Best Practices Construction Law : Construction Lawyer & Attorney : Matthew DeVries : Stites & Harbison Law Firm : Green Building & LEED Litigation

I received an email last week from Kent Starwalt of the Tennessee Road Builders Association that reminded me of how important it is to check your particular state's laws when you have a legal question. This particular issue involved the applicability of E-Verify, which varies by jurisdiction, and the recent changes to the law in Tennessee.

The Federal Law. E-Verify is a federal electronic work authorization verification service created by the U.S. Department of Homeland Security and first introduced in 2003. All employers are already required under federal law to verify the work status of new hires, via the I-9 process. This process requires employers to complete an employment eligibility form required by Homeland Security for new hires, excluding independent contractors.

Tennessee Law. The new Tennessee law now imposes these same requirements under state law. Effective July 1, 2012, employers with 200-499 employees must be in compliance with the “Tennessee Lawful Employment Act.” That law requires employers to check the employment eligibility of new hires and mandates that most Tennessee employers either use the federal E-Verify program or review certain identification documents of new employees and independent contractors.

Safe Harbor. An employer’s obligation to use the I-9 process under federal law will not change. However, the new law will remove the safe harbor protection for employers under current Tennessee law where the lawful verification information is later determined to be false. In addition, it will require employers to either request and maintain a copy of one of certain identification documents, such as a drivers license, or, alternatively, to enroll in the E-Verify program.

Unlike laws in several other states, the Tennessee law does not require employers to use E-Verify. Rather, it attempts to bring the existing employment verification process (essentially, the I-9 process) within the reach of the State, while also encouraging–but not requiring–the use of E-Verify. On the other hand, in one respect it goes further than certain other state laws, by also requiring businesses to review the driver’s licenses or other valid document for 1099 non-employees (independent contractors) to show lawful presence in the U.S.

The law provides a safe harbor for employers who use the E-Verify program to verify the status of an employee if the employee is later found to be in the country illegally.

Application in Stages. The provisions of the law took effect on January 1, 2012 for employers with 500 or more employees. It will apply to private employers with 6 to 199 employees on January 1, 2013. The law will not apply to employers with five or less employees. An employee is defined as "any individual for whom an employer must complete a Form I-9 pursuant to federal law and regulation, and does not include an independent contractor as defined by 8 USC Sec. 1324a and its regulations."

Violations. Employers who fail to follow to this law will be subject to harsh penalties. For a first violation, an employer will be subject to a penalty of $500 and an additional $500 for each non-verified employee or non-employee. A second violation will result in a $1,000 penalty and an additional $1,000 for each non-verified employee or non-employee. A third or subsequent violation will result in a penalty of $2,500 and an additional $2,500 for each non-verified employee or non-employee.

Image: Jonathan McIntosh

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I was working in our Virginia office this past week and was amazed at the amount of highway construction at and around Tyson's Corner.  What also caught my attention was the progress of the 495 Express Lanes project, which includes the construction of high occupancy toll (HOT) lanes that will operate on the I-495/Capital Beltway.

As the U.S. moves toward the construction of "smart" highways as an integral part of our transportation system, state DOTs and localities will be called upon to broaden the horizons of their normal procurement and contracting systems. Undoubtedly, many legal issues will arise as high-tech companies compete for contracts that offer the likelihood of substantial follow-on business in order to maintain compatibility.

"Improvement" versus "Construction". Presently, a few cities, states, toll road and turnpike authorities are in the process of procuring electronic toll-collection (ETC) systems. Many are procuring those systems under state statutes that call for competitive bidding of all construction contracts. The question has come up, however, whether those government entities are required to award contracts after public bidding. That question was considered in the 1995 decision called In the Matter of AT/Comm, Inc. v. Peter Tufo, 652 N.E.2d 915 (N.Y. 1995), where the New York Court of Appeals made an interesting distinction.

In 1991, the New York State Thruway Authority, together with similar agencies in New Jersey and Pennsylvania, formed an interagency committee (IAG) to evaluate electronic toll-collection systems that would be compatible among the three states. The IAG issued a request for proposals for both "read only" (which scan information from a windshield tag) and "read/write" (which are needed when tolls are determined by entry and exit points) systems. AT/Comm and Amtech Systems, both ETC-system manufacturers, submitted proposals for the contract to install the ETCs at designated sites along the New York State Thruway.

In 1993, without public bidding, the authority entered into a $1.7 million contract with Amtech for the manufacture and installation of an interim read-only ETC-system. This system would be used pending the IAG's selection of a fully integrated read/write system that would eventually replace it. Upon contract award, AT/Comm filed a petition seeking to stop the contract between Amtech and the authority. It also sought an order stopping the authority from entering any contract for the ETC-system without first conducting competitive bidding in accordance with the appropriate New York statutes.

In the litigation, AT/Comm argued that the ETC-system was an "improvement" of the thruway within the meaning of the New York competitive-bidding statute, which required a public bidding. Amtech and the authority disagreed, arguing that the contract for the installation of the ETC-system was not a contract for "construction, reconstruction or improvement" of the thruway and, as a result, was not subject to the competitive-bidding requirement. The Court of Appeals agreed with Amtech and the authority.

The Court of Appeals noted that the New York statute requires public bidding where the work undertaken is for the construction, reconstruction or improvement of the actual road or passageway used for traffic. The aim of the E-Z Pass system, however, was not to improve the roadway but to improve the flow of the traffic on it.

Lesson Learned. Competitive-bidding statutes were enacted by state legislatures to protect the public against fraud, favoritism, corruption, extravagance and improvidence in the award of public contracts. The idea behind such statutes is to require contract-award decisions to be based on objective criteria. Electronic toll-collection contracts are generally awarded after proposals are technically evaluated by consultants.

Public entities need to make sure they are not drafting specifications aimed at favoring one competitor over another. They should also establish criteria on how proposals will be evaluated and make evaluations of competing proposals fairly. Finally, they should ensure that their consultants are not biased. Given the subjectivity involved in this process, the cost of preparing proposals and the potential economic gain of being considered by several governmental entities who seek to make their systems compatible, there is great likelihood for disputes and litigation in the future.

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Today's guest post is by J. Matthew Kroplin, a fellow attorney at Stites & Harbison PLLC.  Matthew is a member of the Business Litigation and Creditors' Rights & Bankruptcy Service Groups. He represents and advises clients in the areas of business and commercial litigation, bankruptcy and financial restructuring, and construction law.  Matthew has represented a number of contractors in construction claims, business litigation, and employment matters.

 During this session of the Tennessee General Assembly, which ended about a month ago, state legislators approved the so-called “Loser Pays” rule, with the stated intention of discouraging frivolous claims in Tennessee courts.

This rule essentially requires that a judge assess litigation costs to a party who successfully seeks dismissal of a claim that does not have a basis in fact or law. These recoverable costs include reasonable and necessary attorney fees and are capped at $10,000. Governor Haslam has since signed the legislation into law as Public Chapter 1046 (pdf).  The “Loser Pays” rule will not apply to:

• any claims filed before July 1, 2012;
• claims by or against the government;
• any claim that is dismissed by the granting of a motion that was filed more than 60 days after service on the moving party of the latest pleading containing that claim;
• any claim that is withdrawn or amended to state a claim upon which relief may be granted, as long as notice of such is given by the earlier of the response deadline or at least 3 days prior to the hearing on the motion;
• actions by pro se litigants, except where the court finds that the pro se party acted unreasonably;
• claims seeking to extend, modify, reverse, or challenge the constitutionality of existing law, or claims of first impression, as long as one of those reasons is specially plead; and
• claims that stated relief that could be granted when filed but subsequent law removed the right to relief.

As you might expect, much of the legislative discussion focused on possible unintended consequences, such as whether the new rule will inhibit judges from granting a motion to dismiss whenever possible or whether this law will effectively impede access to the courts for individual citizens and small business owners. On the other side of the issue, though, proponents argued that the new rule will reduce pointless lawsuits and will increase judicial efficiency. Either way, it will certainly be interesting to see how this plays out in future lawsuits.

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Words matter. Yesterday, the Supreme Court of Tennessee released its decision in a construction dispute between Ray Bell Construction Company and the Tennessee Department of Transportation.  Where the contractor won the first two rounds at the trial court and intermediate appellate court levels, TDOT prevailed in the final appeal.

The Dispute.  The primary issue in dispute was whether the completion date in the parties' contract could be amended or moved to account for the impact of increased quantities and other delays.  TDOT argued that the completion date could be modified for purposes of the disincentive payment and liquidated damages, but under no circumstance could the date be modified for purposes of the incentive payment.  The contractor argued that the date could be modified for all purposes, including the incentive payment.  Ultimately, the claims commissioner awarded the contractor the $2.5 million early completion bonus, finding that the incentive date provision could be amended consistent with prior instances.

The Court of Appeals affirmed the claims commissioner's finding that “a definite latent ambiguity exist[ed] for which parol evidence not only is admissible, but frankly, absolutely necessary in both understanding and deciding the issues in this case."  

In a short opinion [pdf], the Supreme Court reversed that finding and concluded that the contract language was plain and ambiguous.  When the contract language is unambiguous it is the duty of the courts to interpret the contract according to its plain terms. According to the Court,"TDOT's refusal to extend the incentive date beyond December 15, 2006, was therefore consistent with the contract."

Lessons Learned.  The RBCC case is worthy for a number of reasons:

1. The appellate court decisions provide a good overview of the public contracting claims process. Like many other jurisdictions, the Claims Commission in Tennessee resolves claims involving tax recovery, state employee workers' compensation, negligence by state officials or agencies, and contract claims involving the State. The RBCC dispute went to trial before a claims commissioner and was appealed to the Court of Appeals and Supreme Court.
2. The case summarizes the two sides to a contract interpretation question.  Like almost every construction dispute, the contract will determine the rights and obligations of the parties.  In this case, a $2.5 million early incentive payment was at stake and the decision turned on whether there was an ambiguity in the parties' contact and what evidence could be used to resolve that ambiguity.  The Court of Appeals described in detail the ambiguity in the contract, where the Supreme Court found the contract unambiguous.
3. The case involved a truly "interesting" factual story.  The dispute involved a multi-million dollar claim ... design delays ... easement delays ... unexecuted change orders ... quantity overruns ...  contract ambiguities ... a compelling letter by the state agency ... a compelling letter by the federal agency ... and much more.

It appears to be the end of the road for this claim.  Noticeably absent from the Supreme Court's decision is any discussion of the circumstances leading up to this particular contract, which arguably formed the basis of the trial court's initial decision and the intermediate appellate court's decision.  The evidence included prior projects where the incentive date was allowed to be modified, as well as letters between TDOT and the Federal Highway allowing for a change to the incentive payment date.  The Supreme Court's opinion was silent on these issues most likely because it found the contract to be without ambiguity.

[Note: I was involved in this case along with lead counsel Greg Cashion at the trial court and court of appeals, but I moved law firms to Stites & Harbison before the appeal had been taken to the Supreme Court.]

Image: Blue RidgeKittie

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A few weeks ago I received my diploma in "moderating panels for non-profit groups that support research and education in real estate and urban land use" when I received call from Nashville ULI to moderate a local panel on the emerging trends in the real estate market.  Lucky me!  Lucky them!

This morning, ULI Nashville presented its highlighted event, "Real Estate Outlook 2012 featuring Emerging Trends in Real Estate."  ULI's annual report, available for download, reflects the views of leading real estate executives from around the world who completed surveys or were interviewed as a part of the research process for the reports. Interviewees and survey participants represent a wide range of industry experts—investors, developers, property companies, lenders, brokers, and consultants.

This year, ULI Nashville was proud to host Dean Schwanke, Vice President and Executive Director, ULI Center for Capital Markets and Real Estate.  Dean oversees and coordinates ULI's work on real estate finance and capital markets issues, including books, Emerging Trends reports, online content, continuing education programs and sessions at ULI meetings and conferences.  Among many other items, Dean highlighted two emerging trends for the new year:

• For 2012, real estate investors must resign themselves to a "slowing, grind-it-out economic recovery following a period of mostly sporadic growth."  This is confined largely to a few real estate markets that offer the primary 24-hour transportation hubs with global access.
• "Well-leased core real estate in leading markets will continue to produce solid single-digit, income-oriented returns." According to the report, more opportunistic investors will ratchet down forecasts – even projections of returns in the mid-teens appear to be a stretch as risk increases from questionable supply/demand fundamentals.

Local panel members included Bert Mathews of The Mathews Company and Charles Carlisle of Bristol Development Group. 

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We all need to hear stories of determination, hope and recovery. It's what the construction industry as a whole wants to see happen.  It's what our economy needs to see happen.  It's what local construction laborer Rodney Johnson embodies.

From our friends at Trojan Labor in Nashville, I wanted to share a great interview with one of their construction laborers.  Unemployed and wanting to make it on his own, Rodney left Florida over six months ago.  And here is what he had to say:

Trojan Labor Nashville: Rodney, how difficult was it to leave your home, family ... friends?

Rodney Johnson: Really difficult. But I felt kept, like a house cat. I wanted to earn my own.

TLN: What did you do when you got to Nashville? Did you have a place to stay?

RJ: I had to stay at the mission. (Nashville Rescue Mission). It's a good place to try to save your money until you get to the next level. I could walk from there to Trojan Labor every day.

TLN: I didn't even know that it was walking distance.

RJ: Sure, I'd get some exercise.

TLN: What happened here at Trojan Labor?

RJ: I did all the paperwork and they didn't treat me any different...me coming from the mission and all.

TLN: Did you work right away?

RJ: Yes, pretty much right away.

TLN: And was work available every day or was it sporadic?

RJ: I'd say most of the time I was working. There were probably a couple of days I didn't work. Most of the time I was working.

TLN: That tells me you were here at 5 am every morning. And you'd already exercised...
(We laugh)

TLN: Tell us about the work you were sent out on. How was it on a day-to-day basis? How were treated. And no need to sugar-coat it.

RJ: I was treated real well but I have to admit, though, on the bigger jobs, when they saw me coming with my long hair (I'd cover it with a hat) but I think maybe they thought I wasn't serious.

TLN: Because of the way you looked?

(He shows me dreadlocks that've been tucked into his jacket).

RJ: Yeah. But after a few days, they took me seriously.

TLN: Oh, so you were asked back?

RJ: Yeah, they give me a repeat. (For our readers: a "repeat ticket" is when an employer requests a particular worker back.)

TLN: That's cool - so you were judged on your work, then, in the end?

RJ: You have to prove it to employers - that you're really serious about working. They want to see that you will work, and that you're willing to work, that you're awake and alert and that you're not coming to work with any other distraction. I think if your expectation for yourself is even higher than theirs... if you're 'stand up', then they'll respect you.

TLN: So no complaints?

RJ: Except getting lost in big buildings!  (laughter)

TLN: What are your hopes for the future, Rodney?

RJ: (big smile) I hope to be the leader of a reggae band.

TLN: Well, this is the right city for it! Wow. You sing?

RJ: Sing, write, play guitar, drums. I was born with some talents and I gotta keep the dream alive. Even though I work every day. I'm keeping the dream alive... that one day I might be able to do that.

TLN: Well, we hope so too! Thank you so much, Rodney, it's our pleasure at Trojan Labor to know you.

___________________________________

Thanks to Jolene Dressel at Trojan Labor for sharing this interview and best wishes to Rodney and other laborers this holiday season.

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Happy Halloween!  Today's post is not about ghosts, ghouls and goblins, though.  It's much scarier ... it's about contractors, subcontractors and insurance companies! (....shriek....)

In a noteworthy decision issued last week, the Tennessee Supreme Court held that all construction contracts have an implied duty on part of the contractor to perform in a "careful, skillful, diligent, and workmanlike manner." In Federal Insurance Co. v. Winters (pdf), the court adopted the "majority rule" that has been applied in most states.  According to the court's decision, a contractor may not escape liability for performing in a workmanlike manner by "delegating" or subcontracting the work to a subcontractor.

In Winters, the defendant contractor entered into a contract to replace a roof. When the newly installed roof developed leaks, the defendant hired an independent contractor to make the necessary repairs. While performing the work, the independent contractor caused a fire, resulting in an $871,069.73 insurance claim by the homeowners.

The plaintiff insurance company sued the defendant contractor in both tort and in contract based upon theories of subrogation (i.e., stepping in the shoes of the homeowner to assert their rights for claims arising out of the fire). The defendant contractor filed a motion for summary judgment, asserting that because he had subcontracted the work to another contractors, he could not be liable. The trial court granted the motion on both the negligence and breach of contract claims.

The Court of Appeals reversed, holding that the defendant had a non-delegable contractual duty to perform the roofing services in a careful, skillful, and workmanlike manner.  The Supreme Court granted the defendant's application for permission to appeal. Because the defendant had an implied non-delegable duty to install the roof in a careful, skillful, diligent, and workmanlike manner, the Supreme Court affirmed the decision.

I told you it was scarier than ghosts, ghouls and goblins!  Is there a lesson to be learned?  Yes. Even the Supreme Court acknowledged that this rule was not a prohibition against delegation of construction contracts.  Rather, the lesson learned is that the delegation must be accompanied by a release from the other party.

Image: Pedro Ferreira

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Last night, I attended a dinner and auction of the Tennessee Road Builders Association Mid-Year Meeting in Nashville, Tennessee.  It is always great to catch up with some many friends ... many of whom I met only six months ago while presenting as a speaker at the Annual Meeting in Kauia, Hawaii.   The food was okay, the dessert was better (...yes, I was smart enough to bring my wife some cake...), but the fellowship was the best.  I chatted with friends like Glenn Chambers of LOJAC.  I broke bread with the Wilson family of Wilson & Associates.  It was a great evening.

Another highlight was the silent and live auctions to benefit the TRBA Political Action Committee.  The evening brought in close to $50,000, which will help the TRBA do its legislative work on behalf of members.  I donated a few items to the mix, including: (1) Lunch with a Lawyer, which included an executive lunch at The Palm and a few hours of advice; (2) a Construction Law Seminar, which included lunch for up to 20 employees on a construction issue of choice; and (3) a company profile and interview on this blog.  Stay tuned for an update on the winners!

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When asked about potential cost overruns on the Music City Center almost year ago, the Center's representative Larry Atema stated bluntly, "There aren't going to be any."  True to that commitment, Anne Paine of the Tennessean reported this past weekend that the Center's "green roof has grown less green."

According to the article, two pieces of the Center's green roof have been cut from the design to stay within the project's $585 million budget.  The roof is approximately 14.5 acres and, even with the reduction, the green portion will comprise 178,000 square feet or 28% of the entire roof. 

Green roof benefits. The Center is committed to (and as required by Metro Codes "required to") attain LEED Silver Certification.  For the Music City Center, the proposed green roof's benefits include: (1) stormwater capture and water retention for irrigation use and toilet flushing; (2) decreased energy costs from thermal insulation; and (3) improvement of the climate environment and clean air.

A path to LEED certification.  Ultimately, the proposed green roof at the Music City Center can help the property obtain over a dozen LEED credits, including credits for reduced site disturbance, landscape design that reduces urban heat islands, storm water management, water efficient landscaping, innovative wastewater technologies and innovation in design.

Green roof risks.  The Music City Center may prove to be a great case study for the benefits and risks of a green roof.   Some of the risks associated with a green roof may include: (1) failure to attain the energy efficiency levels claimed by the installation of a green roof; (2) failure to achieve the claimed number of LEED credits that are proposed for certification; (3) mold or other environmental hazards as a result of poor installation and maintenance of a green roof; or (4) a roof collapse resulting from a green roof that was not properly constructed, installed or maintained.

According to Holly McCall, an authority spokeswoman, no estimates are available on what the savings might be with the revised or the originally conceived green roof.

Image: Daniel Pink

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Earlier today, outgoing Governor Phil Bredesen spoke at the final 2010 membership lunch of the Exchange Club of Nashville.  Bredesen addressed numerous successes over the past eight years as governor, including conservation efforts to set aside 350,000 acres of land in Tennessee, economic development opportunities such as landing a new Volkswagen plant in Chattanooga, and his work to push solar and other alternative energy sources.

Aside from the Governor's political ponderings, I took away a few "lessons learned" from the leadership style of this man who served eight years as Mayor of Nashville and eight years as Governor of Tennessee.   Whether you have to get along with a few development partners chasing a new alternative energy idea ... whether you lead a crew of 10 masonry contractors complying with the new drug safety provisions .. or whether you manage a couple thousand employees worldwide in implementing a new information technology system, here are a few leadership lessons that I picked up from the Governor:

• Increase expectations.  As a political leader, Bredesen wanted to leave office with the citizens of the state having a better expectation of government and its leaders than when he entered office.  As a business leader, you should want to raise the expectations of your partners, management and employees.  You should instill the sense of "possibility" in that financial success can be achieved, even in hard times. 
• Pick to succeed in few areas.  For Bredesen, this meant concentrating on a few areas for the success of the state ... and then doing that work "really well."  In the construction world, it could be an active decision to improve project administration and documentation in the new year.  For the developer, it could be chasing one particular investment really hard, as opposed to a few potential opportunities with less vigor. Whatever your industry, pick a few areas for success, work hard, succeed, and then expand your focus.
• Lead from the center.  Bredesen spoke about the challenge of the election process. "Elections are fun," he said. "But, in this democracy, you have to eventually push aside the campaign signs." Bredesen concluded that the real trick in leadership is not how to win the election, but how you find common ground to solve problems after the election.  Today's business leaders need to do the same.

Governor Bredesen said is working closely with Governor-elect Bill Haslam, who will take office in the new year.

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If you are a contractor, you love hearing about these types of boxing tales: Contractor works his butt off. Owner benefits from the accelerated work. Contractor seeks early completion bonus. Owner rejects the claim based upon technicality. Contractor fights in court ... fights on appeal ... and wins! 

That is exactly what happened in Ray Bell Construction Co. v. TDOT (pdf), a 2-1 "split decision" released by the Court of Appeals of Tennessee on November 29, 2010.  In RBCC, the claims commissioner awarded Ray Bell Construction Company a $2.5 million early completion bonus.  The primary issue in dispute was whether the completion date in the parties' contract could be amended or moved to account for the impact of increased quantities and other delays.  TDOT argued that the completion date could be modified for purposes of the disincentive payment and liquidated damages, but under no circumstance could the date be modified for purposes of the incentive payment.  The contractor argued that the date could be modified for all purposes, including the incentive payment.

The primary issue in the litigation was whether the contractor could rely on evidence of other projects where TDOT had granted an extension to the incentive date.  During the dispute, the contractor learned from TDOT officials that there was a list of "existing" projects where TDOT and its financial participant, the Federal Highway Administration, had agreed in a set of letters between them that the incentive date could be moved, despite a change in FHWA policy.  Although the RBCC project was existing at the time of the TDOT-FHWA letters, it was not included on the list of "existing" projects. 

In the majority opinion, the court of appeals affirmed the claims commissioner's finding that “a definite latent ambiguity exist[ed] for which parol evidence not only is admissible, but frankly, absolutely necessary in both understanding and deciding the issues in this case."   In his dissenting opinion, Judge Swiney believed that the parties' contract was "crystal clear" in not allowing a modification to the incentive payment date.   The RBCC decision is a worthy read for a number of reasons:

1. The decision provides a good overview of the public contracting claims process. Like many other jurisdictions, the Claims Commission in Tennessee resolves claims involving tax recovery, state employee workers' compensation, negligence by state officials or agencies, and contract claims involving the State. The RBCC dispute went to trial before a claims commissioner and was appealed to the court of appeals.
2. The decision summarizes the two sides to a contract interpretation question.  Like almost every construction dispute, the contract will determine the rights and obligations of the parties.  In this case, a $2.5 million early incentive payment was at stake and the decision turned on whether there was an ambiguity in the parties' contact and what evidence could be used to resolve that ambiguity.  The majority and the dissent describe both sides to the issue.
3. The decision involves a truly "interesting" factual story.  As noted above, the dispute involved a multi-million dollar claim ... design delays ... easement delays ... unexecuted change orders ... quantity overruns ...  contract ambiguities ... a compelling letter by the state agency ... a compelling letter by the federal agency ... and much more.

Will there be a Round 3?  Don't know.  TDOT can file an application for permission to appeal to the  Tennessee Supreme Court, which must be filed within 60 days of entry of judgment by the Court of Appeals.  According to the appellate rules, the application shall be granted if two members of the Supreme Court are satisfied that the application should be granted.  In determining whether to grant the application, the Court looks to: (1) the need to secure uniformity of the decision; (2) the need to secure settlement of an important question of law; (3) the need to secure settlement of questions of public interest; and (4) the need for the exercise of the Supreme Court's supervisory authority.  At this point, it is a waiting game on whether there will be Round 3.

[Note: I was one of the boxers in the ring, along with lead counsel Greg Cashion of Smith Cashion & Orr PLC, at the trial court and court of appeals, but I moved law firms before oral arguments in the appeal. Special thanks to Greg for allowing me to write about this victory.]

Image: Fonzie's Cousin

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I have often wondered whether there is such a thing as too small a dispute.  Well, the parties in Earl Faulkner v. Tom Emmett Construction Company (pdf) determined to take their $3,000 construction dispute to the Tennessee Court of Appeals.  In the end, the Court gave some good instructions on the "first material breach" rule, which applies in many states.

 The Owners hired the Contractor to build a new driveway at their home.  The total contract price was $18,000 and the Owners refused to pay the balance of $8,000 because they were dissatisfied with the workmanship of the driveway.  The Owner sued the Contractor, seeking the cost to remove and replace the allegedly defective driveway. The Contractor claimed that the driveway was properly constructed and filed a counterclaim for the remaining $8,000 balance owed on the oral contract.

The trial court concluded that any problems with the driveway were not sufficient to require that it be removed and replaced.  Because there was a problem with how the concrete on one portion of the driveway had been poured, the trial court ordered the Owners to pay only $5,000 of the remaining
$8,000 owed on the contract.

The appellate court affirmed the findings of the trial court, but modified the judgment.  The court held that the Contractor committed the first material breach of the contract when it failed to construct the driveway in accordance with the plans.  Accordingly, the Owner was relieved of any obligation to pay:

A party who has materially breached a contract is not entitled to damages stemming from the other party’s later material breach of the same contract. Thus, in cases where both parties have not fully performed, it is necessary for the courts to determine which party is chargeable with the first uncured material breach.

. . . We conclude that [Contractor's] admitted failure to use a gravel base prior to pouring the driveway extension constitutes a material breach of the contract, thereby prohibiting [Contractor] from challenging [Owner's] later material breach of failing to pay the balance of the contract price.

Based upon the above reasoning, the appellate court concluded that the Owner was not required to pay the remaining $3,000 breach of contract damages awarded by the trial court. 

While the amount in controversy in Faulkner does not seem significant, the decision provides a good illustration of the first material breach rule.

Image: DavidDMuir

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Some court decisions provide little instruction for future disputes.  Other court decisions give you a great road map for analyzing your claims.  Every now and then you find a decision where the court is split and you wonder which side is right, such as the opinion in Davis v. McGuigan (pdf), issued by the Supreme Court Tennessee on October 26, 2010.

A husband and wife alleged that the appraiser, who was hired by the bank financing the husband and wife’s home construction, recklessly overestimated the value of their proposed construction and that they reasonably relied on the appraisal value to their detriment. The intermediary appellate court affirmed the trial court’s ruling, holding that an appraisal is an "opinion" that cannot form the basis for a fraudulent misrepresentation claim. 

In the (3-2) opinion by the Supreme Court of Tennessee, the majority held that an "opinion" can form the basis of a fraudulent misrepresentation claim. The majority also concluded that genuine issues of material fact precluded summary judgment as to the husband and wife’s claims against the appraiser.  The dissent reached a different conclusion as to the facts of the case: "Even though an opinion can provide the basis for a fraudulent misrepresentation claim, the undisputed facts in this record, and the inferences reasonably drawn from these facts, support only the following conclusions."

The opinion in Davis is 32 pages with both the majority and dissent opinions.  The majority opinion provides a good road map for what elements are required to prove an intentional misrepresentation claim, including an analysis of each element and the applicable factual allegations.  The dissent opinion provides a good road map of proof required to establish summary judgment and to shift the burden of production to the non-moving party.

If you are a legal practitioner, the Davis decision is worthy of a read (although it may take you some time to fully digest the two opinions).  If you are an owner, developer, seller or appraiser, be warned that opinions may be used to establish an intentional misrepresentation claim.

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In Kampert v. Valley Farmer Cooperative (pdf), an opinion issued on October 19, 2010, the Tennessee Court of Appeals validated a forum selection clause in a construction contract that specified venue in a county other than where the property was located. 

The primary issue in dispute was whether the proper venue in a case involving the breach of construction contract lawsuit should be the county named in the forum selection clause of the contract, or in the county where the construction project and land was located. 

In Kampert, the owner entered into an agreement with the contractor to construct an operational dairy facility on the Kamperts’ farm, including barns, sheds, and milking facilities. The contract contained a forum selection clause requiring that "venue for any litigation shall lie in the Circuit or Chancery Court for McMinn County, Tennessee.”

Following disputes between the parties, the owner filed a lawsuit in Giles County (where the property was located) for breach of contract, negligence, civil fraud, intentional infliction of emotional distress, and violation of the Tennessee Consumer Protection Act. The trial court denied the motion to dismiss for improper venue, holding that the property was located in Giles County and, thus, venue was proper.  Although this may seem to be a straight-forward analysis, the opinion contained some noteworthy points.

First, the venue issue must have been important to Tennessee jurisprudence because the Court of Appeals granted an "extraordinary appeal" under Rule 10.  The trial court concluded that the claim involved injury to land, which required that suit be brought in the county where the project was located.  The contractor filed a request for an interlocutory appeal, which the trial court denied. The appellate court granted the motion for extraordinary appeal, perhaps because the case addressed an ambiguous area of law or involved important legal issues.

Second, breach of construction contracts do not necessarily invoke a "local action involving land."  The appellate court noted the distinction between causes of action that are transitory versus local.  A transitory action is based on a cause of action of a type that can arise anywhere, whereas a local action can only arise in the particular county because the injury is tied to that locality.  Here, a breach of construction contract would be transitory, but an injury to property claim would be local.

Third, venue provisions and forum selection clauses are valid and enforceable.  Notably, the appellate court made a distinction between injury to existing buildings and injury to new buildings: 

In contrast, the alleged negligence in the present case involved faulty construction of new buildings on the plaintiffs’ land.  If we were to hold this to be a local action, it would effectively make all actions on construction contracts local, and it would render void any forum selection clause in a construction contract that designates venue in a county other than the one where the construction takes place.

The court found statutory support for its conclusion that contractual venue provisions are valid under Tennessee Code Section 66-11-208.

It is suggested that the dispute is resolved "for now" because it may be appealed to the Tennessee Supreme Court.  An interesting legal issue is the Court of Appeals' reliance on the statutory provisions of section 66-11-208, which address venue in cases involving real property. 

Subsection 208(a) provides that a contract requiring application of the laws of another state or requiring resolution of disputes in another state involving improvement of property in this state is void and unenforceable.  Subsection 208(b) provides that for projects partially located in Tennessee and partially located in another state, venue can be in any state in which part of the property is located. 

Although the provision expressly applies to multiple state disputes, the appellate court in Kampert concluded (perhaps correctly, perhaps incorrectly) that the provision applied to venue challenges involving two counties in Tennessee.  The "Supremes" may be asked to weigh in on the subject.  For now, contractual provisions calling for venue in one county involving construction projects in another county are valid.

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The Tennessee Court of Appeals released another opinion in a construction dispute earlier this week.  In East Tennessee Grading v. Bank of America (.pdf), the court grappled with competing ownership claims and made its decision primarily on grounds of timing.

In this case, the owner of a residential development did not pay the excavation contractor.  The contractor filed suit to enforce its $2 million lien for excavation and road work.  An agreed judgment was entered as to the contractor's claims against the owner, awarding judgment for materials and labor performed on the property.  It was discovered that one parcel of the total 150 acres of property was owned by someone other than the developer.  That small parcel was subject to a deed of trust in favor of Bank of America.

The trial court held that Bank of America had priority over the contractor as to 1.9 acres because the contractors had not filed its "Notice of Lien" in a timely matter to maintain priority over the subsequent owners pursuant to Tenn. Code Ann. § 66-11-112.  However, the trial court also held that the contractor had priority over Bank of America as to the remaining 4.46 acres because the contractor's Notice of Lien was filed before the Amended Deed of Trust in favor of Bank of America was filed.  The appellate court affirmed the trial court's decision

The decision provides some key practice points for lien claimants:

• You must know, understand and follow your deadlines.  The case was brought under the pre-2007 amendments and the court in East Tennessee Grading had to carefully walk through the timeliness of notice requirements.  Also, since the contractor abandoned the work based upon the owner's non-payment, there was an additional timeliness question for "completion or abandonment" of the work.  You need to make sure you understand all the notice requirements and filing deadlines.
• A lien may be enforced even against subsequent purchasers.  In limited circumstances, if a sworn statement is not recorded within the applicable statutory time period, the lien's priority as to subsequent purchasers or encumbrancers is determined as of the date of the recording.  In other words, you may lose priority over a subsequent purchaser even if the work was performed prior to the sale.
• Tennessee is now a "substantial compliance" state.  This is a new standard within the past few years. Tennessee lien law once required “strict construction,” as was stated in the East Tennessee Grading opinion.  However, the General Assembly changed the law in 2007 to require only “substantial compliance.”  The new statute is to be “construed and applied liberally.” T.C.A. § 66-11-148(a). This was a significant change in the law.

Image: Catherine on Flickr

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Where's Waldo?  The real question is, Where's Matt?  If you've wondered where I have been the past few days, try looking in Texas and North Carolina.  I have been preparing to speak at two construction law conferences in two different states.  Look closely and you might find me.

On Thursday, I will be speaking at the University of Texas School of Law 2010 Construction Law Conference in Dallas, Texas.  I am speaking with Jeffrey Peters of Rimkus Consulting Group and our topic will be: "LEED 101 and Beyond: Incentives, Design, Construction Pitfalls, Certifications and Contracts."  In this workshop, Jeff and I will be talking about the design issues, contracts and certifications for green and sustainable development, including a look at the most common green standards and how they are used to certify green buildings.  We will also talk about the financial incentives driving developers to go “green” and some of the possible challenges with this type of construction.

On Saturday, I am speaking at the North Carolina Bar Construction Law Section Annual Meeting in Greensboro, North Carolina.  Our panel of regional construction lawyers will discuss common construction issues that arise in NC, SC, GA, TN and VA, including statutes of limitations and statutes of repose, lien and bond claim deadlines, contractual quirks and indemnity requirements.

What's in it for you?  Well, if you check back with me on Monday ... and send me an email, a direct message to Twitter @matthewdevries, or a LinkedIn message, I will send you a copy of one, the other, or both presentations.

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Just because you may win on appeal in one claim does not mean that you have properly preserved your other claims.  This was a hard lesson to learn for one developer in the case of B&B Enterprises v. City of Lebanon (pdf), a decision recently issued by the Supreme Court of Tennessee on August 31, 2010.

In B&B Enterprises, the developer of a residential subdivision filed suit against the City, alleging that the planning commission had denied it all economically beneficial use of its property by wrongfully refusing to approve the final plans for two phases of its subdivision. 

Although there is more history to this dispute, the real rub occurred after the developer appealed to the trial court the planning commission's refusal to approve the final plan.  Both the trial court and the appellate court held that the planning commission had acted arbitrarily and capriciously when it declined to approve the plans for Phases Two and Three.  Thereafter, the developer filed a complaint seeking monetary damages based upon claims of regulatory takings and violation of civil rights.

In those proceedings the City argued that the applicable one year statute of limitations barred the developer's claims.  Ultimately, the Supreme Court of Tennessee concluded that the claims were untimely because the developer "knew" that the City's conduct occurred when the planning commission denied the final plans.  The Court rejected the developer's claim that the City's actions were not "permanent" or "complete" because it sought (and won) judicial review of the planning commission's denial.  The Court reasoned:

The Planning Commission’s action on February 26, 2002, put B & B Enterprises on notice that its reasonable investment-backed expectations for the use of its property had been frustrated. Regardless of the eventual outcome of the judicial proceedings, the Planning Commission began interfering with B&B Enterprises’s economically beneficial use of its property by no later than February 26, 2002.

Do you see the fine line here?  The Court focused on the planning commission's actions and not the subsequent actions of the courts.  Again, it is the final decision of the agency that triggers the claim and not whether subsequent review of that decision provides relief.  Since I am a visual-learner, it may be easier to understand the time line this way:

UNTIMELY LAWSUIT = Planning commission's denial→ judicial and appellate review of denial → appellate reversal of denial → suit to seek damages relating to denial.

TIMELY LAWSUIT = Planning commissions denial → review of denial and suit to seek damages relating to denial → judicial and appellate review if necessary.

While you make not agree with the reasoning of the court's decision in B&B Enterprises, the lesson learned is one about preservation of rights at the earliest stage possible.  Know and understand your deadlines.

Image: husfse on Flickr

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I previously blogged about the historic flooding in Nashville in May, including insurance flood claims,  building permits for repairs, and statute of limitations on mold claims. I also recently blogged about the leadership lessons from the flood recovery by Colin Reed, the CEO for Gaylord Entertainment. 

It seems that there is a trend of newsworthy items involving the flood damage at Opryland, including recent news that Opry Mills just sued its insurers for more than $150 million in flood coverage.  As reported in the Nashville Post, the owner of Opry Mills Mall filed a lawsuit against its property insurers yesterday afternoon, alleging that the insurance companies wrongfully refused to honor a majority of the $200 million in flood insurance policies.  The complaint, available here, alleges that the insurance coverage denial could delay work to repair damage from the historic flooding.

The complaint filed by Greg Cashion provides an outline of the types of causes of action involved in a major property loss such as the flooding at Opry Mills. These include:

• Breach of contract.  This claim is for the insurance companies' failure to provide coverage within the terms of the insurance policies.  At dispute will be the applicability and meaning of the insurance policy terms, exclusions, and exceptions.  Notably, this lawsuit will involve the issue of whether the mall is part of a "high hazard flood zone" for which a certain $50 million limitation applies. The lawsuit alleges that the mall is not listed in such a zone.
• Estoppel.  This claim alleges that the insurance companies issued certificates of insurance to Opry Mills for full coverage and with "no mention" of any limitation of liability.  Under these circumstances, the complaint alleges, the insurance companies are estopped from relying on any limitation of liability clause.
• Declaratory Judgment.  This claim seeks a determination from the court that the policy coverage is valid and that there is no limitation of liability of $50 million.  The importance of declaratory relief, particularly in this instance, is to get a judicial determination as soon as possible so that funds will be available to complete the construction repairs.  
• Negligence.  There is a claim based upon the alleged negligent actions of the broker and agent of the insurers.  According to the complaint: (1) the broker/agent had a duty to Opry Mills to perform its services in a professional manner; (2) the broker/agent had a duty to correctly represent the coverages; and (3) the broker/agent breached that duty, which has caused in whole or in part the losses alleged. 
• Consumer Projection Act.  Finally, the complaint contains a statutory claim for violation of Tennessee's Consumer Protection Act for deceptive practices or practices declared unlawful for insurers.  If proven, this claim provides recovery for additional damages and attorney's fees.

As noted in the Nashville Post article, the lawsuit may drive the construction efforts.  According to Opry Mills president Gregg Goodman, "work will cease, delaying the mall’s reopening pending its success in this suit."

 Image: Ritab38315 on Flickr

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In case you could not get in touch with me on Friday, I was standing in the rain all afternoon.  But it was for a great cause, so please forgive me.  Beginning at 5:30am and lasting most of the day, 15 teams of local contractors and construction service providers weathered the storm for the AGC of Middle Tennessee, Construction Leadership Council's First Annual BBQ in Red Shoes cook-off.  Both Stites & Harbison and Best Practices Construction Law helped sponsor the event.

In everything we do—whether you are a contractor, banker, painter, lawyer, parent—there is room for growth.  On a construction project, you may learn a better way to overcome weather delays.  On a construction loan, you may find a new way to structure the deal to benefit all the parties.  In a lawsuit, you may find a strategical advantage to filing a motion.  And in a BBQ cook-off, you may learn a thing or two.  What did I learn from working four hours in the rain?

Contractors love BBQ cook-offs.  I am not sure whether the attraction is getting an early start to the weekend ... or the thought of an afternoon of meat and beer ... but these guys and gals had a great time. 

Contractors love working hard.  We had over 25 volunteers that helped prepare for the day, set up tables at 5:30am, stand in the rain to sell tickets and t-shirts, and haul away bags of trash at the end of the day.  Just being a part of the team was a rewarding experience.

Contractors love helping others.  I was absolutely overwhelmed at the generosity of the individuals and teams that participated in the event.  The "Sustainable Smokers" from Waste Management took home BBQ Champion award (pictured above).  The event raised approximately $1,500 for Ronald McDonald House Charities, which was a good number given the heavy rain.  Better yet, though, the winning team at WM donated their entire cash prize of $1,250 to increase the total donation to close to $3,000!

The generosity did not end there.  As the teams were cleaning up for the day, the team from Turner Universal donated over 25 pounds of ribs, chicken and brisket to Lambscroft, an outreach that feeds up to 100 homeless individuals every Wednesday and Saturday night. 

Wow ... what a great (rainy) day!

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As I stepped out of the shower this morning, something stuck to the bottom of my foot.  It was Florida.  Actually, it was the puzzle piece of Florida from my daughter's USA puzzle map. I chuckled because yesterday afternoon I found this map on various statutes of limitations and repose for the entire country (pdf).

What is a statute of repose?  A statute of repose provides a date upon which the legal action no longer exists . . . and here is the kicker . . . whether it has accrued by that date or not.  In other words, for a construction defect case, there may be an applicable statute of limitations that says the property damage claim is barred if not brought within three years of discovery of the injury.  If the defect is not discovered in the new building until seven years after completion, then the claim would not be barred by the statute of limitations.  However, the statute of repose for a particular jurisdiction may be five years and the the claim could not be brought after five years from completion of the project. 

What is the law statute of repose in Tennessee?  In Tennessee, claims regarding improvements to real property must be brought within four years of substantial completion of the project, regardless of the date of discovery.  There is an exception if the claim is discovered during the fourth year after completion. In this case, the claim must be brought within one year after discovery, or within five years after substantial completion of a project.

Statutes of repose are puzzling because the rules vary markedly from state to state.  As shown on the Construction Defects Statutes of Limitation and Repose map, each jurisdiction varies on the applicable limitations periods.  Some states like New Mexico have a ten-year statute of repose, while others have shorter periods.  Additionally, some allow for a discovery extension, while others do not. 

Here's a  tip! One of the most important things you can do when you find out you have a potential construction dispute is to review your contracts and applicable limitations periods to determine the timeliness of your claim.

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It is with great sadness to report that Tennessee construction icon, C. Ray Bell, passed away over the weekend due to heart complications.  

I had the privilege of working with Ray Bell Construction Co. during the time when the company was transitioning leadership from Ray to his two sons and top executives to form Bell & Associates Construction.  He leaves behind a great legacy: 

• He helped build the skyline of Nashville. In 1970, Ray formed Ray Bell Construction Co. and within 10 years was awarded the James K. Polk State Office Building project and built the Tennessee Performing Arts Center.  By the 1990s, RBCC formed a transportation division to build highway projects. In 1994, RBCC built the BellSouth tower, a.k.a., the Batman building. In 2003, RBCC completed renovation of Shelby Avenue pedestrian bridge.
• His imprint on Nashville will remain strong.  In 2010, Bell & Associates began working on construction of the $585 million Music City Center convention complex.  Just as much of the other great projects in this city, the Music City Center will transform Nashville's economy for years.  Ray has been called "hard working, compassionate and politically connected" and a "vital asset" to the industry.  
• He was a loyal friend to all.  I talked with Ray on few occasions, but his great passion and loyalty emanated from everything he did.  Many others in the community have great memories of Ray Bell, but the words of his son, Darek, have the most impact on me as a father of six young children: 

"My father was my hero, my mentor, and most importantly, my best friend. . . . Relationships were very important to him, and he was a master at cultivating deep and lasting friendships. He was a rock for many people. Fathers and sons don’t always have the best communication, yet we used to talk for hours like old friends. Because, quite simply, we were."

To Darek and Brad, and the rest of the family, my deepest condolences.  Hold tight to memories of a great man for your continued comfort. 

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For years, I have paid my homeowner's association dues.  Recently, my neighbors selected me to serve on the board (... I was unopposed and I had to promise to name my next child after the development ... ).  I have even been involved as counsel in a number of HOA disputes over the past few months.  In Tennessee, the only thing you need to know is that the courts will enforce those HOA covenants.

Last week, the Court of Appeals issued its opinion in Hershey v. Cathey (pdf), a dispute involving the HOA's Architectural Control Committee.  When the defendants began construction of a fence on both of their lots, the HOA filed a lawsuit to stop the construction.  The HOA claimed that the defendants had not obtained approval to erect a fence and that the fence was not in compliance with the applicable restrictive covenants. The defendants asserted that they obtained the required approval and that strict compliance with the restrictions had been waived.

The trial court held the following: (1) that plans and specifications were required to be submitted to the Architectural Control Committee for its approval; (2) that no plans or specifications were ever submitted; and (3) that the defendants had not obtained the requisite approval to construct the fence at issue.  Accordingly, the trial court entered an order requiring the defendants to remove the fence and to comply with the Architectural Control Committee restrictions.  The appellate court affirmed that ruling.  Here are two lessons from the case: 

First, the courts will enforce HOA covenants.  Whether you are a new homeowner or you are one of the leaders in a homeowner association, you must read your restrictive covenants.  The architectural guidelines may be strict or broad, depending on how they are written.  The court is going to look to the express language of the covenant to resolve any disputes. 

Second, you must prove your case at the trial court.  The decision by the appellate court in Hershey was based largely upon the factual findings of the trial court.  Indeed, the appellate court wrote: "The trial court made a specific finding of fact that Defendants did not obtain approval to build the fence."  The appellate court presumes factual findings are correct unless the preponderance of the evidence is otherwise. 

Image: glen edelson

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You may have noticed that I recently transitioned to a new law firm this week.  I am happy to announce that I have joined Stites & Harbison PLLC as a partner in the Construction Service Group and the Green Law Practice Group.  The past few weeks have seemed like a tropical storm ... and the only thing to do is ride the waves of change.

What do I mean by riding the waves of change?  As a construction attorney for the past ten years, I have realized that the industry is always in a state of flux.  During strong economic times, I have a lot more contract drafting and project administration work.  During hard economic times, I have a lot more construction litigation and mechanic's liens.  I've learned to adjust to the circumstances to meet the needs of my clients.

Whether you are dealing with a new safety policy on the site,  a difficult personality on the design team, an estimate error that is going to affect the bottom line, or even a potential transition to a new job, here are a few things you can do to ride the waves of change:

• Understand that change is going to happen.  Whether you are talking about your professional career or your personal life, there will be change.  You can count on it.  I can guarantee it.  Most of the time, those people who fail to recognize change have the hardest time adjusting to it.
•  Understand that change and your responses will come in stages.  Consider a fatal workplace accident.  Undoubtedly, your construction company will go through numerous changes in response to this incident, including the initial shock of the accident, feelings of potential guilt, assessment of safety measures, analysis of liability, and the transition of duties and potential change in policies.  Change of any sort comes in stages.
• Understand that communication leads to success.  Communications is always important, but it is especially important when you face change.   Practically speaking, you need as much information about the change as possible, so that you can make an intelligent decision. Talk to your boss, your boss’s boss, and your co-workers to get their understanding of the situation. Be honest in all your discussions and deal with the problems when they arise.
• Understand that flexibility is good.  Change requires flexibility and the ability to adapt.  The better able you are to respond to change, the more likely you will succeed. Make an assessment of the situation, identify potential outcomes, plan and develop a response strategy, and then begin to ride the wave.  Maybe your current job isn't what you expect?  Perhaps the new workplace policy strains the ingenuity of your employees? Try to be flexible with an understanding of the potential outcomes.  Part of the fear of change often involves dealing with the unknown.

In my situation, communication and flexibility on everyone's part has enabled a good transition.  I am sad to leave such a well-respected practice in Nashville.  However, by joining one of the oldest law practices in the nation and among the largest law firms in the Southeast region, I am thrilled at the opportunity to help build one of the strongest construction groups in the Southeast.  I will miss all my former colleagues ... but who knows ... I may see them in court!

 Image: Michael Dawes

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Last night, the evening news reported that Tennessee House Democrat Leader Mike Turner planned to file a complaint with the Department of Labor, alleging that "one of the contractors working on the Music City Center project is hiring illegal immigrants."  Turner stated that he received the information from an inside source.

While there may be muchos problemas on the Music City Center, this is a good time to review the state's laws on use of immigrant labor on public projects.  Here is what the law requires:

• The state shall not contract for goods or services from any person who knowingly utilizes the services of illegal immigrants in the performance of the contract.
• That means, no contractor can knowingly utilize the services of illegal immigrants in the performance of a contract with the state.
• Effective January 1, 2007, the contractor must attest in writing that it will not knowingly utilize services of illegal immigrants.
• If a contractor does so, then he may be barred from public contracting for a period of one year.

So, how does the contractor comply with the state law?  First, it should include an appropriate attestation clause in its prime contract with the state, which may look something like this:

Contractor attests, certifies, warrants, and assures that it shall not knowingly utilize the services of an illegal immigrant in the performance of the Work and shall not knowingly utilize the services of any Subcontractor who will utilize the services of an illegal immigrant in the performance of the Work.

The next step for the contractor is to include a similar requirement in its subcontracts, which may look something like this:

Contractor has agreed to comply with the immigrant labor provisions of all applicable laws, including Tennessee Code Annotated, Section 12-4-124. Accordingly, Subcontractor agrees that it will not knowingly utilize the services of illegal immigrants in the performance of the Work. Additionally, upon execution of this Subcontract, Subcontractor shall provide a written attestation in the form of the attached “Addendum” stating that it will not knowingly utilize the services of illegal immigrants in the performance of the Work.

This information may be helpful for projects in Tennessee and you should check with your attorney to review the applicable state and other Federal labor requirements for public projects.

Update: Thanks for friendly reader Emily for pointing out that there is no such thing as muchas problemas and the correct phrase is muchos problemas.  Gracias Emily!

Image: Nashville Chamber of Commerce

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As my four children were running through the house this weekend, I inevitably yelled at them, "No running in the house!"  My five-year-old responded, "Just passing through..."  Imagine the smile I had this morning when I read about a recent Tennessee appellate court decision about pass-through claims against the State.

In Kay and Kay Contracting, LLC v. Tennessee Dep't of Transportation (pdf), the contractor entered into a $10.2 million contract with TDOT for the construction of a new bridge on Interstate 75.  The contractor then entered into a $3.1million subcontract with the grading and excavation subcontractor. 

Problems occurred during performance and both the contractor and subcontractor filed claims against TDOT for additional compensation.  TDOT rejected the subcontractor's claim because it did not have a contract with the subcontractor and, thus, it argued that sovereign immunity barred any claim by the subcontractor.  Although the Claims Commission agreed that the subcontractor was not a proper party to the lawsuit, it allowed the contractor to pursue the claim against TDOT as  "pass-through" claim on behalf of the subcontractor.

The Court of Appeals of Tennessee reversed, holding that the pass-through claim was prohibited by the doctrine of sovereign immunity.  Under that principle, the state is immune from lawsuit unless that immunity is expressly waived by statute or otherwise.  The Tennessee legislature has expressly determined that a written contract with the State is a waiver of the immunity for any lawsuit on the breach of that contract.  See Tennessee Code 9-8-307(a)(1)(L).

In Kay and Kay, the appellate court concluded that the contractor was not entitled to pursue the pass-through claim on behalf of the subcontractor, who did not have a contract with the state.  The court reasoned:

We acknowledge that we must give Tenn. Code Ann. § 9-8-307(a)(1)(L) a liberal construction. However, in so doing we cannot amend, alter, or extend the statute beyond its obvious meaning. Stewart, 33 S.W.3d at 791. The obvious and ordinary meaning of requiring a “written contract between claimant and the state...” is not susceptible of more than one meaning. A contract is either written or it is not. If we allow pass-through claims, then we are allowing a party to sue the State and prosecute the claim of a different entity that has no contractual relationship with the State. This is contrary to the clear and unambiguous language of the statute requiring a written contract between the claimant and the State before the State can be sued for breach of contract. We again note that if the General Assembly believes that allowing pass-through claims is in the State’s best interest and public policy favors allowing such claims, we invite the General Assembly to amend the relevant statutory provisions to expressly allow such claims.

The appellate court expressly held that its decision applied "only to pass-through claims wherein subject matter jurisdiction is predicated on the removal of the State’s immunity pursuant to Tenn. Code Ann. § 9-8-307(a)(1)(L)." 

The court expressed no opinion on whether pass-through claims otherwise are permitted in Tennessee in other contexts.  That decision was left for another day ... another dispute. 

Image: Roger Smith

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You’ve heard about Nashville’s historic flood almost six weeks ago and all the damage that it has caused to thousands of homes throughout Middle Tennessee. Just this morning, Nashville Metro government sent 305 buyout letters to homeowners whose homes were damaged within the floodway, the area where water flows most swiftly during a flood. Today’s post is about a decision released yesterday by the Court of Appeals of Tennessee regarding what may occur when a restoration contractor fails to remediate toxic mold following significant water damage. 

In Victoria Dutton v. Farmers Group, the Plaintiffs’ home was flooded and incurred severe water and mold damage when the hot water tank burst. The Plaintiffs began to experience various illnesses after moving back into the home. Despite assurances from ServePro (the remediation contractor) and the Plaintiffs’ insurance carrier that the home was safe, the Plaintiffs discovered that their home was contaminated with toxic mold almost three years after moving back into the home. The Plaintiffs filed suit against various defendants alleging distinct causes of action.

The trial court held that the Plaintiffs’ claims were barred by the applicable statute of limitations. The Court of Appeals reversed, holding that the discovery rule tolled the applicable statute of limitations.  In Tennessee, the discovery rule provides that a cause of action accrues and the statute of limitation begins to run when the plaintiff knows or should have known that an injury has been sustained as a result of some wrongful or tortuous conduct by the defendant. 

In this case, the Plaintiffs did not connect their illnesses to the toxic mold exposure in the home until close to three years after they moved back in the home. The Court found that the defendants attempted to remediate the mold issues in 2002 and the Plaintiffs had a good faith belief that the problem was resolved. The Plaintiffs did not discover until 2005 that the flooring throughout the home was not removed as originally advised in the 2002 cleanup of the home. After testing, it was found that the linoleum flooring was severely contaminated with toxic mold spores. The Court reasoned:

Without the obvious signs of mold contamination in the home, Plaintiffs had no indicators that mold contamination caused their health problems. . . . Eventually, [the insurer] retested the home, which confirmed that Plaintiffs’ home was contaminated with toxic mold. Until a doctor mentioned a possible allergic reaction as to the cause of [Plaintiffs] injuries, Plaintiffs did not have sufficient facts to investigate their potential claims. Under these circumstances the discovery rule tolled the statute of limitations.

The Victoria Dutton case is a good example of how the courts will apply the discovery rule to personal and property damages cases involving residential construction.  Factually, the case also highlights the severity and seriousness of toxic mold exposure following a significant flooding event. Finally, the case demonstrates that there may be certain substantive defenses in your state that preclude you from recovering on a claim including, but not limited to, a statute of limitations, the discovery rule, and the tolling of the statute of limitations.

Image: Eric Hamiter

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Short answer: Yes.

While most of the best practices that I talk about here involve commercial developments, today's post applies both to residential and commercial projects.  It's been two weeks since the historic flooding in Nashville and there is a lot of cleaning up and repair to be done.  On Friday, I received an alert from Davidson County's Department of Building Codes, which contained guidelines for permits related to the repair of flood damaged homes and buildings (pdf).  Here are a few important things to remember, whether the project involves commercial or residential:

• You need a building permit prior to making repairs on flood damages homes and buildings.  While you do not need a permit for clean-up or demolition, a permit is required prior to installation of any drywall, electrical, or HVAC systems.
• The property owner or tenant can pull the permit for repairs up to $25,000.  If the repair costs more than that, the permit must be obtained by a licensed contractor.
• Use extreme caution with restarting of any electrical systems or units.  Again, it is recommended that you have a licensed mechanical contractor inspect and test these systems before using them.

One final recommendation, as related to residential home repairs, is to make sure that your repair contractor is properly licensed through the Department of Commerce and Insurance.  The State has also put together a guide for finding and selecting a licensed contractors (pdf), which recommends the following: (1) get multiple bids from at least 3 contractors; (2) hire only a licensed contractors; (3) get a written contract; (4) get the contractor's proof of insurance; and (5) set up a payment plan and do not pay more than 1/3 deposit.

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On Saturday, it rained ... and rained ... and rained.

On Sunday, it flooded.

On Monday, I took off from work to help stage a shelter at my local church for a number of Nashville flood victims.

On Tuesday, I spent part of the day with displaced residents whose homes were completely demolished.  I spent the rest of the day dealing with email problems.

On Wednesday, I started fielding calls from clients and other flood victims about what they needed to do following flood losses to their businesses and homes.

Today, I hope to outline some steps about what residents and businesses in Nashville should do about all the chaos, including lost property (personal and business), FEMA claims, insurance claims, and the daunting process of remediation and repair of your home or business. 

1. For both homeowners and businesses, locate your insurance policies.  There are a lot of rumors about flood coverages (what is required, whether you can get flood insurance, whether the loss covers contents or the building).  The only way to get to the truth is to review your policy.  If the actual written document was destroyed, then call your agent for a copy of the policy ... even if they tell you that you do not have coverage for floods.
2. If you don't have any insurance, or you do not have coverage for flood losses, then identify what resources are available to you.  As of today, Cheatham, Davidson, Dyer, Hickman, McNairy, Montgomery, Perry, Shelby, Tipton and Williamson counties have all now been granted Federal disaster designation by the President.  That means, you may qualify for assistance through FEMA.  You can apply for assistance online or by telephone.  FEMA requires that losses be submitted with 60 days.
3. Document your losses.  This may be difficult given your conditions, but it will require making a list of the damaged property, as well as taking pictures and videos. While it may be a no-brainer, separate the good from the bad ... what is recoverable and usable from what is completely destroyed.
4. Contact your advisers, including your insurance agent and attorney.  The process of filing a claim begins with giving "notice" to your insurance carrier.  Even if you are not sure about your coverage, make sure to provide the required notice.  If you are denied for any reason, then an attorney will be able to advise you about your rights. (Remember, though, you need your policy!)
5. Carefully walk through the remediation and repair process.  Whether or not you have insurance, you will want to work remediation and repair contractors who have experience with these types of losses.  As with any disaster, there will be those individuals who want to take advantage of the situation to offer their services at what may seem to be a discount.  You should check whether the company is registered with the Nashville Better Business Bureau.  To verify whether a repair contractor is properly licensed through the State of Tennessee, please use please use http://verify.tn.gov or http://licsrch.state.tn.us/
6. For businesses, evaluate whether you have "business interruption" coverage.  Again, this will depend on the actual policy.  Business interruption coverage is generally not sold as a separate policy, but is added or included in a policy package.  It usually covers: profits, operating expenses, and sometimes temporary relocation expenses. 

There is certainly a lot of advice on the Internet ... some good ... some bad.  There are going to be significant claims in the coming months resulting from the floods in Nashville and it is important that you find reliable information to help you through the process.

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Many of you have seen the devastation on the news about families all over Middle Tennesse who have displaced from their homes. Two of the groups that have received little to no attention in the media are the homeless and lower income populations throughout Nashville. Tent City has been destroyed and these people have lost everything. The mobile home park across the street from the Fairgrounds (where two elderly people died) has been completely wiped out.

A number of homeless groups and ministries have set up an emergency center at Woodbine Presbyterian (the corner of Nolensville and Thompson Lane) for these people to come eat, get a shower and some clean clothes.  We are in need of the following items:

• Tents
• Sleeping bags and blankets
• Toiletries (soap, toothpaste, tooth brushes, deodrant)
• Towels (wash clothes, hand towels, bathing towels)
• Bottle water and juice
• Snacks (jerkey, nuts, dried fruit, crackers, etc.)
• Gift cards (restaurant, food, phone, Walmart, etc.)

If you are local and can help with any of the above items, please let me know.  Please pass on my contact information to your friends and family. Thanks.

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Today's post is by Craig Mangum, a fellow construction attorney with Smith Cashion & Orr.  Craig has an undergraduate degree from Boston College and a law degree from Florida State.  He also worked with the Construction Industry Licensing Board at the Florida Department of Business and Professional Regulation.

A bill to raise the building and permits fees currently charged by the City of Nashville is headed for its third and final reading on Tuesday, April 20, 2010.  According to Terry Cobb, the Department of Codes and Building Safety Director, the increase is necessary to achieve “full cost recovery for construction related services." (pdf) 

The Department of Codes commissioned a private company, Maximus, to perform a study of whether the fees charged by Nashville were appropriate and in line with other jurisdictions. The study showed that a 30% increase in fees is necessary to achieve “full cost recovery.”

Interestingly, the Department of Codes provided a comparison of fees charged by 14 peer communities. The comparison demonstrated that Nashville already has some of the highest fees for the selected cities and that the proposed fees would send Nashville to nearly the top of the list. (Fee Survey .pdf).  Indeed, some of the proposed fees are three and four times the amounts charged by cities such as Knoxville, Louisville, and Austin.

Maximus stated in its fee analysis that:

Admittedly, comparisons can help Metro leaders understand the market environment to help make market-based or political decisions, but such comparisons do not reveal any objective information or identify the true relationship of the fees to costs to help make cost-based decisions. (Code Analysis .pdf)

According to the third-party company, these figures can be misleading and that a more in-depth analysis would be necessary to truly compare the fees charged by the fourteen cities.

However, a closer look at the numbers by any layperson demonstrates that the already high fees in Nashville may reach even greater heights.  If the Department of Codes is going to commission another study, perhaps it would be more beneficial to see if building codes departments in other cities operate more efficiently.  In other words, Nashville may be able to reduce the costs and thereby forego any increase in fees. Perhaps these other peer cities just do it better.

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I wonder who that sad little scrap of paper is?  Do you know?  Oh, yeah, he's just a bill ... he's just a bill on capitol hill.

You knew that Nashville was the Music City, right? Reminiscent of the "Schoolhouse Rocks" days, last night I attended the kick off dinner for the AGC of Tennessee’s “Day on the Hill”… an event where AGC members attend hearings and meet with state senators and representatives about various bills relating to the construction industry in the state of Tennessee. Although there are reported to be more than 1300 bills introduced for consideration by the General Assembly in the 2010 regular session, approximately 15-20 of those impact or affect the construction industry in some manner. The top five bills for which the AGC of Tennessee has stated their position include the following:

• Worker's Compensation Insurance Reform. There have been a number of bills introduced in the session of the General Assembly regarding the issue of subcontractors not having workers compensation insurance coverage. I previously blogged about Public Chapter 1041, who's implementation date was recently deferred until March 28, 2011.  The law would have required all contractors to obtain workers compensation coverage, even on themselves if they were sole proprietors. Rather than taking a position on the individual bills that were introduced in this session, the AGC of Tennessee suggests that any legislation proposed on this issue consider the following recommendations:

1. Allow up to three officers of a company to “opt out” from being required to have coverage;
2. Require the filing of an affidavit with the Department of Labor that specifically names the individuals who have opted out of coverage;
3. Proof of at least 10% ownership;
4. Submission of a federal employer identification number with any filing;
5. An acknowledgment of a waiver of all rights of recovery, including workers compensation and tort claims, if the opt out individual is injured on the job; and
6. A provision that any individual who opts and files a claim would be guilty of fraud.

• Drug Free Workplace.  This legislation was first introduced by 2008 by the AGC of Tennessee. SB 1524 and HB 1604 make certain changes for denying workers compensation claims involving drugs or alcohol. By changing the burden of proof by the injured employee from a “preponderance of evidence” to “clear and convincing” evidence. This legal language change would make it more difficult for the employee to prove that drugs did not contribute to the cause of the accident. AGC of Tennessee strongly supports this change to the current legislation.
• Listing of Masonry Contractors. SB 2722 and HB 2794 requires information concerning those bidding for masonry contractor work be included on the outside of the envelope containing a bid, in addition to those contractors currently required to be listed. AGC of Tennessee strongly opposes this legislation, consistent with the position taken by the Tennessee Board for Licensing Contractors. Currently, masonry contractors are not required to have a license in Tennessee. Adding this requirement to current legislation as suggested by the AGC, would be put an additional burden on the general contractors bidding a project.
• Electronic Bidding. SB 3607 and HB 3158 revise the current requirements concerning information that must be contained on the outside of the envelope containing a bid to also require the same information be included in an electronic bid. AGC of Tennessee strongly supports this legislation because it brings the bid process into the electronic technological arena.
• Local Bid Preferences. AGC of Tennessee strongly supports SB 3607 and HB 3160, which clarifies that the only bid preferences that are permissible in public construction projects of local governments are those created by the General Assembly by general law. This legislation is intended to prevent local jurisdictions and governments from creating special bidding rules for construction projects.

Although there are numerous other bills before the General Assembly, these are the main ones being discussed by AGC members this morning at the “Day on the Hill” program. 

I once worked as a staff member on Capitol Hill more than 15 years ago and I truly miss being involved in the legislative process.  Whether you support or oppose any of the above measures, the real lesson is to get involved to help shape the laws that can (and will) affect your business.

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As you may know, the Nashville Metro Council recently passed the $585 million financing package for construction of the new Music City Convention Center.  As reported by the Tennessean this morning, discussions have now turned to project management and how to control the costs.

When asked about what areas would incur the most cost overruns, two divergent opinions emerged:

• Marty Dickens, Chairman of the Metro Convention Center Authority, said, "All of 'em."
• Larry Atema, CEO of Commonwealth Development Group and the owner's representative on this project, responded: "There aren't going to be any."

Who's right?  I am not sure either opinion is completely correct.  Cost overruns can occur when the contractor justifies any reasonable change order, whether it is the result of an owner-directed change request, a change in available materials, a change due to design conflicts, or an unanticipated delay in the work.  While there may be cost-savings built into the project's estimate, these can be rare on a sizeable project like the convention center. Add to the mix the multitude of players involved in the financing package: mortgage bankers, accountants, and cost engineers.  

To say that every trade or scope of construction will incur a cost overrun simply ignores the fact that there is a contractual guaranteed maximum price.  Additionally, there are a number of reputable, downright excellent contractors involved in this project who will do whatever is necessary to stay on budget.  Sure, there will always be the few participants trying to make an extra buck or two through change orders.  But that should not be the expectation.

On the other hand, to say that "there aren't going to be any" cost overruns may be simply a case of project management optimism.  Indeed, Atema recognizes that "[d]evelopment and construction is an imperfect process."  Atema continues: "The key is the ability to manage those imperfections." 

Image: Music City Center

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When Nashville Mayor Karl Dean created the Green Ribbon Committee on Environmental Sustainability, he had lofty goals of making Nashville the greenest city in the Southeast.  Indeed, Tennessee's Lt. Governor Ron Ramsey shared a similar commitment to be a green "LEEDer" in the South. 

Fast forward to January 2010 ... Where are we on the green front?  What have we learned over the past year?  Where are we going in the future? Have we met any goals outlined in the Green Ribbon Committee report?  How have the current real estate market conditions impacted the short-term future of green building in Nashville?  Is it time to require some sort of mandate for green buildings or are incentives enough? 

Yesterday morning a group of community leaders, developers, bankers, attorneys, engineers, contractors and other green players met for breakfast at Waller Lansden's sustainability breakfast series to tackle these questions. The panel included the following: 

• Jimmy Granbery,CEO, H. G. Hill Realty Company, LLC
• Mike Jameson, Councilmember, Metro Nashville Council District 6
• Bert Mathews, President, The Mathews Company
• Joni Priest, Metro Nashville Planning Department
• Sharon Smith, Metro Nashville Mayor's Office, Director of Office of Sustainability 

The one-hour discussion was very thought-provoking and the panelist had some practical comments on the future of green building in Nashville.  Here are a few:

On the progress of green building:

Jimmy Granbery applauded the development of technology and better understanding of green solutions.  "For example, we can now build a green roof with only four inches of dirt rather than two feet of dirt," said Granbery.  This has certainly resulted in significant cost savings in the underlying materials, as well as the building costs such as the steel needed to support a heavier roof.

On city or state-wide green building code:

Councilmember Mike Jameson discussed the problem that localities face by adopting a third-party building code such as USGBC's LEED certification, suggesting that the building code will have to change as the third-party standard changes.  "Instead, I would like to see the city code mirror the [third-party version] ... to be a stand alone code," said Jameson.

On local incentives for green building:

Joni Priest highlighted some potential incentives, including bonus square footage for LEED certified buildings and building height variances.  Priest said  that there was significant opposition to any mandate for LEED certification on construction, joking that her phone rang off the hook when the mandate issue came up for discussion.

On general trends for green building and sustainable design:

Bert Mathews said that it really depends on the client, as some tenants of his developments have absolutely no interest in green building, while for others, "it is a standard that many have come to expect."

Question:  How would you rate Nashville's commitment to green building?

I look forward to the sustainability breakfast series over the next few months.  Thanks to @tenngreenlawyer for the tweet about the breakfast.

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Is it too late to discuss a case from 2009?  Nah.  Especially if the court released the opinion within the past two months.  And according to the decision in Shelby County v. Crews (pdf), there are times when it may be too late to withdraw a condemnation petition. That line in the sand appears to be the date after the public entity takes legal possession.

In Shelby County, the Court of Appeals of Tennessee recently held that the County was precluded from backing out of condemnation proceedings too late in the game. The County had possession of a small strip of land owned by the Crews. The County used the land as a parking area for a nearby penal farm and had gone as far as to pave the property. In the summer of 2004, the County filed a Petition for Condemnation of the strip of land pursuant to the condemnation statutes. The County offered approximately $40,000 as to the amount of compensation for the family land owners. The family did not contest the County’s right to acquire the property, but disputed the amount of compensation it should receive for the land. Thereafter, the trial court entered a Consent Order that granted “all property rights and ownership in fee simple” in the property to the County. The trial court scheduled a trial on the issue of compensation for a later date.

One week prior to the scheduled trial date, the County filed a Notice of Non-Suit, which is a document that gives notice of a voluntary dismissal of the condemnation proceedings.  The Crews filed an objection to the non-suit order, arguing that the County was not entitled to dismiss the case because it took possession of the property. The issue before the court was whether the County was entitled to voluntarily dismiss the condemnation after it took possession of the property.

In a short five-page opinion, the court held that the County was precluded from voluntarily dismissing the condemnation proceedings after it had acquired ownership and legal right to possession, leaving only the issue of compensation to be decided.

While this issue may seem like a no-brainer to you, the case is important because it establishes a limitation on a public entity's power to condemn property.  The public entity can no longer take possession of the property and later "back out" of the deal if compensation looks to fall in favor of the private owner.

Photo: Flickr | ToniVC

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Back in November, I wrote about a Tennessee Attorney General Opinion that addressed the new workers' compensation law in Tennessee that requires sole proprietors to carry workers' compensation insurance on themselves. (Traditionally, there was an exclusion for sole proprietors.)  Just after release of the AG-Opinion, the leadership in the state house and senate came to an agreement to suspend the effective date of the new law.

Over the past month, there have been a number of grass roots campaigns to address this issue.  So, where does the law stand now?  According to an official bulletin from the Department of Commerce and Insurance Commissioner Leslie Newman (pdf), the statute goes into effect at midnight on December 31, 2009.  Although the General Assembly has reported that it will address the issue as soon as they convene on January 12, 2010, the statute as written and enacted is enforceable on January 1, 2010.  The most important tip from the Bulletin is about election of coverages:

The Department interprets this change in the law to mean that a sole proprietor, partner, or limited liability company member ("LLC member") who had not previously been required to have coverage on himself must  now obtain coverage on himself. . . . The Department wishes to make clear its position that failure of a sole proprietor, partner, or LLC member to obtain such coverage without having met an exemption, is in violation of [the new law] and could subject such person to penalties by the Department of Labor and Workforce Development.

The Bulletin also includes the "Certification of Election" form that must be filed with the Department. I plan on following this issue closely.

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Every construction litigator in the residential arena knows that a state's consumer protection laws are good grounds for disputes.  Will my client get treble damages?  Will they recover attorney fees for deceptive trade practices?  Does my client have any defenses to these types of claims?

In Fayne v. Vincent (pdf), the Supreme Court of Tennessee held that the Consumer Protection Act applied to real estate professionals engaged in the sale of their personal residence. The case involved problems with a septic tank that were discovered after sale of the residence to the purchasers.  Mr. Vincent was a builder and developer and his wife was a realtor. Mr. Vincent was the developer of the neighborshood and he constructed the home in question, moving into the house after it was completed. Mrs. Vincent signed the Tennessee Residential Property Condition Disclosure Statement in her dual capacity as owner of the property and as realtor for the property.

After the purchasers moved into the home, they began to notice odorous fluid seeping from around the septic tank. After investigation, the purchasers filed suit against the builder and the realtor for various claims including negligent misrepresentation, fraud, deceit, and violation of the Tennessee Consumer Protection Act.

Following a two-day jury trial in the trial court, an appeal to the Court of Appeals, a remand back to the trial court, and a subsequent appeal, the Supreme Court held that the sale of the home was covered by the Tennessee Consumer Protection Act (TCPA). Specifically, the Court recognized that the TCPA does not apply to sellers who are “not in the business of selling property as owners or brokers” and therefore that “persons making an isolated sale of their home [is] not covered.” The Court reasoned:

We adhere to the holding ... that homeowners participating in the casual and isolated sale of their personal residence and not in the conduct of trade or commerce cannot be sued for damages under the TCPA. This principle applies to developers, contractors and realtors who are selling their personal residence in a casual or isolated sale and who are not performing or providing professional services to facilitate or finalize the sale. However, we have also concluded that developers, contractors, and realtors cannot insulate themselves from liability under the TCPA simply by owning and briefly residing in a house before they offer it for sale as their personal residence.

Accordingly, the Supreme Court held that the TCPA applied to the facts of this case.

The Fayne case is a good reminder to developers, contractors, and realtors, as well as to purchasers of residential property, to know and understand the full breadth of your state’s consumer protection laws.  Imagine the case of where verbal abuse by the builder against a purchasing couple gives rise to a claim for intentional infliction of emotional distress and consumer protection act violations.  It happens.

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I recently read in the Nashville Bar Journal about a new change to the hearsay rules.  This is what immediately came to mind.  On any given day, I receive a call from my lovely wife about one of my five children who has been put on the witness stand for interrogation by my wife. The defendant child has either taken something that did not belong to them, invaded some other child’s personal space, or spewed out some dirty word.  Inevitably, when I get home from work I am called in as the judge to determine the guilt or innocence of the defendant child.  In many instances, I will interrogate some of the other witness children about what occurred.  Can you tell me which one is the traditional defendant? (Hint: bottom right.)

Under the former version of the Tennessee Rules of Evidence, prior inconsistent statements of my witness children could only be used to impeach the witness child. However, effective July 1, 2009, Tennessee adopted Rule 803(26), a new exception to the hearsay rules. The Rule provides for the admission as substantive evidence the prior inconsistent statements of any non-party witnesses if certain reliability requirements are met.  This goes further than the Federal Rule of Evidence 801(d)(1)(a) and allows an additional way to admit inconsistent statements for their substantive value. In my own child criminal court, that means that the prior inconsistent statements of my six year old son can be used as substantive proof against the four year old defendant. You know momma is going to be happy with a conviction.

While this is not the majority rule among the jurisdictions, Tennessee is now among a number of jurisdictions that have adopted this modern approach.  Again, Tennessee now allows for substantive proof the use of statements made in preliminary hearings, depositions, police investigations, or other recorded statements and interviews.

How does this affect your construction dispute?  As with many other legal questions, the answer is: "It depends."   It depends on your jurisdiction, the type of trial (judge or jury), and the type of construction dispute. 

• If you are in a jurisdiction that has adopted the modern approach, which includes Tennessee, Colorado, Hawaii, Wisconsin, New Jersey, Illinois, California or Montana, then prior inconsistent statements can be used substantively. 
• A judge should be able to truly appreciate the difference between prior inconsistent statements used for impeachment versus used for substantive evidence. 
• Finally, in a fact-driven construction disputes (as opposed to simple breach of contract matters or cases involving a battle of experts), this new evidence rule may come into play.

The real lesson to be learned from this rule change is to preserve pre-trial statements by all witnesses.  For example, it is important to take witness statements immediately following a construction accident, failure of the installed work, or other significant event during project performance.  In the event of litigation, the recorded statement can be used during trial as substantive proof.

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As reported by the Tennessee Bar Association, the 2010 Tennessee State High School Mock Trial Competition got underway yesterday with the release and publication of the mock problem. The case involves a dispute over the design and construction of a 400,000 square foot distribution center featuring a concrete slab-on-grade floor. The primary issue in dispute is whether the work performed by the contractor constituted a breach of contract or professional negligence. A copy of the problem may be downloaded on the TBA’s website.

The case materials for this year's problem were developed in large part by the Tennessee Association of Construction Counsel, which is an association of about 100 attorneys from across the state with practices serving contractors, building material and equipment suppliers, architects, engineers, and building owners and developers.

Marisa Lee Combs, the Chair of the Tennessee State Mock Trial Committee and a construction attorney at Lewis King in Nashville, is a product of the mock trial competition. In response to an inquiry, Marisa said, " If not for that experience, I am not sure I would have chosen a career in the law. Other classmates of mine were interested in drama, so they loved playing witness roles. To me, it is a great way to show the students how complicated and fun the law can be."  

To me, it is exciting to see a future generation of thinkers, problem solvers and litigators at such an early age in their education. I am also excited to see that this year’s problem focuses on a construction dispute that will provide for some very interesting trial arguments. (Since I am a construction lawyer who regularly litigates these types of disputes, I will refrain from providing any more commentary on this issue.)

Kudos to the Tennessee Bar Association and the Tennessee State High School Mock Competition for their extraordinary efforts in creating and supporting this great program. And a hearty good luck to all the young participants!

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Following on my earlier post ... nevermind.  Leadership of the Tennessee House and Senate recently reached a bipartisan agreement to immediately introduce legislation in January 2010 to suspend the effective date of Public Chapter 1041 from January 1, 2010 to February 28, 2011.  As reported last week, the new law was enacted to require a sole proprietor to carry workers' compensation insurance on himself.  The effect of the new ruling was addressed in Tennessee Attorney General Opinion 09-173 (pdf). 

In a statement, Representative Judd Matheny, Chairman of the House Consumer and Employee Affairs Committee alluded that timing was an issue:

 “Although there are merits in this legislation which need to be addressed, its effective date could not come at a worse time for the portions of the industry affected or the already fragile economy.”

Matheny is sponsoring HB 1839 along with Representative Joe Pitts to immediately suspend the effective date of PC 1041 until February 28, 2011.

According to House and Senate Leadership, a suspension of PC 1041’s implementation until February 28, 2011 is the first of two steps in reconsidering the issue of the sole proprietor and workers’ compensation in the construction industry. The second step would be considering alternative ways to address gaps in coverage for workers in companies of all sizes in the various construction fields. Recommendations for alternatives have been collected from consumers and affected industries and are being looked at closely. No action on implementing any alternatives is expected until February 28, 2011 at the earliest.

This action should assist sole proprietorships for the time being.  However, unless the move is taken immediately at the start of the January 2010 session, there will still be some period where the new law will be in effect which requires workers' compensation coverage.

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I love seeing a case zig zag through the appellate process ... and I especially enjoy reading one where intermediate appellate court reverses the trial court and the highest court then reverses that intermediate appellate court.  I know, I'm sick.

In a decision released yesterday, Goff v. Elmo Greer & Sons Construction Company, the Supreme Court of Tennessee reversed the Court of Appeals and reinstated the trial court's decision approving an award of punitive damages in a construction case.  The owners of the property filed suit against the general contractor on a highway widening project.  The owners contracted with the general contractor to use their adjacent land as a lay down area in exchange for compensation.  When the contractor failed to pay the full contracted amount, the owners sued.

Following a trial, the jury found in favor of the land owner and awarded: (a) about $5,300 for the unpaid contract balance; (b) about $9,500 for damages resulting from blasting activities; and (c) about $3,300 for burying debris on the property.  The jury also returned a verdict of $2 million in punitive damages, which the trial court reduced to $1 million.

The Court of Appeals affirmed the trial court's judgment as to liability, but reversed the award of punitive damages based upon a finding that the trial court improperly considered Tennessee's environmental laws in approving the award.  The Supreme Court of Tennessee reversed, holding that the trial court properly considered Tennessee's environmental statutes in approving the award.

The Goff decision has a number of construction nuggets to analyze.  One of the more significant aspects of the opinion is the jury's award of punitive damages based upon various environmental laws without any finding of a violation of those laws.   The intermediate appellate court determined that because the jury found that the contractor had not committed an environmental tort, the trial court should not have relied on the environmental statutes and policies in affirming the award of punitive damages.  The Supreme Court disagreed:

The evidence supporting the nuisance claim was the proof regarding buried whole waste tires.  In order to determine the reprehensibility of burying whole waste tires, the trial court considered the State's policy regarding such action. To this end, the trial court correctly noted that the State has enacted legislation against burying whole waste tires, recited the public policy behind that legislation, acknowledged that [the contractor] was aware of the State’s policy against burying waste tires, and
observed that high civil penalties are permissible for burying waste tires. In our  view, the fact that the legislature has determined it necessary to prevent the improper burial of tires “to protect the public health, safety and welfare” is important in the discussion of the reprehensibility of [the contractor's] actions.

Interestingly, the Supreme Court did not decide whether a private right of action existed for a claimed violation of the state's environmental statutes because the jury did not find the existence of any "environmental tort" and neither of the parties raised the issue on appeal.

For the contractors out there, Goff is a good reminder of the total exposure (including significant punitive damages) for violation of state waste disposal and environmental laws.  For the legal practitioner, Goff instructs that a statute may be used to define the public policy for proving punitive damages even when there is no violation of the actual statute.

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Over the past two months, I have received a few inquiries from small business owners about an amendment to Tennessee's workers' compensation laws.  The primary question is whether the new law, which takes effect on December 31, 2009, will require a sole proprietor to carry workers' comp insurance on himself?  (Traditionally, there was an exclusion for sole proprietorship under Tennessee law.)

According to the recent Tennessee Attorney General Opinion No. 09-173, the answer to the above question is a resounding, "YES."  Based upon the AG's opinion, here is how the law now stands:

1. If you are a general contractor or subcontractor, you must provide workers' compensation insurance coverage for your employees. ("Any person engaged in the construction industry, including principal contractors, intermediate contractors and subcontractors, shall be required to carry workers' compensation insurance.")
2. If you are a sole proprietorship ... and you have no employees and you are performing the work yourself ... you are required to carry workers' compensation insurance on yourself, unless: (a) you contract directly with the homeowner; or (b) you are working on your own residence.

It will be interesting to watch how the construction industry responds to this issue.  The legislative history of the amendment reveals that the change in the law was prompted by a need to ensure that all subcontractors and employees working on a construction site were properly covered by workers' compensation insurance.  According to the legislative discussion, some employers were purportedly avoiding paying for coverage by claiming that their employees or subcontractors were actually sole proprietorships.

Question: What's happening in your state on this issue?

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For all my Nashville and Middle-Tennessee friends, I want to take a moment to highlight two upcoming conferences.  Although the programs are geared towards construction lawyers, don't shy away if you did not get a "shark degree" from Build 'Em Big University ... Each conference offers a little different glimpse depending on your career path.  What do I mean? 

The Fundamentals of Construction Law will be held on November 5, 2009 in Nashville, TN (...along with many other locations...) and is taught by leading construction lawyers.  This program presents a unique opportunity for new construction lawyers or experienced lawyers who occasionally practice construction law to learn the essentials from those who practice it daily at its highest levels. The program concisely covers the gamut of construction issues including:the roles of the key participants in a project, the structure of project delivery systems, the bidding and construction process, insurance and bonding and dispute resolution.

For the non-lawyer: This seminar will give you a great glimpse into the basic legal principles affecting your construction practice.

The Nashville conference is being coordinated by Joe Welborn, one of my partners (... and all-around-great-guy...).  If you have any questions about the program, then send Joe an email.

The second conference, the Tennessee Association of Construction Counsel Fall Meeting, will be held the very next day on November 6, 2009.  For the construction lawyers, there are three seminars right up your alley:

• Litigation Strategies for the Construction Law Practitioner, by experienced litigator Andy Ness
• Steel Structural Collapse of the Chicago Post Office Building, by engineer and expert Ian Chin (pdf)
• Bankruptcy Law for the Construction Practitioner, by bankruptcy guru Dan Puryear

For the non-construction lawyer:  You will not want to miss the mock trial! Learn from the pros on how to best present your case.  Participants include: Davidson County Chancellor Ellen Hobb Lyle (as judge), Tim Gibbons and Todd Panther (as advocates), and Gary Parkes and David Wright (as fact and expert witnesses).

The TACC conference is being coordinated by Vic McConnell, another one of my partners ( ...and another-all-around-great-guy...).  If you have any questions about the program, then send Vic an email.

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This morning I read Brad Heath's article in USA Today, suggesting that the stimulus funding for road repairs has detoured and by-passed large metro areas with significant road problems.

According to the USA Today study, half of the nation’s worst roads will receive only about 20% of the stimulus money allocated for street repairs. The reason—the roads were not shovel ready and were in too bad shape:

“The problem is a byproduct of a stimulus package designed to spend as fast as possible to revive the economy. Many roads are in such bad shape that repairs would take too long and cost too much to qualify for funds, says John Barton, head of engineering for Texas' Department of Transportation.

The result is that counties with the worst roads won't get much more repair money than counties with better roads. The 74 counties with half of the nation's bad roads will split $1.9 billion, records show; counties with no major roads in bad shape will split about $1.5 billion.”

Data compiled and reviewed by USA Today showed that many of the roughest roads needing repair were … let’s say … not ready for repair.  For example, state officials acknowledged that “Detroit's roads are in dire need of work, but say they didn't have enough ready-to-go projects there.”

According to Kent Starwalt, Executive Vice-President of the Tennessee Road Builders Association, the important question is not whether transportation projects are shovel ready, but rather, why weren’t these projects shovel ready?

“It would seem that if a jurisdiction’s roads are in really poor condition, they would have the necessary steps done to be able to move on projects when and if they did receive money. [Tennessee Department of Transportation] and many other state DOTs were well prepared for such a scenario. The cities were even given more time than the states in the stimulus bill to obligate any money they were to receive.”

This is more than just an issue of timing and money. One measure of the House transportation re-authorization bill includes the transfer of control from state departments to city and metropolitan planning organizations. However, Starwalt warns: “It should be obvious to everyone involved that the cities are not as efficient in getting projects out the door as state DOTs.”

This debate is interesting to those of us who follow the federal stimulus funds with the hopes that the funds actually impact the construction industry, the workers and employees involved in the projects and the local economies.

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As a father of five children, I have fully prepared myself for "the" talk.  Already, I have discussed the various scenarios with my daughter about dating, courtship and marriage.  According to this eleven-year-old Princess, the line in the sand of appropriateness ... is ... "just holding hands."  (Whew!)

Last week, the two primary construction industry groups in Tennessee—the Associated General Contractors (AGC) and the Associated Builders and Contractors (ABC)—began holding hands.  At the 2009 State AGC Convention in Nashville, leaders announced a new partnership between the state AGC and ABC organizations.  According to Ed Baldwin, President of AGC of Tennessee, "both groups have recognized the importance of partnering as a positive means to achieve excellence in construction and better represent the entire industry." 

The "holding hands" venture has been officially reduced to writing in a "Cooperation Statement" approved by leaders of both industry groups.  According to the statement, the groups have agreed to the following measures:

1. Provide a forum to identify and discuss common areas;
2. Endeavor to build trust and respect between the two groups; and
3. Attempt to avoid surprises in their cooperative efforts.

In response to my inquiry, Dan Brodbeck, President of ABC of Tennessee, said, "Our group is excited about the cooperation agreement with AGC.  We look forward to opening the lines of communication with our partner to address those construction concerns that each of our members currently face." 

Is there any precedence for such a cooperative agreement?  Actually, these two organizations have done more than hold hands, kissed and dated ... they got "hitched" in two states.  In 1994, the Arizona chapters of ABC and AGC merged to form a joint venture called the Arizona Builders Alliance.  More recently, TEXO: The Construction Association was formed in October 2008 as a result of a merger between North/East Chapter of the AGC of Texas and the ABC North Texas.

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You've read the play on words: LEEDing the way ... In the LEED ... LEEDership ... and even LEEDigation.  In an address to a room full of contractors, suppliers, and (a few) attorneys on Thursday afternoon, Lt. Governor Ron Ramsey (R-Blountville) said that the state is committed to being a leader of sustainability in the South: "Honestly, I think we need to lead the wave of green."

Ramsey was the keynote speaker at the annual convention for the Associated General Contractors of Tennessee. His animated address focused on the pro-business initiatives throughout the state.  Ramsey said that Tennessee has traditionally been rated within the top three states in the country, alongside Texas and North Carolina, for its pro-business environment.  Ramsey also took the opportunity to publicly announce key appointments to various committees in the Senate.

During the Q&A session, I asked the Lt. Governor about the future of green building/alternative energy in Tennessee and where these issues fell with respect to his pro-business focus.

Ramsey smiled, commenting that as a "conservative Republican" most people would not imagine him "pushing green [programs]."  Ramsey then highlighted two major businesses that manufacture and build alternative energy solar products (Hemlock Semiconductor Group and Wacker Chemical) that have recently committed to investment in Tennessee.  The Lt. Governor also suggested that certain initiatives through the State Building Commission could help Tennessee lead the "wave of green" in the future.  In the end, Ramsey maintained his conservatism: "I'm not for more government regulation."  Instead, he suggested that results could be achieved through incentives and other programs.

While the Lt. Governor of Tennessee sees the state as being a "green leader" in the South, I am not sure it will be the "green LEEDer" until there exists a state-wide green building code.  And right now California stands alone on this issue.

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I know that I am a few hours early, but Governor Phil Bredesen is scheduled to sign the Tennessee Clean Energy Future Act of 2009 today at 1:30pm.  He will be joined by key legislators, as well as members of his Energy Task Force.

Among other provisions, the new law will provide for: (1)  a limited statewide residential building code to promote energy efficiency, (2) new energy usage guidelines for state buildings and vehicles, and (3) an extension of Tennessee’s emerging industry tax credit to the clean-energy technology sector. You can find the bill summary on the General Assembly's website, along with the full text of the new law.

Under the new law, the State Building Commission has the authority to implement various cost-saving measures. 

The measures may include, but shall not be limited to, maintenance, repair or replacement of lighting and mechanical equipment and related controls. Energy cost saving measures may be implemented through contracts with energy professionals including, but not limited to, energy service companies, commissioning and retro commissioning firms and agencies and energy auditing consultants.

There are no new state-wide LEED certification requirements, though.  In due time ... in due time.

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Look around the internet and you are sure to find one of these:

The design team of a 28,000 sq. ft. public school hope to achieve SS Credit 6.2, Stormwater Design: Quality Control, in the LEED-NC Rating System. Incorporating which of the following green building elements into the design would aid the team in achieving this credit? (Choose three)

A. constructed wetland

B. solar hot water system

C. vegetated roof

D. infiltration basin

E. high-albedo concrete

The correct answers are A, C, and D. (Thanks www.intheleeed.com for the sample.)  Well, if you look around Nashville, you are sure to find a real life LEED AP exam question brewing on some property known as Bells Bend.  It's called the May Town Center ... and the development has both supporters and critics.  If you think I'm kidding about the exam question, watch this clip and listen for words like "sustainable site" "light reduction" and "green-washing":

Following hours of heated open hearings, the Planning Commission voted last week against the proposed land use plan for the development. According to the Nashville Business Journal,

The Metro Nashville City Council has final say on zoning changes and will take up the issue in a public hearing on July 7. However, with a negative recommendation from the planning commission, the zoning measure will need 27 votes from the council, rather than the 21 usually required. . . .The planning staff had recommended approval of a zoning request to allow the development, but that was contingent on the land use plan amendment. The commission then voted down the proposed zoning changes.

There are many of us in Nashville closely watching the May Town Center development and I look forward to reviewing some of the LEED-related issues on the project, as well as reporting back after the July hearings.

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 As I was watching the evening news this week, I learned that my new home may have some Chinese drywall within its four corners.  What does that mean?  Well, I am too late to the game to accurately capture what has been going on the world of Chinese drywall litigation.  Just check out the growing number of Google-News archives for "Chinese drywall."  Or check out the new legislative update from ENR on drywall issues.

Here is a round-up of a few my favorite posts:

• On Construction Law Monitor, Scott Wolfe discusses the difficult choices faced by builders, homeowners, and construction attorneys.  These posts contain thoughtful considerations and practical checklists when dealing with drywall claims.
• On his other blog called Chinese Drywall Blog, Scott highlights a chart of drywall shipments from China, which is easy to read and provides great information (prepared by the Harold Tribune).

I have not seen or heard of any claims in Tennessee, but there were reports on the news that new homes ( ... like mine ... ) being built in the 2005-2006 "may" have some of the tainted materials.  We know it made it to Charleston, South Carolina ... but did it make here? 

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