Section Happenings: February CLE, Electronic Deskbook, Diversity Initiative, YLD Committee

By Jason Herndon

Friends –

Ready or not, 2019 is upon us. As we enter this new calendar year (and the midway point of our 2018-209 Bar year), I wanted to take the opportunity to highlight a few important Section issues and happenings.

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Are Public Payment Bond Rights Assignable Under NC Law? Maybe.

By Jonathan Massell

Contractors, like other businesses, often find it advantageous to assign their accounts in exchange for some other form of consideration from the assignee.  What is different about a contractor’s accounts, as compared to most other businesses, is that the amounts owed might be secured by payment bonds.

It should not be disputed that a contractor can assign its accounts to a third party so long as the proper procedures are followed.  However, if the accounts relate to a project where the contractor would have a valid claim on a public payment bond, can this right be assigned along with the accounts?  Practically, the ability of a third party purchaser to make a bond claim would make the assignment of accounts more lucrative for the assignee and would provide some bargaining power for the contractor who wants to assign the accounts.  However, once the accounts are assigned and the third party assignee goes to make a claim on the bond and enforce that claim in court, will a court dismiss the action right off the bat for lack of standing of this new claimant?  In North Carolina, maybe.

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NC Court of Appeals Clarifies When a Nonsignatory Can Compel Arbitration

By Bryan Scott and Steven Hemric

Generally, only signatories to an arbitration agreement can compel one another to arbitrate their claims. However, in certain situations a nonsignatory may take advantage of an arbitration agreement between other parties. One such situation arises when a signatory to an arbitration agreement is “equitably estopped” from refusing to arbitrate its claims against a nonsignatory, under the doctrine of equitable estoppel, concepts of fairness prevent the signatory from refusing to arbitrate its claims. See, e.g. Am. Bankers Ins. Group, Inc. v. Long, 453 F.3d 623, 627 (4th Cir. 2006). In (Smith Jamison Construction v. APAC-Atlantic, Inc.,) the North Carolina Court of Appeals recently clarified what types of claims by a signatory against a nonsignatory give rise to equitable estoppel. The key issue, according to the Court of Appeals, is whether the claims rest on the terms of the contract containing the arbitration clause at issue.

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Top 10 Changes to the AIA A201: What You Need to Know

By Melissa Brumback

In 2017, as it does every ten years, the American Institute of Architects (AIA) updated most of its standard form contract documents, including the A201 General Conditions.   This cycle, the contract changes are evolutionary in nature, not revolutionary.  Even so, it is crucial to know the changes to avoid making a fatal mistake that could cost you money on a construction project.  In reverse order, the top 10 changes you need to know include:

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How To Manage the Confluence Of Construction Law and Intellectual Property

By Jeff Reichard

Construction lawyers may face myriad issues related to intellectual property, including patents, copyrights, trademarks and trade secrets.  Intellectual property disputes can create substantial economic risks and even completely shut down an otherwise successful construction project.  While these issues often are misunderstood, the intellectual property issues that arise most often in construction can be easily recognized and managed via contract negotiation or otherwise after educating yourself on the various types of intellectual property and how they may apply to construction projects as identified below.

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Getting Liquidated Damages in Your Default Judgment

By Luke Farley

Owners, if you want liquidated damages to be included in your default judgment against a contractor, then be sure to plead the LDs in your complaint.

In Aoun & Cole, Inc. v. Fitzpatrick, a new, unpublished opinion from the N.C. Court of Appeals, the court affirmed an order under Rule 60(b)(6) setting aside liquidated damages that were awarded to an owner against a contractor as part of a default judgment.

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House Bill 707: What’s New With Lien Agents?

By Nan Hannah

In late June 2017, the North Carolina General Assembly passed legislation revising the Lien Agent statutes. Because these changes involve upgrades and changes to the website, the effective date for the new law is October 1, 2018.  So, what’s new?

44A-11.1(f) now provides for a designated lien agent to accept renewals and cancellations of Notices to Lien Agents.  What should catch your attention is the fact the original statute did not provide for either renewal or cancellation of such notices.

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Fourth Circuit Court of Appeals Deals Significant Blow To Traditional Contractor-Subcontractor Relationship

  By Arty Bolick and John Ormand

On January 25, 2017, the Fourth Circuit Court of Appeals[1], dealt a significant blow to the traditional contractor-subcontractor relationship.  In finding a contractor and subcontractor could be considered “joint employers” of the subcontractor’s workers for purposes of the Fair Labor Standards Act (“FLSA”), the court’s decision has opened a pandora’s box of potential wage and hour issues, including claims for overtime pay against contractors and higher tier subcontractors from the employees of lower tier subcontractors. Read more

A Brief Primer On Subdivision Development Bonds

By Luke J. Farley

Payment and performance bonds get all our attention. But there is another type of construction bond you might encounter, especially if the housing market in North Carolina stays hot[1]—the so-called “subdivision development bond.”[2] Both cities and counties can provide for “more orderly development of subdivisions by requiring the construction of community service facilities” like roads, sidewalks, utilities, etc.[3] To ensure that the infrastructure improvements are completed, local governments can require “performance guarantees” from developers.[4] All performance guarantees must meet the same basic requirements.[5] The purpose of a performance guarantee is to prevent a situation where a developer begins work on a subdivision, builds some houses, and then runs out of money without completing the infrastructure, leaving residents in a half-built community without roads, sidewalks, sewer, etc. Unfortunately, incomplete subdivisions were a common problem during the last economic downturn.[6]

Performance guarantees usually take the form of surety bonds, though the developer also has the option of getting a letter of credit[7] or some other equivalent security.[8] According to the International Risk Management Institute, a bond is the preferred option because it does not require any security[9] (though the developer or its principals should still expect to sign an indemnity agreement). Other performance guarantees, like a letter of credit or certificate of deposit, would either tie up the developer’s capital or put it directly at risk as collateral.[10]

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Recommended Reading: On the State Tax Code, Clarity Combined With New Gray Area

This year, North Carolina made many changes to the Tax Code which have raised many questions coming from the construction industry. Certain construction projects, if not considered capital improvements under the Tax Code’s definitions, require that the contractors collect taxes on projects. Even if no taxes are to be collected on the projects, contractors need to understand the affidavits that they should request, or that will be requested of them. Brett Becker and John Mabe offer an explainer on the new tax in a post on the NexsenPruet Insights site.