Quality Legal Services - Specializing in Construction Law
Linville Law Firm PLLC    800 Fifth Avenue   Suite 3850   Seattle, WA  98104      Phone:206.515.0640      Fax: 206.515.0646       Email


Professional Services

1. We sent our Notice of Right to Claim Lien last year even though we are still working on the project. Otherwise, we have not done anything yet to perfect our claim. Do we need to send another notice?

No, you do not need to send another Notice. The "shelf-life" of your Notice is unlimited. You only need to send the Notice once for any given contract. Hopefully you sent your Notice when you started work, especially if it is a residential single-family new construction project because the Notice relates back only 10 days in this situation. Otherwise, the Notice relates back 60 days. It is always the best practice to send your Notice by certified or registered mail as soon as the job starts. That way you will not have worry about what is covered by the Notice and whether you are adequately protected.

2. We recorded our lien and sent the owner a copy of it. This just infuriated the owner who started fuming and said that he'd buy a bond and our lien would be worthless. Is this possible?

It is possible for the owner to purchase which relieves the owner's property of your lien. This is known as "bonding around a lien." However, this does not make your lien worthless. Instead of the property serving as collateral for the owner's debt to you, the bond will now take its place. For liens under $10,000.00 the owner must purchase a bond an amount which is the greater of $5000.00 or two times the amount of the lien. For liens in excess of $10,000.00 the owner must purchase a bond that is one and a half times the amount of the lien. So you will still be secured, and then some. The key now will be to name the bond in your foreclosure lawsuit. That way if you prevail in your suit and the owner does not pay, you can tap the bond and get paid.

3. The owner has a large construction loan with a local bank. We know this because we have to submit draw requests each month. We have not been paid in the past 20 days and we want to know if there is a way to let the lender know so funds will be retained. How does this occur?

RCW 60.04.221 allows any potential lien claimant to send a Notice to Lender. This statutory section has very strict time limitations which must be followed precisely. You can send a Notice to Lender only within a specific window of time: between the period which is five days after payment is due and thirty five days after it is due. Essentially you get one month, and there is a five day grace period before the window in which to send the Notice opens. You or an authorized agent must sign the Notice and it must be sent to the lender by certified or registered mail. Upon receipt, the lender must withhold from all future draws the amount claimed to be due. If the lender ignores your Notice, then the lender will lose priority to your claim in the amount claimed in the Notice itself.

4. We set up our company twenty years ago as a Subchapter C corporation. Should we consider switching our corporate structure and, if so, what is the best form to adopt?

Subchapter C corporations are largely outdated. Unless you are a publicly traded company or are very good at “zeroing out” any earnings (i.e. through large interest payments or salaries and other expenses that bring earnings down to a zero balance) then there is no reason to remain a Subchapter C corporation. Subchapter C corporations are subject to an extra "level" of taxation which usually will cause you to pay the IRS more than you should. The best two business forms are Subchapter S corporations and limited liability companies (LLCs). Both of these business forms have only a single "level" of taxation. If you are switching from a Subchapter C corporation to a Subchapter S corporation or an LLC, check with your accountant first because you may have unrealized gains in your Subchapter C corporation and these should be dealt with properly so you do not get penalized later if your company is audited.

5. Why does the new AIA 101 (2007) have a "standard of care" section? Is this positive or negative for us?

The AIA's intention was positive in including this new section. The AIA wanted to help steer practitioners away from entering an agreement in which the owner makes you promise to adhere to some impossibly high standard (such as "to owner's satisfaction"). So the idea was to keep owners from imposing impossible conditions. What the AIA did not consider was how this new clause impacts lawsuits. This new standard essentially creates extra grounds for an owner to establish that you have breached your contract. It puts a tort standard right in the contract, and this serves to prevent several good defenses that you might otherwise put forward, such as eliminating certain claims for purely economic damages. The best way to deal with this clause is to eliminate it. You can explain to the owner that this "standard" is already available to them as part of the common law so it does not need to be repeated in the contract. The other key is to never include a standard of care that is impossibly high, even if your work is nearly flawless. This type of clause is a sure-fire loser and should be avoided at all costs.

6. We just received a contract with an owner who is based in Delaware but is putting together a large condo project in Seattle. We noticed that one of the clauses states that any lawsuit would have to be in Delaware. Is this clause enforceable?

This is called a "venue clause" and it is enforceable. There is an (in)famous case where a child slipped on a cruise ship in Alaska and was seriously injured. The family decided to sue. The contract had a venue clause that forced all suits to occur in Florida. The family would have been forced to fly back and forth to Florida to prosecute its case. The family challenged the clause, but the court upheld the clause because courts are not in the business of rewriting contracts. This is especially true when two commercial entities are contracting which is the case in your situation. You are both presumed to be sophisticated and well represented. You should definitely strike out this clause and make a note that the reason you will not agree to this clause is that if suit is filed, it makes sense that the arbitrator or judge is in close proximity to the project. That way witnesses are readily available and the judge or arbitrator can visit the site and get a first hand idea of what the problems were.

7. We hired a new associate a few months ago. Recently we heard that a competitor offered her a much higher salary. Should we have her sign a noncompetition agreement?

It is always a good idea to have employees sign these types of agreements, especially when your work involves proprietary information. However, you must be cautious because even if your employee signs a noncompetition agreement now, it would be invalid unless you add some form of new consideration (i.e. extra vacation, a raise, additional training). If this does not occur, the noncompetition agreement will be invalid and it will not be enforceable. That is why you should have employees sign these agreements before they start work. In that case, employment itself serves as consideration. Continued employment however is not sufficient consideration in Washington.

8. Should we have our employees sign a nondisclosure agreement too?

The same rule governs nondisclosure agreements as noncompetition agreements: additional consideration is required. But there is a difference between the two agreements. In Washington, the unauthorized disclosure of confidential information is already barred by law. This is true because Washington has adopted the Uniform Trade Secrets Act (UTSA) which is now found in RCW 19.108. Employees are not permitted to disclose information that is truly "confidential." The test for what is confidential is whether or not the information is readily ascertainable and the information has been properly guarded. Even though you are protected by the UTSA, it is good policy to include a nondisclosure section of any employment agreement because it reinforces that your company has a strict policy concerning issues such as nondisclosure of confidential information.

9. Is there something called a nonsolicitation agreement too? Should we also have our employee to sign one of these agreements?

Usually a nonsolicitation agreement is combined with a nondisclosure and noncompetition agreement. Again, the same rule applies regarding consideration. The best policy is to have all incoming employees sign these agreements before they start work. Otherwise, additional consideration must be added in order for the agreement to be valid and binding. Nonsolicitation agreements are usually designed to prevent solicitation of for a certain period after his or her employment concludes. Courts are most likely to uphold these agreements because even if a past employee cannot solicit your customers, he or she will still be able to work in some capacity and will not be prevented from earning a living. The problem with enforcing a nonsolicitation agreement is that it will require you to call your own clients into court as witnesses to prove that a former employee has breached the agreement. This is a very touchy process because sending a subpoena to an existing client is not exactly the best way to enhance customer loyalty.

10. We are a design / build company and we want to know if there any advantage to having customers enter two separate contracts, one for the design phase and one for the construction phase.

If you enter a single contract, you stand to be taxed on all of the work you perform, both designing the project and building it. RCW 82.04.290(2) states that the "predominant" activity under the contract will determine whether or not tax must be imposed. If the predominant factor is design, then taxes will not be imposed. If the predominant factor is construction, then taxes will be imposed. The difficulty here is proving to the Department of Revenue (DOR) which element of your contract predominated. Therefore entering two separate contracts will help clarify this issue and allow you to steer clear of this potential problem. The same is true for any architect or engineer whose work extends beyond traditional architectural or engineering services and includes some construction work. Always use caution when entering your contracts so that they are clear about the scope of services rendered. This will prevent unexpected surprises that you might face if the DOR audits your company.