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On May 3, 2016, the Louisiana Supreme Court held that the notice and recordation requirements of the Louisiana Public Works Act do not bar a suit on contract by a subcontractor against the general contractor’s surety. The Court’s opinion is nuanced, and dependent on the meaning and word choice of certain terms in the Louisiana Public Works Act, but has important impacts for public works contractors in Louisiana.

Pierce Foundations, Inc. v. JaRoy Construction, Inc. arose out of a public works construction project in Terrytown, Louisiana from the Jefferson Parish Council (“Jefferson Parish”).[1] JaRoy Construction, Inc. (“JaRoy” or “contractor”) was contracted to serve as the general contractor on a project to construct a gymnasium. In compliance with the Louisiana Public Works Act, JaRoy furnished a bond to Jefferson Parish with Ohio Casualty Insurance Company (“OCIC”) as the surety. Thereafter, JaRoy entered into a written subcontract with Pierce Foundations, Inc. (“Pierce”) to provide and install pile drivings. On November 3, 2008, Pierce completed the pile drivings. JaRoy failed to pay Pierce certain funds Pierce contended were due under the subcontract.

Notably, Pierce did not file a sworn statement of claim (lien) into the mortgage records. Instead, in July 2009, Pierce filed suit against JaRoy and, in July 2010, amended the petition to add OCIC as a defendant. OCIC filed several affirmative defenses against Pierce, including that Pierce failed to comply with the requirements of the Public Works Act before filing a claim against a surety.[2]

On October 17, 2011, when the project was substantially completed, Jefferson Parish filed a notice of acceptance of the work with the Jefferson Parish mortgage records. This recordation was made over a year after Pierce had added OCIC to the lawsuit.

Once the notice of acceptance was filed, OCIC moved for dismissal of Pierce’s suit on the grounds that Pierce was required to comply with the notice and acceptance requirements of the Public Works Act and, because it failed to do so within 45 days of acceptance of the project, Pierce could not recover from OCIC under Revised Statute 38:2247. OCIC argued that the exclusive rights of action against a surety are as set forth in Revised Statute 38:2247, and Pierce’s failure to comply with the requirements of the Act (including the notice and recordation requirements) bar recovery against OCIC. Pierce countered that the permissive “may” of the Revised Statute 38:2242(B) could not be converted into a mandatory requirement, holding that a claimant who does not file the sworn statement is “deprived of all rights against the surety”—including those rights in contract. Pierce also argued that it had filed suit over a year before Jefferson Parish filed the notice of acceptance, so OCIC could not reasonably claim it did not have notice of the claim. The Louisiana Supreme Court granted the writ application to determine whether, under the Louisiana Public Works Act,[3] the notice and recordation requirements of the Act are necessary conditions for a claimant’s right of action against a bond furnished pursuant to Louisiana Revised Statute 38:2241.

The Louisiana Public Works Act was enacted in order to give persons who do not have privity of contract with the general contractor or with the governing authority a claim against the general contractor and his surety for claims on public works projects.[4] To achieve this goal, the Act imposes a number of requirements. First, when a public entity enters into a contract in excess of $25,000 for the construction, alteration, or repair of any public works, the contractor is required to post a bond “in a sum of not less than fifty percent of the contract price for the payments by the contractor or subcontractor to claimants as defined in [Revised Statute] 38:2242.”[5] To assert a claim against that bond under Revised Statute 38:2242(B):

Any claimant may after the maturity of his claim and within forty-five days after the recordation of acceptance of the work by the governing authority or of notice of default of the contractor or subcontractor, file a sworn statement of the amount due to him with the governing authority having work done and record it in the office of the recorder of mortgages for the parish in which work is done.[6]

The Act also addresses a claimant’s direct right of action on the bond against the general contractor and/or surety and the claimant’s ability to seek a separate right of action outside the parameters of the Public Works Act in Revised Statute 38:2247, which reads in pertinent part:

Nothing in this Part shall be construed to deprive any claimant, as defined in this Part and who has complied with the notice and recordation requirements of R.S. 38:2242(B), of his right of action on the bond furnished pursuant to this Part, provided that said action must be brought against the surety or the contractor or both within one year from the registry of acceptance of the work or of notice of default of the contractor except that before any claimant having a direct contractual relationship with a subcontractor but no contractual relationship with the contractor shall have a right of action against the contractor or the surety on the bond furnished by the contractor, he shall in addition to the notice and recordation required in R.S. 38:2242(B) give written notice to said contractor within forty-five days from the recordation of acceptance by the owner of the work or notice by the owner of default, stating with substantial accuracy the amount claimed and the name of the part to whom the material was furnished or supplied and for whom the material was furnished or supplied or for whom the labor or service was done or performed.[7]

The Louisiana Fifth Circuit Court of Appeals had previously agreed with OCIC that Pierce’s failure to comply with the notice and recordation requirements of the Act bar recovery against OCIC. The Louisiana Supreme Court overruled the Fifth Circuit Court of Appeal’s holding, finding instead that where a subcontractor fails to comply with the notice and recordation requirements of Revised Statute 38:2242(B), the subcontractor loses his privilege, or lien, against the funds in the hands of the public authority. However, the failure to comply will not affect the rights of a subcontractor, who is in contractual privity with the general contractor, from proceeding directly against the contractor and its surety. Accordingly, while it a contractor’s ability to file a lien for non-payment will expire if it fails to fulfill the Public Works Act’s notice and recordation procedure, a contractor’s claim in contract is still preserved. The Court noted that the Fifth Circuit’s decision was flawed because it rendered the permissive “may” in Revised Statute 38:2242(B) as mandatory in Revised Statute 38:2247. The Court then deemed that the Public Works Act created an additional remedy to persons contributing to the construction, alteration, or repair of public works—a “privilege against the unexpended fund in the possession of the authorities with whom the original contract had been entered into.”[8] The Act is not intended to affect rights between parties proceeding directly in contract. The Act is also silent on the question of parties that are in contract and file suit well before the notice of acceptance or default is filed. Consequently, the Court held that Pierce’s lawsuit was timely filed against the general contractor and surety, and that the failure of the plaintiff to perfect its privilege against the public authority does not defeat its right of action against the surety.

This holding is important for construction subcontractors because it confirms their ability to still pursue claims against the surety and other persons in contractual privity with them on contract claims, even if the subcontractor failed to perfect its claim under the Louisiana Public Works Act. As stated by the Court, the remedies under the Public Works Act are an additional remedy, not an exclusive remedy. Last, the Court has indicated that the additional notice in the Public Works Act may be unnecessary when suit has been filed prior to issuance of the notice of acceptance for contract claims. However, notice and recordation is still required should the contractor wish to bring a claim under the Public Works Act. Consultation with an attorney is recommended for assessment of the claims that a contractor may have under both contract and the Public Works Act and guidance in taking the right steps to protect those claims.

[1] Case No. 2015-C-0785, Louisiana Supreme Court (May 3, 2016) (J. Crichton; J. Knoll, dissenting; J. Guidry, dissents and assigns reasons).

[2] JaRoy later filed for bankruptcy in December 2010, and the suit proceeded solely against OCIC.

[3] La. R.S. 38:2241, et seq.

[4] Wilkins v. Dev Con Builders, Inc., 561 So. 2d 66, 70 (1990).

[5] La. R.S. 38:2241(A)(2).

[6] La. R.S. 38:2242(B).

[7] La. R.S. 38:2247.

[8] Wilkins v. Dev Con Builders, Inc., 561 So. 2d 66, 70 (1990).