Top 10 Take-Aways from the 2024 Annual Forum Meeting in New Orleans

Over 600 construction lawyers, experts, and consultants met in New Orleans last week for the Forum’s 2024 Annual Meeting where Program Coordinators Brenda Radmacher and Joseph Imperiale together with John Cook and Buck Beltzer put together an insightful program focused on all things construction litigation. Here are our 10 top take-aways from this unique program. 

10. Don't underestimate the soft skills that are necessary to effectively represent your clients. There are different ways to measure success when it comes to construction litigation, according to Stephen Dale (WSP USA), Melissa Beutler Withy (Big-D), and Matthew Whipple (Wohlsen Construction). What these (and likely other inside counsel) will look for when retaining outside counsel is the ability to accurately forecast litigation expense and timely communicate case developments. Being able to master these "soft" skills is as important (if not more so) as an attorney's aptitude for trial advocacy. The in-house counsel who hire litigation counsel will be held accountable to deliver results on the investment they are making in legal fees. Outside counsel who cannot manage budgets or avoid surprises in the course of a case will not be successful as litigators.

Live band music outside the renowned Orpheum Theater

9. Don’t pay the troll. Though more prevalent in other areas of the law, the construction industry is not immune from litigation trolls who file boilerplate complaints seeking a quick settlement. Kimberly Hurtado noted that filing a Rule 12(e) motion for more definite statement (or a bill of particulars) can provide a defending attorney an opportunity to disabuse a serial filer's expectation of obtaining a big pay-day with minimum effort or even have the potential to resolve the case entirely. For cases arising in jurisdictions outside the defendant’s home state, motions to dismiss for lack of personal jurisdiction, may also be the (International) Shoe that fits. Counsel should (of course) confer with their clients to measure the pros and cons of potentially costly motion practice against the potential for a low-cost settlement.

8. Insurance policies should be like a drum line. A construction project requires multiple insurance policies to cover the wide variety of risks that can occur during a construction project. It is essential that construction lawyers negotiating construction contracts understand what risks must be covered and to avoid coverage gaps and inconsistencies. When insurance coverages are coordinated and in harmony with each other, risks are adequately covered and there is music. When insurance coverage are not harmonized, there is dissonance, or worse, silence. Insurance coverages that are out of sync can result in costly coverage battles and potential uninsured exposure.

7. Don't lose the forest for the trees (or the leaves). This was one of many tips conveyed by Jack Rice, a nationally recognized and award winning criminal defense lawyer. The importance of focusing on the big picture when presenting any case at trial and avoiding information overload was a common theme throughout several of the plenaries as well as the practicum. It is easy to become hyper-focused on the nuances of the Project or the dispute but focusing too much on the weeds can lose the judge or jury. We cannot underestimate the power of a strong theme.

No trip to NOLA would be complete without beignets...

6. Know your audience and how to present to them. Construction disputes can be presented to judge, jury, or arbitrator. Each type of trier of fact has its advantages and practicalities to consider when preparing the case. If the trier of fact is not familiar with construction cases, it is crucial for lawyers and experts not only to speak plainly, but to also develop a narrative the fact finder can follow. While juries may not understand construction drawings, they will understand a story that illustrates that the owner and contractor agreed a vapor barrier must be installed, no vapor barrier was installed, and as a result, the building experienced moisture infiltration and damage to interior walls. 

5. Don't be afraid to take a construction case to a jury trial. Construction attorneys are famously reticent to take cases to trial before a jury and, when permitted the option, will include a jury waiver in the contracts they draft. The desire to avoid a jury trial is based on the concern that jurors cannot be made to understand (or care) about the technical issues involved in the disputes that we litigate. As it turns out, that concern might be misplaced. Panelists Jason Rodger-da Cruz, Allen Miller, and Rick Fuentes opined that even the most complex case can be made easy to understand with proper theme development. The panelists also discussed the results they have seen in numerous mock trials before both simulated jury pools and simulated judges. While the mock judges tended to "split the baby," the mock jurors were more inclined to award full judgments where justified and demonstrated a strong desire to "get it right." If you do decide to take a case to a jury trial, be sure you get off on the right foot… according to these panelists, more than 50% of jurors make up their mind during opening statements.

4. A picture is worth a thousand words. Another common theme across many of the sessions was the need to have a good demonstratives to accompany your presentation of evidence at trial. The pressure to develop visual demonstratives is higher than ever and will only continue to grow. That said, Megan O'Leary demonstrated that it is easier than ever to create effective trial graphics. PowerPoint has all the tools needed to put together a professional looking presentation that, not all that long ago, would have needed to be outsourced to a vendor at significant cost to the client.

 

3. Check with your client’s IT team before agreeing to ESI protocols. Discovery protocols can easily reduce the burden of discovery in document-heavy cases. However, attorneys need to confer with their clients to ensure they do not agree to something that proves difficult or time-consuming to do. Documents stored in a database frequently contain links to other documents elsewhere in the same or another database. For example, an email may contain a link to a draft change order; producing one document (the email) will not produce the other, linked document (the draft change order). If a party agrees to an ESI protocol requiring production of linked documents but does not have a way to automatically produce linked documents, parties may manually have to locate and produce the linked and non-produced document.

Forum friends at the Friday afternoon crawfish boil

 

2. It's important to track your damages early and often. Although proving entitlement is the first hurdle a litigant must clear, proving damages is equally vital. Michael Subak (Troutman), Andrea Gross (Bechtel), and Patrick McGeehin (FTI Consulting) discussed the importance of tracking damages as they are sustained. Not only will it help during the negotiations for a change order or equitable adjustment, should the dispute evolve into litigation or arbitration, the party will have a head start on preparing a summary of damages based on data collected closer in time to the events giving rise to the dispute. It is more difficult, and conversely, more expensive to evaluate damages months or years after the claim arises.

 

1. Attorneys and consultants who invest in the Forum will get back more than they give. During the annual awards ceremony, the Forum honored Andy Ness of JAMS with the Cornerstone Award in recognition for his long-term service to the construction industry, the public, and the legal profession. As much as the Cornerstone Award is intended to honor those who give back to the Forum over the course of a career, Andy remarked that his contributions to the Forum were far eclipsed by the value the organization has, in turn, provided to him over the years. Whether through lessons in leadership to connections within the industry the Forum offers its members countless benefits. Andy is right in observing that the more you give to this valuable organization, the more you will get back in return.

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Co-Authors Marissa L. Downs and Brendan Witry are construction attorneys at Laurie & Brennan, LLP where they represent owners, general contractors, and subcontractors in all phases of project procurement, claim administration, litigation, and arbitration/trial. They can be contacted at mdowns@lauriebrennan.com and bwitry@lauriebrennan.com.

Toolbox Talk Series Recap – Best Practices for Productive Rule 26(f) Conferences on Discovery Plans

In the April 4, 2024 edition of Division 1’s Toolbox Talk Series, Julian Ackert and Steve Swart presented on how to prepare for and structure Rule 26(f) conferences to be more effective.  While Swart and Ackert focused on the requirements of Federal Rule of Civil Procedure 26(f) regarding the requisite conference of the parties prior to a scheduling conference or scheduling order, it is worth noting that many states have substantially similar requirements.  

Rule 26(f) requires the parties to (i) discuss the nature and basis of their claims or defense; (ii) make or arrange for mandatory disclosures pursuant to Rule 26(a)(1); (iii) discuss issues about preserving discoverable information (including Electronically Stored Information – “ESI”); and (iv) develop a proposed discovery plan.  Swart and Ackert’s presentation focused on the preservation of ESI and the proposed discovery plan.

In preparing for the conference, Swart and Ackert recommend reviewing resources on best practices for ESI production and sample ESI Protocols, including:

·  The Sedona Conference, The Sedona Principles, Third Edition: Best Practices, Recommendations & Principles for Addressing Electronic Document Production, 19 Sedona Conf. J. 1, 72 (2018)

·   The Sedona Conference, including Working Group 1

· ABA Forum on Construction Law: Discovery Deskbook for Construction Disputes (John M. Cook et al. eds., 2d ed. 2015)

·   Federal Court website with sample/default ESI Protocols, e.g.:

o   Northern District of California

o   Northern District of Illinois

o   District of Maryland

o   Crowell & Moring, Federal Court and Government Agency e-Discovery Rules and Guidelines

It can be helpful to have ESI vendors/consultants and client representatives participate in the Rule 26(f) conference to assure that the discovery plan is realistic, technically sound, and sufficiently comprehensive.

Although ESI productions are often significantly larger in scope than traditional productions, Swart discussed how counsel have the same essential duties in either scenario of identification, preservation, collection, review, and production. See DR Distributors, LLC v. 21 Century Smoking, Inc., 513 F. Supp. 3d 839, 923, 925 (N.D. Ill. 2021) (imposing a $2.5 million sanction for failure to identify and search web-based emails).

Regarding identification, counsel should work with all relevant individuals (IT, HR, accounting, project management, and ESI consultants) to gain an understanding of the proper custodians and the hardware, software, and third-party services used by your client.  Ackert and Swart stressed how the identification of custodians and documents will be an iterative process, often requiring multiple meetings and draft discovery plans to take advantage of search terms and the client’s organization of documents.  During interviews with identified custodians, the best practice is to have someone from IT present to integrate knowledge of the relevant documents and where those documents actually reside.

For preservation, Ackert distinguished between options to preserve documents in place or to preserve by collecting them.  Some systems, such as Office 365, have built-in options to preserve select documents, which can reduce costs.  Others do not allow for such preservation in place and instead will require preservation by collection.  Regardless of the selected option, special attention should be paid to “chat messages” – such as google, slack, text messages, and similar messaging interfaces.  These are often the most difficult to preserve and to collect, but can be a source of valuable communications.

The better prepared parties can be for the Rule 26(f) conference, the more thorough the discovery plan and the more valuable the discussion with the opposing part and the Court.  Swart and Ackerman emphasized the importance of considering each of the above elements of e-discovery to allow for a robust conference covering your client’s position on, among other things, the size of data and costs of production, proposed search terms, proposed production formats, metadata, and timelines/phases of discovery.  Those interested in further information on these topics should read the references listed above.

Thank you to Swart and Ackerman for highlighting considerations for a Rule 26(f) conference and for sharing their experiences of what works best in practice.

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Author Douglas J. Mackin is a construction attorney with Cozen O’Connor in Boston, Massachusetts. Douglas counsels owners, developers, contractors, and subcontractors in all phases of a construction project, from contract negotiation through to completion, including disputes, litigation and arbitration. Douglas can be contacted at dmackin@cozen.com.

Navigating Threshold Arbitration Issues in Construction Contracts

Including an arbitration clause in your construction contract may not mean that your dispute will be confined to arbitration. Instead, parties often find themselves in court litigating threshold issues related to the existence and/or enforceability of an arbitration clause. Common issues include whether the underlying contract containing the arbitration clause is valid, whether the dispute falls within the scope of the clause, whether the parties complied with contractual prerequisites to arbitration, whether issues related to arbitrability are decided by the court or arbitrator, and whether one of the parties has waived their right to arbitrate. This blog post highlights two recent construction cases addressing threshold issues that a party seeking to enforce—or oppose enforcing—an arbitration clause might face.

Seifert v. United Built Homes, LLC: Delegating Issues of Arbitrability to the Arbitrator

In Seifert, an owner sued a homebuilder in Texas federal court for breach of contract and sought damages and declaratory relief. No. 3:22-CV-1360-E, 2023 WL 4826206 (N.D. Tex. July 27, 2023). The builder moved to compel arbitration. The owner opposed and argued that: (1) there was no agreement to arbitrate because the underlying contract was null and void, and (2) its claim for declaratory relief fell outside the scope of the arbitration clause. The court did not address the merits of either argument. Instead, it determined that these were issues for the arbitrator to decide.

The court reasoned that the parties had delegated issues of arbitrability to the arbitrator by agreeing to arbitrate under the AAA Home Construction Arbitration Rules. Rule 11(a) of these rules provides that “[t]he arbitrator shall have the power to rule on his or her jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.” The court explained that, under Fifth Circuit precedent, the “express incorporation of the AAA rules providing that the arbitrator will determine questions of arbitrability constitutes clear and unmistakable evidence of intent to delegate gateway arbitration questions.” Thus, the court granted the builder’s motion to compel arbitration.

Professional Construction, Inc. v. Historic Walnut Square, LLC: Waiver by Litigation Conduct

The court in Professional Construction addressed whether, under Indiana law, a contractor waived its right to compel arbitration by initiating a lawsuit for breach of contract against the owner. 224 N.E.3d 352 (Ind. Ct. App. 2023). By way of background, the contractor sent a letter demanding that the owner participate in mediation and arbitration per the parties’ agreement. The owner declined. The contractor then sued the owner in Wisconsin state court asserting claims for breach of contract and seeking relief that included “an order compelling Owner to comply with the Construction Contract’s mediation and arbitration clauses.”

Thereafter, the owner commenced a separate lawsuit against the contractor—in Indiana—asserting claims for breach of contract. The contractor moved to compel arbitration in the Indiana court. The owner opposed, arguing that the contractor had waived its right to arbitration by commencing the lawsuit for breach of contract in Wisconsin. The Indiana trial court denied the motion to compel arbitration and the contractor appealed.

The Indiana Court of Appeals explained that commencing a lawsuit for breach of contract before a court “is a presumptive waiver of the right to arbitrate.” This presumption could be rebutted, however, if invoking the judicial process “does not signify an intention to proceed in a court to the exclusion of arbitration.” The court determined that, under the circumstances, the contractor did not act inconsistently with its right to arbitrate by commencing the lawsuit in Wisconsin. It reasoned that there were no attempts to litigate the merits of the dispute and that the contractor’s complaint had specifically requested an order requiring the owner to comply with the agreement’s arbitration clause. As such, the Indiana court compelled the owner to arbitration.

Lessons From These Two Recent Cases

Seifert and Professional Construction underscore the importance of anticipating threshold issues to arbitration—both when drafting an arbitration clause and preparing for a dispute. Consistent with Seifert, most state and federal courts hold that incorporation of AAA Construction Arbitration Rules and Mediation Procedures or JAMS Construction Arbitration Rules & Procedures, which each provide that arbitrators are to decide arbitrability issues, effectively delegates to arbitrators authority to decide most gateway issues. However, some courts have decided otherwise. Construction arbitration clauses can expressly include in the body of the agreement a delegation clause providing that the arbitrators, not the court, decide questions of arbitrability—something parties might consider doing as a matter of “belts and suspenders” where that is what is intended.

As to the question of waiver, the court in Professional Construction reached a common-sense conclusion—filing a lawsuit and requesting that a party be compelled to arbitrate should not by itself give rise to waiver of the right to arbitrate. This is especially so since the U.S. Supreme Court ruled in Morgan v. Sundance that prejudice is not a necessary element to establish waiver of the right to arbitrate under the Federal Arbitration Act, making it easier for a court to find that there has been waiver. 596 U.S. 411 (2022). While state arbitration law may have a different standard for waiver, the Supreme Court’s decision in Morgan is likely to be considered by state courts as they assess the standard for waiver of the right to arbitrate under state law. Indeed, the California Supreme Court is poised to decide in Quach v. California Commerce Club, Inc., whether to continue to apply a prejudice requirement to waiver of the right to arbitrate under California law. 78 Cal. App. 5th 470 (2022), review granted August 24, 2022, S275121; see also Daniel D. McMillan, et al., Goodbye Saint Agnes?, Daily Journal (Nov. 10, 2022), https://www.dailyjournal.com/articles/369872. 

Arbitration continues to be a frequently specified alternative to the courthouse for resolving construction disputes. The recent cases of Seifert and Professional Services illustrate that issues of arbitrability and waiver of the right to arbitrate continue to be raised. Paying close attention to the language of the arbitration agreement, the parties’ conduct, and the applicable arbitration rules and law may minimize unexpected procedural outcomes and make it more likely that you can avoid the courthouse.

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Author Daniel D. McMillan is a partner with Jones Day in Los Angeles. Dan’s practice focuses on complex commercial, business, and construction litigation. As co-chair of Jones Day’s global construction practice, Dan represents owners, design professionals, and contractors in large construction disputes and in negotiating and drafting the full panoply of contracts for large projects.

Author TJ Auner is an associate with Jones Day in Los Angeles. TJ represents clients in complex commercial, construction, and energy disputes, with a focus on domestic and international arbitration.

Editor Marcus Quintanilla is an experienced arbitrator and mediator with over 20 years of experience in international arbitration and cross-border litigation. Marcus maintains arbitration chambers in San Francisco, Houston, and Miami.

The views and opinions set forth in this article are the personal views or opinions of the authors and do not necessarily reflect the views or opinions of the law firm with which they are associated.

The National Labor Relations Board Joint Employer Standard is Vacated by the Eastern District of Texas

Many employment laws use the concept of joint employer to make more than one business entity responsible for complying with employment law obligations towards employees who to varying degrees work for, or under the direction of entities who are not technically the employees primary employer. Nowhere is that issue more prevalent than in contractor subcontractor relationships. Over the years the National Labor Relations Board (NLRB) has developed various tests for determining joint employer status. Unless a business entity is an employer of individuals, the NLRB has no jurisdiction over a dispute between the workers and a business entity for whom they work.

It is important for contractors to understand the importance of being an employer and the obligations that flow from such status.  Likewise, it is also important to understand when a contractor may be classified as a “joint employer” over certain individuals. Depending on the specific laws involved, such a finding of joint-employer status can happen under the “joint employer doctrine” which often exists in subcontractor and temporary employment arrangements. The “joint-employer doctrine” may render a contractor responsible for another company’s employment liabilities. 

The joint employer doctrine applies when two entities handle certain aspects of their employee-employer relationship jointly which can result in an entity other than an employee’s formal employer being liable as an employer. Arculeo v. On-Site Sales & Mkg, L.L.C., 425 F.3d 193, 198 (2d Cir. 2005). This occurs when two or more entities share control over a worker’s terms and conditions of employment. 

Various rules and jurisprudence over the years have guided contractors to understanding what can make an entity a joint employer. One such authority was the determination of a joint employer under the National Labor Relations Act (NLRA). In general, the NLRA is a federal law that defines rights of employees in non-union and union workplaces to organize and act to improve working conditions among other things.  On October 27, 2023, the NLRB issued a new rule addressing the standard of determining Joint-Employer Status under the NLRA – see: 88 Fed. Reg. 73,946 codified at 29 C.F.R. §103.40, also found here. 

Prior to the new rule, the standard was based on a rule adopted by the NLRB in 2020.  Under the 2020 rule, an entity was considered a joint employer of a separate company’s employees only if the business possesses and exercises substantial direct and immediate control over one or more essential terms and conditions of employment of another company’s employees.

The 2023 rule rescinded the 2020 rule and established a new standard for determining whether two employers, as defined in the NLRA, are joint employers of particular employees within the meaning of the NLRA to be codified at 29 C.F.R. §103.40.  The new rule expands the standard for finding joint employment under the NLRA and has the potential to expose more employers to the responsibilities of a joint employer.  Prior to this change, common-law standards had primarily governed employment relationships and a finding of joint employment.  The new rule establishes new standards for determining a joint-employer relationship.

Shortly after the new standard was passed, many parties including the Chamber of Commerce of the United States, the American Hotel and Lodging Association, Associated Builders and Contractors, Associated General Contractors of America, and others filed a complaint in the Eastern District of Texas requesting a declaratory judgment and injunctive relief against the NLRB seeking to (1) have the new rule declared unlawful and have it set aside; (2) have the NLRB’s decision to rescind the rule of 2020 declared arbitrary and capricious; and (3) enjoin the NLRB from enforcing the new joint employer rule.  See Complaint, Rec. Doc. 1, Chamber of Commerce of United States v. NLRB, Case No. 23-00553, (E.D., Texas).

The major complaint surrounding the new standard is that it is overly broad and contradicts the established common-law definition of joint employer.  The new standard states that two or more employers of the same employees are joint employers if the employers share or codetermine those matters governing an employees’ essential terms of employment. 29 C.F.R. §103.40(b). Under the new rule, a business, such as a contractor, can be a joint employer if it has the right or authority to exercise control (whether directly, indirectly, or both) over essential terms of employment even if the only way it could exercise such control would be with the use of another party such as an intermediary.  29 C.F.R. §103.40(c). Thus, an entity could be a joint employer if it has indirect control over a single essential term of employment, even if it never exercises such control. The seven (7) essential terms and conditions of employment are identified in the 2023 rule to include: (1) wages, benefits, and other compensation; (2) hours of work and scheduling; (3) assignment of duties to be performed; (4) the supervision of the performance of the duties; (5) work rules and directions governing the manner, means, and methods of performance of duties and grounds for discipline; (6) the tenure of employment including hiring and firing; and (7) working conditions related to safety and health of employees.  29 C.F.R. §103.40(d).

During the construction process, there are almost always multiple different entities working on a project – i.e. general contractor, subcontractors, sub-subcontractors, laborers, etc.  Normally, each of these different entities are the employer of its own employees.  However, a general contractor is normally in control of the entire project and usually exerts some level of control over the various subcontractors and their employees to verify that the project complies with certain requirements, such as safety, quality, and the like.  Under this new rule, a business, such as a contractor, can arguably be a joint employer over every individual employee working on a project if it simply has the right of control even if it does not exercise that right.  This situation would likely exist in every contractor-subcontractor relationship.  In addition, a contractor that routinely exercises control in supervising all safety programs in connection with a project would illustrate a contractor’s indirect control over working conditions concerning health and safety of employees.  This type of control would likely lead to a finding of joint employment under the new rule because the contractor exercised control over an essential term of employment under 29 C.F.R. §103.40(d) of the new rule. The potential downside to such a determination is that a general contractor could then be subject to actions under the NLRA. 

Further, by reserving the right to exercise control, a party such as a contractor can be deemed to be a joint employer of another company’s employees even if the right of control is never exercised. The potential for finding joint employer status under the new rule is argued by many to be overly broad and lead to many problems. Under the new standard, employers would have to consider reviewing its contracts with subcontractors, vendors, temp-agencies and consider amending those agreements to remove any element of control to potentially avoid an unintended finding of joint employment.

The New Joint Employer Rule is Vacated

The 2023 rule for a finding of joint employment by the NLRB was recently vacated by U.S. District Court for the Eastern District of Texas in Chamber of Commerce of United States v. NLRB, 2024 U.S. Dist. LEXIS 43016, at *1 (E.D. Tex. Mar. 8, 2024). In Chamber of Commerce of United States v. NLRB, the plaintiffs challenged the new rule on at least two grounds – the new rule is inconsistent with the common law and the new rule is arbitrary and capricious for ignoring various practical problems and failing to articulate a comprehensible standard.  Id. at 25.

The Eastern District of Texas agreed with the plaintiffs finding that the NLRB’s new standard was contrary to law as to the rule’s addition of a new 29 C.F.R. §103.40 and arbitrary and capricious as to its removal of the existing 29 C.F.R. §103.40 (2020). Therefore, the Court issued a final judgment vacating the new rule.  Id. at 45.  While it is unclear what will ultimately happen with the new rule, it is suspected the Court’s ruling will soon be appealed.

For now, the determination of joint-employer status will be decided under the old 2020 rule and unless Chamber of Commerce of United States v. NLRB is reversed, disputes will be governed by the old rule for some time to come as it will likely take some time for this matter to be appealed and for the NLRB to revise the rule to address some of the Court’s concerns. 

Message from the Chair: Kelsey Funes (Volume III)

Spring has sprung—at least in Louisiana. The azaleas are blooming, the trees are bursting with bright green leaves, and the crawfish boils have begun. For me, it brings the anticipation of new beginnings and the excitement of fresh starts. I hope all of you will come down South in April to join in on all the best Spring has to offer in New Orleans, including the French Quarter Festival. The Forum’s Annual Meeting will take place in New Orleans on April 11-13, 2024 and it will be one that is a must-attend for the members of Division 1. The theme for the meeting is “The Art & Science of Construction Litigation” and it is co-chaired by two Division 1 members, Brenda Radmacher and Joseph Imperiale. Not only is the meeting packed with informative sessions for anyone whose work involves construction litigation, but you should not miss our Practicum, “The Art of Persuasion: Using Science to Become a More Convincing Advocate.” During the practicum, our speakers will share what neuroscience can teach us about the events and experiences that influence people’s decision-making and how to present your case most persuasively.

A similar Spring is also coming in the Forum. The upcoming Annual Meeting marks the changing of the guard for the Forum Chair. John Cook will mark the end of his term and Keith Bergeron will be sworn in and take the reins. Starting in the Fall, Keith’s meetings will focus on the trilogy that exists in construction projects:  the designer, the contractor and the owner. The Fall meeting also marks the beginning of Division 1’s three-part Practicum series on discovery in construction cases. The Fall meeting will take place on October 23-25, 2024 in Pittsburgh and focus on the designer’s role in construction projects. Division 1 will start the Practicum discovery series with a deep dive into document discovery and best practices on managing the voluminous documents involved in most construction cases.

Later this month, I will host the first of what I hope will be a regular schedule of “Get to Know D1” calls. The purpose of these calls is to give those who are new to Division 1, or those who want to get more acquainted with D1, a tutorial on all the activities happening within D1 and more information to help them build relationships and get involved. 

The first “Get to Know D1” call will be on Thursday, March 28 at 1:00 om EST via Zoom. The access credentials for this call are below:

https://phelps.zoom.us/j/3094394839?pwd=dXlfqOQvZgsrmbEwdijtUwwuQ1ECdh.1&omn=83350878778

Meeting ID: 309 439 4839

Password: Forum

Finally, in addition to our programming at the national meetings, be sure to check out the fantastic material regularly posted to the Dispute Resolver Blog and our upcoming Toolbox Talks:

• April 4 – Noon EST - Rule 26(f) Conferences: E-Discovery Protocols (preparation before meeting with opposing counsel to frame discovery, and rounding up information about your data); Speakers: Steve Swart, Corporate Counsel, Rand Construction Corporation; Julian Ackert Managing Director, iDiscovery Solutions https://americanbar.zoom.us/meeting/register/tJYpdeygrjIvHNISS-lFi-5KgPjPvPUCU6Ny

• April 25 – Noon EST - Preserving Evidence after Façade Failure; Speaker: David Schnerch, Principal, Building Science Specialist, RDH Building Science Inc. https://americanbar.zoom.us/meeting/register/tJctce6uqT8iHdNkSojIItzo3Fa7dmdmdKpp

• May 23 – Noon EST - Maximizing Profits While Experiencing Changes; Speakers: John Wolf, Peritia Partners, and Jose Pienknagura, Gallagher https://americanbar.zoom.us/meeting/register/tJEqdeitrjspHNIft01zNQ21L2Aw96dm56jr

Hope to see you in New Orleans!

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Editor-in-Chief Marissa L. Downs is a construction attorney in Chicago, Illinois where she has been practicing law since 2009. Marissa is a partner at Laurie & Brennan, LLP and represents owners, general contractors, and subcontractors in all phases of project procurement, claim administration, litigation, and arbitration/trial. Marissa can be contacted at mdowns@lauriebrennan.com.

Enforceability of Contract Provisions Extending Liquidated Damages Beyond Substantial Completion

This post takes a look at the enforceability of contract provisions providing for liquidated delay damages after substantial completion. Typically, the assessment of liquidated delay damages ends at substantial completion of a project. However, various standard form contracts, including some of the ConsensusDocs and EJCDC contracts, contain elections allowing for the parties to agree on the use of liquidated damages for failing to achieve substantial completion, final completion, or project milestones. The standard language in the AIA A201 leaves it up to the parties to define the circumstances under which liquidated damages will be awarded.

Courts are split on the enforceability of provisions that seek to assess liquidated damages beyond substantial completions. Courts in some jurisdictions will not impose liquidated damages after the date of substantial completion on the ground that liquidated damages would otherwise become a penalty if assessed after the owner has put the project to its intended use.  Perini Corp. v. Greate Bay Hotel & Casino, Inc., 129 N.J. 479, 610 A.2d 364 (1992). When the terms are clear, other jurisdictions will enforce contract terms providing for liquidated damages until final completion, even if the owner has taken beneficial use of the facility. Carrothers Const. Co. v. City of S. Hutchinson, 288 Kan. 743, 207 P.3d 231 (2009).

In Power Constructors, Inc. v. City of Ketchikan, 923 F.2d 863 (9^th Cir. 1991), a public owner sought to recover liquidated delay damages beyond substantial completion pursuant to a contract provision that provided for liquidated damages for “each and every day that the work and any specified portions thereof are not completed . . .” The district court held that the entire provision was an invalid penalty because it applied after substantial completion to minor and inconsequential breaches.  

The Ninth Circuit reversed the district court and held that under Alaska law, the court should have upheld that portion of the liquidated damages provision that was not a penalty and that the public owner was entitled to recover liquidated damages until substantial completion.

However, other courts have allowed liquidated damages beyond substantial completion where the contract specifically provides for such. In Reliance Ins. Co. v. Utah Dept. of Transp., 858 P.2d 1363 (Utah 1993), the Utah Supreme Court upheld a provision in a state highway contract that provided for liquidated damages of $600 per day when “any work shall remain” on the project.

The Reliance Ins. court rejected the surety’s argument that liquidated damages should end at substantial completion. The court noted that the contract between the parties does not provide for liquidated damages to end at substantial completion, but rather, final completion as determined by the UDOT engineer. The court went on to hold that the provision was unambiguous and that the parties could have used substantial completion as the date for ending the assessment of liquidated damages if they so intended. The Reliance Ins. court noted, however that there could be a case when the work remaining on the project was so trivial that assessing the entire liquidated damages amount could result in gross unfairness – but that was not so in the case before the court.

Similarly, in Ledbetter Bros. v. N. Carolina Dep't of Transp., 68 N.C. App. 97, 314 S.E.2d 761 (1984), the Court of Appeals of North Carolina enforced a provision in a public highway contract which assessed liquidated damages until final completion of the work.

The liquidated damages provision was contained in the standard specifications issued by the state highway commission and incorporated in the contract by reference. The provision provided in pertinent part: “a sum of money in the amount stipulated in the contract will be charged against the Contractor for each calendar day that the work remains uncompleted after the expiration of the completion date . . .”

The court noted that liquidated damages provisions have long been held to be valid and an appropriate means of inducing timely performance. “It would frustrate this policy, and increase the likelihood of inconvenience and danger to the public to allow disputes over substantial performance to affect such provisions.”

California courts have also upheld contract provisions providing for liquidated damages on a school construction project until “final completion” rather than “substantial completion.” Rejecting the contractor’s argument that liquidated damages could not be awarded after substantial completion, the court noted that because the parties had contracted for a complete building, not a substantially complete one, liquidated damages until final completion were appropriate. Vrgora v. Los Angeles Unified Sch. Dist., 152 Cal. App. 3d 1178, 1187 (Ct. App. 1984).

Based on the case law, it appears that many jurisdictions will enforce contract provisions providing for liquidated damages beyond substantial completion. Provisions as such should be unambiguous in their terms and – even considering that some jurisdictions will not evaluate the gravity of the liquidated penalty versus actual delay damages – in most instances liquidated damages should be predicated upon a reasonable estimate of the damages to the owner from the failure to achieve final completion.

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Author and Editor Stu Richeson is an attorney in the litigation section of Phelps' New Orleans office, primarily focusing on commercial litigation with an emphasis on construction matters, intellectual property issues and insurance.

Toolbox Talk Series Recap – CPAs in Construction Disputes

In the February 29, 2024 edition of Division 1’s Toolbox Talk Series, Chad Garcia provided information on the role of a CPA in construction litigation. Garcia discussed the various type of claims and situations in which Certified Public Accountants (“CPAs”) can provide value to parties involved in construction disputes, as well as other contexts in which CPAs are often used on construction projects.

In Garcia’s experience, CPAs frequently work to quantify damages on errors and omissions claims, construction defect claims, and delay claims.  CPAs also perform analysis relating to cost overrun disputes, change order disputes, claims for lost profits, and claims involving liens.  While the precise analysis differs in each of the above contexts, CPAs generally analyze financial records and other relevant project documents (such as change orders, contracts, etc.) to make sure all amounts claimed are reasonable and accurate. 

As one example, in JH Kelly, LLC v. AECOM Technical Services, Inc., 605 F. Supp. 3d 1295 (N.D. Cal., June 2, 2022), a CPA (who is also a Certified Management Accountant and Certified in Financial Forensics) offered expert testimony to calculate the Subcontract balance, to determine where cost overruns occurred, and to compare design cost overruns to construction cost overruns.  In response to a Daubert challenge regarding the analysis of cost overruns, the court ruled that the expert’s opinion “is sufficiently based on his analysis of the billings at issue and his experience in accounting, auditing, and analyzing costs related to construction projects to be admissible under Rule 702.”

Depending on the dispute and the available records, a CPA’s methodology will vary.  Garcia detailed how they may look at invoices, payments, and purchase orders to build a damage valuation based on actual costs.  Other options include total cost, modified total costs, and measured mile approaches.  Those methodologies were discussed in greater depth in the October 26, 2023 Toolbox Talk.

Other areas that Garcia covered include the potential, at least in smaller claims, to engage a CPA to prove costs and rely on project personnel for testimony to support the root causes, and various non-dispute contexts in which a CPA can support a construction project.  Those include (1) accounting and finance process improvements based on an evaluation of a company’s internal controls; (2) tax planning and compliance; and (3) advice for tracking ongoing claims by using a separate cost code or separate account in the job costing system to isolate costs related to the damage event or delay.

Thank you to Garcia for detailing the various ways a CPA can add value to a construction claim or dispute.

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Author Douglas J. Mackin is a construction attorney with Cozen O’Connor in Boston, Massachusetts. Douglas counsels owners, developers, contractors, and subcontractors in all phases of a construction project, from contract negotiation through to completion, including disputes, litigation and arbitration. Douglas can be contacted at dmackin@cozen.com.

Meet the Forum's ADR Neutrals: TOM NOCAR

Company: Hahn Loeser & Parks, LLP

Office Location: Columbus, Ohio

Email: tnocar@hahnlaw.com

Website:  https://www.hahnlaw.com/professionals/j-thomas-nocar/

Law School: The Ohio State University Moritz College of Law

Types of ADR services offered: Arbitration and Mediation

Affiliated ADR organizations: AAA Construction Panel

Geographic area served: Nationwide

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Q: Describe the path you took to becoming an ADR neutral.

A: I am a former builder turned construction attorney. I spent 26 years building before going to law school. I’ve worn every hat in the industry—D/B business owner, owner’s rep, CM at risk, GC, design/builder, subcontractor, and vendor at some point in my prior career. I chose to adapt these experiences to a law career in 2009 with the focus of practicing construction law. Now I commonly represent commercial builders and developers. AAA added me to the Construction Roster in 2022.

Q: What percentage of your current legal practice is spent on ADR work? If less than 100%, what do you do when not serving as an ADR neutral?

A: My ADR practice is small, but growing. I served as a neutral on five cases in 2023. I am primarily a construction attorney counseling clients in practical approaches to dispute avoidance, and representing clients in transactions and litigation.

Q: What are your thoughts on requiring mediation as a contractual prerequisite to litigation or arbitration?

A: Forcing parties to mediate is not a great idea. It is rarely productive.  I have been involved—as many of us have—in a mediation where one party shows up for the sole purpose of satisfying the contract clause, and then just leave. A total waste of time. A successful mediation usually involves two willing parties who want to avoid litigation risks and costs, and are capable of seeing past the dispute validities to reach a business decision.

Q: What can attorneys do to best position their clients for a successful mediation outcome?

A: Prepare them for compromise. Set financial expectations using the BATNA (Best Alternative to Negotiated Agreement) approach. Go through anticipated negotiation scenarios. Review the merits of each side’s contentions but remove the emotions where possible. Mediation is for business decisions, not for trial. Assure the client that mediation settlement is voluntary, and understand the walkaway number. Have a settlement agreement in the queue that can be quickly edited with the terms of agreement and signed by the parties that day.

Q: What should attorneys and their clients take into consideration when vetting and/or selecting an arbitrator?

A: (1) the arbitrator's construction industry expertise, both technically and legally specific to your case; (2) whether the arbitrator will control arbitration costs, limit discovery, briefing requirements, etc.; (3) the arbitrator’s tendencies when it comes to awards—do they split the baby or let chips fall where they may—and (4) what factors the arbitrator considers when deciding attorney fee awards.    

Q: What advice do you have for parties when considering whether to choose a single arbitrator or a panel?

A: This is generally a function of cost and risk. A panel is generally advisable when the amount in controversy exceeds $2M, when there are several parties, and/or the subject matter is exceedingly diverse or technical. Otherwise, if the single arbitrator passes your vetting as describe above, go forth.

Q: What measures do you take as an arbitrator to ensure arbitration is less costly and more efficient to litigation?

A: Arbitration should be less costly than litigation. I try to limit the amount of discovery to help in this regard.  Also, we are trained to allow all evidence to be presented and heard, but I caution the parties that duplicative witnesses and hearsay testimony has little probative value and adds time to the hearing. I also generally favor pre-hearing and closing briefs and discourage opening or closing statements.

Q: How has your prior career in commercial construction management helped you to serve as a neutral in construction cases?

A: My former design/build career provides a wealth of hands-on experience to draw from that commonly expedites my comprehension of the issues in the case. I have performed many times over the very tasks that are at the center of the controversy—issuing contracts and change orders; managing design from concept to completion; creating and managing schedules, submittals and shop drawings; running and documenting progress meetings; coordinating manpower, equipment and material deliveries; managing quality and safety; and dealing with non-performing parties. This insight helps me to quickly cut through the noise to get to the heart of any construction dispute. 

Q: What are some of your interests or hobbies?

A: Live music, travel, cooking, and cycling.

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Editor-in-Chief Marissa L. Downs is a construction attorney in Chicago, Illinois where she has been practicing law since 2009. Marissa is a partner at Laurie & Brennan, LLP and represents owners, general contractors, and subcontractors in all phases of project procurement, claim administration, litigation, and arbitration/trial. Marissa can be contacted at mdowns@lauriebrennan.com.

Consultant Corner: A Picture is Worth a Thousand Words...Technical Storytelling in Construction Litigation

Engineers are not commonly thought of as storytellers. But telling a true, accurate, and convincing story is one of the most important aspects of the job. Whether testifying as an expert witness or conducting a forensic investigation, technical experts require not only deep expertise but also the ability to effectively communicate complex ideas of a technical nature. Therefore, an effective and persuasive technical expert needs to master the art and science of storytelling.

While storytelling may vary from case to case, one of the most essential techniques is visualization. Most people are visual learners. A great graphic can be more effective in delivering the technical message, enhancing comprehension, and providing a lasting impression than the expert’s report or other testimony. This is particularly important in the legal setting, in which the audience—often a judge or jury—is typically non-technical.

Creating Graphics

Common types of visuals typically used in forensic investigations and construction litigation include two-dimensional (2D) graphics such as charts, figures, timelines, three-dimensional (3D) renderings or animations, engineering analysis models, or other tools such as Augmented Reality(AR) or Virtual Reality (VR). Development of the visuals is an integral part of the forensic investigation and technical storytelling process. Visualization typically used in forensic investigations or as demonstratives in construction litigation are often created using technical illustration techniques. Technical illustration is to visually communicate information of a technical nature based on science and physics. These graphics are not only “art” but also “science” as they are based on mathematical formulation and physics-based computer simulations. To tell a compelling, impactful, accurate, and relevant story, the visuals must be consistent with the evidence, analysis results, and the expert opinion.

Common Applications

This section highlights some common applications in which the use of 3D renderings and/or animations is helpful.

(a) Visualization of a complex system – Visualization can be helpful to illustrate an engineering system that is highly complex and/or has multiple interior components. In these situations, a 3D rendering of the system using a combination of visualization techniques, including callouts, cutaways, or ghosted views, proves to be effective. For example, Figure 1 uses a cutaway to demonstrate the main components of a composite floor.

Figure 1: Cutaway illustration of a composite floor
(snippet from an animation, courtesy: Thornton Tomasetti, Inc.)

(b) Design comparison – Visualization can be helpful to compare different construction, such as as-built versus as-designed configurations, or between different designs or layouts. Figure 2 is a side-by-side comparison of the slab reinforcement layout at the column location shown in the floor plan. The two reinforcement layouts of interest are those that were (i) specified in engineering drawings (“as-designed”), and (ii) constructed in the field (“as-built”). It is clear from the rendering that the as-built layout shows fewer reinforcements and larger bar spacing compared to the as-designed layout.

Figure 2: As-designed vs As-built slab reinforcement layout
(courtesy: Thornton Tomasetti, Inc.)

(c) Sequencing – When the construction, installation, or failure of a system involves multiple steps or stages, of which the order and/or timing are relevant to the narrative, an animation may be warranted. For example, a construction sequence animation with timestamps can be used in construction delay cases to highlight the planned versus the actual construction progress at various project stages.

Figure 3: Construction sequence illustration
(snippets from an animation, courtesy: Thornton Tomasetti, Inc.)

(d) Explanation of technical concepts – One of the most important applications of visualization in forensic engineering is to explain complex technical concepts. An animation allows the expert to “zoom in” at any location for further review, create section cuts and/or “see through” the interior details, such as reinforcement arrangement, or take advantage of the motion to explain how different parts interact dynamically in a failure mechanism. Figure 4 shows a close-up view at a slab-to-wall connection to illustrate the failure of the steel reinforcement and the concrete, which ultimately led to the collapse of the slab.

Figure 4: Illustration of the reinforcement failure at the slab-to-wall connection
(snippet from an animation, courtesy: Thornton Tomasetti, Inc.)

In another example, Figure 5 is a snippet from a time-lapse animation of an underground parking garage that experienced water intrusion. The animation captures accurately the locations and timing of the documented leaks in the walls and floor slab. The timescale is included to illustrate the timing of the events.

Figure 5: Time-lapse of documented water intrusion
(snippet from an animation, courtesy: Thornton Tomasetti, Inc.).

Technical and Legal Considerations

One of the first, and perhaps the most important, tasks is to plan for the use of graphics.

The technical expert and the legal counsel need to thoroughly develop a plan for the case at hand and how the visuals will fit into the overall strategy. There are several aspects that the team needs to evaluate, including the need for graphics, potential limitations, and when to introduce graphics.

Different experts have different ways to tell stories and explain technical concepts. Understanding the strengths and weaknesses of the experts is key to more compelling storytelling. From the technical perspective, the expert needs to ensure that the visuals are consistent with the evidence (such as column and beam size as shown in drawings) and other expert testimony (such as the opinions stated in the expert report). It is critical to understand the basis of the visuals, how they are correlated with the evidence and the engineering analysis, and the underlying assumptions of the analysis model on which the visuals are based. If the visuals are based on an engineering simulation, it is important to understand the input and output of the analysis model, the model settings, any assumptions, and limitations of the analysis.

From the legal perspective, when using graphics in construction litigation, the technical expert and the legal team must be familiar with the rules of evidence to develop a proper legal strategy. There is a distinction between “demonstrative aids” or “visual aids” and “demonstrative evidence,” which is admitted and sent back with the jury or considered as “evidence” by arbitrators. To become the latter, a graphic needs to meet admissibility standards, for instance, it has to be authentic, relevant, and especially, not hearsay. It is equally critical that the visuals not be confusing, irrelevant, inconsistent with expert testimony, or highly complex. This will increase the chances of admissibility and ensure that the audience can readily comprehend and appreciate the technical story the visuals are intended to tell.

Concluding Remark

Learning how to tell a technical story to a non-technical audience, especially in the legal setting, can be a daunting task, even for seasoned experts. Proper use of storytelling techniques, such as visualization, can greatly enhance the expert’s effectiveness in presenting his/her opinions. These graphics are not just “pretty pictures,” but also play an integral part of the expert’s role as communicators and storytellers.

For more examples of technical visualization, see Technical visualization samples.

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Author, Thanh Do, is a structural forensic engineer with Thornton Tomasetti, Inc. He specializes in investigations of construction/design defects and collapses, and standard of care assessment. He also oversees the Forensic Visualization group at Thornton Tomasetti, which produces graphics and animations for trial exhibits/demonstratives.