November 19, 2010

Preti Flaherty Prevails in Construction Litigation Case

Preti Flaherty Prevails in Construction Litigation Case:
Summary Judgment Awarded to Client Insurance Company of the West


BOSTON, MA (November 19, 2010) – Preti Flaherty, a New England law firm, announced today that it obtained summary judgment in Massachusetts Superior Court in defense of Insurance Company of the West ("ICOW") of San Diego, California. Attorney David M. McGlone, a trial attorney who practices construction litigation from the firm's Boston office, defended ICOW in this case, Infra-Metals Co. vs. Jarosz Welding Co., et al. He made oral arguments four times on behalf of ICOW.

This complex construction litigation case involved multiple defendants and claims by Infra-Metals Co. including breach of contract and enforcement of an alleged mechanic's lien. Defendants included Jarosz Welding, PinnConn, LLC, L.A. Fitness, Mansfield Realty Limited Partnership, and Beacon 1200 Associates Limited Partnership.

McGlone also represented L.A. Fitness International, LLC ("L.A. Fitness") of Irvine, California, a defendant and third-party plaintiff.

It is a significant decision as it reconfirms the subcontractor's responsibility to lien a project at its inception, not merely when the subcontractor begins to perceive a payment problem developing.

When a general contractor defaults on payment to the subcontractor and the owner and subcontractor are innocent parties, the subcontractor will bear the loss unless it has liened before the general contractor breaches the prime contract.

Background on the case:

L.A. Fitness entered into a written agreement with PinnConn, as general contractor, to convert a former retail store in Saugus, MA, of which it was a leaseholder, into a health facility. PinnConn held a written agreement with Jarosz, as a subcontractor to provide structural steel and metals for the project. PinnConn defaulted on the agreement and closed its business with $700,000 in payments from L.A. Fitness intended for subcontractors (pursuant to the second requisition).

Consequently, multiple tiers of subcontractors filed motions for the enforcement of mechanic's liens totaling approximately $2.5 million dollars.

Attorney David McGlone explained that the Massachusetts mechanic's lien statute reads that subcontractors may lien only to the extent the General Contractor may lien. Case law further defines the permissible lien as money "due or to become due" to the General Contractor.

McGlone argued that PinnConn, the General Contractor, could not have liened because it defaulted on the agreement and closed its business with the money, therefore PinnConn was in breach and nothing was due it. By that fact itself, the subcontractors could also not lien.

The subcontractors who made claims against ICOW argued that they could never lien under this scenario, because a general contractor could always arguably be in breach. McGlone countered that the statutory scheme encourages subcontractors to lien at the beginning of a project, or at least before the breach of the prime contract occurs.

All sides moved for summary judgment and Preti Flaherty's client prevailed. However, Judge Howard Whitehead ordered more discovery during the reconsideration period to determine whether L.A. Fitness had a "windfall" with the replacement contractor. In this scenario, if the replacement contractor finished the project at less cost than the first contractor, the difference would be due, and therefore "lien-able."

About Preti Flaherty

David M. McGlone, a Medfield, MA resident, is a Director at the regional firm Preti Flaherty. He focuses his practice on Litigation and Construction Law. Preti Flaherty has offices in Boston, MA, Bedminster, NJ, Concord, NH, Portland and Augusta, ME and Washington, DC. With more than 90 attorneys, the firm counsels clients in the areas of business law, construction law, franchise law, energy, environmental, estate planning, health care, intellectual property, labor and employment, legislative and regulatory, litigation, technology and telecommunications. More information about the firm is available at www.preti.com.

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