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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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. 

 
 
 
 

Construction Contract Forms – A New Battleground?


The American Institute of Architects issued a press release this week touting a custom set of contract documents it has worked out with the Kentucky Department of Education.  Ten AIA contract forms have been customized for the state department.  This could become a new battleground in the document wars between the AIA and ConsensusDocs, another major construction industry document group representing a coalition of more than 40 industry associations.

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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.

[Read More]
 
 
 
 

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.

[Read More]
 
 
 
 

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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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. 

[Read More]
 
 
 
 

"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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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.

[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.

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The Natural Effect of Recording a Lien Bond


Common sense suggests that when a lien has been bonded off, the owner of the real estate need no longer be a party to the lien claim lawsuit.  The Rhode Island Supreme Court has followed the common sense route, dismissing the property owner from a subcontractor’s lawsuit – over the sub’s objection – after a lien bond was recorded.[Read More]
 
 
 
 

Property Owner Is Strictly Liable for Building Code Violation


The owner of a building open to public use will be strictly liable for damage or injury resulting from a code violation, under a decision issued by Massachusetts’ highest court.  Overruling a 15-year precedent, the court held that strict liability is not limited to code violations affecting fire safety (the essence of a 1999 decision), but applies to any code violation of a building open to public use.[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.