What's Up at Division 1 (No. 9)

It's Springtime and Division 1 is hard at work on a number of programs and ventures which I will highlight in this month's post.  

We had a great toolbox talk series program this month on opening statements in mediation.  The discussion was led by John Bulman and Patricia Thompson. Lexie Pereira did a great job moderating.  Takeaways included:

• Do an opening statement.  It is your opportunity to speak with the adverse party.  You can demonstrate your knowledge and control of the facts/law of the case.  In other words, you can demonstrate you are trial ready.  
• Keep it professional.  Opening statements should be concise, factual, and presented in a direct (non-confrontational) manner.  You do not want to shut down the decision-maker on the other side.  
• Work with the Mediator in advance.  Pre-mediation conference calls with the client is essential.  Listen to the mediator regarding the topics to cover during the mediation open statement and joint session.  Customize your presentation using the expertise and perspective of your mediator.   
• Sometimes it doesn't work.  For meditations post-trial, where there are personality conflicts that cannot be avoided, and/or where private, personal information is part of the dispute, a joint session opening statement may not be appropriate. 

I am excited to announce the topic of our April TTS.  It is 

Virtual Testimony from the Arbitrator’s Perspective

April 22, 2021 | 12-12:30PM ET

Our discussion leaders for the April TTS are Bill Franczek, Vandeventer Black, LLP and Gill Freeman, JAMS. I know many of you know Bill.  He was a former D1 steering committee member before he was asked to serve as D13's first Chair.  He served on the GC and as the Chair of the Forum's Division Chairs Committee.  Bill is a long time AAA arbitrator and active litigator/advocate.  Gill is a retired civil trial judge and the first judge of the complex commercial/construction litigation court in Miami.  He is a veteran JAMS arbitrator and newly minted D1 member! Be on the lookout for the registration flyer for this excellent program!

On March 24th, we also had our Napa Valley Wine Class.  It was a great 90 minute session about wine making with a focus on Napa Valley wines.  BRG sponsored the event for Division 1.  We all shared what we were drinking afterwards and discussed a second wine tasting event over the next couple of months.  Below are some screenshots from the event:

We had a ton of fun on the event.  Thanks George Fink and BRG!

Today, on March 31st, we are holding a meeting about Return on Investment for Construction Claims. The program will focus on quantitative methods to evaluate whether prosecuting (or defending) a construction claim makes sense.  Thanks to our excellent panelists (see below) and the ABA team for helping us to promote this program. This program came out of D1's Programs/Concepts committee led by Joe Imperiale.  

The Dispute Resolver is doing a great job with new, current, and helpful posts.  Please provide a submission about a recent case or issue your resolved.  In the Forum's newsletter, Under Construction, Division 1 featured two articles in D1's Dispute Resolver column:

• The Lost Art of Vouching-In by Mike Hornreich
• Avoiding Construction Disputes: The Two Golden Rules of Leadership by Chase Callaway

Writing and getting published is a great way to obtain value out of your Forum/D1 membership in 2021!  If you want to discuss opportunities further, please contact me.  

Happy Spring Everyone!  

Tom Dunn (rtdunn@PierceAtwood.com)

Division 1 Chair

A Brief Update on the Mexican Government Contract Litigation System

The Mexican legal system treats differently disputes with respect to civil contracts (those executed by and between individuals) and disputes regarding administrative contracts (those executed by and between an individual and the public administration). A challenge to an administrative contract follows special rules relevant to the jurisdiction depending on the type of administrative act performed during the execution of a contract.

Until 2018, when the act (or omission) to be challenged in an administrative contract was lack of payment, the courts empowered to resolve the dispute were, like in a private contract, the civil or commercial courts.

However, in June 2018, Second Section of the Mexican Supreme Court of Justice issued a criterion changing the way to demand payments derived from administrative contracts, especially those governed by the Public Works and Related Services Law and the Acquisitions and Leasing for the Public Sector Law.  The criterion stated that lack of payment in administrative contracts cannot be separated from the nature of the conduct that caused the breach, which is administrative. As a consequence, a claim of breach for nonpayment was required to be brought in the administrative forum.

The judicial criterion changed the paradigm, forcing civil and/or commercial judges to reject these claims immediately, generating delays in such cases. Contractors were forced to bring several actions in order to force the administrative forum to issue a position regarding the provenance or non-provenance of the payment claim.

According to the judicial criterion, only when this situation arose or when the silence of the contracting authority creates a right or denies it, does the Contractor have a right to bring a claim before an administrative forum, which is quite different from the civil or commercial courts. As can be inferred, to get to the point that the individual is in a position to file a lawsuit, takes much longer.

Several litigators, including the author, believe that the judicial criterion is unfortunate because of, among other reasons, the issue related to time.

However, a more recent criterion (published February 19, 2021) declared the non-applicability of the previous one for contracts executed under the Mexican Petroleum Law (Law of Pemex). Under this law, it is stated that the civil and commercial principles of law are interchangeably applicable and the relationship between an individual and Pemex, when the relationship derives from a contract governed by the Law of Pemex, has a commercial nature.

This recent criterion is important because it signals a change affecting the commercial nature of the contracts ruled by laws like the Law of the Federal Electricity Commission (Law of CFE), which contains similar provisions regarding the interchangeable applicability of the commercial and civil principles to such law.

Also, the recent criterion resumes the old practice regarding the way to make a payment claim – at least payments derived from the contracts executed by and between Pemex and CFE – allowing litigators to submit payment claims directly to the civil or commercial courts as a civil lawsuit.

The foregoing will help the individual contractor in, at least, two ways. First, it gives the contractor the security that its claim can be brought as a civil lawsuit, having the opportunity to sue the contracting authority when appropriate; and second, it expedites resolution of payment disputes by allowing easier access to civil or commercial Court.

Presumably, the Mexican Judicial System will resume the old criterion regarding the appropriate way to claim the payment of administrative contracts, which means that the way to claim payments in administrative contracts will be by commercial trials. However, as of today, it will be necessary to attend to the specific law that governs the corresponding contract.

Author Juan Pablo Sandoval García is an Associate at COMAD, S.C. (www.comad.com.mx). His email address is jpsandoval@comad.com.mx.

Neutral Evaluation Mediation Agreements

Often parties select a mediator with deep knowledge of the subject matter in dispute, only to conclude that the typical mediation format does not afford them the best use of the mediator’s expertise. As an alternative, in the right case, neutral evaluation may be exactly what parties need to position their controversy for resolution. This hybrid technique combines neutral analysis with a mediator’s proposal.

This process is intended to be used when the parties have come to a seemingly unshakeable impasse during traditional mediation of a complex case, such as a construction dispute in which each party charges the other with material breach of contract, resulting in respective damages calculations millions of dollars apart. The mediator should be experienced and respected in the area of law at issue and knowledgeable about how to conduct this type of dispute resolution. Rather than declare an impasse, the neutral continues as mediator, but in that role, assumes responsibility to “hear” and analyze the facts of the case and provide an informed, nonbinding evaluation and settlement recommendation as to the issues defined by the parties.

The mediator is provided with each party’s evidentiary presentation in an informal, mini-trial format, over a one to two-day hearing, structured by the parties however each side thinks will best present the essence of its case in the time allotted. Experts may be hot-tubbed; evidence may be provided via summaries, narratives or power point presentations; and post-hearing argument may be oral or written.

At the close of the mini-trial, the parties decide whether to go back to mediation or confirm that the mediator issue a written analysis and settlement recommendation. Assuming the parties want a neutral assessment, the mediator then issues a nonbinding, confidential analysis of the issues submitted for evaluation and a settlement recommendation based on that analysis.

Then, if the parties do not accept the mediator’s settlement recommendation, the parties may declare an impasse. Or the parties and the mediator go back to mediation, assuming the agreement and any necessary waivers by the parties under the applicable ethical rules allow the mediator to continue in that role after disclosing his or her opinions on the issues in dispute and settlement.

This approach has proven remarkably successful in providing parties the information they need to settle matters in which they were previously far apart or in deep disagreement as to likely outcome. It allows parties to obtain a non-binding, independent, but well-informed opinion of the case. This may be especially useful if party decision makers- such as public entities or the parties’ insurers - do not attend mediation or require strong support for settlement in ranges not previously authorized.

This strategy for neutral dispute resolution may raise concerns under the applicable ethical rules, including those requiring mediator neutrality. However, these concerns often may be allayed, in the right circumstances, with appropriate disclosures and consents.

Author's Note: With recognition to Ken Gibbs, JAMS, whose writings and practice define the best in mediation-evaluation.

Author Patricia H. Thompson, Esq., FCIArb, is  a full-time neutral at JAMS, with experience conducting virtual and in-person mediations, arbitrations and other ADR proceedings in construction and other complex commercial disputes.

Florida's Products Liability Economic Loss Rule Bars Claims Where Only Damage Sustained is to the Building Itself

Can a products liability claim survive the economic loss rule (“ELR”) where the only claimed damage to “other property” is to the finished building itself? If your state takes an “integrated” approach to the ELR, the answer to this question should be “no.”

In 2711 Hollywood Beach Condominium Association, Inc. v. TRG Holliday, Ltd., Florida’s Third District Court of Appeal provided clarity on the issue of whether the ELR bars a products liability claim where the only damages sought are repairs and replacement to a building system in which the product is a component part.  307 So.3d 869 (Fla. 3d DCA 2020). 2711 Hollywood was decided against the backdrop of the Florida Supreme Court’s decision in Tiara Condo. Ass'n, Inc. v. Marsh & McLennan Companies, Inc., where the Court limited the ELR to products liability cases. 110 So. 3d 399, 400 (Fla. 2013). The Tiara court reviewed and seemingly cited with approval its prior 1993 decision in Casa Clara Condominium Ass’n., Inc. v. Charley Toppino and Sons, Inc., 620 So.2d 1244 (Fla. 1993) in reaching this decision. Id., 401, 405-406. There, the Court held that the ELR barred a homeowner’s claims against a supplier of allegedly defective concrete, where the only alleged damages were rusting and spalling to the structure of the completed condominium units. Casa Clara Condominium Ass’n., Inc., 620 So.2d at 1245. Despite Tiara’s apparent reliance on Casa Clara, Westlaw’s “KeyCite” system continues to apply a “red flag” warning to the Casa Clara decision.

The 2711 Hollywood decision makes clear that Casa Clara’s holding still applies to product manufacturers and suppliers in Florida. In 2711 Hollywood, the condominium association sued the maker of the component fittings of the condominium’s fire suppression system (“FSS”), claiming that these fittings caused the fire suppression system to leak. 307 So.3d at 870. The association sought damages for future repairs and replacement of the FSS under negligent and strict products liability theories against the fittings maker. Id.

On appeal, the Court affirmed summary judgment entered in favor of the manufacturer based upon Casa Clara. Id. In doing so, it recognized that when a products liability claim arises in the context of real estate, courts are to apply the “object of the bargain” rule. Id. The focus of this rule is on “the product purchased by plaintiff,” rather than “the product sold by the defendant.” Id. Where a product is an “integral part of the finished product,” (i.e., the building), and the only alleged damages are to the building itself, such damage is not considered injury to “other property.” Id. The FSS fittings were an integral part of the FSS, and the completed building. As such, the ELR applied to bar the Association’s products liability claims, because the only alleged damages were the cost to replace the FSS and resulting repair damages to the building. Id.

The 2711 Hollywood decision also reinforces the applicability of the ELR in circumstances where a purchaser or installer attempts to bring a tort-based products liability claim against a downstream manufacturer or supplier. In 1995, the United States Court of Appeals for the Eleventh Circuit applied the ELR to a homebuilder’s claim against the manufacturer of chemicals applied by the homebuilder to its roof sheathing, which allegedly caused the roofs to deteriorate. Pulte Home Corp. v. Osmose Wood Preserving, Inc., 60 F.3d 734, 736 (11th Cir. 1995). It reasoned that while the homebuilder was required to remove roof components (shingles and untreated plywood) due to defective treated plywood, these components were not “damaged,” but rather, removed “as a consequence of replacing” damaged, treated plywood.  Id. at 742 (citing Casa Clara Condominium Ass’n., Inc., 620 So.2d at 1246).

2711 Hollywood provides needed clarification on the scope of cognizable tort-based products liability claims against building products manufacturers and suppliers in the Florida. Absent a showing of personal injury, or damage to property wholly unconnected with the completed building, such claims should be barred. The 2711 Hollywood decision ensures that products liability claims involving only “economic losses” will be dealt with in the manner which best suits them: “[c]ontract law, and the law of warranty in particular.” See Tiara Condo. Ass'n, Inc., 110 So. 3d at 404.

Author Brett M. Henson is a partner with the Sarasota, FL office of Shumaker, Loop & Kendrick, LLP, and is Board Certified by the Florida Bar in Construction Law. He is experienced in representing manufacturers of building products in all phases of litigation and trial.