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Texas Supreme Court Firms Up Playing Field for Subcontractors in Texas
By Ben Aderholt, Looper Reed & McGraw

The Texas Supreme Court in July, in a ruling in Dealers Electrical Supply Co. v. Scoggins Construction Co., Inc., confirmed the right of a construction subcontractor to bring a claim against a general contractor even though the sub has missed the strict notice requirements for a claim on a McGregor Act bond.  Ben Aderholt of the Houston office of Looper Reed & McGraw represented Dealers Electrical Supply before the Supreme Court.

"This ruling is a great relief to suppliers from the Court of Appeals' holding," explains Ben Aderholt.  "Subcontractors which are usually small businesses working on state or city construction projects now can be sure that, when they are not paid, they have recourse in addition to their claim on a McGregor Act payment bond which is burdened with strict notice requirements."

If a subcontractor is not paid for work on a private construction project, he can file a lien on the property.  But if the construction is on a public project for a unit of government, a bond is required and the subcontractor's usual recourse is to sue on the bond under the McGregor Act.  A claim on a McGregor Act bond has stringent and complex notice requirements: if a notice is sent one day late, the subcontractor will have waived its right to the claim on the bond.  Many subcontractors are small companies who are not represented by lawyers.  By the time they realize they are not going to be paid, it may already be too late to file a claim on a bond provided under the McGregor Act.  The objective of the strict notice requirement is to give the general contractor some notice that a subcontractor or its supplier has not been paid while the general is still holding construction funds during the project's construction.  The Trust Fund Act, however, is designed to provide a remedy to an unpaid supplier after the project is completed and a supplier discovers the general has been paid but failed to pay its sub or its supplier.

Dealers Electrical Supply, an electrical parts supplier, filed suit against Diamond Industries, an electrical subcontractor, and against Scoggins Construction Company, the general contractor.  It also sued the president and sole shareholder of Scoggins Construction. Dealers was not paid for electrical materials furnished to Diamond for use in the construction of an elementary school owned by the Mercedes Independent School District. The materials were supplied under a joint check agreement between Dealers, Diamond and Scoggins. A joint check agreement is a credit facility frequently used to help a small subcontractor with low or unestablished credit to obtain supplies on credit from a supply house.  That is to say, a general contractor agrees to issue a check jointly to the subcontractor and its supplier jointly to pay for the materials furnished on credit for the job.

The Dealers v. Scoggins case was tried to a judge in Edinburg in April 2006. The trial judge agreed with Dealers that it could sue on the joint check agreement and under the Trust Fund Doctrine. (Found in Section 162 of the Texas Property Code.) The Trust Fund doctrine holds that, when a general contractor on a construction project receives funds from the owner, that money is earmarked for that job and is held in a trust for subcontractors and their suppliers. The general contractor has a fiduciary duty to use that trust fund to pay subcontractors and their suppliers as well as for direct overhead.  When the owner pays the general contractor, but the general contractor fails to pay its subcontractors and their suppliers from those funds received (plus the direct overhead), then the subcontractors and their suppliers may hold the general contractor and its principals personally accountable for those funds.  The Texas Legislature even toughened the standard in 1987.  The Legislature amended the Trust Fund Act in response to some court opinions which allowed an officer of the general contractor to use trust funds to pay reasonable overhead expenses that were directly related to the construction.  The 1987 Amendment only allows a trustee to use trust funds to pay actual expenses directly related to the construction. The trial judge awarded Dealers damages, attorney fees, and interest against Scoggins Construction and its president. Scoggins appealed to the Court of Appeals in Edinburg, which reversed the trial court on the notion that the McGregor Act bond claim was Dealers' exclusive remedy in the case.

The Texas Supreme Court granted Dealers' petition for review and reversed the Appeals' Court's holding.  The Texas Supreme Court rejected the exclusivity theory upon which the Appellate Court founded its opinion.  The Supreme Court reasoned that the Court of Appeals' holding was contrary to the text and the purpose of the McGregor Act and The Construction Trust Fund Act.  The Texas Supreme Court held that the McGregor Act is not an exclusive remedy just because a payment bond was issued.

The good news for subcontractors and their suppliers is that, if they miss giving timely notice on a payment bond, there is another remedy available that may help them get paid for what they furnished to a public project.  Moreover, those persons controlling the funds in the general contractor's office, may be personally liable for a diversion of trust funds received from the owner.  This is not new law, but it has never been confirmed so resolutely before and, this time it was announced by a unanimous Texas Supreme Court.

Because the Texas Supreme Court clearly stated that the payment bond was not a subcontractor's exclusive remedy, this allows subcontractors to negotiate joint check agreements with an owner and general contractor thereby creating ready and reliable credit by supply houses to subcontractors who have no other available credit facility.

The sports blog Deadspin posted photos of Whitney Isleib, a Cowboys cheerleader since 2008, dressed as black rapper Lil Wayne. Isleib is white. The photos appear to have come from the Facebook page of another Cowboys cheerleader. The photos show Isleib wearing dark makeup, a wig of long braids, a mouth grill, and fake tattoos on her arms and face.

To listen to the interview, go to http://www.lrmlaw.com/pdf/TC-KRLD-11-01-09.mp3

Travis Crabtree brings a unique perspective to his internet marketing, online media and commercial litigation practice. Travis graduated from the University of Missouri School of Journalism and spent several years in television news before taking on a law career. Travis explores the emerging legal issues and trends for internet marketing and online media on his blog, eMediaLaw.com, which you can visit by clicking here. In addition, Travis represents plaintiffs and defendants in complex business matters including cases involving defamation, open records issues, antitrust, RICO, the False Claims Act, shareholder derivatives, minority shareholder oppression, corporate officer/director fiduciary cases, partnership disputes, trade secrets, the DTPA, the UCC, employment and class actions in both state and federal court. He provides advice and counsel to clients at all stages of conflict from avoiding disputes, to alternative dispute resolution, trials and appeals.

To listen to the interview, go to http://www.lrmlaw.com/pdf/TT-KRLD-10-21-09.mp3

Terry has been actively involved in real estate transactional practice for more than 20 years and is board certified in commercial real estate law. She has significant experience in negotiating, drafting, closing and funding of both commercial and complex residential real estate transactions from the standpoint of each of the seller, buyer, developer or lender. In addition, she has an extensive practice in forming and assisting owners' associations and planned unit development regimes, both residential and commercial, as well as negotiating and drafting lease documents. Further, she spends a part of her practice on general business issues such as sales, acquisitions, mergers, financing and entity formation.

"TexasRestaurantLaw.com serves the needs of the Texas restaurant industry," said Perry-Miller. "It provides up-to-date information on Texas laws as they relate to restaurants and bars as well as owners, managers, supervisors, and others serving the restaurant industry. We designed the website to be entertaining, as well as informative. For instance, a recent post was "The Office" Tells Us How NOT to Manage A Restaurant."

According to Sanderson, the blog provides a wealth of information to the restaurant industry.

"We developed TexasRestaurantLaw.com as a service to people in the restaurant and bar industry," Sanderson said. "It is a place to find answers to legal questions without having to go to a lawyer or to be charged. Of course, detailed legal questions should be directed to professional legal practitioners, but we built the site so that some of the ordinary, day-to-day legal questions could be addressed professionally and without a fee."

Some recent blog headlines include:

• How Effective Are Calorie Counting Laws?
• How Buying A Restaurant is Like Coyote Ugly
• 5 Reasons You Think You Don't Need a Lawyer to Buy a Restaurant
• Is a Celebrity Spokesperson the Right Fit for Your Restaurant?
• Could Your Salary Get Slashed by the Compensation Czar?
• Restaurant Industry's Outlook Finally Improving

"We hope to make TexasRestaurantLaw.com the premier legal site for both legal practitioners serving restaurants and those in the restaurant industry," Sanderson said. "Like all industries, the restaurant industry needs advocates who know their business, and it needs a trusted source of information for legal questions. The restaurant industry can find both on TexasRestaurantLaw.com."

For over twenty years Perry-Miller has successfully represented clients involved in business and real estate disputes and transactions. Ralph's extensive trial and litigation experience includes trying cases to judgment or verdict and arguing appeals in over a hundred cases. He is particularly proud of a recent case he argued before the Supreme Court of Texas resulting in an opinion Creditwatch v. Jackson, 197 S.W.3d 814 (Tex. 2005) which clarified the law favorably for employers in sexual harassment cases.

Sanderson is a transactional attorney, focused on complex transactions in real estate, mergers and acquisitions of private companies, and intellectual property contracts.  His client base spans numerous industries, both domestically and internationally, and the most served industries include technology, metal recycling, restaurant and real estate.

Founded in 1985, Looper Reed & McGraw is a Texas-based, full-service law firm with more than 90 lawyers practicing in Houston, Dallas and Tyler, and offers a wide range of legal services including business litigation, corporate transactions, family law, oil & gas, tax planning and litigation, real estate, healthcare, trusts and estates, employment law, and bankruptcy.  For more information, visit www.lrmlaw.com.

Members of the Task Force will be gathering information from their own companies and colleagues and providing it to the Task Force. The Task Force will hold regional meetings in order to collect information and points of view from all TIPRO members for presentation to TIPRO's State Issues Committee and its Board of Directors.

In a career spanning more than 30 years, Charles has successfully resolved a wide variety of disputes by utilizing his skills in litigation, arbitration and negotiation. His expertise includes cases involving virtually all aspects of oil and gas exploration and production.  He has distinguished himself among his peers for his work ethic and his unyielding attention to the needs of each client.

ABOUT LOOPER REED & MCGRAW

Founded in 1985, Looper Reed & McGraw is a full-service, Texas based law firm with more than 90 lawyers practicing in Houston, Dallas and Tyler. Looper Reed & McGraw offers a wide range of legal services including business litigation, corporate transactions, oil & gas, tax planning and litigation, real estate, healthcare, trusts and estates, employment law, family law, and bankruptcy.  For more information, visit www.lrmlaw.com.

To listen to the interview, go to http://www.lrmlaw.com/pdf/TC-KRLD-10-06-09.mp3

Travis Crabtree brings a unique perspective to his internet marketing, online media and commercial litigation practice. Travis graduated from the University of Missouri School of Journalism and spent several years in television news before taking on a law career. Travis explores the emerging legal issues and trends for internet marketing and online media on his blog, eMediaLaw.com, which you can visit by clicking here. In addition, Travis represents plaintiffs and defendants in complex business matters including cases involving defamation, open records issues, antitrust, RICO, the False Claims Act, shareholder derivatives, minority shareholder oppression, corporate officer/director fiduciary cases, partnership disputes, trade secrets, the DTPA, the UCC, employment and class actions in both state and federal court. He provides advice and counsel to clients at all stages of conflict from avoiding disputes, to alternative dispute resolution, trials and appeals.

Travis Crabtree brings a unique perspective to his internet marketing, online media and commercial litigation practice. Travis graduated from the University of Missouri School of Journalism and spent several years in television news before taking on a law career. Travis explores the emerging legal issues and trends for internet marketing and online media on his blog, eMediaLaw.com, which you can visit by clicking here. In addition, Travis represents plaintiffs and defendants in complex business matters including cases involving defamation, open records issues, antitrust, RICO, the False Claims Act, shareholder derivatives, minority shareholder oppression, corporate officer/director fiduciary cases, partnership disputes, trade secrets, the DTPA, the UCC, employment and class actions in both state and federal court. He provides advice and counsel to clients at all stages of conflict from avoiding disputes, to alternative dispute resolution, trials and appeals.

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Don't let abuses stifle innovation on Web

By Travis Crabtree, Looper Reed & McGraw
Houston Chronicle

As you have probably heard by now, a poll on the social networking Web site Facebook just recently asked whether President Barack Obama should be killed. The available answers were "Yes," "No," "Maybe," or "Yes if he cuts my health care." Facebook removed the poll and blamed the debacle on third-party developers. The Secret Service found a juvenile responsible, and no charges were filed.

Should you post a poll on Facebook or other Web sites asking people to vote whether they want to see the president assassinated? Of course not. It's the sort of hateful behavior that contributes to a poisonous, perhaps even dangerous, atmosphere. But should there be a law against it? No. You cannot legislate against being a bitter idiot. And aside from that, no specific threat was made in this case.

The real question, then, is should incidents such as this be used as an excuse to further regulate the Internet?

Here, the answer for now should be "no."

True, there are victims when the World Wide Web is abused, sometimes with tragic results. Thirteen-year-old Megan Meier of Missouri was told by someone she thought was her male friend on My-Space she was so unlikable she should take her own life. Megan did. The "boy" was actually the mother of Megan's rival.

As the father of a young daughter, I know Web safety is a new area of grave concern for parents and the like. But as a lawyer, I also know legislation or heavy-handed regulation is not the answer.

Of course, the authors of the First Amendment could not envision Facebook. Nevertheless, that same amendment to our Constitution guarantees our right to even the most distasteful of speech in today's debate over health care, immigration policies and other hot-button issues.

Indeed, rather than regulating all speech on the Internet, Congress passed the Communications Decency Act in 1996, which featured a political quid pro quo whereby Internet service providers agreed to allow Congress to pass restrictions dealing with access to pornography by minors in exchange for a "safe harbor" granting Web sites immunity for content posted by others.

The pornography measures were eventually struck down as unconstitutional, but the safe harbor provision remains.

Specifically, section 230 of that legislation states: "No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider."

This includes Facebook and other social sites. But, it also includes all of the other Web sites that allow for user- generated content like Amazon, EBay, CNet, Citysearch and TripAdvisor.

These protections are broader than those provided to traditional newspapers such as this one that can be liable for "republishing" defamatory statements. The Web is given additional protections to encourage entrepreneurs to invest in the emerging technology. Many lawsuits against Web sites are efficiently dismissed at the outset.

Think of it this way: If Web site operators were sued each time a defamatory statement was posted online at Google, Yahoo, Facebook, MySpace, Twitter, YouTube, Craig'sList, Angie's List, or this paper's online version, would they be here? The Web would be stuck back in the mid-1990s with nothing but static corporate Web sites selling Beanie Babies.

The political left will flood the talk shows to say how preposterous the Facebook poll was and demand new laws. Political pandering is not the answer. Last year, for example, one Kentucky state legislator, from the right, suggested we make all anonymous posting illegal.

Instead of making bad law as a result of bad cases, patience should prevail. Existing laws and the marketplace will handle out-of-bounds conduct. Assume someone at Starbuck's suddenly asked everyone whether President Obama should be assassinated. The caffeine-deficient patron has done nothing worse than the Facebook poll creator - only his audience is smaller. The Secret Service is investigating whether the law has been broken and could likewise raid the Starbuck's if there was a threat on the president's life.

Although the wheels of justice and the market grind slowly, they do grind. Criminal proceedings are being brought for unlawful online activity using existing laws that do not infringe free speech rights. Civil courts require Web sites to reveal the identities of anonymous posters only after showing the speech goes beyond what is protected by the First Amendment.

The law has never been able to keep up with technology. At the same time, the law should not get in the way of technology. Legislation will merely stifle innovations - innovations we all enjoy. Because of market dominance and the oppressive enforcement of intellectual property rights, the days of software and application developments coming out of one man's garage could be coming to an end.

Despite this most recent - and heinous - transgression on Facebook, let's not allow the law to do the same thing to social media and Web discourse, too.

To listen to the interview, go to http://www.lrmlaw.com/pdf/MS-KRLD-09-29-09.mp3

Matthew Sanderson is a transactional attorney, focused on complex transactions in real estate, mergers and acquisitions of private companies, and intellectual property contracts.  His client base spans numerous industries, both domestically and internationally, and the most served industries include technology, metal recycling, restaurant, and real estate. You can visit Matthew’s blogs, DistressedAssetLaw.com and TexasMetalLaw.com.

To listen to the interview, go to http://www.lrmlaw.com/pdf/TC-KRLD-09-29-09.mp3.mp3

The U.S. Secret Service is investigating the poll and will take "appropriate investigative steps" in connection to the survey, which was posted on Saturday and was quickly removed when Facebook employees were alerted to its existence. The poll asked respondents: "Should Obama be killed?" The possible answers were "no," "maybe," "yes," and "yes if he cuts my health care." Facebook spokesman Barry Schnitt said a "third-party application" enabled an individual user to create what he said was an "offensive poll."

Travis Crabtree brings a unique perspective to his internet marketing, online media and commercial litigation practice. Travis graduated from the University of Missouri School of Journalism and spent several years in television news before taking on a law career. Travis explores the emerging legal issues and trends for internet marketing and online media on his blog, eMediaLaw.com, which you can visit by clicking here. In addition, Travis represents plaintiffs and defendants in complex business matters including cases involving defamation, open records issues, antitrust, RICO, the False Claims Act, shareholder derivatives, minority shareholder oppression, corporate officer/director fiduciary cases, partnership disputes, trade secrets, the DTPA, the UCC, employment and class actions in both state and federal court. He provides advice and counsel to clients at all stages of conflict from avoiding disputes, to alternative dispute resolution, trials and appeals.

Travis Crabtree brings a unique perspective to his emerging media and commercial litigation practice with the law firm of Looper Reed & McGraw, P.C. Travis graduated from the University of Missouri School of Journalism and spent several years in television news before taking on a law career. Email Travis at tcrabtree@lrmlaw.com or view his blog at www.eMediaLaw.com.

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They Can't Do That on the Internet!

Online Reputation Management or Sue?

Everyone and everything is reviewed, gossiped about and parodied online with the most damaging comments often appearing on the first page of search results. When that happens, should you file a lawsuit or manage your reputation online?

Actionable defamation generally requires the publishing of a false statement that harms the reputation of another as a result of intentional or negligent conduct by the author.

Cons of suing

Let’s start with the cons because litigation is not pleasant for anyone.  First, you have to figure out who to sue.  Most websites savvy enough to rank high have structured themselves to be immune from defamation claims.  Section 230 of the Communications Decency Act provides immunity from defamation and related claims to websites as long as they are not the “content providers.”  Websites like www.ripoffreport.com have already won several cases on Section 230 immunity grounds.  That trend is likely to continue until the law changes or plaintiffs get more creative.

That leaves you with going after the person who actually wrote the review, or the anonymous blog--if you can find out who they are.  To compel disclosure of the identity, you usually have to subpoena the website.  Many states are still developing the law in this area, but most are following Delaware’s lead in the case of Cahill v. Doe which held the person seeking to force the disclosure of the identity must articulate the basic elements of a defamation claim before the court will allow it.  Hence, a court will determine whether the comment is defamatory before the website or ISP has to disclose the identity of the anonymous poster. 

Even if you know the identity, truth is a defense.  That means you will be put under oath and be questioned about the very topic of the post.  Although the actual post may not be technically true, if there is a grain of truth to it, the gory details may come out in public pretrial discovery. 

That leads to the biggest prohibition to suing—cost.  Lawsuits are expensive and after spending more than $100,000, you may get a piece of paper that says the offending party owes you money.  Will angrycommenter@yahoo.com be able to pay?  Litigating against people without substantial means seldom makes financial sense.

Finally, there is a non-legal phenomenon known as the “Streisand Effect.”  The term comes from Barbara Streisand’s effort to prevent the publication of satellite imagery showing her house. Before Streisand complained, the pictures received little attention and there was no special demarcation showing Barbara Streisand’s home on the online images.  Afterwards, the pictures became popular on the original website and in major traditional media outlets resulting in millions of people looking at the photographs. The same lesson applies to your clients.  Although the negative publicity may appear on the first page temporarily when your name is searched, a public lawsuit could result in more wide spread distribution of the original complaint.  It can also make the story drag on much longer than it would have had you simply ignored it or addressed it quickly—think Roger Clemens versus Andy Petite and the baseball steroids scandal.

Pros of Suing

Despite all of the cons, there are times when filing a lawsuit is necessary.  If the person making the comments is a competitor or a repeat offender, you should consider a lawsuit as a way of fighting back.  If the matter is already in the public, then you can publicly defend yourself through a lawsuit and tell your side of the story through free media attention.  You can receive monetary damages and sometimes injunctive relief through a lawsuit.  More importantly, however, your reputation and integrity are often vindicated through a well-publicized trial.  The public will view a victory as confirmation the offending statements were not true.    

Pros of SEM

I won’t go into too many details about how to use SEM tactics to manage your reputation online because I leave that to the experts, but we will start with the generality that an online reputation management campaign tries to create positive references and search results to push the negative comments off the first pages. 

The major benefit of online reputation management is that it does not involve litigation.  In addition to pushing the negative comments to obscurity, you get the benefit of the positive references you would often seek through a traditional marketing campaign.  Tim Doyle of TopSpot Internet Marketing says, “By continually updating all of the positive happenings within your company through press releases, client case studies, and customer satisfaction ratings etc., and making sure that this information is available on your website, and other websites, you have the power to take charge of your company’s reputation online.  Online reputation management meshes very nicely with Search Engine Marketing because the consistent addition of fresh, relevant, and positive content about your company and its products and services is a key component in search engine optimization.”

Cons of SEM

The biggest con is that moving negative references off the first page is difficult and takes time.  There is no guarantee of results and search engines prohibit intentional manipulation.  “The key to successful online reputation management is consistency,” Doyle said.  “You must be consistent in adding positive content to your website and other online vehicles and you must continually monitor the web for negative comments about your company.”

The Middle Ground – Using honey rather than vinegar

Sometimes, you should just ask for the negative comments to be removed—just ask nicely.  Many of the websites brazenly challenge you to sue and claim they will not take down any reviews.  In the past, having the client (not the lawyer) make a simple request has actually worked.  In one case, the client sent a simple email stating:

To whom it may concern:     

I have viewed the February XX, 20XX posting on your website by XXXX.  The posting is inaccurate, misleading and defamatory.  I categorically deny XXXX’s allegations that I XXXX.  As such, I respectfully request you remove this posting from your website.  Thank you for considering my request.

Sincerely,

 XXXXX

It worked.  The post was removed.  The client saved both attorneys’ fees and online reputation management costs. 

In another example, someone impersonated my client through a blog hosted by a popular blog site.  This was a violation of the host’s terms and conditions.  Rather than filing a lawsuit and drawing unwanted attention, we notified the host about the violation of their terms.  The site was promptly taken down.

Be warned that whatever request you send to the website has the potential to actually appear on the website.  As a result, I’ll give the same free advice I give to people about email:  Don’t put anything in there you wouldn’t want your momma to see.