By Kurt Faux
The Nevada Supreme Court recently determined that an unconditional release from a bottom-tiered contractor to the middle-tiered and higher-tiered contractors did not preclude a claim by the bottom-tiered contractor when the middle-tiered contractor failed to pay. Cashman Equipment Co. v. West Edna Assocs., 132 Nev. Adv. Op. 69 (Sep. 29, 2016). The higher-tiered contractor had to pay twice. Read on and learn why.
This case stems from the new Las Vegas City Hall construction project. Mojave was chosen to be the electrical subcontractor for the project. Mojave contracted with Western Surety to provide a payment bond and, later, a mechanic’s release bond for this project. Mojave accepted a bid from Cashman to provide specialty materials for the emergency standby power for the building. The general contractor, Whiting Turner, required that Mojave involve disadvantaged business entities (DBEs) in the project. So, instead of contracting directly with Cashman for the services and materials, Mojave contracted with Cam and then Cam contracted with Cashman. Mojave paid Cam for the labor and supplies that Cashman provided.
Cam sent a check to Cashman in exchange for an unconditional release from Cashman to Cam and Mojave, but Cam stopped payment on the check. Cam gave Cashman a second check for payment, but that check was returned for insufficient funds. Cashman made additional attempts to secure payment from Cam to no avail. Upon realizing that payment was not forthcoming, Cashman filed a mechanic’s lien for $755,893.89, ceased working on the project, and then filed suit. Cashman and Mojave later learned that Angelo Carvalho, Cam’s owner, absconded with the funds from Mojave, which should have been forwarded to Cashman. The parties proceeded to a bench trial, and the district court awarded Cashman $197,051.87 for foreclosure of security interest and $86,600 for unjust enrichment, to be paid once Cashman enters the codes for the electrical systems to communicate with each other.
Following trial, the district court denied both parties’ motions for fees and costs. Cashman appealed the trial court’s decision. The Nevada Supreme Court reversed the district court and held that the purpose of the mechanic’s lien statutes is to ensure payment to those who supply materials and labor on a project. So, Nevada’s public policy disfavors the enforcement of the unconditional release in this case and enforcing the unconditional waiver would violate Nevada’s public policy. Further, NRS 108.2457(5)(e) dictates that the waiver is void and unenforceable because Cashman never received payment. The court also determined it was inappropriate to apply equity to reduce Cashman’s lien. The result is that Mojave had to pay Cashman twice for the same work and materials.
Lessons learned: Lower-tiered contractors: sign releases conditioned upon payment. Higher-tiered contractors: ensure payments are made to lower tiered contractors and suppliers-even if joint checks must be issued-or require the middle-tiered subcontractor to post a surety performance and payment bond.