September 10, 2014
Author: Thomas H. Davis, Jr.
Organization: Poyner Spruill LLP
I. Changes to North Carolina Laws on Private Projects.
One year ago the changes to North Carolina’s construction lien laws enacted in 2012 became effective. Under this legislation all private construction projects valued at $30,000.00 or more (except single-family home renovations where the home is the owner's residence) require the designation of a Lien Agent. The project Owner must designate the Lien Agent from a list of title insurance companies or insurance agents maintained by the North Carolina Department of Insurance. The Lien Agent is entitled to collect a fee from the owner in an amount not more than $50.00.
If a building permit is required for a project, the permit is required to identify the Lien Agent and be posted at the project site. If the building permit fails to identify the Lien Agent, or if no permit is posted, a lien claimant can submit a written request to the Owner to identify the Lien Agent. The Owner must respond to this request within seven (7) days.
Likewise, a Contractor or Subcontractor must provide a Material Supplier with written notice identifying the Lien Agent within three (3) business days of contracting with the supplier.
Any potential lien claimant (i.e., Contractor, Subcontractor or Material Supplier) who wishes to preserve its full lien rights must serve a notice on the Lien Agent. The notice must include the following:
1. the Lien Claimant’s name, mailing address, telephone number, fax number and electronic mailing address;
2. the name of the party with whom the potential Lien Claimant contracted;
3. a description of the real property sufficient to identify it; and
4. notice of the potential Lien Claimant’s right to later pursue a claim lien for the improvements described in the notice.
In order to preserve all lien rights, the potential Lien Claimant must serve the notice on the Lien Agent within fifteen (15) days after the first furnishing of labor or materials to a project. Failure to file the notice of lien within this time can result in the termination of the lien claimant’s rights if the property is sold or the subordination of the lien claimant to a new deed of trust or mortgage.
The notice must be served by one of several designated methods, including physical service of the notice (with a receipt at delivery) or by certified mail, return-receipt requested. The Owner can also use an internet website, www.liensnc.com, which is designed for the transmission of all required information and notices.
The requirement of service of notices to a Lien Agent is mirrored in another change to the lien laws. All claims of lien on real property must be served on the Owner, and a claim of lien on real property asserted by a Subcontractor or Supplier by subrogation must be served upon the Contractor as well as the Owner.
While, prior law allowed a claim of lien to be filed but not served, now a claim of lien on real property is not be perfected until it is both filed and served. Therefore, service and filing of the claim of lien on real property must occur no later than 120 days from the last furnishing of labor or materials to the project by any person claiming the lien.
A statutory change has codified prior Court decisions providing Subcontractor liens against real property are extinguished by the execution of Lien Waiver by the General Contractor. However, such a Lien Waiver does not operate to terminate the Subcontractor's lien on funds or a direct lien right on property which may arise by operation of law if the recipient of the lien on funds pays over the lien without holding back adequate money to satisfy the lien on funds.
Further, the Subcontractor's lien on funds has been specifically protected in bankruptcy situations by a statutory amendment providing a lien on funds owed on a Project \"arises, attaches, and is effective immediately upon the first furnishing of labor, materials, or rental equipment.\" As a result the required, service of a Notice of Claim of Lien post-petition does not violate the automatic stay provisions of the Bankruptcy Code which has been an issue in recent Bankruptcy Court decisions.
II. Changes to North Carolina Laws on Public Projects.
Contractors must now provide a copy of the Payment Bond within seven (7) days of receiving a written request from a Subcontractor or Supplier on a public project. Additionally, Contractors on public projects are required to provide a “Contractor’s Project Statement” to each of their Subcontractors. In turn, each Subcontractor must provide the “Contractor’s Project Statement” to each of their Subcontractors. Subcontractors below the first tier must, in turn, serve a ”Notice of Public Contract” on the project’s General Contractor as soon as possible.
The change requiring the issuance of a Project Statement and a Notice of Public Contract resulted from complaints by Owners, Sureties and General Contractors that they were often required to make “double payments” if there was a failure on the part of any subcontractor to “pay down the line” to lower tiers.
General Contractors must now provide each Subcontractor with a written statement containing the following information:
1. name and address of the Project;
2. the name of the contracting body (Owner);
3. Contractor’s agent for service of process; and
4. the name and address of the principal place of business for the project’s Surety.
Each Subcontractor is required to provide each party with whom it subcontracts a copy of the Contractor’s Project Statement. After receiving a copy of the Contractor’s Project Statement, each Subcontractor is required to serve a “Notice of Public Subcontract” on the General Contractor. The Notice of Public Subcontract is required to contain:
1. the name and address of the Subcontractor;
2. a description of the Project;
3. a description of the subcontract; and
4. a description of labor or materials to be provided to the project if the applicable claim is in excess of $20,000.00
Failure of a Subcontractor to provide a Notice of Public Subcontract places the Subcontractor at risk if the Contractor on the project complies with its obligations. When a General Contractor complies with its obligations, a Subcontractor is limited to recovery for work and materials provided to the project within 75 days prior to giving Notice of Public Subcontract. Therefore, the sooner the Notice of Public Contract is given, the further back in time the Subcontractor’s recovery right extends.
III. E-Verify Requirements.
E-verify, originally operational in 1997 as a pilot program, is now required of every employer in North Carolina with more than 25 or more employees. E-verify is an internet-based program run by the United States Government which compares information from an employee’s Employment Eligibility Verification Form I-9 to data in the U.S. Government records. If the information matches, the employee is eligible to work in the United States. If there is a mismatch, E-verify alerts the employer the employee may not be eligible for employment.
The North Carolina Department of Labor does not have jurisdiction with respect to the use of E-verify by state and local governmental agencies or municipalities. Additionally, employers who hire temporary, seasonal workers for fewer than 90 days within any consecutive 12-month period, as well as private employers with 24 or fewer employees, are not required to use E-verify.
The U.S. Citizenship and Immigration Services (USCIS) has created the Monitoring and Compliance Branch (M&C) to monitor and guide EVerify participants. While M&C does not fine employers for violations, it does refer cases of suspected misuse or fraud to Immigration Customs and Enforcement (ICE) and the Department of Justice. There has been a substantial increase in complaints resulting is sizable settlements with employers. It should be stressed participation in E-Verify, standing alone, does not protect an employer from enforcement action and penalties in the event of fraud, misuse or abuse.
IV. North Carolina “New” Attorney’s Fee Statute.
More than two years ago, a “quiet” change occurred with respect to the enforceability of attorney’s fees awards in North Carolina. Traditionally, contract provisions entitling the successful litigant to an award of attorney’s fees have not been enforceable in North Carolina. However, an Act effective October 2011 allows attorney’s fees in litigation arising out of “business contracts”.
The term “business contract” is defined as a contract “entered into primarily for business or commercial purposes” which does not include consumer contracts, employment contracts or any contract to which the State or any agency of the State is a party. The definition includes contracts for construction.
The attorney’s fee provision is effective “only if all the parties to the business sign by hand the business contract,” and the attorney’s fee provision is reciprocal. The requirement of a reciprocal agreement prohibits the enforcement of a one-sided attorney’s fee provision in a business contract.
While this provision allows for the recovery of attorney’s fees by a successful litigant in accordance with written and contractual provisions, such recovery is not absolute. Courts and arbitrators (as this statute applies to arbitration as well) are to consider all the facts and circumstances involved in a case in making an award of attorney’s fees.
This include the financial resources of the parties, the behavior of the parties during the settlement negotiations, the amount of settlement offers as compared to the verdict or the aware of attorney’s fees in similar business cases.