ASA Victory Before Texas Supreme Court Preserves Subcontractors’ Remedies for Nonpayment
 

ALEXANDRIA, Va. ­ The Texas Supreme Court handed down a decision on July 3, 2009, agreeing with the American Subcontractors Association Inc.’s position that Texas law affords subcontractors on public work more than one option for recovering funds when they are not paid for their completed work. ASA filed two amicus curiae, or “friend of the court,” briefs, in Dealers Electrical Supply Co. v. Scoggins, asking the Texas Supreme Court to overturn an appeals court decision that said subcontractors on public work could not make claims under Texas’ Trust Funds Act because the only remedy for nonpayment is a claim against a statutorily required (McGregor Act) payment bond. In its briefs, ASA argued that the two remedies were not exclusive, and the high court agreed, stating that “Interpreting the McGregor Act to provide an exclusive remedy for unpaid claims would contravene, rather than further, the purpose of both the McGregor Act and the Trust Fund Act.”

In the underlying case, Dealers Electrical argued that it could use the Trust Funds Act to recover $80,000 it was owed for electrical parts after missing payment bond filing deadlines. A lower court sided with Dealers Electrical, but the 13th Court of Appeals consequently denied Dealers' claim on the grounds that the statutorily required McGregor Act payment bond provided on the project was Dealers' exclusive remedy, and that the Trust Funds Act did not apply when a corporate surety bond was in place.

To ensure that subcontractors would continue to benefit from the remedies for nonpayment that Texas law affords, ASA filed two briefs in support of the supplier. In its May 13, 2008, amicus curiae brief, ASA pointed out that the appeals court misread the McGregor Act as excluding other remedies for nonpayment. The McGregor Act requires payment bonds on state and local public work in Texas. ASA also pointed out that the appeals court erred in citing language from an earlier version of the Trust Funds Act that was no longer in effect when the supplier made its claim. The Trust Funds Act controls the use of construction funds earmarked to pay suppliers and subcontractors. “[The appeals court’s] holdings are incorrect and will have harmful consequences not only for the construction industry but also for public entities, which will face higher construction costs as a result of their suppliers’ decreased ability to compel payment for materials actually delivered, used, and incorporated into public projects,” ASA said in its brief.

In its second brief, jointly filed with the Houston Hispanic Chamber of Commerce, ASA argued that “courts…should not lightly interpret one statutory claim to override another.” Furthermore, the brief stated, “the McGregor Act payment bond complements [other remedies], but it is not – and was never designed to be – an adequate substitute for them.”

“ASA and its Subcontractors Legal Defense Fund have won again,” said 2009-10 ASA President Darlene East, Holes Incorporated, Houston, Texas. “The Texas Supreme Court heard the voice of subcontractors and ruled to protect their rights for payment for work performed. The earlier ruling by the lower court would have restricted our ability to recover payment. The Supreme Court’s decision reversed that ruling, leaving intact current payment protections.”

ASA’s Subcontractors Legal Defense Fund, which supports critical legal activities and protects the common interests of all subcontractors, funded ASA’s activities relating to this case. Funded solely by contributions, SLDF funds are invested in precedent-setting cases across the country. To learn more about this case and the SLDF, visit www.sldf.net.

Founded in 1966, ASA amplifies the voice of, and leads, trade contractors to improve the business environment for the construction industry and to serve as a steward for the community. ASA’s vision is to be the united voice dedicated to improving the business environment in the construction industry. The ideals and beliefs of ASA are ethical and equitable business practices, quality construction, a safe and healthy work environment, and integrity and membership diversity.

American Subcontractors Association, Inc.
1004 Duke St.
Alexandria, VA 22314

Contact: David Mendes
(703) 684-3450, Ext. 1335
dmendes@asa-hq.com