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

Let's get ready to rumble! According to an ENR-Southeast article by Scott Judy, the road builders in Florida are preparing for another fight against legislators who have raided the state's transportation trust fund.  This is the second year in a row the Florida legislature has taken measures to raid the transportation funds for general uses. Last year, the raid was only prevented by the veto from then Governor Charlie Crist.  As reported by Scott Judy, Governor Rick Scott is considering a veto of this year's raid. 

Groups such as the Florida Transportation Builders' Association are gearing up for the second round fight.  Bob Burleson, president of FTBA, recently commented, "[We] could not be more disappointed with the tone and actions of Florida's lawmakers. . . . Governor Rick Scott campaigned on a job-creation platform, and we are confident he will consider a veto of this anti-jobs legislation.”

Aside from the political issue, there is a legal component to the analysis: Can a state legislature so easily sidestep the restrictions it puts on the use of state trust funds? This issue has been contested in a recent series of court cases across the country.

Facing deficits between 2001 and 2004, the Colorado legislature passed a series of acts directing the state treasurer to transfer over $442 million from thirty-one earmarked funds to the state’s general fund. Three of these earmarked funds were designated as “trust” funds by statute. A group of Colorado taxpayers challenged the transfer of the earmarked funds in a case called Barber v. Ritter. Among other things, the taxpayers argued that the three “trust” funds were irrevocable trusts that the legislature could not unilaterally revoke.

The case made its way to the Colorado Supreme Court, which decided in 2008 that the legislature could transfer the funds, including the “trust” funds. The court reasoned that the legislature could not use the statutes creating the “trust” funds to modify its constitutional power over appropriations. The court concluded: “[E]ven if the cash funds are public trusts, they are not irrevocable trusts, and the legislature has the authority to amend them to allow for the transfer of monies to the General Fund.”

A similar challenge to legislative raids of earmarked funds was also recently decided by the Supreme Court of Ohio.  The plaintiffs in Ohio argued that their legislature’s raid violated the Contracts Clauses of the state and federal constitutions.  The trial court agreed, finding that the raid on the earmarked funds was unconstitutional.  Both the Court of Appeals and the Supreme Court of Ohio reversed, finding that the legislature had plenary power to enact the targeted legislation.  

Another case pending in the Illinois Supreme Court addressed a similar constitutional challenge: whether the legislature's raid on earmarked trust funds violated the Takings Clauses of the applicable constitutions.  Like the Ohio case, the court in Illinois must decide whether the legislative earmarking creates an irrevocable trust.  The Illinois raid was upheld by both the trial court and the appellate court, but one of the three appellate judges dissented. The dissent plainly states that the legislature can create an express trust, and found “the legislature’s use of the term ‘trust fund’ to be compelling evidence that it intended to create a trust.”

It will be interesting to see if the Supreme Court of Illinois follows Colorado’s lead. If they do, it seems that state legislatures are as free to re-appropriate “trust” funds as any other funds. This is alarming for those concerned with transportation trust funds, which have been frequent targets of legislative raids in recent years.

Image: Bid Ed

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Last week Scott Judy, Editor-in-Chief of Southeast Construction magazine, sent me a tweet about a courthouse project in Jacksonsville, Florida where a large number of fake IDs surfaced on the site.   As reported in the article, Federal officials discovered about 100 fake documents after looking at the paperwork collected by the city.  The mayor was expected to forward the list of 100 illegal workers to the contractor, Turner Construction, last week and demand that the badges badges be revoked for those workers.  

Scott then raised an interesting question: Can the owner use the issue of job-site fake IDs to consider the builder in breach of contract?  I hate to be trumpeting the same tune, but again the answer to this problem is, “It depends.” Here is why:

• As you might expect, the parties’ contract will largely dictate the rights and obligations of each party, whether it relates to payment, building specifications, delays, insurance requirements, and even compliance with federal, state and local law. So whether an owner has a cause of action for breach of contract for the presence and employment of undocumented workers on the site will largely depend on the exact terms of the parties’ contract.
• The applicable laws and regulations will often dictate additional obligations or provisions that must be included in the parties’ contract. For example, in 2007 Tennessee enacted a new requirement that "no person may enter into a contract to supply goods or services to the state or other state entities without first attesting in writing that the person will not knowingly utiluze the services of illegal immigrants in the performance of the work...." Tenn. Code 12-4-124.  Practically speaking, this means the contractor working on a public job is required to certify in writing that it will not use undocumented workers.  It must also require that its subcontractor sign the same type of attestation clause.  These statutory obligations are written into the parties' contract.
• Even if there is not a contractual requirement, there may be some statute or regulation that gives rise to liability for a contractors use and employment of undocumented workers. For instance, the same Tennessee statute cited above carries a penalty of debarment (i.e., prohibited from submitted a bid on any public project for period of one year) for any knowing violation of the law.  This statute applies ever wheter the requirement is not written into the parties' contract.

One way for a contractor to protect itself in these types of circumstances is to include a blended attestation-indemnification clause, such as:

The subcontractor, identified above, does hereby attest, certify, warrant, and assure that the subcontractor 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 sub-subcontractor who will utilize the services of an illegal immigrant in the performance of the Work.  Subcontractor further agrees to indemnify and hold harmless the contractor for any violation of this provision.

Applying these principals to the situation in Florida, it will be interesting to watch how the contractor responds to the allegations raised. It appears from the article that "the city's contract with Turner prohibits knowingly hiring undocumented workers and Turner's agreements with subcontractors contain the same language."  Whether there is a breach of those contracts will depend largely on; (a) the express language of agreement, (b) the "intent" requirement of the statute, (c) the knowledge of the parties involved, and (d) the immigration status of the workers.

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