Subcontractors Legal Defense Fund
Each year, courts across the country hand down hundreds of decisions on federal and state laws, as well as court-made or "case" law, that apply to subcontractors' businesses. Many of the decisions impacting subcontractors interpret the contract provisions of subcontract agreements—provisions like pay-if-paid, hold-harmless, duty-to-defend, and no-damages-for-delay. Some of these decisions are precedent-setting and carry significance for subcontractors across state lines.
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.
From its inception, the SLDF has been involved in many landmark decisions, starting with its first case in 1997, Wm. R. Clarke Corporation v. Safeco Ins., which prohibited pay-if-paid clauses in California. For a summary of recent cases ASA has been involved in, read ASA's SLDF Activity Report.
SLDF in Action in Oklahoma: Lien Waiver Case
ALEXANDRIA, Va.—The American Subcontractors Association produced an application to file an amicus curiae brief in the Oklahoma Supreme Court this July, asserting that the outcome of the case at hand could have significant adverse consequences for subcontractors and suppliers. The case, H2K Technologies, Inc. v. WSP USA, Inc.and Fidelity and Deposit Company of Maryland is currently on appeal to the Supreme Court of the State of Oklahoma.
This appeal arises following the judgment by a trial court in favor of an Owner, dismissing the lien claim of a Subcontractor who provided labor and materials to improve the owner’s property. In the original contract, the Contractor agreed to waive its lien rights and to insert similar lien waivers into any subcontracts it entered into. When the Contractor hired Subcontractor, however, the agreement did not contain any such lien waiver language, did not refer or incorporate the prime contract and did not advise Subcontractor its lien rights were purportedly waived. This Contractor eventually filed for bankruptcy without having paid Subcontractor anything for its work. The Subcontractor then filed a lien against Owner’s subject property.
The trial court held that even though Subcontractor had no knowledge of the lien waiver agreed to by Contractor, it was held to have “constructive notice” of the terms of the prime contract, and thus its lien rights had been waived by Contractor. The Subcontractor is appealing this ruling to the Oklahoma Supreme Court.
According to David Walls, who prepared the brief on behalf of ASA, “The effect of this ruling by the trial court is devastating on subcontractors, vendors and suppliers. If allowed to stand, subcontractors would be bound by the terms of any and all contracts above it in the chain of contracts on a private project, whether it had knowledge and receipt of them or not. Extended to its logical end, this means financing agreements, prime contracts and upper tier subcontracts. This holding turns the letter and intent of Oklahoma’s mechanics and materialmen’s lien laws on its head, and effectively strips subcontractors of their most useful tool in making sure they get paid.”
UPDATE: A decision was reached on November 16, 2021, by the Oklahoma Supreme Court reversing and remanding the matter to the trial court for further proceedings. The Oklahoma Supreme Court held that a subcontractor’s statutory right to waive its lien rights may not be exercised by anyone other than the subcontractor. Here, the subcontractor was ruled to not be bound by the waiver of lien rights by another party in the contractual lien which was done without the subcontractor’s knowledge or consent. This ruling represents a victory for subcontractors. However, the case presents us with a note of caution that it is very important for subcontractors to carefully review the language that pertains to liens and waivers of liens in their subcontract and the prime contract.