By R. Russell O’Rourke, Esq., Partner – Chair, Construction Law Practice Group – Meyers, Roman, Friedberg & Lewis
In the January 2019 issue of The Contractor’s Compass, which focused on Construction Court Cases you Ought to Care About, we wrote about The Surprising Case of a Preliminary Notice that Wasn’t. This summer, ASA’s Subcontractors Legal Defense Fund (SLDF) filed its Amicus Brief in support of a subcontractor, Pursuit Commercial Door. Pursuit was victimized by a 2010 case that inappropriately applied Ohio’s Notice of Furnishing (“NOF”) statute, then badly misconstrued and misapplied a 1991 case with similar facts. This August the Summit County Court of Appeals corrected the problems caused by the 2010 case permitting the subcontractor to prosecute its mechanic’s lien, even though it served its NOF before it began work. So at least in Ohio’s Ninth Appellate District, subcontractors and suppliers can breathe a little easier when serving their NOFs.
The case, Pursuit Commercial Door Solutions, Inc. v. ROCE Group, LLC, the trial court determined that Pursuit’s mechanic’s lien was void because it served its preliminary notice—in Ohio, Notice of Furnishing (“NOF”)—TOO EARLY (One has to ask, what is the harm in serving an NOF too early?). The NOF statute ORC §1311.05 provides that a subcontractor or supplier may preserve its mechanic’s lien rights by serving a notice of furnishing, “… any time after the recording of the notice of commencement [“NOC”]…but within twenty-one days after performing the first labor or work or furnishing the first materials….”
The Court in the 2010 case, Halsey Inc. v. Isbel, quoted the statute, but omitted, “any time after the recording of the notice of commencement,” leaving only, “within twenty-one days after performing….” Removing those 10 words changed the intention of the legislature, narrowing the time period to serve an NOF until after the first work or material was supplied. Pursuit served its NOF after the NOC but before it began its first work on the project.
First, the Halsey Court was misguided into focusing on the NOF statute. The Halsey project was a home construction project. NO NOFs are to be served on a Home Construction project, ORC §1311.05 (E), so the issue should have never been included in the Halsey opinion.
Halsey merely attempted to use the NOF as a notice to the lender in the same fashion that was attempted in the 1991 case, Buy-Rite Lumber Co. v. Bank One, Akron, NA. Similar to Halsey, Buy-Rite attempted to use a preliminary notice—NOFs did not exist at the time—given to the lender on a home construction project, relying on ORC §1311.011 (B)(5) of the prior mechanic’s lien law—before the statute was amended to include Notices of Commencement and Notices of Furnishing. The point was to hold the bank liable when it had paid the final draw on the construction loan. Buy-Rite claimed that the lender should have known that Buy-Rite was unpaid because it had sent a preliminary notice advising that it would be supplying materials. Buy-Rite’s notice merely notified the lender that Buy-Rite was to deliver lumber to the project, not that it had delivered and was unpaid. ORC §1311.011 (B)(5)—similar to today’s statute—required the notice to advise the lender that a subcontractor or supplier was unpaid, not simply working on or supplying to the project. The case had nothing to do with mechanic’s liens, NOFs or even timing, only whether Buy-Rite had given notice to the lender that it had been unpaid for its materials prior to the distribution of funds by the lender on the construction loan.
The Halsey Court found that Halsey had given notice to the bank that it was unpaid, but held against Halsey because it had served its NOF—the NOF that it was not required to serve—too early. To give some meaning to the “too early” concept in Halsey, the Court noted that Halsey sent the notice of furnishing on May 14, 2007and that because service of an NOF is deemed to be served upon mailing, it was considered served on that date. Materials were first furnished on May 15, 2007 [the statute] clearly provides that a notice of furnishing should not be served until after materials are furnished.” So, the Court found that even though the owner had not yet received the NOF that was not required, because it was mailed one day before the first materials were furnished the NOF was served too early, so the lender was not bound to it obligation to obtain a lien waiver from Halsey before distributing the construction loan funds.
The Pursuit Court held that the construction of ORC §1311.05 as determined by the Halsey Court requiring that an NOF can only be served after the first labor or materials were furnishing was wrong, correcting the damage done by the Halsey decision. Before applying this information to your company’s procedures, contact your construction law attorney.
Russell O’Rourke’s 30+ years of active involvement in construction industry trade associations have allowed him to serve in the roles of client and industry advisor, advocate and leader. His active engagement has also translated into driving and contributing to legislative issues for the benefit of the construction industry, recognizing the issues that are most important to his clients and advising them of various approaches and resolution options using good business judgment. Find out more at meyersroman.com
ASA’s Subcontractors Legal Defense Fund supports ASA’s critical legal activities in precedent-setting cases to protect the interests of all subcontractors. ASA taps the SLDF to fund amicus curiae, or “friend-of-the-court,” briefs in appellate-level cases that would have a significant impact on subcontractor rights. Know of a decision that could set a precedent impacting subcontractors, and want ASA to get involved? Send your completed SLDF application to ASAOffice@asa-hq.com. And please donate to SLDF.
