Yes, there are limits to what parties can include in a construction contract. For example, many states like Tennessee have choice of law and venue statutes that make it unlawful to include a provision in a contract requiring the substantive laws of another state or the venue of litigation/arbitration in another state for real estate improvement projects that are located in Tennessee. Other states like Maryland prohibit lien waivers in executory construction contracts.
Recently, the Supreme Court of Nevada held that a general indemnification agreement was void and unenforceable based upon the purposes and intended effects of the Americans with Disabilities Act. In Rolf Jensen & Associates v. Eighth Judicial District Court of Nevada, the design contract included an indemnification provision where the design professionals agreed to indemnify the project owner for "any damages arising from any act, omission, or willful misconduct."
The Facts. The owner of the Mandalay Bay Resort contracted with Rolf Jensen on the expansion project to provide certain consulting services involving ADA compliance. Following completion of the project, the Department of Justice investigated certain violations related to lack of handicap accessibility at the property. The owner estimated that it would take approximately $20 million to bring the resort into compliance. The owner sued Rolf Jensen under the indemnification provisions to recover the costs of the repair work.
The Holding. The procedural aspects of the court’s decision are tricky, but in the end the decision was clear: "We conclude that Mandalay’s state law claims for indemnification pose an obstacle to the objectives of the ADA and therefore are preempted." Ultimately, the court concluded that allowing the indemnification claims would weaken an owner’s incentive to prevent violations of the ADA, which would conflict with the purpose and intended effects of the statute.. “Simply put, such claims would allow owners to contractually maneuver themselves into a position where, in essence, they can ignore their nondelegable responsibilities under the ADA.”
An Observation. While the Rolf Jensen decision appears to undermine parties’ freedom to contract, there have always been limitations on those freedoms. Perhaps the question in this case stems from the lack of a clear prohibition against waiver of the ADA in contracts. Perhaps this was simply an example where public policy trumps freedom to contract. I think one of the real lessons is to make sure to review your construction contracts to make sure the agreement complies with the applicable state and federal law.
Question: Have you read the decision? What are your thoughts?