Friday, June 27, 2014

Sign On the Dotted Line! by Hon. Nancy Holtz (Ret.)

“One of the main purposes of mediation is the expeditious resolution of disputes. Mediation will not always be successful, but it should not spawn more litigation . . . .”

So said the New Jersey Supreme Court in the case of WillingboroMall LTD v. 240/242 Franklin Avenue, LLC, 71 A.3d 888 (2013), as it considered a mediation which itself became the controversy. Five depositions, a four-day evidentiary hearing, and two appeals later, the high court set forth a new rule in New Jersey requiring that, to be enforceable, an agreement reached at mediation must be in writing.

The controversy began when a commercial case, arising out of the sale of a mall, was sent to mediation by the trial court. At mediation, the parties reached an agreement. The mediator reviewed the terms of the settlement with the parties, but the settlement terms were not put in writing at the conclusion of the mediation.

Several weeks later, in what may have simply been a bout of buyer’s remorse, Willingboro’s manager balked at the settlement. He complained that his attorney and the mediator had unduly pressured him to settle. In his words, he would have confessed to the Lindbergh kidnapping and the Kennedy assassination if it meant he could have extricated himself from an “incredible uncomfortable, high pressure situation.”

With Willingboro refusing to honor the deal struck at mediation, Franklin brought a motion to enforce the terms of the settlement that included certifications from its own attorney and the mediator disclosing communications made during the mediation. Rather than oppose the motion invoking the mediation communication privilege, Willingboro opposed the motion with its own disclosures of confidential communications.

During the evidentiary hearing conducted by the trial court, Willingboro changed course and moved to strike the confidential communications already disclosed. But the trial court found that Willingboro had waived the privilege and that a binding agreement had been reached between the parties. On appeal, the appellate division affirmed.

Willingboro next appealed to the New Jersey Supreme Court and two issues were certified: (1) whether New Jersey law required that a settlement agreement reached at mediation be reduced to writing at the time of the mediation to be enforceable, and (2) whether Willingboro had waived the privilege that protects communications made during mediation from disclosure.

The New Jersey Supreme Court noted that there is a mediation communication privilege with only two exceptions: (1) the signed writing exception, which allows a written settlement agreement to be admitted into evidence to prove a settlement; and (2) when there is a waiver of the privilege.

The court stated that “[i]n the absence of a signed settlement agreement or waiver, it is difficult to imagine any scenario in which a party would be able to prove a settlement was reached during the mediation without running afoul of the mediation-communication privilege.” The court upheld the ruling that Willingboro had waived the privilege and that the settlement was binding.

Recognizing that the court system favors the settlement of disputes by mediation, the court observed that the success of mediation depends on confidentiality. To protect this confidentiality while encouraging the use of mediation to reach binding settlement agreements, the court announced a new rule: “[G]oing forward, a settlement that is reached at mediation but not reduced to a signed written agreement will not be enforced.”

As the courts continue to encourage mediation as a more economical and expeditious means to resolve cases, this new rule in New Jersey will no doubt be adopted in other jurisdictions that have yet to address the issue. A signed writing (or video or audio recording, which the high court suggested as an alternative) may ensure the enforceability of settlements reached at mediations.

A Mediator’s Takeaway

Mediators may wish to provide a standard form that attorneys can utilize to memorialize the key terms of a settlement. In the event the parties are not able to complete a memorandum of understanding before the close of the mediation proceedings, the mediator may want to suggest that the mediation remain open until the settlement is reduced to writing.

Parties choose mediation for expedience and economy. Willingboro should serve as a cautionary tale to mediators: Parties are entitled to rely on the guarantee of confidentiality at mediations. If a dispute arises, a mediator may not divulge privileged communications in order to assist a party in enforcing a settlement reached during mediation. The result in Willingboro speaks volumes about the consequences of disclosing confidential communications.

Hon. Nancy Holtz is a mediator and arbitrator based in Boston, Massachusetts providing neutral services nationwide.

© 2014 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

Effective Risk Management Planning - Step 2 - Quality Over Quantity

Division 1 is pleased to provide Andrew Englehart's, principal at Construction Process Solutions, Ltd., second installment of his series on Effective Risk Management Planning.  To review Step 1 - Identify Your Team - click here.

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How Should We Go About Documenting Our Project?

A Pound of Bologna or that 4 Oz. Fillet??
How many times have you heard, “We didn’t document that project well enough?” Such regrets are typically aimed at the lack of stacks of documentation. However, quantity does not equate to quality, and often times, in the interest of a perceived desire for pushing as many e-mails through the pipe, the project team loses sight that the quality of the documentation is more important.
What is meant by referring to “quality?” There are 4 primary characteristics that a project player should consider when considering a project’s plan for documentation, as well as when considering what, when, to whom, how, and in what “form” a particular piece of documentation should go out:

·         The substantive nature of the documentation.

·         The documentation’s conformance with the contract requirements.

·         The documentation’s conformance with the “big picture” risk profile.

·         The documentation’s form and how effective it can be used in a forensic setting.

The content of the documentation should be factually accurate, sufficiently comprehensive, but the aim should be for brevity.  Avoid positions in documentation. There are certainly times when positional communiqué need to occur, but such communiqué themselves should rely upon quality documentation. As a particular practical tip, a common oversight in the preparation of documentation is to focus on what is occurring, as contrasted to, or perhaps complimented by, registering what should have been occurring, but couldn’t and why.

The documentation must strive to conform to the contract requirements. It is particularly galling to incur the emotional and real cost of producing documentation, only to see the effectiveness significantly undermined because of a failure to conform to the contract. In order to do so, the first step is to read the contract. Not surprisingly, most project level players fail to review and gain an understanding of what the particular project’s documentation requirements may be. Upper level project management (particularly those charged with P/L and risk management) should provide an abstract of the contract’s requirements and ensure that the organization’s processes and protocols can be molded to fit those requirements, and that those documenting the project understand what those requirements are. Don’t fall into the “This is the way we have always done it” trap.

Before drafting that e-mail (and certainly before hitting the “send” button), or before filling out that daily log, documenters should take a breath a read what they are proposing to write and think how it will read a year later. Superintendent and foremen daily logs are often rife with complaints about their own company. Needless to say . . . those come back to haunt them.

Finally, if the documentation is so cumbersome and expensive to retrieve and use, then all the time and effort in preparing it is wasted. As part of an organization’s risk management plan, the use (and power) of technology should be considered. Handwritten daily logs, while perhaps tradition, and clearly served a purpose 30 years ago, are often illegible, incomplete, incoherent, and require a monumental amount of time and resources to be useful in a forensic setting. Innovative (and intelligent and appropriate) uses of ubiquitous programs such as Excel should be considered. (Note: Excel is essentially a data base compilation application. However, to utilize its robustness, the user must recognize the importance and power of entering individual types of data into individual cells, and doing so in a consistent fashion. In other words, it should not be used as word processor.)

Documentation is a key part of any risk management program. However, the difference between an effective risk management program and one that fails is the quality of that documentation and not the quantity produced.

“It is quality rather than quantity that matters.”

Lucius Annaeus Seneca

Andrew T. Englehart
Director of Dispute Resolution Support Services
Construction Process Solutions, Ltd.

Wednesday, June 18, 2014

ARCADIS Global Construction Disputes Report for 2014

If you are active in the Forum at all, you are probably aware that ARCADIS is one of the Forum's most active sponsors.  Indeed, both in Dana Point in 2013 and in Las Vegas in 2012, ARCADIS sponsored the Service Project with the Young Lawyers Section.  

ARCADIS is also a globally recognized construction management and claims assistance firm. In those capacities and for the past four years, ARCADIS has published its Global Construction Disputes report.  Its most recent iteration summarizing the 2013 year in construction disputes is available at this link.

In the report, some intriguing information is provided.  First, Mike Allen, who compiled the report and is the Global Head of Contract Solutions for ARCADIS, noted that he believes that there has been an increase in the number of "Mega Disputes" in which the disputed sums are in excess of $1 billion in American dollars.  These mega-disputes, of course, arise out of mega-projects -- after all, for a claim of $1 billion to exist, the project had better be at least that large itself.  Overall, the average dispute rose by approximately $400,000 over 2012.

A second interesting point can be seen in the causes for disputes.  The most common reason for a dispute arising was identified as being a "failure to properly administer the contract." That replaced "poorly drafted or incomplete and unsubstantiated claims" at the top of the chart, and it underlines an issue that all of us can take to our clients: dispute avoidance starts at the beginning of the contracting process with a full understanding of what requirements for contract administration exist in the contract and how the contract identifies how administration should be undertaken.

The final takeaway from this report in many respects is that performing work in joint ventures is more frequently leading to disputes.  Fully 1 of every 3 disputes that ARCADIS encountered in 2013 involved differences between joint venture parties.  In some areas of the world, that number was even higher -- in the Middle East, 46% of joint ventures ended up in a dispute. As projects get larger, fewer companies can take on the risk of contracting to provide all of the services required to build a project. As a result, more joint ventures are formed.  If these numbers hold true going forward, more disputes may result. 

Tuesday, June 17, 2014

American Arbitration Association Announces New Supplementary Rules for Construction Cases

On June 15, the American Arbitration Association rolled out a new set of supplementary rules aimed at addressing complaints about the increasing costs and durations involved in construction arbitration for those claims that total less than $5 million.  Called The Supplementary Rules for Fixed Time and Cost Construction Arbitration, these supplementary rules are intended to allow the parties to calculate maximum fees for the arbitrator and for the AAA's administration fees at the beginning of their arbitration. 

A copy of the rules is located at this link (note: this link leads to a PDF of the rules).  

What is not new in these rules?  First, the Supplementary Rules do not change how arbitrations involving claims of less than $75,000 are handled.  Those smaller claims have been -- and will remain -- decided by the submission of documents to a single arbitrator.  Second, the Supplementary Rules do not affect large claims of over $5 million.  

What is new?  The Supplemental Rules include several schedules setting forth the fees to be charged based on the size of the largest monetary claim in the case.  For example, using the largest group of claims -- above $1 million to a maximum of $5 million -- AAA Administration Fees will be capped at $10,000.  The maximum days from the claim being filed to the award is 360.  The maximum number of hearing days is limited to ten, and arbitrators are limited to a maximum of 40 study hours compensated at a maximum rate of $350 per study hour.  

Further, the maximum total arbitrator fees are capped at $52,000, not including travel-related expenses and costs incurred based on the remaining fee schedules.  The additional fee schedules include costs for administrative conference calls, site visits, and reviewing post-hearing briefs.  For claims of over $1 million to a maximum of $5 million, administrative conference call arbitrator fees and post-hearing review of briefs are each capped at $1,400 at $350 per hour over a maximum of four hours respectively.  For site visits, a maximum of 8 hours at $350 per hour is allowed for a total fee to the arbitrator of $2,800.

To invoke the procedures under these Supplementary Rules, parties may include provisions within their contracts to provide for this relative cost certainty.  Alternatively, the parties to an existing arbitration may choose to apply the Supplementary Rules to a dispute through a joint submission to the AAA that the parties wish to proceed under the Supplementary Rules.

Another new wrinkle in the Supplementary Rules relates to the notices provided by AAA related to arbitration-related communications.  The AAA requires parties under Supplemental Rule SR-2 to identify a representative other than their attorney -- for example, a company executive or in-house counsel -- identified as the "designated employee" to be included on all communications via e-mail. In the Corporate Counsel article regarding the new rules, AAA construction division vice president Rodney Toben stated his belief that this designated person will "be able to track the case, because they are going to be receiving those communications throughout the life of the case." Toben stated further that the AAA believes that it is "very important" that in-house counsel is kept in the loop on the arbitration process.

In an effort to streamline the procedures, several other Supplemental Rules are worth noting. Under Rules SR-5 and SR-6, the statement of claim and any counterclaims are limited to no more than five pages.  Further, SR-6 limits amendments to either the claim or counterclaim to the time period of thirty days following the filing of the counterclaim, though this time may be extended or changed only by the arbitrator in his or her determination.  

Under SR-9, the parties and the AAA will hold an administrative conference within three days of the filing of the Arbitration Demand (or as soon thereafter as is practicable).  The rule states that this administrative conference is meant to allow the AAA and the parties to explore administrative details and, most importantly, to establish an efficient means to selecting the single arbitrator by ascertaining the parties' preferred arbitrator qualifications.  Within two days of the administrative conference, the AAA will provide a list of at least 10 prospective arbitrators to the parties.  

To select the arbitrator -- and to agree on such issues as the time, date, and place of hearing, the number of days for the arbitration and the allocation of those days between the parties, the time period for and limitations on discovery, and the date by which discovery disputes must be submitted to the arbitrator or be waived -- the parties are required to engage in a Meet and Confer Conference under Rule SR-11.  Rather than relying on the parties to cross out those names that are not acceptable without any discussions with the other party, the Meet and Confer Conference requires the parties to agree on three potential arbitrators ranked in order of preference.  After that, the AAA contacts the prospective arbitrators in order to serve.  If none of the three arbitrators on the list are willing to serve, then the AAA appoints an arbitrator itself.

If the parties fail to reach agreement on any or all of the items set forth in Rule SR-11 at the Meet and Confer Conference, then Rule SR-12 provides that the AAA will appoint an arbitrator off its National Roster of Construction Neutrals.  Within seven days thereafter, the parties may request an administrative call with the arbitrator to resolve any other open issues from the Meet and Confer Conference.

Finally, another interesting twist in the Supplemental Rules is the procedure when a party fails or refuses to pay its share of the arbitration fees.  Under the current Construction Industry Rules, rule R-56 provides that parties cannot be precluded from pursuing their claims even though they have refused or have failed to pay the arbitrator compensation or AAA administrative charges in full.  To make sure that the arbitration goes forward, the AAA generally asks the other party to the arbitration to pay the fees that the first party has not paid.  In many situations, this is an untenable position for a party to be put in -- paying up front for the other party's right to assert a counterclaim against them generally is not something most business people wish to do.  Under the Supplemental Rules, however, Rule SR-22 states that, "[f]ailure of a party to pay requested fees or deposits without good cause shown shall result in a default award. . . . The party seeking a default award must prove its damages to the arbitrator at a scheduled hearing."  

There are a number of other procedures which are vital to the arbitration process which are altered under these Supplemental Rules.  Before using these rules, the parties and their counsel need to review the processes closely to make an informed determination that following these faster-track rules is in the best interest of the parties in resolving their dispute.

Wednesday, June 11, 2014

Recent Amendments to the Federal Rules of Evidence Alter Hearsay Rules

On April 25, 2014, the Supreme Court approved four amendments to the Federal Rules of Evidence that will take effect on December 1, 2014, unless Congress takes another action prior to that time.  These amendments affect Rules 801(d)(1)(B) and 803(6), (7), and (8) of the Federal Rules of Evidence. 
Regarding Federal Rule of Evidence 801(d)(1)(B), the current Rule provides that a statement is not hearsay if it “is consistent with the declarant’s testimony and is offered to rebut an express or implied charge that the declarant recently fabricated it or acted from a recent improper influence or motive in so testifying.”  Amended Federal Rule of Evidence 801(d)(1)(B) will now provide that a statement is not hearsay under the following circumstances:
(B) is consistent with the declarant’s testimony and is offered: 
(i) to rebut an express or implied charge that the declarant recently fabricated it or acted from a recent improper influence or motive in so testifying; or 
(ii) to rehabilitate the declarant’s credibility as a witness when attacked on another ground; …
Therefore, while current Rule 801(d)(1)(B) provides that a prior consistent statement can only be introduced as non-hearsay if the opposing party claims that a witness’s trial testimony is a recent fabrication based upon a recent improper influence of motive, amended Rule 801(d)(1)(B) now allows for the admission of witness’s prior consistent statement for any impeachment purposes.
The amendments to Federal Rules of Evidence 803(6)–Records of a Regularly Conducted Activity), 803(7)–Absence of a Record of a Regularly Conducted Activity, and 803(8)–Public Records, resolve an issue in the case law concerning which party bears the burden to establish the untrustworthiness of business or public records.  Amended Rule 803 clarifies that this burden is held by the opponent to the evidence.  Under the amendments, a business or public record is admissible (assuming all other requirements of the Rule have been met) if “the opponent does not show that the source of information nor or the method or circumstances of preparation indicate a lack of trustworthiness.”
The Supreme Court’s amendments to Rules 801 and 803 are available at:

Friday, June 6, 2014

Superseding the Implied Warranty of Good and Workmanlike Repair in Texas

In a case involving foundation repairs to a residence, the Texas Supreme Court addressed the question of whether the implied warranty for good and workmanlike repair of tangible goods or property can be disclaimed or superseded.  The Court held that the implied warranty cannot be disclaimed, but it can be superseded by the parties. Gonzalez v. Southwest Olshan Foundation Repair Company, LLC, 400 S.W. 3d 52 (Tex. 2013).

In Gonzalez, a homeowner (“Gonzalez”) hired Olshan Foundation Repair Co., LLC (“Olshan”) to repair the foundation of their home.  The repair contract (the “Contract”) included two warranty provisions.  First, the Contract stated Olshan would use the Cable Lock system of foundation repair and would adjust the foundation for the life of the home.  Second, it required Olshan to perform all of the necessary work in a good and workmanlike manner.  Olshan repaired the foundation, but Gonzalez continued to experience foundation problems. 

Gonzalez ultimately sued Olshan for, among other things, breach of express warranty, breach of the common law warranty of good and workmanlike repair, and DTPA violations.  The jury found that Olshan did breach the implied warranty of good and workmanlike repair and committed DTPA violations, but did not breach any express warranty.  The Court of Appeals reversed this holding on the grounds that the implied-warranty and DTPA claims were barred by the two-year statute of limitations.  The case then proceeded to the Texas Supreme Court. 

Olshan argued that its express warranty superseded any implied warranty of good and workmanlike repair.  Therefore, because the jury held Olshan did not breach any express warranty, liability was precluded on Gonzalez’s implied-warranty claims. The Texas Supreme Court agreed.  The Court stated that Texas law recognizes an implied warranty to repair or modify existing tangible goods or property in a good and workmanlike manner, and that such implied warranty cannot be disclaimed or waived.  The Court then analogized this implied warranty with the implied warranty of good workmanship related to new home construction. See Melody Home Manufacturing Co. v. Barnes, 741 S.W.2d 349, 354 (Tex. 1984).  The Court held that the implied warranty of good and workmanlike repair may be superseded if the parties’ agreement sufficiently describes the manner, performance or quality of the services to be provided. 

In the case at bar, the Court found the Contract sufficient to supersede the implied warranty.  The Contract specified the manner, performance or quality of the services by stating that Olshan would perform the work in a good and workmanlike manner and would use the Cable Lock foundation repair system and would adjust the foundation for the life of the home.  Accordingly, because the implied warranty was superseded, the jury’s finding that there was no breach of an express warranty was conclusive on Gonzalez’s claims.  

Monday, June 2, 2014

New ConsensusDocs Contract Between CM and Owner Supposed to Help Avoid Disputes

ConsensusDocs has published a new Construction Management Agency standard agreement, the 831 "Agreement Between Owner and Construction Manager (CM Does Not Provide General Conditions)." The agreement provides an alternative to the ConsensusDocs 830 Agreement, in which the CM provides General Conditions. According to ConsensusDocs, the 831 Agreement provides greater clarity in defining costs, fees and profit to avoid potential claims and disputes. For those of you who have used the new 831 Agreement (I have not yet), please let us know your thoughts.