Overbroad Indemnity Is Still Enforceable Within Statutory Limits

Oregon has a law, similar to many other states, prohibiting overbroad indemnities in construction contracts. The Oregon Supreme Court has ruled that the law allows an arguably overbroad indemnity to be enforced within the statutory constraints, rather than being entirely invalidated. The court concluded that two sections of the anti-indemnity law, read together, had the effect of “saving” an overbroad indemnity.

The indemnity in question required the subcontractor to indemnify the prime contractor from claims “whether or not caused in part by [the prime].” The trial court held that this indemnity ran afoul of subsection (1) of the Oregon law, ORS § 30.140, which states that an overbroad indemnity “is void.” But subsection (2) reads, in part: “This section does not affect any provision in a construction agreement that requires a person … to indemnify another against liability … to the extent that the … injury … arises out of the fault of the indemnitor.” Also, subsection (1) includes the proviso “except to the extent provided under subsection (2).” Reading those two clauses together, the Oregon high court held that subsection (2) permits the subcontract indemnity to be enforced within the bounds of the sub’s causation of the underlying claim. The valid scope of the construction indemnity would not be affected by the invalid scope, and the prime contractor could enforce that indemnity to the extent of the sub’s causative actions. The case is Montara Owners Ass’n v. La Noue Development, LLC, 357 Ore. 333, 2015 Ore. LEXIS 419 (June 18, 2015).

An anti-indemnity law that does not have the equivalent of subsection (2) of the Oregon law might compel a different result. One strategy to address an anti-indemnity law is to preface the indemnity with the phrase “to the fullest extent permitted by law,” or something similar. Courts in other states have taken such a phrase and construed or enforced the indemnity in question so as to be consistent with any statutory constraints.

Senate Bill Would Transfer VA Project Oversight to Corps

The Hill reports that an amendment to the Senate defense bill would transfer oversight of any U.S. Dept. of Veterans Affairs construction project larger than $100 million to the Army Corps of Engineers. The amendment is reportedly sponsored by the Colorado senators, who are responding to the problem-plagued Aurora, Colorado VA hospital project. We previously wrote about AGC of America’s unprecedented position supporting this very step. The Senate bill will still need to be merged with the House bill.

State Supreme Court Orders Official To Set Prevailing Wage Rates

The New Mexico Supreme Court has ordered a public official to establish prevailing wage rates in accordance with current collective bargaining agreements. In what appears to have been a show-down among the legislative and executive branches, the court has sided with the legislators. The NM high court held that “the Director has a mandatory, nondiscretionary duty to set prevailing wage and prevailing benefit rates the same as those negotiated in applicable CBAs.” The court ordered this action to be taken within 30 days of the decision. We recently reported challenges to state prevailing wage laws in a related post. But in other states where there are threats to these laws, it is the legislative branch seeking to amend state laws, and not the executive branch refusing to carry out or enforce the laws.

Under NM law (similar to most states), a public official is authorized and directed to establish prevailing wage rates, and those rates are to be established consistent with the collective bargaining agreement rates in the same vicinity as the project. Apparently, the NM Director of Labor Relations Division, of the state Dept. of Workforce Solutions, failed to take this step for more than five years since the state prevailing wage law was amended. Instead, the state agency “has been simply setting the rates the same as those that have been in effect since 2010.” Thus, workers on NM public projects have had their wages set at 2010 rates ever since, regardless of any change in CBA rates or terms. The NM matter was a unique set of circumstances, and the unions have convinced the courts that the laws must be carried out. The case is New Mexico Bldg. and Constr. Trades Council v. Dean and Bussey, 2015 N.M. LEXIS 158 (June 15, 2015).

Criticize the Contractor? An Arbitration Award for Defamation

Hell hath no fury like a homeowner scorned, particularly one with access to sophisticated IT professionals who will establish and optimize a website solely to criticize the contractor. But the cabinetry contractor – whose arbitration award including attorneys’ fees was just affirmed by a Connecticut appellate court – is having the last laugh. The arbitrator awarded damages and attorneys’ fees for the homeowners’ defamatory actions. And the appellate court confirmed that the arbitrator did not engage in “manifest disregard” for the law when he found the homeowners to have acted maliciously in conducting their war of words.

In an age of web-based commentary and criticism that forms the basis of sites such as Yelp, the homeowners’ actions here went well beyond the norm. The husband used his company’s IT professionals to establish a website and take steps to ensure that anyone searching for the cabinetry business would find his site, with all its critical comments, first. But the original site (the current site appears to be a toned-down version, and as of this post has not been updated with the recent decision) included statements that the arbitrator found not only defamatory, but also to have been issued with malice.

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Mind The (Procedural) Gap – Third-Party Claims Lost

Owner sued contractor, who filed third-party claims against subs seeking only indemnity from them if the contractor was found liable to the owner. Contractor then moved to dismiss the owner’s claim as barred by the statute of limitations. The court allowed that motion, and then noted that it would dismiss the third-party claims as moot unless any party took action; no one did (remember this fact!). The owner filed an appeal, and the owner and contractor later settled as between them. The contractor sought sub participation in the settlement kitty, but realized that the third-party claims had been dismissed, and under Vermont law this dismissal was with prejudice. The contractor’s belated efforts to resurrect the third-party claims have been turned down by the Vermont Supreme Court.

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Agreement for Specific Performance Precludes Actual Damages Claim

In settling an environmental contamination claim, the property owner agreed to accept a cash payment and the environmental company agreed to perform remediation work. The settlement documents provided that the owner’s remedy was in specific performance, to require the remediation company to do its work. Unhappy with the remediation, the owner instead declined to demand or require specific performance, had the property demolished, and then sought money damages. The trial judge turned the owner down, and the Massachusetts Appeals Court agreed.

The appellate court quoted an argument made by the defendants, that the owner “cannot create a condition which prevents specific performance, and then demand monetary damages in its place.” If the parties agreed that specific performance was the owner’s remedy, the owner would be held to that agreement. Even if the owner believed the remediation to have been performed improperly, taking action to frustrate the agreed remedy was not the way to get redress. (From the relatively short opinion, it is clear that the court viewed the owner as his own worst enemy.) The case is Abdella v. Hydro Envt’l Technologies, Inc., 2015 Mass. App. Unpub. LEXIS 484 (May 22, 2015). It has been published as a case not to be cited as binding precedent, but “only for its persuasive value.”

Subcontract Is Enforceable Even Though Too Low To Pay Prevailing Wage Rates

A subcontractor agreed to perform site clearing work for $5,000, and only later learned it was a public project requiring payment of prevailing wages. Instead of paying workers $13 and $14 per hour, the sub would have to pay $36 and $43 for a chainsaw operator and bucket truck operator, respectively. Was the sub entitled to more money, on the theory of an invalid contract, or alternatively in quantum meruit? A Massachusetts appellate court has said no.

The project paper trail left much to be desired. The original oral agreement, not disputed, was $5,000 to clear two sites. Only after starting work did the sub learn that he would have to pay prevailing wages. He sought an increased price, but nothing was agreed upon. He also sought money for extra work; again, there was no documentation and no agreement. It appears from the decision that the workers were paid properly and the $5,000 estimate was inadequate to cover the labor cost for the original scope. The trial court found the sub to be entitled to more money based on signed invoices, and under the theory of quantum meruit. But the appellate court reversed.

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A Sobering Reflection on the Dangers of Unsafe Construction

The San Jose Mercury News reports the manslaughter convictions of a construction company owner and project manager, who proceeded with unprotected excavation work in the face of a stop-work order from the local building inspector. According to the article, a construction worker was buried by “an unfortified 12-foot-tall dirt wall.” Prosecutors described the case as a “rare trial aimed at holding an employer criminally responsible for the death of an employee on the job.” One subcontractor reportedly walked off the site a few days prior to the accident, concerned for safety of its workers. Unfortunately for Raul Mercado, who had been working on the site for only a week, the contractor moved forward.

It is tragic any time a construction worker does not return home at the end of the day. Many players in the construction industry have gotten the message. National Safety Week earlier this month, complete with a website dedicated to that purpose, is emblematic of that philosophy. But the actions of a minority of contractors will continue to paint an unflattering picture until the safety message permeates through all sectors and all ranks of the industry.  Mr. Mercado and his family deserved better.

Arbitration Venue: Where the Parties Agreed, Despite State Law

The contract calls for arbitration in Indiana, applying the laws of Nebraska. But Nebraska has a law prohibiting parties from being compelled to arbitrate outside that state for an in-state project. In a GC/sub dust-up including lawsuits in both states, a U.S. District Court judge in Indiana has cited Supreme Court precedent in upholding the original contract venue clause.

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Delegation of Arbitrability to the Arbitrator – May Not Be Enforceable

Some arbitration clauses include a “delegation provision” where the parties grant to the arbitrator – instead of a court – the authority to determine validity and enforceability of the arbitration clause itself. A recent decision by the West Virginia Supreme Court of Appeals held a delegation provision that did not “clearly and unmistakably reflect an intention by the parties to assign to the arbitrator all questions about the enforceability of the arbitration clause” to be an improper delegation. As such, the court and not the arbitrator would determine enforceability of the arbitration clause. The clause in question included the following: “The arbitrator(s) shall determine all issues regarding the arbitrability of the dispute.”

This was a homeowner-contractor dispute. Unhappy with defects in their new house, the homeowners filed suit. The contractor moved to stay pending arbitration, and the homeowners responded that the arbitration clause was unconscionable and unenforceable. The contractor argued that it was for the arbitrator to decide those defenses, due to the delegation provision, and the court should defer. But the delegation argument was made only orally, as an apparent last-minute thought. The trial court refused to stay the case pending arbitration, adopting the homeowners’ position that the clause was procedurally and substantively unconscionable, and did not address the delegation issue. The case is Schumacher Homes of Circleville, Inc. v. Spencer, 2015 W.Va. LEXIS 562 (April 24, 2015).

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