Friday, January 30, 2015

Ditka Joins D1?

Division 1 member Lisa Heard had a close encounter of the Coach Mike Ditka kind at the Midwinter Meeting of the Forum on Construction Law in Scottsdale, Arizona.

An NFL Hall of Famer and Super Bowl Winning Coach, Ditka apparently heard about the changes that are afoot in Division 1 and wanted to join in the festivities.

Many thanks to Coach Ditka for posing with Lisa and to Lisa for providing this great photo to make those of us not in Arizona jealous!

A New Name and an Updated Mission Statement

Yesterday, via the Division 1 Listserv, Division 1 Chair Nick Holmes made the following announcement:

During the Planning Retreat in Chicago last October, the Steering Committee reflected on Division 1’s name and mission statement, and after a lengthy discussion concluded that they should be updated.  I am pleased to announce that yesterday the Governing Committee approved the requested changes: 

Division 1: Litigation and Dispute Resolution

“Enhancing advocacy skills of construction lawyers in trials, arbitrations, and mediations; and, developing innovative ADR strategies and procedures.”

Many thanks to all who contributed to this effort.

This change to our division's name and mission is meant to reflect that Division 1 is the go-to division within the Forum on Construction Law for advocacy in litigation, arbitration, and mediation as well as the incubator for new ideas in alternative dispute resolution. 

Our blog's focus is meant to reflect this as well, so please consider contributing an article or providing a link to your already-published article related to construction advocacy and ADR.

Thank you for reading!

Tuesday, January 27, 2015

What Kind of Mediator Do You Want?

This is an article published by John Watkins, a partner in the Atlanta office of Thompson Hine LLP. It provides his insight into the characteristics that he looks for when he is trying to select a mediator. 

Hopefully, this will spur your thoughts as to the issues that you should consider when you are selecting a mediator as well. It also could help you try to imagine what mediator your opponent is looking for -- and that may be the person who gets a tough case resolved.

Another question for debate and discussion: are there other characteristics that you look for in selecting a mediator that are not on here? If so, what are those characteristics? Why do you look for them?


What Kind of Mediator Do You Want?

Although I serve as a mediator, my primary role is as a lawyer, representing parties in disputes. Thus, I am often called on to choose a mediator in a case in which my role is as an advocate. Because a dispute involves two (or more) parties, and because the mediator usually must be chosen by agreement, neither party can mandate a particular mediator. Similarly, neither party is obligated to agree to a mediator proposed by the other side.
There are many views on the characteristics of a good mediator, but here is what I look for:
  • Willing to probe and ask tough questions. Back in the day, many viewed a mediator's role as "facilitative," meaning that the mediator was simply to facilitate discussions between the parties and never to express an opinion or an evaluation of the parties' positions. Many attorneys now derisively refer to such mediators as "note carriers." I agree. A mediator has to be prepared to reality test by asking hard questions when appropriate, and to try to move the parties toward settlement.
  • Truly neutral. Although a mediator has to be willing to ask tough questions, I do not want a mediator who definitively favors one party's position over the other's particularly early in the mediation.
  • Practical experience. A mediator needs to bring practical experience to help the parties resolve a dispute. Many lawyers reflexively turn to retired judges. Although retired judges can be good mediators and are particularly useful for some disputes, an experienced lawyer may be a good, and in some instances, better choice. Why? Because lawyers (1) likely have experience in settling similar disputes (as opposed to deciding them), and (2) may have a better understanding for practical and emotional client concerns that are often key to reaching settlement. Regarding the latter, I generally want the mediator, whether a lawyer or retired judge, to have had experience at some point in representing clients.
  • Creative. Many disputes involve more than just a monetary component. A mediator who can bring creative ideas for settlement is extremely valuable.
  • Optimistic. A good mediator has to be optimistic about reaching a dispute. Optimism, coupled with a dose of dogged determination, keeps the parties talking and increases the possibility of a settlement.
Although there are other qualities that can be important, a mediator with these qualities will probably be near the top of my list.

Tuesday, January 20, 2015

Texas Supreme Court Denies General Contractor’s Negligent-Misrepresentation Claim Against Architect for Increased Construction Costs Caused By Deficient Plans

The Texas Supreme Court recently held that the economic-loss rule bars claims of negligence and negligent misrepresentation from a general contractor against an architect because there was no contract between the parties. Instead, the contractor was limited to its claims for breach of contract against the project’s owner. LAN/STV v. Martin K. Eby Constr. Co., 435 S.W. 3d 234 (Tex. Jun. 20, 2014).

The Dallas Area Rapid Transportation Authority (the “Owner”) contracted with the architect, LAN/STV (the “Architect”), to prepare plans, drawing, and specifications for the construction of a rail line within downtown Dallas. The Architect agreed to be responsible for the professional quality, technical accuracy, and coordination of all designs, drawings, specification, and to be liable to the Owner for all damages caused by the Architect’s negligent performance of any of the services furnished. The Owner incorporated the Architect’s plans into its solicitation for competitive bids to construct the rail line. The project was awarded to Martin K. Eby Construction Company (the “Contractor”). The construction contract contained administrative procedures for the Contractor to follow if asserting disputes against the Owner, including any design problems. There was no contact or contractual privity between the Contractor and the Architect.

Just after starting construction, the Contractor discovered that the Architect’s plans were replete with errors. While the Contractor expected that only 10% of the plans would be changed, eventually 80% of the Architect’s plans had to be changed. This greatly disrupted the construction schedule and required additional labor and materials. In total, the Contractor calculated that it lost nearly $14 million on the Project.

After settling with the Owner, the Contractor filed this tort action against the Architect alleging claims for negligent misrepresentation. The jury apportioned some responsibility to the Owner and the Contractor, but found that the Architect was 45% responsible. Judgment was subsequently rendered in favor of the Contractor for about $2.25 million. The Court of Appeals affirmed the judgment.

The Texas Supreme Court analyzed whether the economic-loss rule barred the Contractor’s recovery for negligent misrepresentation. Under the economic-loss rule in Texas, a plaintiff suffering purely economic loss cannot recover under negligence theories against a defendant if the duties allegedly breached arose solely from the defendant’s contract with a third-party. Put another way, the economic-loss rule means that there is “no general duty to avoid the unintentional infliction of economic loss.” Restatement (Third) of Torts: Liability for Economic Harm, § 1.

The economic-loss rule does not create a bright-line standard, and has caused some confusion among courts as to its application. In the construction context, the Court recently explained that the economic-loss rule does not bar an owner’s negligence claims directly against a subcontractor for damage to the owner’s property caused by defective work. Though the owner had no contract directly with the subcontractor, the subcontractor owes all persons (including the owner) the duty to perform its work with reasonable care to avoid causing damage to other persons’ property. In that case, the property damage was to the owner’s property and fell outside the scope of work in the subcontractor’s construction contract with the general contractor. Thus, the owner’s negligence claims were permitted to proceed. Chapman Custom Homes, Inc. v. Dallas Plumbing Co., 445 S.W. 3d  716 (Tex. 2014). The case is analyzed in further detail here.

In the LAN/STV case, in contrast, the Contractor sought to recover only for its increased costs of construction resulting from the Architect’s failure to comply with the standards of performance required under its design contract with the Owner. The Court explained that participants in construction projects typically cannot recover their economic losses from parties with whom they did not contract. A roofing subcontractor, for example, could not recover its economic losses through negligence claims against a foundation subcontractor that caused construction delays by failing to perform its work in a timely manner. Rather, the roofing subcontractor’s recovery, if any, would lie in claims for breach of contract against the general contractor, the only party with whom the roofing subcontractor had an agreement.

With respect to the Contractor’s negligent-misrepresentation claims against the Architect, the Court felt that the same reasoning barred any recovery. This is a divergence from the recent Restatement on the issue, which suggests that an architect’s duty to a contractor arises from the expectation that plans are prepared for contractors to rely upon to carry out the construction. Restatement (Third) of Torts: Liability for Economic Harm, § 6, cmt. b. While the Court agreed with this concept, it held that the contractor’s “principal reliance must be on the presentation of the plans by the owner, with whom the contract is to reach an agreement, not the architect, a contractual stranger.” The Court felt that contractors were sophisticated parties who could protect their interests adequately through allocating risk in their construction contracts with the owners.

As the Court noted, there are significant differences of opinion among various states as to whether contractors may assert negligent-misrepresentation claims against architects absent contractual privity. Indeed, prior to this case, several Texas courts of appeals permitted such claims. However, this case clarifies that, in Texas, contractors may not recover purely economic losses through negligent-misrepresentation claims against architects with whom they lack contractual privity.

Thanks to Ian Fullington at Griffith Davison& Shurtleff, P.C. for assistance with preparing this post.

Texas Trial Courts Are Required to Foreclose on Properly Perfected Mechanic’s Liens

A Texas Court of Appeals reversed a trial court’s statutory interpretation of Texas’s Mechanic’s Lien foreclosure statute, holding that a trial court must foreclose on a mechanic’s lien if the lienholder is entitled to recover damages for unpaid labor and materials and has properly perfected the lien. Crawford Services, Inc. v. Skillman Intl. Firm, L.L.C., 444 S.W. 3d 265 (Tex. App.—Dallas 2014, pet. filed).

The dispute arose out of a breach of contract claim by a subcontractor, Crawford (the “Subcontractor”), against a general contractor, Skillman (the “General Contractor”). The Subcontractor contracted with the Subcontractor to replace and repair the air-conditioning system in the General Contractor’s building. After the General Contractor breached by failing to pay the Subcontractor approximately $140,000, the Subcontractor sued the General Contractor for breach of contract and sought to foreclose on their mechanic’s lien.

After a bench trial, the trial court found that the Subcontractor was entitled to damages for unpaid work and materials, and that it had followed all of the proper procedures to perfect the lien. Having properly perfected, the Subcontractor sought a judgment foreclosing on its lien. However, the trial court refused, interpreting the lien statute to grant it discretion to deny the request. Texas Prop. Code § 53.154.

On appeal, the Subcontractor argued that the lien statute did not grant any discretion to deny foreclosure of a properly perfected mechanic’s lien. Specifically, the Subcontractor asserted that the language “may be foreclosed” should be understood as part of the phrase “may only.” When read in context of the lien statute, “may” means that the only way to foreclose a mechanic’s lien is through a court order. Further, Texas courts have liberally construed the lien statutes to protect laborers and materialmen. See Strang v. Pray, 35 S.W. 1054, 1055 (Tex. 1896) (reaffirmed by the Dallas Court of Appeals).

The Dallas Court of Appeals agreed, reasoning that “may” in the mechanic’s lien statute was purposefully constructed in the passive voice to show that the legislature did not intend for the trial court to be the implied actor. Simply, the only way a lienholder may foreclose a mechanic’s lien is through a judgment of a court of competent jurisdiction foreclosing the lien and ordering a sale of the party subject to the lien. See Lippencott v. York, 24 S.W. 2d 275, 280-81 (Tex. 1983). Thus, once the subcontractor had proven that it was entitled to a judgment for damages and that its lien was perfected, the trial court had to issue a judgment awarding the damages and foreclosing on the lien.

The general contractor filed a petition for review with the Texas Supreme Court, which is pending as of the date of this post.

Thanks to Ian Fullington at Griffith Davison& Shurtleff, P.C. for assistance with preparing this post.

Monday, January 19, 2015

Lunch Presentation on Discovery in Arbitration at the Forum's Midwinter Meeting

Please join Division 1 for a lunch presentation on "Discovery in Arbitration" at the Forum on Construction Law's Midwinter Meeting on Thursday, January 29, 2015, from 11:30 a.m. to 1:00 p.m. 

Clients, arbitrators and litigators understand that the cost of litigation is often driven by the cost of discovery.  The proliferation of electronic communications in business has only made managing the cost of discovery more difficult as parties struggle with the production, processing and review of stockpiles of electronically stored information ("ESI").  State and Federal procedural rules have evolved and expanded to manage the large volume of paper and ESI discovery in construction cases, but the rules which govern most arbitrations are almost silent when it comes to discovery.  In arbitration, decisions regarding discovery - including discovery of ESI - are primarily in the hands of the parties and the arbitrator.  While there is a proliferation of commentary on handling discovery in litigation, there are very limited resources available to guide parties and their counsel on how to deal with discovery in an arbitral setting.  

Join us as we discuss how to balance the need for discovery with the need to reduce arbitration costs.  Panelists Linda Turteltaub (Skanska Corporate Counsel), Nancy Wiegers Greenwald (Construction Dispute Solutions, PLLC) and John Bulman (Pierce Atwood LLP) will highlight best practices for dealing with the biggest issues regarding handling discovery in arbitration and provide insights into how arbitrators, clients and opposing counsel view the process.

Dinner with Division 1 at the Forum's Midwinter Meeting

As many of you know, the ABA Forum on Construction Law is holding its 2015 Midwinter Meeting next week in Scottsdale, Arizona. Divisions 1 and 12 are having dinner on Thursday night at TK's Urban Tavern. Known for its "casual dining, serious food," TK's is a locally owned small business that is committed to supporting local farms.  Its menu features a variety of quality dishes served in a casual atmosphere.  

TK's is located just a short 0.6 mile walk from our hotel, at the east end of Kierland Commons.  We are taking over the whole restaurant for this event, so there will be plenty of opportunities to catch up with friends, both old and new.  We hope you can join us for what promises to be a wonderful event.

Please contact Nick Holmes to RSVP for this event. Space is limited.

Date and Time: Thursday, January 29, 2015 at 8:00 to 10:00 PM

Venue: ​​TK’s Urban Tavern, 15037 N Scottsdale Rd, Scottsdale, AZ, (480) 664-0873

Thursday, January 15, 2015

Be Careful What You Ask For: Tennessee Court of Appeals Upholds Arbitrator’s Attorneys’ Fee Award Based on AAA Construction Industry Rule 45 When Both Parties Requested an Award of Fees

In Lasco Inc. v. Inman Construction Corp., et al., 2015 WL 129024 (Tenn. App. 2015), the trial court had vacated an arbitrator’s award of attorneys’ fees in favor of the defendant general contractor and its surety, concluding that the award exceeded the arbitrator’s power.  On January 9, 2015, the Tennessee Court of Appeals reversed the trial court and upheld the arbitrator’s attorneys’ fee award.

The dispute involved non-payment claims by a subcontractor, Lasco Inc., against the general contractor,  Inman Construction Corp., and Inman’s surety, Travelers Casualty and Surety Company of America.  After a four-day arbitration hearing, the arbitrator denied Lasco’s payment claim and awarded Inman $162,333.44 in attorneys’ fees, plus costs of $12,112.20, which represented the portion of the arbitration fees and expenses incurred by Inman that exceeded the American Arbitration Association’s previous apportionment.

Inman moved to confirm the award, and Lasco moved to vacate the attorneys’ fee award.  Lasco claimed that the arbitrator exceeded his authority because the parties’ contract did not authorize an award of attorneys’ fees.  The trial court agreed with Lasco and vacated the award.  Inman appealed.

The Court of Appeals did not dispute that the contract at issue did not expressly provide for an award of attorneys’ fees.  But, as Inman argued, the parties’ contract incorporated the AAA’s Construction Industry Rules as the rules governing an arbitration under the contract.   Rule 45(d)(ii) provides that an arbitration may “include . . . an award of attorneys’ fees if all parties have requested such an award or it is authorized by law or their arbitration agreement.”  Therefore, the Court of Appeals found that, by virtue of the parties’ incorporation of the AAA’s Construction Industry Rules into their agreement, the parties’ contract did provide for an award of attorneys’ fees if both parties’ requested such an award.

Inman requested an attorneys’ fee award, and so did Lasco.  In fact, Lasco’s attorneys’ fee request was based in part on Rule 45.  Accordingly, the Court of Appeals ruled that the arbitrator had not exceeded his authority by awarding attorneys’ fees to Inman.

For your reference, a copy of the decision is linked here:

Monday, January 12, 2015

In Case You Didn’t Get the Memo, the Role of Local Counsel is Expanding

When your client needs to file a lawsuit in another state, you are frequently not licensed to practice law in the other state. As a result, the company must (typically with your assistance) find a local, out-of-state law firm to serve as local counsel. Sure, you will probably appear as co-counsel along with the local law firm, and as you read this blog post you might be sitting there thinking the local counsel will not do much work. Right? Not so fast.

All too frequently, local counsel take an inactive role in lawsuits, letting the out-of-state lawyers drive the ship. A recent decision from a Delaware state court reminds attorneys that when they serve as local counsel, they must be actively involved in the case. In James v. National Financial LLC, Delaware's Court of Chancery provides a stern reminder regarding local counsel's duties, ultimately holding local counsel liable for sanctions due to improper actions by the out-of-state attorneys and their client. According to the court, the local attorneys should have been more involved in the case and, if they had been, the misconduct might have been prevented.

Courts and ethics opinions in other states have reached similar conclusions. The old "rubber stamping" days of local counsel are seemingly over, at least in an ever-increasing number of jurisdictions. If you are going to be retained as local counsel, you should make sure the out-of-state client and/or attorneys are not just looking for somebody to file their pleadings, or merely looking for a place to take their depositions or store their bags when they’re in town for a court appearance. In addition, you should be prepared to take on an active role in the case and should make sure your client and outside counsel understand and agree with your position from the onset.