Getting Paid

Are conditional payment clauses enforceable?

By Peter J. Lamont, Esq.

November 16, 2009

Nothing can be more exciting or rewarding for a cabinet company than being hired as a subcontractor on a multi-unit project. Generally, multi-unit projects can generate a substantial amount of revenue for cabinet companies. However, all things considered, being hired as a subcontractor on a multi-unit job is not much different from being hired by a general contractor on a single residential house. As a company, you must assist the decision maker with choosing the appropriate cabinets, then place the order, deliver the cabinets and, more often than not, install the completed cabinets in the units. Most companies believe that the hardest part of being a subcontractor on a multi-unit project is coordinating with the general contractor and the other trades, such as plumbers and electricians. Actually, the hardest part, especially in today's economic situation, is ensuring that your company gets paid for your work.

Why are so many subcontractors not getting paid for their work? The answer is simple: They entered into a contract with the general contractor that contained a conditional payment clause. Although historically general contractors assumed the risk of an owner's non-payment, many subcontracts now include conditional payment clauses that attempt to insulate the general contractor from having to pay its subcontractors if the owner fails to pay him. Look at almost any subcontract and you will find a "paid-when-paid" or "pay-if-paid" clause.

Often when a smaller cabinet subcontractor attempts to get paid and the general contractor refuses to pay, they cite the conditional payment clause in the contract. Believe it or not, many subcontractors then adopt the general contractor's position and fail to obtain legal advice to determine if the clause if actually enforceable. When considering entering into a subcontract, you should understand what type of clause it contains so that you can make an informed decision as to whether or not to sign it. It is always recommended to have your attorney review all prospective contracts before signing. The following is a brief explanation of the differences between the two clauses.


PAYMENT CLAUSES

In general, "paid-when-paid" clauses typically mean that the general contractor has to pay the subcontractor when they receive payment from the owner. These clauses do not insulate a general contractor from their obligation to pay their subcontractor even when they have received no payment from the owner. An example of such a clause is as follows:

"All progress payments of the Subcontract Sum shall be made within 10 days after payment is received by the General Contractor from the Owner."

Pursuant to this clause, the general contractor is required to pay a subcontractor within 10 days after payment is received from the owner. These clauses are generally interpreted as permitting a delay in payment by a general contractor for a reasonable period of time. Generally, "paid-when-paid" clauses leave the risk of the owner's nonpayment with the general contractor, meaning that even if the general contractor does not get paid, he still must pay your company.

Conversely, "pay-IF-paid" clauses can be determined to be conditional clauses that provide absolutes, which shift the risk of nonpayment to the subcontractor. This type of clause seeks to avoid payment altogether. Quite often, general contractors use the two clauses interchangeably and interpret both to be a means of avoiding payment.

However, recent court decisions have shed light on the enforceability of the clauses. In considering the enforceability of "paid-when-paid" clauses, various district courts throughout the country have held that "paid-when-paid" clauses do not allow contractors to avoid payment to subcontractors simply because the owner does not pay them. The general rule is that while a "paid-when-paid" clause allows the contractor to delay payment for a reasonable amount of time, the risk of an insolvent owner is still borne by the general contractor.

"Paid-if-paid" clauses are slightly more complicated. These clauses must be examined beyond the use of the word "if", and interpreted as a whole. In other words, by simply using "if" instead of "when", a contractor is not necessary relieved of his obligations to pay a subcontractor. The following is an example of a "paid-if-paid" clause.

"Subcontractor agrees that it is never entitled to receive payment from Contractor unless and until funds are in hand received by the Contractor in full. This is a condition precedent to any obligation of the Contractor."


STATE DIFFERENCES

Many state courts, including New York, have held that "pay-if-paid" clauses violate both state lien law and public policy. In particular, in order for a subcontractor to be able to file a lien many states require that an amount be "due and owing." Under a "pay-if-paid" clause, the money is not "due and owing" until the general contractor receives payment from the owner. The clause essentially acts as an illegal lien waiver and is thus, unenforceable.

However, in many other states such as New Jersey, courts have held that so long as the "paid-if-paid" clause is explicit in its terms, such as in the example above, it will not violate anti-waiver provisions of liens laws.

The bottom line is that cabinet subcontractors must become familiar with their payment rights under their subcontracts. There are no guarantees when it comes to conditional payment clauses and their enforceability will depend upon the language use in the clause as well as your state's law. As always, it is highly recommended that you have any attorney review all subcontracts before signing on the dotted line.


—Peter J. Lamont, Esq., is a commercial litigation attorney with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice focuses on the representation of small- to large-size companies in the building and design industry, as well as individual designers and architects. To contact him with questions and suggestions on topics for future articles, please email him at plamont@peterlamontesq.com or call him at (973) 949-3770.

PROTECTING YOUR COMPANY AGAINST DAMAGING ADMISSIONS

     “The customer is always right.” From the dawn of time those five words have been the mantra of all salespeople. As salespeople nothing is more important than keeping customers happy. For example, how many times have you had to agree with a disgruntled customer that the finish on the cabinets he received is not the finish that he ordered? Frequently, when confronted by an angry customer salespeople say things such as, “I am terribly sorry – my mistake” or “Don’t worry, I will fix this mistake”, even though they believe that the customer is mistaken. Other times it seems more appropriate to blame another employee, not because you really believe that he or she made a mistake, but simply to deflect the customer’s anger away from you. In those situations a salesperson may say something like, “I am sorry that the measurements of your cabinet are off. I apologize for our designer Jimmy. He can’t add without using his fingers and toes.” Generally, these tactics appease the customer. However, as consumers become savvier concerning their legal rights, salespeople are finding themselves in the middle of courtroom dramas where they must attempt to dance around their prior apology to the customer. Often times, at the conclusion of the trial the apologetic salesperson is told by his company, “We’re sorry, you’re fired.”

     To a shrewd consumer and her lawyer, “I’m sorry” and similar appeasements amount to damaging admissions of liability. For example, in a recent jury trial, the plaintiff homeowner sued his cabinet company because his kitchen island was three inches too short. The cabinet company contended that it ordered the size that the customer had requested and relied upon the design plans to support its position. However, the designer had failed to obtain the customer’s signature on the design plans. Additionally, when the customer complained to the showroom manger she decided that although she believed that the designer had done nothing wrong, she would blame him to deflect the customer’s anger away from her so that she could negotiate a solution. Thus, she told the customer, “I know how you feel. This has happened before. Our designer just can’t seem to get it right. Believe me, I will not tolerate this any longer with him. Today will be his last day.” The manger convinced the customer to pay full price for another island. The customer seemed satisfied and of course, the designer was not fired. A few weeks later, the customer sued. At trial, the plaintiff’s attorney asked the showroom manager if she had made those statements. She confirmed that she had made them. As she tried to explain that she did mean what she said, the attorney simply said “no further questions.” The jury found in favor of the plaintiff. After the trial, jurors were questioned by the defense concerning what made them find for the plaintiff. All of the jurors polled said the deciding factor was the manger’s “confession” concerning the designer’s ineptitude.

     The lesson to learn is that while it seems natural to try to appease a customer with apologies and excuses even though you do not believe that your company was at fault, it is dangerous and may result in your statement morphing into a damaging admission. So does this mean you can never apologize to a customer? Obviously, the answer is “no.” There will be times when an apology is appropriate. For example, an apology is acceptable when your notes show that the customer ordered a glass backsplash, but you inadvertently ordered tile. In this situation you know that you actually made a mistake and thus, an apology is acceptable. The key is to only offer an apology when you know that you made a mistake. Do not apologize just to appease a customer especially when you do not believe that you did anything wrong.

     As salespeople or management you must be cognizant of the following rules and issues concerning apologies to customers. 1.) Chose your words carefully, when dealing with upset or disappointed customers; 2.) Remember that even the friendliest customer can turn against you; 3.) Know that anything you say will be used against you at trial; and 4.) Never ever criticize management or co-workers.

Certainly, you can attempt to resolve the costumer’s issue without offering an apology. A far better response than “I’m sorry” is “Let’s agree to disagree. However, I want to make you happy so let’s see what we can do.” Nothing is more damaging to a lawsuit than an adverse statement made by a defendant. These “party admissions” are almost always admissible as evidence against the declarant or his company at trial. Fight off the urge to apologize to an angry customer when your company did nothing wrong, even if it means losing that customer.

Are you keeping comprehensive client records?

It is a well-known fact that we live in an extremely litigious society. This may be explained, in part, by the fact that never before has a generation known more about our nation's laws and the workings of the legal system. We have instant access to statutes and recent court decisions via the Internet. Additionally, blogs, message boards and posts help to educate consumers about their legal rights.

Aside from an increased knowledge of legal rights, the following may also contribute to the frequency of consumer lawsuits: 1) a weakened economy; 2) the ease of finding a plaintiff's attorney to take your case; 3) recent changes to consumer protection laws favoring consumers; and 4) the fact that our legal system allows people to sue for just about any reason at all.

For those in the kitchen and bath industry, there are a number of factors that can create liability and lead to litigation. These include mistakes, misrepresentations, confusion, a lack of formal procedures, a lack of communication, taking shortcuts, a failure to follow through, poor recordkeeping and a failure to report problems.

In the coming months, this column will address the top five preventative measures that can help your business minimize litigation. In general, they are 1) proper recordkeeping; 2) maintaining proper communication; 3) conducting thorough site inspections; 4) reporting claims in a timely manner; and 5) avoiding damaging admissions. This article will focus on the first of these measures: keeping comprehensive records.


MAINTAINING ORDER

While proper recordkeeping may seem like a "no-brainer," far too few kitchen and bath companies actually do so. Although the task does require a commitment of time, ensuring that your records are comprehensive and well maintained will make it much easier to respond to frivolous claims by customers. Conversely, poor record keeping can destroy your defense to a claim and actually increase the likelihood that you will end up paying out money to settle. Following are some tips to keep in mind when getting your records in order.

• Create a client file. It is imperative that you establish a standardized method for document management of all of your company's records, including contracts, prospective clients, orders, complaints and other documents. For example, every customer should have his/her own client folder. Within that folder should be every document related to your interaction with that customer. These documents should include correspondence between your company and the customer, notes, memos, receipts, invoices, orders, photographs, plans and drawings, emails and any other document that relates to that customer. This allows for easy access to documents when issues arise.

All documents in the folder should be filed in reverse chronological order (i.e., from oldest to most recent.) The documents should be secured in the folder by two-hole fasteners to prevent them from falling out of the folder.

• Reduce all verbal communications to writing. All conversations with your client should be reduced to writing, including telephone conversations and informal discussions. Often, a customer will telephone to authorize a charge, request a change to an order, confirm styles and colors and make other requests. Even if you have a memory like that of an elephant, you should make sure that you write a memo that details the date and time of the call and summarizes the discussion between you and the customer. This should be done for each verbal communication. The memos should be immediately placed into the customer's file. Frequently, having a detailed account of all customer communications can resolve a dispute in your company's favor before a lawsuit is commenced.

• Develop a document retention policy. It is important to save client files for a sufficient amount of time because you never know when a good customer could go bad. For example, if a customer purchases cabinets from you, and during the course of the sale, you advise her that the finish she chose will not hold up to her anticipated level of use and abuse. Being careful, you write a memo about your warning and the customer's decision to ignore it, and you even obtain the customer's signature on it. However, after the installation of the cabinets, you throw out the file. Two years later, you are sued by the customer because the finish, as predicted, did not hold up. Unfortunately, you now have no proof of your warning and you will most likely end up paying to settle the claim or replacing the cabinets.

Considering that the statue of limitations for many breach of contract, warranty and negligence claims run from two to eight years, depending upon your state, it makes sense to maintain your client files for at least six to eight years.


PAY OFF

Keeping comprehensive customer files can help your company avoid unnecessary litigation. The time and effort that you apply to maintaining organized and complete client files will pay off in spades. To learn about other ways you can protect your business against litigation, check back in a month for a discussion on how to limit your liability with proper communication.

—Peter J. Lamont, Esq., is a commercial litigation attorney with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice focuses on the representation of small- to large-size companies in the building and design industry, as well as individual designers and architects. To contact him with questions and suggestions on topics for future articles, please email him at plamont@peterlamontesq.com or call him at (973) 949-3770.

Consumer Fraud: Strict Consumer Protection Laws Have a Serious Impact on the Kitchen and Bath Industries

Consumer Fraud: Strict Consumer Protection Laws Have a Serious Impact on the Kitchen and Bath Industries

By: Peter J. Lamont, Esq.

In the past, when a kitchen or bath company was sued the allegations generally sounded in breach of contract or negligence. The defendant kitchen and bath company typically did not have to worry about payment of attorney’s fees or punitive damages. In essence, the parties were on an equal playing field in the prosecution and defense of the claims. However, over the past five years, there has been a dramatic increase in pro-consumer laws passed by a majority of states which have greatly shifted the playing field in favor of the consumer plaintiff.

Legislative Shift

Unfortunately, most people have fallen prey to some form of deceptive business practice at one time in their lives. It may have been as simple as a loss of $10 on a product that a deceptive television advertisement duped you into buying or a serious as being bilked out of thousands of dollars by an unscrupulous contractor or failed to finish construction on your house. Five to ten years ago, people would generally complain to the Better Business Bureau or retain a private attorney. However, as the Internet developed it became much easier to e-mail local government officials or file claims online with the Federal Trade Commission. As a result, state and federal agencies became overwhelmed with consumer fraud claims. The legislature’s response, both at the state and federal levels, was to enact strong consumer protection laws which had “teeth” and that would act as a deterrent against fly-by-night companies and general deceptive business practices.

The “teeth”, in most states, was the possibility of double or triple damages against a company found to have committed a deceptive business practice and the repayment of the plaintiff’s attorney’s fees by the defendant. For example, under New Jersey law, which is at the forefront of consumer protection legislation, if a cabinet company was found to be liable to a plaintiff for a deceptive practice and the actual damages were $100,000, the Court could award three times the damages, up to $300,000, plus award attorney’s fees to the plaintiff’s counsel. Depending upon the length of the case, attorney’s fees could exceed $50,000. Thus, a $100,000 claim could end up costing the cabinet company $350,000 (not to mention the defense costs to its own attorney).

Increase in Consumer Rights Practice

Plaintiffs attorneys quickly focused on the potential to cash in on the new consumer protection laws. As a result, many plaintiff attorneys have devoted their practices to consumer rights. Obviously, the draw for the attorney is the ability to recover most if not all of his fees as opposed to the typical 1/3% recovery of the total amount awarded in a regular negligence action. Type in “consumer fraud attorney” into any search engine and you will find pages of plaintiff-oriented law firms who are eager to speak with you about your consumer rights.

In addition to their websites, many attorneys actively seek out potential plaintiffs on consumer complaint websites such as the squeakywheel.com and complaints.com. The result is that more and more cabinet and bath companies are being sued by these over-aggressive plaintiff attorneys.

Understanding Your States Consumer Protection Laws

It is critical that you research and understand your state’s consumer protection laws. Many kitchen and bath companies are hiring attorneys to make sure that there practices and procedures comply with their state’s consumer protection laws. These new laws can be rather tricky to understand and have broad sweeping language which is detrimental to the kitchen and bath industry. For example, numerous states have enacted home improvement laws which directly impact the industry.

While you may not think of your company as a “home improvement” company, the statues may say otherwise. For example, New Jersey law defines a “home improvement” as:

the remodeling, altering, painting, repairing, renovating, restoring, moving, demolishing, or modernizing of residential or noncommercial property or the making of additions thereto, and includes, but is not limited to, the construction, installation, replacement, improvement, or repair of . . . cabinets, kitchens, bathrooms, . . . , and other changes, repairs, or improvements made in or on, attached to or forming a part of the residential or noncommercial property, but does not include the construction of a new residence. . .

Clearly, kitchen and bath companies are considered “home improvement” contractors under New Jersey law. Similar definitions and laws have bee enacted in numerous states including, New York, Pennsylvania, Illinois, Florida and California. In fact, Pennsylvania recently began enforcing its new home improvement contractor’s registration act which provides for criminal penalties for non-compliance.

Over the past year there has been a flurry of lawsuits filed against kitchen cabinet companies alleging consumer fraud. In fact, the New Jersey Supreme Court recently held that the Consumer Fraud Act and its treble-damages remedy can apply to contractors performing interior work on new homes, a ruling that expands the already broad power of the statute. It is expected that many states will follow the New Jersey Supreme Court’s ruling.

Conclusion

It is imperative that you become familiar with your state’s consumer protection laws and stay abreast of recent developments in the law. It may be beneficial to consult with an attorney to ensure that your current business practices, contracts, and customer interactions comply with consumer protection laws. Failure to do so could be very costly to your business.

—Peter J. Lamont, Esq., is a commercial litigation attorney with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice focuses on the representation of small- to large-size companies in the building and design industry, as well as individual designers and architects. To contact him with questions and suggestions on topics for future articles, please email him at plamont@peterlamontesq.com or call him at (973) 949-3770.

Critical Collections:Successful sales is about more than just selling

Critical Collections:Successful Sales is About More than Just Selling

By Peter J. Lamont July 09, 2009

The president of a mid-size kitchen cabinet company once noted that the most important facet of his business is sales. He explained that he employs some of the best salespeople in the tri-state area and that their sales have been increasing even in this economy. In his estimation, product knowledge, persistence and absolute commitment to customer satisfaction have been the keys to his success. And many in the industry might agree. After all, if you don't sell, you don't make money.

But while sales are extremely important, there is another component of business that is far more critical. In fact, when the same sales-driven president was asked, "How are your receivables looking?" he stopped in his tracks and responded, "Well, we have been paid on 60 percent of our sales over the last year." Sales are critical, but collecting payment in full for your sales is paramount.

Unfortunately, far too many business owners think, as did our sales-driven friend, that in order to obtain success, all of their focus should be on sales. Nothing could be further from the truth. You can sell 50 kitchens per day, but if you don't get paid for your efforts, your successful sales strategies mean nothing. So now that we have established that collecting full payment for your sales is the most important element of a successful business, what should you be doing to make sure that your receivables are current?

For most of you, your sales are made either to the individual residential customer or a contractor or building owner on larger multi-unit projects. The techniques and mechanisms used to collect outstanding balances differ greatly, depending upon whether it's a homeowner or general contractor that owes you money.

INDIVIDUAL SALES

For individual customer sales, it is wise to ship or deliver all merchandise with an accompanying invoice. In fact, send a duplicate, as many customers find it helpful to receive two copies, one to keep for their records and the other to send with their payment.

Aside from invoices, it is prudent to send monthly statements listing your customer's payments and all unpaid invoices. You will find some customers may not keep accurate records, even losing or forgetting to record your invoices. Sending statements will also alert your customers that you are aware of outstanding invoices and you expect prompt payment.

It goes without saying that it is critical for you to keep an accurate payment history for each customer. To do so, establish a method to monitor your accounts receivables. One great option is to use small business accounting software. Remember, you need to know who owes you money, how much they owe you and how long they have owed it to you.

TAKING ACTION

To collect your money, you will find that you must also aggressively manage your receivables with consistent collection activity. Following are three tactics that work for general collections:

1. As soon as payment is past due, send a copy of the invoice to the customer along with a notation requesting the payment. When you send out your statements, circle the past due invoices.

2. Generally, a handwritten note on a statement or invoice is more effective than computer-printed messages or past-due stamps and stickers.

3. Call your customers yourself. Explain that you are looking for payment of the outstanding invoices and ask when you can expect payment. Daily calls usually get the customer's attention.

If none of these basic techniques work, you will need to be more aggressive. In cases where the customer refuses to respond to your communications, the following techniques are appropriate:

1. Telephone your customer, demanding a check and threaten to turn the account over to a collection agency.

2. If your customer claims to have no money, ask for a post-dated check. If the check bounces, contact your attorney, as there are civil and criminal penalties for passing a bad check. Typically, threats from an attorney will help you recover the money.

3. Pay a personal visit to the customer and demand payment.

4. Finally, if all else fails, file a lawsuit for the full amount owed. If you have a good sales contract, you may be able to demand interest and attorney's fees. While smaller collection matters can be handled pro se, without an attorney, moderate to large amounts should be handled by a competent attorney.

Whether you decide to deal with collection issues yourself or with the assistance of an attorney, remember that your success in business is driven by money in the door, not solely by making sales. The two most important actions to take after you land a sale are (1) keep meticulous and accurate records for that transaction and (2) take immediate action when the customer fails to timely pay an invoice. The longer you wait to collect a paid due account, the less likely you will be to recover the money.

—Peter J. Lamont, Esq., is a commercial litigation attorney with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice focuses on the representation of small- to large-size companies in the building and design industry, as well as individual designers and architects. To contact him with questions and suggestions on topics for future articles, please email him at plamont@peterlamontesq.com or call him at (973) 949-3770.

Understanding Errors and Omissions Insurance

It is inevitable that even the most cautious designer, installer or kitchen design specialist will make mistakes from time to time. However, there are ways in which kitchen and bath professionals can attempt to limit liability arising from their errors or omissions. One such way is to purchase Errors and Omissions insurance (E&O), also known as Professional Liability insurance. E&O insurance is separate and distinct coverage from any Commercial General Liability policy (CGL) that you or your company may currently possess.

While many may have heard of E&O insurance, very few people truly understand what it is. E&O is a piece of insurance that covers you individually, or your company, in the event that one of your clients sues you or otherwise holds you liable for a service that you provided, or failed to provide, that did not meet the expected or promised results. Most doctors, accountants, architects and engineers have some form of E&O coverage. E&O may also be beneficial to kitchen and bath professionals.

For example, assume that your client has requested cabinets with a walnut finish. However, when the units are delivered, they turn out to be cherry. Your client had wanted the cabinets delivered and installed prior to a large social event that she was hosting at her house. Even though you offered to replace the cabinetry at no charge, she sues you, alleging that your negligence has resulted in her sustaining monetary damages as well as the loss of use of the cabinets for her special event. Without E&O coverage, you may end up paying to defend the claim out of your own pocket. It is important to note that the type of loss described in the example above would not be covered under a CGL policy, which typically contains exclusions for work product. If, however, you had a properly construed E&O policy, you may be entitled to coverage that would include the payment of all court costs, judgments, verdicts or settlements and attorneys' fees.

While an E&O policy may seem like a panacea for any negligence on your part, you must be aware that insurance companies typically want to avoid paying out large sums of money on their insureds' policies. The way they avoid doing so is by building into their policies numerous exclusions that may be quite complicated for the average business owner to fully understand. Although E&O policies vary significantly, typical policies will not cover you for liability that you assumed under any contract or agreement unless you would have been legally liable in the absence of the contract because of your negligent act, error or omission in the performance of your professional services. This exclusion would apply if you entered into a contract that contained penalty clauses, guarantees, warranties, liquidated damages or certain other provisions.

Other exclusions include liability (1) for damages or injury to real or personal property that is in your care, custody or control, or that you are repairing; (2) arising out of any dishonest, fraudulent or criminal act or omission, or for other intentional wrongful acts; and (3) for punitive or exemplary damages, fines or penalties or any multiplication of compensatory damages. E&O policies may contain a host of other exclusions of which you should be fully aware before purchasing the coverage.

It is critical that you communicate to your insurance broker your needs for coverage under an E&O policy. You should explain to your broker exactly what services you provide and ask him to explain all of the limitations and exclusions contained in the policy to you. Be prepared to provide copies of your contracts, agreements, purchase orders and other documents to the insurance underwriters. They typically review such documents to determine their risks associated under the policy. Generally speaking, the higher the risk, the higher the premium.

Determining whether an E&O policy is right for you takes a good deal of thought and some in-depth conversations with your insurance broker. E&O policies can protect you and your company from various errors and omissions and save you a good deal of money in the event that you are sued. However, high premiums and confusing or limiting exclusions may impact your decision to purchase a policy. Ultimately, so long as it is economical, having too much insurance coverage is better than being underinsured. Nevertheless, no amount of coverage can protect you from everything. Thus, the best way to limit liability is to utilize properly constructed contracts and to pay close attention to details when dealing with customers.

NJ Supreme Court Rules that NJ Consumer Fraud Act Applies to New-Home Interior Contractors

The New Jersey Supreme Court ruled last week that the Consumer Fraud Act and its treble-damages remedy can apply to contractors performing interior work on new homes. The ruling in Czar Inc. v. Heath , A-114-07 expands the already broad power of the statute.

In Czar v. Heath, the Heaths hired Czar Inc. to install kitchen cabinets, interior doors, moldings and chair rails in their home which was under construction. The homeowners were unhappy with the quality of the work and withheld $80,000 from the bill . Czar then sued the Heaths for the unpaid balance. The Heaths counter-claimed alleging violation of the Consumer Fraud Act.

The Court held that the Consumer Fraud Act, the Contractor’s Registration Act, the New Home Warranty Act, and the regulations promulgated pursuant to those statutes were designed to provide an integrated scheme of protections for homeowners. The contractor, which neither acted as the general contractor nor qualified as a builder of new homes, was engaged in the business of home improvements and subject to the remedies of the Consumer Fraud Act.

This decision is important for those in the kitchen, bath and construction industries. A plaintiff who successfully proves that a violation of the Act occurred will be entitled to treble damages and attorney’s fees.

—Peter J. Lamont, Esq., is a commercial litigation attorney with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice focuses on the representation of small- to large-size companies in the building and design industry, as well as individual designers and architects. To contact him with questions and suggestions on topics for future articles, please email him at plamont@peterlamontesq.com or call him at (973) 949-3770.

PA Attorney General announces that registration is now open for home improvement contractors; under new law, contractors must register by July 1

The Pennsylvania Attorney General has announced that registration is now open for home improvement contractors. Accordign to the Attorney General's website, Attorney General Corbett announced that contractors can now begin to register with the Attorney General's Office, in order to comply with a new law that goes into effect July 1.

The website explains that in 2008, the Pennsylvania Legislature passed the Home Improvement Consumer Protection Act, which requires all contractors who perform $5,000 or more in home improvements in a year to register with the Attorney General's Office.

The Attorney General stated, "We have worked to ensure that the registration process is as quick and easy as possible. If you complete your registration online, you will receive your registration number instantaneously."
Click on the link below, which will take you to the PA Attorney General's website to register your business.

Changes in PA Law Will Affect Kitchen & Bath Companies

This post will update you as to a recent development in Pennsylvania law which will impact most kitchen and bath companies.

Last fall Gov. Ed Rendell of Pennsylvania signed into law a bill known as the Pennsylvania Home Improvement Contract act which will serve to regulate home improvement contractors and which requires that all home improvement contractors be registered with the state. All registrations must be completed by July 1, 2009 which is the date that the law goes into effect.

The bill defines "home improvement contractor" as any person who owns and operates a home-improvement business or who undertakes, offers to undertake or agrees to perform any home-improvement.

In relevant part, "Home improvement" is defined as any repair, replacement, remodeling, demolition, removal, renovation, installation, alteration, conversion, modernization, or improvement in connection with land or a portion of land that is adjacent to a private residence for which the total cash price for all work agreed upon his more than $500.

The bill excludes new construction, the sale of appliances, home improvement retailer having a net worth of more than $50 million and the sale of goods by a seller who neither arranges to nor performs directly or indirectly any work or labor in connection with the installation or application of the goods or materials.

Clearly, the bill is liberally constructed for the purpose of protecting Pennsylvania residents from unscrupulous business practices by contractors, etc. The general definition of both "home improvement contractor" and "home improvement" certainly applies to most kitchen and bath companies doing business within the state. Kitchen and bath companies will have to comply with the registration law prior to the July 1, 2009 deadline. If you do not register with the state, it will not recognize as valid or enforceable any improvement contract entered into between your company and Pennsylvania residents.

In addition to the registration requirement the bill also contains requirements about deposits on the job. For any contract exceeding $1000 in value you may never receive a deposit in excess of (A.) one third of the home-improvement contract price; or (B.) one third of the home-improvement contract price plus the cost of special order materials that have been ordered.

Finally, the law imposes new criminal penalties for home-improvement fraud.

If you have any questions or comments, or would like to discuss the impact of this bill in greater detail, or the procedure for registering your company please do not hesitate to contact me.

—Peter J. Lamont, Esq., is a commercial litigation attorney with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice focuses on the representation of small- to large-size companies in the building and design industry, as well as individual designers and architects. To contact him with questions and suggestions on topics for future articles, please email him at plamont@peterlamontesq.com or call him at (973) 949-3770.

CONTRACTS: THE BACKBONE OF SUCCESSFUL BUSINESS

CONTRACTS: THE BACKBONE OF SUCCESSFUL BUSINESS
By: Peter J. Lamont, Esq.

Far too often kitchen and bath companies overlook the critical importance of utilizing comprehensive contracts as part of their routine sales practices. Many companies imprudently rely upon purchase orders, invoices as a contract, and verbal agreements. While using these agreements may initially free up time to allow you to develop leads and generate sales, it will undoubtedly cost you far more time and money when a customer decides to challenge your purchase order or worse, sue you.

A properly constructed contract can bind your customers to your terms, explain your procedures and protect you from litigation. The problem with purchase orders and the like is that they typically fail to address necessary issues such as indemnification, delays, curing a contract breach and basic information about the limits of the company’s responsibilities. Additionally, they will almost never address company specific issues such as shipping, storage and installation costs.

Proper sales and installation contracts are truly the backbone of any successful kitchen or bath company. Without a good contract, your company is exposed to a variety of claims including consumer fraud claims. While it is recommended that you obtain the advice of a competent contracts attorney, there are some software products and form contracts (ex. AIA) that can help you construct a legally enforceable contract aimed at preventing or limiting litigation. Keep in mind that form contracts will need some tweaking to make them specific to your business.

If you are preparing your own contracts you should, at the very least, include the following issues: (1) contract price; (2) payment schedule; (3) cancellation; (4) delivery; (5) warranty; (6) installation; (7) limitations of liability of seller; (8) storage; (9) remedies for breach and choice of law; and (10) duties and responsibilities of the seller.

Another critical factor in creating a legally enforceable contract is to express the terms and conditions in simple, everyday English as opposed to verbose legalese. Just because a contract contains mind-bending legal gibberish and archaic words such as heretofore, inasmuch as, and aforementioned, doesn’t make it a better contract. In fact, for most contracts, legalese is not essential or even helpful. It is a far better practice to use clear, concise and easily understood language in your contracts.

It is critical that you give your contracts the time and attention needed to provide adequate protection for your company. Any up front expenditures of time and/or money involving the formation and preparation of your contracts are dwarfed by the amount of resources that litigation consumes. Thus, if you are truly interested in maintaining a profitable business, make certain that your contracts are clear, complete and legally enforceable.

Remember, any consumer litigation filed against you will involve the Court’s analysis of your contract. A strong contract could result in the early dismissal of a frivolous lawsuit, and in some states allow you to recover your costs and fees associated with your defense. Conversely, the lack of a well written contract could result in protracted and costly litigation, which would ultimately be settled or submitted to a jury for trial.

Prepare thorough contracts, using clear and simple language and review them periodically. Doing so will ensure that your time and efforts are spent selling your products and services, instead of attending depositions and trials and coughing up thousands to settle claims.

COMMUNICATION: THE KEY TO AVOIDING CONSUMER LITIGATION Published in Kitchen and Bath Business Magazine

COMMUNICATION: THE KEY TO AVOIDING CONSUMER LITIGATION
By: Peter J. Lamont, Esq.

The combination of the current economic climate and stringent consumer fraud laws creates the perfect breeding ground for consumer lawsuits. In fact, in 2008, many jurisdictions around the country saw dramatic increases in consumer fraud and class action litigation. Consumer lawsuits can be severely detrimental to the kitchen and bath industry because many of the claims that arise are not covered by insurance. Moreover, most states have consumer fraud statutes that award a successful plaintiff double or triple damages and provide for the reimbursement of their legal fees. However, you can dramatically decrease the likelihood that your business will be sued by employing several key communication strategies.

Whether your business is large, small or in between, the key to avoiding litigation is to have a clear understanding of your customer’s desires, needs and expectations and to effectively communicate to him/her your company’s abilities, policies and procedures. This is accomplished by having a structured customer sales procedure and by utilizing properly constructed contracts.

STRUCTURED SALES PROCEDURES

As with anything in life, success is a product of preparation. In order to properly understand and document your customer's desires, needs and expectations you should have in place a structured sales procedure that all employees follow. In general, when new customers enter the showroom most designers/sales consultants cheerfully greet them and ask how they can be of help. The customers explain what they are looking for, including, for example, the height of a kitchen island, and the enthusiastic designer pulls out product samples and specifications and jots down some notes to assist him in designing the customer's kitchen. The customers like what they see, schedule a time for the measurement of their kitchen and await the completed design, which is to include the island at the height they originally requested. Being focused on the sale, the designer submits the design to the customers, obtains verbal approval, collects a deposit, and places the merchandise order. So far so good, right?

The merchandise arrives and the customers await installation of their new kitchen. The designer obtains payment of the remaining balance, delivers the cabinets and begins to install the cabinets. Unfortunately, the customers complain that center island is two feet shorter than what they ordered. Being a careful and detail oriented designer, you know that you designed the island exactly as they requested. Despite your attempts to appease the customers your company is sued.

Your customers, now known to you as “the plaintiffs”, claim that they told you the proper height and that you acknowledged it. Unfortunately for the designer, all he has to document his initial meeting with the customers is “chicken scratch” on a note pad. Since the designer has no competent evidence to prove what height the customers originally asked for, (note: the final drawings are not sufficient proof since they are not signed by the plaintiffs) the case becomes a “he said/she said” case which will ultimately result in the designer’s company settling with the plaintiffs.

Clearly, the litigation described above could have been prevented if the designer had employed a structured sales procedure that involved taking clear and concise notes and having the customers sign off on them as well as signing off on the drawings. For example, during the initial interview with the customers, the designer could have taken down notes as to the desired height of the island and asked the customers to initial the notes to verify that he had the correct information. Then after the final drawings were submitted the designer should have met with the customers and obtained written, not oral, approval of the drawings. By communicating in this manner with the customers the designer could have saved his company a significant amount of money. It is important to note that while obtaining written approval from a customer may not prevent a lawsuit it will give your company a good chance to dismiss the case on an early motion and save you from having to pay the customer any money.

Additional ways to prevent litigation during the design and ordering phases include: (1) making sure that the particular style or product (ex. particular color countertop) is still available before promising it to the customer; (2) keeping organized notes of all customer telephone calls; (3) insisting that all change orders be signed; and (4) making certain to advise the client in advance of the possibility of delivery delays.

CONCLUSION

There is no hiding the fact that we live in a highly litigious society and that the freedoms provided by our country allow a consumer to sue a business for just about anything. While you cannot stop that litigation train from riding the rails, proper communication with your customers through good note taking, customer sign offs and properly constructed contracts, you can limit or even eliminate the number of times the train stops at your station.

Kitchen & Bath Attorney

—Peter J. Lamont, Esq., is a commercial litigation attorney with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice focuses on the representation of small- to large-size companies in the building and design industry, as well as individual designers and architects. To contact him with questions and suggestions on topics for future articles, please email him at plamont@peterlamontesq.com or call him at (973) 949-3770.