You Say I Owe You What? Why? Where? When?
And, By the Way, Who Are You, Anyway?
David R. Hendrick, Esq.; Hendrick, Phillips, Salzman & Flatt, P.C. – GUCA General Counsel
It is not uncommon in the world of contractors engaging in underground excavation or blasting work, including utility contractors, to have to work around existing underground utility systems, facilities or lines as part of the normal course of performance. This aspect of such work poses a number of risks to all involved, the project owner, the utility system owner or operator, the contractor involved, as well as other third parties.
To deal with and mitigate this risk, the Georgia Utility Facility Protection Act (“GUFPA”) was enacted for the clear purpose of reducing and preventing damages to existing facilities resulting from such blasting and excavation operations in the vicinity of such utility systems and facilities. The Act addresses only damages that result from excavating and blasting operations which cause injury to persons or property, including to the utility facility itself. As part of the protection afforded, to the extent that such injury or damage results to a utility system or facility, under certain situations and conditions, GUFPA holds the offending contractor conducting the excavation or blasting operations “strictly liable . . . for all costs incurred . . . in repairing or replacing its damaged facilities.” Ga. Code §25-9-13(a)(1). Thus, in such a case, the utility system owner or operator is entitled to seek reimbursement for such “costs” on its own behalf from an allegedly offending contractor causing such damage.
However, to facilitate the assertion of such claims and reimbursement process, utilities often engage an outside or third party “collection” agent or entity to whom the alleged right of enforcement and reimbursement is delegated. The utility owner or operator purportedly transfers and assigns its interests to the collection company that it sometimes acting as an “agent” on behalf of the utility and sometimes acting in its own right and interest, having essentially purchased at a discounted price the claim rights of the injured utility owner or operator. In fact, often the first the contractor allegedly at fault in causing the damage claimed learns of the existence of such an allegation and claim is weeks or months after the work was performed and the collection agent’s demand for payment is received as the first notice of such claim and any alleged incident of damage received by the contractor. This, of course, is long after memories and the ability to meaningfully investigate any such allegations of liability have faded without much if anything in the way of actual proof or substantiation of either the alleged incident or of the costs actually incurred for which the claim is made. Moreover, such claims and “demands” are often presented in an extremely aggressive, hostile, arrogant and heavy handed manner coupled with threats of all kinds of dire consequences that will befall the hapless and hopeless contractor if the amount demanded is not paid immediately and without question. By the time a utility’s claim is placed in the hands of such a collection company and then asserted against the contractor, the charges alleged and claims asserted are often significantly inflated to begin with and further increased by additional fees, assessments, accrued interest and costs of “collection.”
So what can and should you do when such a collection effort is directed at your company about an incident of which you have no knowledge and recollection and no reasonable access to meaningful investigation? Actually there are a number of defensive strategies that should be pursued:
1. Transfer and Assignment: Regardless of the merits of the claim had it been asserted directly by the utility owner or operator itself, as the party conferred with the statutory right to reimbursement, an independent third party collection agency has no right to assert such derivative claims unless and until it has been fully and formally assigned in writing by the utility to the collection agent. Evidence of this written assignment and transfer or other delegation should be the initial piece of information requested and demanded as a prerequisite to any further review, analysis or consideration.
2. Documentation and Substantiation: While this type of collection process is not governed by the much more rigorous “consumer collection” laws at the federal or state level, logic, reason and fairness would require that you are entitled to and must be provided full and complete documentations and substantiation. This should include all information and records upon which any determination was made that you were responsible for the incident to begin with, when, where and how it occurred, all records, photos, statement relative to such claims, and the basis and proof of the actual costs incurred in performing the reasonable and necessary report and replacement work. Your initial inquiry in this regard should be directed at the immediate source of the enforcement effort, the collection company. However, similar inquiry should also be directed at the originating utility to obtain the original information regarding its actual costs of repair and replacement and particularly to confirm whether or not the utility ever had given you notice directly before farming the claim enforcement process out to the collection company.
3. Exclusion of Nonrecoverable Costs: Request should be made for itemization and particularization of the specific costs for which any such charge is made since such claim is derived solely from the statutory basis allowing only recovery of “all costs” incurred only by the utility for “repair and replacement.” Therefore, charges falling outside of that narrow definition are not recoverable by the utility, and certainly not for its third party collection agent for fees and assessments not related to the repair or replacement status. The collection company should have absolutely no statutory, contractual or legal basis to seek such collateral fees and costs from a contractor with whom they have no contractual relationship.
4. Defenses Assertable to Such Unfounded Claims: Any rights of a collection company to seek and demand payment of an obligation, if any, originally owing to the utility by the contractor account are solely derivative from the utility. As such, any such rights are fully subject to any and all defenses that the contractor could have asserted against the utility had it sought to itself pursue such claims directly against the contractor. For example, at the most basic level, the factual defense of “we did not do it!” and any basis for such a contention is fully alive and well even when the claim is asserted through the collection agent. The collection company’s rights are no greater than those of the utility. Moreover, even the statutory prescription of the offending contractor being “strictly liable” for such injury or damages is far from absolute and unconditional. Particularly, such strict labiality does not apply where contractor gave the correct timely and proper notice and request for a locate request, per Ga. Code § 25-9-6, but the facility owner either incorrectly located and marked the hidden utility component or simply failed entirely to comply with the affirmative requirement to mark such components as requested. Ga. Code. §§ 25-9-5, 25-9-7, 25-9-9(a), and 25-9-13(d). In such a case, if the contractor can demonstrate that it proceeded nonetheless in the exercise of reasonable care in its efforts, it simply is not strictly liable for the consequences. Ga. Code. §25-9-8(b) and (c). So you are certainly entitled to advance such defenses, to the extent warranted, to any such claims. Again, the rights of the “assignee” collection company are no greater than those of the assignor utility and are subject to the full range of defenses the contractor may have.
5. Myths and Fallacies: In an effort to pressure the contractor into payment of the full amount claimed, irrespective of all of the steps available as described above, the collection companies often will seek to impose additional pressure by employing fallacious, unwarranted and even illegal tactics. These include:
a. “Well I guess we will just have to file a claim of lien on the project to the amounts claimed!” Wrong! This type of indebtedness simply does not create any right to assert a claim of lien, even by the utility owner or operator, against the real property of the project. Such party is not among the limited class persons explicitly conferred rights to file mechanics’ and materialmen’s liens under the Georgia lien statute, which is narrowly and strictly construed. If the utility owner has no lien rights, then certainly neither would anyone claiming through the utility owner. Moreover, such lien rights, even if they existed, are not assignable to third parties for enforcement.
b. “Well we will just have to go to the prime contractor you were working under or to the owner of the real property of the project to get payment from them for this claim and then let them beat the money out of you!” Wrong, again! This type of claim is of statutory creation. It is expressly limited to allow recover by the utility owner claiming damage (and perhaps by its assignee, but even that is not clear) by claim only and directly against the offending contractor. Neither upper tier contractors not performing the excavation or blasting work nor the owner bear any liability or responsibility under this statute for damages caused by a lower tier excavation or blasting subcontractor to the utility’s property. There is no basis for assertion of such a claim. Indeed, any effort to assert such a claim against upstream contracting parties in a dispute between the utility and the allegedly offending contractor, may well constitute wrongful conduct which itself could subject the collection company or even the utility to tort liability for intentional inference with contractual or business relations or defamation and libel. That is always a good thing to remind the aggressive collection agent about, since it would turn the tables!
So, when such collection companies come calling make sure you are prepared to deal effectively with their tactics. Even if the claim asserted is valid on its merits, the amounts claimed may be well in excess of what the GUFPA provisions even allow. It may be a “pain in the butt,” as the saying goes, but you should not feel that you are only on the defensive with no tools to aggressively challenge such claims.