PROGRESS PAYMENT RELEASES: LOOK BEFORE YOU LEAP

Date: December 16th, 2014

The Washington State Court of Appeals, in the case Exterra, LLC. V. Cle Elum Gateway Property LLC, et al recently issued an opinion dismissing a subcontractor’s lien claim. The Exterra case illustrates the powerful effect that routine monthly claim release forms can have on a lower tier contractor’s rights. Although technically “unpublished,” and therefore not binding precedent on future courts, the case is still instructive as to how appellate courts are likely to rule if presented with a similar issue in the future. The key issue in the decision was whether the subcontractor had waived its lien rights when it signed unconditional and conditional claim releases during the project. The project was the construction of a McDonald’s restaurant in Cle Elum. The general contractor Corstone subcontracted excavation and paving work to Exterra. In the parties’ written subcontract, Exterra agreed to:

Submit to the CONTRACTOR applications for payment at such reasonable times as to enable the CONTRACTOR to timely apply for and obtain payment from OWNER. Each application for payment shall include appropriate waivers and releases from SUBCONTRACTOR and from its subcontractor’s materialmen, suppliers, and third party independent contractors, if any, for the period concerning which the SUBCONTRACTOR is requesting payment.

In accordance with the above provision, Corstone required Exterra to sign both conditional and unconditional claim releases. The unconditional claim release read as follows:

The undersigned does hereby waive and release any and all claims, of any type, kind or character, for labor, services, equipment, rented or supplied, and materials furnished, including any mechanic’s or materialman’s lien, equitable lien, stop notice, equitable adjustment, or bond claim (public or private) that the undersigned has or may ever have in any manner arising out of work, labor, services, equipment, material or supplies furnished by or through the undersigned in connection with the Project or the Contract through the date of 12/31/2010. The undersigned further warrants and certifies that as of the date of this waiver it has previously been paid a total of $14,315.27 in connection with the project. The undersigned hereby agrees to Indemnify and hold the Owner [Gateway] and Corstone Contractors LLC harmless from any claim, cause of action or liability, including but not limited to costs, expenses, interest, and attorneys’ fees arising from any claims hereafter made on account of work, labor, services, equipment, materials or supplies through the date of 12/31/2010. This waiver and release shall also be effective in the event of any bankruptcy court action that may ultimately deprive the undersigned of entitlement to the payment hereunder. This is a partial Waiver and Release, the total unpaid balance of the Subcontract Agreement will be paid upon final cometion fo [sic] the Project.

The exact language of the conditional releases that were signed is not quoted in full in the opinion, but the Court described the conditional waivers as follows:

In the conditional waivers, Exterra again agreed to fully waive and release any and all claims arising from the work it performed prior to December 31, 2010, “except for the following items which are in dispute ______.” CP 135-36. In other words, the conditional waivers asked Exterra to identify any items it was not releasing. Exterra left both blanks empty.

When Exterra filed a lien against the Project for $47,438.25, Corstone moved for summary judgment dismissal of the lien claim. Corstone based its motion on Exterra’s interrogatory answer in the lawsuit that listed its last date of work on the project as November 16, 2010. Based on this admission and the unconditional and conditional releases that purported to waive all claims through 12/31/2010, Corstone argued that Exterra’s entire lien claim had been waived. In response, Exterra argued that the claim releases were ambiguous because of language in the unconditional release that read as follows:

This is a partial Waiver and Release, the total unpaid balance of the Subcontract Agreement will be paid upon final cometion fo [sic] the Project.

In rejecting Exterra’s argument, the Court stated the following:

Viewing the waiver and releases as a whole, its subject matter, and objective, no ambiguity exists. In the unconditional waiver and release, Exterra “waive[d] and release[d] any and all claims, of any type, kind or character . . . including any mechanic’s or materialman’s lien . . . that [Exterra] has . . . arising out of work, labor, services, equipment, material or supplies furnished by or through [Exterra] in connection with the Project or the Contract through the date of 12/31/2010.” CP at 90. The conditional waiver and release contained a space for Exterra to list any outstanding claims it retained. Exterra did not list any.

Because no ambiguity exists, the trial court properly granted summary judgment for Corstone and Gateway.

The clear takeaways from this case are the following:

1. An upper-tiered contractor should require periodic claim releases from all subcontractors and suppliers. Such releases, if carefully drafted, can provide a quick and straightforward mechanism to dismiss claims from lower-tiered contractors on summary judgment; 2. As a lower-tiered contractor or supplier, before you sign a claim release, make sure you carefully review the release. If signing the release would limit your ability to make claims for monies you believe you are currently owed, or may be owed in the future, then either do not sign, or alternatively, add language to the release that clearly reserves your rights to make such claims.

Do not hesitate to contact me if you are interested in sample claim release forms and/or have other questions regarding payment, lien or other construction law issues.