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Shootout At The Copyright Corral

pronetworknews_dec2012Copyright: The Unused Weapon

It is no secret that in the current economic environment, it can be difficult to find projects, and the problem may not end there. It can be even more difficult to secure prompt payment from your client. Sometimes, it is difficult to secure payment at all.

There are certain statutory protections for architects in many states: design professionals’ liens for certain projects and mechanics’ liens for others. But like other legal remedies, statutory protections require timely legal action, and the legal fight can be both financially and personally arduous.

Most of the time, architects and other design professionals have one potential weapon in their arsenals that no one else on the project can bring to the unpaid fees fight: the ability to control the use of their work product through copyright protection. As long as the work product meets certain statutory requirements and their rights are not otherwise waived, design professionals own a copyright by authorship alone. Additionally, registering the copyright with the U.S. Copyright Office entitles the copyright owner to additional statutory damages and attorneys’ fees in any ensuing infringement action.

Copyright is an underutilized tactic in the fee collection “gun fight.” On a project where construction had been in full progress but is stalled because no one – design professionals, project manager, general, and subcontractors – has been paid by the owner, the standard litigation tactic is to sue for breach of contract and file an action for foreclosure on any lien rights. But what if the owner is also in default on its construction loan?

The original lender typically has priority over most if not all lien claimants. Further compounding matters in the current economy is the fact that many projects are “upside down” (the property is worth substantially less than the lien value). The construction lender, with a lien of greater value than the aggregate mechanics’ lien value, has every incentive to fight to the death to assert its lien priority and commits itself to a war of attrition against all the other lien claimants.

Frequently, the owner is a single-asset Limited Liability Company (LLC) or similar legal entity. If such an owner becomes insolvent, and all it owns is the over-leveraged single asset, the contract is worthless: a recovery on paper is not worth the paper it is printed on.  If the lender has priority, its foreclosure will often wipe out all the mechanics’ lienors.  While it may not be the cure-all in every circumstance, copyright can set design professionals apart from other players in the project and create the appropriate leverage to get you paid.

This has been an excerpt of the December 2012 edition of ProNetwork News. To read more, download the full PDF version of this newsletter at our website.

About the Authors:

Brian K. Stewart of Collins Collins Muir + Stewart LLP practices in the area of professional liability representing architects, engineers, and real estate and insurance professionals. He is also involved in general business litigation with a focus on contract disputes, and personal injury cases involving catastrophic injuries. He received his J.D. from The John Marshall Law School and is admitted to the bar in California and Illinois. He is a member of the State Bar of California, The American Bar Association, the Los Angeles County Bar Association and the American Board of Trial Advocates. He is also an Affiliate Member of the American Institute of Architects.

Clay R. Wilkinson is a trial attorney with of Collins Collins Muir + Stewart LLP. He focuses primarily on the defense of architects and engineers, as well as general business litigation including collection matters. He received his J.D. from Pepperdine University School of Law, and is a member of the State Bar of California and the Pasadena Bar Association.

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