This Claim is Too Strong to Have to Arbitrate!

Just when you think you’ve heard it all. An architect sues for breach of contract and copyright infringement, and the owner files a motion to stay the lawsuit pending arbitration. The architect’s opposition? That the owner’s breach is so “obvious” and the architect’s claim is so strong, the court should refrain from ordering them to arbitrate. Seriously. The federal court judge, allowing the motion to stay, noted that “the strength of a case is not relevant in determining the proper forum.” The existence of the arbitration clause was not disputed, and so the parties must proceed to arbitration. The lawsuit has also been stayed for other defendants, not signatory to the arbitration clause, where those claims are dependent on the outcome of the arbitration. Even if that outcome is a foregone conclusion, per the plaintiff. The case is Eberhard Architects, LLC v. Bogart Architecture, Inc., 2014 U.S. Dist. LEXIS 161438 (N.D. Ohio, Nov. 17, 2014).

The Irony of Defamation Lawsuits – Construction Edition

There is a certain irony in any defamation lawsuit, which is a public request for redress arising from a statement the claimant says should not have been made public. Now we have the construction version. Company A sues Company B, claiming statements of B about the quality of A’s work defamed A. The lower court construed the statements as opinion (and thus not defamatory). The Massachusetts Appeals Court has held that the statement could have been verified and so was factual, but it was subject to a “conditional privilege” that barred the defamation claim. The decision – now very public! – is in the matter of Downey v. Chutehall Construction Co., Inc.[1]

A new roof was installed on a Boston townhouse in 2005. Several years later, the homeowners engaged another contractor to examine leaks. The investigating contractor wrote that the original roofing work in 2005 “was installed over a [sic] EPDM roof system that had fiberboard roof insulation that was soaking wet.” In the ensuing lawsuit by the homeowners against the original roofer, that company took umbrage over this statement, bringing its own claim against the investigating contractor based on the quoted statement.

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Court Interprets “Substantial Completion” To Extend Repose Period

The HVAC sub finished a new condo unit system in August 2001. The condo was substantially complete in early 2002. But since the developer did not pay necessary fees, the city did not issue a certificate of occupancy until August 2003. Which date should be used to start the Wyoming ten-year statute of repose period? The Wyoming Supreme Court majority, over a dissenting opinion, adopted the last date and allowed a lawsuit filed in late 2012 to move forward. Watch for the Wyoming contractors or designers associations to file legislation to address this decision.

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Failure to Comply With Prompt Pay Act Trumps Claimed Failure to Perform

When a New Jersey public authority failed to comply with the NJ Prompt Pay Act,[1] it was obligated to pay the contractor even though it argued the contractor’s work was defective. That was the decision of the NJ Appellate Division in the case of Aire Enterprises v. Warren County.[2] After the county’s architect approved the contractor’s final requisition, the county’s failure to nullify the architect’s action or issue a timely written notice rejecting the requisition meant that payment was due.

The $300,000 contract included laying about 400 carpet tiles. It is not clear from the decision, but the tiles may have been purchased by the county, and not by the contractor. About “thirty to fifty” tiles began lifting from the floor within a month after installation. The contractor performed remedial work, and issued a final requisition for $12,250. Twenty days later, the architect certified the final requisition for payment. The county never paid, nor did it issue any written notice to the contractor. However, when additional carpet tiles began to lift, the county decided to replace all of the carpet tile.

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Court Cannot Invalidate Arbitration Venue Clause

A federal court in Kentucky has confirmed that it is without authority to tinker with the venue clause in an arbitration agreement. The plaintiff subcontractor is from Kentucky, and the joint venture prime contractor partners from Massachusetts and Pennsylvania; the project is in Kentucky. The subcontractor filed suit in Kentucky, and the JV prime moved to compel arbitration in Boston, per the subcontract arbitration clause. The sub argued that the venue clause was “unfair and unreasonable.” The court did not even consider that argument. Quoting from an Ohio federal court decision, the Kentucky court noted that “enforcement of a forum-selection clause . . . in an arbitration agreement may be inconvenient and burdensome to the parties in some instances.” However, and more critically, the court “does not have the authority to invalidate a term of an arbitration agreement simply on the forum non conveniens argument that it is unfair, unreasonable, or inconvenient to one of the parties.” (emphasis added)

As the arbitration clause is enforceable, the Kentucky sub will have to arbitrate its claims in Boston. The case is Weddle Enterprises, Inc. v. Treviicos Soletanche, J.V., 2014 U.S. Dist. LEXIS 146812 (W.D. KY, Oct. 15, 2014), available here (subscription required). This decision continues the tradition of the courts deferring to the arbitration forum on procedural issues, which would include venue.

Follow the Rules, or Don’t Lose the Money?

What’s more important: following public procurement rules, or making sure that federal funding won’t disappear? That’s the question being debated in Sacramento, where a bid dispute has put $6.9 million in federal funding at risk; see the article in ENR. There may be a relatively non-controversial resolution, but the bigger question remains – how much should a public authority be able to exercise discretion and/or bend the rules? This is a very slippery slope.

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When the “Discovery Rule” is Irrelevant

Can the statute of limitations for a claim expire even before a project owner knows that it has a claim? This is a very real possibility if one is not careful in drafting contracts. Courts generally recognize that sophisticated business entities should be permitted to forfeit rights in contracts, so long as the terms do not violate public policy. Parties to a contract can limit the time period for bringing a claim or define when the limitations period begins.

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Further Confirmation Of The P3 “Tipping Point”

A Pennsylvania program announced yesterday provides support for the “tipping point” comment by Tony Sanacory and Will Fagan only two weeks ago, in a Duane Morris blog entry. PennDOT plans to award a contract to a P3 entity to repair or replace 558 bridges, and operate those bridges over the next 25 years, per an ENR article. The combination of increasing demand to upgrade infrastructure, coupled with inadequate public funds, is leading states to adopt the P3 funding alternative.

This will mean more roads and bridges with tolls, as P3 operators seek revenue sources to recoup the capital outlays. And those competing for P3 projects should heed the warnings that come from a few of the Australian toll road projects, where inflated traffic projections on some of the projects led to overbidding and ultimately operating company failures, and from the Indiana toll road operator bankruptcy just announced, where debt service combined with long term locked-in toll rates may have been a lethal combination. More opportunities, and more risks.

U.S. Department of Labor Proposes Pay Transparency Rule for Employees of Federal Contractors

On September 17, 2014, the U.S. Department of Labor Office of Federal Contract Compliance Programs (OFCCP) published a Notice of Proposed Rulemaking in the Federal Register to implement Executive Order 13665, which was signed by President Obama on April 8, 2014. Generally, the proposed rule would prohibit federal contractors from maintaining pay secrecy policies and would amend the equal opportunity clauses in Executive Order 11246 to provide protections to workers who talk about pay. The rule would apply to federal contractors with a federal contract worth more than $10,000 and entered into or modified on or after the effective date of the final rule, as well as to federal subcontractors working under such a covered federal contract.

To read the full Duane Morris Alert, please click here.

Has P3 Reached a Tipping Point in the United States?

Malcom Gladwell’s 2000 best-seller The Tipping Point: How Little Things Can Make a Big Difference posits that most social shifts (or epidemics, as Gladwell refers to them in his book) share common characteristics, including what he refers to as (1) the law of the few, (2) the stickiness factor, and (3) the power of context. Gladwell asserts that a few influential innovators, whether purposefully or unintentionally, influence society to change, that the changing force has an “it” factor that captures our imaginations and that societal context can speed up change in a way that seems epidemic. These three factors come together and form a phenomenon Gladwell refers to as a Tipping Point, where an idea can go from small to big in a real hurry.

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