The Americas – Page 5 – Construction Law

No Contract, No Problem: HICPA Does Not Prevent Contractors From Recovery Under A Quantum Meruit Theory

Mar 23 2015

By Jackie S. Celender and Leigh Argentieri Coogan, K&L Gates, Pittsburgh

I. HICPA Does Not Foreclose Contractors From Recovery Under A Theory Of Quantum Meruit.

The Supreme Court of Pennsylvania recently held that the Home Improvement Consumer Protection Act, 73 Pa. C.S. § 517.1-517.18 (“HICPA”), does not preclude a contractor from recovering under the theory of quantum meruit in the absence of a valid and enforceable home improvement contract. Shafer Elec. & Const. v. Mantia, 96 A.3d 989 (Pa. 2014). The decision affirmed the holding of the Superior Court of Pennsylvania, albeit on slightly different grounds.

Instead of focusing on the General Assembly’s intent (as the Superior Court of Pennsylvania did),[1] the Court relied on Durst v. Milroy General Contracting, Inc., 52 A.3d 357 (Pa. Super. 2012), holding that “the plain, unambiguous language of Section 517.7(g)[2] does not prohibit the cause of action in quantum meruit.” Shafer Elec. & Constr., 96 A.3d at 996. The Court noted that “[i]t is well settled at common law . . . that a party shall not be barred from bringing an action based in quantum meruit when one sounding in breach of express contract is not available,” and that “[w]hile traditional contract remedies may not be available due to the contractor’s failure to adhere to Section 517.7(a) . . . Section 517.7(g) does not contemplate the preclusion of common law equitable remedies such as quantum meruit when a party fails to comply with subsection (a).” Id. The Court concluded that “[i]f the General Assembly had seen it fit to modify the right of non-compliant contractors to recover in contract or quasi-contract, statutory or common law, or otherwise, it could have done so,” but did not. Id.

The Court’s decision has important implications for contractors’ ability to use Pennsylvania’s mechanics’ lien law, 49 P.S. § 1101, et seq. as a tool in recovering unpaid amounts owed for work performed on a home improvement project. In Pennsylvania, mechanics’ liens must be based on a contract, either express or implied. See 49 P.S. § 1201 (defining “contractor” as one who, “by contract with the owner, express or implied, erects, constructs, alters or repairs an improvement . . . or furnishes labor, skill or superintendence . . . or supplies or hauls materials, fixtures, machinery or equipment reasonably necessary for and actually used . . .”) (emphasis added). The Court’s holding preserves a home improvement contractor’s ability to file and obtain a judgment on a mechanics’ lien based on an implied contract and in the absence of an express contract (i.e., where the contract does not comply with Section 517.7(a) of HICPA).

II. Quantum Meruit Allows Recovery Of The Value Of The Work Performed.

The Supreme Court of Pennsylvania’s decision in Shafer makes clear that contractors found to have an invalid home improvement contract under HICPA are still able to recover money for work performed by bringing a quasi-contract claim under a theory of quantum meruit. Where a contractor is successful in bringing a cause of action in quantum meruit, the contractor is entitled to recover the value of the benefit conferred on the homeowners. See, e.g., Durst, 52 A.3d at 360 (quoting Am. & Foreign Ins. Co. v. Jerry’s Sport Ctr., Inc., 2 A.3d 526, 532 n.8 (2010) (“Quantum meruit is an equitable remedy to provide restitution for unjust enrichment in the amount of the reasonable value of services.”) (citing Black’s Law Dictionary (8th ed. 2004))); Com., Dep’t of Pub. Welfare v. UEC, Inc., 397 A.2d 779, 782 (Pa. 1979) (amount owed under a quantum meruit theory was “the reasonable value of the services performed”). As such, contractors should be prepared to prove the value of the services performed and materials provided on the project to recover under a theory of quantum meruit. Although the cost of materials and labor expended is normally a good proxy for the value conferred on a particular project, contractors should be mindful that under certain circumstances the value conferred may exceed the contractors’ costs and that, in those circumstances, relying on the contractors’ costs may undervalue the contractors’ quantum meruit claim.

III. The Case Law Interpreting HICPA Is Scarce.

There is a relative lack of caselaw interpreting HICPA and stating under what circumstances HICPA should apply. The legislative history of HICPA suggests that HICPA should not apply to all home improvement projects—in particular, those involving sophisticated homeowners (i) who have a contractor that fully performed, and (ii) who have obtained all of the benefits of the contract but have not complied with the burdens (i.e., payment).[3] Given the undeveloped nature of the caselaw interpreting HICPA, contractors attempting to recover payment for unpaid work based on a home improvement contract should (if the facts permit) assert causes of action (or facts supporting causes of action) for both breach of contract and, in the alternative, quantum meruit recovery.

[1] The Superior Court of Pennsylvania focused its rationale on canons of statutory construction to ascertain legislative intent. See Shafter Elec. & Constr., 96 A.3d at 996.

[2] Section 517.7(g) “Contractor’s recovery right,” provides:

Nothing in this section shall preclude a contractor who has complied with subsection (a) from the recovery of payment for work performed based on the reasonable value of services which were requested by the owner if a court determines that it would be inequitable to deny such recovery.

Shafer Elec. & Constr., 96 A.3d at 992.

[3] The General Assembly enacted HICPA to protect vulnerable consumers, such as the elderly, infirm, and first-time homebuyers from predatory contractors (i.e., contractors that abscond with homeowners’ money without completing the work). See 2008 Pa.H.R. Jour., No. 65 p.2292 (Statement of Representative Preston) (“If you care about the senior citizens or the young couple who is buying a first-time starter house and they want to be able to remodel it and not be able to be ripped off,” then “I am going to ask [those] members…to support the Tomlinson bill.”); 2008 Pa.H.R. Jour., No. 64, p.2199 (Statement of Representative Marsico) (the Pennsylvania Legislature’s intent behind HICPA was to “address the problems of home improvement contractors who take people’s money and leave town without doing the work”).

Procurement Strategies for Major Rail Projects: International Railway Summit 2015

Mar 16 2015

London partner Matthew Smith recently attended the International Railway Summit 2015 in Barcelona. The International Railway Summit provides a meeting ground for senior decision makers from the world’s key rail operators, transport ministries and solution providers. Matthew had the opportunity to discuss the importance of risk assessment, project delivery structure, and risk allocation in rail contracts as a presenter at the conference.

To view a copy of the full presentation titled “Procurement Strategies for Major Rail Projects,” please click here.

New Jersey Supreme Court Calls for More Specific Language in Arbitration Agreements: Atalese and Beyond

Mar 03 2015

By Christopher A. Barbarisi, Loly G. Tor, and Christopher J. Archer, K&L Gates, Newark

Introduction:

A recent decision by the New Jersey Supreme Court in Atalese v. U.S. Legal Servs. Grp., and subsequent opinions by New Jersey’s state and federal courts applying Atalese, strongly suggest that arbitration provisions contained in contracts relating to construction and engineering projects and services will not be enforceable under New Jersey law unless they contain clear and unambiguous language signaling that the parties are surrendering their rights to pursue their claims in court.

The Atalese Decision

In its September 2014 opinion in Atalese, the New Jersey Supreme Court reversed the rulings of the lower courts and held that an arbitration provision in a consumer contract was unenforceable because it “did not clearly and unambiguously signal to plaintiff that she was surrendering her right to pursue her statutory claims in court.” Atalese v. U.S. Legal Servs. Grp., L.P., 219 N.J. 430, 99 A.3d 306 (2014). A detailed discussion of the Supreme Court’s holding in Atalese can be found in our October 2014 Commercial Disputes Alert.

Recent Decisions Applying Atalese

In the months since Atalese, New Jersey’s state and federal courts have already cited the Supreme Court’s opinion on several occasions and, in doing so, have rejected arguments that Atalese is limited to consumer contracts and that it does not apply to contracts involving sophisticated business parties and/or parties that are represented by counsel in connection with execution of the contract. To the contrary, New Jersey’s Courts have expanded the Atalese requirement for arbitration provisions to apply to a broad variety of contracts types:

Asset Purchase Agreements: In Rosenthal v. Rosenblatt, the Appellate Division of the New Jersey Superior Court applied Atalese to an arbitration provision contained in an asset purchase agreement for the sale of a dentistry practice. See A-3753-12T2, 2014 WL 5393243, at *4 (App. Div. Oct. 24, 2014). The court held that the arbitration provision was unenforceable because it did not contain “clear and unambiguous language that plaintiff is giving up his right to bring his claims in court or have a jury resolve the dispute,” as required by the Atalese decision, despite stating that all disputes between the parties “shall be exclusively resolved as provided herein through mediation and arbitration.” The court specifically stated that the Atalese requirement for arbitration applied even between parties engaged in sophisticated business transactions.

Condominium Purchase Agreements: In Dispenziere v. Kushner Cos. (the first published opinion to apply Atalese), the Appellate Division held that an arbitration provision contained in purchase agreements between a condominium developer and condominium unit purchasers was not enforceable because, like the provision involved in Atalese, it was “devoid of any language that would inform unit buyers such as plaintiffs that they were waiving their right to seek relief in a court of law.” 438 N.J. Super. 11, 18 (App. Div. 2014). The Appellate Division expressly rejected the position that Atalese—which only involved causes of action pursuant to the New Jersey Consumer Fraud Act and the New Jersey Truth-in-Consumer Contract Warranty and Notice Act—is limited to claims for statutory violations and, instead, held that Atalese applies equally to common-law causes of action. The Appellate Division also rejected the argument that Atalese should not apply when the parties are represented by counsel in connection with the execution of the contract.

Collective Bargaining Agreement: In the Appellate Division’s unpublished opinion in Kelly v. Beverage Works N.Y. Inc., the court applied Atalese to an employment discrimination case and held that an arbitration provision contained in a union employee’s collective bargain agreement (CBA) was unenforceable because the provision did not “put plaintiff on notice that he was waiving his right to try his claims in court.” L-1285-13, 2014 WL 6675261 (App. Div. Nov. 26, 2014). The Appellate Division specifically rejected the argument that Atalese applied only to “consumer service agreement[s],” explaining that it “discern[s] no reason to conclude that employees bound by a CBA should be charged with greater understanding of their rights than the average consumer.”

New Jersey’s federal courts have also applied Atalese on at least two occasions. In Guidotti v. Legal Helpers Debt Resolution, the District Court of New Jersey held that an arbitration provision contained in an agreement to provide debt-adjustment services was unenforceable because it failed to advise the plaintiff of the provision’s effect and significance, “namely, that it bars [plaintiff] from seeking court relief.” No. 11-1219, 2014 WL 6863183, *1 (D.N.J. Dec. 3, 2014). In Ricci v. Sears Hldg. Corp., the District Court cited Atalese and held that an arbitration provision in an employment agreement containing the following language was enforceable: “[This agreement to arbitrate] constitutes a waiver of [the employee’s] right to bring the current action in a court of law and, instead, requires arbitration of [the employee’s] claims.” No. 14-3136-RMB-JS, 2015 WL 333312, at *1, 5 (D.N.J. Jan. 23, 2015).

Moving Forward

On January 21, 2015, the defendant in Atalese filed a Petition for Writ of Certiorari with the United States Supreme Court, arguing that the New Jersey Supreme Court’s decision contradicts the plain language of the Federal Arbitration Act and conflicts with the decisions of other federal and state courts. Whether the Court will grant the Petition in Atalese is questionable. The New Jersey Supreme Court framed the question in Atalese as one of purely New Jersey contract law, and the United States Supreme Court receives approximately 10,000 petitions for a writ of certiorari each year but grants only 75–80. For now, Atalese is binding precedent, and companies doing business in New Jersey should review their contracts to evaluate whether they comply with Atalese. Companies should be mindful that they may face uphill battles enforcing arbitration provisions that were routinely enforced prior to Atalese. Moreover, the opinions in Rosenthal, Dispenziere, Kelly, Guidotti, and Ricci demonstrate that courts will not limit Atalese to statutory claims, and may extend Atalese beyond consumer contracts. Companies should also be mindful that Atalese will apply in federal court when the contract is governed by New Jersey law.

Health Care Industry Finds Cure to Save Time and Money on New Facilities

Feb 05 2015

By Gregory R. Andre, K&L Gates, Chicago

To meet the demands of an aging population and health care reform, many new hospitals and other health care facilities are being built. These projects are typically large, costly and complex and, therefore, merit careful attention to cost control and efficiency. The health care industry is using new teamwork approaches to design and construct new facilities that significantly reduce project costs, shorten schedules, minimize claims and disputes and improve overall project quality.

To read the full alert, click here.

Welcome to the 28th Edition of Arbitration World

Jan 23 2015

Welcome to the 28th edition of Arbitration World, a publication from K&L Gates’ International Arbitration Group that highlights significant developments and issues in international and domestic arbitration for executives and in-house counsel with responsibility for dispute resolution.

To view Arbitration World, click here.

To download a printable PDF of the publication, open the link above and click on the fourth icon from the right in the magazine toolbar at the top of the page

In this edition, we summarise the key provisions of the new LCIA Rules, which came into effect on 1 October 2014, including provisions as to emergency relief and consolidation of arbitrations. We explore some of the issues related to “mediation/arbitration” or “med/arb” as an alternative approach to dispute resolution, and we continue our series on the growth of third-party funding in international arbitration. We include an article about a French court decision with important implications for parties in arbitration who face impecunious respondents or counterclaimants. We examine recent caselaw from Singapore on a gap in the dispute resolution procedures within the FIDIC Conditions of Contract. In a continuation of our series on tiered arbitration clauses, we look at recent developments in England. We analyse an ongoing debate in Australia about the use of investor-state dispute resolution clauses in bilateral investment treaties and look at a recent case in Australia regarding the courts’ approach to the question of when third parties can be bound by an arbitration agreement.

We also provide our usual update on developments from around the globe in international arbitration and investment treaty arbitration.

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

How’s the Weather? Construction Contracts Should Be Prepared for Any Answer.

Jan 12 2015

By Ryan D. DeMotte, K&L Gates, Pittsburgh

Mother Nature can often be an unwelcome intruder on a construction project. Heavy rains, snow, ice, wind, extreme cold, extreme heat; there are any number of weather events that can delay a project. While parties to a construction contract cannot control the weather, they can and should anticipate the possibility of adverse weather and address it in their contracts. Prudent contract provisions addressing bad weather events can help owners and contractors minimize the disputes that can develop when rain, snow, ice, and other weather events delay the project.

A common approach is to give contractors additional time but not costs for weather delays. Many commonly-used contract forms provide for weather-based time extensions if the weather event was “abnormal, “unforeseeable,” or “not reasonably anticipated.” Thus, in order to evaluate a request for a time extension based on adverse weather, the parties must first establish the appropriate weather baseline against which to measure the weather event at issue. Was the rainfall unusually heavy during a particular month? Was the temperature colder than previous years? If the contract itself does not define the baseline weather measurement, this can often be a point of dispute between parties. Some parties may try to minimize these disputes by providing detailed provisions for baseline weather measurements in the contract in the form of 10-year averages or other objective measures. Whether or not these types of provisions are useful depends on the project and its sensitivity to weather variations.

The parties must also determine how the weather caused the delay. Did cold temperatures delay paving work? Did heavy winds or sandstorms prevent the delivery and installation of sensitive equipment? In trying to answer these types of questions, the parties may dispute whether the delays were the result of the abnormal weather or the result of other causes.

Finally, owners and contractors need to consider why certain work was being performed during the adverse weather. For example, if, through a contractor’s own early delays it is still working outdoors at a time when it initially planned to be completing the interior of a building, an owner may be able to argue that the contractor is not entitled to an extension for any weather-related delays to its outdoor work. Conversely, if a contractor’s work is delayed by the owner’s delays, it may have a strong argument for any delays it incurs as it tries to complete the work in less-than-optimal weather conditions. A contractor may also be able to claim costs if it is pushed by owner delays into bad weather.

Given the inherent uncertainty of the weather, some parties decide to build into the contract and project schedule a certain number of extra days to absorb any weather delays.

As the above issues demonstrate, owners and contractors should give careful thought to the various types of weather risks their project may face when negotiating a construction contract and creating the project schedule.

Technological Advances in Construction Payment Management

Jan 05 2015

By Jesse G. Shallcross and Daniel E. Raymond, K&L Gates, Chicago

A number of technology companies offer construction billing-management software designed to assist in the construction invoicing and payment collection process by electronically integrating billing, process claims, lien waiver collection, statutory declarations, sub-tier waivers, compliance management and payments.

Construction billing-management software has become increasingly popular among general contractors; a major reason is the simplification of the lien wavier collection process. Before construction billing-management software, most general contractors managed the lien waiver process manually by creating a spreadsheet of all prime subcontractors, sub-tier contractors, and suppliers. This process was time consuming, prone to error, and required updating. Construction billing-management software eases this process by streamlining the collecting and tracking of lien waivers. When a general contractor uses construction billing-management software, prime subcontractors are required to submit their contractor and material supplier information at the beginning of the project or the start of a new contract. The information input by the prime subcontractors automatically appears in the general contractor’s master tracking index. Further, the master tracking index is updated any time a prime subcontractor enters a change—thereby easing the general contractor’s burden of manually creating a spreadsheet and updating it. The real benefit to general contractors, however, comes from construction billing-management software’s automated prime and sub-tier lien waiver collection process. The software allows for electronic signature of prime and sub-tier lien waivers, and the general contractor’s master tracking sheet is updated as the electronic lien waivers are received. As a further benefit, construction billing-management software automatically prevents payments to subcontractors that are missing or include incorrectly submitted lien waivers. As a result of using construction billing-management software, general contractors can be assured a streamlined and efficient lien waiver process.

But, construction billing-management software’s efficiency does not come without a cost. Often, subcontractors are unaware that projects they are bidding on require the use of construction billing-management software; accordingly, subcontractors take a significant financial hit by being unable to include the subscription cost in their bid. The American Subcontractors Association, Inc., addressed this issue with a leading construction billing-management software company a few years ago; in response, the company altered its pricing from pre-transaction to a subscription model, with the idea this would simplify pricing.[1] With the addition of possible fees for the use of construction-billing management software, subcontractors should be even more vigilant in determining whether a general contractor requires the use of construction billing-management software before bidding on a contract.

[1] Letter from Walter Bazan Jr., President, American Subcontractors Association, Inc., to membership (September 2013), available here.

Here’s a Tip: There are several ways contracts can help you avoid delays in design approval.

Dec 04 2014

By Ryan D. DeMotte and Richard F. Paciaroni, K&L Gates, Pittsburgh

The design/build delivery model offers owners and contractors the potential for greater efficiencies in the construction process, but if the parties do not carefully manage the design review process, the project can experience unnecessary delays to procurement and construction that can cascade throughout the project.

To read more in an article published in the November/December 2014 issue of Construction Today, please click here.

Reposted with permission.

Enforcing Notice Provisions in Construction Contracts in the United States

Oct 20 2014

By Kimberly L. Karr, K&L Gates, Pittsburgh

Notice provisions are a key part of construction contracts. These provisions typically require a contractor to notify the owner of the project (or an owner-designated representative) when the contractor believes that it is entitled to extra costs or additional time for the project. Notice provisions generally require that notice be given within a certain time period and that the contractor back its claim with supporting information.

Notice provisions are often the source of disputes between owners and contractors. This post provides an overview of common issues that owners and contractors in the United States should consider when negotiating notice provisions and addressing notice of potential claims during a project.

Expansion of Statute of Limitations in Illinois under 15th Place Condominium Association v. South Campus Development Team, LLC

Sep 23 2014

By Daniel E. Raymond and Jesse G. Shallcross, K&L Gates, Chicago

General contractors and developers beware—suits for breach of express indemnity now have a longer shelf life in Illinois.

In 15th Place Condominium Association v. South Campus Development Team, LLC, the Appellate Court for First District of Illinois held that a claim for breach of an express indemnity clause contained in a construction contract is subject to a ten-year statute of limitations instead of four.[1] The subject of the dispute was a contract between 15th Place Condominium Association (the “Association”) and South Campus Development Team (the “Developer”) to develop two condominium towers (the “Project”). The Developer contracted with Linn-Mathes, Inc. (the “General Contractor”), who would act as general contractor.[2] The contract between the Developer and the General Contractor included an express indemnity clause and a cause of action accrual provision.[3] By 2003 and 2004, the Project was substantially completed, and, in 2005, the Developer turned over the property to the Association.[4]

Unhappy with the Project, the Association sued the Developer for breach of the implied warranty of fitness and habitability, breach of fiduciary duty, and negligence in 2008.[5] In turn, in 2011, the Developer filed a third-party complaint against the General Contractor for breach of express indemnity, among other claims.[6] At the trial level, the General Contractor successfully argued that the Developer’s claim for breach of express indemnity was untimely and barred by the four-year statute of limitations for construction-related claims.[7]

The appellate court, however, disagreed. Relying on the Illinois Supreme Court’s ruling in Travelers Casualty & Surety Co. v. Bowman, the court overturned the trial court and applied the ten-year statute of limitations for contract claims.[8] In Travelers, the Illinois Supreme Court instructed that when determining whether to apply the ten-year statute of limitations for contract claims or the four-year statute of limitations for construction-related claims, courts must look to the nature of the claim—meaning whether the claims emanates from construction-related activity or a contractual obligation.[9] Applying this test to the express indemnity clause at issue, the court determined that the nature of the claim was for failure to indemnify, a contractual obligation, not from any “act or omission relating to construction activity.”[10] Thus, the ten-year statute of limitations applied and the Developer’s claim for breach of express indemnity was not barred by the passage of time.

[1] 2014 IL App (1st) 122292.

[2] Id. ¶¶ 5-7.

[3] Id. ¶ 43.

[4] Id. ¶ 39.

[5] Id. ¶ 7.

[6] Id. ¶ 10.

[7] Id. ¶¶ 17-20.

[8] Id. ¶ 45.

[9] Id. ¶ 46.

[10] Id. ¶ 52.

Catagory:The Americas

Introduction:

The Atalese Decision

Recent Decisions Applying Atalese

Moving Forward