Opinion ID: 895153
Heading Depth: 3
Heading Rank: 3

Heading: Double-Liability and Public-Policy Considerations

Text: Scoggins raises an additional concern, contending that the McGregor Act's notice requirement is irreconcilable with the Trust Fund Act's four-year limitations period. [7] See TEX. GOV'T CODE § 2253.041. According to Scoggins, if a public-work laborer or materialman provides timely notice under the McGregor Act, the prime contractor will withhold payment from the subcontractor and promptly pay the McGregor Act claimant; thereafter, the prime contractor will deduct that amount from what it pays the subcontractor. Scoggins claims this statutory scheme allows the prime contractor to pay all subcontractors once the notice period has passed, safe in the assumption that no more claims may be asserted. If trust-fund claims may be brought beyond the notice period, Scoggins contends, prime contractors will be reluctant to pay their subcontractors until four years after the laborer or materialman's work is completed, causing subcontractors to institute litigation with resultant costs and delays that will hinder public-work projects. Scoggins also argues that a prime contractor may be subject to double liability when the prime contractor has already paid a subcontractor for the labor or material supplied, but the subcontractor fails to pay the laborer or materialman. Once again, we believe Scoggins' concerns are unfounded. First, the argument presupposes that the McGregor Act was intended to benefit contractors by shielding them from all non-McGregor Act liability after the ninety-day notice deadline passes. The Act, however, was enacted to protect unpaid laborers and materialmen by providing them an additional funding sourcea payment bondin the event the prime contractor fails to meet its obligations. Foreclosing laborers' and materialmens' alternative remedies if the McGregor Act's strict notice requirements are not met would undermine its overarching purpose, particularly considering that many laborers and suppliers might have difficulty complying with the Act's notice requirements without the assistance of legal counsel. Second, since the Trust Fund Act was amended in 1987, bond and trust-fund claims appear to have co-existed harmoniously in the private-construction context even though such bond claims, too, generally come with stringent notice requirements. See Perry & Perry Builders, Inc. v. Galvan, No. 03-02-0091-CV, 2003 WL 21705248, at -5 (Tex.App.-Austin July 24, 2003, no pet.) (allowing material supplier to sue on payment bond and under the Trust Fund Act); U.S. Fire Ins. Co. v. Rey-Bach, Inc., No. 3:02-CV-2133K, 2004 WL 1836314, at  (N.D.Tex. Aug.16, 2004) (allowing bond surety the right to subrogation to sue prime contractor for trust-fund violations where the surety paid unpaid laborers and materialmen on a payment bond). Third, the Trust Fund Act provides an affirmative defense when the trust funds not paid to a laborer or materialman were used to pay the trustee's actual expenses directly related to the construction or repair of the improvement. TEX. PROP.CODE § 162.031(b). Such expenses include payments to subcontractors for costs actually and directly tied to the improvement. See Taylor Pipeline Constr., Inc. v. Directional Road Boring, Inc., 438 F.Supp.2d 696, 716 (E.D.Tex.2006) (citing Holladay v. CW & A, Inc., 60 S.W.3d 243, 248 (Tex.App.-Corpus Christi 2001, pet. denied); Op. Tex. Att'y Gen. No. JM-945 (1988)). Thus, as long as a prime contractor pays its subcontractor for the labor or materials supplied, and does not otherwise misapply trust funds, the prime contractor isto the extent funds were paid to the subcontractorprotected under the Trust Fund Act from a later claim by the subcontractor's laborers or materialmen for unpaid labor or supplies. Accordingly, the risk of double liability for a prime contractor who pays subcontractors once the McGregor Act notice period has expired is significantly diminished. Finally, Scoggins' concern that the availability of non-McGregor Act claims will hinder the timely payment of laborers and materialmen on public-work contracts raises a policy concern that is within the Legislature's realm to decide; that the Legislature has not chosen to make the McGregor Act remedy exclusive, despite its obvious ability to do so, is the best indication of its policy. See, e.g., Tex. Dep't of Transp. v. Jones Bros. Dirt & Paving Contractors, 92 S.W.3d 477, 484 (Tex.2002) (citing TEX. TRANSP. CODE § 201.112 (providing exclusive remedy for contract claims against the Texas Department of Transportation)).