Category Archives: Business & Civil Litigation

In construction projects, the question often arises as to when subcontractors are due payment from the general contractor. A disruption in the flow of payment from the owner to the general contractor, and then to the subcontractors is often the cause of litigation in construction disputes. In entering into a contract to provide services to a general contractor, the subcontractor must be aware of the payment clause in its agreement in order to appropriately assess its risk in proceeding with supplying its services for the project.

Subcontractor agreements often contain either a “pay-if-paid” clause or a “pay-when-paid” clause. A “pay-when-paid” clause requires the general contractor to pay the subcontractor regardless of whether the general contractor receives payment from the owner. Conversely, a “pay-if-paid” clause requires the general contractor to pay the subcontractor only if the owner pays the general contractor.

The Ohio Supreme Court recently clarified the distinction between these payment clauses in Transtar Elec, Inc. v. AEM Elec. Servs. Corp., Slip Opinion No. 2014-Ohio-3095. In Transtar, the subcontractor filed suit seeking payment of over $44,000 that was never paid by the general contractor or the owner. The general contractor only paid a portion of the work completed by the subcontractor because the general contractor had not received full payment from the owner.

The subcontract at issue contained the following language:

The Contractor shall pay to the Subcontractor the amount due under subparagraph (a) above only upon the satisfaction of all four of the following conditions: (i) the Subcontractor has completed all of the Work covered by the payment in a timely and workmanlike manner, …(ii) the Owner has approved the Work, …(iii) the Subcontractor proves to the Contractor’s sole satisfaction that the Project is free and clear from all liens….and (iv) the Contractor has received payment from the Owner for the Work performed by Subcontractor. RECEIPT OF PAYMENT BY CONTRACTOR FROM OWNER FOR WORK PERFORMED BY SUBCONTRACTOR IS A CONDITION PRECEDENT TO PAYMENT BY CONTRACTOR TO SUBCONTRACTOR FOR THAT WORK.

The general contractor relied on the provision that payment from the owner was a “condition precedent” to payment by the contractor, to support its decision not to pay the subcontractor for all of its work. The subcontractor argued that the payment clause was actually a “pay-when-paid” provision, which required the general contractor to pay regardless of whether it received full payment from the owner.

The Sixth District sided with the subcontractor, finding that the payment provision did not contain adequate language to create a “pay-if-paid” clause. The Sixth District reasoned that in order to shift the risk of owner nonpayment to the subcontractor, the payment provision must clearly and unambiguously demonstrate the parties’ intent to do so.

The general contractor appealed the decision to the Ohio Supreme Court, which reversed the Sixth District’s decision. The Ohio Supreme Court found that by using the language “condition precedent” in the payment clause, the parties intended that the risk of the owner’s nonpayment shift to the subcontractor rather than remain with the general contractor. In other words, by making payment from the owner to the general contractor a “condition precedent” to payment from the general contractor to the subcontractor, the parties had agreed to a “pay-if-paid” clause. As a result, the subcontractor could not force the general contractor to pay the balance due under the contract.

The Transtar decision highlights the importance of fully understanding the terms of a construction contract in order to properly plan for the risks that may confront a general contractor or a subcontractor in undertaking a construction project. A party to a construction contract must be able to identify whether the contract contains a “pay-if-paid” clause, or a “pay-when-paid” clause, and must fully understand how each clause shifts the risk of nonpayment.

In addition to understanding the payment terms in its contract, subcontractors should also remember to preserve their mechanic’s lien rights to further protect their ability to receive payment for their work. Under Ohio Revised Code 41113.62(E), a subcontractor does not waive its mechanic’s lien rights by entering into a “pay-if-paid” contract. Thus, when choosing to provide services subject to a “pay-if-paid” clause, a subcontractor should comply with Ohio’s Mechanics Lien law in order to provide the best possible chance of receiving full payment for its services.

The Finney Law Firm has represented owners, general contractors, and subcontractors in construction projects. Our attorneys are experienced in negotiating contracts and in litigating construction disputes. Please contact us if we can assist you with your legal needs.

 

Frequently our firm is asked to represent parties against whom claims have been made, either defendants in a law suit or recipients of a demand for payment pre-litigation.

It’s easy to just dive in and either respond to a demand letter or to defend such a suit, but that impulsive response can unnecessarily cost the client money.

One question that should be addressed early in the engagement is: Are their insurers or indemnitors who might cover the cost of the claim and/or the cost of the defense of the claim?

Almost all individuals and businesses maintain insurance policies of some sort such as property and casualty insurance (property and auto) or public liability insurance.  Some individuals and businesses will also have a variety of specialty insurance policies such as professional liability (i.e., malpractice) insurance, title insurance and fiduciary coverage.  These all are contractual arrangements whereby the risk for many typical occurrences in personal and business life that give rise to claims and suits are shifted to an insurance company — both the underlying claim and the attorneys fees associated with defending the claim.

In addition, the client may have a variety of contractual relationships that transfer the risk to a third party (not an insurance company).  Commercial leases, for example, many times contain risk-shifting provisions for various occurrences (both shifting risk from landlord to tenant and from tenant to landlord).  Employers frequently cover claims against their employees.

In addition to contractual relationships that give rise to indemnity claims, the positioning or actions of parties can cause risk-shifting as well.  For example, if someone borrows your car and wrecks it, injuring others, or if someone trespasses on your property and causes damage to property or injury to person, those third parties can be responsible to the client and the claimant for the costs of the claim and its defense.

An aggressive and creative attorney will — near the outset of the relationship — thoroughly explore insurance and indemnity issues so as to minimize or eliminate costs to the client — costs of both the attorneys fees to defend the claim as well as the costs of the substantive claim itself.

The idea is not for the attorney to make money — but rather to maximize the value to the client by retaining our firm.  If we can shift the risk near the beginning of the relationship to an insurer or indemnity, we have provided that value.  We have “made a difference” for our client!

Read here one example where we made a difference for a client whose prior counsel had failed to advise him of insurance and indemnity issues in a defamation claim.

When a client is being sued, it is important to fully explore all defenses available to them, but many times litigants and their counsel fail to come to the table with clean hands.  And in the right circumstances, that’s when you can turn the tables on your opponent.

Indeed, the law requires that certain counterclaims claims are compulsory, and the failure to bring them in the context of the litigation presented could be a bar to recovery in the future.

When exploring commercial disputes, the tools available to litigants are:

1. Meritorious counterclaims;
2. Actions for frivolous conduct against the party and his attorney under O.R.C. §2323.51, a statute designed to protect against being false dragged into court; and
3. Actions for frivolous conduct against the party and his attorney under Civil Rule 11.

These tools are all too frequently used imprudently, which can either unnecessarily increase the length and expense of litigation or even expose the client to claims of frivolous conduct, but when carefully considered can change the calculus of litigation in favor of the client.

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Please contact us to learn how we can help you with your litigation challenges, either defending against a business or personal claim, or prosecuting a meritorious claim you hold.

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Read below four related topics:

Navigating turbulent waters: Very early settlement discussions

Navigating turbulent waters: The litigation end game

Navigating turbulent waters: Economics of litigating low-dollar claims

Navigating turbulent waters: It’s not all black and white for Judges

In litigation, the reality of many business disputes is that neither party is 100% in the right, or 100% in the wrong, and, more importantly, even for the cases we believe passionately in, Judges tend to view them in more tempered terms than clients and their paid advocates.

Typically when Finney Law Firm attorneys meet with a client for the first time about their business or personal dispute, they are passionate about their position in the litigation.  They believe they have been wronged and want compensation for their losses, or that they have been unfairly sued, and want a vigorous defense of a disputed if not entirely frivolous claim against them.

However, as we get into the file more deeply, frequently we find the case is not at all just plain black and white, but rather shades of grey.

This has two consequences, at least: (i) it will take skill and attention to develop and present the case to convince the court that our client’s position is correct (read: more costly), and (ii) the odds of winning the case come down, if even slightly, as a result of the ambiguities present.

Clients and attorneys easily can fall into the trap of failing to see the weaknesses in their own case, and to assess them appropriately.

What we experience is that Judges and juries tend to see things less one-sided than we and our clients do initially   As a result, from the commencement of litigation to the day we are heading into trial, we attempt to paint for the client a realistic picture of their prospects for success.

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Please contact us to learn how we can help you with your litigation challenges, either defending against a business or personal claim, or prosecuting a meritorious claim you hold.

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Read below four related topics:

Navigating turbulent waters: Very early settlement discussions

Navigating turbulent waters: The litigation end game

Navigating turbulent waters: Economics of litigating low-dollar claims

Navigating turbulent waters: Turning the tables on the opposing party

For individual and small business clients of the Finney Law Firm, brace yourselves.

Anything other than the simplest litigation involving disputes of under $50,000 are difficult to resolve in a fashion advantageous to the client.  Even cases under $100,000 can be tough to resolve economically.  This is because the cost and aggravation of litigation, along with the time and unpredictability, make the cost-benefit of the proceeding difficult, if not upside down.

The exception to this  general rule is litigation in which punitive damages or “fee shifting” are involved.  Punitive damages are for the purpose of punishing the other party.  In Ohio in certain circumstances, punitive damages are limited by statute.  But in any event that means a multiplier above and beyond the actual damages can potentially be obtained in such cases.  Fee shifting means that when you win, the other side pays your legal fees.

But these remedies are limited to only certain types of litigation in Ohio, for example (i) cases involving intentional torts such as fraud, (ii) certain statutory actions where the legislature has specifically provided for these types of remedies, and (iii) cases in which a commercial contract calls for “fee shifting.”

Further, we find that Judges, especially state court Judges, are loathe to award punitive damages and attorneys fees to a prevailing party except in the clearest of circumstances.  Thus, litigants (except in public interest cases) should be exceedingly cautious in assuming that “the other guy” is going to be forced to pay your legal fees when you win.  The :”American Rule” on fees is that each party pays their own litigation expenses, and that’s almost always how it pans out.

What all this means is that for smaller disputes, the cost of litigation can well exceed the recovery, and clients should be cautious about proceeding even the first step down that path.  The reason is that litigation, once commenced, frequently becomes a slippery slope that is easy to enter but hard to exit.

When the Finney Law Firm is engaged for resolution of small disputes, we attempt to explain the risks and anticipated costs up front to empower the client to decide on the best path for himself. We also explore ways to provide value to the client in small cases, including a very early settlement, preemptive resolution, fee shifting and punitive damages, and even turning the table on opponents.

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Please contact us to learn how we can help you with your litigation challenges, either defending against a business or personal claim, or prosecuting a meritorious claim you hold.

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Read below four related topics:

Navigating turbulent waters: Very early settlement discussions

Navigating turbulent waters: The litigation end game

Navigating turbulent waters: It’s not all black and white for judges

Navigating turbulent waters: Turning the tables on the opposing party

The Finney law Firm is prepared to fully and vigorously litigate your claim, through appeals if necessary.  Indeed, our attorneys have handled appeals of a case all the way through the U.S. Supreme Court.  So, please do not read this article as a lack of resolve to pursue a case through the end.  Rather it reports the practical reality of the economics of the difficult process that litigation can be.

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As is explained in these articles, here, here and here, litigation is typically lengthy, expensive, and unpredictable.

Frequently, but not always, the process is withering for the typical business and individual litigant.  With some exceptions noted in the next paragraph, because of the time, cost and uncertainty of litigation, an early settlement is preferential to protracted litigation.

As a result, one technique Finney Law Firm attorneys frequently employ and may recommend to you an attempt at a very early settlement of your case, whether as Plaintiff or Defendant.

As a Plaintiff, if you can resolve a case before incurring legal fees, expert witness fees, court reporter charges, and other expenses attendant to litigation, if you can tie up a settlement and eliminate the risk — however small — of a loss in Court, and if you can avoid the life distraction of two-to-three years to resolve your Complaint, it may be in your interest to comprise your claim and settle it.

As  Defendant, if you can similarly avoid the costs of litigation, reduce the risk of a large judgment, and avoid the collateral damage to your business that litigation can bring, a settlement can be in your interest.

In our experience, rarely do Judges see things as black and white as do our clients on the original intake meeting.

For cases under, say, $50,000 in value, the two parties frequently can reasonably be expected to spend more than half that in expenses to bring a case all the way through trial.  Even resolving a claim on Summary Judgment, after significant dollars have been expended, can be an expensive approach.

Thus, one approach frequently recommended to clients of the Finney Law Firm is to attempt to settle a claim in the very early stages (i.e., before filing a law suit or before filing a formal answer).

Now, the response to these approaches, is all too often, regrettably, that the other side will not entertain an early settlement.  However, sometimes we are able to settle a claim before the monies of both parties are eaten up on legal fees.  But even when settlement is not accepted in the early stages, it can set the stage for favorable terms later in the proceedings, as the opposing counsel knows the other party and his attorney was and is always willing to attempt to resolve the claim.

And even more unfortunate, the opposing party and their counsel frequently will interpret, incorrectly, that taking a stab at preemptive settlement of a claim shows lack of resolve to see a matter through to conclusion.  Such is the posturing that accompanies much of the “litigation game,” but we prefer to start with the client analyzing the costs and risks of a full litigation of a claim before (not always instead of) embarking on the most expensive path available — litigation.

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Read below four related topics:

Navigating turbulent waters: The litigation end game

Navigating turbulent waters: The economics of litigating low-dollar claims

Navigating turbulent waters: It’s not all black and white for judges

Navigating turbulent waters: Turning the tables on the opposing party