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by Steve Lewicky

Subcontractors Can Make a Project Owner Pay for Services and Materials Provided by the Subcontractor on a Construction Project, When Payment is not Received from the General Contractor

Construction projects almost always involve framers, carpenters, plumbers, electricians, drywall installers, and other subcontractors contracting with a general contractor to supply services and materials to the building project (unless the property owner directly contracts with tradesmen). If the framers, carpenters, plumbers, electricians, drywall installers, or other subcontractors are not paid for their work in a timely manner, they can sue the general contractor for breach of contract. Separate and in addition to bringing a lawsuit for breach of contract against the general contractor, subcontractors also can seek to establish a mechanic’s lien — to make the owner of the property pay for the provided services or supplies if the general contractor refuses to pay, or is no longer able to pay. This gives contractors and subcontractors on construction projects a powerful tool to obtain payment for materials and services – and it is something that property owners need to aware of.

Through a mechanic’s lien, a person or company that provides labor or materials on a construction project can place a lien against improved real property for the value of unpaid labor or materials – but only if the requirements of the mechanic’s lien statute are strictly adhered to.

Maryland’s mechanic’s lien statute is complicated, and this article provides only a general summary, without addressing all of the requirements and nuances. Generally speaking, any person or company that furnishes work or materials to a construction project in Maryland pursuant to a contract may establish a mechanic’s lien if they are owed money on a project. Contractors, subcontractors and suppliers can all claim such a lien, regardless of whether they have a contract directly with the owner of the property, as long as the labor was performed for or about the subject building, and as long as the materials were for the building project.

A mechanic’s lien is only available for certain types of construction projects in Maryland. Newly constructed buildings are subject to mechanic’s liens, though what exactly constitutes a “building” is sometimes a contested issue, because not every type of structure on land constitutes a building for these purposes. For construction projects that involve repair or renovation of existing buildings, a mechanic’s lien is only available in Maryland if the project involves the repair, re-building or improvement of the building to the extent of 15% of its value. Condominium units and the common elements of condominiums are also subject to mechanic’s liens, but there are special notice requirements apply to condominiums.

An important aspect of Maryland mechanic’s liens is a requirement to give written notice of an intention to seek a lien in some circumstances, and strict time limitations for giving notice and bringing suit.

Anyone seeking a mechanic’s lien who does not have a direct contractual relationship with the property owner – for example, subcontractors, and in many cases material suppliers – must comply with notice provisions set forth in the mechanic’s lien statute. When this type of notice is required, it must be mailed by the lien claimant to the property owner within 120 days after the claimant performed the work or furnished the materials. There are nuances regarding when this 120-day period begins to run, and numerous court cases address this issue.

Separate and apart from giving any required notice of an intention to claim a mechanic’s lien, a petition seeking to establish the mechanic’s lien must be filed in the appropriate Circuit Court no later than 180 days after the work has been finished or the materials furnished. The correct parties must be named as defendants in the suit, and there are detailed requirements for what must be included in the petition that is filed with the court.

After a petition is filed with the court, there is a two-step process whereby the court first reviews the papers that have been filed, and holds an initial show-cause process and proceeding to determine if there is sufficient cause to establish an interim mechanic’s lien. The court typically will set a bond for entry of an interim lien. If an interim lien is established, then in a second stage the court will later hold a trial on the merits of whether the mechanic’s lien should continue thereafter until satisfied. At any time after a petition to establish a mechanics lien is filed, the property owner can file a petition to have the property released from the lien upon the filing of a bond sufficient to protect the lien claimant. Once a lien is established, the lien claimant then has one year to file a petition to enforce the lien.

Mechanic’s liens can be an important method for contractors, subcontractors and suppliers to ensure payment, but they are complicated and are subject to strict time constraints. The Maryland mechanic’s lien statute differs from those of other states in many ways. If you are a contractor, subcontractor or supplier seeking payment for labor or materials provided in Maryland, or if you are a Maryland property owner that has received notice that someone intends to assert a mechanic’s lien, or has already petitioned the court for a mechanic’s lien, I encourage you to promptly consult with an attorney who is knowledgeable about this area of law. Very strict limitations apply to these claims.

Mechanic’s liens are not available for government construction projects, but somewhat similar protections are provided to subcontractors on government construction projects through the bonding requirements in the Miller Act (for federal government construction projects) and the Maryland Little Miller Act (for state government construction projects). Other laws also protect subcontractors, such as the Maryland trust fund statute and the Maryland Prompt Payment Act.

Steve Lewicky

(410) 489-1996

by Steve Lewicky

Protection of Shareholders in Family Businesses and Close Corporations

Family businesses often organize themselves as “close” corporations.  The benefits of doing so include: (1) a Maryland close corporation cannot issue or sell stock without the affirmative approval of all of its shareholders (who typically are members of the same family); (2) shareholders cannot transfer their stock unless all shareholders give prior approval; and (3) any merger or transfer of assets also requires unanimous shareholder approval.  A Maryland corporation may elect to be a “close corporation” by including a statement of this election in its corporate charter, or by amending its corporate charter through a unanimous vote of all shareholders.

Close corporations typically do not have boards of directors, and instead are managed directly by the family members/shareholders themselves. When there is no board of directors, the shareholders are responsible for taking actions (by shareholder vote or resolution) that more typically would be handled by directors, in non-close corporations.  Shareholders in a close corporation may (and often do) enter into written shareholder agreements to regulate the affairs of the corporation, which may place restrictions on the transfer of stock, the payment of dividends, the division of profits, or the allocation of shareholder voting power. Courts enforce these unanimous shareholders agreement by injunctive relief, or in some circumstances by ordering dissolution of the corporation.

Each shareholder in a Maryland close corporation has a statutory right to receive an annual statement of corporate affairs, and a right to inspect key corporate documents such as bylaws, meeting minutes, the stock ledger, and books of account. Once a year, every shareholder in a Maryland close corporation has a right to receive, within twenty days of request, a statement of corporate affairs that sets forth the corporation’s assets and liabilities in reasonable detail, verified under oath by a company officer.

By their very nature, if majority interest holders are willing to use oppressive tactics, a minority shareholder can effectively be frozen out of decision making, or even from the economic benefits of ownership. Since there is a limited market for shares in closely held corporations, especially for the purchase of a non-controlling interest in a closely held corporation that is experiencing dissention among the shareholders, a minority shareholder’s interest can effectively be held hostage by the controlling shareholder(s).

The only remedy for oppressive shareholder conduct expressly stated in Maryland statutory law is involuntary dissolution by judicial action, but the Maryland appellate courts in recent years have held that, before ordering dissolution of a corporation, trial courts should first consider whether equitable remedies are available to rectify the oppressive conduct. The appellate courts have suggested equitable remedies such as ordering corporate dissolution at a specified future date, to become effective only if the shareholders fail to resolve their differences by that date. They also have suggested appointment of a receiver to operate the corporation for the benefit of the shareholders until differences are resolved, or retention by the court of jurisdiction over the case for the protection of minority shareholders. Other judicial options include injunctive relief to prohibit oppressive conduct or to require the declaration of dividends; or ordering the corporation or the majority shareholders to purchase the stock of minority shareholders at a fair and reasonable price; or an award of damages to minority shareholders as compensation for injuries suffered as a result of oppressive conduct by the majority shareholders. These court decisions have expanded the “toolbox” of remedies available to Maryland trial courts when confronted with majority interest holders in close corporations oppressing their fellow shareholders.

Under Maryland law, conduct is considered oppressive if it defeats objectively reasonable expectations that were central to the minority shareholder’s decision to join the corporation.  Courts are not required to match a remedy to the subjective expectations of a particular minority shareholder, however. For example, a minority shareholder that is also an an-will employee of a closely held corporation typically will not be successful in asking a court to order the company to reinstate terminated employment, even if the shareholder/employee had a subjective expectation that the company would continue to employ him indefinitely into the future.

Although a minority shareholder’s at-will employment status does not create a legal right to ongoing employment, he or she can still ask the court to craft appropriate equitable relief to overcome oppressive conduct by the majority, and the court must consider not only the defeated expectations of the terminated shareholder/employee, but also the interests of other shareholders, company management, employees and customers. For example, if a closely held corporation terminates a minority shareholder’s employment, and stops distributing profits to the minority shareholder through dividends at the same time that majority shareholders receive high salaries and/or valuable personal use of company assets, the minority shareholder can seek equitable relief from the court.

The same situation may also give rise to a cause of action under Maryland law for breach of fiduciary duty by the majority shareholders. Although there is a statutory presumption that a majority shareholder acts in good faith, in a manner that the director reasonably believes to be in the best interests of the corporation, and with the level of care that an ordinarily prudent person would exercise in the position of a corporate director would use under similar circumstances – this presumption may be overcome by contrary evidence.  Overcoming the presumption requires more than simply showing that the company refused to authorize a dividend to shareholders during periods when the company was profitable. It requires circumstances more akin to a majority shareholders looting the company, either by directly taking corporate funds for personal use or by paying themselves excessive compensation. Typically, an action for breach of fiduciary duty must be brought on behalf of the corporation in a corporate derivative action, and not directly by one shareholder against another – though there are circumstances where a direct action will be permitted if majority shareholders or directors have breached a duty owed directly to the minority shareholder, causing the minority shareholder to suffer an injury that is separate and distinct from any injury suffered by the corporation.  Claims of excessive compensation to majority shareholder/employees or other misuses of corporate funds belong to the corporation, and not to individual shareholders, and must be brought through a derivative action.

Maryland’s “close” corporation structure can have real benefits for family businesses, and may be the best way to structure this type of company. While the inherent risks of this structure must always be considered, the Maryland appellate courts in recent years provide a means to protect minority shareholders’ rights and expectations when majority owners try to oppress minority shareholders.

by Verena Meiser

Advantages of Having a Separate Retirement Plan Trust

As you are planning how to leave your IRA, 401(k), 403(b) or other qualified retirement accounts to your spouse, children, or other beneficiaries, consider setting up a separate Retirement Plan Trust.

Any trust that authorizes the trustee to handle the withdrawal of assets from a retirement account and distribution to a beneficiary must contain carefully drafted provisions to comply with requirements of the IRS Tax Code to successfully achieve the desired results. Generally, there are two basic ways to structure retirement asset management by a trustee. The “conduit trust” requires that the trustee immediately distribute all withdrawn amounts to the beneficiary. The “accumulation trust” gives the trustee discretion with regard to the timing of the distribution of withdrawn amounts to the beneficiary, so that the withdrawn amounts could accumulate in the trust. For certain types of beneficiaries, such as young children, it is desirable to accumulate, and for disabled individuals receiving governmental benefits, it is necessary to accumulate in order not to disqualify the beneficiary from governmental benefits.

A significant difference between conduit and accumulation trusts is the starting time for required minimum distributions from the retirement account. In the case of a conduit trust, withdrawals distributions don’t need to start until the year in which the plan participant, who set up the account and saved into it, would have turned 70 ½ years of age. That year, the beneficiary has to begin withdrawing funds at a rate based on the beneficiary’s life expectancy. The younger the beneficiary, the smaller the distributions. In the case of an accumulation trust, withdrawals from the retirement account to the trust need to begin the year following the plan participant’s death. The withdrawal rate will also be calculated based on the beneficiary’s life expectancy.

Conduit and accumulation trusts can be incorporated into a Will or revocable trust. However, to make use of the most sophisticated planning options, including special administrative powers for the trustee and a powerful role for a trust protector, to optimize the conveyance of the retirement accounts to beneficiaries, requires skilled drafting. Incorporation of such provisions into an estate planning document that is likely to be updated at some future time, possibly by another attorney who may not be familiar with the constantly evolving tax laws affecting retirement assets, could lead to failure of the intended plan.

By using a separate retirement plan trust, the risk of plan failure can be avoided. Furthermore, the strict drafting requirements for retirement assets may stifle the flexibility that could be included in the Will or revocable trust. A retirement trust could be drafted as a conduit trust, as an accumulation trust, or as a conduit trust that can be converted to an accumulation of trust following the plan participant’s death. Such a conversion could be desirable for certain beneficiary situations. For example, the accumulation trust structure would be desirable where a beneficiary’s distributions would be exposed to the beneficiary’s creditors. Since the trustee can accumulate the withdrawn amounts, those assets can be kept in the trust and protected. Another reason to consider a separate retirement plan trust would be the nature of the assets held in the retirement account. Thus, retirement accounts that hold business entities or real estate are best administered separately from the other assets of the estate. The use of a separate retirement plan trust would build a firewall between those accounts and the rest of your estate.

by Verena Meiser

The Movement to Improve End-of-Life Health Care Planning

A nationwide movement has been underway since the late 1990s to improve end-of-life health care planning by individuals. While Advance Directives including Living Wills and Do-Not-Resuscitate Orders (DNRs) have been widely used to address future decisions regarding life support, pain relief and the administration of nutrition and fluids, they do not capture a patient’s preferred level of medical intervention for care either on a routine basis or on an urgent basis due to an acute medical condition. To give individuals the opportunity to express their medical treatment preferences, a process developed that begins with conversations between physicians and patients about available treatment options, and provides forms that record the patient’s preferences for all of the patient’s health care providers to see. Throughout the various States, these forms are known as physicians’ orders for life-sustaining treatment (POLST), medical orders for life-sustaining treatment (MOLST), physicians’ orders for scope of treatment (POST), and medical orders for scope of treatment (MOST). The National POLST Paradigm Task Force provides guidance for successful implementation of such forms.¹ In Maryland, we have the Maryland MOLST Training Task Force. The State provided regulations for the use of Maryland’s MOLST form in July 2013.²

Who Should Have a MOLST form?

Regulations require the MOLST forms to be completed at assisted living programs, home health agencies, hospices, kidney dialysis centers, and nursing homes for newly admitted patients and at hospitals for certain patients.

In addition, the rule of thumb is that any person for whom it would be true that a doctor would not be surprised if the person died within the year should have a MOLST form. Anyone of advanced age or frail health or both should have a MOLST, even those individuals who are not terminally ill, in a persistent vegetative state or suffering from an end-stage condition. Persons in these categories should have a conversation or a series of conversations regarding end-of-life care with a health care provider. Ideally, the conversations are a team effort by all involved in the person’s care and decision-making. End-of-life care is an evolving field. Understanding the nature and effects of treatments, procedures, medications, and methods, is important for every patient, and requires open and frank discussion.

1 The Center for Ethics in Health Care at Oregon Health & Science University first convened the task force. See OR. POLST TASK FORCE, GUIDANCE FOR OREGON’S HEALTH CARE PROFESSIONALS 6, 17 (2013), available at http://www.polst.org/wp-content/uploads/2013/ 12/2013.12.26-OR-Guidebook-2013.pdf 2 The Department of Health and Human Services regulations are found in COMAR 10.01.21

The Shortcomings of Advance Directives and DNRs

Most of us are familiar with a typical Advance Directive that includes a Living Will. Such a document allows an individual to specify whether or not to be administered life-sustaining treatment, as well as nutrition or fluids if the person has no expectation of recovery from a terminal condition, a persistent vegetative state, or an end-stage condition. The Advance Directive is executed with a hypothetical future health event and goes into effect in the future when the client is no longer capable of making health care decisions. At such time, the agent appointed in the directive has decision-making authority on the patient’s behalf.

Most of us are also familiar with Do-Not-Resuscitate (DNR) orders, which prevent resuscitation in the event of cardiopulmonary arrest. Such orders are issued by physicians for certain patients after a conversation with the patient or the patient’s decision-makers.

Neither the Advance Directive nor the DNR provides a client the opportunity to specify the kind and level of medical intervention, during or at the end of life, that reflect the client’s preferences, values, and goals. The choices are either for no intervention at all or full intervention. A MOLST allows the patient to clearly and accurately identify the desired level of care from among the available treatment options as they are explained to the patient or the patient’s health care decision-makers by a physician, physician’s assistant or nurse practitioner. The care-related decisions can be addressed separately from the choice regarding DNR orders. Thus, a person may not want to be resuscitated, but, in all other situations, the person may want more or less aggressive care. Since the patient may lose the capacity to participate in the conversations, it is still important to have an Advance Directive that appoints a health care agent, who can talk with the patient’s health care providers on behalf of the patient.

What Treatment Categories does the MOLST Cover?

The Maryland MOLST allows the patient to make informed choices regarding the administration of antibiotics, nutrition, fluids, ventilation, blood transfusion, hospital transfer, medical workup, and dialysis, in addition to cardiopulmonary resuscitation (CPR). As part of the conversation with medical staff regarding the treatment categories, the staff will summarize key facts and opinions about the patient’s medical situation and prognosis, and the relevance of various treatment options.³ The medical staff is expected to ensure that the patient’s choices are informed as a result of the consultation with the physician, physician’s assistant or nurse practitioner, who signs the order. Since a patient’s medical needs are likely to change over time, it is important to continue to have these conversations. The MOLST can be updated when the patient reverses an earlier decision based on changes in his or her medical condition.

What is the Purpose of the MOLST Worksheet?

An individual who is not currently facing an acute medical condition and has the capacity to discuss health care treatment options with a health care provider has the option of completing the MOLST Worksheet. The worksheet is part of the MOLST and allows a person to document treatment preferences for future situations. If and when the time comes that the person needs a MOLST, the worksheet provides valuable input for the completion of the MOLST form. The topics covered by the worksheet are the same as those addressed on the MOLST form. An individual may choose which of these topics to address. There is no requirement that all categories be worked on.

Minors with Terminal Illnesses and Individuals with Disabilities

Some states allow minors with terminal illnesses to have POLSTs, and some provide a section for special concerns of individuals with disabilities. The Maryland MOLST does not provide a section for individuals with disabilities.

MOLST Need to be Kept Where They Can Be Found – the Registry

Emergency Medical Technicians (EMTs) or first responders will respect and implement a patient’s wishes. They can only do so if they see the MOLST. A physician can provide guidance on where to keep the form; on the bedside table or room door, for the bed-ridden patient, on the refrigerator, in the purse, or any other place where it can be discovered before procedures are started that may go against the patient’s wishes.

Some states maintain a registry for their residents’ POLST or MOLST forms. The advantage of a registry is that EMTs and other providers have access to the forms. Maryland has such a registry.

³See Health Care Decision Guide for Health Care Professionals by the Maryland MOLST Training Task Force, May 2012.

Legal Protections

A competent individual’s use of a MOLST, properly executed in accordance with local law, is protected by constitutional and common law. The Due Process Clause protects our deeply personal liberty to reject medical treatment. Since the form is completed after conversations with the physician, a patient’s informed consent, as well as the individual’s liberty and privacy concerns are satisfied. A health care provider’s refusal to honor a MOLST would implicate common law and constitutional violations at the least.

The US Supreme Court has been united in its view that a competent individual, absent a specific compelling public interest has a right to refuse medical treatment.
“On balance, the right to self-determination ordinarily outweighs any countervailing state interests, and competent persons generally are permitted to refuse medical treatment, even at the risk of death. Most of the cases that have held otherwise, unless they involved the interest in protecting innocent third parties, have concerned the patient’s competency to make a rational and considered choice.”4 This language is decisive for the constitutional validity and enforceability of a MOLST. It announces that each person has a fundamental liberty interest to control his or her medical care.

The MOLST Should Be Signed By the Patient

The Task Force recommends that the MOLST be signed by the patient to ensure that there was at least some communication about the form with the patient or the patient’s health care agent. Such a requirement would increase the confidence that the form reflects the patient’s informed decisions.

Fiscal Considerations

Patients who do not wish to have very expensive treatments, benefit from having a MOLST that is properly implemented.

MOLST has to be part of estate planning and elder law consultations

The Medical Orders for Life-Sustaining Treatment (MOLST) form and associated worksheet are part of a comprehensive estate planning consultation. Estate planning and elder law attorneys need to draw clients’ attention to the existence and function of this form.

4 1 Cruzan, 497 U.S. at 273 (quoting In re Conroy, 486 A.2d at 1225).

Lewicky, O’Connor, Hunt & Meiser, LLC | 8115 Maple Lawn Boulevard, Suite 175, Fulton, MD 20759 | 410-489-1996

by Steve Lewicky

May an attorney help a self-represented party write court papers or prepare a case for trial?

People that cannot afford to retain an attorney, or don’t wish to pay substantial attorneys’ fees, sometimes ask lawyers whether they can help with drafting court papers or with preparing a court argument, for the unrepresented party to then present himself or herself in court. While the person making the inquiry may not realize it, this presents a number of ethical concerns for the attorney, and for the legal system. The so-called “ghostwriting” of court papers by attorneys on behalf of pro se litigants has received increasing attention in recent years, and some observers see it as a partial solution to the high cost of legal services. The Journal of the American Bar Association published an article this month suggesting that some jurisdictions have become more accepting of the practice. The fact remains, however, that most jurisdictions in the United States take a dim view of attorneys ghostwriting court papers for non-lawyer litigants.

The state bar for each state creates ethical rules that bind attorneys practicing in that state, and these ethical rules vary on issues of ghostwriting and the “unbundling” of legal services. Different court systems also may have their own rules regarding the practice. The Federal court system, for example, has a well-established hostility to ghostwriting by attorneys. In Federal court practice, anonymous drafting of pleadings by attorneys for pro se litigants, without the attorney signing the pleadings, can result in suspension or disbarment from practice before the court. Almost ten years ago, the American Bar Association published a formal ethics opinion approving the practice, however. This ABA opinion is not binding on state bar associations, though, and the state authorities that actually regulate the profession generally have been far less open to the practice.

The term “ghostwriting” refers to an attorney representing a pro se litigant, informally or otherwise, and preparing pleadings, motions, or briefs for the litigant that the assisting lawyer does not sign. The Federal courts have expressed great concern about this practice because the attorney seeks to remain anonymous and therefore potentially outside the professional, ethical, and substantive obligations that are imposed on members of the bar when they sign a court pleading. Courts can view this as a deliberate evasion of the attorney’s ethical obligation to the court. When an attorney signs a court submission, he or she is thereby representing to the court that there are grounds to support the assertions made in the submitted paper. The practice of ghostwriting frustrates this obligation by keeping the identity of the attorney who drafted the paper anonymously. In addition, courts often give liberal interpretation to papers filed by self-represented parties, and allowing pro se litigant to benefit from this latitude while actually receiving counsel from an attorney is a disadvantage to an opposing party that may not have the benefit of a ghostwriting. Some courts have also viewed ghostwriting as a misrepresentation by the attorney, which violates an attorney’s professional responsibility to be candid with the court.

Several years ago, Maryland court rules were amended to expressly permit attorneys and clients to contractually agree to a “limited appearance” by the attorney. In a limited appearance, the attorney agrees to appear in a court proceeding for the client only for a limited, well-defined aspect of the case. For example, a client could retain an attorney to represent the client only in the child support aspect of a family law action, but not in the property aspects of the divorce proceeding. The limited appearance must be for a discrete matter or judicial proceeding, and the notice of appearance filed with the court must be accompanied by an Acknowledgment of Scope of Limited Representation signed by the client, specifying the scope of the limited appearance. This rule does not condone ghostwriting by attorneys in Maryland state courts, but it has moved the Maryland bar some distance down the road toward acceptance of unbundled legal services.