Real Estate Law

The Anatomy of a Construction Dispute Stage 3- The Last Straw

Over the past two weeks here at Construction Law Musings, I’ve discussed the first two stages of a typical construction dispute (if such a thing exists): the claim, and how to bring heat short of litigation/arbitration. As promised, this week I’ll be discussing the next step or “last straw” in a construction dispute, namely, arbitration or litigation to enforce all of those rights that you preserved in the first two stages.

Construction litigation is expensive, time consuming, and, quite frankly, a pain in the neck. Because of this fact, I almost always recommend that my construction clients exhaust all of the non-litigation methods (including mediation of course) of resolving their disputes prior to “going nuclear” and filing suit. Unfortunately, even the most diligent attempts at less formal resolution means can be unfruitful and more formal means become necessary.

The first step in this process (after consulting an experienced construction lawyer in your area) is to re-review your contract to see if some form of arbitration or other form of alternate dispute resolution is required. If this is the case, then, absent a state or federal statute that trumps the contract (a couple are discussed below), you are required to pursue that avenue. For instance, if the contract states, as many do, that American Arbitration Association Construction Industry rules apply, then you need to file a demand for arbitration with AAA and go from there.

If your contract does not require arbitration, then depending on the status of your second stage activity, you can and should go to court in the appropriate venue. However, for certain claims, mechanic’s lien claims for example, certain “groundwork” needs to be performed to assure that your lawsuit gets beyond a motion to dismiss (or a demurrer if you’re in my fair Commonwealth of Virginia). I’ll examine three scenarios below.

In the case of a private project where no lien has been filed (whether due to timing, expense or otherwise) and no bond is present, a relatively straightforward breach of contract suit is all that is required. The content of that suit will depend on your particular state, but the suit would basically state that work was done and that you as a construction general contractor, subcontractor or supplier were not paid for that work. Certain wrinkles, such as the ability to obtain a judgment for the attorney fees expended during the suit, can be added depending on your contractual terms. I also recommend that a breach of contract count be added to either of the two scenarios below.

A mechanic’s lien lawsuit takes a bit more groundwork. Even where you’ve performed a title search prior to recording your memorandum of mechanic’s lien, an updated search seeking to identify every person or company with an interest in the property will be necessary. This is because, except in very limited circumstances, each of those entities will need to be named in the suit to survive past the pleading stage. Once you’ve performed this search, you and your attorney will file the suit with the necessary allegations and parties to allow you to move forward with foreclosing on that lien. The particular requirements will change depending on jurisdiction. For more on the Virginia mechanic’s lien requirements and case law, check out my Virginia mechanic’s lien page here at the blog.

If you are working on a state or federal project and have given the proper notices under the federal Miller Act or state Little Miller Act in your jurisdiction, a suit to enforce your payment bond rights is probably the way to go (one caveat- that if you are on a federal project in Virginia’s “Rocket Docket” and your claim is not for a large enough amount to justify the cost, think about just suing under the contract in state court). This lawsuit would name all of the upstream parties (to be sure that you’ve got the proper parties for a breach of contract count) and the surety providing the payment bond. For more on these types of claims and their requirements, check out my Bond Claims page here at Musings.

Of course, this is just a general overview of possible steps to be taken. You will need to consult with a construction lawyer in your jurisdiction to discuss the particular facts of your case to determine the best way to proceed.

As always, I welcome your comments. Please subscribe to keep up with this and other Construction Law Musings.

View more from Construction Law Musings.

For more information about LexisNexis products and solutions connect with us through our corporate site