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Howrey LLP
A
subcontractor on a building renovation project claimed it
was asked by the general contractor to perform extra work
on the project. After the subcontractor completed its work,
it billed the general contractor for the nearly $1.5 million
in work performed pursuant to the subcontract, plus $212,518
for the claimed extra work. The general contractor paid
the amount due under the subcontract but refused to pay
for the claimed extra work.
The
subcontractor then sought the advice of a lawyer about filing
a lien for the extra work it performed. The lawyer told
the subcontractor that it could execute a power-of-attorney
vesting in the attorney the authority to sign and prosecute
its lien claim. The lawyer reassured the subcontractor that
other corporate clients had executed such powers-of-attorney
and that a court had found this practice to be satisfactory.
Relying on the lawyer's advice, the sole owner and president
of the subcontractor executed a power-of-attorney authorizing
the lawyer to act on its behalf in preparing, filing and
prosecuting liens. The lawyer signed and filed a $212,518
construction lien claim on behalf of the subcontractor.
Under
New Jersey law, a lien claim filed on behalf of a corporation
must be signed, acknowledged and verified by a duly authorized
officer. N.J.S.A. 2A:44A-6. The purpose of the requirement
is to protect corporations and their shareholders from being
exposed to liability under the Construction Lien Law. Liability
arises when a lien is forfeited or is found to be without
basis. The party that filed the lien is liable for all court
costs and reasonable legal expenses, including attorney
fees, incurred by the defendants in defending or discharging
the lien.
The
defendants moved for summary judgment, seeking dismissal
of the complaint to enforce the lien and forfeiture of the
lien, on grounds it was untimely, willfully overstated and
improperly executed. The trial court granted defendants'
summary judgment motion on grounds it was improperly executed.
The Appellate Division affirmed the trial court's ruling,
and the New Jersey Supreme Court granted the subcontractor's
petition for certification.
The
Supreme Court held that the power-of-attorney, which was
intended by the subcontractor to confer on its attorney
the authority to sign and prosecute a lien on its behalf,
complied with the signature requirement of the Lien Law.
D.D.B. Interior Contracting, Inc. v. Trends Urban Renewal
Association, Ltd., ___ A.2d ___, 2003 WL 21061239 (N.J.
2003).
The
court reasoned that its ruling did not contravene the purpose
of the corporate signature requirement because the only
person at risk of harm under the Lien Law (the sole owner
and officer of the subcontractor) was the party who had
executed the power-of-attorney. Moreover, the court noted
that: (i) the Lien Law does not define the term "duly
authorized officer"; (ii) the Legislature had
not addressed whether or not a power-of-attorney may vest
an individual with the authority of a "duly authorized
officer"; (iii) the subcontractor's sole owner
and president had relied on its lawyer's representations
that the power-of-attorney was effective under the Lien
Law; and (iv) the defendants had not been prejudiced
because all other requirements for filing a lien claim had
been met.
Even
so, the court recognized that a corporation or its shareholders
may be harmed or other interested parties may be prejudiced
when a person who is not a corporate officer signs a lien
claim on behalf of the corporation. Consequently, the court
issued a warning that in future cases, powers-of-attorney
will be deemed insufficient to vest an individual with the
authority of a "duly authorized officer" for the
purpose of prosecuting a lien claim on behalf of a corporation.
A lawyer may do so only if he or she is in fact a duly authorized
corporate officer.
The
Supreme Court remanded the case to the trial court to determine
whether it or arbitrators would decide the overstatement
and timeliness issues.
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For more information about the issues covered in this report, please contact Paul Berning in our San Francisco office at 415-848-4996 or at paulberning@howrey.com or contact your Howrey attorney. For more information about Howrey's Construction Practice Group, click here.
©2003 Howrey LLP
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