K&L Gates Construction Law Blog

Upcoming Event: Hot Topics in the Construction Industry

K&L Gates — Tue, 15 Dec 2009 10:55:21 -0800

Please join us at our Washington, D.C. offices on January 26th for a complimentary breakfast seminar that will provide a cross-disciplinary overview of various issues facing the construction industry. Lawyers from our Construction, Government Contracts, Commercial Disputes, Labor & Employment, Real Estate, Intellectual Property, Antitrust, and e-DAT practices will discuss recent legal, regulatory, and legislative developments affecting construction companies and government contractors.

Topics To Include:

Construction claims
Copyrights in architectural drawings
Killer contract clauses
The American Recovery and Reinvestment Act of 2009
Unfair trade issues arising from submitting bids
Bid protests
Insurance coverage issues for construction companies
Commercial lease agreements
Mechanics liens and payment and performance bonds
Employment and immigration issues for government contractors
Document retention and litigation issues related to e-mail and electronically stored information

When:       Tuesday
                  January 26, 2010
                 8:00 - 11:30 a.m.

Where:      K&L Gates
                  1601 K Street, NW
                   Washington, DC 20006-1600

If you have any questions, please email Tricia Stuckey.

To register, please click HERE by Friday, January 22nd.

Maryland Gets Tough On Classification Of Workers As "Independent Contractors"

K&L Gates — Thu, 12 Nov 2009 09:44:28 -0800

By Michael Schrier and Joel Rubinstein

The State of Maryland is cracking down on what it perceives to be a problem with construction or landscaping contractors and subcontractors misclassifying workers as “independent contractors” instead of as “employees.” Maryland’s new enforcement mechanisms have the potential to impose significant penalties for misclassification. As a result of these new enforcement schemes, all construction companies with workers located in Maryland and who are classified as “independent contractors” should carefully review such classifications for compliance with new statutory and enforcement regimes to make sure such workers have not been inadvertently misclassified.

To read the full article, click here.

K&L Gates Arbitration World, October 2009

K&L Gates — Thu, 08 Oct 2009 10:54:30 -0800

From the Editors

Welcome to the 10th edition of Arbitration World, a publication from K&L Gates' Arbitration Group that highlights significant developments and issues in international and domestic arbitration for executives and in-house counsel with responsibility for dispute resolution.

We hope you find this edition of Arbitration World of interest, and we welcome any feedback (email: peter.morton@klgates.com or ian.meredith@klgates.com).

In This Issue

• News from around the World
• The Arbitration Fairness Act: A Fundamental Shift in U.S. Arbitration Policy?
• Saipem v. Bangladesh: The Use of an Investment Treaty to Enforce an Arbitral Award
• ReliaStar Life v. EMC National Life: Second Circuit Allows Award of Attorneys’ Fees as a Sanction for “Bad Faith” in the Face of a Contrary Contract Term
• International Arbitration in Singapore: Recent Developments
• Proposed Changes in the Interface Between Courts and International Arbitration in the EU
• A Sea Change in 28 U.S.C. § 1782 Cases? U.S. Fifth Circuit and Two District Courts Refuse Discovery to Parties to Foreign Arbitrations
• Third Party Funding in Arbitration: A Perspective from England
• Protocol of Enforcement Affords Reassurance on Enforcement of DIFC-LCIA Arbitral Awards and DIFC Judgments Beyond DIFC Boundaries
• Recent English Decisions on Non-Parties to Arbitration Agreements

View the entire October 2009 Edition here.

Pandemic Flu Risk for Major Projects

K&L Gates — Thu, 10 Sep 2009 13:28:49 -0800

By Peter Dzakula, K&L Gates

1. What is the risk?

Since the end of April 2009, when swine flu (Influenza A(H1N1)) was first reported in Mexico and the United States , swine flu has spread globally. It has been reported that there are now almost 36,000 cases in 76 countries (with over 6,000 cases in the UK ). As a result, the World Health Organisation has raised the swine flu alert to "Phase 6" and referred to it as a "global pandemic". At this stage, it has been reported that the symptoms of swine flu have been mild and the number of deaths, globally, have been in line with seasonal flu averages. However, it has been said that if the virus mutates and becomes more virulent it will pose a greater threat, particularly in the winter months. The consequences under construction contracts used for major projects in such a scenario are examined below.

To continue reading, click here.

K&L Gates Enters Middle East with Opening of Dubai Office

K&L Gates — Tue, 02 Jun 2009 11:42:44 -0800

New York and Dubai— Global law firm K&L Gates LLP has established its 33rd office worldwide with the opening of an office in Dubai, the firm’s first in the Middle East. The launch, which follows K&L Gates international office openings in Singapore and Frankfurt earlier this year, includes the addition of partner Paul de Cordova to the firm’s corporate and projects practices, as well as the relocation of one of the firm’s senior dispute resolution partners, Neal R. Brendel, from the firm’s Pittsburgh office.

“The Gulf Region is, has been, and will continue to be of strategic importance to the global economy,” said K&L Gates Chairman and Global Managing Partner Peter J. Kalis. “K&L Gates is delighted to launch our presence in the Region to serve our distinguished clients who are active in the United Arab Emirates and throughout the Middle East.”

With a formidable background in international arbitration and dispute resolution, Neal Brendel will be a co-founder of the firm’s Dubai office. Brendel’s dispute resolution practice has included major matters in various international venues and subject areas.

Brendel stated: “Dubai has demonstrated a commitment to become a leading venue for international dispute resolution. The client community and the international arbitration bar have taken notice. I am pleased to be able to participate in this development on behalf of K&L Gates’ clients.”

Paul de Cordova arrives at K&L Gates from Ashurst, where he worked in the firm’s London, Tokyo, and Dubai offices for the past 16 years, including establishing and managing the firm’s Dubai office and assisting in the opening of a second United Arab Emirates office. An experienced corporate and projects lawyer, de Cordova has worked on a wide range of corporate and commercial matters during his more than 20 year career, including acquisitions and joint ventures; financial regulation; project development and finance transactions in the energy, water, and transportation sectors; general engineering and construction projects; real estate and real estate finance transactions; and government infrastructure projects.

“I am delighted to be joining K&L Gates, where my new colleagues have made me feel very welcome,” said de Cordova. “I believe that the firm’s broad-based practice, client focus, and depth of resources will be attractive to businesses in the Middle East and allow us to stand apart from our competitors. I look forward to working with Neal and others to make this latest firm initiative a success.”

Joining Brendel and de Cordova in Dubai is corporate associate Richard A. Dollimore, formerly of the firm’s London office. Dollimore offers experience in both mergers and acquisitions and public company work, including numerous AIM admissions and fundraisings.

K&L Gates is a global law firm with lawyers in 33 offices located in North America, Europe and Asia, and represents numerous GLOBAL 500, FORTUNE 100, and FTSE 100 corporations, in addition to growth and middle market companies, entrepreneurs, capital market participants and public sector entities. For more information, visit www.klgates.com.

K&L Gates comprises multiple affiliated partnerships: a limited liability partnership with the full name K&L Gates LLP qualified in Delaware and maintaining offices throughout the U.S., in Berlin and Frankfurt, Germany, in Beijing (K&L Gates LLP Beijing Representative Office), in Dubai, U.A.E., in Shanghai (K&L Gates LLP Shanghai Representative Office), and in Singapore (K&L Gates LLP Singapore Representative Office); a limited liability partnership (also named K&L Gates LLP) incorporated in England and maintaining offices in London and Paris; a Taiwan general partnership (K&L Gates) maintaining an office in Taipei; and a Hong Kong general partnership (K&L Gates, Solicitors) maintaining an office in Hong Kong. K&L Gates maintains appropriate registrations in the jurisdictions in which its offices are located. A list of the partners in each entity is available for inspection at any K&L Gates office.

K&L Gates has offices in: Anchorage, Austin, Beijing, Berlin, Boston, Charlotte, Chicago, Dallas, Dubai, Fort Worth, Frankfurt, Harrisburg, Hong Kong, London, Los Angeles, Miami, Newark, New York, Orange County, Palo Alto, Paris, Pittsburgh, Portland, Raleigh, Research Triangle Park, San Diego, San Francisco, Seattle, Shanghai, Singapore, Spokane/Coeur d’Alene, Taipei, and Washington, D.C.

K&L Gates Arbitration World, May 2009

K&L Gates — Mon, 01 Jun 2009 14:07:43 -0800

Arbitration World is an update for clients and contacts on recent developments in international arbitration law and practice.

From the Editors
Welcome to the 9th edition of Arbitration World, a publication from K&L Gates' Arbitration Group that highlights significant developments and issues in international and domestic arbitration for executives and in-house counsel with responsibility for dispute resolution.
We hope you find this edition of Arbitration World of interest, and we welcome any feedback.

In This Issue
• News from around the World
• Enforceability in the United States of Class Action Waivers in Arbitration Agreements: The Third Circuit Court of Appeals Signs On To Majority Trend
• Legal Privilege - A Recurrent Problem in International Arbitration
• Challenges Ahead: Arbitrating with Russian and Eastern European Parties
• More U.S. Courts Permit Discovery in Aid of Foreign Arbitrations, but Texas Dissents: U.S.C. § 1782
• The Right to be Heard: CAS Award Annulled by Swiss Federal Supreme Court
• Recent ICSID Decisions on the Meaning of "Investment"
• U.S. Supreme Court Permits Non-signatories to Arbitration Agreements to Seek Stays of Litigation and Interlocutory Appeals under FAA

View the May 2009 Edition here.

Drafting an Effective International Arbitration Agreement

K&L Gates — Mon, 01 Jun 2009 10:26:53 -0800

By Ian Meredith, K&L Gates

This chapter was first published in the PLC Cross-border Dispute Resolution Handbook 2009/09 Volume 2: Arbitration Handbook and is posted here with permission.

All too often the dispute resolution clause is the clause that receives the least attention. Pre-existing clauses are cut and pasted from existing agreements with little or no assessment made of the suitability of specific provisions, often late in the life of the drafting process. While any form of dispute resolution clause is rarely high on a party’s list of priorities when the contract is drawn up, the terms of that clause may well be crucial in the event of a dispute.

This chapter considers:

• The essential requirements of a valid agreement to arbitrate.
• Core provisions of an arbitration clause.
• Further optional provisions to address specific requirements.
• The interaction with other forms of dispute resolution.

To read the rest of this chapter, click here.

The Brave New World of Disputes

K&L Gates — Fri, 08 May 2009 12:21:42 -0800

Climate change, energy and the financial crisis will require an array of resolution mechanisms

The National Law Journal, April 14, 2009
By Ian Meredith, Laura Atherton and Marcus M. Birch

Changes to the global landscape during the next two decades are expected to drive a new generation of disputes. Climate change and unprecedented pressure on world resources -- including carbon-based energy sources, minerals, food and water -- will be among the key structural drivers.

At the same time, the global financial crisis and the rise of state capitalism seem set to provide the catalyst for further financial and economic conflicts.

This new generation of disputes will call for a sophisticated range of dispute resolution mechanisms and may challenge existing structures. Arbitration may be the primary focus for the resolution of natural resource-based conflicts that are commonly both international and technically specialized, but court-based litigation and the consensual alternative dispute resolution also will play key roles.

Read the entire article here at Law.com.

Arbitration of Disputes Arising from the Financial Crisis

K&L Gates — Thu, 19 Mar 2009 11:48:16 -0800

By: Clare Tanner & Paul F. Donahue

The current turmoil in financial markets has led to an increase in disputes involving financial institutions. Parties may have entered into transactions in better times with little consideration given to the forum in which future disputes would play out. In today’s far more challenging circumstances, the choice of forum may be central to the satisfactory resolution of disputes.

In some areas, it is common for disputes involving financial institutions to be resolved through arbitration. The Financial Industry Regulatory Authority (FINRA) is the largest self-regulatory organization, i.e., non-governmental regulator, for all securities firms doing business in the United States. (FINRA’s rulemaking, however, is subject to approval by the Securities and Exchange Commission (SEC).) Both individual and institutional customers can require a FINRA member to arbitrate disputes. Indeed, most, if not all, securities broker/dealers will refuse to do business with customers who do not agree to arbitrate disputes. Disputes between FINRA members may also be submitted to arbitration.

The financial crisis has resulted in a dramatic increase in the number of cases referred to FINRA arbitration. In 2007, slightly more than 3,000 arbitration cases were filed. In 2008, the number was almost 5,000 and the upward trend has only increased in 2009. The number of cases filed in January 2009 was double that of a year earlier.

An award handed down by a FINRA tribunal last month, arising from transactions in auction rate securities, illustrates the enormous magnitude of disputes arising from the financial crisis and the speed with which they can be resolved through arbitration. The FINRA tribunal ordered Credit Suisse Securities USA LLC, a brokerage unit of the Swiss bank, to pay $400 million to its customer STMicroelectronics NV, a European semiconductor maker. STMicroelectronics claimed it had authorized Credit Suisse to make investments in top-rated securities backed by U.S. Government guaranteed student loans, but instead the funds were invested in collateralized debt obligations some of which were backed by sub-prime mortgages. The entire process including 28 hearing sessions over two months took just under a year. Any court proceeding would undoubtedly have taken far longer. Nonetheless, STMicroelectronics, according to the award, incurred more than $4 million in legal fees during that time.

While FINRA members can be compelled to arbitrate customer disputes and most require their customers to agree to arbitrate disputes, other financial institutions have traditionally been reluctant to commit to arbitration and have preferred to submit disputes to national courts. Some of the risks and benefits associated with arbitration as a means of resolving disputes involving financial institutions can be illustrated by reference to FINRA’s procedures.

Confidentiality

As is common with arbitration, FINRA arbitrations are confidential. The evidence submitted and procedural and substantive hearings are not open to the public. Although FINRA arbitral awards are made public, that is the exception, not the rule for most arbitrations unless the parties agree otherwise. FINRA awards are not necessarily fully reasoned and may simply amount to a requirement that one party pay as was the case in the STMicroelectronics case. Under a recent rule approved by the SEC, however, beginning next month, if both parties request it, FINRA arbitrators will have to give an “explained decision,” i.e., “a fact based award stating the general reasons for the decision” but which need not include legal authorities or damage calculations.

Confidentiality can be a significant attraction of arbitration as it avoids both financial institutions and their institutional clients airing their dirty laundry in public. In current markets, disputes may give rise to a damaging loss of confidence in the financial institution. Equally, even if sophisticated institutional customers feel they have been misled by a financial institution, they may wish to avoid public allegations that they share some responsibility or may not want detailed aspects of their financial dealings laid open to public scrutiny. In disputes between sophisticated commercial enterprises, the risk of adverse publicity is seldom limited to one party.

Arbitration will not be appropriate where a financial institution seeks to establish a legal precedent that will be publicly available. Only a court ruling can provide that and, of course, it can be a double-edged sword.

The Tribunal

FINRA’s arbitration rules for customer disputes generally provide for a three-person tribunal with one “industry member” and two independent members. Under a rule change effective at the end of this month the size of cases to be decided by a single arbitrator will increase to $100,000. Three-arbitrator panels are intended to provide both industry knowledge and experience while also protecting the customer’s interests, but some have criticised such panels as too industry friendly. Under a pilot program now underway for 400 cases, several securities firms have agreed to have panels made up of three independent arbitrators. FINRA’s approach may not be appropriate in all cases and, for example, the arbitration rules of the London-based City Disputes Panel provide that the tribunal will usually consist of a legally qualified chairman and two experienced financial services practitioners.

Given the complex and technical nature of modern financial products, there may be a significant advantage in decisions being reached by tribunals with necessary expert knowledge. Both financial institutions and their institutional customers may prefer such a tribunal to the vagaries of a jury trial in the U.S. The speed at which law and market practice change are such that, even in jurisdictions where disputes may come before an experienced judge, a tribunal made up of industry experts may still be preferable.

Procedure

Recent rule changes have sharply curtailed the ability to obtain a summary determination of a dispute in FINRA arbitrations. The loss of the opportunity of having a frivolous claim dismissed at an early stage may be unattractive for respondents and correspondingly attractive for claimants in those jurisdictions where summary determination is only available to a claimant. However, expedited procedures are available by agreement between the parties in both FINRA arbitrations and in other arbitral rules. Equally, the absence of, or restrictions on, wide-ranging discovery exercises and pre-trial depositions found in FINRA and other arbitral rules may mean that, even without a summary determination, arbitration is still more attractive than litigation through national courts.

Finality

The ability to challenge an arbitration award is usually strictly limited and FINRA arbitration is no exception. The attraction of a final award is that the cost and risk associated with any given dispute can be more easily judged. The prospect of a defaulting party endlessly prolonging the proceedings while attempting to protect assets against enforcement is greatly diminished as is the prospect of a successful party deciding to settle simply to end the bloodletting.

Enforcement

Many financial transactions will have an international element, as illustrated by the STMicroelectronics case. A party may be reluctant to commence proceedings in the home court of the other party fearing “home advantage.” Even if the parties agree to resolve disputes in the courts of a neutral state, many national courts will not permit parties to “manufacture” jurisdiction and simply will not hear such cases. Even when they do, the successful party still faces the cost and difficulty of enforcing that judgment in another country.

Arbitration awards made in a country which is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards can be enforced in any other Convention State, by the local court giving effect to the award as if it were a court judgment. This is subject to limited, mostly due process, exceptions.

Conclusion

Arbitration is not a panacea — as with litigation through the courts, expense and delay can be features of arbitration — but there are advantages for disputes between financial institutions or between financial institutions and their institutional clients, particularly where there is an international element. Even parties who did not commit to arbitration at the outset may still agree, after a dispute has arisen, that arbitration is a more suitable dispute resolution mechanism. A failure to consider arbitration may leave parties at a disadvantage and, of course, it is always best to make the decision at the outset, before disputes arise.

K&L Gates Arbitration World, March 2009

K&L Gates — Sun, 15 Mar 2009 12:14:06 -0800

Arbitration World is an update for clients and contacts on recent developments in international arbitration law and practice.

From the Editors

Welcome to the 8th edition of Arbitration World, a publication from K&L Gates' Arbitration Group that highlights significant developments and issues in international and domestic arbitration for executives and in-house counsel with responsibility for dispute resolution.

We are pleased to announce the opening on March 2nd of our office in Singapore. This represents our fifth Asia office and 32nd location worldwide, including offices in eight of what many view as the key venues for international arbitration: Paris, London, Hong Kong, Singapore, Beijing, New York, Washington, D.C. and Miami.

We hope you find this edition of Arbitration World of interest, and we welcome any feedback.

In This Issue

• News from around the World
• Global Recession – Trends in Arbitration
• Do The IBA Rules On The Taking Of Evidence In International Commercial Arbitration Need To Be Amended?
• The ABA’s “Revised” Disclosure Checklist for Arbitrators: Lipstick on a Pig?
• The Anti-Suit Injunction after West Tankers
• Novation of Contracts and Agreements to Arbitrate
• Second Circuit Holds That the Federal Arbitration Act Does Not Authorize Pre-hearing Document Discovery from Non-Parties to an Arbitration
• Arbitration and Wrongful Death Claims in Texas
• Arbitrating Antitrust and Competition Law Issues in Germany

View the March 2009 Edition here.

Washington Supreme Court Holds the Statute of Limitations Does Not Apply to Safeco Field Construction

K&L Gates — Thu, 12 Mar 2009 14:39:59 -0800

Wash. State Baseball Stadium Pub. Facilities Dist. v. Huber Hunt & Nichols-Kiewit Constr. Co., 202 P.3d 924 (Wash. 2009)

The Washington Supreme Court recently issued a decision in Wash. State Baseball Stadium Pub. Facilities Dist. v. Huber Hunt & Nichols-Kiewit Constr. Co. that may have far-reaching impact on other public construction projects. In that case, the Court unanimously held the statute of limitations does not apply to claims regarding the construction of Safeco Field brought by the owner, the Washington State Baseball Stadium Public Facilities District (“PFD”), because the construction was for the common good of the state.

At issue were construction defect claims filed by the PFD against its general contractor. The PFD alleged the general contractor failed to follow the intumescent fire protection specification for structural steel members, causing a catastrophic failure of the fire protection. The PFD discovered the defect in 2005, and filed the lawsuit in 2006. This was more than seven years after substantial completion of Safeco Field; the applicable statute of limitations for contract claims is six years. RCW 4.16.040.

The Supreme Court overturned a summary judgment dismissal of the PFD’s claims granted by the trial court, and held that the statute of limitations does not apply. The Court relied on statutory language providing that limitation periods do not apply “to actions brought in the name or for the benefit of the state.” RCW 4.16.160. The majority of the Court’s opinion grapples with the question of whether the PFD brought the construction defect action “for the benefit of the state.”

To decide whether the action was brought for the benefit of the State, the Court analyzed whether the action arose out of the PFD’s delegated sovereign state powers or its proprietary powers. Generally speaking, a municipal act arises out of sovereign powers if the act is for the common good, and it involves proprietary powers if it is for the specific benefit or profit of the particular public entity. In creating the PFD, the state legislature delegated broad state powers to the PFD to “acquire, construct, own, remodel, maintain, equip, reequip, repair, and operate a baseball stadium.” The Court noted it had previously held that providing public recreational benefits is traditionally a sovereign function. The PFD’s construction of Safeco Field was for the provision of public recreational benefits and therefore an exercise of the PFD’s sovereign powers. The lawsuit arose out of these sovereign powers, and thus, the statute of limitations did not apply.

The Court reviewed court decisions and gave some examples of sovereign powers, which may inform future court decisions:

• Operation of street lights and traffic signals
• Construction of schools
• Imposition of taxes
• Leasing of port yards
• Improvement, construction, and maintenance of public parks and swimming pools

The Court noted other prior decisions and gave some examples of proprietary powers as well:

• Production of electricity
• Operation of a municipal water system

The Court remanded for further consideration whether the general contractor’s claims against the subcontractor that installed the intumescent fire protection were subject to the statute of limitations. A recent article in the Seattle Daily Journal of Commerce indicates that the general contractor also may raise issues about the design specifications for the fire protection once the case is resumed in the trial court.

If you have any questions about these issues, please call Athan Tramountanas, Tom Wolfendale, or Jesse Franklin.

Constructing liability: Maintaining corporate protection

K&L Gates — Mon, 09 Mar 2009 11:36:59 -0800

Fort Worth Business Press, March 9, 2009
By K&L Gates Partner, David Coale

A critical component is shipped from Asia, sent across Texas by a distributor, and used on a Fort Worth construction project before it breaks and causes weeks of delay. Who in this “stream of commerce” may be responsible?

The owners of a corporation are generally protected from liability for the acts of the company. Even so, under the “single business enterprise” doctrine, Texas law once held that a company could be responsible for the liability of another if they shared a name or operations such as accounting, employees, offices, and finances.

Read the entire article here.

Court Declines to Find Construction Company "Statutory Employer" of Injured Worker, Denies Construction Company's Motion for Summary Judgment

K&L Gates — Tue, 17 Feb 2009 13:30:54 -0800

Baugh v. Gale Lim Holdings, Inc., 2009 WL 33149 (D. Idaho Jan 5, 2009)

In this case, Gale Lim Construction contracted with the State of Idaho to repair portions of the Tin Cup Highway. Lim contacted Silver Star Communications before excavating, as required, and Silver Star then sent its employee, John Baugh, to the jobsite to mark its fiber optic cable. Baugh was injured and brought a tort action against Lim.

Lim filed a motion for summary judgment claiming that worker's compensation law made it a "statutory employer" of Baugh and therefore immune from tort claims. Baugh defended the motion by arguing that immunity was not applicable in this case where there was no contract between Lim and Silver Star. Holding that a question of fact remained as to the existence of a contract, the court denied the motion.

Idaho Code § 72-223 grants immunity to two categories of statutory employers:

(1) "those employers described in section 72-216, Idaho Code, having under them contractors or subcontractors who have in fact complied with the provisions of section 72-301, Idaho Code" and (2) "the owner or lessee of premises, or other person who is virtually the proprietor or operator of the business there carried on, but who, by reason of there being an independent contractor or for any other reason, is not the direct employer of the workmen there employed."

(Citation ommitted.) Lim argued that it was a statutory employer of Baugh through its contract with Silver Star and Silver Star’s compliance with Section 72-301. Baugh argued that immunity was not applicable because there was no contract between his employer and Lim. Accordingly, the court stated that “Lim’s motion for summary judgment turns on whether Lim had a contract with Silver Star.”

In a contract dispute, “it is incumbent upon the plaintiff to prove a distinct and common understanding between the parties.” In this case, the court found that Lim had not carried its burden of proving such an understanding.

Moreover, the court found that Lim oversimplified the holding of a prior case by suggesting that “when a person is present in furtherance of an entity’s business, the business is entitled to immunity under Idaho’s worker’s compensation statutes.” Rather, the Idaho Supreme Court has stated:

To determine who is a virtual proprietor or operator, the Court must consider whether the work being done pertains to the business, trade, or occupation of the owner or proprietor and whether such business, trade, or occupation is being carried on by it for pecuniary gain. Generally, to find a business or person to be a statutory employer, the work being carried out by the independent contractor on the owner or proprietor's premises must have been the type that could have been carried out by employees of the owner or proprietor in the course of its usual trade or business. In short, if a person is normally equipped with manpower and tools to do a job and nevertheless contracts it to another employer, he is the statutory employer of the second employer's employees.

Robinson v. Bateman Hall, Inc., 139 Idaho 207, 76 P.3d 951 (Idaho 2003). Here, the court found “that simply was not the case...”

Instead, the court found “the more reasonable” interpretation of the evidence suggested that Lim had a statutory duty to contact Silver Star prior to beginning work at the jobsite and that Silver Star sent Baugh to the jobsite to locate and protect its own lines, not to further Lim's pecuniary interest. Accordingly, the court held that “at the very least” there was a question of fact as to whether Lim and Silver Star had a “sufficient meeting of the minds to create a contract between them” and denied Lim’s motion for summary judgment.

Court Determines That A Builder May Seek Equitable Indemnity Against A Manufacturer Under California's Right to Repair Act

K&L Gates — Tue, 03 Feb 2009 09:46:55 -0800

Greystone Homes, Inc. v. Midtec, Inc. 168 Cal.App.4th 1194 (Cal. Ct. App. 2008)

California’s Right to Repair Act (Civil Code section 895 et. seq. or the “Act”) establishes a set of standards for residential construction and provides tort liability for failing to meet those standards. The Act was enacted in response to the California Supreme Court’s decision in Aas v. Superior Court, 24 Cal.4th 627, 636 (2000), which held that “[i]n actions for negligence, a manufacturer’s liability is limited to damages for physical injuries; no recovery is allowed for economic loss alone.” In other words, under Aas, the “economic loss rule” precluded recovery for damages such as “the difference between price paid and value received, and deviations from standards of quality that have not resulted in property damage or personal injury.” The Act, however, abrogated the Aas decision by permitting a homeowner that established a violation of the Act to recover economic losses from a builder, among others, without having to show that violation caused property damage or personal injury.

In the recent case of Greystone Homes, Inc. v. Midtec, Inc., the California Court of Appeal ruled on the following two issues that had not been previously addressed under the Act: (1) whether a builder may recover for economic loss caused by a product manufacturer’s violation of the Act through a claim for equitable indemnity against that manufacturer; and (2) whether that builder may bring a direct action for negligence against the manufacturer to recover its economic losses. As discussed below, the court concluded that a builder may bring an action for equitable indemnity to recover economic loss as a result of a manufacturer’s violation of the Act, but a direct claim for negligence is not permitted.

Greystone Homes, Inc. (“Greystone”) was a homebuilder that developed and built a new home community in Chula Vista, California. Greystone entered into a plumbing subcontract with Production Plus Plumbing, which then purchased a plumbing system from Radiant Technologies, Inc. (“RTI”). RTI purchased plastic fittings for its plumbing system from the manufacturer, Midtec, Inc. (“Midtec”).

After construction, several unit owners experienced leaks in their plumbing system and complained to Greystone. After investigating the matter, Greystone determined that the fitting failures were caused by a molding defect in Midtec’s manufacturing process. Greystone determined it was highly likely that there would be additional failures in units that had not yet actually experienced a failure and replaced all of the Midtec fittings. The total cost to replace all the fittings was $1,494,904, although the repair cost for fittings that had actually failed was $106,000.

Greystone brought an action against RTI and Midtec, but reached a settlement with RTI. Under the settlement, Greystone was paid $460,000, an amount that exceeded its costs to repair water damage caused by fittings that actually failed. Having settled with RTI, Greystone proceeded with its case against Midtec under causes of action for equitable indemnity and negligence per se. Midtec filed a motion for summary judgment generally arguing that the Act only permits a homeowner (and not a builder) to bring an action pursuant to the Act and, since the Act does not apply, under Aas, the economic loss rule precluded Greystone from recovering additional damages for the cost to replace fittings that had not failed or caused property damage. For its part, Greystone argued that it was entitled to bring its action against Midtec and that the Act imposed liability for economic loss on product manufactures that violate the Act. The trial court granted Midtec’s motion on the grounds that Greystone, as a builder, could not bring an action for violation of the Act and, because the Act did not apply, the traditional economic loss rule prohibited Greystone from recovering for damage where the fittings had not actually failed and caused property damage.

On appeal, the court was not persuaded by Midtec’s argument that the Act did not apply. The court explained that in an action for equitable indemnity under California law, both the builder and the manufacturer may be liable for construction defects that cause physical damage or property damage, so long as there is some basis for tort liability against the proposed indemnitor. The court held that the Act imposes such liability and specifically provides that product manufacturers shall be liable to homeowners “to the extent that the manufacturer caused, in whole or in part, a violation of the Act’s standards as the result of negligence or a breach of contract.”

Thus, the appellate court concluded that a homeowner may recover economic losses from a manufacturer for a violation of the Act’s standards that is caused by the manufacturer’s negligence or breach of contract. In light of that basis for liability against Midtec, Greystone’s derivative equitable indemnity claim was permissible because it was based on Midtec’s joint legal obligation with Greystone to the homeowners (and not Greystone’s direct liability to Midtec). Accordingly, the court reversed the trial court and held that Greystone was entitled to pursue its equitable indemnity action against Midtec.

The court further ruled that Greystone could not pursue an action directly against Midtec for negligence per se based on the alleged violation of the Act. The court noted that the Act contains no language authorizing or even referring to a direct action brought by a builder against an entity of any kind. Because the Act does not suggest that Greystone is a member of the class of persons that the Act was intended to protect, and because Greystone and Midtec did not share a “special relationship” to place them within a narrow exception to the economic loss rule, the court concluded that Greystone may not recover its economic losses from Midtec in a claim of negligence per se, but may continue to pursue its equitable indemnity claim against Midtec.

K&L Gates Arbitration World, January 2009

K&L Gates — Thu, 15 Jan 2009 11:14:00 -0800

Arbitration World is an update for clients and contacts on recent development in international arbitration law and practice.

From the Editors

Welcome to the 7th edition of Arbitration World, a publication from K&L Gates' Arbitration Group which highlights significant developments and issues in international and domestic arbitration for executives and in-house counsel with responsibility for dispute resolution.

In This Issue

• News from around the World
• Prospects for Investment Treaty Claims Arising Out of the Financial Crisis
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Idaho's High Court Analyzes 15 Factors for Determining Whether a Worker is an Independent Contractor or an Employee

K&L Gates — Wed, 14 Jan 2009 13:02:08 -0800

Excell Constr., Inc., v. Idaho Dep’t of Commerce and Labor, 145 Idaho 783, 186 P.3d 639 (2008)

This appeal arises out of an Idaho Industrial Commission finding that certain sheetrock workers hired by Excell Construction were employees rather than independent contractors. At issue was whether Excell would be required to pay $6,353 in unemployment insurance taxes and penalties. On appeal, the Idaho Supreme Court held the workers were independent contractors and reversed the Commission’s finding.

Excell gave the sheetrock workers the option of becoming employees or working as independent contractors. Later, the Idaho Department of Commerce and Labor audited Excell and determined the workers who had elected to be independent contractors were actually employees and were subject to unemployment insurance taxes. For the workers to qualify as independent contractors, Excell would have had to satisfy the two-part test in Idaho Code § 72-1316(4) and show (a) that the workers had been and would continue to be free from control or direction in the performance of their work, both under their contracts and in fact, and (b) that they were engaged in an independently established trade, occupation, profession, or business.

In analyzing the second prong of the test, the court discussed 15 factors listed in Idaho Administrative Code § 9.01.35.112.04 used to determine whether the workers were engaged in an independently established business. Those factors are:

1. Skills, qualifications, and training required for the job;
2. Method of payment, benefits, and tax withholding;
3. Right to negotiate agreements with other workers;
4. Right to choose sales techniques or other business techniques;
5. Right to determine hours;
6. Existence of outside businesses or occupations;
7. Special licensing or regulatory requirements for performance of work;
8. Whether the work is part of the employer’s general business;
9. The nature and extent of the work;
10. The term and duration of the relationship;
11. The control of the premises;
12. Whether the worker has the authority to hire subordinates;
13. Whether the worker owns or leases major items of equipment or incurs substantial unreimbursed expenses
14. Whether either party would be liable to the other party upon peremptory or unilateral termination of the business relationship; and
15. Other factors which, viewed fairly in light of all the circumstances in a given case, may indicate the existence or lack of an independently established trade occupation, profession or business

The court engaged in a very fact-driven analysis of each factor and ultimately found the sheetrock workers were independent contractors. The court did not give one factor more weight than another, and criticized the Commission for not analyzing every factor. The court ultimately found that the workers in question satisfied enough of the 15 factors and therefore concluded the workers were independent contractors. Excell was not required to pay the $6,353 in unemployment insurance taxes and penalties and was awarded its costs and attorney fees on appeal.

Contractual Limitation of Liability in Engineer / Survey Contract Upheld

K&L Gates — Tue, 06 Jan 2009 12:02:01 -0800

Blaylock Grading Co., LLP v. Smith, 658 S.E.2d 680 (N.C. Ct. App. 2008)

In this case, a grading contractor sued a surveyor (who was also an engineer) for breach of contract and negligence regarding mistakes in surveying work which resulted in the contractor having to incur costs to import fill to raise the elevation of the site. The contract between the contractor and surveyor contained a provision limiting the surveyor’s liability to $50,000. The surveyor unsuccessfully moved for partial summary judgment based on the limit of liability. Following a jury verdict against the surveyor for $574,714, the surveyor moved for judgment notwithstanding the verdict, which the trial court denied, ruling that the limit of liability was void as against public policy. The North Carolina Court of Appeals reversed the trial court, holding that the limitation of liability was valid and enforceable.

Blaylock Grading Company, LLP, a grading contractor, entered into a contract with Neil Smith and Neil Smith Engineering, Inc., pursuant to which Smith would provide land surveying services for Blaylock regarding a military housing project on which Blaylock was working. The contract contained a “Risk Allocation” provision which limited Smith’s liability to the greater of $50,000 or the Defendants’ fee, or such other amount specified in the contract ($50,000 ended up being the relevant amount). This provision applied, without limitation, to liability for negligence, errors, omissions, strict liability, breach of contract, or breach of warranty. Pursuant to the contract, Smith surveyed the site to determine the extent of grading needed by Blaylock. Smith negligently set the site benchmarks 1.66 to 1.7 feet higher than specified in the design plans. Smith’s error required Blaylock to import substantial amounts of compacted fill to raise the overall elevation of the site. Blaylock filed suit against Smith alleging breach of contract and negligence. At trial, a jury found in favor of Blaylock. Smith moved for judgment not withstanding the verdict which was denied upon a finding that the limit of liability was void as against public policy.

The Court of Appeals reversed, holding that North Carolina law allows a professional engineer/land surveyor to limit its liability when contracting with another party. Citing existing North Carolina law, the court reasoned that the limit of liability provision was valid, as both parties were sophisticated professionals that were capable of conducting an arms length business transaction.

The court also rejected the trial court’s determination that the provision was void on public policy grounds. The trial court reasoned that land surveying services are extensively regulated, and thus fall within the “public service” exception to the usual rule that contractual limitations of liability are valid. The Court of Appeals disagreed, noting that just because land surveyors and engineers are regulated by the state and are required to be licensed does not convert these professions into public services. Second, the court noted that when a breach of contract between two parties involves only economic loss the health and safety of the public are not implicated.

Lastly, the court held that North Carolina’s anti-indemnity statute, N.C. Gen. Stat. § 22B-1, deals with indemnity agreements and therefore was not applicable to this case.

Foreign Contractor's Failure to Register with Secretary of State Does Not Void Contract or Arbitration Clause

K&L Gates — Mon, 22 Dec 2008 13:50:15 -0800

City of Westfield v. Harris & Assocs. Painting, Inc., 567 F. Supp. 2d 252 (D. Mass. 2008)

In this case, the Federal District Court for the District of Massachusetts allowed a contractor’s motion to compel arbitration and remanded the case to arbitration despite the fact that the contractor failed to register as a foreign corporation with the Massachusetts Secretary of State as required by M.G.L. c. 30, § 39L.

In this dispute, the City of Westfield partially paid the contractor, claiming the right to withhold the remaining amount because the contractor did not complete the project on time. The parties agreed to arbitrate the dispute pursuant to an arbitration clause in the contract. During arbitration, the City discovered that the general contractor had failed to register with the Massachusetts Secretary of State as required by M.G.L. c. 30, § 39L, which requires certification of foreign corporations performing public works contracts in Massachusetts. In light of this failure, the City filed a complaint in the Massachusetts Superior Court requesting a stay of arbitration and a declaratory judgment holding the contract illegal and unenforceable. After removal to the federal district court, the City filed motions for summary judgment and dismissal of Harris’ counterclaims.

The court held that the issue of whether the contract was valid, in light of the contractor’s failure to register, was a threshold issue for judicial review rather than determination by an arbitrator. Ultimately, the court concluded that the contractor’s technical violation of M.G.L. c. 30, § 39L did not frustrate that statute’s fundamental purpose, and thus did not void the contract or the arbitration clause. Accordingly, the court remanded the remaining substantive issues to arbitration.

Court Rules Contractor's Failure to File Action or Counterclaim to Enforce Lien within 20 days in Compliance with the Statute Requires Discharge of the Lien

K&L Gates — Wed, 05 Nov 2008 13:59:34 -0800

Brookshire v. GP Constr. of Palm Beach, Inc., 99 So.2d 179 (Fla. Dist. Ct. App. 2008)

In Brookshire, an owner filed a complaint to discharge a contractor’s lien and the clerk issued an order to show cause under Florida Statute Sec. 713.21(4). Accordingly, the contractor had 20 days to show cause as to why his lien should not be enforced by action or vacated and cancelled of record. Failure to do so would result in cancellation of the contractor’s lien. The contractor filed a motion to compel arbitration and set it for hearing within the 20 day period, but did not respond to the show cause order. The contractor argued that the motion to compel satisfied Section 713.21. The appellate disagreed and directed the trial court to discharge the lien.

The contractor had argued that the motion to compel arbitration satisfied Section 713.21 because the dispute would ultimately be arbitrated and the contractor wanted to avoid any issue as to whether he was waiving arbitration. The court held that Section 713.21 does not allow for exceptions, such as extensions of time, nor does it leave the court with any discretion to excuse a failure to comply. The court also noted that any concern regarding waiving arbitration could have been satisfied by contemporaneously filing a motion to arbitrate those issues that were allegedly subject to arbitration.

Court Holds Action on Performance Bond Accrues Upon Contractor's Acceptance of Subcontractor's Work and Payment for that Work in Full

K&L Gates — Sat, 25 Oct 2008 09:02:40 -0800

BDI Constr. Co. v. Hartford Fire Ins. Co., 2008 WL 4568075 (Fla. Dist. Ct. App. Oct. 15, 2008)

In BDI Construction Co., a subcontractor filed a third party action on a sub-subcontractor’s performance bond. The surety moved for summary judgment claiming that the agreed five-year statute of limitations under Florida Statute Section 95.11(2)(b) began to run when the subcontractor accepted the sub-subcontractor’s work as complete and paid for the work in full. The subcontractor on the other hand argued that the statute of limitations began to run when the entire project was completed and accepted by the owner. The subcontractor relied on the Florida Supreme Court’s opinion in Fed. Ins. Co. v. Southwest Florida Retirement Ctr., Inc., 707 So. 2d 1119, 1121 (Fla. 1998), which stated that Section 95.11 “as it applies to an action on a performance bond, accrues on the date of acceptance of a project as having been completed according to the terms and conditions set out in the construction contract.”

The Third DCA noted that Federal Insurance, Co. did not deal with a dispute between a contractor and a subcontractor, nor a situation where the owner refused to accept the project as completed. Therefore, the court held that in the context of a subcontract, where a contractor accepts the work of a subcontractor and pays for that work in full, the action on performance bond accrues when the subcontractor finishes its work. The court interpreted the holding in Federal Insurance, Co. in this context to mean that the “project” is the sub-contracted work, and the construction contract is the sub-contract.