a:\newslw.96 [4]Alan Lee MitchellStephen De'ak202000-12-22T00:11:00Z2006-07-01T22:27:00Z2006-07-01T22:27:00Z112146923 5716812111.8026 FURRER & SCOTT LLCConsider . . .VOL. 10, ISSUE 1 January, 2001Law OfficesFURRER & SCOTT LLC9185 SW BURNHAM ST. POST OFFICE BOX 23414TIGARD, OR 97223 TIGARD, OR 97281(503) 620-4540 -- (800) 334-8986 -- FAX: (503) 620-4315www.furrer-scott.comCHANGING YOUR FORM OF BUSINESSIn the construction industry, many businesses are operated as sole proprietorships or partnerships. Some of those businesses make the decision to form a new business entity such as a corporation or a limited liability company (LLC).That decision can impact not only licensing with the Oregon Construction Contractors Board but also other business aspects. For example, is the new entity properly registered with the Secretary of State’s Corporation Division? Also, how does this change impact existing surety agreements?As to CCB licensing, that agency requires new business entities to apply for a new license. While, as noted in the October 2000 issue of this newsletter, the CCB may allow the new entity to keep the sole proprietor’s former CCB number, the normal licensing requirements must still be met. This can include not only the education requirement but also the testing requirement.A second impact of forming a new business entity is its effect upon existing contractual relations. For example, if the sole proprietor is in the middle of a project when he incorporates, which entity now has an obligation to continue the contract? Is it the sole proprietor who entered the contract or is it the new entity?Further, what is the impact upon the contractor’s various credit agreements with suppliers? Is the sole proprietor still bound to the existing credit application? As to this latter question, the answer is generally yes. In Knez Building Materials Co. v. Manikas, 113 Or App 220 (1992), the court held that the supplier’s acceptance of payments by the corporation did not relieve the partnership’s liability when there was no evidence the supplier had agreed to release the partnership from its obligations and substitute the corporation.Another issue is what is the impact on construction lien rights? Certain Oregon cases stand for the proposition that lien rights are not assignable before they are perfected (i.e., the lien is recorded). Brice Mortgage Co. v. Wodtke, et al., 215 Or 192, 194 (1958).It is not just the contractor who needs to think about these questions. If you are the supplier, you may want a new credit application from the new business entity. If you are the prime contractor in the middle of a project, you may want the new business entity to enter a new subcontract.These are issues that do not always have easy answers. Contractors who are considering forming a new business entity need to look at all aspects of the new entity rather than only looking at forming the entity. Businesses whose customers may change their business form should consider how they will deal with these changes before they occur.The change of business entity is an event that can have many different consequences and these consequences should be considered before the change occurs. If you are not already familiar with the range of issues arising out of business entity changes, you should learn about them as a normal part of business planning. This can be a classic “ounce of prevention is worth a pound of cure” situation.HAVE YOU CHECKED YOUR SUB’S COMP INSURANCE?A recent Oregon case is a reminder that a general contractor can be liable for a subcontractor’s failure to have workers’ compensation insurance coverage.In Liberty Northwest Insurance Corp. v. Sparks, 171 Or App 65 (2000), the general contractor’s subcontract agreement included a certification by the subcontractor that the subcontractor had workers’ compensation insurance. At the time the parties entered the subcontract, that certification appeared to be correct.By the time the subcontractor actually began work on the project, however, the subcontractor’s workers’ compensation insurance had lapsed. When one of the subcontractor’s workers was injured on the project, she filed a claim.The court held that ORS 656.029(1) clearly states that a general contractor will be responsible for providing workers’ compensation insurance unless the subcontractor has its own coverage at the time the subcontract commences. Note that this is not a recent change in the law.As such, a prudent general contractor should not only include a contractual term concerning the subcontractor’s workers’ compensation insurance but should also make sure that its subcontractors actually have workers’ compensation insurance in effect at all times during a project. Further, to the extent a subcontractor is entering its own sub-subcontract with another contractor, that subcontractor should also look closely at this issue.Note that the subcontractor’s CCB license information should state whether the subcontractor has any employees (if so, the subcontractor needs to be licensed as “non-exempt”). You can obtain information about CCB licenses from the CCB’s web site: www.ccb.state.or.us.ATTORNEY-CLIENT PRIVILEGEAs the client of an attorney, you expect your communications with that attorney to be completely confidential. And, generally, they are.There are instances, however, where the privilege is lost. Of course, the client “owns” the privilege and can waive it. Such waiver can occur by the client revealing information to third parties. This is one reason to give the reply of “ask my attorney” in response to questions about pending matters.A recent Maryland court case illustrates another manner in which the privilege can be lost or waived. In that case, DuPont v. Forma-Pack, 351 Md 396 (1998), a company had an in-house attorney who hired a nonlawyer debt collection company to collect a debt owed the corporation.The Maryland court found that, because the debt collection company was not a legal firm, then the communications between the company and the debt collection company were not protected by the attorney-client privilege. Thus, they were subject to discovery by adverse parties.The point to remember is that, although they may be helping with legal efforts to collect debts, debt collection companies are generally not attorneys. As such, there may be no attorney-client privilege between your company and the debt collection company.FIRM NEWS:MICHAEL J. SCOTT, DOUGLAS R. HOOKLAND and ALAN L. MITCHELL presented a December 14, 2000 half-day seminar in Portland for Lorman Business Seminars entitled “Oregon and Washington Construction Lien and Bond Law.”MICHAEL J. SCOTT will speak at a February 1, 2001 seminar in Salem for Lorman Business Seminars entitled Oregon Construction Law: Claim Avoidance and Dispute Resolution.” Stephen Eichelberger, a Salem attorney, and Roger L. Brown, a Portland consultant will also speak. If you would like a brochure about the seminar, please contact Shari M. Persen at Furrer & Scott LLC.MICHAEL J. SCOTT, DOUGLAS R. HOOKLAND, DOUGLAS L. GALLAGHER and ALAN L. MITCHELL will speak at an April 5, 2001 seminar in Portland for Lorman Business Seminars entitled “Oregon Construction Lien and Bond Law.” If you would like a brochure about the seminar, please contact Shari M. Persen at Furrer & Scott LLC.THOMAS J. MURPHY was recently elected to the Board of Directors for the Community Partners for Affordable Housing, a Tigard non-profit organization.RANDOM THOUGHTS:“The illegal we do immediately. The unconstitutional takes a little longer.” Henry Kissinger.This newsletter is published quarterly by the law firm of Furrer & Scott LLC for the benefit of its clients and friends and is intended to inform them about legal matters of interest. While this information is meant to be current, we do not promise or guarantee that the information is correct, complete or up-to-date. This information is not intended to and should not be considered to provide legal advice or create an attorney-client relationship. No action should be undertaken in reliance hereon without professional legal counsel. Alan L. Mitchell, EditorLaw OfficesFURRER & SCOTT LLC9185 SW BURNHAM ST. POST OFFICE BOX 23414TIGARD, OR 97223 TIGARD, OR 97281(503) 620-4540 -- (800) 334-8986 -- FAX: (503) 620-4315www.furrer-scott.com