a:\newslw.96 [4]Alan Lee MitchellStephen De'ak202001-12-31T19:29:00Z2006-07-01T22:29:00Z2006-07-01T22:29:00Z112527138 5916837411.8026

Scott Hookland LLPConsider . . . VOL. 11, ISSUE 2 April, 2002SCOTT  HOOKLAND LLPL A W Y E R SMailing Address: Post Office Box 23414, Tigard, Oregon 97281  Street Address: 9185 SW Burnham, Tigard, Oregon 97223Telephone: 503-620-4540  Facsimile: 503-620-4315 www.scott-hookland.com

2002 LEGISLATIVE CHANGES

Our January, 2002 newsletter discussed the potential impact of a 2001 Oregon law known as HB 3842. That law made changes affecting the Notice of Right to a Lien statute, ORS 87.021, and changes affecting all sales of real property, ORS 93.125. During the 2002 special session, the Oregon Legislature delayed the effective date of these changes from January 1, 2002 to January 1, 2004.The changes to the Notice of Right to a Lien statute were, at best, confusing. Now that the effective date of these changes has been delayed, contractors will have more time to try to figure out what the changes may mean and how they may impact contractors’ lien notice obligations.The changes to the law about sale of real property were both clear and far-reaching. As you may recall, these changes required all property sellers to provide certain information and forms to their purchasers. The failure to meet these obligations is a misdemeanor.The 2002 revisions to this law expressly provide that there can be no civil or criminal consequences for violations of the above obligations for the period while the law was in effect (the 2001 revisions took effect on January 1, 2002 and the 2002 revisions did not become effective until February 25, 2002).In conclusion, while the 2002 special bill has delayed the effective date of HB 3842, this delay is only temporary. Unless the Legislature passes some other changes, all of the provisions of HB 3842 will become effective on January 1, 2004.

PROTECTING YOUR ASSETSFor many people, one of the major reasons to form a corporation (or other limited liability entity) is to protect the shareholders’ individual assets from creditors. When properly formed and maintained, a corporation can form a “corporate veil” to protect the shareholders’ individual assets. “Piercing the corporate veil” means, in part, that the corporate shareholders may be held liable for the debts of the corporation.One factor that courts will examine in determining whether a plaintiff can “pierce the corporate veil” is the corporation’s capitalization—in other words, whether the corporation had sufficient assets to run its business. The recent decision in Vuylsteke v. Broan, 172 Or App 74 (2001) illustrates this concept.In Vuylsteke, the court looked at the amount of capitalization and compared it to the corporation’s projected annual costs. The court found that the capitalization was less than $170,000 and the projected annual costs were over $320,000.The court noted that it would make the above comparison both at the time the corporation was formed and at the beginning of the corporation’s operations. Here, the court ruled that the under-capitalization at the time the corporation entered the contract (that was the basis of the lawsuit) was so gross as to allow piercing the corporate veil.Therefore, small companies in particular should consult with their accountants to make sure that the corporation is adequately capitalized at all times.

CONFLICTS OF INTERESTClients are sometimes surprised when they call us to pursue claims against someone and are told that this office cannot represent them due to a potential conflict of interest. This can be a particular concern when the client has other open files at our office.In our April 1997 newsletter, we presented a general overview of this issue. Recently, however, it has come to our attention that there may be some confusion about one particular type of conflict.When a client asks us to pursue claims for money owing, one of our first assessments is whether the claim is secured or unsecured. Common examples of secured claims are construction liens and public works bond claims.If two clients ask us to pursue claims against a common debtor, this “secured-unsecured” issue becomes very important. As attorneys, our ethical obligation is to obtain the best result for each of our clients. If one client has a secured claim and the other has an unsecured claim, then it is likely that we would achieve a better result for the secured claimant.In the situation where we are asked to represent both a secured creditor and an unsecured creditor against a common debtor, we believe that this creates enough potential for a conflict of interest that we may decline to represent both clients. In this situation, we would generally be able to represent the client who approached us first but would not be able to represent the client who approached us second.This is not a reflection on either the client or the client’s claims. It is merely our interpretation of the ethical rules that bind attorneys. We appreciate your understanding when the “conflicts on interest” situations arise.

UPDATE ON “SPEARIN” DOCTRINEMany of you are familiar with the “Spearin” doctrine, which provides that a contractor will not be liable for defective results when it strictly complies with the plans and specifications provided by the owner (see April 1998 issue of

Consider…).Recent case law is a reminder that contractors cannot blindly rely upon the owner’s plans and specifications as a shield to claims by the owner. In Robins Maintenance v.

United States

, 265 F3d 1254 (Fed. Cir. 2001), the court denied the contractor’s claim for additional payment even though the contractor had complied with the owner’s bid specifications.The problem for Robins was that the bid specifications for a landscape maintenance contract were defective on their face. When Robins pointed this out to the contracting officer, they were told to not “start any trouble” and to proceed with their bid. Even though it knew its bid understated by half the area to be maintained, Robins submitted the bid.When Robins asked for payment for maintaining the other half of the grounds, the government denied the request. The court upheld that denial, pointing out that because Robins knew about the bid defect, it did not actually rely upon the government’s specifications. Thus, Robins could not seek the protection of the “Spearin” doctrine.This case is a reminder of the broader point that reliance upon government representations is at best a tricky proposition. For example, a design professional in Oregon was denied additional payment for work performed because, although the government’s project manager had promised payment, the architect had failed to obtain a written change order before doing the work. See

Wegroup PC v. State of

Oregon

, 131 Or App 346 (1994)

CCB “HIGH POINTS”As part of the recent legislative changes, the CCB is in the process of finalizing significant changes in their administrative rules. The current rules can be found at the CCB’s web site, www.ccb.state.or.us. Many of these changes may have significant impact for construction contractors and those who deal with construction contractors. If you have questions about how these changes may impact your specific interests, please contact us.FIRM NEWS:MICHAEL J. SCOTT and DOUGLAS L. GALLAGHER, on April 9, presented a continuing legal education seminar for the Multnomah Bar Association entitled “Construction Liens and Bankruptcy Court.” Alan L. Mitchell assisted with preparation of the materials.DOUGLAS R. HOOKLAND and ALAN L. MITCHELL spoke at an April 11, 2002 seminar in Portland for Lorman Business Seminars entitled “Oregon Construction Lien and Bond Law.”RANDOM THOUGHTS:“It ain’t no sin if you crack a few laws now and then, just so long as you don’t break any.” Mae West.This newsletter is published quarterly by the law firm of Scott Hookland LLP for the benefit of its clients and friends and is intended to inform them about legal matters of interest. While this information is meant to be current, we do not promise or guarantee that the information is correct, complete or up-to-date. This information is not intended to and should not be considered to provide legal advice or create an attorney-client relationship. No action should be undertaken in reliance hereon without professional legal counsel.Alan L. Mitchell, Editor