Review the Insured's Construction Contract

The first matter to address in a construction defect action is whether the insured is sued under a breach of contract theory.

There are two primary reasons for this inquiry by the adjuster. The main reason is that under a breach of contract claim, the insured's duties to the party who brought the claim against the insured flow from the contract. Commonly, construction contracts limit the scope of recoverable damages, such as by waiving consequential damages.

Many of the industry-standard construction agreements, such as the AIA contracts, contain a waiver of consequential damages. This detail is critical, given that parties sometimes allege a right to damages beyond what they are actually permitted to recover under the contract.

In addition to repair costs, it is not uncommon for parties to demand business interruption losses or lost rental income. These inflated damages can significantly increase the overall settlement matrix to the insured during the lawsuit. Understanding the contract will permit the adjuster to recognize the fallacy of the demand from the outset and summarily cut off the overstated amounts during settlement negotiations.

The second reason to analyze the contract is to evaluate the contractual indemnification and duty-to-defend demands that come with virtually every condo lawsuit. If the insured happens to be on the wrong end of the demand, all is not lost.

Some states have enacted statutes to limit or bar indemnification when a contract contains a broad form of indemnification, i.e., where the indemnification clause requires a party to indemnify another party even if the party demanding indemnification was responsible in whole or in part for the damages.

Florida Statute 725.06, holds that any agreement indemnifying a party for its own acts is void and unenforceable, unless the contract contains a monetary limitation on the extent of the liability.

It is not uncommon for national construction companies to use the same master template contracts for several years without modifying the agreements to comply with changes in the law or accounting for every state-specific law. A red flag should rise if an adjuster encounters an agreement that indemnifies the contractor for its own acts without any monetary limitation.

There is a separate obligation that runs with a duty to indemnify, i.e., the duty to defend. The trick with this separate duty is that if it is intertwined within the same provision as the unenforceable indemnification clause, then the duty to defend provision may likewise be unenforceable.

In Florida, parties are not necessarily obligated to defend if the duty-to-defend provision is combined with an unenforceable indemnification provision.

Well drafted contracts contain distinct subsections, i.e., one for indemnification and one for the duty to defend. It is the author's experience, however, that some construction contracts may not contain separate provisions or if they have separate provisions, improperly incorporate the invalid indemnification language in the defense subsection. Carriers who represent general contractors should audit their insured's contracts to ensure the agreements will pass any state-specific laws.

Verify Whether Settlement Agreements Exist

Settlement agreements are a familiar occurrence in the construction industry regardless of any lawsuits having been filed. In payment disputes, parties perform work, do not receive timely payment, and file a claim of lien or make a demand upon the surety. There are strict timelines for recording a claim of lien in non-bonded projects, as well as serving the proper notices on bonded projects. As a result, parties record documents and make claims without having to immediately file a lawsuit.

In response to the demands, payment negotiations typically occur, prior to a lawsuit being filed. In exchange for payment, the party demanding the money is typically required to enter into a release. The release may be broad and can potentially bar any future defect claims.

Because the party signing the release may be focused on payment rather than the potential of waiving future rights, an adjuster should demand, or have insured's counsel, demand any releases as part of the investigation since it could be the "smoking gun" document that bars the claims against an insured.

Look for a Statute of Repose Defense

It is shocking how many actions proceed for years before a statute of repose issue is addressed. It appears this defense is alleged at the outset of the lawsuit in the insured's defenses; however, the question is not analyzed or addressed until mediation or immediately before mediation - an event that occurs after years of litigation and significant attorneys' fees and costs.

This defense is the single-most decisive weapon an insured possesses in its arsenal during a condo defect lawsuit. Why? The answer is simple. Some states have enacted statutes creating an outer boundary, which serves as the ultimate cut-off point for a construction defect lawsuit. These laws are called statutes of repose.

It is important to understand that this is not the same as a statute of limitations. For example, in Florida, actions concerning construction defects have a four year statute of limitations. The four years is somewhat deceiving. A plaintiff will often allege the defects were "latent," meaning they were not noticeable. This permits the plaintiff to bring an action within four years from the date the damages were discovered, regardless of whether this date is greater than four years after the damages actually occurred.

By contrast, the statute of repose has no discovery element for latent defects. Instead, it is the outermost time that a party can be sued, regardless of when the damages were discovered. The premise is that parties should be entitled to rely upon some point in time when any potential lawsuits are barred due to the amount of time that has passed.

In Florida, the statute of repose is 10 years (Florida Statute 95.11(3)(c)). This was changed in July 2006 before which the repose period was 15 years. Thus, any condo defect actions commenced on or after July 1, 2006 are subject to the 10 year repose period.

Theoretically, the statute of repose defense is a straightforward computation that is calculated from a certain event, such as a certificate of occupancy. The complication, or perhaps confusion, seems to occur when the insured is a third party defendant.

Here is an example. A project is completed and the certificate of occupancy is issued in 2000. The condo association notices defects in the stucco, windows and roof in late 2008. The association files its lawsuit against the project's general contractor and architect in 2009. The contractor, in turn, files its third party lawsuit against the subcontractors who performed the scope of work at issue in the association's primary lawsuit. The contractor's attorney investigated the association's claims and did not file the third party lawsuit against the subcontractors until 2011.

The key is to understand that there is no exception to the statute of repose for third party actions. Once the ten year timeframe lapses, the potential exposure ceases. It is not unusual for subcontractors to presume that a condo defect lawsuit is timely against them, since the main action by the association was timely filed against the general contractor. Do not presume anything.

Be Suspicious When an Association Demands Indemnification from a Contractor

Adjusters should pay special attention when an association makes a demand for contractual indemnification from a contractor. This could occur in a scenario where a unit owner makes a claim against his/her condo association for an alleged issue involving common elements.

A condo has a defective fire sprinkler system, and a unit owner brings a claim against the condo association "Fake Lakes Condominium Association, Inc." for water damage. The association's next move may be to initiate a demand for contractual indemnification and defense from the contractor, based upon the contract between the developer (Fake Lakes, LLC) and contractor. The names of the developer and the association may be similar since the developer created the association prior to turning over the condominiums to the unit owners.

However, "Fake Lakes Condominium Association, Inc." and "Fake Lakes, LLC" are two separate legal entities. In Florida, a contractual indemnification clause in a contract between a developer and the contractor does not create an obligation by the contractor to indemnify the condo association unless the contract states otherwise.

This issue was addressed in Florida with the case of Marseilles Condominium Owners Ass'n, Inc. v. Travelers Casualty and Surety Co. of America, 2009 Fla. App. LEXIS 16138 (Fla. 1st DCA 2009)("Marseilles").

In Marseilles, a Florida court was faced with an argument by a condo association whereby the association claimed to be a successor in interest to a developer for purposes of a bond claim. The court initially held that the association was a successor in interest. However, the court later withdrew its opinion. Thus, there are presently no cases in Florida holding that condo associations are successors in interest to developers.

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First and foremost, anyone who agrees to act as a construction manager for a homeowner-builder must know what a "construction manager" is and what it is not. Simply handing the hard hat and plans over to the homeowner does not mean that the construction professional is free to perform whatever scope of work is necessary to complete the project. There are several key elements that define what a construction manager is. A "construction management" relationship is one whereby the construction manager acts as the homeowner's agent.[ii] The construction manager provides advice and services to the owner, yet does not directly perform the design work and is not responsible for the actual construction work. Instead, the homeowner contracts with the licensed subcontractors who will be performing their designated scope of work. The duties of a construction manager vary from job-to-job and his/her services may include helping the homeowner solicit bidding, reviewing the qualifications of the contractors who will perform the actual construction, helping to prepare bid packages, analyzing bids, as well as analyzing proposals for the owner.

So what's the big deal? The above definition becomes important for several reasons. The leading basis that comes to mind is the disciplinary aspect. Florida maintains strict licensing requirements for contractors.[iii] Simply calling oneself a "construction manager" will not absolve the construction professional from discipline by the State's Construction Industry Licensing Board if in fact the individual is acting as a "contractor" and is not properly licensed. The other aspect that comes into play is payment for services. Florida holds that contracts entered into by unlicensed contractors are unenforceable either in law or in equity.[iv] What does this mean for the unlicensed professional? It's simple. Performing the work does not guarantee an entitlement to fees.

There is no apparent Florida law discussing the remedies for a construction manager who is owed money by a homeowner. There is, however, a recent California case, which is on-point and addresses this area of apparent first impression. In The Fifth Day, LLC v. Bolotin (decided on March 27, 2009)a construction management company brought an action against a project owner seeking compensation due for construction management services. The Fifth Day, LLC v. Bolotin, 91 Cal. Rptr. 3d 633 (Cal. Ct. App. 2d 2009). The project's owner maintained that the construction manager was barred from initiating an action against the owner since the construction manager was not a licensed contractor. The Court analyzed the scope of services under the construction management agreement, and compared the services to California's statutory definition of "contractor." In the end, the Court ruled that the construction manager was not acting as a "contractor" and thus could maintain its action against the project owner. The same analysis that California exercised can be employed in Florida to reach the same conclusion.

What should be taken from this article? First, a construction professional should not engage in contracting services unless he/she is properly licensed. Calling oneself a "construction manager" will not absolve one from the responsibilities of being a contractor. There are not only disciplinary ramifications for unlicensed construction activity, unlicensed contracting also affects the wallet. Second, if truly acting as a construction manager, be certain that scope of services does not inadvertently sneak into the realm of a contractor. A construction manager needs to carefully review his/her scope of services and make certain that the homeowner-builder knows that the homeowner-builder is the contractor.

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The failure of a lienor to serve its Notice to Owner is a complete defense to a lien foreclosure action. The result can be a complete loss of the claim of lien, payment of the other party's attorneys' fees and even claims against you for improperly encumbering the real property of the Owner. However, Florida's Construction Lien Law creates exceptions for some lienors. Your company is not required to serve or deliver a Notice to Owner if you fall within one of the below categories:

1. The contract is directly with the Owner of the construction project.
2. The contract is directly with the Owner's agent.
3. The Owner and general contractor share common corporate identity and are thus the same person.
4. Labor, services and materials to make the construction site suitable for building (i.e. site work, excavating, grading, underground utilities).
5. Professional lienors (architect, engineer, land surveyor, mapper, and landscape architect).
6. Laborers who perform actual physical work at the construction site.
7. If the contract for construction between the owner and general contractor is under $2,500.00, then Florida's Construction Lien Law does not apply and the Notice to Owner is of no use.
8. Federal, State or Municipal construction projects.

If you are in doubt as to whether you should serve a Notice to Owner or are exempt from doing so, you should consult your construction attorney for guidance. Remember, failing to serve the Notice to Owner when required is fatal to your claim of lien.

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The Condominium Act instead provides that if authorized by the association, the labor or materials are deemed to be performed or furnished with the express consent of each unit owner and may be the basis for filing a lien against all condominium units in the proportions for which the owners are liable for common expenses. It is important to note that this means that the lien attaches to each unit in their proportional share, and not to the entire condominium or common elements as a whole. This raises the question of who is a proper an indispensable party to a lien foreclosure action in such a situation?

Luckily, Florida appellate courts have taken the common sense approach adopted in the Florida Rules of Civil Procedure when dealing with condominium associations. The Florida Rules of Civil Procedure allow for a condominium association to bring a suit on behalf of all unit owners concerning matters of common interest to the members, including the common elements, the roof or structural components of a building, and other improvements. Florida appellate courts have adopted the rationale of this rule when reading the Construction Lien Law in conjunction with the Condominium Act to determine who an owner is for the purposes of lien rights.

In the case of Trintec Construction, Inc. v. Countryside Village Condominium Association, Inc., the Third District Court of Appeals held that a roofing contractor was not required to join individual unit owners as indispensable parties to its lien foreclosure action, and could sue the association as class representative for the unit owners.

When filing a lien for labor or materials related to improvements to the common elements of a condominium, lienors should do the following to protect their lien rights:

• If you performed work on the common elements, be sure that the work you performed to the common elements was authorized by the condominium association. If you performed work on individual units, be sure that each unit owner has consented to that work.
• Be specific in your description of the property in your claim of lien.
• Include a statement stating that the subject property includes all condominium parcels of the specific condominium as created by the Declaration of Condominium recorded in the public records in the proportions for which owners are liable for common expenses.
• Do not file a lien on only the common elements of a condominium.
• Consult your construction attorney before filing your lien to be sure that you haven't omitted key information.

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Venue in General

Before discussing venue considerations in a construction setting, one must first consider the fundamental principles of venue. Most Florida actions are governed by F.S. §47.011, the general venue statute. Florida’s general venue statute controls actions brought under common law, as well as matters brought pursuant to statutes that do not contain specific venue provisions.²

In addition to the general venue statute, Ch. 47 also contains several specific venue statutes. If there is a specific venue statute, the next step is to determine whether there is a conflict between the specific statute and the general statute. All conflicts between the general statute and a specific venue statute will be resolved in favor of applying the specific statute.³

Absent some statutory venue exception, parties are generally free to establish venue by agreement or stipulation.⁴ Many construction contracts contain venue provisions that have pre-determined the location and forum for bringing and maintaining disputes regarding the contract.⁵

Absent a negotiated contract, parties must look to the Florida Statutes for guidance to determine proper venue. The Florida Legislature has provided a roadmap to aid construction attorneys in navigating this issue by enacting a specific venue statute that voids contractual venue provisions requiring resident contractors, subcontractors, sub-subcontractors, or materialmen to litigate claims outside of the state of Florida for disputes involving improvements to real property in this state. For this reason, the initial consideration for a practitioner handling a construction action is to determine whether the action must be litigated in Florida.

The Scope of F.S. §47.025

In Florida, contractual provisions for the improvement of real property that require the action be brought outside of the state are void as a matter of public policy pursuant to F.S. §47.025. Section 47.025, entitled “Actions against contractors,” provides as follows:

Any venue provision in a contract for improvement to real property which requires legal action involving a resident contractor, subcontractor, sub-subcontractor, or materialman, as defined in part I of chapter 713, to be brought outside this state is void as a matter of public policy. To the extent that the venue provision in the contract is void under this section, any legal action arising out of that contract shall be brought only in this state in the county where the defendant resides, where the cause of action accrued, or where the property in litigation is located, unless, after the dispute arises, the parties stipulate to another venue.⁶

Before litigants can employ the protections of this construction venue statute, a preliminary determination must be made regarding whether or not the statute even applies. Having a construction dispute is not in itself dispositive of whether §47.025 applies. The statute protects resident “contractors,” “subcontractors,” “sub-subcontractors,” and “materialmen,”⁷ as defined by F.S. §713.01, et seq.⁸

If the litigants at issue do not fall within one of the above defined categories, then §47.025 does not apply. When the lawsuit does not involve a “contractor,” “subcontractor,” “sub-subcontractor,” or “materialmen,” an out-of-state venue provision may be enforceable unless void for some other reason. If, on the other hand, the affected party is identified as being in one of the above defined categories, then §47.025 would likely apply, and the venue will lie in Florida unless the parties stipulate to a non-Florida venue after the dispute arises.

Interpreting F.S. §47.025

The seminal case interpreting §47.025 is Kerr Construction, Inc. v. Peters Contracting, Inc., 767 So. 2d 610 (Fla. 5th DCA 2000). In Kerr, a Florida subcontractor filed suit against a contractor in Orlando for damages stemming from breach of a subcontract.⁹ The subcontract at issue contained a venue selection clause, which stated: “This agreement shall be construed in accordance with the laws of the Commonwealth of Kentucky and shall be enforced only in the courts of the Commonwealth of Kentucky.”¹⁰ The contractor moved to dismiss the complaint for improper venue based upon the subcontract’s forum selection clause.¹¹

On appeal, the Fifth District reviewed the legislative intent of §47.025 and ruled that the subcontract’s venue selection clause was void.¹² According to the court, venue needed to be determined in accordance with Florida’s general venue statute (i.e., F.S. §47.011).¹³ In rendering its decision, the court was careful to avoid choice-of-law issues so as not to create an overly broad ruling. Specifically, the Fifth District noted that §47.025 did not address choice-of-law clauses, and, thus, they would remain valid and applicable despite the venue selection clauses being void.¹⁴ Hence, contracts could still require application of out-of-state law, even though the venue would lie in Florida.

Who Is Considered a “Resident” Under §47.025?

The above scenario seems to pave a comprehensive path for practitioners. However, the issue of who qualifies as a “resident” could arise, since §47.025 specifically references and applies only to “resident” contractors, subcontractors, sub-subcontractors, or materialmen.¹⁵ Suppose that you represent a Florida-licensed contractor who resides in Mississippi but has offices in Mississippi and Florida. Your client is served with a complaint or arbitration demand from a home-owner who is bringing an action for alleged damages to an unfinished home-construction project located in Pensacola. The homeowners currently reside in Mississippi and have filed the action in Mississippi insomuch as the construction contract’s venue provision identifies Mississippi as the location to resolve all disputes. Moreover, the parties executed the contract in Mississippi. Can your client employ §47.025 as a basis to argue that venue lies in Florida? While §47.025 is clear regarding venue provisions against contractors, subcontractors, sub-subcontractors, or materialmen who reside within the state, it is less obvious when considering contractors, subcontractors, sub-subcontractors, or materialmen who perform services in Florida, but who in fact reside outside of the state.¹⁶

The crux of the argument may come down to whether the contractor is considered to be a “resident” contractor within the meaning of §47.025. There is no apparent case law interpreting this issue. Moreover, there does not appear to be any legislative history from which to garner an answer. From one perspective, it would seem that the protections of §47.025 would not apply under this scenario since the section is arguably designed to protect Florida residents who work on Florida-based projects from being dragged across the country due to onerous, multi-party contractual provisions. The protections of §47.025 would seem to have little to no significance if a contractor actually resides in the out-of-state locale where the action has been brought. Thus, if seeking to have the matter resolved in Florida, the contractor may be forced to forego a §47.025 argument and instead may fashion another broader venue argument (i.e., forum non conveniens, etc.).

Once it has been determined that an out-of-state venue provision is unenforceable, general venue principles can be considered to determine where venue lies within the state. Suppose, however, the contract does not contain an impermissible out-of-state venue provision, but the parties have contractually agreed to venue of disputes within the state. Below is a discussion of the numerous factors for parties to consider once it is determined that Florida is the proper venue (i.e., issues of contractual interpretation and transfer of venue within the state).

Permissive Versus Mandatory Contractual Venue Provisions

Contractual venue provisions are generally valid and enforceable in Florida.¹⁷ Furthermore, by operation of a “flow-down clause,” which incorporates the terms and conditions of an upper-tier contract or prime contract, a venue provision may also be enforced against a subcontractor, sub-subcontractor, or material supplier.¹⁸ Only by examining the actual language of the venue provision can the construction practitioner be guided to the appropriate forum. Mandatory venue provisions generally contain words such as “shall,” “must,” and “only,” which express a clear intention that all claims and disputes will be maintained in the specifically selected venue,¹⁹ and which specifically identify the forum in which the action must be brought. For example, if the contract provides, “All actions, claims, or disputes arising or relating to this contract shall only be brought and maintained in the Circuit Court of Duval County,” the fact that another venue may be appropriate for the action will not weigh in the court’s enforcement of the mandatory venue provision.²⁰

Any ambiguity contained in the contractual venue provision may result in an interpretation of the venue provision as permissive. Permissive venue provisions typically do not contain the express mandates for a particular forum; rather, permissive venue provisions indicate that one forum is favored over the other. The general venue considerations under F.S. Ch. 47 would apply to permissive venue provisions.²¹ Permissive venue provisions allow the party bringing a claim to choose the venue, as long as the selected venue has some connection with the contractual provision or the general venue statute. Permissive venue provisions are, therefore, rather weak and may only provide the filing party with forum options in which to bring the action.

The choice of mandatory or permissive language can be significant if the party filing the claim intends to maintain some type of “home field advantage.” However, the issue becomes more complex when the action involves the foreclosure of a construction lien to obtain payment for labor, materials, and services under the contract.

Venue for Construction Lien Foreclosures

Construction liens must be recorded in the public records in the county where the labor, services, and materials were provided,²² regardless of any contractual venue provision and §47.011. Actions brought to foreclose a construction lien on real property should be brought in the county in which the property is located.²³ In VL Orlando Building Corp. v. A.G.D. Hospitality, 762 So. 2d 956 (Fla. 4th DCA 2000), the Fourth District affirmed the transfer of the construction lien foreclosure action to the county where the real property was located and held that circuit courts in other counties may have subject matter jurisdiction over construction lien foreclosure, but they do not have in rem jurisdiction. Therefore, the action to foreclose the construction lien was properly transferred to the county in which the property was located.

Even though a venue provision calls for venue in a different county, a court will be permitted to utilize its discretion and maintain a lien foreclosure action in the county where property is located. Keep in mind that a lien foreclosure action is asserted against the owner of real property, and, thus, the action to foreclose the claim of lien directly affects the property improved. The construction practitioner should conduct an analysis of the claims and related contractual provisions to conclude which county is appropriate for venue. Transferring a contractual claim to another forum in accordance with a venue provision may result in two separate actions in two separate counties regarding the same labor, service, and materials. The equation becomes even more unsettled when the contractor asserting the claim is in contractual privity with the owner of the real property. If the direct contract requires venue in a completely unrelated county, a court may still be within its discretion to maintain the action in the county where the real property improved is located, and, thus, give no weight to a valid venue provision. Of course, not all construction disputes involve construction liens. Sometimes the owner will transfer a construction lien from the real property to a bond. The owner of a construction project may also require the contractor to provide (through a surety) a payment bond for the labor, services, and materials in order to exempt the real property from construction liens. In these situations, the lienor may not have lien rights on the owner’s real property, but can assert its claim against the bond instead.

Venue with F.S. §713.23 Payment Bonds and §713.24 Transfer Bonds

Section 713.24(3) provides that proper venue for a claim on a transfer bond is the county where the security was deposited.²⁴ In Miller & Solomon General Contractors, Inc. v. Brennan’s Glass Company, Inc., 837 So. 2d 1182 (Fla. 4th DCA 2003), the Fourth District affirmed the denial of a motion to transfer venue based upon the statutory venue provision in §713.24. There, the contractor had secured a payment bond on a project in Broward County. A subcontractor filed suit against the contractor for breach of contract and to foreclose a construction lien. The lien was transferred to the bond. Dade County was the venue selected in the parties’ contract. The surety was not made a party to the subcontract. The court held the Dade County venue provision did not apply to the claim on the bond, nor would it be appropriate to sever the bond claim and breach of contract claim in separate counties.

The court recognized that taken alone, the contract claim should be filed in Dade County, pursuant to the contractual venue provision, but that the statutory venue in §713.24 prohibited the determination of the bond claim in Dade County and ultimately prohibited the severability of the action into two separate lawsuits. The court enforced the statutory venue over the contractual venue by utilizing its discretion to consider the appropriate venue to avoid multiple suits in different forums, which could result in two different outcomes.

In Morganti South, Inc. v. Hardy Contractors, Inc., 397 So. 2d 378 (Fla. 4th DCA 1981), a material supplier to a subcontractor recorded a construction lien in Palm Beach County. The contractor transferred the construction lien to the payment bond under §713.24. The material supplier brought its action on the bond in Broward County. In reversing the trial court’s denial of transfer of venue requested by the contractor, the appellate court held that proper venue of the action was in Palm Beach County, since the security for the bond was posted in Palm Beach County.²⁵ There is no indication in the appellate court’s opinion as to whether a contractual venue provision prompted the material supplier to file its action in Broward County when the construction project, construction lien, and bond were all located in Palm Beach County. Regardless, assuming the surety was neither named or identified in the venue provision, the assumption can be made that, even in the presence of a venue provision, the action would have been transferred to the county where the security for the bond was located pursuant to the statutory venue mandated in §713.24.

The assumption above is further confirmed by the case of Miller & Solomon. In Miller & Solomon, a subcontractor on a construction project located in Broward County brought an action in Broward County to foreclose a construction lien and for breach of contract. The lien was transferred to a bond under §713.23(2), but the contractor filed a motion to enforce a venue provision in the subcontract by transferring the action to Dade County. The trial court denied the motion to transfer and refused to enforce the venue provision.²⁶ In upholding the trial court’s ruling, the appellate court noted that 1) the surety was not a party to the venue provision; 2) the claim on the bond is independent from the contract claims; 3) splitting the action into two separate cases in two different counties may result in two separate outcomes; and 4) the statutory venue of §713.23 controlled.²⁷ The trial court applied its discretion and refused to sever the action. Furthermore, §713.23(1)(f) provides that a payment bond “must not contain any provisions restricting the venue of any proceeding.”²⁸

Conversely, in Walbridge Aldinger Company v. Robert’s Plumbing Contractors, Inc., 800 So. 2d 285 (Fla. 3d DCA 2001), the Third District reversed the trial court’s denial of a contractor’s motion to change venue. A plumbing subcontractor filed a construction lien in Monroe County for amounts due, and the contractor transferred the construction lien to a bond under F.S. §713.24(1). When the subcontractor filed suit, the contractor moved to change venue to Broward County based upon a contractual venue provision in the subcontract.

In reversing the trial court’s denial of the change of venue, the appellate court held that a mandatory venue selection clause in a contract should be enforced when there is no contention that the venue clause was somehow unreasonable, unjust, or procured through fraud. In addition, the venue provision contained an express reference to claims against the surety,²⁹ and the court deemed that contractual venue provision to control over the statutory provision in §713.24.

If the party filing a complaint desires to avoid the venue provision in the subcontract, it may file the action only against the surety since claims against the payment bond may be independently maintained.³⁰ In American Insurance Company v. Joiner Electric, Inc., 618 So. 2d 799 (Fla. 1st DCA 1993), a subcontractor on a prison facility located in Columbia County filed suit against the surety under §255.05. The action was brought in Leon County, but the surety sought an order requiring the transfer of the action to Lake County, pursuant to the venue provision contained in the subcontract between the contractor and subcontractor.

The trial court refused to transfer the venue. The First District upheld the decision and found that the surety had ignored the language contained in its labor and material bond issued to the prime contractor requiring that an action against the surety or contractor may be brought in the county in which the public building or public work is being constructed or in any other place authorized by the provisions of F.S. Ch. 47.³¹ The court also applied the reasoning in Carlson Southeast Corp. v. Geolithic, Inc., 530 So. 2d 1069 (Fla. 1st DCA 1998), that when the performance required under a contract is a payment of money and no place for payment is specified in the contract, payment is due where the creditor resides because in such instance the debtor must seek the creditor. For purposes of this analysis, the contract is a surety bond which adopts the venue provisions of Ch. 47 and contains its own venue provision. The venue selected by the surety in its bond was Leon County, and the court refused to transfer venue.

Procedure to Transfer Venue

The party complaining about venue must raise the issue in its first responsive pleading, either by motion or affirmative defense,³² and failure to raise the venue issue at the outset will result in a waiver of any contractual venue provision.³³ A motion to dismiss is not the favored procedural mechanism to enforce the venue provision.³⁴ Instead, a motion to transfer action for improper venue should be filed, asserting the existence of the contractual venue provision. Filing the motion to transfer under Fla. R. Civ. P. 1.140(b)(3) (2009) will not only protect against the waiver of the venue defense, but it will also serve as the responsive motion to the complaint, thus, preventing the claimant from seeking a default. The actual provision, with reference to the page and provision designation, should be included verbatim into the motion to transfer, since some complex construction contracts may be lengthy and complex.

If the motion to transfer is granted, careful attention should be paid to drafting the transfer order. Under Fla. R. Civ. P. 1.060 (2009), the party who commenced the action will likely be ordered to effectuate the transfer. The transfer of the case to the appropriate venue is accomplished when the transferring party contacts the clerk of the court of the appropriate venue and pays the clerk’s service charge in the court to which the action is being transferred. The case file, along with a certified copy of the order transferring the case will be sent to the new venue.³⁵ If the transfer is not made within 30 days, the court ordering the transfer shall dismiss the action without prejudice.³⁶ The party requesting the transfer should take care to include a specific reference to this provision of the rule in the order as the dismissal of the action may affect applicable statute of limitations for construction lien foreclosures and actions against payment bonds.

Conclusion

Venue in construction disputes can involve a myriad of statutory schemes coupled with multifaceted contractual provisions. As a starting point, parties need to address §47.025 to ascertain whether their respective actions must be brought in Florida. If venue lies within Florida, parties should then address the specific principles that pertain to Florida venue — i.e., permissive versus mandatory contractual provisions, as well as statutory provisions, case law and procedural rules regarding construction liens, payment bonds, and transfer of venue. Due consideration must be given to the choice of venue and the specific facts so that a venue provision is not waived or rendered void or unenforceable, resulting in the loss of the benefit of the bargain related to the venue of construction disputes.

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Under the current Statute, any written contract for the improvement of real property entered into between an owner and contractor or between an owner and design professional should contain the following notice: "ANY CLAIMS FOR CONSTRUCTION DEFECTS ARE SUBJECT TO THE NOTICE AND CURE PROVISIONS OF CHAPTER 558, FLORIDA STATUTES." Interestingly, Chapter 558 uses the term "must." However, a party's failure to include the notice in its contract does not subject the contracting owner, contractor, or design professional to any penalty. Instead, the purpose of the notice is to promote awareness of Chapter 558. It is not a penalty. What does this mean for construction professionals? In short, owners are subject to Chapter 558 regardless of whether the above notice is provided in the construction contract. The obligation to participate in the pre-suit investigation process is balanced by the fact that the process tolls the statute of limitations.

Now that you know that Chapter 558 applies, what are the timeframes? The initial step is to determine the size of the project in question. The crucial distinction is whether the project involves an association representing more than 20 parcels. Typically, the claimant (i.e. the owner) must provide written notice of the alleged defect at least 60 days prior to filing an action. If the claim involves an association representing more than 20 parcels, the timeframe is 120 days. The party served with the notice (i.e. the contractor) has 30 days to inspect. If the claim involves an association with greater than 20 parcels, the party has 50 days to inspect. Within 10 days after service of the claimant's notice (30 days in the case of an association representing more than 20 parcels), the contractor may serve a copy of the notice on all subcontractors, suppliers, or design professionals who the contractor believes is responsible for the alleged defects. The parties served with the contractor's notice have 15 days (30 days in the case of an association representing more than 20 parcels) to serve a written response. Ultimately, the contractor has 45 days after service of the claimant's Chapter 558 notice (75 days in the case of an association representing more than 20 parcels) to serve its written response, which must state one of the responses outlined in §558.004(5)(a)-(e), Fla. Stat.

What about the exchange of documents? It is important for construction professionals to understand that there may be an obligation to exchange documents. Parties can request documents as part of the Chapter 558 process and the person served with the notice has an obligation to provide responsive documents. The failure to provide the documents can result in sanctions if litigation ensues. With that said, the request must cite to §558.004(15), Fla. Stat. and must include an offer to pay reasonable copy costs. The scope of discoverable information is outlined in the above-referenced Statute. Expert reports exchanged between the parties may not be used in any subsequent litigation for any purpose, unless the expert, or a person affiliated with the expert, testifies as a witness or the report is used or relied upon by a testifying expert.

In conclusion, as of October 2009, Chapter 558 applies to construction projects that have been substantially completed unless the parties opt out. If you find yourself participating in a Chapter 558 investigation, be sure to read the Statute carefully to ensure that the claimant is following the Statute and that you, as the professional, are complying with your obligations.

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All too often, however, recovery of attorney's fees and expert witness fees is overlooked when the parties negotiate their construction contracts. Many do not realize, for example, that the form construction contracts published by the American Institute of Architects do not provide for attorney's fees. Thus, if you are working under an unmodified AIA A101, for example, you have no ability to recover your attorney's fees if you bring a lawsuit (or arbitration) under the contract.

There are three main sources for recovery of attorney's fees in the typical construction case. First, there is the contract itself. A well-drafted attorney's fees clause will provide for recovery of attorney's fees by the prevailing party in any arbitration or lawsuit arising out of the contract, and will include expert witness fees as recoverable expenses in addition to attorney's fees. This is important because such a contractual clause is the only way to recover expert witness fees. The other two methods described below do not allow for recovery of expert witness expenses.

The second source for recovery of attorney's fees is found in Chapter 713, Florida Statutes. Section 713.29, Florida Statutes, provides for recovery of "a reasonable fee for the services of her or his attorney for trial and appeal or for arbitration" in any action to enforce a construction lien or a claim against a payment bond. The good news is any party with a valid lien or bond claim may recover his or her attorney's fees even in the absence of an attorney's fees clause in the underlying contract. The bad news is this right is lost if the lien or bond claim is waived, released or lost for some technical reason.

The third source for recovering attorney's fees is a mechanism known as a "proposal for settlement", which becomes available after a lawsuit is filed. It requires the making of a settlement offer to the opposing party which is not accepted within 30 days. This mechanism provides the offering party the ability to recover attorney's fees, but only if he or she prevails at trial by an amount that is 25% more or less than (depending on which party made the offer) the offer made. In that case, attorney's fees are recoverable starting from the date on which the offer was made.

So remember, carefully review your construction contracts and make sure you include an attorney's and expert witness' fees clause. It may be the most important change you make!

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1. The written notice which identifies the construction or design defects must be served 60 days before the owner files an action seeking recovery for a construction or design defect. If the action involves an association representing 20 or more units, the notice must be served 120 days before filing the action.
2. If the owner fails to serve the required notice, any action seeking recovery of a construction or design defect will be stayed or abated until the parties comply with the provisions of Florida’s Construction Defect Statute.
3. A contractor, subcontractor, supplier or design professional has 45 days from receipt of the owner’s written notice to respond. An association with 20 or more units has 75 days to respond. The response must include one of the following: a written offer to repair the defect; a written offer to settle with a monetary payment; a written offer to settle the claim with a combination of repairs and monetary payment; a written denial of the claim; or a written statement that a monetary payment will be made pending any insurance available.
4. Contractors, subcontractors, suppliers, and design professionals are permitted upon reasonable notice to inspect the property, conduct destructive testing and even examine documents which would be discoverable in any legal action concerning the defect.
5. Florida’s Construction Defect Statute will not prevent the owner from making any emergency repairs necessary to protect his/her health, safety and welfare.

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