Sandoval Law, PLLC

Arizona Prompt Pay Act

Fri, 10 May 2024 16:00:00 GMT

Pay up or face consequences

The Arizona Prompt Pay Act (APPA) is a law that governs the timing of payments in construction contracts. The APPA requires general contractors to pay subcontractors and suppliers within specific timeframes after receiving payment. It serves to prevent withholding or 'squeezing' payment that is owed, which was historically a major problem in Arizona.

It is important for general and subcontractors to heed the warnings and requirements of Prompt Pay. Failure to timely object to bad workmanship can be deemed a waiver/acceptance and start the clock on payment. Prompt pay calculates interest at 18%, which on large sums can quickly eat into profit margins. Additionally, failing to timely pay may subject a contractor to a Registrar of Contractors complaint and discipline.

Prompt Pay is a remedy supplemental to mechanic's liens. Both should be pursued to maintain leverage. Prompt pay is not an independent claim, but rather is a provision that applies in a breach of contract. Still, there are some applicable defenses to payment, even if not timely objecting to work. Given the interest component, it is important to calendar payment and objection deadlines, as well as act quickly if and when you find yourself on either side of a Prompt Pay situation. These simply cases can at times become complex. Please call us if you need assistance determine your rights on Prompt Pay issues.

Mechanic's Liens

Wed, 08 May 2024 23:15:00 GMT

What are they and why do they matter?

Mechanic's Liens are a way for contractors and suppliers to secure rights to payment. There are a collection of laws in Arizona that must be complied with in order for a lien to be enforceable. Generally, these requirements are that a pre-lien notice be sent to the owner and a mechanic's lien is filed describing the work. For this reason, it is important for those in the construction industry to maintain checklists and calendar deadlines to ensure that notices, liens and lawsuit are timely filed to secure their rights.

Once a mechanic's lien is filed, it creates a cloud on the property's title, making it difficult for the property owner to sell or refinance the property until the lien is resolved. The lienholder is also entitled to and has priority rights to foreclose on the property. For that reason, it is important for owners to obtain lien releases from all involved in a project to ensure payments are properly made and credited. Property owners have the right to challenge a mechanic's lien through legal proceedings if they believe it was improperly filed.

Sandoval Law has experience litigating mechanics liens on behalf of owners, general and subcontractors and suppliers. Lawsuits involving mechanic's liens have strict deadlines and significant consequences. These lawsuits involve overlap between construction and contract law. Should you find yourself in a predicament involving mechanics liens, we are here to assist and serve as a resource.

Lawsuit: Property Brothers' Production Co. Gets the Hammer

Wed, 08 May 2024 00:19:38 GMT

Vegas Couple Sues Production Company and Associated Contractors for Alleged "Shoddy Job"

Source: 8 News Now/Las Vegas 5/6/2024

A Las Vegas couple has filed a lawsuit against a production company after appearing on the TV show "Property Brothers" and alleging that the company did a poor job. The couple alleges that the renovations done on their home were subpar and that they were misled by the show's producers, who work for the production company Cineflix. The "Property Brothers" have not been named in the lawsuit. The lawsuit seeks compensation for damages and emotional distress for a bunch of ongoing issues with their house. The production company has not yet responded to the allegations.

Although we don't know the merits of this lawsuit and have yet to deal with celebrities like the ones appearing on HGTV , Sandoval Law has pursued many cases involving issues with unlicensed contracting, construction defects, and workmanship issues . Sandoval Law has encountered unlicensed contracting by realtors, contractors who have had their licensed revoked, instagram house-flipping influencers, and others. These individuals are often skilled at marketing themselves and projecting a veneer of excellence, but lack experience and qualifications necessary to perform the work. We have also seen contractors performing work beyond the scope of their license, which is yet another concern and is still considered unlicensed contracting under Arizona law (A.R.S. 32-1154(A)(13-16).

There are many considerations all homeowners should make when hiring a contractor, among the following:

Is the Contractor Licensed? Licensing in the State of Arizona provides a homeowner with the security of a two-year warranty for workmanship, the backing of the Registrar of Contractors for both abandonment and workmanship issues, the ability to pursue claims through the administrative law tribunal (as opposed to civil court), and the requirement of a bond to complete work in the event that the contractor cannot finish the job. Keep in mind that there is a "handyman exemption" for unlicensed contractors, but that is limited to jobs of $1,000.00 or less , which cannot be 'gamed' just by splitting up a job into smaller blocks.
Does the Contractor have insurance? Not all licensed contractors are insured. Before engaging a contractor, ask them for a copy of their declarations page, which is the document that shows the effective dates and extent of coverage. Insurance can become crucial, especially if a contractor becomes insolvent and declares bankruptcy. Note that not all claims are covered by insurance, so the presence of insurance is helpful, but not a cure-all.
Can the contractor give references and pictures of other jobs they completed? Many contractors do not maintain an online presence for reviews, and even if they do, Sandoval Law has investigated and pursued some contractors who appear to be hiring people to post fake reviews to boost their presence and appearance. As a general rule, take online reviews with a grain of salt. A contractor's past work (especially a few years prior) is a helpful indication of workmanship and their willingness to cure and defects to make good on their warranty. Just asking for references might give you a telling reaction.
Have they been sued? If you're in Maricopa County, it is very easy to search a contractor or its owner's names to see if there has been past civil litigation concerning its work. Keep in mind that just because a contractor does not have any complaints listed with the ROC, does not mean they are perfect. Many contraction cases proceed though civil litigation in lieu of proceeding through the ROC and administrative law tribunals. Of course, there are many reasons a lawsuit can be filed and the presence of a lawsuit is not proof positive that the contractor has a history of problems. That said, if they have many lawsuits where they are listed as a defendant, it is probably worth considering other options. Most competent contractors are able to work out problems and either resolve them with the homeowner directly or under the ROC's review process.
Does the contractor present you with a written bid/contract outlining the scope of work? This is a requirement under state law for most construction. Putting aside that requirement, it is important to have terms spelled out for you to understand what you are getting and to make an apples-to-apples comparison of competing bids.

As always, Sandoval Law is here to help with the ins-and-outs of Construction Law. Should you need help with drafting a contract or find yourself in a defect or workmanship or abandonment situation, please give us call.

FTC Bans Non-compete Agreements

Sat, 04 May 2024 19:45:30 GMT

What happens to my non-compete?

With the stroke of a pen, Federal Trade Commission (FTC) head Lina Khan claimed to outlaw the vast majority of non-compete agreements . Also known as "restrictive covenants", non-competes are agreements put in place that limit or 'handcuff' an employee's (and certain independent contractors) ability to compete with a business after terminating their employment or relationship with that business. They often have a time component (months or years) and a distance component (usually expressed as an X-mile radius). These agreements can vary significantly from one employer or employee to the next. Usually, the more unique and profitable the employee's work is for the business, the more restrictive the agreement becomes.

For those not in the know, the FTC regulates commerce. Part of its watchdog duties is to police big business and regulate Federal Antitrust laws, like the Sherman Antitrust Act, which was passed in 1890. The Sherman Antirtrust Act sought to break up monopolies in Oil, Steel and Railroads, among others. You may recognize the names John D. Rockefeller , Cornelius Vanderbilt , Andrew Carnegie , and J.P. Morgan (apparently the inspiration for the Monopoly board game). They acquired most of their respective competitors and became monopolies, which in turn hurt the consumer.

The FTC applied this same law to issue its rule banning all non-compete agreements. The thinking is that non-compete agreements restrain freedom of workers, which in turn stifles competition. This is obvious -- it's in the name. By themselves, it's hard to argue that non-compete agreements create monopolies. However, the point is really that anti-competitive behavior of any kind has the potential to do so.

Less clear is whether the FTC even has the power to deem non-competes unenforceable. Some say this is best left to the states to regulate. While Arizona does not have such a law, states like California and Washington have laws limiting non-competes to some degree. However, all states already have case law that tests whether a non-compete is reasonable. This typically concerns the prohibited time period and distance in the agreement and whether it would prevent the employee from the ability to earn a living. In Arizona, it's also focused on the nature of the employee's work and the time it would take to install and/or train a suitable replacement employee. If it's deemed unreasonable, the non-compete is unenforceable. Unlike some states, Arizona courts do not re-write the agreement to make it suitable. It is either enforceable or unenforceable as written.

Those challenging this ruling will argue that this 'reasonnableness' test is already guards against non-competes being fertile ground for monopolies. The rule is set to take effect September 4, 2024, banning all new non-competes and rendering most in effect unenforceable. However, before it takes effect, it is certain the rule will be challenged. During that challenge, it is highly likely that the federal court hearing that case will prevent it from taking effect until it make a final decision . What that court decides will probably be appealed and then the case will eventually make its way to the U.S. Supreme Court to decide whether the FTC is exceeding its rulemaking power. During all of that litigation and appeal process, it is unlikely that the rule will have an effect.

In the meantime, do not assume that a non-compete is or will become unenforceable. The legal status of the FTC rule is very much in flux. Businesses and employees alike should understand that even if the rule does become law, there are exceptions for non-profit companies and executive employees, among others. Beyond that, other forms of restraint, such as non-solicitation and non-disclosure agreements, and trade secrets laws (AUTSA) remain enforceable. Our firm handles non-competes and other similar agreements. Please call if you have questions.

Are They Worth It? Limited Liability Company (LLC) Operating Agreements

Wed, 01 May 2024 21:58:00 GMT

Whether you are just starting a new business or have been in business for decades, an LLC operating agreement can provide clarity on the duties and relationships among the managers and owners of the business in the event of a dispute .

Any business with two or more owners or that has an owner and manager who are not the same person or entity can benefit from an operating agreement . While Arizona law does not require that LLCs have an operating an agreement, it can significantly protect the livelihood of the business and the interests of its owners in the event of a dispute. An operating agreement is adopted by the members and/or managers. There is wide latitude in what may be in an operating agreement, and the requirements and prohibitions are listed in the Arizona Limited Liability Company Act (ALLCA), which can be found in Chapter 7 of Arizona Revised Statutes (A.R.S.) Title 29 .

Under Arizona law, LLCs have two 'hats' that can be worn. One is the owner or shareholder, known as the 'member' under Arizona law. A member can be a person, trust, other business entity or combination of them. The other is a manager. A manager is a person or separate entity that has been given the authority to make decisions for the business. Oftentimes, the ,anagers and members are the same person or entity. An LLC can have multiple managers, and it is common for an LLC to have an administrative manager and an operations manager listed in an operating agreement. An administrative manager is typically the person in charge of high-level decision making with regard to the LLC, whereas the operations manager is delegated the day-to-day decisionmaking, typically running the actual business. To borrow a baseball reference, the administrative manager being the' back office' and the operations manager being 'front office'. Under Arizona law, an LLC can designate itself as either "manger-managed" or "member-managed". These records are kept with the Arizona Corporation Commission and can be viewed for free through online searches at the Corporation Commission's website.

My LLC members are family members, should I have an operating agreement?

Without a doubt, businesses have gone belly up over familial disputes, and families have grinded through litigation over LLC member disputes . Much of the stress and associated with either situation can be reduced -- if not altogether avoided -- through a well-crafted operating agreement. An operating agreement can provide clarity in terms of succession plans , if a member passes away, becomes incapacitated, or divorced. At Sandoval Law, PLLC, we have both litigated operating agreements and drafted them. Without a doubt, litigation costs are much more expensive where there is no operating agreement or where there is a poorly drafted form operating agreement that does not suit the actual needs of the LLC or its members. A well-crafted operating agreement provides a relatively certain path for smooth resolution to disputes and significant changed circumstances.

Unlike many firms that draft operating agreements to businesses, our firm has seen these situations play out for members and businesses that come to us after a situation arose that could have been covered by an operating agreement. Without a doubt, we can say that the phrase "an ounce of prevention is worth a pound of cure" holds true, especially in situations involving family members and friends. An operating agreement may preserve both the business and the non-business relationships by avoiding expensive and stressful litigation . Additionally, where the managers are not the same as the members, the operating agreement can spell out the terms under which the managers serve, and their authority and duties to the LLC. Failure to have an operating agreement in such situations leaves it open and ambiguous as to what is expected of the manager, which can result in costly litigation or unintended consequences that can significantly affect the rights of the members or the viability of the business.

Do I need an operating agreement of my single-member LLC?

Many LLCs are single-member LLCs. Even for single-member LLCs, adopting an operating agreement is a way to show that that LLC is maintaining formalities, which is a key consideration to secure the liability-shield status for member(s) in the event of litigation against the company. While rare, Courts consider whether an LLC is keeping corporate formalities in situations where an LLC is being sued, and may disregard to LLC status to allow a "piercing of the corporate veil" to collect judgments against the LLC owner. This becomes less likely in situations where there are multiple members, or whether the manager is a different person or entity than the sole member. An operating agreement can provide an added layer of formality. Other formalities include keeping adequate insurance, entering into contracts and debt only in the LLC name, obtaining a Taxpayer Identification Number (TIN) for the LLC, and maintaining and depositing all of the LLC's revenues in a separate bank account for the LLC, among other factors. Other reasons to adopt an operating agreement exist, such as considering the possibility investment, merger options, as the operating agreement may provide the investing or merger entity with clarity as to how the LLC was run or operated when performing due diligence . Additionally, certain financing programs, such as SBA Loans , may require the LLC to have an operating agreement.

In sum, an operating agreement, while not required for an LLC, my be a wise and prudent choice for LLCs in regulated industries, where an LLC has multiple members or separate managers, or single-member LLCs looking to maintain another level of formality. Sandoval Law has experience in both drafting LLC operating agreements and litigating disputes under them.

If you have any questions, don’t hesitate to contact us today.

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Arizona Trade Secrets Act

Sun, 28 May 2023 00:23:13 GMT

The Arizona Uniform Trade Secrets Act (AUTSA) provides protections for businesses over their proprietary information

Arizona has adopted a model piece of legislation aimed at protecting certain proprietary intellectual property created and maintained by a business. The law can be found in Title 44, Chapter 7 of the Arizona Revised Statutes (A.R.S. 44-401 to 44-407) . A trade secret can be many things or a combination of things. It can even be a compilation of publicly available information, depending on how it is compiled and used. However, all of this protection under the statute is not afforded for -- you guessed it -- proprietary information that is not maintained as a secret. This is a bit of a term of art, as the Act and the cases interpreting it acknowledge that, in order to be useful to the business sometimes there must be some disclosure of the information. Disclosure of the information outside, and sometimes even inside the entity, must be done under some form of effort to protect it. This typically means a non-circumvent or non-disclosure agreement or similar terms incorporated into a master agreement covering the protectable information. Secondly, and of equal importance, the information truly must be proprietary. A business cannot just claim everything it does or maintains internally is a trade secret. The trade secret must be unique and provide or have the potential to provide the company with a competitive advantage.

Note that patents are not trade secrets under the act. By definition, a patent is in the public record, and therefore cannot be a trade secret. Instead, a patent protects a design, thing, material or process under a separate set of federal laws that are far beyond the scope of AUTSA. Trade secrets are typically things like customer and vendor lists, databases, know-how, or perhaps certain business methods or tactics. Trade secret protection exists to prevent unfair competition. Trade secret litigation typically arises between competitors, collaborators, former employees and their former employers, or between buyers and sellers of a business after closing. The act has a host of remedies available, including awarding the aggrieved party royalties and injunctions. An injunction is a court order that essentially prevents a person or party from doing something, and allows the other party a shortcut to court enforcement of penalties in the form of monetary sanctions and possibly even criminal sanctions for contempt. This is to be distinguished from a separate criminal statute under Arizona law regarding theft of trade secrets, which, depending on the manner or method of theft, may be implicated at the same time as AUTSA.

Trade secret litigation and the protections afforded under the act can be very nuanced and fact-specific. As a result, any business concerned with protecting trade secrets should consult an attorney experienced in this type of litigation to determine the proper manner to go about affording or maintaining protected status for trade secrets under act. Trade secrets are far too important to be covered by a stock online form, as such forms are not appropriately tailored to the proprietary interest. Additionally, it is equally important that business operate in a way consistent with the AUTSA and terms of any agreements it seeks to bind others to regarding its proprietary information. Sandoval Law has experience litigating and drafting non-disclosure and non-circumvent agreements under the Arizona Uniform Trade Secrets Act . Oftentimes, claims under the act are made with breach of contract, fraud, and other business tort claims arising out of a misappropriation of trade secrets.