Wednesday, April 28, 2010

Construction Contracting in Maine

The legislature in Augusta has earned a reputation for piling on law that affects construction contractors. This month's Maine Supreme Court decision in Cellar Dwellers, Inc. v. Dominic D'Alessio, Jr. (2010 ME 32) illustrates the point.

Dominic D'Alessio needed plumbing and HVAC work for the new home he was building in Brunswick, ME. The job went to Jim Peacock (Cellar Dwellers, Inc.) in two contracts totaling $56,990, plus a third oral contract for $2,478 on a vacuum system. That should have been good work – especially when D'Alessio agreed to pay an additional $17,464 for changes. But there was a problem. D'Alessio ran short of cash before work was done -- promising a check "in a week or two" and later paying with a non-negotiable check. After several demands, Peacock walked off the job, leaving $3,000 in work unfinished and an invoice for $2,995 unpaid. Eventually, Peacock filed suit under Maine's Prompt Pay Act. That raised the stakes considerably.

The Prompt Pay Act, Title 10, § 1118(2), charges an owner 1% per month on any amount wrongfully withheld. But that's just the beginning. Section 1118(4) requires that a court or arbitrator award attorney fees and expenses if payment was wrongfully withheld. Peacock's attorney fees would eventually exceed $10,000.

D'Alessio counterclaimed for breach of contract, negligence and violation of Maine's Home Construction Contracts Act. That doubled the bet once more. Title 10 § 1487 of the Home Construction Contracts Act requires 14 very specific notices and disclosures in residential construction contracts. Omission of any one is an unfair trade practice under Maine law, making the contractor liable for damages plus attorney fees and costs.

So either D'Alessio or Peacock was going to be liable for over $20,000 in attorney fees on a $56,990 job.

At the trial court, Peacock won an award of $6,468 for damages plus $10,000 in attorney fees. D'Alessio wasn't satisfied. He appealed to the Supreme Judicial Court of Maine. The April 6, 2010 decision wasn't good news for Peacock. The justices reversed the award of attorney fees, penalties and interest on the grounds that Peacock hadn't finished work on the first two (plumbing and heating) contracts. The final payment of $2,995 on those two contracts wasn't due yet and had not been "wrongful-withheld". Peacock was justified in walking off the job and was entitled to damages for breach of contract. He was not due an award under the Prompt Pay Act for those contracts. But failure to pay on the third contract (the vacuum system) was a violation of the Prompt Pay Act. So D'Alessio would have to cover some portion of Peacock's attorney fees on that issue. The Supreme Court sent the case back to the trial court to tie up the loose ends.

Maine, like many states, is trying to protect consumers (property owners). That's the Home Construction Contracts Act. Maine is also trying to redress grievances contractors have about slow payment. That's the Prompt Pay Act. But in Cellar Dwellers, Inc. v. D'Alessio, Maine law was the problem, not the solution. Here's why.

Both Peacock and D'Alessio planned to recover their attorney fees under Maine law. So they could afford to litigate this $2,995 dispute for years – nearly four so far. Conceivably, both Peacock and D'Alessio could have been awarded attorney fees, each paying the fees of their opponent! Obviously, that's not what the Maine legislature had in mind. Cases that should be settled in Maine's small claims court can now escalate very easily to Maine's Supreme Court. With the very best of intentions, Maine has created a trap for both contractors and property owners.

So What's a Maine Contractor to Do?
Here's what not to do. Maine's Attorney General offers a model home construction contract. But read the disclaimer before adopting this agreement: The Maine Attorney General does not guarantee that this model contract satisfies all legal requirements. That's good, because the AG's model contract doesn't comply with either Maine law or Federal law. Here's a better source if you need contracts for either commercial or residential work in Maine.