{00322771.DOCX / } 1
CONSTRUCTION DISPUTES IN GEORGIA
Brandon C. Arnold and Shannan F. Oliver
Bloom Sugarman LLP
The potential legal issues which may be implicated during a given construction project,
whether residential or commercial, are far more numerous than most people realize. Architects,
laborers, designers, foremen, electricians and engineers each provide their respective
contributions whether the finished project is a backyard garage or a skyscraper thousands of feet
tall. Accordingly, the umbrella of “construction disputes” which may arise during a given
project encompasses a wide spectrum of potential claims and legal issues. These topics are the
subject of countless legal treatise and court decisions.
Rather than paint with a broad brush, this paper focuses on a subset of construction issues
under Georgia law in order to provide the practitioner with a general understanding of (1) the
Georgia Right to Repair Act, (2) Arbitration, (3) Construction Warranties, and (4) Materialman’s
and Mechanic’s Liens. These issues are of significant importance because they are frequently
encountered by the construction practitioner as a result of their general applicability to disputes
extending from the construction of single family homes to complex residential development to
multi use facilities.
GEORGIA’S RIGHT TO REPAIR ACT
In 2004, the Georgia Legislature enacted O.C.G.A. § 8-2-35 et seq., commonly referred
to as the “Georgia Right to Repair Act” (herein, the “Act”). The Act was passed in order to
create an additional “alternative method to resolve legitimate construction disputes that would
reduce the need for litigation while adequately protecting the rights of homeowners.”
1
For
decades, residential construction disputes between homeowners and contractors absorbed a
1
O.C.G.A. § 8-2-35.
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disproportionate share of judicial resources considering the extent of such disputes is often
relatively minor. With this issue in mind, the Act implements a back-and-forth type procedure
between homeowner and contractor aimed to resolve construction defect claims before they
mature into full blown litigation.
In addition to the alternative dispute resolution provision, the Act provides a number of
benefits to contractors with corresponding obstacles to homeowners. For example, the Act
provides a stay of any actions (both traditional lawsuits and arbitrations) against contractors until
a homeowner has complied with the Act, a right for the contractor to inspect a residential
property at his or her disposal, the potential for the automatic acceptance of a contractor’s offer
to repair, the potential for a contractor to cap recoverable damages by making a “reasonable
offer,” and the potential elimination of recovery of attorneys’ fees and costs by a homeowner.
Despite these somewhat one-sided benefits, the Act does not create an independent cause of
action.
2
The implications of the Act, along with its major provisions, are outlined by this paper.
A. Applicability of the Act
Contractors to Which The Act Applies
The Act demands compliance from two broad categories of persons, “contractors” and
“claimants.” The former are defined as “any person, firm, partnership, corporation, association,
or other organization that is in the business of designing, developing, constructing, or selling
dwellings or common areas, alterations of or additions to existing dwellings or common areas, or
the repair of such improvements.”
3
The Act explicitly extends the definition of “contractor” to
an “owner, officer, director, shareholder partner, or employee of the contractor . . .
subcontractors and suppliers, and [a] risk retention group . . . that insures all or any part of a
2
O.C.G.A. § 8-2-43(a).
3
O.C.G.A. § 8-2-36(6).
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contractor’s liability for the cost to repair a construction defect.”
4
Despite this broad definition
of “contactor,” the Act is inapplicable to those who are not required to be officially licensed as a
contractor in Georgia, meaning that architects and some other persons are excluded from the
requirements of the Act.
5
Structures to Which the Act Applies
The Act applies to “dwellings” and “common areas” which extend to include nearly
every conceivable residential structure. Under the Act a “dwelling” is a “single-family house,
duplex, or multifamily unit designed for residential use in which title to each individual
residential unit is transferred to the owner under a condominium or cooperative system.”
6
Relatedly, a “common area” is any common area, improvement, or facility that is owned or
maintained by the association in a “common interest community.”
7
Taken together, these broad
definitions extend the Act to nearly every conceivable residential structure other than apartment
buildings and hotels.
8
Commercial structures are also not implicated by the Act.
What Constitutes a “Construction Defect”?
In the absence of an express warranty related to the underlying construction, the Act
defines a “construction defect” as any “matter concerning the design, construction, repair, or
alteration of a dwelling or common area, of an alteration of or repair or addition to an existing
dwelling, or of an appurtenance to a dwelling or common area on which a person has a complaint
against a contractor.”
9
The term extends to “any physical damage to the dwelling or common
4
O.C.G.A. § 8-2-36(6)(A)-(C).
5
O.C.G.A. § 43-41-1, et seq.
6
O.C.G.A. § 8-2-36(6).
7
O.C.G.A. § 8-2-26(4).
8
Jai Ganesh Lodging, Inc. v. David M. Smith, Inc., 328 Ga. App. 713 (2014) (finding no merit
in defendant’s contention that negligent construction claim regarding hotel construction was
barred by failure to give notice under the Act).
9
O.C.G.A. § 8-2-36(5).
{00322771.DOCX / } 4
area.”
10
Where an express warranty exists regarding the underlying construction, the term
“construction defect” as defined in that contract applies, as opposed to the statutory definition in
the Act.
11
While a homeowner is free to remedy alleged defects prior to providing notice under
the Act, mitigating repairs may lessen the potential damages available at trial.
12
B. The Act’s Procedural Requirements
Homeowner’s Written Notice of Defect Claim
Upon a homeowner’s determination that a construction defect exists, the homeowner
must provide written notice to the contractor of a claim based upon such defect “no later than 90
days before initiating an action.”
13
This written notice must explicitly state that a construction
defect claim is asserted under the Act, that such notice is being provided under the Act, and must
describe the defect in “detail sufficient to explain the nature of the alleged construction defects
and the results of the defects.”
14
Any additional defect discovered following a homeowner’s
initial notice may not be alleged in an action until a contractor is given written notice regarding
the additional defect and the same opportunity to resolve the defect.
15
If litigation has
commenced at the time it is discovered, an additional defect may be added to pending defect
litigation if legal rights would be prejudiced in its absence and so long as a homeowner complies
with the notice requirements.
16
10
O.C.G.A. § 8-2-36(5).
11
O.C.G.A. § 8-2-36(5).
12
Lumsden v. Williams, 307 Ga. App. 163, 166 (2010) (holding that “nothing in the [Act]
prevents a potential claimant from taking action to mitigate his losses”).
13
O.C.G.A. § 8-2-38(a).
14
O.C.G.A. § 8-2-38(a).
15
O.C.G.A. § 8-2-39(a)(1)-(2).
16
O.C.G.A. § 8-2-39(b). The term “serve” under the Act means delivery by certified mail or
statutory overnight delivery of the last known address of the contractor. See O.C.G.A. § 8-2-
36(8).
{00322771.DOCX / } 5
In conjunction with notice, a homeowner must provide a contractor with any evidence
depicting the nature and cause of the alleged defect, “including expert reports, photographs, and
videotapes.”
17
In the event that a homeowner files suit based on the defect without first
complying with this written notice provision, any party to the subsequent action may apply for
and shall receive a stay until a homeowner complies with these notice requirements.
18
Following
this initial notice, however, a homeowner and contractor “may, by written mutual agreement,
alter the procedure for the notice of claim” under the Act.
19
Contractors’ Response to Homeowner’s Notice
The Act vests a contractor with several responsive options once served with a
homeowner’s notice of construction defect. A contractor should choose carefully, however, as
his or her response will dictate how the scheme provided by the Act will ultimately play out.
First, a contractor may wholly reject the homeowner’s claim or otherwise refuse to respond.
20
Second, within 30 days of such notice, a contractor may offer to settle the claim “by monetary
payment, the making of repairs, or a combination of both” without the need for any inspection of
the alleged defect(s).
21
Also within 30 days of the defect notice, a contractor may propose “to
inspect the dwelling or common area” that is the subject of the homeowner’s claim.
22
The
consequence of each potential response by a contractor is discussed in the following section.
Contractor Rejects Homeowner’s Defect Claim
17
O.C.G.A. § 8-2-38(a).
18
O.C.G.A. § 8-2-37. While a homeowner’s failure to comply with the notice requirement
renders a stay appropriate in both traditional litigation and in arbitration, such a failure is not
grounds for an outright dismissal. See Lumsden v. Williams, 307 Ga. App. 163, 168 (2010)
(“[N]othing in the [Act] contemplates that a claimant’s action be dismissed for failing to provide
pre-litigation notice under O.C.G.A. § 8-2-38.”)
19
O.C.G.A. § 8-2-38(p).
20
O.C.G.A. § 8-2-38(c).
21
O.C.G.A. § 8-2-38(b)(1).
22
O.C.G.A. § 8-2-38(b)(2).
{00322771.DOCX / } 6
In the event that a contractor wholly rejects a homeowner’s defect claim, or fails to
respond in writing within 30 days of the notice, the homeowner is free to pursue litigation
against the contractor.
23
This response (or lack thereof) by a contractor effectively frees a
homeowner from the constraints of the Act.
Contractor Offers to Settle Homeowner’s Defect Claim
Should a contractor make an offer to settle the claim, the homeowner has the option to
accept its terms via service of written notice of acceptance within 30 days.
24
Importantly, a
contractor’s offer shall be deemed accepted by a homeowner in the event that a homeowner fails
to respond to a contractor’s offer within 30 days
25
Once a contractor’s offer is accepted, a
homeowner must provide a contractor and its agents “prompt and unfettered access . . . to
perform and complete the construction by the timetable stated in the settlement offer.”
26
Such
acceptance bars a homeowner “from bringing an action for the claim described in the notice of
claim.”
27
A contractor is obligated to proceed with “the monetary payment or remedy the
construction defect or both within the agreed timetable,” although there does not appear to be
any Georgia cases interpreting this provision.
28
If a contractor does not proceed accordingly, a
homeowner may bring a defect claim without further notice and may file the offer to create a
rebuttable presumption that a valid settlement was reached and should be enforced.
29
A homeowner may also choose to reject such offer, and if he or she does, must provide
written notice of such rejection to the contractor and to the contractor’s legal counsel, if
23
O.C.G.A. § 8-2-38(c). Further, if a contractor fails to respond to a claim within 30 days, he or
she “may not claim or assert that the absence [the evidence provided by a homeowner] . . .
relieved the contractor’s obligation to respond.” Id.
24
O.C.G.A. § 8-2-38(m).
25
O.C.G.A. § 8-2-38(m).
26
O.C.G.A. § 8-2-38(n).
27
O.C.G.A. § 8-2-40(a)(1).
28
O.C.G.A. § 8-2-38(g).
29
O.C.G.A. § 8-2-38(g).
{00322771.DOCX / } 7
represented.
30
This written notice of rejection must include the reasons for the homeowner’s
rejection and, if applicable, items the homeowner believes were omitted from the contractor’s
offer and the reasons why the contractor’s offer was unreasonable in any manner.
31
Upon 15
days of a homeowner’s tender of such rejection and reasons, a contractor may provide a
supplemental offer to repair or monetary payment or both, though this is not required by the
Act.
32
A homeowner must exercise some caution in considering a contractor’s offer because the
rejection of a reasonable offer may limit his or her ultimate recovery. The Act states that in the
event that a homeowner rejects an offer that the trier of fact finds reasonable, whether initial or
supplemental, a homeowner “may not recover an amount in excess of (1) [t]he fair market value
of the offer of settlement or the actual cost of the repairs made; or (2) [t]he amount of a monetary
offer of settlement.”
33
Contractor Exercises Right to Inspect
If a contractor proposes to inspect the alleged defect(s) under O.C.G.A. § 8-2-38(b)(2), a
homeowner must, within 30 days of receiving such proposal, provide a contractor and its agent
“prompt and reasonable access to inspect the dwelling s or common area, document any alleged
construction defects, and perform any . . . testing required to fully and completely evaluate . . .
the claim defects and . . . any repairs . . . that may be necessary to remedy the alleged defects.”
34
In the event that “destructive testing” is required to complete such inspection, a contractor must
provide advance notice of such testing and thereafter “return the dwelling or common area to its
30
O.C.G.A. § 8-2-38(d).
31
O.C.G.A. § 8-2-38(d)(1)-(2).
32
O.C.G.A. § 8-2-38(j).
33
O.C.G.A. § 8-2-38(l)(1)-(2).
34
O.C.G.A. § 8-2-38(e).
{00322771.DOCX / } 8
pretesting condition.”
35
While a contractor must “diligently pursue completion of all the desired
inspections” within 30 days of a homeowner’s initial notice, an inspection is still timely outside
of this period so long as it is completed “within a reasonable period thereafter.”
36
Within 14 days of the actual inspection, a contractor must provide a written response to a
homeowner which includes an offer of ‘next steps.’
37
Such notice must provide either (1) a
written offer to fully or partially remedy the defect at no cost along with a description of and
timetable for the required construction, or (2) a written offer to settle the claim by monetary
payment, or (3) a written offer combining repairs and monetary payment, or (4) a written
statement that the contractor will not proceed to remedy the defect and the reasons why.
38
Thereafter, a homeowner has the option to accept or deny a contractor’s post-inspection
offer. If he or she wishes to accept, a homeowner must serve a contractor with written
acceptance within 30 days after the offer.
39
A contractor’s offer is deemed accepted if a
homeowner fails to respond within 30 days of the offer.
40
Upon a homeowner’s acceptance, the
contractor must “proceed to make the monetary payment or remedy the construction defect or
both within the agreed timetable.”
41
A homeowner must give a contractor “prompt and
unfettered access” to the property to complete any offered repairs.
42
If a contractor fails to
comply with this requirement, a homeowner is excused from the Act and may bring suit against a
contractor during which he or she may file the offer and acceptance to create a “rebuttable
35
O.C.G.A. § 8-2-38(e).
36
O.C.G.A. § 8-2-38(e).
37
O.C.G.A. § 8-2-38(f).
38
O.C.G.A. § 8-2-38(f)(1)-(4). If a contractor refuses to remedy the defect, or otherwise fails to
provide the post-inspection offer within1 4 days of the actual inspection, a homeowner may
bring an action against a contractor. O.C.G.A. § 8-2-38(h).
39
O.C.G.A. § 8-2-38(m).
40
O.C.G.A. § 8-2-38(m).
41
O.C.G.A. § 8-2-38(g).
42
O.C.G.A. § 8-2-38(n).
{00322771.DOCX / } 9
presumption that a binding and valid settlement agreement has been created and should be
enforced.”
43
If a homeowner opts to reject the post-inspection offer, he or she must serve written
notice of the reasons for such rejection.
44
Thereafter, a contractor has the option to make a
supplemental [post-inspection] offer of repair or monetary payment or both.”
45
In the event that
a homeowner rejects a contractor’s offer which is later deemed “reasonable” by the trier of fact,
a homeowner’s recovery in an action based on the construction defect is limited to “the fair
market value of the offer of settlement or the action cost of the repairs made; or the amount of
monetary offer of settlement” from a contractor.”
46
C. Miscellaneous Provisions of the Act
Although a majority of the notoriety regarding the Act is given to the back-and-forth
repair procedure, there are a few additional provisions which are important to note to the
practitioner.
Effect on Statutes of Limitation
The Act specifically disclaims that it may be construed to either revive a statute of
limitation period that has expired prior to a homeowner’s written notice or extend any applicable
statute of repose.
47
However, if a homeowner is up against an applicable statute of limitation, he
or she may file the action which “shall be immediately stayed until completion of the notice of
claim process” described in the Act.
48
Subrogation Rights
43
O.C.G.A. § 8-2-38(g).
44
O.C.G.A. § 8-2-38(i).
45
O.C.G.A. § 8-2-38(j).
46
O.C.G.A. § 8-2-38(l)(1)-(2).
47
O.C.G.A. § 8-2-38(o).
48
O.C.G.A. § 8-2-38(o).
{00322771.DOCX / } 10
In the event that a contractor makes repairs or payments or a combination of both
pursuant to an accepted settlement offer, the performance of the same “shall not, by itself, create
insurance coverage or otherwise affect the mutual rights and obligations of the parties under a
contractor’s liability insurance policy or . . . be considered a voluntary payment of an otherwise
valid insured loss.”
49
Further, an insurer paying out a claim under the Act “shall be subrogated .
. . to whom the amounts were paid against the person causing the construction defect.”
50
Required Notices to Be Provided By A Contractor
The Act requires a contractor to provide notice of the provisions of the act to a
homeowner “[u]pon entering into a contractor for sale, construction, or improvement of a
dwelling.”
51
Such notice “shall be conspicuous and may be included as part of the contract.”
52
However, in the event “of any conflict or inconsistency between the provisions of [the Act] and
the provisions of any contract” between a contractor and a homeowner, “the provisions of the
contract shall govern and control.”
53
ARBITRATION
At its most basic level, arbitration is an agreed-upon (typically) alternative dispute
resolution process through which a dispute between two or more parties is resolved by an
independent third party or panel of third parties in order to eliminate the need for traditional
litigation. Regardless of how the parties actually reach arbitration, its conclusion renders a
binding, out-of-court resolution which may be enforced by a court of competent jurisdiction.
Needless to say, the ongoing increase in demand for arbitration is driven largely by the potential
49
O.C.G.A. § 8-2-40(a)(2).
50
O.C.G.A. § 8-2-40(b).
51
O.C.G.A. § 8-2-41(a).
52
O.C.G.A. § 8-2-41(a).
53
O.C.G.A. §8-2-43(c).
{00322771.DOCX / } 11
cost savings to the parties among other perceived benefits of this type of proceeding. To
demonstrate the popularity of arbitration, information released by the American Arbitration
Association (“AAA”) indicates that it alone administered approximately 20,000 arbitration
proceedings during the period between January 2011 and December 2015.54 Considering there
are additional arbitration organizations conducting private arbitrations on a daily basis, the total
number of arbitrations completed in a given year is likely measured in the high tens of
thousands. Based on this prevalence alone, the prudent practitioner must obtain at least a general
familiarity with arbitration, which is precisely what this paper provides for those practicing in
Georgia.
A. Advantages and Disadvantages of Arbitration
Like litigation, or any other form of alternative dispute resolution, arbitration comes with
its own set of advantages and disadvantages. For instance, many parties seek arbitration because
it normally takes less time than traditional litigation to reach a resolution, is less expensive,
confidential, and less formal all while having the same binding effect as a civil judgment.
Further, the parties to an arbitration are free to consent to their own procedural rules and may
designate the principles and parameters which are to be applied by the arbitrator in reaching a
final decision. While the parties may also agree to discovery of their preferred scope,
depositions are usually excluded as is the requirement that parties respond to seemingly endless
written discovery requests. In many instances, arbitration discovery is limited to the exchange of
exhibits shortly before the proceeding. The parties are also able to select their arbitrator or
54
Commercial Arbitration Statistics, The American Arbitration Association, 2016, (available at
https://www.adr.org/aaa/faces/aoe/gc/consumer/consumerarbstat?_afrLoop=1144420464129128
&_afrWindowMode=0&_afrWindowId=null#%40%3F_afrWindowId%3Dnull%26_afrLoop%3
D1144420464129128%26_afrWindowMode%3D0%26_adf.ctrl-state%3D10op42l58p_4).
{00322771.DOCX / } 12
provide a list of potential arbitrators from which one may be selected, as opposed to being
assigned at random to a judge of varying familiarity with the relevant subject matter.
Of course, arbitration is not without its disadvantages. The primary drawback of
arbitration is its finality—except in limited circumstances involving a statutory right to appeal,
there is no permissible means by which to overturn the decision of an arbitrator. There is no
appellate body or other method to which a party can challenge an unfavorable result or flawed
decision. Therefore, a party seeking arbitration must assess the risk of receiving an undesired
result with no possible resource. Additionally, the cost savings in an arbitration, compared to
traditional litigation, is not as substantial as it once was. The hourly rates of arbitrators,
particularly those with considerable experience, continue to rise. Further, arbitration
organizations charge considerable filing fees and other cost for their administrative services.
Despite these cost increases, and contingent upon the nature of the dispute, an arbitration is
likely a less expensive dispute resolution option than traditional litigation.
B. Essential Arbitration Statutes
Georgia Arbitration Code
In 1978, the Georgia Legislature enacted the Georgia Arbitration Code (the “Code”),
found at O.C.G.A. § 9-9-1, et seq., to provide official statutory regulation over the majority of
disputes in which parties have privately agreed to arbitrate. The Code “repealed common law
arbitration in its entirety” and is therefore strictly construed.
55
As such, any party seeking to
compel arbitration “bears the burden of demonstrating the existence of a valid and enforceable
agreement to arbitrate.”
56
While the tenor of the Code is undoubtedly intended to encourage
arbitration, it remains inapplicable to certain cases including the arbitration of medical
55
Greene v. Hundley, 266 Ga. 592, 594 (1996).
56
Life Care Centers of America v. Smith, 298 Ga. App. 739, 741 (2009).
{00322771.DOCX / } 13
malpractice claims, collective bargaining agreements, most insurance contracts, loan agreements
for less than $25,000, and any contract for the purchase of consumer goods.
57
Therefore, it is
incumbent upon the prudent practitioner to ensure that the subject matter of an arbitration falls
within the purview of the Code.
So long as it does, under Georgia law, “the question of arbitrability, i.e., whether an
agreement creates a duty for the parties to arbitrate the particular grievance, is undeniably an
issue for judicial determination.”
58
This “arbitrability” is an extremely broad concept, as the
Code specifically states that any dispute may be arbitrated “without regard to the justiciable
character of the controversy” and further confers jurisdiction upon Georgia courts to “enforce . . .
and the enter judgment on an [arbitration] award.”
59
Georgia courts have interpreted this
provision broadly to provide that courts are “required to uphold valid arbitration provisions.”
60
As an additional means for encouraging arbitration, a court is vested with the discretion to
determine whether an applicable statute of limitation will bar arbitration of a claim.
61
Therefore,
it is possible that a party may compel arbitration of a claim which would otherwise be time
barred at law.
In Georgia, the procedure for compelling an unwilling party to arbitration is relatively
straightforward. The aggrieved party must apply to the court for an order compelling arbitration,
which must be granted so long as there is “no substantial issue” concerning the arbitration
agreement and the claim is not barred by the applicable statute of limitation.
62
The venue for
57
O.C.G.A. § 9-9-2(c)(1)-(10).
58
Pickle v. Rayonier Forest Resources, 282 Ga. App. 295, 296 (2006).
59
O.C.G.A. § 9-9-3.
60
Saturna v. Bickley Const. Co., 252 Ga. App 140, 141 (2001) (upholding arbitration provision
in residential construction contract).
61
O.C.G.A. § 9-9-5(a).
62
O.C.G.A. § 9-9-6(a).
{00322771.DOCX / } 14
such an application, and other matters related to an arbitration dispute, is the superior court of the
county provided for in the relevant agreement or, if not provided therein, the in the county where
any party resides or does business.
63
In opposition to an application to compel arbitration, the
opposing party may apply to stay the arbitration based on limited grounds—either that no
arbitration agreement exists, that the arbitration agreement was not followed, or that the
arbitration is barred by limitation of time.
64
If none of these conditions exist, the court will issue
an order compelling arbitration.
65
However, where res judicata would otherwise bar the claims
asserted, no arbitrable claims exist to be submitted to an arbitrator.
66
Once an arbitration has commenced, whether by agreement or by court order, the Code
defers greatly to the underlying arbitration agreement for matters ranging from the appointment
of an arbitrator or panel of arbitrators to the time and place for the arbitration hearing.
67
A court
may intervene to provide clarity on these types of issues in the event that the relevant arbitration
agreement is inadequate or silent. For example, it is a court’s responsibility to appoint an
arbitrator where the agreement does not provide for a method of appointment or otherwise
fails.
68
A court may also issue and enforce subpoenas to compel the appearance of witnesses and
the production of documents and other evidence at arbitration.
69
As for post-arbitration procedures, the general rule in Georgia is that “in proceedings to
confirm or vacate an arbitration award the role of the trial court should be limited so that the
63
O.C.G.A. § 9-9-4(b)(1)-(4).
64
O.C.G.A. § 9-9-6(b)(1)-(3).
65
See Order Homes, LLC v. Iverson, 300 Ga. App. 332 (2009) (reversing trial court’s denial of
motion to compel arbitration).
66
See Bryan County v. Yates Paving & Grading Co., Inc., 281 Ga. 361 (2006) (holding that res
judicata barred second arbitration of claims previously decided in separate arbitration).
67
O.C.G.A. §§ 9-9-7, 9-9-8.
68
O.C.G.A. § 9-9-7(b)(1)-(4).
69
O.C.G.A. § 9-9-9(a).
{00322771.DOCX / } 15
purpose of avoiding litigation by resorting to arbitration is not frustrated.”
70
From this, upon the
completion of arbitration, the Code requires that a written award signed by the arbitrator must be
delivered to the parties within 30 days, unless some other period of time is agreed to by the
parties.
71
Within one year of its delivery, the court “shall confirm an award upon application of
a party” unless the award is otherwise vacated or modified by the court.
72
An application by the non-prevailing party to vacate an arbitration award must be filed
within three months after delivery of the award and will be granted only upon a court’s finding
of prejudice based upon exclusive circumstances including fraud, partiality of an arbitrator, or
the manifest disregard of the law.
73
An arbitration award may also be vacated in limited
instances upon the application of a party who did not participate in the arbitration.
74
Once
vacated, the court “may order a rehearing and determination of . . . any of the issues either before
the same arbitrators or before new arbitrators.”
75
Despite these seemingly clear legislative
directives, Georgia courts are “severely limited in vacating an arbitration award so as to not
frustrate the legislative purpose of avoiding litigation by resort to arbitration.”
76
As an alternative to vacating an arbitration award in its entirety, a court may also modify
an arbitration award upon application of a party within three months of the delivery of the
award.
77
However, such modification may occur only if there was (1) a miscalculation or
mistake in the award, (2) the award is premised on a manner not submitted during the arbitration,
70
See Hardin Const. Group, Inc. v. Fuller Enterprises, Inc., 265 Ga. 770, 771 (1995).
71
O.C.G.A. § 9-9-10.
72
O.C.G.A. § 9-9-12.
73
O.C.G.A. § 9-9-13(b). See also Greene v. Hundley, 266 Ga. 592 (1996) (holding that Georgia
Arbitration Code contains only available means for vacating arbitration award).
74
O.C.G.A. § 9-9-13(c).
75
O.C.G.A. § 9-9-13(e).
76
See Brookfield Country Club, Inc. v. St. James-Brookfield LLC, 287 Ga. 408, 411 (2010).
77
O.C.G.A. § 9-9-14(a).
{00322771.DOCX / } 16
or (3) the award of imperfect in form not affecting the merits.
78
Upon such application, if the
court chooses to modify the award, it shall then “confirm the award as modified.”
79
If the court
refrains from modification, it must “confirm the award made by the arbitrators.”
80
Following confirmation of an arbitration award, whether modified or original, a court
shall enter judgment “in the same manner as provided in [O.C.G.A. § 9-11-54 et seq.] and be
enforced as any other judgment or decree.”
81
Such procedure contemplates the entry of both an
order confirming the arbitration award and a separate judgment on the award, although these two
orders may be entered on the same document.
82
Any such judgment or order entered by a court
is considered a final judgment and may be appealed pursuant to the normal appellate procedures
for such appeals under O.C.G.A. § 5-6-34 et seq.
83
Federal Arbitration Act
The Federal Arbitration Act (“FAA”), passed in 1925, is the primary source of federal
law affecting arbitration.
84
This statute extends to govern a range of arbitration-related matters
including the validity of arbitration clauses in private contracts, general arbitration procedure,
and the confirmation of resulting arbitration awards. All of these provisions were drafted to
uphold a strong federal policy in favor of voluntary commercial arbitration.
85
In order to
advance such policy, the FAA seeks to uphold nearly every private arbitration clause to the
extent that a “written provision in any . . . contract evidencing a transaction involving commerce
78
O.C.G.A. § 9-9-14(b)(1)-(3).
79
O.C.G.A. § 9-9-14(c).
80
O.C.G.A. § 9-9-14(c).
81
O.C.G.A. § 9-9-15(a).
82
See Green Tree Servicing, LLC v. Jones, 333 Ga. App. 184, 185 (2015) (overruling prior cases
which required award and judgment be entered on separate documents).
83
O.C.G.A. § 9-9-16.
84
See 9 U.S.C.S. §§ 1-16.
85
See AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 333 (2011) (“[The FAA] reflects a
liberal federal policy favoring arbitration”).
{00322771.DOCX / } 17
to settle by arbitration . . . shall be valid, irrevocable, and enforceable.”
86
Not only does this
provision promote arbitration generally, it also eliminates the expense and delay of protracted
court proceedings aimed to determine whether arbitration is appropriate.
87
From this, federal
courts across the country have followed a policy of liberally construing arbitration clauses to
hold that they apply to any dispute “reasonably contemplated” by arbitration clauses, and the
resolve all doubts in favor of arbitration.
88
In conjunction with its policy of advancing arbitration, the FAA provides a procedure
through which parties who have completed their arbitration may file the resultant award in court
to affect a binding judgment. Specifically, the FAA instructs the parties to specify the court in
which their arbitration award should be filed in the relevant arbitration agreement and if they fail
to do so, to file the arbitration award “in the United States court in and for the district within
which such award was made.”
89
Unless the arbitration award is vacated, modified, or otherwise
corrected pursuant to the FAA, the filing of the same results in a binding judgment.
90
Relatedly,
the FAA preempts any statute statutes which purport to create an alternative ground for
confirming or vacating arbitration awards.
91
However, the FAA does provide some limited
defenses which may invalidate an otherwise enforceable arbitration provision which include, but
are not limited to, fraud, duress, unconscionability, and manifest disregard of law.
92
86
9 U.S.C.S. § 2.
87
See Trafalgar Shipping CO. v. International Mill Co., 401 F.2d 568, 572 (2nd Cir. 1968)
(discussing the policy of the FAA to eliminate expense and delay of traditional litigation).
88
See Metro Industrial Painting Corp. v. Terminal Const. Co., 287 F.2d 382, 286 (1961)
(outlining federal arbitration policy).
89
9 U.S.C.S. § 9.
90
Id.
91
See C.T. Shipping, Ltd. v. DMI (U.S.A.) Ltd., 774 F. Supp 146, 148 (S.D.N.Y. 1991)
(overriding NY state statute advancing grounds for vacating or modifying arbitration award).
92
9 U.S.C.S. § 2.
{00322771.DOCX / } 18
C. Drafting An Arbitration Clause
A well-drafted arbitration clause requires a great deal of precision and its length,
complexity and content will be greatly influenced by the involved parties’ respective needs and
desires. The advantages However, the ultimate advantages of arbitration may only be enjoyed
when the details of an arbitration clause are drafted with care. Therefore, the practitioner should
be sure to consider the following in any arbitration clause.
First, the drafter should explicitly articulate the applicable rules for any ensuing
arbitration. For example, an arbitration agreement may state that “any controversy or claim
arising out of or relating to this contract, or any breach thereof, shall be submitted to arbitration
administered by the American Arbitration Association Commercial Arbitration Rules.” AAA
publishes various sets of arbitration rules depending on the nature of the controversy and the
drafter should be cognizant of which set(s) may be applicable. Additionally, the drafter should
specifically identify which issues are to be included or excluded from arbitration. Because
courts interpret arbitration clauses broadly to further the intent of the Code, the drafter must
clearly and unambiguously exclude any areas from arbitration.
A drafter must also contemplate the selection of an arbitrator or panel of arbitrators. The
complexity of the agreement and the relative amount of money involved must be considered with
regard to this factor. With that in mind, it may also be appropriate to loosely define the
qualifications of a preferred arbitrator. For example, an agreement may require that the arbitrator
have a certain amount of experience which would render him or her able to understand the facts
of a complex construction defect matter. The selection provision should also define the method
for arbitration selection. By way of further example, an arbitration clause should also outline the
overall arbitration process including any written discovery, depositions, exhibit exchange, and a
{00322771.DOCX / } 19
timetable for the completion of any remaining pre-arbitration processes. The clause should also
define what constitutes a “prevailing party” and the apportionment of damages, attorneys’ fees,
costs, and other relief following the arbitration hearing.
CONSTRUCTION WARRANTIES
Construction contracts generally contact express warranties offered to ensure (and insure)
that the materials and workmanship provided are free from defect for some defined period of
time. Such warranties are offered as an added incentive to prospective homebuyers considering
the size of the financial investment necessary to purchase a single family home. Contractors
benefit from such warranties by mitigating future risk by way of limiting the term of the
warranty and the items protected therein. In the event that a homeowner asserts a claim for
breach of warranty, such claim is subject to the six year contractual statute of limitations.
93
This
statute of limitations begins to run from the date the contract is notified of the alleged defects at
the structure.
94
Breach of warranty claims are treated separately from construction defect
claims.
95
Additionally, purchase agreements often contain express language which may seek to
exclude “all warranties, express of implied.”
96
In the event that a dispute arises over conflicting
warranty language, the Georgia Code expressly states that “[w]ords or conduct relevant to the
creation of an express warranty and words or conduct tending to negate or limit [such] warranty
shall be construed as consistent with each other.”
97
While still subject to parol or extrinsic
evidence, any reading of such warranty provisions which limits or negates the same is statutorily
93
O.C.G.A. § 9-3-24.
94
Danjor, Inc. v. Corporate Const., Inc., 272 Ga. App. 695, 698 (2005) (holding that six year
statute of limitation applied to warranty claim).
95
Ga. Construction Mechanics’ And Materialmen’s Liens § 13:1.
96
5 Ga. Jur. UCC § 2:128.
97
O.C.G.A. § 11-2-316(1).
{00322771.DOCX / } 20
unreasonable.
98
Therefore, when a homeowner brings a claim for breach of express warranty,
the terms of the written warranty control over any limitation and all parts of the warranty “must
be considered together and reconciled, if possible.”
99
MATERIALMAN’S AND MECHANIC’S LIENS
Under Georgia law, a materialman’s lien or mechanic’s lien (herein “lien” or “liens”) is a
security interest on an owner’s property which may be created in favor of an unpaid laborer or
supplier of construction services and/or materials on a non-public project.
100
The statutory
provisions regarding such liens may be found at O.C.G.A. § 44-14-361 et seq. Because these
liens are in derogation of common law, however, this statute is “strictly construed against the
lien claimant and in favor of the landowner.”
101
The importance of such liens should not be
understated as they are perhaps the most significant remedy available to an unpaid contractor,
subcontractor, or supplier, particularly where an owner is experiencing financial issues and the
property is the primary asset from which payment may be compelled. In cases where these
persons or entities lack contractual privity with the property owner, a lien may be the only
potential source of monetary recovery. As such, practitioners should possess a general
understanding of liens and the general statutory framework for pursuing one, regardless of
whether the practitioner represents the interests of the owner or the lien claimant.
A. Who May File A Lien
The parties with whom the Georgia Legislature has vested the right to file liens against
real estate and other property “for which they furnish labor, services, or materials” are listed at
98
O.C.G.A. § 11-2-316(1).
99
5 Ga. Jur. UCC § 2:128.
100
Claims of lien on public works projects are handled under what is known as Georgia’s “Little
Miller Act” codified at O.C.G.A. § 36-82-101, et seq.
101
Ben Hill Ready Mix Concrete Co. v. Prather, 160 Ga. App. 149, 150 (1981).
{00322771.DOCX / } 21
O.C.G.A. § 44-14-361(a).
102
These persons include “all contractors, subcontractors and all
materialman furnishing material to subcontractors, and all laborers furnishing labor to
subcontractors, materialmen, and persons furnishing material for the improvement of real
estate.”
103
All “mechanics of every sort” who have done work and/or furnished material in
“building, repairing, or improving any real estate of their employers” are also included.
104
In this
context, “mechanic” and “materialman” should be interpreted broadly to include “all persons
furnishing materials, tools, appliances, machinery, or equipment.”
105
Under this statute, persons
with more specialized tasks related to construction, including surveyors and engineers, also have
a right to claim a lien against real estate.
106
B. When To File A Claim of Lien
As of March 31, 2009, a claim of lien must be filed in the office of the Clerk of the
Superior Court of the county in which the property at issue is located within 90 days “after the
completion of the work,” meaning the last date the “labor, services, or materials were supplied to
the premises.”
107
The statute further provides that the rules for calculating time for a claim of
lien are the same as those expressed in O.C.G.A. § 1-3-1, meaning that the lien may be filed on
the ninetieth day.
108
If such ninetieth day falls over a weekend or on a holiday, the claim of lien
is timely if filed on the immediately following business day.
109
Failure to file a claim of lien
within this time period renders it invalid and unenforceable. No later than two business days
after the date of filing of the claim of lien, the lien claimant must send a true and accurate copy
102
O.C.G.A. § 44-14-361(a).
103
O.C.G.A. § 44-14-361(a)(2).
104
O.C.G.A. § 44-14-361(a)(1).
105
O.C.G.A. § 44-14-360(4).
106
O.C.G.A. § 44-14-361(a)(5).
107
O.C.G.A. § 44-14-361(a)(2).
108
O.C.G.A. § 44-14-369.
109
O.C.G.A. § 44-14-369.
{00322771.DOCX / } 22
of the claim of lien via registered or certified mail to the owner of the property or the contractor,
as the agent of the owner.
110
C. How To File a Claim of Lien
The filing procedures for a lien in Georgia are extremely strict, including the timing
element discussed above, as the lien claimant attempting to enforce a lien “has but one bite at the
apple.”
111
A practitioner must therefore take great caution in pursuing a claim of lien because
failure to comply with any of the requirements renders a lien invalid and unenforceable. Even
more serious, there are no second chances for a claimant “to breathe new life into [an]
extinguished right to a lien so as to give the materialman another bite at the apple it had missed
on its first bob.”
112
In order to obtain any legal effect, a claim of lien must contain specific information. First
the name of the lien claimant must be stated on the face of the lien.
113
If the lien claimant is a
corporation or other legal entity, the name in the claim of lien must reflect that of the entity and
not any individual who may control the entity.
114
A claim of lien which contains an incorrect
name or otherwise fails to name the lien claimant is subject to a motion to dismiss.
115
Second, a
claim of lien must identify the name of the present owner of the property to be encumbered.
116
In the event that a lien claimant incorrectly names a previous owner, as opposed to the present
110
O.C.G.A. § 44-14-361.1(a)(2).
111
Weber Air Conditioning, Inc. v. Tripe-R Pooler, Inc., 245 Ga. App. 590, 592 (2000).
112
Weber, 245 Ga. App. at 592.
113
O.C.G.A. § 44-14-361.1(a)(2).
114
See Georgia North Contracting, Inc. v. Haney & Haney Const. & Management Corp., 204 Ga.
App. 366 (1992) (holding that name on lien was not sufficient to assert a lien done by
corporation under contract).
115
See Georgia North Contracting, Inc. v. Haney & Haney Const. & Management Corp., 204 Ga.
App. 366 (1992) (holding that name on lien was not sufficient to assert a lien done by
corporation under contract).
116
Melton v. Pacific Southern Mortg. Trust, 144 Ga. App. 600 (1978) (rev’d on other grounds).
{00322771.DOCX / } 23
owner, the lien will be voided despite the fact that the error did not result in any prejudice.
117
Third, a claim of lien must contain a property description sufficient to identify the real property
to be encumbered, and an incorrect description may deny any right to a lien.
118
Finally, the
Georgia Code provides a lien form which any lien claimant must substantially follow.
119
Failure
to substantially conform to this form may invalidate any resulting claim of lien.
120
D. How To Perfect A Claim of Lien
As the name implies, the filing of a claim of lien establishes precisely only that—a claim
to a right to lien real property. The Georgia Code provides specific procedures for the perfection
and foreclosure of the lien which require substantial compliance with the relevant notice and
filing procedures in order to recover the amount due. The lien claimant must file an action
against the contract or other entity from whom the debt is owed (i.e., the “lien action”) within
365 days from the date the lien is filed of record.
121
Effectively, the lien claimant has a
maximum of 455 days from the last day materials or labor was provided to commence such
action. The lien action is a prerequisite for filing a direct action against the property owner.
122
Within 30 days after filing such lien action, the lien claimant must file a notice of the lien action
in the superior court of the county in which the property is located.
123
If the lien claimant fails
to commence the lien action within this time period, the claim of lien is extinguished forever.
117
A&A Heating & Air Conditioning Co. v. Burgess, 148 Ga. App. 859, 859 (1978) (“[W]hen a
lien is filed in the name of a person or entity other than the correct owner’s name, the lien is
void”).
118
King v. Rutledge, 208 Ga. 172 (1951) (invalidating lien containing property description
which differed from the actual legal description).
119
O.C.G.A. § 44-14-361.1(a)(2).
120
U.S. Filter Distribution Group, Inc. v. Barnett, 241 Gap App. 759 (1999) (stating that lien
statute is strictly construed against lien claimant and in favor of property owner).
121
O.C.G.A. § 44-14-361.1(a)(3).
122
Eurostyle, Inc. v. Jones, 197 Ga. App. 188 (1990).
123
O.C.G.A. § 44-14-361.1(a)(4).
{00322771.DOCX / } 24
However a lien action is not required when the contractor or other entity absconds, dies, removes
from the state, or is adjudicated bankrupt.
124
In such situations, the lien claimant may proceed
directly against the property owner.
125
E. Bond To Discharge Lien
From the property owner’s perspective, once a claim of lien has been filed, the owner
may discharge a lien as an encumbrance on the property by filing a bond with the clerk of the
superior court in which the property is located.
126
Such bond may be filed before or after the
commencement of a lien action and its filing serves to discharge the real estate from the claim of
lien and acts as a substitute for the same.
127
If the liened property is the owner’s domicile, the
bond must be in the amount claimed under the lien.
128
In all other instances, the bond must be
for double the amount of the claim of lien.
129
Further, the bond must promise or be conditioned
to pay the sum that may be found due owed in a trial on the claim of lien to the lien claimant.
130
Within seven days of filing the bond in the respective superior court, the filing party must send
notice and a copy of the bond to the lien claimant.
131
F. Lien Waivers and Contractor’s Affidavits
Georgia law allows for a written waiver of a claim of lien so long as certain requirements
are met. However, the right to a claim of lien may not be waived in advance of furnishing labor,
services, or materials.
132
Any attempt to preemptively waive such lien rights is null, void, and
124
O.C.G.A. § 44-14-361.1(a)(4).
125
Adair Mortgage Company v. Allied Concrete Enterprises, Inc., 144 Ga. App. 354 (1977).
126
O.C.G.A. § 44-14-364.
127
Few v. Capitol Materials, Inc., 274 Ga. 784 (2002).
128
O.C.G.A. § 44-14-364(a).
129
O.C.G.A. § 44-14-364(a).
130
O.C.G.A. § 44-14-364(a).
131
O.C.G.A. § 44-14-364(b).
132
O.C.G.A. § 44-14-366.
{00322771.DOCX / } 25
unenforceable.
133
A valid written lien waiver must (1) be made pursuant to a waiver and release
form duly executed by the lien claimant and (2) be made upon the claimant’s receipt of payment
for the claim or any potential claim.
134
The corresponding lien waiver must substantially follow
the prescribed statutory form.
135
Such waiver is to be signed by the lien claimant, dated, and
witnessed by one witness.
136
133
O.C.G.A. § 44-14-366.
134
O.C.G.A. § 44-14-366(b)(1).
135
O.C.G.A. § 44-14-366(c).
136
O.C.G.A. § 44-14-366(d).
