Fraser Eng’g Co. v. IPS-Integrated Project Servs., LLC, 2018 US Dist. LEXIS 51392 (D.N.H. March 27, 2018)

IPS-Integrated Project Services, LLC (“IPS”) was the general contractor on a project to design and construct a manufacturing facility in Portsmouth, New Hampshire. IPS subcontracted with Fraser Engineering Company (“Fraser”) for the project’s mechanical and plumbing scope of work. Shortly after award, IPS notified Fraser that it may be directed to accelerate its work. In response, Fraser put IPS on notice that acceleration would result in labor inefficiencies for which it expected to be reimbursed. Thereafter, IPS directed Fraser to accelerate and Fraser complied by using extra overtime over the next several months. During that time, the parties communicated numerous times about Fraser’s claim for labor inefficiencies.

Under its subcontract with IPS, Fraser was required to submit lien waivers with each of its payment applications. According to the court, the waivers at issue “do not merely release lien rights, but also ‘all claims, demands, or causes of action . . . which [Fraser] has, or might under any present or future law, assert against [IPS] or [the owner] relating to the Partial Payment and/or the labor services, materials or equipment for which the partial payment has been made.’” During its work, Fraser submitted eight such waivers.

Although IPS was aware that Fraser intended to submit a claim for labor inefficiency, Fraser executed its first seven waivers without including any reservation of rights to assert its inefficiency claim. It was not until its eighth payment application and waiver that Fraser expressly reserved such rights.

Several months later, Fraser filed a lien against the project after IPS rejected its request for closeout payment, including $3.3 million for unpaid man-hours caused by labor inefficiencies. IPS removed the matter to the federal district court and filed numerous objections to the lien, including waiver. After a hearing, the court overruled IPS’ objections, holding that Fraser was entitled to proceed with its lien.

On the issue of waiver, IPS argued that Fraser waived those portions of its lien arising from its inefficiency claim by executing seven waivers without a reservation of rights. In response, Fraser argued that the waivers were not enforceable because IPS knew that the waivers were inaccurate at the time they were executed as the parties had repeatedly discussed Fraser’s labor inefficiencies over the course of several months.

The district court overruled IPS’ waiver objection and declined to hold that the lien waivers were enforceable as a matter of law. Based on the record before the court, there was no dispute that IPS was aware that Fraser intended to assert an inefficiency claim. Moreover, while the New Hampshire Supreme Court has not addressed whether actual notice of a claim precludes strict enforcement of a lien waiver, the court concluded that, based on the remedial nature of the New Hampshire mechanics’ lien statute, it could not hold that actual notice is irrelevant to the enforceability of a waiver as a matter of law.

The court also held that, even assuming the waivers were enforceable, IPS failed to apportion the value of the work alleged to be covered by the first seven lien waivers and the work covered by the eighth waiver, which expressly reserved Fraser’s rights. As a result, the court held that the record was insufficient to determine what portion, if any, of the lien was waived.

To view the full text of the court’s decision, courtesy of Lexis®, click here.