Posts By: Chris Wielinski

Chance Decker wrote the following article for the June edition of Construction News magazine. Chance explores how a missed lien deadline and nonpayment don’t always spell the end for a subcontractor’s recovery efforts. In certain scenarios involving questionable contracting arrangements, provisions of the Texas Property Code may allow subcontractors to assert lien rights typically reserved for original contractors, though pursuing this option requires thoughtful analysis due to potential legal risks.

Imagine you’re a subcontractor who hasn’t been paid in months, and the general contractor you did the work for has disappeared. Your lawyer tells you that your statutory lien deadline has passed, and thus, you don’t have any rights against the owner. You’re stuck, and your prospects of payment seem negligible. Do you have any options?

One solution may be Section 53.026 of the Texas Property Code—the Sham Contract Statute. This statute provides:

“A person who labors or furnishes labor or materials under a direct contractual relationship with a purported original contractor is considered to be an original contractor for purposes of perfecting a mechanic’s lien.”

Section 53.001(7-a) of the Property Code defines a “purported original contractor” as

“… an original contractor who can effectively control the owner or is effectively controlled by the owner through common ownership of voting stock or ownership interests, interlocking directorships, common management, or otherwise, or who was engaged by the owner for the construction or repair of improvements without a good faith intention of the parties that the purported original contractor was to perform under the contract.”

Thus, the statute elevates a subcontractor who contracts with a “sham” or “purported” original contractor into original contractor status for purposes of perfecting mechanics’ liens if:

• The owner can effectively control the original contractor or the original contractor can effectively control the owner through:
  • Common ownership of voting stock or ownership interests;
  • Common management,
  • Or otherwise, or
• The original contractor was engaged by the owner without a good faith intention that the original contractor would actually serve in that capacity.

Though this statute and its predecessors have been on the books for decades, caselaw interpreting it is scant. However, the cases below answer several important questions about the statute.

1. Does the Sham Contract Statute apply to Constitutional Liens?  Yes.
   
   “[B]y changing a subcontractor’s position in the construction contract chain, the statutory provisions allow a subcontractor hired under a sham contract to assert and enforce a constitutional lien because he is deemed to have a direct contractual relationship with the owner.”
   
   Trinity Drywall v. Toka Gen. Contrs., 416 S.W.3d 201, 212-13 (Tex. App.—El Paso 2013, pet. denied).
   
2. Does the Sham Contract Statute apply to contractual liability?  No.
   
   “[C]onsidering Chapter 53 in its entirety, it is clear that the only reasonable and just interpretation of section 53.026 is to construe ‘in direct contractual relationship’ as an effort to effectuate the timetables for filing liens and not an effort to control liability of an owner.”
   
   Southwest Properties, L.P. v. LITE-DEC of Texas, Inc., 989 S.W.2d 69, 72 (Tex. App.—San Antonio 1998, pet. denied).
   
3. Could the Sham Contract Statute subject a claimant to fraudulent lien liability if Sham Contract allegations are made without sufficient evidence?  Yes.
   
   “[T]here was evidence that [Owner] and [Contractor] were not unified in interest, such that those entities had a ‘sham contract,’ and that [Subcontractor] had no reasonable basis to state otherwise in the affidavits. This evidence supports a finding that the liens were filed in bad faith, or with dishonesty, or a lack of integrity, and thus were fraudulent.”
   
   Charter Drywall Houston, Inc. v. Matthews Investments Southwest, Inc., 2023 WL 3476909 at *6, Tex. App.—Houston [14th Dist.] 2023, no pet.).

Thus, in certain narrow circumstances, the Sham Contract Statute can excuse a subcontractor’s failure to serve a pre-lien or “trapping” notice for its statutory lien and make a Constitutional Lien available to the subcontractor. The Constitutional Lien is self-executing (does not require a notice filing) and can be enforced for up to four years. So, before throwing in the towel on your payment claim, evaluate whether the Sham Contract Statute might apply to your situation.

About the Author

Chance Decker is a Principal in the San Antonio office of Cokinos | Young and is an aggressive and tactical litigator. Chance focuses on resolving high-stakes disputes for businesses in the energy, pipe and steel distribution, construction and real estate industries. He can be reached at (210) 293-8725 or cdecker@cokinoslaw.com.

About Cokinos | Young

Cokinos | Young has led Texas construction and real estate law for over three decades. And today, our 100+ dedicated professionals operate coast to coast and proudly handle all aspects of construction law for owner/developers, project managers, general contractors, design professionals, subcontractors, sureties, and lenders. We provide both dispute resolution and transactional services to clients through all phases of commercial, industrial, pipeline, offshore, civil, and residential construction. Our reputation was built on relentless commitment to client service and the industries we serve, and that remains our primary driver. Dedicated. Resilient. Expertise. That’s Cokinos | Young. Learn more at cokinoslaw.com.

The Chambers and Partners Real Estate 2025 Practice Guide for Texas provides a comprehensive overview of the state’s real estate legal landscape. Authored by Taylor Cooksey, Philip Kinkaid, Serena Kramer, and David Brooks, this guide offers analysis of the key legal issues shaping real estate transactions and investments. It delves into the financial aspects of securing and financing commercial real estate, while examining the regulatory and governmental frameworks governing real estate development and construction. Additionally, the guide explores the various entity structures available for real estate investment, highlighting their legal and compliance requirements. It also addresses critical legal and financial considerations in commercial leasing and the effective management of construction projects. Finally, the guide concludes with a summary of certain taxes impacting real estate investments.

Taylor V. Cooksey

Philip M. Kinkaid

David A. Brooks

Serena A. Kramer

About Cokinos | Young

Cokinos | Young has led Texas construction and real estate law for over three decades. And today, our 100+ dedicated professionals operate coast to coast and proudly handle all aspects of construction law for owner/developers, project managers, general contractors, design professionals, subcontractors, sureties, and lenders. We provide both dispute resolution and transactional services to clients through all phases of commercial, industrial, pipeline, offshore, civil, and residential construction. Our reputation was built on a relentless commitment to client service and the industries we serve, and that remains our primary driver. Dedicated. Resilient. Expertise. That’s Cokinos | Young. Learn more at cokinoslaw.com.

Patrick Wielinski authored a news article, Wrap Up Insurance and the Risk of Coverage Gaps: A Case from the Eleventh Circuit, that appeared last week in the AGC of America websites and newsletters. The topic is “course of conduct exclusions” (also referred to as “builders risk exclusions”). These exclusions are inserted into most wrap-up insurance policies (OCIPs and CCIPs) on large projects that exclude coverage for defense and indemnity for property damage to the project that occurs prior to completion. The exclusions relating to property damage under the standard CGL policy that preserve coverage for many construction defects are deleted from CIPs in favor of an absolute replacement exclusion that denies coverage for all property damage that occurs prior to completion on the pretense that a builders’ risk policy is more appropriate to provide that coverage. However, in many instances, the CGL policy will provide broader coverage and a defense. Unfortunately, many risk managers and agents/brokers are unaware of the gap, believing that the insured usually wins when any exclusion is eliminated.

The article reports on the recent case out of the Eleventh Circuit applying Florida law, Liberty Surplus Insurance Corp. v. Kaufman Lynn Construction, Inc., 130 F.4th 903 (11th.Cir. 2025), in which CY submitted an amici curiae brief on behalf of the AGC of America and NAHB in support of the contractor against its CGL insurer that denied coverage under the CCIP. The major issue was whether the policy provided completed operations coverage as each individual phase was completed (because the course of construction applied). The Eleventh Circuit somewhat obtusely held that the policy did not provide coverage, contrary to the policy’s underwriting. Nevertheless, the court acknowledged the bait-and-switch aspect of the policy that the AGC and NAHB, as amici, pointed out. Unfortunately, that argument did not carry the day because the builders’ risk policy was not included in the appellate record. Thus, the construction industry has some support the next time this issue arises as more cases involving CIPs are entering the pipeline so all is not lost. A national Teams call by the AGC on this issue is being planned. The firm intends to be involved in this effort. For more information, please feel free to contact Pat Wielinski or Travis Brown.

About Cokinos | Young

Cokinos | Young has led Texas construction and real estate law for over three decades. And today, our 100+ dedicated professionals operate coast to coast and proudly handle all aspects of construction law for owner/developers, project managers, general contractors, design professionals, subcontractors, sureties, and lenders. We provide both dispute resolution and transactional services to clients through all phases of commercial, industrial, pipeline, offshore, civil, and residential construction. Our reputation was built on relentless commitment to client service and the industries we serve, and that remains our primary driver. Dedicated. Resilient. Expertise. That’s Cokinos | Young. Learn more at cokinoslaw.com.

Shannon Gatlin and Kristen Maloney wrote the following article for the May edition of Construction News magazine. Shannon and Kristen break down how proactive I-9 compliance is critical for construction employers, especially in Texas, where ICE audits and site visits are a real threat. They emphasize that conducting internal audits and engaging legal counsel in advance can shield companies from costly penalties and help maintain control when federal agents come knocking.

Picture a typical morning on a Texas construction site: crews are setting rebar, schedules are tight, and every hour counts. Then, an Immigration and Customs Enforcement (ICE) officer arrives, presenting a Notice of Inspection (NOI) that demands all Form I-9 records within three business days. For construction firms, with their expansive workforces and high visibility, such scrutiny is not hypothetical, it’s reality, and the consequences of unpreparedness in such a situation can be severe, from substantial fines to operational disruptions. Yet, through proactive compliance measures, construction employers can mitigate these risks and protect their business.

With federal scrutiny intensifying and penalties for noncompliance reaching six figures, construction employers can’t afford to leave I-9 compliance to chance. Conducting a thorough internal audit before an inspection is not just wise, it’s essential. A well-executed self-review allows you to catch and correct errors and demonstrate good-faith efforts if ever called upon to respond. Waiting until the government is reviewing your files is simply too late. The best time to address potential issues is before your records are under federal review.

Understanding What’s at Stake

Every U.S. employer is required to complete and retain Form I-9 for each employee hired after November 6, 1986, to verify identity and authorization to work in the United States. Employers must ensure the form is completed on time, that the documentation presented by the employee appears genuine, and that the form is properly stored and maintained.

If ICE initiates an audit, typically by issuing an NOI, you’ll be given just three business days to produce your I-9 forms and related documentation. Employers with incomplete, inaccurate, or missing forms can face steep fines. In some cases, repeat violations or knowingly hiring unauthorized workers can result in criminal liability. Moreover, if your company doesn’t have a plan in place when ICE agents show up unannounced, confusion and fear may lead to disorganized responses from your workforce.  

Conducting a Voluntary Internal Audit

One of the most effective ways to reduce risk is to regularly conduct a voluntary internal I-9 audit. It demonstrates good faith to regulators and can help reduce penalties. When done correctly, it can also help employers identify systemic issues before they become legal problems.

A complete audit should include all current employees and any former employees whose I-9s fall within the retention period (three years from hire or one year after termination, whichever is later). Each form should be reviewed for completeness, valid documentation, and timely execution of both employee and employer sections.

Common mistakes include missing signatures, late completion dates, or incorrect document types. Errors must be corrected carefully: original forms should never be replaced or backdated. Corrections should be clearly marked, initialed, and dated. If a form was never completed, a new one should be filled out immediately, dated accurately, and accompanied by a written explanation.

Employers should also track expiration dates for temporary work authorizations and ensure that work eligibility is reverified before an employee’s authorization expires. Overlooking these requirements can lead to significant penalties.

Just as critical is proper storage. It is best practice to store I-9s in a secure, centralized location, separate from personnel files. Remember, employers have just three business days to produce them during an audit.

The Value of Legal Oversight

Employers often assume that a self-audit is solely an HR task. But involving legal counsel adds two major advantages. First, counsel can help ensure the audit is conducted properly, spotting both technical and substantive issues that may otherwise go unnoticed. Second, when an audit is carried out at the direction of an attorney, the findings may be protected under attorney-client privilege. That layer of confidentiality can be critical if the audit uncovers potential compliance concerns.

Legal counsel can also guide you on how to handle corrections, what to do if you discover unauthorized workers, and how to implement or revise company policies to avoid future issues.

If the Government Comes Calling

The reality is that even companies with the best of intentions may one day face an audit or enforcement visit. That’s why it’s far better to conduct your own internal audit before the government comes knocking. A well-planned audit takes time and attention to detail. It’s not a task that can be rushed under the pressure of a looming deadline. Employers who wait until they receive an NOI to get their records in order often find themselves playing catch-up with limited options.

If your company does receive an NOI, contact your legal counsel immediately. The three-day window to produce records should be used strategically: reviewing your files for completeness, flagging known deficiencies, and preparing a clear and compliant response. Keep copies of everything you provide and document your steps in detail.

If ICE agents arrive at your job site unannounced, you are entitled to request a warrant before granting access to non-public areas or employment records. If a warrant is presented, review it carefully to determine precisely what it authorizes and limit access accordingly. Assign a designated company representative to interact with agents, and ensure employees are trained not to speculate, panic, or volunteer information.

Final Thoughts

I-9 compliance may not be the most exciting part of running a construction company, but it is one of the most important. In today’s enforcement environment, failing to keep your records in order can be a costly mistake. The good news is that with the right internal processes and the support of knowledgeable legal counsel, employers can get ahead of potential problems and build a solid defense against enforcement actions before they arise.

About the Authors

Shannon Gatlin is a Principal in the Houston office of Cokinos | Young, is Board Certified in Labor and Employment Law by the Texas Board of Legal Specialization, and leads the firm’s Labor & Employment Practice Group. He can be reached at (713) 535-5504 or sgatlin@cokinoslaw.com.

Kristen Maloney is an Associate in the firm’s Austin office, and a substantial amount of her practice focuses on employment law. She can be reached at 713-333-7040 or kmaloney@cokinoslaw.com.

About Cokinos | Young

Cokinos | Young has led Texas construction and real estate law for over three decades. And today, our 100+ dedicated professionals operate coast to coast and proudly handle all aspects of construction law for owner/developers, project managers, general contractors, design professionals, subcontractors, sureties, and lenders. We provide both dispute resolution and transactional services to clients through all phases of commercial, industrial, pipeline, offshore, civil, and residential construction. Our reputation was built on relentless commitment to client service and the industries we serve, and that remains our primary driver. Dedicated. Resilient. Expertise. That’s Cokinos | Young. Learn more at cokinoslaw.com.