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Unjust Enrichment Limited in Landlord/Tenant Scenarios

Suppose you act as a subcontractor on a job. Assume in the middle of that project, the general contractor goes out of business, leaving you with unpaid invoices. You want to look for compensation for your labor and materials, and often, the only other entity to look to is the project owner. Normally, as a subcontractor, you do not have a contract with the project owner, so you cannot initiate a legal action and allege breach of contract. Traditionally, in these scenarios, unjust enrichment has been a broad remedy the subcontractor could use to collect money from an owner.

Unjust Enrichment

Unjust enrichmentprovides a remedy when one party has benefitted from another and, in good conscience, the benefitted party should compensate the other. It does not apply to cases in which owners have paid general contractors for the subcontractor’s work. It does apply when the owner has not paid the subcontractors. In that case, a court would order the owner to pay the subcontractor. These two broad principles are unchanged.

In August, the Arizona Court of Appealshanded down a court opinion called Wang Electric v. Smoke Tree Resortthat limits the remedy of unjust enrichment when a lease is involved. In that case, the court ruled that subcontractors who contracted with a tenant to improve a building, and who do not get paid by the tenant, cannot sue the owner of the building for unjust enrichment unless the subcontractor shows the owner acted with improper, deceitful or misleading conduct. According to the court, the reason for this is that the owner/landlord should not have to act as an insurer for the tenant’s acts and as a guarantor for the tenant’s payments to subcontractors.

In the end, the court rules the owner could benefit from the improvements and not pay for them because the owner’s retaining the improvements without paying the contractor was not unjust. The court rules that the owner’s actively taking a role in the construction of the project did not make the owner’s retaining the benefits of the improvements, without paying for them, unjust. So, in this case, the owner received an almost-finished commercial restaurant without having to pay for much of it.Many have pointed out that the delineation that the court made is nonsensical and that the results is far from just. Nevertheless, subcontractors should beware when contracting with tenants of buildings. If the tenant files for bankruptcy or simply goes out of business, you may not have an unjust enrichment claim against the owner

Tips for the Competitive Bidding Process

Bidding on a public job can be frustrating. The process the government body utilizes to request bids and then to decide can be shrouded in mystery. This article will present insight on the bidding process and shed a bit of light on the process.

Bidding on a public jobcan be frustrating. The process the government body utilizes to request bids and then to decide can be shrouded in mystery. This article will present insight on the bidding process and shed a bit of light on the process.

Rules may vary

Most public bodies follow the Arizona Procurement Code, but not all of them. Partly because of this, depending upon the Request For Proposal, the rules will vary. Requirements in the Request For Proposal must be followed. If a Proposal from bidders is due at 3:00 p.m., and the requesting body requires 10 copies to be submitted, if you submit a Response at 3:10 p.m. or with less than 10 copies, your Proposal probably will be found to be non-responsive and the Proposal will not be considered.

Recently, a contractor I representedfound out he was not the successful bidder five days after his competitor was awarded the project. The contractor had 10 days to file a bid protest. He asked for backup documentation from the contracting body, but did not press for the information to be released immediately. He received the information about 10 days later. Any bid protest would have been late and, as a result, would have had an uphill battle.

With that said, bid protests sometimes work with just a few letters to the correct person. Recently, I represented a rooferwho challenged the award of a contract to a competitor. In this situation, we alleged that the architect for the county colluded with the salesman of a particular product to require the salesman’s product to be used in the project. Based on information from the salesman and the architect, the Procurement Officer did not consider my client’s suggested use of a different product that was an “equal alternate.” This requirement eliminated all other roofers who had submitted bids because none of the other roofers were approved to apply the product, including my client. After I pointed out the wrongfulness of the process to the Procurement Manager, the Procurement Manager reversed the Procurement Officer’s decision and awarded the contract to my client.

In the event that letters to the correct person do not work, the aggrieved party may commence legal action, often with the Arizona Department of Administration(the forum is dependent upon the public body that issued the Request For Proposal). In the case of the Arizona Department of Administration, a hearing officer will hear the case and submit his or her decision to the Director, who has the ability to accept it or modify it. As in the case with a decision from the Arizona Registrar of Contractors, if the aggrieved party is still not satisfied, that party can seek judicial relief in Maricopa County Superior Court.

If you are not the successful bidder, you will immediately wonder why you were not. You may want to inquire about the scoring process that the public body uses. That is, the public body may put different weights on the different requirements within the proposal. Some of the requirements within the RFP may be mandatory, and some may be discretionary.

Additionally, the actual scoring may have an error. Scoring implies assigning numbers to different criteria. The numbers are weighted, and then added up. This process requires humans to enter the numbers into a spreadsheet. This data entry is subject to mis-entry of numbers, or mis-calculation of numbers.

If you follow the bid requirements closely, aggressively follow up with any requests for clarification, and demand information immediately when denied an award, you will be in a much better position to protect your rights.

The Registrar’s New Arbitration Process Regarding Corrective Work Orders

As of July 25, 2011, Arizona has a new statute, ARS §32-1155.01, that is designed to avoid contractors (and complaining parties) from being forced to litigate before an Administrative Law Judge.

Arizona arbitration process corrective work order

If you or your company has had the unfortunate experience of receiving a Corrective Work Order from the Arizona Registrar of Contractors, you know that you are entitled to dispute the Corrective Work Order. If you dispute the Corrective Work Order, a Citations and Complaint would typically be issued against you or your company. You would have to answer the Citation and Complaint, and several weeks or months later, you (or a representative of your company) would have to argue your position before an Administrative Law Judge.

The Registrar’s arbitration process in Arizona

As of July 25, 2011, Arizona has a new statute, ARS §32-1155.01, that is designed to avoid contractors (and complaining parties) from being forced to litigate before an Administrative Law Judge. If the cost of repair within a Corrective Work Order is $5,000 or less, the Registrar may refer the dispute to arbitration. If the cost to repair is more than $5,000, the parties may arbitrate the matter, if both parties agree.

The primary unanswered question is what the Arbitrator can actually order. The Arbitrator cannot suspend or revoke a license, award monetary damages, assess civil penalties or award attorneys’ fees or costs. It appears that the Arbitrator can order restitution, or the cost of repair of the items in the Corrective Work Order. However, presumably, the Registrar can suspend or revoke a license and assess penalties, based upon the Arbitrator’s findings.

The statute allows the contractor to post a bond in the estimated cost of repair within 14 days after the Registrar referring the matter to arbitration. Presumably, this will keep contractors who are not successful in Arbitration from being exposed to having their licenses suspended or revoked. The statute’s deadlines are designed to move the process quickly toward resolution. While there are procedural safeguards in the law, generally, there is no right to appeal an Arbitrator’s ruling to a court.

This processis in its infancy. Unfortunately, personnel at the Arizona Registrar of Contractors still do not have many answers as to how they intend to implement this statute. However, based on the excessive case load of Administrative Law Judges. I would expect the Registrar to slowly phase in this process, thereby avoiding the Administrative law track, and more quickly resolving lower-dollar Corrective Work Orders.

Stop Notices Are Valuable Tools to Collect Money

You work hard, and when you do not get paid for your labor or materials, it is financially and emotionally devastating. To increase your chances of getting paid, consider using Stop Notices.

A Stop Notice is a demand upon a lender or owner to immediately stop paying a general contractor

Stop Notices are a remedy the Arizona Legislature added to assist contractors and material suppliers in getting paid. A Stop Notice is a demand upon a lender or owner to immediately stop paying a general contractor. A Stop Notice creates a lien on undisbursed construction funds held by the owner or construction lender.

Contractors and suppliers who can record a mechanic’s liencan serve a Stop Notice. Thus, to serve a valid Stop Notice, a contractor or supplier must have served a 20-Day Notice. The project must be a private project, not a public project. If the project is “owner occupied”, the contractor/supplier cannot serve a valid Stop Notice unless the Claimant has a written contract with the owner occupant.

A lender that receives a bonded Stop Notice must withhold the amount of the claim until the claim is resolved

A Stop Notice is served on the lender, if there is one, and the project owner. There are two types of Stop Notices: bonded and unbonded. A bonded Stop Notice is a Stop Notice that is served with a bond, issued by a surety company, for 125% of the amount owed. A lender that receives a bonded Stop Notice must withhold the amount of the claim until the claim is resolved. This is the strength of the Stop Notice remedy: serving a Stop Notice can shut down or significantly curtail a project. However, a surety normally requires a bond to be backed by cash collateral. The requirement of cash collateral can preclude contractors and suppliers from being able to use the bonded Stop Notice remedy.

An unbonded Stop Notice is a Stop Notice without the bond

An unbonded Stop Notice is a Stop Notice without the bond. An owner served with an unbonded Stop Notice from a subcontractor or supplier must withhold funds to satisfy the subcontractor or supplier’s claims. While the lender does not have to honor an unbonded Stop Notice, often times the lender will choose to honor it, which will either get you paid or cause the project to be shut down. You can prepare an unbonded Stop Notice in house, or a preliminary notice company can prepare unbonded Stop Notices for you for a reasonable fee.

Most contractors in Arizona do not use Stop Notices. If you are not getting paid on a project, consider, at a minimum, an unbonded Stop Notice. A project owner must withhold money and a lender may withhold money. An unbonded Stop Notice is inexpensive, and it may be the tool that gets you paid.

Preliminary 20 Day Notices Are Still Valuable In This Down Real Estate Market

To record a mechanic’s lien, the lien claimant must have sent out a preliminary twenty day notice (“20 day notice”). Many people have questioned whether 20 day notices are still cost justifiable. Also, people have questioned whether 20 day notices are effective for landscape contractors when they are performing maintenance work. Finally, others are unsure about whether a 20 day notice will cause tension with the owner or general contractor. This article will address these questions.

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