert testimony or by presenting testimony of roofing custom.” If at trial, and the Plaintiff fails to introduce evidence of the standard of care for a roofer, judgment as a matter of law, as is the case here, may be appropriate.

The Dark Side of Building Green

Building green is the practice of reducing the negative effects construction has on the environment by increasing the efficiency with which buildings use and consume resources (energy, water, and materials). In addition to reducing the impact the building has on the environment, green building is also intended to reduce the project’s impact on human health throughout the complete building life cycle, by utilizing better design, construction, operation, maintenance, and removal techniques. This is accomplished, in part, by using sustainable materials, by covering the floors with tile instead of carpet to reduce the existence of allergens and other airborne toxins, building in a manner that does not waste space, using renewable energy sources, utilizing larger windows to allow more natural light, building in a manner that takes advantage of the site (i.e., shade from trees), using LED lighting products and thoroughly insulating the project.

However, it has recently been discovered that there is a dark side to building green. For example, the very methods intended to enhance a building’s performance, such as building solid airtight structures, prevents a building from breathing and can actually make a building highly susceptible to moisture and/or mold problems during its first few years of operation. This is because if no air goes in the building, no air goes out. While this is easily treated and/or prevented, it requires residents and other occupants of green buildings to do their part in reducing the chances of mold growing in the units by opening windows on a regular basis and in some rare instances bringing in dehumidifiers.

In addition, the cost to build in a green manner may increase the cost of construction by 10%-20%; while these initial costs are intended to be offset by the human health benefits and reduced cost to operate the completed project (i.e., using less energy and water) that is not always the case and the cost to construct is not offset by the desired efficiency savings.

In conclusion, it is critical that well established maintenance plans are established, desired efficiency ratings are properly defined, budgeted, and contracted for and an overall “green plan” is in effect prior to the commencement of the project.

Time’s up!: Florida Supreme Court may Consider Statute of Limitations Dispute in Multi-Party Construction Defect Claim

Time’s up! That’s never a phrase we want to hear. It evinces memories of school tests and entrance exams. Well, in the legal arena, deadlines are all the more critical. Litigants often fight over filing deadlines for cases, or statutes of limitation, in the prosecution and defense of claims. Most recently, the First District Court of Appeal issued an April 17, 2012 opinion in a matter addressing this very issue in William G. Graney, P.E. v. Caduceus Properties, LLC, 1D11-2700, 2012 WL 1290841 (Fla. 1st DCA 2012).

The case involved an appeal of a judgment entered in favor of Caduceus Properties (“Caduceus”) and Tallahassee Neurological Clinic (“TNC”) for claims arising out of the design, construction, and installation of a heating, ventilation, and air conditioning (“HVAC”) system. In 2003, TNC and Gordon (a professional architect) contracted to design improvements to the subject building. Gordon subcontracted with KTD (an engineering design consulting firm) and Graney (a professional engineer and principal of KTD) to design the HVAC system for the TNC clinic in the same building. TNC separately contracted with Kelly Brothers Sheet Metal to install the HVAC system.

The building’s HVAC system began to fail soon after a certificate of occupancy was issued. In 2006, Caduceus sued Gordon to recover damages for the malfunctioning HVAC system. On March 7, 2007, Gordon filed a third-party complaint against Graney and KTD. Four years later in 2010, Caduceus and TNC initiated a direct action against third-party defendants Graney and KTD. Graney and KTD moved for involuntary dismissal prior to trial based upon a statute of limitations defense. The trial court denied the motion, and ultimately entered judgment in favor of Caduceus and TNC.

The First District, however, reversed this decision, reasoning that a four-year limitations period applied because the claims against Graney and KTD were “founded on the design, planning or construction of an improvement to real property” and are, therefore, governed by section 95.11(3)(c), Florida Statutes, and thus, began to run “from the date of actual possession by the owner, the date of issuance of the certificate of occupancy . . . or the date of completion or termination of the contract between the professional engineer, registered architect, or licensed contractor . . . whichever is latest.” Id. The Court reasoned that the parties knew about the problems with the HVAC system by September 2005, one month after the certificate of occupancy was issued. Thus, the limitations period ran in September 2009. But Caduceus and TNC initiated their direct action against KTD and Graney on June 3, 2010, almost nine months after the statute of limitations had expired.

The Court then considered whether the direct action related back to the original complaint and third party action. The Court held that it did not because Caduceus and TNC were aware of the roles Graney and KTD served in the design and approval of the HVAC system from the time the system began to fail in September 2005. Further, the Court noted that another party, Gordon, filed a third party complaint against KTD and Graney, which shows that Caduceus and TNC should have known how KTD and Graney’s conduct impacted on the case.

In rejecting Caduceus and TNC’s relation back argument, the First District expressly rejected, and certified conflict, with the Fifth District’s holding in Gatins v. Sebastian Inlet Tax Dist., 453 So. 2d 871 (Fla. 5th DCA 1984), a case that held that if a third party complaint is filed within the applicable limitation period, the party may amend or file a direct action to make third party defendants formal defendants pursuant to the relation back doctrine as long as the new action raises the same issues that are raised in the third party complaint. The First District also commented that permitting relation back in this context would circumvent the purpose of a statute of limitations, which it identified as protecting defendants from unfair surprise and stale claims.”

By certifying direct conflict with Gatins, the Florida Supreme Court now has the option to accept or reject jurisdiction over this matter. If the Supreme Court denies jurisdiction, then the current District split will remain unresolved. However, if the Supreme Court accepts jurisdiction, litigants may have a clearer idea of precisely when time’s up in multi-party construction claims.

Lessons Learned: Give Me an Aspirin — Change Work is a Headache

A Primer on the difficulties a Contractor Faces When Dealing With Change Work

(published in Magazine of University of Florida’s School of Building Construction)

Click Here to View Article

A. The Traditional Setting 1. The Relationship

In this setting, there is no contract between the general contractor and architect but rather only contracts between the owner/general contractor and owner/architect. This creates a triangular relationship that often leads to tension.  This is because the construction process seldom unfolds as anticipated. Things change – especially in construction – and this is the subject of our article.

2. The Standard Contract

The American Institute of Architects (“AIA”), among many other things, sells construction contract forms which all the various trades utilize. Because of their popularity, we use AIA forms as our examples in this article.

3. The Work Begins

With a complete design, and with bidding finalized, contractors are chosen and the work begins.  Thereafter, the need for numerous changes almost certainly arises. Why? The reasons are endless.  Examples include design conflict, change of owner preference, out of sequence construction, and problematic physical condition(s).  After generating questions to the designers, the various trades then submit proposed changes to the construction administrator.

4. Change Work

Change work is typically done by way of a written modification to the contract; most often as a change order. The AIA’s general conditions define “Modifications” as (1) a written amendment to the contract signed by both parties, (2) a change order, (3) a construction change directive or (4) a written order for a minor change in the work issued by the Architect.  Per the AIA, a change order shall be based upon agreement between the developer, contractor, and architect.  The AIA requires the architect to prepare the change order and the developer to sign it, indicating an agreement as to (1) change in the work, (2) the amount of the adjustment, if any, in the contract sum and (3) the extent of the adjustment, if any, in the contract time.  An unsigned change order may mean the general contractor does not get paid.

5. Schedule

Perhaps most important to any developer is the project’s schedule and change in the work tends to affect that schedule. This is why construction contracts typically provide for liquidated damages, which are damages to which parties contractually stipulate as a reasonable estimation of actual damages to be recovered by one party if the other party breaches.

B. The Conundrum in Contracting 1. Changes Tend to Disagree with the Schedule

Given the importance of the schedule and the potential for damages, should a contractor stop the work to get the change order signed? In other words, does the contractor proceed with the work, or should it wait for the signed change order?

2. Risk Management

While there are no simple answers to these questions, there are protections the contractor can put in place to better manage this dilemma, which include:

  1. Minimizing disputed change work based upon ambiguities, errors, omissions, or discrepancies in the bid documents.  These disputes often arise because of design conflict, as in a mechanical plan conflicting with a structural plan because, say, a drainage pipe cannot run through a structural beam. Owners often take the position that contractors should properly study the design during the bid phase and therefore refuse to pay for change work and attendant project delays based upon a design conflict.  Modification to the contract documents during the bid phase can serve to eliminate, if not minimize, these design conflicts.
  2. Address this dilemma at a pre-construction conference and build protections into the contract.  Meeting minutes should be kept and signed by all the parties present to confirm accuracy.
  3. Prepare detailed change order proposals to reduce the time associated with questions from the construction administrator regarding the change order.  Price and schedule analyses should be enclosed in the proposed change orders.
  4. Document the file.  While the contractor may be confident, even certain, that the change order will be signed, it can never be too sure.  When in doubt, document the file.  When not in doubt, document the file.

So the contractor has sent its letter memorializing why the change order is necessary and detailing its efforts to get it signed without delaying the work.  But what should be done in the meantime?  If the contractor proceeds, it may not get paid for that work.  If it doesn’t proceed, it may be in breach of its contract and face a lawsuit for construction delays.  The practical approach is to (1) submit the detailed proposed change order, (2) enclose within the submission the documents showing the changes (e.g., the architect’s revisions), and (3) and specify that the project will be delayed, through no fault of the contractor, until the change order is signed.

  1. Beware of field orders.  The architect issues these orders to clarify specifications, deal with technical execution problems, or resolve site access difficulties.  The architect has the authority to order minor changes in the work not involving adjustment in the contract sum or extension of the contract time and not inconsistent with the parties’ intent.  Such changes shall be done in writing and shall bind the owner and contractor.  If the field order increases costs or time, it should lead to a change order.
  2. If there is disagreement or delay on the change order, demand a construction change directive (“CCD”).  The AIA defines a CCD as a written order prepared by the Architect and signed by the developer and architect, directing a change in the work prior to agreement on adjustment, if any, on the contract sum or contract time or both.  CCDs are used in the absence of a total agreement on a change order.  The architect resolves disagreements about CCDs, per the AIA.  The AIA, in fact, provides that, pending final determination of the CCD’s cost, the contractor may request payment for CCD work, subject to the architect’s interim determination. Because the AIA requires the architect to prepare the CCD, a contractor may attempt to modify that language to state that the contractor shall prepare the CCD.
  3. Agree to a third-party decision-maker, other than the architect, to make onsite determinations.  Dispute over change order work typically arises because the owner and/or architect believe (1) the proposed change work was part of the contractors’ initial scope, (2) the cost of the proposed change is unreasonable, (3) the additional time necessary to complete the change work is unreasonable, or (4) a change is deemed minor and the contractor disagrees. Someone, other than the architect, may arguably be more objective with respect to these disputes.
  4. Require that someone with authority to sign off on change orders remain at the site.
  5. Utilize two-part change orders to separate the portion of the estimate about which the parties disagree and the portion about which the parties agree.
  6. Enter into a guaranteed maximum price (with open books) contract and share in the savings so as to incentivize everyone to finish the project expeditiously.

Consult a construction lawyer.  The manner in which a contractor may protect itself will vary with virtually every project.  A qualified construction lawyer should be able to assist with a thoughtful and deliberate approach to a contract that preliminarily addresses most of the contractor’s change work concerns.

C. Conclusion

Although problematic, there are measures that can be put in place, preferably early in the process, that can make the change work process more manageable.  That said, construction contracts will always be a minefield ripe for conflict.  So, document your file and try to avoid performing work on an unsigned change order.

CSK Construction Division — January 2012

CSK Construction Division – January 2012 Legal Spotlight

 

Happy New Year!  This Month’s Construction Law Email Blast will focus on recent changes to Florida’s licensure requirements applicable to mold assessors and remediators and contractors in general.

FLORIDA LEGISLATURE CRACKS DOWN ON UNLICENSED

PRACTICE OF MOLD ASSESSORS AND MOLD REMEDIATORS

 

Starting on July 1, 2011, the Florida Legislature began the full enforcement of the unlicensed practice of mold assessors and mold remediators.  This means that anyone holding themselves out to be a mold assessor or mold remediator needs to be licensed through the Department of Business and Professional Regulation (“DBPR”) before he or she can engage in this type of business practice.  As set forth in Chapter 468 of the Florida Statutes, the legislature intends to prevent damage to real and personal property to avert economic injury to residents in Florida, and to regulate persons and companies that hold themselves out to the public as qualified to perform mold-related services.  See § 468.84, Florida Statutes.

 

The requirements mandated by the DBPR for licensure under this Statute include, but are not limited to: (i) applicants passing a licensing examination; (ii) applicants producing documented training in water, mold, and respiratory protection; (iii) applicants submitting proof of continuing education requirements for application renewal, and (iv) applicants maintaining insurance requirements for both mold assessors and mold remediators.  A mold assessor is required maintain general liability and errors and omissions for both preliminary and post-remediation mold assessment insurance coverage of at least $1 million, and mold remediators are required to maintain a general liability insurance policy in an amount not less than $1 million, that includes specific coverage for mold-related claims.  See § 468.8421, Florida Statutes.

 

Unlike § 489.128, Florida Statutes, which provides that contracts entered into on or after October 1, 1990 by unlicensed contractors are unenforceable in law or in equity, this statute does not specifically preclude unlicensed assessors and remediators from recovering in law or in equity.  However, the statute does create a basis for a common law defense against unlicensed mold assessors and remediators. Because the statute subjects unlicensed mold assessors and remediators to criminal penalties, one can argue that the unlicensed assessor or remediator is engaged in illegal activity under § 468.8419(3), Florida Statutes, and, therefore, should be denied any legal or equitable relief.

 

The licensing statute and common law defense are important to defense counsel and liability carriers for at least two reasons.  First, in underwriting, it is important to verify the licensure of the potential insured to minimize the insured risk.  Though the illegal activity of the unlicensed individual may not be covered, the negligence of the business entity in allowing the unlicensed individual to assess or remediate may be covered.

 

Second, for counsel defending an assessor or remediator, it is equally important to verify the insured’s licensure or become aware early in the representation of the insured’s unlicensed status and the implications for the defense.  Note that an unlicensed contractor may be barred from asserting legal or equitable defenses and pass through claims, in addition to being unable to recover money due for services rendered or work performed.

 

JUDICIAL AND LEGISLATIVE

LENIENCY ON UNLICENSED CONTRACTORS

 

In two recent decisions, Florida’s Third District Court of Appeal addressed the unlicensed contracting defense provided by Florida Statute Section 489.128(1) and the common law doctrine that one engaged in illegal activity may not benefit from it.

 

Section 489.128(1) generally provides that unlicensed contractors are precluded from recovery at law or in equity.  Prior to a 2009 amendment, the statute provided that lack of a state or local license precluded recovery.

 

Effective June 16, 2009, the Legislature amended the statute to remove the lack of a local license as a basis for the defense.  The Legislature specifically intended that the amendment apply retroactively to contracts entered into on or after October 1, 2000 and to “all actions pending when this act becomes a law.” See Ch. 2009–195.  In essence, the amendment means that the subcontractor’s lack of a local license no longer renders its subcontract unenforceable.

 

In MGM Construction Services Corp. v. Travelers Casualty & Surety Co. of America, et al., 57 So. 3d 884 (Fla. 3d. DCA 2010), the Third District Court of Appeal addressed the effect of the lack of a local license on a subcontractor’s ability to recover against a general contractor and its payment bond surety. The action was pending when § 489.128(1) was amended, eliminating the statutory defense. However, the subcontractor was also required by local ordinance to maintain a local license, and it did not.

 

At summary judgment, the contractor, Maleta Construction Co., its surety, Travelers Casualty & Surety Co. of America, and the University of Miami argued that the court must apply Florida Statutes Section 489.128(1)(a) (2008), which provided, in pertinent part, “[f]or purposes of this section, if no state or local license is required for the scope of work to be performed under the contract, the individual performing that work shall not be considered unlicensed.”

 

In opposition, the subcontractor relied upon the recent amendment to Section 489.128(1)(a) in which the last sentence was amended to remove the “or local license” language.  Id at 886.  Despite the amendment, the trial court found the subcontracts were unlawful, pursuant to by the Miami-Dade County Code of Ordinances (“MDCO”), and therefore unenforceable.

 

On appeal, the Third District Court of Appeal held that the trial court erred in summarily determining that the subcontract was unenforceable based solely on the lack of a local license.  Unlike section 489.128, the ordinance was silent about the effect of a licensure violation on the enforceability of the underlying contract, though it did provide for civil, administrative, and criminal penalties for unlicensed contracting.

 

The Third District Court of Appeal summarily held that the amendment to § 489.128 prevented the defendants from relying on that statute.  With regard to the local licensure defense, the appellate court remanded and directed the trial court to consider, at a minimum, the following relevant and material factors to determine whether the subcontract was unenforceable: (i) whether the nature of the contracting parties’ relationship made the need to protect the public from shoddy workmanship; (ii) the extent to which the subcontractor’s violation of the MDCO was serious and deliberate; (iii) the quality of the work performed by the subcontractor; (iv) whether the Contractor knew the subcontractor was unlicensed; and (v) whether and to what extent injustice would result in preventing the subcontractor from any recovery.

 

The decision is a departure from the general doctrine that one who is required to have a license may not benefit from the illegal act of engaging in work without the license.  Notwithstanding the subcontractor’s violation of a local law, the appellate court held that subcontract was not automatically unenforceable.

 

In Austin Building Company v. Rago, Ltd., 63 So. 3d 31 (Fla. 3d DCA 2011), the general contractor’s assignee terminated a subcontractor, the subcontractor sued the successor for amounts allegedly owed, and the successor contractor filed a counterclaim for damages arising from subcontractor’s allegedly defective work. On cross motions for summary judgment, the trial court dismissed both claims on the ground that they were unenforceable because the parties were unlicensed contractors under Florida Statutes Section 489.128, and therefore, neither party could enforce the subcontract.  Id at 1.

 

The Third District Court of Appeal reversed the decisions on both motions for summary judgment finding genuine issues of material fact precluding summary judgment. The Court noted that in order to determine that a contract is unenforceable pursuant to Florida Statutes Section 489.128, the contractor shall be considered unlicensed only if the contractor was unlicensed on the effective dates of the original contract for the work, if stated therein, or, if not stated, the date the last party to the contract executed it, if stated therein.

 

The Court noted that pursuant to Florida Statutes Section 489.128, the critical dates for determining whether a contractor was unlicensed are 1) the effective date of the original contract, 2) the date the last party to the contract executed it, or 3) the first date upon which the contractor provided services, labor, or materials under the contract.

 

Further, the Court makes it clear that the language in Florida Statutes Section 489.128, which states in pertinent part, “…if a state license is not required for the scope of work to be performed under the contract, the individual performing that work is not considered unlicensed” does not only apply to “individuals,” rather, the statute applies to business organizations as well. The Court opined that the “statutory scheme of Chapter 489 demonstrates that a business organization’s ability to engage in contracting is inextricably reliant upon the licensure of the qualifying agent, who in turn, must be an individual person.” Austin Bldg. at 36.

 

In summary, while a subcontract entered into on or after October 1, 2000 by an unlicensed subcontractor may be deemed unenforceable, the Court must consider the relevant factors identified in MGM Construction Services Corp., as well as the pertinent dates identified in Florida Statutes Section 489.128, and further discussed in Austin Bldg. 
For the same reasons discussed in relation to unlicensed mold assessor and remediators, understanding the licensure status of the various participants in a construction dispute is important to an evaluation of the strengths and weaknesses of their liability positions.

 

For further assistance in understanding the licensure requirements of mold assessors and remediators and contractors in general, please contact:

·         George R. Truitt, Jr., (george.truitt@csklegal.com; 305-350-5331) or

·         David Salazar (david.salazar@csklegal.com; 305-350-5363)

 

Partners in Cole, Scott & Kissane, P.A.’s Construction Group.

Under Section 718.203(2), Manufacturer Does Not Mean “Supplier.”

The First District Court in Harbor Landing Condominium Owners Association, Inc. v. Harbor Landing, L.L.C., et al. determine d that the word “supplier” in Section 718.203(2) did not mean “manufacturer.”  Section 718.203(2), which pertains to condominium warranties, provides in part that “[t]he contractor, and all subcontractors and suppliers, grant developer and to the purchaser of each unit implied warranties of fitness as to the work performed or materials supplied by them…”