Recently the Texas Supreme Court addressed the issue presented by twelve different cases involving the question of whether legislative or charter language allowing cities and school
districts to “sue and be sued” meant that they could, indeed, be sued. Turning its back on Thirty years of precedent, the Court with its’ decision in Tooke v. City of Mexia, overturned its previous decision in Missouri Pacific Railroad v. Brownsville Navigation District, and the phrase “sue and
be sued” is no longer construed as a waiver of sovereign immunity from suit.
Prior to Tooke, the Legislature enacted a clear waiver of immunity from suit. Tex. Loc.
Gov’t. Code § 271.151-271.160 (Vernon 2005). The Court commented on this act in addressing
the retroactive application of the new law:
[A] governmental entity cannot complain of a retroactive waiver of immunity since all governmental immunity derives from the State, and a government entity acquires no vested rights against the State . . . Indeed legislative retroactive consent to sue is provided by statute.96
The statute, which specifically applies to municipalities, public school districts, junior college districts and special purpose districts or authorities [ water improvement districts,
navigation and public health districts, as well as river authorities] waives their sovereign immunity to suit on claims for breach of contract, and allows a claimant to recover the following:
§ 271.153. Limitations on Adjudication Awards
(a) The total amount of money awarded in an adjudication brought against a local government entity for breach of a contract subject to this subchapter is limited to the following:
(1) the balance due and owed by the local governmental entity under the contract as it may have been amended, including any amount owed as compensation for the increased cost to perform the work as a direct result of owner-caused delays or acceleration;
(2) the amount owed for change orders or additional work the
contractor is directed to perform by a local governmental entity in connection with the contract; and
97
Id.
98
The detailed requirements of the notice of termination are set forth at TEX. PROP. CODE § 53. (Vernon 2005). (b) Damages awarded in an adjudication brought against a local governmental entity arising under a contract subject to this subchapter may not include: (1) consequential damages, except as expressly allowed under
Subsection (a)(1); (2) exemplary damages; or
(3) damages for unabsorbed home office overhead.
Section 271.154 allows the parties to agree to ADR and, probably more significantly, allows the local governmental entities to engraft their claims procedures onto the dispute resolution process.
It appears that the Court has affirmatively held that contractors can obtain the limited relief set forth in Section 271 against a governmental entity despite the denial of any remedy for the Plaintiff in Tooke.97 The decision effectively puts the issue back in the hands of the legislature to address (once again) the issue of sovereign immunity. Until the time that the Legislature acts,
it would be folly to rely on traditional “sue and be sued” language. B. MECHANICS’ LIENS
1. LEGISLATION
In 2003, the Supreme Court held that a lien affidavit filed more than thirty days after the general contractor was terminated on a project was ineffective to create a lien against the retainage, even though the project was still under construction with a different contractor. Page v. Structural Wood Components, Inc., 102 S.W.3d 720 (Tex. 2003).
Subcontractors felt that the decision worked an inequity on them,
particularly if their work was done early in the project, and they had no reason to know that the general contractor with whom they had subcontracted was no longer on the project. The legislature, in Tex. FLB. 629, 79th Leg., R.S. (2005) sought to remedy the situation by requiring an owner to provide written notice to those subcontractors who either sent a lien notice or who requested notification from an owner that the original contract had been either terminated or abandoned.98 The
99
T PROP. CODE § 53.056 (Vernon Supp. 2005).
100TEX. PROP. CODE § 53.057 (Vernon Supp. 2005).
101
TEX. PROP. CODE § 53.058 (Vernon Supp. 2005).
102
TEX. PROP. CODE § 53 107 (Vernon Supp. 2005).
for it or who sent a notice of unpaid account,99 notice of retainage100, or notice of
specially fabricated materials101
If the owner does not provide this notice, the lien claimant will have a lien even if it fails to file its lien within 30 days after work is completed, so long as the subcontractor otherwise complies with the chapter [ e.g. timely files an affidavit by the 15th day of the 4th month after accrual of indebtedness, per TEX. PROP. CODE § 53.052 (Vernon Supp.2005)]. A notice sent in compliance with this new statute is prima facie evidence of the date of termination or abandonment if it is
sent within ten (10) days of the original contractor’s termination or abandonment.
This new law does not apply to residential construction projects.102
2. FRAUDULENT LIENS
In 1997, the legislature, in response to “sham” liens filed against office holders by “Republic of Texas” activists, enacted Tex. Civ. Prac. & Rem. Code § 12.001 (Vernon 2002), which made the filing of a “fraudulent lien” an act which
could make the filer liable for the greater of$ 10,000.00 or actual damages,
together with reasonable attorney’s fees and exemplary damages. In Centurion Planning Corp. v. Seabrook Venture II, 176 S.W.3d 498 (Tex. App.—Houston
[1st Dist.] 2004, no pet.), a developer successfully used the statute to obtain
statutory damages and attorneys’ fees from an engineering firm which had
improperly liened his property.
In Taylor Elec. Services, Inc. v. Armstrong Elec. Supply Co 167 S.W.3d
522 (Tex. App.—Fort Worth. 2005, no pet.), a general contractor successfully used the statute against a materials supplier who had liened one of the contractor’s
projects. There, the supplier furnished materials, but the contractor deducted
$6,000.00 for its “liquidated damages” allegedly due to the supplier’s late
deliveries. The supplier filed a lien affidavit for $12,452.04, which did not reflect a $7,700.00 payment in the form of a check which the supplier had received, but not cashed. When the case was tried, the jury found that the lien filing was fraudulent,
and the court therefore awarded an additional $10,000.00 penalty against the materials supplier under the statute.
The primary question on the appeal of the award was whether the
contractor could fit within the definition of persons authorized to recover damages under Tex. Civ. Prac. & Rem. Code Ann. § 12.003, stated as follows:
(a) The following persons may bring an action to enjoin violation of this chapter or to recover damages under this chapter:
(b) in the case of a fraudulent lien or claim against real or personal property or an interest in real or personal property, the obligor or debtor, or a person who owns an interest in the real or personal property.
Tex. Civ. Prac. & Rem. Code Ann. § 12.003(a)(8) (Vernon 2002). Unlike the developer in Centurion, supra, the contractor was not an owner,
but the court found that he nevertheless was an “obligor or debtor” because, under
his contract with the owner, he had agreed to indemnify the owner from any claims or liens filed against the project.
Taylor, like Centurion, is a demonstration that any lien affidavit which the jury ultimately finds to be incorrect can form the basis for invoking this unusual statute.
3. SUBSTANTIAL COMPLIANCE
In Redland v. Southwest Stainless, No. 2-05-l42-CV, 2005 WL 3244323
(Tex. App.—Fort Worth Dec. 1, 2005, no pet. h,), a contractor purchased
materials from a supplier but never paid for them. The supplier sent its notice to the payment bond surety via certified mail, but only used regular mail to copy in
the contractor, despite the requirement in Tex. Gov’t Code § 2253.048(a) (Vernon
2000) that the notices be sent by certified or registered mail.
After a bench trial, the trial court entered judgment against the surely,
which appealed. In affirming the trial court’s decision, the Fort Worth court held
that substantial compliance with the statutory requisites was sufficient, particularly since the notices were timely and were apparently received by the contractor, who in the meantime had gone bankrupt. However, the substantial compliance doctrine does not stretch far enough to cover more substantive errors in lien notice and filing requirements. See, e.g., Wesco Distribution, Inc. v. Westport Group, Inc.,
150 S.W.3d 553 (Tex. App.’—’Austin 2004, no pet.) (a notice returned for
103
TEX PROP. CODE ANN § 162.001-162.007 (Vernon Supp. 2005).
104
Wilshusen, Texas Construction Trust Fund Act and Bankruptcy Preferences, Construction Law Journal vol.I, No. 2, at 43-44 (2003); TEX PROP. CODE ANN. § 162.002 (Vernon Supp. 2005).
105
Wilshusen, supra at 43,
C. CONSTRUCTION TRUST FUNDS