WA Supreme Court Confirms Right to Claim Liens over Improvements on Public Property
It is well known that public property is not lienable in most states, including Washington. However, it has been generally assumed that under Washington’s mechanic’s lien statute (RCW 60.04), improvements constructed on public property are lienable. In Estate of Haselwood v. Bremerton Ice Arena, Inc., No. 80411-7 (June 25, 2009) the Supreme Court of Washington, by a 7-2 majority, issued a decision holding that a subcontractor’s lien attached to an ice arena built on property owned by the City of Bremerton. However, the court noted that, pursuant to RCW 60.04.051, the attachment of a lien to improvements on public land is limited “to the interest of the person who requests the labor or materials, or that person’s agent.” In this case, under the terms of a concession agreement between the city and Bremerton Ice Arena, Inc., the latter party owned the arena for the duration of the concession agreement, while the city retained ownership of the underlying land. Therefore, in determining whether an improvement on public property in Washington is lienable, it is important to inquire into the precise nature of the interest owned by the person that commissions the construction work. The Haselwood Court also held that Washington’s lien priority statute applies to liens over such improvements on public land, such that a mechanic’s lien has priority over a deed of trust where work or professional services commenced or materials were provided prior to the date the deed of trust was recorded. The majority, concurring and dissenting opinions can be read here.
Construction Project Managers Not Required to Be Licensed for Private Projects Under California's State Licensing Laws
In a case of first impression, the Second Appellate District Court of California recently considered whether an entity that provided construction management services to a private owner was required to be licensed under California’s Contractor’s State Licensing Law. (The Fifth Day, LLC v. Bolotin (2009) 172 Cal.App.4th 939.) The Court’s response was a surprising and simple “no.”
There, the parties entered into a development management agreement for the construction of a seven-building commercial office park. The Court observed that the construction manager “neither contracted with the owner to perform any of the activities listed in California Business & Professions Code, section 7026’s definition of a contractor, nor performed any of those activities.” Therefore, because the project manager simply enters into construction contract(s) with the general contractor(s) who then performs and supervises all construction on the project and hires all of the subcontractors, the Court concluded that section 7026 does not require the construction manager to be a licensed contractor. Thus, no license was required because the construction manager “had no responsibility or authority to perform any construction work on the project, or to enter into any contract or subcontract for the performance of such work.”
The Court also relied on the omission of such an express requirement in California’s Government Code. The Court referred to California Government Code section 4525(e), which expressly requires construction managers on public projects to be either a licensed architect, a registered professional engineer, or a licensed contractor. Section 4525 is, more importantly, entirely silent as to private projects. Accordingly, the legislature did not define the term “contractor” to include persons who perform construction management services on private projects.
Eloquent and pithy, Justice Mosk’s dissent observed the obvious concern and resulting adverse effect of the Court’s ruling. He opined that the effect of the majority’s ruling is that “unqualified, unscrupulous and unlicensed contractors have a loophole in the license requirement that will facilitate their illicit or incompetent activities—they need merely call themselves ‘construction managers’ rather than ‘contractors’ and, regardless of the services they perform, the licensing requirements will not apply.” Although a valid concern, section 7026 applies to entities who undertake to perform the subject work “by and through others.” A construction manager cannot, therefore, avoid the requirements of section 7026 by undertaking work and delegating all of the construction activities to subcontractors.
The actual implication of this ruling is still vague and open to wide interpretation. The critical component of the analysis is the extent to which the construction manager, in fact, enters into subcontracts or directly performs work on the project. The majority concluded that the legislature should be responsible for regulating a construction manager’s activities. Maybe the Supreme Court or California State Licensing Board will speak to this issue in the near future, but until then, Fifth Day reflects California’s law on a construction manager’s licensing requirements.
New WA Supreme Court Opinion has several Construction law implications
On June 18, 2009 the Washington Supreme Court issued its decision in Cambridge Townhomes, et al. v. Pacific Star Roofing, Inc., et al., 81003-6. The decision touches on several issues of interest to the construction industry in Washington. In particular, the Court clarified the law about when a corporation may be held liable as a successor in interest to a sole proprietorship (generally, where control in the company remains in the same hands, such that the old entity was effectively just wearing a “new hat”). The Court also enforced a broad indemnity provision in a subcontract, rejecting the subcontractor’s argument that its indemnity should be construed to apply only to third party tort claims. Finally, the court had occasion to revisit RCW 4.16.326(1)(g) which went into effect in July 2003 and requires that construction defect claims be filed within six years of substantial completion of construction or termination, whichever is later. The Court had held in 1000 Virginia Ltd. P’ship v. Vertecs Corp., 158 Wn.2d 205 (1994) that this provision did not apply retroactively. In Cambridge Townhomes, the Court clarified that application of the statute of repose turns on the date when the claim accrues, not when it is filed. You can read the entire decision here.
Chinese drywall claims now certified as a class action
Our Sean Gay recently blogged here and here about recent complaints out of Florida and elsewhere concerning defective Chinese-manufactured drywall that emits noxious sulfur gas and has been linked to problems with electrical and air conditioning systems. The latest news is that several such claims have recently been consolidated into a single federal class action lawsuit. After much wrangling by the respective parties over where the consolidated cases would be heard, a panel of federal judges decided that the matter would go to Judge Fallon of the U.S. District Court for the Eastern District of Louisiana. You can read more about the consolidation decision at consumeraffairs.com. To follow the latest developments in the case check out the Court’s web page for the matter.
Statute of limitations: State entity trumps in Safeco Field case
On March 5 2009 the Supreme Court of Washington issued a 6-3 decision in WA State Major League Baseball Stadium Public Facilities District v. Huber, Hunt & Nichols-Kiewit Construction, No. 81029-0, in which the court held that the 6-year the statute of limitations for breach of contract did not apply to a construction defect claim concerning the construction of Safeco Field due to the exemption in RCW 4.16.1 for actions brought “for the benefit of the State”.
The case arose after the Mariners discovered that the fire protection coating system to the stadium’s structural steel beams and columns failed, allegedly because the contractor applied a primer layer that was incompatible with the coating layer. The Public Facilities District and the Mariners (who are responsible for the maintenance of the stadium) filed suit more than seven years after the date of substantial completion of the stadium. The court of appeals granted summary judgment in favor of the contractor because the matter was not timely filed. In holding that the statute of limitations did not apply in this case, the Court stated that the State’s sovereign powers had been delegated to the Public Facilities District, the public municipality created to build the baseball stadium. The Court reasoned that the construction of Safeco Field was a manifestation of the State’s sovereign function of providing for public recreation, in much the same manner as the improvement of a city park or public library. The dissent disagreed that the action was for the benefit of the public, noting that the public had to pay a private for-profit entity for a ticket to gain admission to the stadium.
As a consequence of this decision, contractors should not assume that the statute of limitations will apply on projects involving a state-delegated entity, even where the improvement being constructed appears to be substantially or exclusively for private use. In such circumstances a reasonable limitation period for claims should be agreed and set out in the construction contract.
Exciting Times at the Boring Machine
The $1 billion Brightwater wastewater treatment plant in north King County is experiencing delays. The attached video describes a problem with one of the large boring machines. The project, which includes several long tunnels and a central treatment plant, is divided up among several large contracts.
Unexpected Risk for Engineering Corporations
The Washington statute governing registration of engineers, RCW 18.43, establishes a licensing board with jurisdiction over disciplinary proceedings against engineers. Under RCW 18.43.130, a corporation may engage in engineering if the corporation submits an application to the board that designates a licensed engineer as “responsible for the practice of engineering by the corporation in this state [with] full authority to make all final engineering decisions on behalf of the corporation.” This statute may create problems for engineers who practice in S or C corporations.
While the apparent purpose of this statute is to make the “designated engineer” answerable to the board if the corporation departs from professional standards, a Washington trial judge recently ruled that the “designated engineer” was personally liable in tort for the negligent acts of corporate employees.
There is also a risk that the licensing board could conclude that, under the statute, the “designated engineer” must exercise his or her authority by personally making or confirming every engineering decision of the company. This would obviously be impractical for a large firm. The board has not had occasion to rule on this issue.
The statute provides that professional services corporations established under RCW 18.100 are exempt from the “designated engineer” requirement. Engineers in corporate firms practicing in Washington, or other states with similar licensing requirements, should consider whether changing to a professional services corporation will reduce their risk of unwanted consequences.
