The Owner's Authority: Illinois Public-Construction Bonds Are “Deemed” to Include Both a Performance and Payment Guarantee

On The Owner's Authority, Daniel Dorfman recently posted an interesting article on a recent Illinois case concerning performance and payment bonds:

Last month, in Lake County Grading Company, LLC v. Village of Antioch, the Illinois Supreme Court handed down a ruling concerning bonds procured under the Illinois Public Construction Bond Act. The Court held that performance bonds procured under the Act are deemed to include payment obligations, regardless of whether the bonds expressly include payment guarantees.

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JAMS Construction Arbitration Rules -- Revised 11/15/2014

Effective November 15, 2014, JAMS issued an update to its Engineering and Construction Arbitration Rules & Procedures.


Click HERE for a summary of the revisions.  For the most part, the rules appear to clarify existing practice.  We highlight a few revisions below:

• Rule 7. Number and Neutrality of Arbitrators, Appointment and Authority of Chairperson.  Creates defaults for sole arbitrator vs. tripartite panel.  A sole arbitrator will be appointed if the total amount in dispute in the aggregate is less than $2 million or involves residential construction.  All other disputes will have a tripartite panel. 

• Rule 9. Notice of Claims. Failure to raise jurisdictional or arbitrability challenges in response to a demand or counterclaim (or as soon as circumstances first suggest), will result in waiver of the objection. 

• Rule 15. Arbitrator Selection, Disclosure and Replacement.  Failure to follow the instructions regarding selection of arbitrators (e.g. striking out all candidates), will be regarded as an acceptance of all proposed arbitrators.  Subparagraph (h) also requires Parties and their representatives "to disclose to JAMS any circumstance likely to give rise to justifiable doubt as to the Arbitrator's impartiality or independence, including any bias or any financial or personal interest in the results of the Arbitration or any past or present relationship with the Parties or their representatives." 

• Rule 22. The Arbitration Hearing. Subparagraph (g) permits hearings to be conducted videographically and telephonically. 

• Rule 24. Awards. Permits the entry of an interim award or a partial final award if interim relief is issued.  The time to request a correction runs from the entry of the partial final or final award (not interim award). 

• Rule 28. Settlement and Consent Award.  This was modified to permit the arbitrator to assist with closing out a settlement confirmed in writing.  To obtain such assistance, the parties must agree that the process will not result in the disqualification of the arbitrator or later motion to vacate/modify any Award.

• Rule 29. Sanctions. An Arbitrator may order appropriate sanctions for failure to comply with the rules and/or order of the Arbitrator. 

• Rule 34. Optional Arbitration Appeal Procedure. The parties may agree to use the JAMS Optional Arbitration Appeal Procedure at any time -- even after an Award becomes final.

Download the Forum on Construction Law's App

At the Fall Meeting in Chicago, the Forum on Construction Law released its new application.  At the meeting, the application had all speaker and event information a couple of clicks away.  It is amazing that over the past 5 or so years, the Forum has moved from large books filled with the resource material, to CDs (which required you to bring your laptop), to applications and thumb-drives that you can place in your wallet. Impressive stuff.


If you have not downloaded the Forum's application, Division 1 encourages you to do so.   Information is below:

Apple Store Users can download the App from: https://appsto.re/us/UOUl3.i

Android Users the App can also be downloaded from: https://play.google.com/store/apps/details?id=net.manageapps.app_69899

There is a ton of information on the Forum's App, including links to:

• Membership Directory (lists sorted alphabetically, by region, and by division)
• Searchable Knowledgebase
• Division information
• Midwinter Brochures
• Forum publications

The format of the App will revert back to a "meeting app" for the mid-winter meeting so now is a great time to download the App and become familiar with it. 

Mediation Privilege Bars Reopening Previously Settled Suit in Bankruptcy

The United States Court of Appeals for the Seventh Circuit recently affirmed a decision of the Bankruptcy Court for the Eastern District of Wisconsin relating to the breadth of the mediation privilege under Wisconsin law in John Doe v. Archdiocese of Milwaukee (Case No. 13-3783, decided November 5, 2014). 

While this is not a construction case, it is an informative case in terms of how far the mediation privilege can extend to protect statements in a mediation which, on their surface, might be seen as fraudulent and flat-out lies.

The 2007 Mediation

In Doe, the claimant was sexually abused by Father Lawrence Murphy while the child was attending the St. John's School for the Deaf in 1974 when he was 17 years old. In 2007, Doe participated in the Archdiocese's voluntary mediation program for victims of sexual abuse. As a result of the mediation, he was paid $80,000 in return for settling his claims of fraud, negligence, and sexual battery. To formalize the settlement, both Doe and the Archdiocese signed a settlement agreement containing a confidentiality clause and a second clause precluding the parties from introducing any statements made at the mediation into evidence in any later proceeding. The Settlement Agreement also purported to settle "all claims of any nature" between the parties "arising from any sexual abuse of [Doe] by Murphy . . . ."

The Archdiocese Files Bankruptcy

Unfortunately, Doe was not the only person who was sexually abused by priests who were being supervised by the Archdiocese of Milwaukee. So many claims arose that the Archdiocese filed a petition for reorganization under Chapter 11 of the Bankruptcy Code in 2011. Doe filed a proof of claim against the Archdiocese as part of the bankruptcy for the sexual abuse he suffered in 1974.

Summary Judgment Granted After Reconsideration by the Bankruptcy Court

In response, the Archdiocese moved for summary judgment on Doe's claim, citing to the 2007 settlement agreement. On its face, this was a straight-forward motion.

In response to the motion, however, Doe claimed that he had been fraudulently misled during the mediation to believe that the $80,000 he received was the maximum amount of money that the Archdiocese could pay to him. Doe further alleged that the Archdiocese told him during the mediation that other similarly situated victims were also being paid $80,000 and so, out of fairness, the Archdiocese could not pay him more than the others.

Doe stated in his appellate brief that he learned later that other survivors of the sexual abuse received amounts from $100,000 to $200,000. Additionally, Doe argued that the Archdiocese had failed to inform him that priests were being paid between $10,000 and $20,000 to leave the church.  Doe finally argued that the Archdiocese withheld the extent of its knowledge regarding Father Murphy's past history of abusing children.

Initially, the Bankruptcy Court held in Doe's favor, finding that the two claims -- one from 2007, the other in 2011 -- were distinct claims and disputes and that breaking the mediation privilege to avoid "manifest injustice" was necessary. In response, the Archdiocese subpoenaed the mediator, and the mediator moved to quash the subpoena. As a result of the hearing on the motion to quash, the bankruptcy court reconsidered its prior ruling and held that the communications in mediation were inadmissible and granted summary judgment to the Archdiocese.

Seventh Circuit Affirms
The problem that Doe ran into in fighting the previous settlement is a Wisconsin Statute codifying the mediation privilege, Wis. Stat. §904.085. That statute makes inadmissible any "oral or written communication relating to a dispute in mediation made or presented in mediation by the mediator or a party . . . ." The statute includes exceptions, however, such as whether, "in an action or proceeding distinct from the dispute whose settlement is attempted through mediation . . . admission is necessary to prevent a manifest injustice of sufficient magnitude to outweigh the importance of protecting the principle of confidentiality in mediation proceedings generally." Wis. Stat. §904.085(4)(e) (emphasis added).

In affirming the Bankruptcy Court's decision, the Seventh Circuit agreed with the lower court that the allegations and claims that were resolved as part of the mediation were the same claim and action. Doe argued that a fraudulent inducement claim was "distinct" from the underlying sexual abuse claims; the Seventh Circuit was not convinced.

Policy Considerations
The question raised to me is whether the mediation privilege should have precluded Doe from being able to raise a fraudulent inducement claim in the Archdiocese's bankruptcy. The question left unanswered by the Court based on the breadth and language of the state statute was whether the Archdiocese had any duty of candor to Doe in the mediation in which neither party was represented by an attorney (not to mention that Doe was and is deaf).  If lawyers are not involved in a negotiated settlement, is there any duty of candor?

Further, should the mediation privilege be so broadly construed if it means that parties can be less than truthful to one another? Especially in a mass-claim context -- where the claims cannot be aggregated as a class action due to the individual factual scenarios and injuries involved -- should the Archdiocese be able to represent -- apparently falsely -- that "everyone was getting $80,000" and that it would be unfair to others for Doe to get more?

What are your thoughts on this?

6th Circuit: Manufactured Homes are not "Consumer Products" under Magnuson-Moss Warranty Act

In Bennett v. CMH Homes, the plaintiffs' purchased a 2,180 square foot manufactured home from CMH Homes after their prior residence was destroyed by fire. As part of the agreement, CMH was required to deliver and install the home. In addition, CMH warranted the home would be installed "in accordance with applicable governmental requirements."

Shortly after they moved into the manufactured home, the plaintiffs began noticing defects which led them to believe the home was not level. CMH assured the plaintiffs it would repair and level the home, but CMH's repair efforts were unsuccessful. As a result, the plaintiffs filed suit in Tennessee federal court, asserting various claims which included a breach of warranty claim under the Magnuson-Moss Warranty Act ("WMWA"), a federal statute regulating the sale of consumer products which applies to warranties for "tangible personal property."

After a bench trial, the District Court found CMH had breached the contract and its warranties by failing to properly install and level the residence. On appeal, however, the Sixth Circuit held that a manufactured home is not a "consumer product" and was, therefore, not intended to be regulated by the Magnuson-Moss Warranty Act. As the Sixth Circuit reasoned, a manufactured home is not designed to be moved once constructed and placed on land, and is not an expendable product or an item which is meant to be replaced periodically. Thus, the Court of Appeals found it more akin to a house than "tangible personal property" which might otherwise qualify as a "consumer product" subject to protection under the Magnuson-Moss Warranty Act.

One of the Circuit's Judges delivered a dissenting opinion. Do you agree with the majority or dissent? A copy of the decision can be found at http://www.ca6.uscourts.gov/opinions.pdf/14a0272p-06.pdf.

A Contractual-Liability Exclusion to Insurance Coverage Might Not Apply to Defective-Work Claims Against a Contractor.

The U.S. Court of Appeals for the Fifth Circuit recently held that, under Texas law, an insurer could not exclude coverage for property damage claims against a general contractor that were based on violations of express warranties of good workmanship and repair. Such claims did not fall within the typical contractual-liability exclusion used in the general contractor’s commercial general liability policy (“CGL policy”). The Fifth Circuit reversed the district court and rendered summary judgment in favor of the homeowners asserting the insured’s rights, remanding for a determination of attorneys’ fees.

Crownover v. Mid-Continent Cas. Co., --- F. 3d ----, No. 11-10166, 2014 U.S. App. LEXIS 20737 (5th Cir. Oct. 29, 2014), on reh’g from 757 F. 3d 200 (5th Cir. 2014).

U.S. Supreme Court Declines to Review Ninth Circuit’s Assumption of Role As Additional Daubert Gatekeeper

On October 6, 2014, the United States Supreme Court denied a writ of certiorari regarding the Ninth Circuit’s January 15, 2014, decision in Estate of Henry Barabin v. AstenJohnson, Inc., 740 F.3d 457 (9th Cir. 2014).  See Estate of Henry Barabin v. AstenJohnson, Inc., 2014 WL 1496421 (2014).  The Ninth Circuit’s January 15, 2014, decision had reversed the district court’s admission of expert testimony presented by the plaintiffs at trial, then remanded for a new trial.  The court held that the district court had abused its discretion by admitting the expert testimony without first finding it relevant and reliable under Rule 702 of the Federal Rules of Evidence and Daubert.

But the Ninth Circuit did not stop with a reversal and remand.  Before remanding, the Ninth Circuit opined that an appellate reviewing court should have the authority to make Daubert findings regarding relevance and reliability, as well as reverse a judgment based on those findings, relying on the district court record:

If the reviewing court decides the record is sufficient to determine whether expert testimony is relevant and reliable, it may make such findings.  If it “determines that evidence [would be inadmissible] at the trial and that the remaining, properly admitted evidence is insufficient to constitute a submissible case[,]” the reviewing court may direct entry of judgment as a nature of law.

Barabin, 740 F.3d at 467 (quoting Weisgram v. Marley Co.,, 528 U.S. 440, 446-47 (2000)).

The court ultimately declined the appellants’ request that the court enter judgment in their favor because the court found the record before it to be too sparse to determine if the excluded expert testimony was relevant and reliable.  But one can expect that the Ninth Circuit’s ruling and the Supreme Court’s writ refusal might be argued as support for an appellate court’s ability to now provide direct relief and avoid the time and expense of a new trial on remand when the appellate court finds that the district court erroneously admitted expert testimony.  If followed by other circuits, the Ninth Circuit and Barabin might one day be cited for the start of a new era in admission of expert testimony with appellate courts serving a role as an additional – or at least a backup – Daubert gatekeeper.

The Ninth Circuit’s decision is linked here, and information regarding the Supreme Court’s writ denial and the parties’ briefs to the Supreme Court can be found here.