Farad, president of Wired for U, of Enid, Okla., had a written time and materials contract to do electrical upgrades at an apartment complex. Wired for U did the work, sent proper and timely invoices and had all the backup time sheets, invoices and receipts for materials. But Wired for U was paid nothing and had no way of collecting on its invoices. How come?

The background to this sad story

Luke Alike Properties Inc. (LAP), a developer, was looking for properties to flip. LAP had investments in 15 states, was well-funded and had an impressive website. LAP located a recently closed garden apartment complex that looked like a good buy. As was its practice, LAP turned to a related entity, Luke Alike Investments LLC (LAI), which began negotiations with the owner for the purchase.

The apartments mostly needed cosmetic work, but there were concerns about the old electric wiring. LAI hired Farad, an Enid electrical contractor at Wired for U, to do a survey of the complex on a time and material (T&M) basis to figure out what was needed to bring the buildings up to code. Farad concluded from his survey that a fixed price could not be offered, as there were too many unknown conditions. LAI paid Wired for U for the survey work.

Around this same time, LAI formed Look Alike Investments of Enid LLC (LAI of Enid) to be the managing agent for the property. Bob N. Weave of LAI of Enid sent a contract to Farad for Wired for U to perform the upgrades on a T&M basis. Bob signed the contract as project manager for LAI of Enid.

For the first month that Wired’s crews were on site, the work went smoothly. Wired for U kept detailed daily reports of labor and all invoices for materials, sending copies to Bob on a weekly basis. At the end of that month, Wired submitted its first invoice of $42,000 to LAI. After two weeks, Bob returned that invoice, instructing Farad that it was addressed incorrectly and needed to be submitted to LAI of Enid because that was the company that signed the contract. Farad resent the invoice as directed.

Farad sent the second month’s invoice to LAI of Enid for $40,000. No payment had yet been received for the first invoice. Bob’s response was an email to Farad instructing him to stop all work. Farad’s follow-up phone calls and emails to Bob went unanswered.

The surprises for Wired for U

Farad was going to file suit until he looked more closely at the contract and found a mandatory mediation clause. Farad thought mediation would be a quick and easy way to solve the payment problem. It didn’t work out that way. It took two months to agree on a mediator and two more months to have the mediation.

Farad was confident that the mediation would go his way. He brought his project manager and all project records including time sheets and material orders, all of which had been initialed by Bob N. Weave. Bob appeared with corporate counsel and no documents. During the preliminary sessions, Bob presented the information that changed everything.

Wired for U had signed the contract with LAI of Enid LLC, and that company had no funding and no assets. LAI had paid for the survey but was not a party to the contract for the upgrades.

It took so much time to get the mediation going that Wired for U had lost its mechanic’s lien rights (which were questionable in the first place). It turned out that the owner of the property died before LAI could conclude a purchase agreement, and the owner did not even know that Wired for U was on the property. Wired was actually trespassing. Even with all the paperwork that Wired had, Farad saw that there was little or no hope of collecting any money for his work.

Does this seem too imaginary?

Often, developers of projects like the one in this example form a special-purpose entity, usually an LLC, for each job. The land may be owned by another entity and the managing agent who signed the contracts may work for yet another related company. Going after LAP or LAI would be expensive, with slight chance of success. Had Farad done a title search, he could have learned who the real owner of the property was.

Questions about the company Farad contracted with could be answered by looking at the websites for corporate status in Oklahoma and at Dun & Bradstreet. Had Farad paid attention to the name of the company on the first page of the contract and the signature line on the last page, he would have known he was not dealing with LAP or LAI and could have refused to sign until that was corrected or sought other assurances, such as having LAI or LAP guarantee payment.

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