But There’s a Catch—California’s Wage-Credit Restrictions on IAFs Still Stand

*Thanks to Rebecca D. Takacs, a construction litigator, with Oles Morrison Rinker &Baker LLP in Oakland, California.  Rebecca is a member of the Division 1 Publication Committee.  Her contact information is below.  Enjoy the post!   


The California Legislature passed Senate Bill 954 in 2016 (http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201520160SB954) for the express purpose of prohibiting payments to industry advancement funds as wage credits on public works projects where such credits were not expressly required by collective bargaining agreements. Plaintiff-Appellants Interpipe Contracting, Inc. and Associated Builders and Contractors of California Cooperation Committee, Inc. (“ABC-CCC”) challenged the amendment to the labor code’s wage-credit limitation in Interpipe Contracting, Inc. v. Becerra (9th Cir., July 30, 2018, No. 17-55248) 2018 WL 3613378 (https://www.ca9.uscourts.gov/media/view_video.php?pk_vid=0000012920).

Interpipe Contracting, Inc., is a pro-open shop contractor that prior to SB 954 went in effect took wage credits for contributions to ABC-CCC. ABC-CCC is an industry advancement fund that opposes project labor agreements on public works projects in favor of open shop arrangements. The plaintiff-appellants challenged SB 954 after Interpipe stopped making payments to ABC-CCC due to the new restrictions on wage-credits.  

SB 954 was intended to have a large effect on the construction industry in California. The Bureau of Labor Statistics estimates that just under 15% of construction industry labor nationally is union labor or union represented. (https://www.bls.gov/news.release/union2.t03.htm) SB 954 was intended to prevent employers from funding industry advancement funds that might support efforts contrary to workers interests. At the time of SB 954’s passage, industry opponents considered the SB 954 to be an outright ban on contributions to industry advance funds that might advocate for open shop policies.  

The lower court action challenged the constitutionality of SB 954 and sought a preliminary injunction. The district court denied the request for injunctive relief and dismissed the case on the basis that SB 954 was not preempted by federal labor laws and did not violate ABC-CCC’s free speech or equal protection rights.  

The United States Court of Appeals for the Ninth Circuit was presented with two issues: (1) whether the National Labor Relations Act (“NLRA”) preempted SB 954, and (2) whether SB 954 violated the First Amendment and the Fourteenth Amendment’s Equal Protection Clause by limiting industry advancement funds’ speech in the form of fundraising. The Ninth Circuit affirmed the lower court. 

The Ninth Circuit outlined the current state of prevailing wage requirements in California. Prevailing wages are either all cash wages or a combination of cash wages and benefits including: (1) health and welfare, (2) pension, (3) vacation, (4) travel, (5) subsistence, (6) apprenticeship or other training, (7) worker protection and assistance programs or committees, (8) industry advancement and administrative fees, provided they are required within the locality, and (9) other similar purposes to the above categories.  Cal. Lab. Code § 1773.1(a). In 2004, credits expanded from the first six categories to include industry advancement fees. The restrictions on industry advancement fees arose in 2016 with the passage of SB 954. The thrust of plaintiff-appellants challenge relied on Machinists v. Wisconsin Employment Rel. Comm'n, 427 U.S. 132 (1976). The Machinists doctrine bars states from interfering with the collective bargaining process and regulating non-coercive labor speech by an employer, employee, or an employee’s union. State minimum labor standards are generally saved from preemption by the NLRA. The Ninth Circuit held SB 954 was a legitimate minimum labor standard that does not regulate labor speech. The distinction hinged on the fact that a restriction on funding an employer’s speech was not an unlawful regulation of the speech itself.  

ABC-CCC argued it had a First Amendment right to receive monetary contributions from wage-credits. The Ninth Circuit rejected ABC-CCC’s theory holding that the First Amendment does not establish a right to receive funds necessary for speech. The Ninth Circuit evaluated whether SB 954 was viewpoint discriminatory toward open shop advocates. Relying on the recent Supreme Court case of Janus v. American Federation of State, County, and Municipal Employees, Council 31, et al., 138 S.Ct. 2448 (2018) (https://www.supremecourt.gov/opinions/17pdf/16-1466_2b3j.pdf), the Ninth Circuit found SB 954 to be facially neutral and rejected ABC-CCC’s discrimination arguments. 

Finally, the Ninth Circuit rejected the equal protection claim by ABC-CCC because SB 954 did not regulate industry advancement funds and it was not an employer.  

Rebecca D. Takacs is a contributing writer to The Dispute Resolver. She practices construction litigation at Oles Morrison Rinker & Baker LLP in Oakland, California. She may be contacted at takacs@oles.com.

Consequences for Exceeding the Limit…Maybe…

By: I’Ashea Myles-Dihigo
Leitner, Williams, Dooley & Napolitan

Sometimes I speed…okay, most times I speed.  Not anything dangerous, but I do keep up with the flow of traffic on the interstate.  Don’t judge.  With a daily commute into the office that is always over an hour, any bit of time savings is justified in my opinion.  

While I may be able to justify exceeding the speed limit as I travel down the interstate, the Tennessee Court of Appeals has recently clarified the effects of exceeding the monetary limits of your general contractor’s license in its holding in Pickens v.  Underwood.  In that case, timing was everything.  
General contractor, Pickens, entered into a contract to construct a house for the Underwoods. Pickens v. Underwood, No. E2017-02120-COA-R3-CV, 2018 Tenn. App. LEXIS 322, at *2-3 (Ct. App. June 12, 2018).  The parties entered into their contract on June 2, 2008. Id.   The dispute over final payment arose on May 9, 2009.  Id. at *3.  At the time the parties entered into the contract, Pickens’ limit on his contractor’s license was $350,000, yet at the time the project was complete, the final bill was over $670,000.  Id.  When the Underwoods failed to pay for the work, Pickens filed suit for breach of contract, unjust enrichment, promissory fraud and mechanics’ and materialmen’s lien. Id.  

The Underwoods counter sued for fraud, cost overruns, violations of the Tennessee Consumer Protection Act and for entering into a contract in excess of the contractor’s license limit. Id. The complaint in this matter was filed on July 21, 2009. Id. at *32.  Counsel for Pickens agreed to stipulate that he was an unlicensed contractor and thereby agreed to limit his damages to actual documented expenses.  Id. at *3.  The trial court disagreed with the stipulation and confirmed that Pickens, though over the monetary limit of his contractor’s license, was licensed for purposes of Tennessee Code Annotated §§ 62-6-101, et seq. Id. at *4.  The Underwoods appealed. 

The Court of Appeals affirmed. They reasoned that just prior to the filing of the parties’ complaint, the Legislature made a substantive change to Tennessee Code Annotated § 62-6-103 which governed the monetary limits on contractors’ licenses. Id. at *32.  The effect of the amendment expanded the limitation of actual documented expenses to any contractor required to be licensed under the statute and rules whereas before the limitation only applied to unlicensed contractors. Id.  

The Court held that the date the parties entered into the contract was controlling regarding which statute should apply in the case. Id. When Pickens entered into the contract and performed the work, he was not subject to the limitation because he was properly licensed under the old Tenn. Code. Ann. § 62-6-103.  The Court declined to apply the new code changes retroactively to the pre-existing contract.  Therefore, his recovery would not be limited to actual documented expenses as reflected in the new schematic. Id. at *33. 

While it is never a good idea to exceed the monetary limits of your contractor’s license, if you happen to find yourself in that position, you may still be able to recover the full contractual price as damages.  Based on the holding in Pickens, the Court will look to the law in effect at the time of the contract to determine whether or not your recovery is limited.

Federal Government Escapes Liability in Class Action Seeking Recovery of Damages Caused by Hurricane Katrina

This post comes from Mike Lane, a new contributor to the Dispute Resolver.  Mike practices construction law at Riess LeMieux, LLC in New Orleans, Louisiana.  Thanks, Mike!  Enjoy everyone.

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In St. Bernard Parish Government, et al. v. United States, No. 2016-2301, 2018 WL 1882913 (Fed. Cir. April 20, 2018), the Parish of St. Bernard and property owners in the City of New Orleans filed a class action suit against the federal government under the Tucker Act, 28 U.S.C. § 1491, for an alleged taking of property following Hurricane Katrina.  The plaintiffs claimed the federal government failed to maintain or modify the Mississippi River-Gulf Outlet channel (MRGO), which led to an increased storm surge that resulted in significant damage to their property.  The Court of Federal Claims ruled in favor of the plaintiffs and awarded a total of $5.46 million.  The United States Court of Appeals for the Federal Circuit reversed, holding the plaintiffs failed to show a causal link between the operation and maintenance of the MRGO navigation channel and the damages allegedly sustained. 

The Army Corps of Engineers (Corps) built the MRGO navigation channel in 1968 to increase commerce by providing a direct connection between the port of New Orleans and the Gulf of Mexico.  In addition to operating and maintaining the navigation channel over several decades, the Corps built several flood mitigation projects adjacent to the MRGO, including a vast levee system.  The plaintiffs contended that the levees would not have been breached, or would have held out longer and caused less damage to their property, if the Corps had properly maintained or modified the MRGO channel.  After a trial in December 2011, the Court of Federal Claims found a government taking occurred under the theory of inverse condemnation.  Specifically, the court ruled that the “continued operation of, and failure to maintain and modify MRGO caused erosion, increased salinity, wetlands loss, and a funnel effect, which in turn caused increased storm surge.”  After a separate trial on damages in November 2013, the Court of Federal Claims awarded the plaintiffs $5.46 million.  The federal government appealed both judgments.

The United States Court of Appeals for the Federal Circuit reversed the trial court decision, concluding that the plaintiffs failed to demonstrate that the Corps’ operation and maintenance of the MRGO navigation channel caused their alleged damages.  In so holding, the court focused on two errors by the lower court.  First, the trial court erred in finding that the failure to maintain or modify the MRGO served as a proper basis for a takings action.  The government cannot be liable for inaction in a takings claim; it may only be liable for affirmative acts.  Although the government’s failure to act may give rise to a tort claim, it “cannot be the basis of takings liability.”

The court next turned to whether any affirmative acts of the federal government proximately caused the damages of which the plaintiffs complained.   The plaintiffs argued that the construction and operation of the MRGO should be the only activity considered, not the separate flood mitigation projects constructed by the Corps in the same time period.  The court rejected this approach and held that the government’s separate flood mitigation projects must also be taken into account in the takings analysis.  On this point, the plaintiffs “failed to present evidence comparing the flood damage that actually occurred to the flood damage that would have occurred if there had been no government action at all.”  In other words, the “causation analysis must consider the impact of the entirety of government actions that address the relevant risk [i.e., flooding].” 

The appeals court ultimately held that the separate flood mitigation projects constructed by the federal government, composed primarily of the levee system, may have placed the plaintiffs in a better position than if the government had done nothing at all.  After noting the absence of supporting evidence and expert testimony, the court reversed the trial court judgments and ruled that the plaintiffs failed to prove their property damage was greater than the damage that would have occurred had the government not built the MRGO or the levee system in the first place. 

This decision clarifies that a claimant’s burden of proving causation in a takings cause of action against the federal government may only rely on affirmative acts of the government and must take into consideration all government acts related to the pertinent risk of harm.