Reminder: False Claims Act Lessons Are Expensive


A contractor filing false prevailing wage certifications was reminded just how costly it can be to run afoul of a False Claims Act charge.  After a trial on damages, the federal court judge found that the contractor was paid $254,298.18 for the electrical portion of the project (the part involving the false wage certifications).  The government’s damages under the False Claims Act (FCA) are treble that amount, or $762,894.54.  There is no credit for value of work put in place, and no consideration of value to the government.  The damages are three times the amount paid by the government for the pertinent portion of the work, regardless of whether that amount was purely cost to the contractor, or included any profit.

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Liens with Intentionally Incorrect Information May Still Be Enforceable


Generally, lien waivers that contain fraudulent information are not enforceable.  However, not all intentionally misleading statements are fraudulent.  The crux of the issue is whether a lien waiver simply states that the subcontractor has been paid a specific amount or whether the subcontractor claims that the work completed is worth the amount stated in the waiver. 

The Illinois Appellate Court addressed this issue briefly in Casablanca Lofts, LLC v. Blauvise (2014 Ill. App. Unpub. Lexis 1377 (1st Dist. June 26, 2014)).  In arbitration, prior to litigation, the developer/owner of a condominium project, Casablanca Loft, discovered that the electrical subcontractor had submitted three lien waivers totaling $135,000 and had been paid $135,000.  Id. at ¶6.  However, the electrical subcontractor had only provided material and labor with a value of $19,000.  Id.  Casablanca Lofts then filed a complaint against the electrical subcontractor alleging that it fraudulent misrepresented the amount owed for labor and materials.  Id. at ¶¶5, 7.  The trial court found that the electrical subcontractor and its owner did not make false statements in the lien waivers, because “the mechanics lien waivers don’t say anything about the amount of work done….”  Id.  at ¶12.  The Illinois Appellate Court affirmed the trial court’s ruling without comment on the issue.

This case provides a sobering reminder to owners and general contractors.  Obtaining lien waivers is not merely a clerical requirement.  Lien waivers are a critical element of the construction payment process.  The lien waivers provided by the Casablanca Lofts subcontractor did not provide a statement regarding the value of the work actually performed or provide a percentage of work completed.  Owners and general contractors should require that subcontractors provide lien waivers prior to disbursing funds.  Owners, or their agents, and general contractors should examine lien waivers to verify that the amount stated in the lien waivers conform to the work actually performed.  Finally, in order to avoid overpaying subcontractors, lien waivers should indicate the value or percentage of work actually performed.

Adam Gill (312-499-6728; ALGill@duanemorris.com) and Jeffrey L. Hamera (312-499-6782; JLHamera@duanemorris.com)

 
 
 
 

Massachusetts Passes Law Governing Retainage On Private Contracts


Massachusetts has just passed a law that governs the retainage process on private construction contracts.  It applies to projects of $3 million or more, entered into after November 8, 2014.  This law will fundamentally alter – and accelerate – project closeout on Massachusetts commercial projects.[Read More]
 
 
 
 

Three Strikes on Defective Work Insurance Claim


A federal appeals court recently retired, in short order, a contractor’s insurance claim arising from defective work.  The claim arose when scratches were noted on a glass storefront, shortly after installation by one sub but also after preliminary cleaning by another sub, and two days before the store was open to the public.  No cause for the scratches was identified, at least in the decision. 

Strike One.  The damage arose from work performed by one of the subs, thus coming within an exclusion on the contractor’s GL policy.  There was no evidence of any accident.

Strike Two.  The claim was for restoration or replacement of the glass – the very item claimed to be either defective or improperly cleaned – and not damage to other work.

Strike Three.  As the problem was noted before the store opened to the public, the claim did not fall under the completed operations hazard, since the glass had yet to be put to its intended use. 

A simple, brief, lesson.  The case is Allegheny Design Mgmt. v. Travelers Indemnity Co. of America, 2014 U.S. App. LEXIS 13190 (3rd Cir., July 11, 2014).
 
 
 
 

Pennsylvania Mechanics' Lien Law Amended, Clarifying Open-End Construction Loan Mortgage Priority


On July 9, 2014, Pennsylvania Governor Tom Corbett signed into law Act 117 of 2014, which amends the Pennsylvania Mechanics' Lien Law (MLL), 49 P.S. 1101, et seq., to provide that a construction loan secured by an open-end mortgage where at least 60 percent of the proceeds are "intended to pay or used to pay" all or part of the "costs of construction" will have lien priority ahead of any filed mechanics' lien claims, even when the visible commencement of work was prior to the recordation of the open-end mortgage.

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California Supreme Court Addresses Architect's Duty of Care


The California Supreme Court issued a unanimous decision in Beacon Residential Community Association v. Skidmore, Owings & Merrill, S208173, on July 3, upholding a homeowners association's right to pursue a common law negligence claim against the project architects of a 595-unit condominium project in San Francisco. 

[Read More]
 
 
 
 

Supreme Court’s Mixed Outcome on EPA Regs Means Coal-Plant Emissions Here to Stay . . .


Energy contractors know well that predicting energy demand, and how the demand would be met, has been more art than science the last several years.  The downward economic cycle, recent strides in energy efficiency, volatility in fuel costs and emissions concerns have not only made electricity demand difficult to gauge, they have made it difficult to predict what types of new energy construction the power producers should be building for their customer bases. The recent boom in natural gas has moved gas-fired plants to the head of the class for the time-being, leaving many to ponder the fate of the United States’ aging fleet of coal plants.

Just today, a divided Supreme Court has added some clarity to this murky picture by upholding the EPA’s recent power plant emissions regulations that take specific aim at coal-fired plants.  The new EPA rules effectively require a thirty percent reduction in carbon emissions by the energy industry, and coal-fired plants (the biggest emitters), will be targeted in years to come. 

USA Today describes the upshot of the ruling as follows: 

The decision only removed one method the administration uses to regulate greenhouse gas emissions at power plants, refineries and other stationary sources, leaving other methods in place. That likely means that the administration will move ahead with its new regulations on existing coal-fired power plants, setting off a new wave of lawsuits. . . .

[The] EPA can require greenhouse gas permits from industries already required to get the permits for other pollutants.

The high court ruled 5-4 in 2007 that greenhouse gases qualify as an air pollutant, even though their impact isn't as direct as others. That decision gave the EPA authority to regulate tailpipe emissions from motor vehicles. The stationary source regulation was the next step in the process.

Unlike other air pollutants, carbon dioxide emissions that contribute to global warming are so ubiquitous that the EPA raised the law's threshold level requiring a permit from 100 tons per year to at least 75,000 tons.

(Available at http://www.usatoday.com/story/news/nation/2014/06/23/supreme-court-greenhouse-gas/8567453/.)

 A number of coal industry participants are moving to dampen the effect these new regulations will have on coal, but the EPA appears to have scored a victory this round.

 
 
 
 

Q: When Is a Monthly Release Not a Release?


A: When the issue is decided in arbitration.  An arbitrator’s decision that a periodic subcontractor release had not waived claims made in arbitration was upheld by the Rhode Island Supreme Court, although one could read between the lines to conclude that the court would have ruled otherwise on the merits.  This case highlights – with an issue that is controversial of its own accord – the distinction between arbitration and litigation.

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High-Stakes Nuke Case Remains Where the Contract Says


Duke Energy and Westinghouse Electric are battling over money due, or not due, for the cancelled Levy County nuclear power plant in Florida.  After Duke terminated the contract earlier this year, the two parties engaged in negotiation per their contract.  When those efforts failed, both sides filed suit, one day apart, in two different states.  Duke filed in North Carolina, per the contract, and Westinghouse filed the next day in Pennsylvania, where it had performed most of its work.  The NC federal court judge has just refused to transfer that case to PA, and has directed Westinghouse to file an answer in the NC case. 

The judge methodically reviewed all eleven factors in assessing a motion to transfer a case, finding that two factors favored PA, two favored NC, and the remaining factors were neutral.  So quantitatively, it was a tie, but qualitatively – including the plaintiff’s choice of forum and the contract’s designated forum – the analysis favored leaving the case pending in NC.  The case is in the Western District, as docket number 3:14-cv-00141-MOC-DSC.

Legislation Proposed to Allow ERISA Trusts to Pursue Mechanics’ Liens


On April 17, 2014, the Supreme Court of Pennsylvania issued a decision in Bricklayers of Western Pennsylvania Combined Funds, Inc. v. Scott's Development Company, et al., that held that union workers (employees of the primary contractor) were not "subcontractors" as that term is defined in the Pennsylvania's Mechanics' Lien Law of 1963, and that trustees of the union's employee benefits trust funds were not entitled to file mechanic's lien claims on the employees' behalf for unpaid contributions to the trust funds.

 

Following this ruling, Rep. William Keller, D-Philadelphia, introduced HB 2319 to the General Assembly which would amend the Mechanic’s Lien Law to classify union benefit fund trustees as subcontractors allowed to pursue claims for non-payment against employers and property owners under the Mechanic’s Lien Law. 

 

Duane Morris will continue to monitor the progress of this legislation. 

 
 
 
 

"Everything But the Kitchen Sink" Theory of Litigation: Usually a Sign of Weakness


Lawsuits that proceed under, say, eight or more causes of action typically either (a) recite egregious acts by a group of defendants, or (b) mask a lack of substance in the plaintiff’s case.  A recent federal Court of Appeals decision describes the latter, in what might otherwise be a mundane case of terminated contractor battling public authority.

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The Service-Disabled Veteran-Owned Business Act Becomes Law in New York


The Service-Disabled Veteran-Owned Business Act (the “Act”) was signed into law by Governor Andrew M. Cuomo on May 12, 2014.  Under this new law, veteran business owners will be eligible to become certified as a New York State Service-Disabled Veteran-Owned Business (SDVOB).  The goal of the Act is to encourage and support eligible businesses to play a greater role in the economy of the State by increasing participation in New York State's contracting opportunities.  Towards that end, New York will award 6 percent of state contracts to businesses owned by disabled veterans and create the new Division of Service-Disabled Veterans' Business Development within the New York State Office of General Services (“OGS”) for the establishment of a statewide certification program. The Division will be responsible for certifying eligible SDVOBs, and assist and promote the compliance of SDVOB participation in the state's procurement activities. 

                                                                                                                                                                 The statute provides that rules and regulations must be issued within 90 days of the effective date of the Act.  However, understanding the strong interest in the program and the need to commence certifying businesses as soon as possible, OGS will be issuing emergency regulations on or before the week of June 2, 2014 prior to the adoption of permanent regulations. 

 
 
 
 

Expanded Definition of "Occurrence" Did Not Convert Construction Defect Into Insured Claim


The terms of an owner-controlled insurance policy defined “occurrence” as “an accident, event, or happening, including continuous or repeated exposure to substantially the same general harmful conditions.”  A New York appellate court has held that this arguably expanded definition was still not sufficiently broad to encompass curtain wall deficiencies and improper workmanship.  So there was no insurance coverage for the damages and remedial work.

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Prevailing Party Can Recover Legal Fees for In-House Lawyer


The “American Rule” is that parties pay their own legal fees for a dispute.  Fees can be shifted by contract or by statute, but fee-shifting remains in the minority in US lawsuits.  When legal fees are recoverable, the court (judge) normally evaluates and determines the amount of legal fees to be awarded to a successful party, based on detailed billing information submitted by outside counsel.  But what is the outcome if the prevailing party relied primarily on its in-house counsel, who was on the company payroll all the time and never submitted any bills?  The Massachusetts Appeals Court has held that reasonable fees attributable to the in-house attorney's effort are recoverable.[Read More]
 
 
 
 

Prime Contractor Instituting CCIP Has Worker’s Comp Immunity from Subcontractor Employee Claims


A prime contractor establishes a CCIP for a project.  The employees of first- and second-tier subcontractors are injured, receive worker’s compensation benefits, and then sue the prime contractor, alleging the contractor’s negligence caused the injury.  The prime contractor argues that, by virtue of establishing the CCIP, paying the worker’s compensation insurance premium, and paying the policy deductible, it is immune from suit due to the worker’s compensation bar.  A Connecticut Superior Court decision[1] has confirmed that the prime contractor is immune from the workers' claims due to payment of the worker’s comp benefits via the CCIP.

[Read More]
 
 
 
 
 

Duane Morris Construction Law

Duane Morris’ acclaimed Construction Group shares insights on legal developments impacting the business of construction.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.