California Supreme Court Finds that When it Comes to Intentional Interference Claims, Public Works Projects are Just Different, Special Even
April 20, 2017 —
Garret Murai - California Construction Law BlogEarlier, we reported on a California Court of Appeals decision – Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc. – which held for the first time that a second-place bidder on a public works contract could sue a winning bidder who failed to pay its workers prevailing wages, under the business tort of intentional interference with prospective economic advantage.
Fast forward nearly two years, several amicus briefs, and “one doghouse”* later and the California Supreme Court has . . . reversed.
The Roy Allan Slurry Seal Case
To catch you up, or rather, refresh your recollection . . .
Between 2009 and 2012, American Asphalt South, Inc. was awarded 23 public works contracts totaling more than $14.6 million throughout Los Angeles, Orange, San Bernardino and San Diego counties. Two of the losing bidders on those projects – Roy Allan Slurry Seal, Inc. and Doug Martin Contracting, Inc. – sued American in each of these counties for intentional interference with prospective economic advantage as well as under the Unfair Practices Act (“UPA”) (Bus. & Prof. Code §§ 17000 et seq.) and the Unfair Competition Law (“UCL”) (Bus. & Prof. Code §17200).
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Garret Murai, Wendel Rosen Black & Dean LLPMr. Murai may be contacted at
gmurai@wendel.com
Insurer Has Duty to Defend Despite Construction Defects
January 06, 2012 —
CDJ STAFFIn a case the judge attributed to “shoddy masonry work,” the US District Court of Illinois has rendered a decision in AMCO Insurance Company v. Northern Heritage Builders. Northern Heritage built a home in Chicago for Michael McGrath (who joined Northern Heritage as a defendant). According to the decision, “seven months after he moved into the house, McGrath noticed water coming in the house and warped millwork.” This was attributed to porous block, installed by the mason with Northern Heritage’s knowledge.
McGrath sued National Heritage for both the damage to his house and its contents. The court rejected his claim for the contents. For the damages to his house, he was awarded $601,570.50 in damages. He also sued his homeowner’s insurance carrier for damages not covered in his suit against National Heritage. There he was awarded $1,130,680.16.
AMCO informed National Heritage that it had neither duty to defend nor duty to indemnify. The judge considered whether AMCO had a duty to defend. Under Illinois law, “damage to a construction project resulting from construction defects is not an ‘accident’ or ‘occurrence’ because it represents the natural and ordinary consequence of faulty construction.” However, it is noted that while if the defects lead only to damage to the project itself, there is no occurrence, “if the building owner asserts damages to other property besides the construction itself, there is an ‘occurrence’ and ‘property damage.’” The judge further noted that were construction defects an occurrence, “shoddy work” would be rewarded by double pay, once by the homeowner and a second time by the insurer. Judge Kendall concluded that as McGrath had alleged damage to the contents of his house, AMCO had a duty to defend National Heritage.
She then looked at the issue of whether AMCO had a duty to indemnify. Should they pay the $601,570.50? Judge Kendall noted that “the duty to indemnify is narrower than the duty to defend.” The key point here was that once McGrath’s insurance carrier covered him for the damage to the contents of his house, “AMCO’s duty to defend ended.” Once McGrath “only sought damages for the natural consequences of faulty workmanship” there was no occurrence, hence nothing for AMCO to cover.
Judge Kendall granted a summary dismissal of AMCO’s claim that they had no duty to defend while upholding their claim that they had no duty to indemnify.
Read the court’s decision…
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Construction Trust Fund Statutes: Know What’s Required in the State Where Your Project Is Underway
June 22, 2020 —
Christopher D. Cazenave - ConsensusDocsConstruction trust fund statutes have been around for decades. At least 15 states have passed similar statutes. Other states, but not all, do not have an express statute but have interpreted state law to hold that payments received by a general contractor and deposited in a business account establishes a “trust fund.” See e.g., Cal. Bus. & Prof. Code § 7108.
The purpose of these laws is straightforward—protect contractors and suppliers against nonpayment for the labor and materials provided for the construction or repair of property. But while the purpose is straightforward, each state’s law differs by imposing different requirements, different privileges, and different remedies. This article provides an overview of how these statutes work as well as a sampling of important requirements and potential pitfalls that you should look out for when a construction trust fund statute applies to your project.
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Christopher D. Cazenave, Jones Walker LLPMr. Cazenave may be contacted at
ccazenave@joneswalker.com
How to Protect a Construction-Related Invention
May 10, 2021 —
Patrick Barthet - Construction ExecutiveThey say necessity is mother of invention. That was surely true for Johan Vaaler, who in 1899 decided he was tired of having to sew pages together to keep them organized. Voila, enter the paper clip. This wasn’t the case for Percy Spencer. He was a radar tube designer working at Raytheon who, while working in front of an active radar set, noticed the candy bar in his pocket started to melt. Exploring the phenomenon further, he placed corn kernels in front of the radar and behold, he ended up with the world’s first microwaved popcorn. He patented the microwave oven in 1945.
Whether by necessity or by accident, what should contractors do if they develop a unique tool to accomplish some portion of their work faster, easier or less expensively? How do they protect it from misappropriation by competitors, or by an errant employee? We are all familiar with the fact that in today’s internet-driven market, it has become very easy to reverse engineer and knock off an innovative product.
The best way to safeguard an invention is, of course, to register it with the appropriate government agency:the United States Patent and Trademark Office (USPTO). Generally done with the assistance of a patent lawyer, the process is neither inexpensive or abbreviated. It could cost several thousand dollars and take 12 to 18 months. But, more importantly, this is not sufficient. Inventors must regularly monitor their patents to police possible infringers. Many folks think the USPTO does this, but it does not.
Reprinted courtesy of
Patrick Barthet, Construction Executive, a publication of Associated Builders and Contractors. All rights reserved.
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Mr. Barthet may be contacted at
pbarthet@barthet.com
How Small Mistakes Can Have Serious Consequences Under California's Contractor Licensing Laws.
February 15, 2018 —
Eric Reed - Myers, Widders, Gibson, Jones & Feingold, LLPIn construction, some risks have nothing to do with how well a contractor executes a project. Licensing problems is one of these risks. Even a brief lapse caused by an unintentional administrative error can give the CSLB grounds to discipline a contractor, or enable a customer to seek disgorgement and other remedies provided by Business and Professions Code section 7031. This article discusses five tips for mitigating the liabilities associated with licensing problems.
Tip 1: Take workers' compensation insurance very seriously. Workers’ compensation insurance problems can trigger license suspension in California. Business and Professions Code section 7125.4 calls for automatic suspension if a contractor cannot provide proof of workers’ compensation insurance for any period of time. This is particularly serious for residential remodelers who claim exemption for workers’ compensation but are later discovered – usually during litigation with a homeowner – to have “off the books” workers helping them. Courts can declare the contractor retroactively unlicensed under these circumstances and order it to disgorge,
i.e., to pay back, every penny paid by the customer for the entire project (even for materials). (Bus. & Prof. Code, § 7031, subd. (b);
Wright v. Issak (2007) 149 Cal.App.4th 1116.) The contractor will also find itself unable to collect any amounts owed to it by the customer. (Bus. & Prof. Code, § 7031, subd. (a).)
Tip 2: Watch out for licensing confusion after a merger or acquisition. The economic downturn of 2008 and 2009 resulted in consolidation throughout the building industry. The newly merged or acquired entities often allowed redundant licenses to expire, assuming they could complete all pending projects under the umbrella of the acquiring company's license. Many learned this was a mistake the hard way. Armed with the California Supreme Court's opinion in
MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co., Inc. (2005) 36 Cal.4th 412, customers began refusing to pay invoices and demanding disgorgement under Business and Professions Code section 7031 because the original contractor did not maintain licensure “at all times.” Many of these customers succeeded.
Tip 3: If a license suspension has occurred or is imminent, prepare to prove substantial compliance. Section 7031(a) and (b) give a disgruntled or indebted customer every incentive to capitalize on a contractor's licensing problems. Subdivision (e) is where a contractor must turn to protect its interests if this happens. It allows the contractor to prove “substantial compliance” with licensing requirements and avoid (a)’s and (b)’s sharp edges if it can show the following:
(1) The contractor “had been duly licensed as a contractor in this state prior to the performance of the act or contract”;
(2) It “acted reasonably and in good faith to maintain proper licensure”; and
(3) It “acted promptly and in good faith to remedy the failure to comply with the licensure requirements upon learning of the failure.”
The Court of Appeal confirmed in
Judicial Council of California v. Jacobs Facilities, Inc. (2015) 239 Cal.App.4th 882 that a contractor, upon request, is entitled to a hearing on these three factors before it is subjected to disgorgement under Section 7031(b). The legislature amended Section 7031 shortly after the Court of Appeal published this case. The Assembly’s floor analysis went so far as to directly quote the opinion’s observation that penalizing a construction firm for “technical transgressions only indirectly serves the Contractors Law’s larger purpose of preventing the delivery of services by unqualified contractors.” (Assem. Com. on Bus. and Prof., Off. of Assem. Floor Analyses, analysis of Sen. Holden's No. 1793 (2015-2016 Reg. Sess.) as amended August 2, 2016, p. 2.) This echoed an industry consensus that clarifying the law was needed to ensure that properly licensed and law-abiding construction firms were not “placed at fatal monetary risk by malicious lawsuits motivated by personal gain rather than consumer protection.” (Assem. Com. on Judiciary, com. on Assem. Bill No. 1793 (2015-2016 Reg. Sess.), pp. 6-7.)
Unfortunately, existing law does not give many examples of what it means to act “reasonably and in good faith to maintain proper licensure” or to act “promptly and in good faith” to fix license problems. A practical approach is for a contractor to work backwards by assuming it will need to prove substantial compliance at some point in the future. Designated individuals within the organization should have clear responsibility over obtaining and renewing the proper licenses and should keep good records. If necessary, these designees can testify about the contractor's internal policies and their efforts to fix licensing problems when they arose. For example, if the suspension resulted from not providing the CSLB proof of workers’ compensation insurance, the designee can testify about the cause (a broker miscommunication, transmission error,
etc.) and produce documents showing how he or she worked promptly to procure a certificate of insurance to send CSLB. Saved letters, emails, and notes from telephone calls will provide designees and their successors with an important resource months or years down the line if a dispute arises and the contractor is required to reconstruct the chronology of a licensing glitch and prove its due diligence.
Tip 4: Don't sign new contracts unless all necessary licenses are active and any problems are resolved. A recently-formed contractor should not begin soliciting and signing contracts until all required licenses are confirmed as “active.” The first requirement of substantial compliance – being “duly licensed as a contractor in this state prior to the performance of the act or contract” – cannot be met by a contractor that first obtains its license mid-project. (Bus. & Prof. Code, § 7031, subd. (e)(1);
Alatriste v. Cesar’s Exterior Designs (2010) 183 Cal.App.4th 656.) A licensed contractor should also consider refraining from signing new contracts if there is any reason to believe its license might be suspended in the near future – especially if the suspension will be retroactive. Having a suspension on record at the time of contracting may complicate the question of whether the contractor was “duly licensed . . . prior to performance” for the purposes of substantial compliance.
Tip 5: Any judgment against a contractor can cause license suspension if not handled promptly and correctly. The Business and Professions Code authorizes the CSLB to suspend the license of a contractor that does not pay a construction related court judgment within 90 days. The term “construction related” is interpreted to include nearly all types of disputes involving a contractor. (16 Cal. Code Reg. 868;
Pacific Caisson & Shoring, Inc. v. Bernards Bros. Inc. (2015) 236 Cal.App.4th 1246, 1254-1255.) This means a contractor should treat a judgment against it for unpaid office rent, for example, as one carrying the same consequences as one arising from a construction defect or subcontractor claim. The contractor should also not assume that filing an appeal, or agreeing with the other side to stay enforcement, automatically excuses the 90-day deadline in the eyes of the CSLB. It does not. A contractor must notify the CSLB in writing before this period expires, then post bond for the amount of judgment, if it wishes to delay payment for any reason. (Bus. & Prof. Code, § 7071.17, subd. (d).) A suspension may result if it does not. This applies even to small claims judgments.
Recent case law and the 2016 amendments to Business and Professions Code section 7031 provide some solace to those caught in the dragnet of California's licensing laws. But avoiding these problems altogether is preferable. Consider licensing the foundation of a successful business and deserving of the same attention as the structures a contractor builds.
Eric R. Reed is a business and insurance litigator in the Ventura office of Myers, Widders, Gibson, Jones & Feingold, LLP.
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Eric Reed, Myers, Widders, Gibson, Jones & Feingold, LLPMr. Reed may be contacted at
ereed@mwgjlaw.com
Electronic Signatures On Contracts: Are They Truly Compliant?
April 10, 2023 —
Rebecca S. Glos - ConsensusDocsElectronic Signatures On Contracts: Are They Truly Compliant
As companies move to work-from-home situations in the wake of the COVID-19 pandemic, the issue of whether electronic signatures are legally recognized becomes more relevant. For many platforms, an electronic signature merely requires logging in, clicking a button, or typing your name. This process, which replaces the mighty pen and quill, is so effortless that oftentimes an electronic signature may feel like it does not carry the same weight as a handwritten signature. Thus, the question that we should be asking ourselves is whether the law recognizes this type of signature as being valid? Additionally, if electronic signatures are, indeed, valid, are there exceptions on whether they can be used?
Difference Between “Electronic” And “Digital” Signatures
Before delving into this issue, an understanding of some related terms may be helpful. In basic terms, an electronic signature (or “e-signature”) is any signature created or captured through a computer or other electronic device. Electronic signatures can include touch-sensitive screens where you use your finger or a stylus to sign your name as you would on a paper document. Electronic signatures can also include forms where you merely type in your name and perhaps other identifying information, then check a box stating that you intend to sign the document. They cover the full range of technologies and solutions to create signatures electronically such as:
- Clicking “I Agree” on a website;
- Signing with your finger on a mobile device;
- Typing your name or PIN into an online form; or
- Using e-signature software
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Rebecca S. Glos, Watt, Tieder, Hoffar, & Fitzgerald, LLP (ConsensusDocs)Ms. Glos may be contacted at
rglos@watttieder.com
Updates to the CEQA Guidelines Have Been Finalized
February 06, 2019 —
Pillsbury's Construction & Real Estate Law Team - Gravel2Gavel Construction & Real Estate Law BlogThe California Natural Resources Agency (CNRA) recently posted final adopted text for amendments to the CEQA Guidelines. The result of over five years of development efforts by the Governor’s Office of Planning & Research and CNRA, the amendments are the most comprehensive update to the CEQA Guidelines since 1998. In “Natural Resources Agency Finalizes Updates to the CEQA Guidelines,” Pillsbury environmental attorneys Norman F. Carlin, Kevin Ashe and Eric Moorman explore the wide range of issues covered in the amendments, including the new Vehicle-Miles-Traveled (VMT) methodology for analyzing transportation impacts; use of regulatory standards as significance thresholds; environmental baselines; and numerous procedural and technical improvements.
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Pillsbury's Construction & Real Estate Law Team
Drowning of Two Boys Constitutes One Occurrence
August 06, 2014 —
Tred R. Eyerly – Insurance Law HawaiiWhen two boys drowned at a summer camp, the issue arose as to whether there were one or two occurrences. Fellowship of Christian Athletes v. AXIS Ins. Co., 2014 U.S. App. LEXIS 13176 (8th Cir. July 11, 2014).
The two boys could not swim, and their camp permission forms indicated that they were non-swimmers. One night, the Fellowship of Christian Athletes (FCA) had a pool party. After the party, the FCA staff realized the two boys were missing. They had drowned, and their bodies were found lying side-by-side at the bottom of the deep end of the pool. The death certificate for one boy listed the time of death as 10:44 p.m., while the other boy's time of death was listed as 10:42 p.m.
The FCA was insured under three policies. AXIS Insurance Company insured FCA under a CGL policy with $1 million limits per occurrence and $5 million in the aggregate. The FCA also had two umbrella policies, one issued by Ironshore Speciality Insurance Company, which provided up to $10 million in coverage in excess of Axis's policy. Under the second umbrella policy, RSUI Indemnity Company covered up to $5 million in excess of the Axis and Ironshore policies.
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Tred R. Eyerly, Insurance Law HawaiiMr. Eyerly may be contacted at
te@hawaiilawyer.com
