***UPDATE – 7/15/2016***
The Court of Appeals’ decision in in Cemex Construction Materials South, LLC v. Falcone Bros. & Assoc., Inc., 237 Ariz. 236 (App. 2015), which is the subject of this post from May 2015, will cease being good law on August 6, 2016. The case was legislatively overruled by HB 2268, which was signed into law by Governor Ducey on May 12, 2016 and will become effective on August 6, 2016. My post on the effects of HB 2268 and its overruling of the Cemex decision can be found here.
It has been a longstanding construction industry practice to mail preliminary twenty-day notices on both private and public projects via first class mail with a certificate of mailing as a cost saving measure. This is done on private projects because the section of Arizona’s mechanic’s lien statutes requiring twenty-day notices —A.R.S. § 33-992.01 — expressly provides that they “may be given by mailing notice by first class mail sent with a certificate of mailing, registered or certified mail, postage prepaid in all cases.” First class mail is, obviously, the least expensive of the three alternatives. Twenty-day notices have also been mailed in the same fashion on public projects because the Little Miller Act section requiring them (in certain instances) incorporates by reference a significant portion of A.R.S. § 33-992.01.
The recent Arizona Court of Appeals decision in Cemex v. Falcone Bros. & Assocs., Inc. upends this longstanding practice. In Cemex, the Court ruled that preliminary twenty-day notices being served under Arizona’s Little Miller Act must be sent by certified or registered mail.
Little Miller Act Notice Requirements
Before addressing the Cemex holding in detail, a brief synopsis of the notice requirements under Arizona’s Little Miller Act is warranted. Not all Little Miller Act claimants are required to provide notice. Indeed, claimants having a direct contractual relationship with the contractor furnishing the payment bond need not provide any notice. But claimants having a direct relationship with a subcontractor of the contractor furnishing the bond, shall have a right of action against the bond only upon giving the following two types of notice to the contractor:
1. “[A] written preliminary twenty day notice, as provided in A.R.S. § 33-992.01, subsection C, paragraphs 1, 2, 3 and 4 and subsections E and H,” and
2. “[W]ritten notice…within ninety days from the date on which such claimant performed the last or the labor or furnished or supplied the last of the material for which such claim is made.”
A.R.S. § 34-223(A). Section 34-223(A), concludes by stating that “[s]uch notice shall be served by registered or certified mail, postage prepaid, in an envelope addressed to the contractor at any place the contractor maintains an office or conducts business, or at the contractor’s residence.”
Background in Cemex
In Cemex, a material supplier furnished construction material to a subcontractor on a City of Tucson pubic works project. The supplier alleged that it had not been paid for the furnished materials, and sued the general contractor and its surety to recover against the posted Little Miller Act payment bond. In connection with its claim, the supplier asserted that it had served four preliminary twenty-day notices upon the general contractor pursuant to A.R.S. § 34-223(A), by mailing each notice via first class mail, postage prepaid, with a certificate of mailing. The general contractor, however, claimed that it did not receive any of the four alleged twenty-day notices.
The general contractor moved for summary judgment, claiming that the supplier’s bond claim was barred because: (1) the general contractor did not receive the twenty-day notices; and (2) even if it had, the notices were statutorily deficient insofar as they were sent by first class, rather than by registered or certified mail as provided for in last sentence of§ 34-223(A). The supplier maintained that the four notices it sent via first class mail satisfied its statutory requirements. The trial court ultimately agreed with the supplier, and entered judgment in the supplier’s favor for damages, pre-judgment interest, costs, and attorneys’ fees. The general contractor appealed.
On appeal, the general contractor argued that the subject preliminary twenty-day notices were inoperative because § 34-223(A) requires both Little Miller Act twenty-day notices and ninety day notices be served only by registered or certified mail. The supplier argued — consistent with industry practice — that the mailing provisions in § 34-223(A) only apply to ninety-day notices. The supplier also argued that the mailing provisions in the mechanic’s lien statute — A.R.S. § 33-992.01(F) — are implicitly incorporated into § 34-223(A), such that twenty-day notices served by first class mail with a certificate of mailing are proper.
The Court of Appeals rejected the supplier’s argument. Specifically, the Court found that pursuant to the “plain language of § 34-223(A), it is clear that the legislature did not intend the mailing provisions of § 33-992.01(F) to apply to the notices required by § 34-223(A).” In reaching this decision, the Court noted that, while § 34-223(A) incorporates many of the subsections of § 33-992.01, subsection (F) is excluded. As a result, the Court held that the mailing provisions in § 34-223(A) apply to both twenty-day and ninety-day notices, and that Little Miller Act preliminary twenty-day notices must be served by certified or registered mail.
The Court did, however, mitigate the severity of its holding. It noted that both “Arizona and federal courts have, to an extent, mitigated the stringency of the notice requirements by determining the requirements are satisfied when the contractor receives actual notice of a material man’s claim.” As a result, the Court also held that “if a notice sent pursuant to the [Little Miller Act] is actually received by a contractor, the fact that it was sent by a method other than registered or certified mail will not preclude a materialman’s action on the bond.”
Given the holding in Cemex, contractors and suppliers involved in public works projects should immediately take steps to ensure that their preliminary twenty-day notices are being sent via registered or certified mail.