Gang:  I have a situation where a large, national multi-family GC is attempting to set-off monies owed to a MEP Subcontractor on Project A, which was satisfactorily completed, against back-charges stemming from an unrelated project, Project B, in which the Subcontractor was allegedly in default.  Both jobs were private projects. Different owners.  Different counties in Florida.  Assume that Project A's subcontract authorizes set-off based upon claims for other, unrelated projects.

Fla. Stat. §713.345(1)(a) makes the misapplication of construction funds a felony.  In addition, the statute limits bona fide disputes to a "dispute regarding the amount due, if any, for such services, labor, or materials" (emphasis added). Attached is a cool article by Frank Pohl who argues that "such" services, labor, or materials is intended to mean services, labor, or materials furnished on that project only, and not on other, unrelated projects.

Thus, isn't the enforcement of the cross collateralization provision by the GC in the above fact pattern a felony? Any guidance would be greatly appreciated.  Thanks, Arnie.

Arnold D. Tritt, Jr.
Board Certified Construction Attorney
[TrittAssociates_Logo_CMYK]
707 Peninsular Place
Jacksonville, Florida 32204

Phone (904) 354-5200
Facsimile (904) 354-5256
Arnold.Tritt@atritt.com mailto:%5Be-mail%5D
www.atritt.comhttp://www.atritt.com/

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In my opinion, the answer is no.

1.   The question is what is "due" for such labor, services, or materials, since the statute specifically authorizes withholding "in accordance with the terms of a contract." If the contract authorizes withholding for amounts due on another project, then what is left after the withholding is what is "due" for "such services, labor, or materials." Most such provisions in contracts are written around what is "due" and when it is "due."
   

2.   Another reading is that the "such services, labor, or materials" modifies only the "bona fide dispute regarding the amount due" and not the other basis of withholding authorized in the statute since they are framed disjunctively-withholding any payment or part of a payment in accordance with the terms of a contract for services, labor, or materials, OR pursuant to a bona fide dispute regarding the amount due.
   

3.   Another reading is to assume that "such services, labor, or materials" DOES apply to the first part, so you could re-write it like this, which would permit the withholding: "from withholding any payment, or any part of a payment, in accordance with terms of a contract for services, labor, or materials, for such services, labor or materials."
   

I don't know how one could read "regarding the amount due" to apply to anything other than the second part-"pursuant to a bona fide dispute regarding the amount due" - there are no commas or conjunctions or any other indicators to make it applicable to the first part.

Then there are the common law doctrines of setoff and recoupment which would also apply.

Bruce D. Partington
Clark, Partington, Hart, Larry
Bond & Stackhouse
bpartington@cphlaw.commailto:bpartington@cphlaw.com
Direct: 850-432-1399
Fax: 850-432-7340
*Board Certified in Construction Law

From: clc-discussion-bounces@lists.flabarrpptl.org [mailto:clc-discussion-bounces@lists.flabarrpptl.org] On Behalf Of Arnold Tritt
Sent: Thursday, October 29, 2015 1:35 PM
To: clc-discussion@lists.flabarrpptl.org
Subject: [CLC-Discussion] Project Cross-Collateralization: Hypothetical question to CLC Members

Gang:  I have a situation where a large, national multi-family GC is attempting to set-off monies owed to a MEP Subcontractor on Project A, which was satisfactorily completed, against back-charges stemming from an unrelated project, Project B, in which the Subcontractor was allegedly in default.  Both jobs were private projects. Different owners.  Different counties in Florida.  Assume that Project A's subcontract authorizes set-off based upon claims for other, unrelated projects.

Fla. Stat. §713.345(1)(a) makes the misapplication of construction funds a felony.  In addition, the statute limits bona fide disputes to a "dispute regarding the amount due, if any, for such services, labor, or materials" (emphasis added). Attached is a cool article by Frank Pohl who argues that "such" services, labor, or materials is intended to mean services, labor, or materials furnished on that project only, and not on other, unrelated projects.

Thus, isn't the enforcement of the cross collateralization provision by the GC in the above fact pattern a felony? Any guidance would be greatly appreciated.  Thanks, Arnie.

Arnold D. Tritt, Jr.
Board Certified Construction Attorney
[TrittAssociates_Logo_CMYK]
707 Peninsular Place
Jacksonville, Florida 32204

Phone (904) 354-5200
Facsimile (904) 354-5256
Arnold.Tritt@atritt.com mailto:%5Be-mail%5D
www.atritt.comhttp://www.atritt.com/

[cid:image002.jpg@01CD495E.F80716A0]

CONFIDENTIALITY NOTICE: The information and all attachments contained in this electronic communication are legally privileged and confidential information, subject to the attorney-client privilege and intended only for the use of intended recipients. If the reader of this message is not an intended recipient, you are hereby notified that any review, use, dissemination, distribution or copying of this communication is strictly prohibited. If you have received this communication in error, please notify us immediately of the error by return email and please permanently remove any copies of this message from your system and do not retain any copies, whether in electronic or physical form or otherwise. Unauthorized interception of this e-mail is a violation of federal criminal law.

TAX ADVICE DISCLOSURE: Pursuant to the requirements of Internal Revenue Service Circular 230, we advise you that any federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of: (1) avoiding penalties that maybe imposed under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any transaction or matter addressed in this communication.

Disclaimer regarding Uniform Electronic Transactions Act ("UETA") (Florida Statutes Section 668.50): If this communication concerns negotiation of a contract or agreement, UETA does not apply to this communication; contract formation in this matter shall occur only with manually-affixed original signatures on original documents.