Short, Straight Answers to Both Common and Uncommon Legal Questions

Short, Straight Answers to Both Common and Uncommon Legal Questions

June 1, 1997

This Briefing Paper is offered as a smorgasbord of answers to some rare and unusual legal questions combined with others more frequently encountered. The answers to some of these questions will undoubtedly change periodically, but they should provide some warning, some comfort and some helpful guidance from time to time.

1.   Bad Law for Lawyers

Are there any laws which are detrimental to lawyers or helpful to others to the exclusion of lawyers? How about the following:

a.   A lawyer can be sued and held personally liable for commencing a frivolous lawsuit or interposing a frivolous defense. Minn. Stat. § 549.21, subd. 2, and Minn. R. Civ. P. 11.

b.   The mechanic’s lien law does not entitle an attorney to file a mechanic’s lien for legal services because they do not constitute an improvement to real estate. London Construction Company v. Roseville Townhomes, Inc., 473 N.W.2d 917 (Minn. App. 1991). Apparently, an attorney’s services are comparable to demolition work which is also excluded from protection under the Mechanic’s Lien Statute. Brandt v. Hallwood Management Company, 560 N.W.2d 396 (Minn. Ct. App. 1997).

c.   Although a lawyer may have an attorney’s lien upon a client’s money, paper, and other property, Minn. Stat. §§ 481.13 and 525.491, the lawyer is obligated to surrender such proeprty to the client upon demand. Minn. Stat. § 481.14.

d.   Although doctors, architects, engineers, and contractors all have special statutes of limitations and repose which generally shorten the time period within which they can be sued for malpractice, lawyers have no such special statutes protecting them from old malpractice claims.

NOTE: It is somewhat ironic that during a period when lawyers were the dominant force in the Minnesota legislature they did so little to protect their profession.

2.   State’s Liability for Attorneys’ Fees and Interest

When may the State of Minnesota be held liable for attorneys’ fees and interest?

Even the State of Minnesota and its agencies may be held liable for an award of attorneys’ fees under the Minnesota Equal Access to Justice Act if “the position of the state was not substantially justified.” Minn. Stat. § 3.762(a). Also, the State of Minnesota and other state governmental bodies may be held liable for payment of interest on late payments, as well as both prejudgment and postjudgment interest. Minn. Stat. §§ 16A.124, 471.425, and 549.09.

3.   Possible Comfort for Lost Lien Rights

If lien rights are lost, may there be other remedies available?

Most people in the construction industry are familiar with the strict time limits on perfecting and enforcing mechanic’s liens, as set forth in Minn. Stat. § 514.01, et seq. But, how many people are aware that even though one’s mechanic’s lien rights have expired, one may still obtain a judgment against the debtor which will become a lien upon the debtor’s real estate. That lien can then be enforced in much the same way as a mechanic’s lien, except that there will be no right to recover attorneys’ fees. Keys v. Schultz, 212 Minn. 109, 2 N.W.2d 549 (1942). Another situation in which you can be sure you will get paid for improvements you make to someone else’s property is where you mistakenly believe the property you are improving belongs to you. If a person occupies real estate under color of title in fee and in good faith and has made improvements on the land, he or they may not be ejected from the land until compensation has been tendered for such improvement. Minn. Stat. § 559.10. This is called the “occupying claimant” statute.

4.   Mechanic’s Lien Enforcement Against Real Estate in a Bankruptcy

Will a lien claimant be allowed to foreclose its lien while a bankruptcy court’s automatic stay is in effect?

If a contractor, subcontractor or supplier finds it necessary to pursue a mechanic’s lien claim where the property on which the lien is sought is owned by a debtor in bankruptcy, the mechanic’s lien claimant should beware that federal bankruptcy law imposes an automatic stay against efforts to perfect or enforce any lien against the property of the debtor. 11 U.S.C. § 362. In Northwest Wholesale Lumber, Inc. v. Citadel Company, 457 N.W.2d 244 (1990), the Minnesota Court of Appeals held that filing the lien statement within the prescribed period of time is not an act which violates the automatic stay. However, commencing an action to foreclose the lien would violate the automatic stay. Fortunately, 11 U.S.C. § 108 would seem to extend the period for commencing the lien foreclosure action for 30 days after the automatic stay ends.

5.   Fax Copy of Bond Fatal

Is a fax copy of a bond just as acceptable as the original?

With the ever-expanding reliance on fax machines and the ease of making facsimile copies of legal documents, all contractors who bid on federal government projects should be aware of the U.S. Comptroller General’s rule that providing a facsimile copy of a bid bond makes the bid nonresponsive. R.P. Richards, Inc., Comp. Gen. Dec. 13-272430 (Oct. 8, 1996), 96-2-CPD #138.

6.   To Cash or Not to Cash a “Payment in Full” Check?

If a check marked “payment in full” is cashed, will it satisfy a disputed claim?

In the past, it may have been possible under certain circumstances for the payee to cross out the restrictive language on the check, cash the check and still collect the unpaid balance. See Fabyanske Briefing Paper #86-7 (1986) for a more complete discussion. However, due to changes in the Uniform Commercial Code which were adopted by the Minnesota Legislature in 1992, a payee ought not cash the check if there is a dispute about the amount owed. Cashing the check will discharge the debtor for any amounts unpaid, even if the payee crosses out the restrictive language on the check.

 

7.   New CERCLA Risk for Earth Work Contractor

What risk does an earthwork contractor take when he works on contaminated land?

Environmental concerns are so prevalent these days that it seems sad but necessary to relate an environmental horror story. In a recent case, the U.S. Court of Appeals held that a site work contractor could be liable under CERCLA simply for cutting and filling soil on a site which, unbeknownst to the contractor, turned out to be contaminated by hazardous waste. Kaiser Aluminum & Chemical Corp. v. Catellys Development Corp., 979 F.2d 1338 (9th Cir. 1992). This chilling decision appears to expand the reach of CERCLA to impose liability for clean-up costs on contractors, who had nothing to do with either the original contamination or any remediation work.

8.  Denial of Insurance Coverage for a Common Building Material as an Excluded Pollutant Frightens Construction

May a common building material constitute a risk of losing critical insurance coverage?

A roofing contractor, Technical Coating Applicators, Inc., of Panama City, Florida, was sued by teachers and students who claimed they experienced respiratory problems during a school reroofing job. To pay for its legal defense, TCA turned to its general liability insurer. The insurer refused to defend the firm, claiming TCA’s ordinary roofing materials were pollutants not covered by the contractor’s liability policy.

TCA sued the insurer, Baltimore-based United States Fidelity & Guarantee, and won in a Florida federal court. But USF&G has appealed the decision. The insurer has incentive to appeal, and the roofing contractor has reason for concern, because insurers have won similar battles over the meaning of “pollutant” in their insurance policies.

Since 1985, the pollution exclusion has been a standard part of liability insurance policies in force throughout the construction industry. The exclusion protects insurers from paying for any bodily injury or property damage from pollutants.

Typical liability insurance policies exclude coverage for:

– Injury or property damage linked to dispersal, seepage, migration, release or escape of pollutants at any time

– Test monitoring, cleanup, removal, treatment of pollutants

– Claim by a governmental authority

Typical policies define pollutants as:

– Any solid, liquid, gaseous or thermal irritant or contaminant, fumes, acid, alkalis, chemicals, and waste.

Some insurers offer coverage for pollution risks, but premiums are high and coverage is limited. Contractors should consult a knowledgeable insurance advisor to address these risks.

9.   More Misery for Insured Parties

May an insured party be held liable to pay its insurance company for providing the legal fees incurred in defending it?

Under Minnesota law, an insurer is often obligated to provide the legal defense of its insured even though the insurer may not ultimately be liable for paying the judgment should the insured lose the lawsuit. In a recent federal court case in Minnesota, however, the court held that an insurer was entitled to recover from the insured the reasonable attorneys’ fees it had incurred in defending the insured against a claim. Robert J. Knapp v. Commonwealth Land Title Insurance Company, Inc. v. National Title Resources Corp., Court File No. CV 3-94-373.

10.   Minnesota Supreme Court Implements Strong ADR Program

What action has the Minnesota Supreme Court taken to force litigants to utilize ADR procedures?

Due to general concerns about the costs and delays in traditional litigation, business people and other litigants have turned increasingly to alternative dispute resolution systems. Minnesota has exemplified a comprehensive approach to ADR. In 1993, the Minnesota Supreme Court required that lawyers and parties in virtually all civil cases must consider using one of nine identified Alternative Dispute Resolution processes. The nine processes include:

a.   Arbitration;

b.   Trial before a consensual Special Magistrate;

c.   Early Neutral Evaluation (ENE);

d.   Mediation;

e.   Mediation Arbitration (MED.ARB);

f.   Mini-Trial;

g.  Moderated Settlement Conferences;

h.  Neutral Fact Finding; and

i.   Summary Jury Trial.

These ADR processes are explained in Rule 114 of the General Rules of Practice for the District Courts.

In order to implement these requirements, the Minnesota Supreme Court Administrator’s Office provided training in ADR processes for all district court judges in the state. In addition, over 1,000 attorneys have completed a required 30-hour training course to qualify them to serve as ADR neutrals. The Supreme Court is currently circulating for review a code of ethics to which these neutrals would be required to subscribe.

11.   Right to Arbitration Not Easy to Waive

Do courts tend to preserve and enforce agreements which call for arbitration of disputes?

A construction contract contained an arbitration clause. In a suit against the contractor and its sureties for breach of contract, the sureties asserted the arbitration clause as a defense but did not subsequently move to stay the suit, apply for arbitration, or move to compel arbitration, and agreed that discovery proceedings could continue in the lawsuit. Six years later, the sureties moved for a stay of the lawsuit and to compel arbitration instead. Given that the sureties failed to seek arbitration for such a long period of time and that they had participated in discovery in the interim, the District Court denied the sureties’ request. The sureties appealed that decision, and the Minnesota Court of Appeals held that the sureties had not waived their rights to require arbitration. County of Hennepin v. Insurance Company of North America, 394 N.W.2d 611 (Minn. App. 1986). The lesson seems to be that parties who agree to arbitrate will be required to arbitrate. This may be, in part, because it tends to reduce the case load on the court system and because ADR is politically popular.

 

12.   The Minnesota Statute of Limitations and Repose for Design Professionals has a Hectic Litigation History

Has the Minnesota statute which governs the time limits for suing design professionals been a frequent source of litigation?

Minn. Stat. § 541.051 provides a two-year statute of limitations after discovery of an injury relating to the defective and unsafe condition of any improvement to real estate, and provides an absolute statute of repose ten years after substantial completion of the construction. The present statute supersedes a 1965 statute held unconstitutional in Pacific Indemnity Co. v. Thompson-Yeager, Inc., 260 N.W.2d 548 (Minn. 1977). However, the statute has been held not applicable to defective preparation of land for a building site, Sherbrook Company v. E&H Earth Movers, Inc., 419 N.W.2d 818 (Minn. App. 1988), and has also been held not applicable if the defendant by fraud prevented plaintiff from discovering a defective and unsafe condition. Wittmer v. Ruegemer, 419 N.W.2d 493 (Minn. 1988).

 

Conclusion

If you enjoy or find any comfort in this collage of case law and statutes, you may agree with the biblical statement, “The law is good, if man uses it lawfully.” If the cited law does not please you, then you may agree with Dickens’ Mr. Bumble who declared, “If the law supposes that, . . . the law is an ass, an idiot.”

This discussion is generalized in nature and should not be considered a substitute for professional advice. © FWH&T

Fabyanske Westra Hart & Thomson
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