constructionattorneyblog

States must follow supreme court precedent - arbitration and the faa

The Supreme Court in Marmet Health Care v. Clayton Brown, 565 U.S. ___ (Feb. 21, 2012), came down hard on the Supreme Court of Appeals of West Virginia in reversing a decision that denied arbitration. Here is the court's summary:

State and federal courts must enforce the Federal Arbitration Act (FAA), 9 U. S. C. § 1, et seq., with respect to all arbitration agreements covered by that statute. Here, the Supreme Court of Appeals of West Virginia, by misreading and disregarding the precedents of this Court interpreting the FAA, did not follow controlling federal law implementing that basic principle. The state court held unenforceable all predispute arbitration agreements that apply to claims alleging  ersonal injury or wrongful death against nursing homes.

 

The decision of the state court found the FAA’s coverage to be more limited than mandated by this Court’s previous cases. The decision of the State Supreme Court of Appeals must be vacated. When this Court has fulfilled its duty to interpret federal law, a state court may not contradict or fail to implement the rule so established. See U. S. Const., Art. VI, cl. 2.

 

Architect not liable when owner deviates from plans

In a recent New York case, Steven Bruno v. Trus Joist, 929 N.Y.S.2d 163 (August 23, 2011), an architect was hired to prepare drawings for permit. The drawings required the use of traditional wood joists and listed various finishes. Once the plans were approved, the architect had no further involvement with the project, although he informally visited the site after construction was completed, when he noticed that his plans had not been followed.

The owner had decided to use manufactured wood joists. Further, the owner had also changed various finish materials to ceramic tile and stone, which increased the weight throughout the building. When cracks started appearing in the stone floors, the owner sued various parties, including the architect. The architect moved for summary judgment, arguing that he had not deviated from the standard of care and the services he performed were not the proximate cause of the damages. The trial court granted the motion and the owner appealed.

The owners argued that they had informed the architect of their intent to use heavier finish materials and to change the joist system. However, it was undisputed that the final plans prepared by the architect did not show any of these changes. The owner's contention did not raise a triable isuse of fact because the final architectural plans established that the architect approved only the materials shown on the plans. The plaintiffs proffered an expert who opined that the architect's plans contained an improper structural load design. The court rejected this as not relevant because those plans were not followed.

The trial court's dismissal of the architect was upheld.

Fifth Circuit holds that manifest disregard is not basis for reversal

A 5th Circuit panel that included Sandra Day O'Connor has held that there is no longer a nonstatutory basis for vacating an arbitration award, following Hall Street.  Saipem America v. Wellington, No. 08-20247 (June 9, 2009).

LEED project managment software

The hot new topic for designers is LEED. While there are many legal issues that will unfold in the near future, there are new software products that address some of the management issues. This post by Houston Neal covers construction project management software used to track LEED credits.

Subcontractor's Mechanics lien allowed where bank seized general's funds

The Illinois Supreme Court, in Weather-Tite v. University of St. Francis, No. 107108 (May 21, 2009), has ruled in favor of the subcontractor in enforcing a mechanics lien. The owner had hired a general contractor who, in turn, had subcontracted some of the work. In four instances, the general had submitted a sworn contractor's statement listing the subcontractor. The owner paid the amounts requested and the general paid the subcontractor. After the owner paid the fifth draw and the general deposited the funds into its bank account, the bank seized the funds in the account because of another debt owed by the general. The subcontractor was not paid, along with a number of other subcontractors.

The trial court held in favor of the owner's motion for summary judgment. The appellate court reversed, ordering entry of summary judgment in favor of the subcontractor. This was upheld:

Reading the Act as a whole, the purpose of the contractor’s sworn statement is to put the owner on notice of subcontractor claims and to create a duty upon the owner to protect the claims of the subcontractors named in the contractor’s sworn statement. The purpose of the contractor’s sworn statement is not, as advanced by the University, to provide an orderly method of making payments to subcontractors through the general contractor. What is clear from our reading of the Act is that the legislature intended the following orderly method of conducting construction transactions to protect subcontractor claims: (1) the owner and general contractor enter into a contract for the construction work; (2) as the work is completed, the general contractor submits a section 5 sworn affidavit that must list all subcontractors and the amount due, to become due, or advanced; (3) when the section 5 sworn affidavit lists an amount due or to become due a subcontractor, section 24 requires the owner retain sufficient funds to pay the subcontractor; and (4) section 27 requires the owner to make subcontractor payments upon receiving notice of a subcontractor claim pursuant to a section 5 sworn statement. Additionally, a lien waiver can be provided to the contractor when the subcontractor is paid, and the owner can require a lien waiver by every subcontractor when paying the contractor. Funds subject to a lien waiver are required to be held by the owner in trust for the subcontractor. See 770 ILCS 60/21.02 (West 2004).

This places a burden on an owner in Illinois who now must take extraordinary steps to make sure that each subcontractor is paid. Perhaps the only realistic way to assure that is to make direct payments to subcontractors in exchange for waivers of lien. This is already a fairly common practice, but may become the only way to handle payout procedures.

Liability for green design

Gary Cole has written an interesting blog entry about designers' liability for green projects here:  http://lawarkblog.blogspot.com/

Where owner does not pay undisputed amounts, contractor is entitled to attorneys fees

In a recent decision, an Illinois appellate court in O'Connor Construction Co., Inc. v. Belmont Harbor Home Development, LLC, No. 1-07-2346, remanded the case back to the trial court for a determination of attorneys fees. The court noted that the owner had held back retainage in an undisputed amount of some $47,000. The court held that the contractor was entitled to some amount of attorneys fees because the defendant owner did not offer a reasonable explantion for withholding the undisputed amount.

Risks in LEED design

There is an interesting discussion of some issues and risks to design professionals involving LEED projects at http://www.consilienceblog.org/. Here is a quote:

Lenders should review the owner-architect agreement and construction contract to make sure the responsibilities in planning and constructing the green building are clearly detailed. They will also want to make sure that there are penalties to the appropriate parties for failure to deliver the required green building. These penalties should correspond with the leases. For instance, if a lease requires a LEED Silver Commercial Interiors space and failure to provide such space will result in a two-month free rental period, the construction contract and owner-architect agreement should contain provisions that requires either a holdback or penalty in the amount of the loss of two months of rental payments to landlord, provided the failure to achieve the standard is not the fault of the property owner. The landlord may not be able to make the mortgage payments without such a provision, and the lender will obviously want to protect itself from such a possibility.

Architects often underestimate the risks associated with LEED projects. Having a knowledgeable attorney involved in the contract negotiations can be very helpful.

 

Cannot record Lis Pendens for arbitration case if no litigation has commenced

A California case, Manhattan Loft v. Mercury Liquor, 2009 WL 1219732 (May 6, 2009), has ruled that a lis pendens notice cannot be recorded unless an underlying court case has been filed. In this case, two arbitration proceedings were commenced and lis pendens notices were recorded.  Both arbitrations resulted in awards in favor of the respondent who had recorded the lis pendens. Thereafter, a slander of title action was filed against respondents alleging that the lis pendens had caused substantial damage. Respondent filed a motion to dismiss per California's anti-SLAPP statute. The trial court granted the motion and the appellate court reversed.

Non-signatories bound by arbitration agreement in wrongful death case

The Fifth Circuit Court of Appeals, in Graves v. BP America Inc., No. 8-40575 (May 6, 2009), has held that the surviving spouse and children of a worker killed in an accident were bound by the decedent's employment agreement that contained an arbitration provision. The plaintiffs claimed that their wrongful death action was not subject to arbitration. The appellate court found that a wrongful death action is derivative of a decedent's rights. Therefore, this action was also premised on the employment agreement and was subject to arbitration.