LAURIE & BRENNAN ANNOUNCES NEW PARTNER – KENDALL WOODS

Posted January 9, 2017 by laurieandbrennan
Categories: Construction Law

Tags: ,

logo_color_jpgLaurie & Brennan, LLP is pleased to announce that Kendall Woods has been named its newest partner, effective January 1, 2017.  Kendall joined Laurie & Brennan in 2011 and has demonstrated exceptional skills in litigating, arbitrating and mediating construction disputes.  Kendall concentrates her practice on construction law, and also has substantial experience in commercial, product liability, premises liability, and copyright and trademark litigation at both the trial and appellate level.  She represents and counsels owners, developers, construction managers, contractors, subcontractors, tenants, and business owners in both litigation and alternative dispute resolution.  Kendall is actively involved in the American Bar Association Forum on Construction Law, serves on the board for the National Association of Women in Construction, Midwest Region, Chicago Metro Chapter and is an adjunct professor at Loyola University Law School teaching legal writing.   Kendall has also been recognized as an Illinois Rising Star in Super Lawyers Magazine.

Laurie & Brennan values Kendall’s dedication and excellent client service and congratulates her on her election to partner.

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Subrogation Claims Up In Smoke Following Casino Fire

Posted December 14, 2016 by laurieandbrennan
Categories: Construction Law

gikvy_ks9vq-michal-parzuchowskiIn Empress Casino Joliet Corporation, et al., v. W.E. O’Neil Construction Co.et al., the Appellate Court of Illinois recently held that a construction contract’s subrogation waiver prevented three insurance companies and Empress Casino Joliet Corporation (“Empress”) from seeking nearly $85 million from contractors, subcontractors and an architect after a fire erupted during a renovation project.

Empress began renovating its Joliet, Illinois casino in 2008. During the renovation, a welder working for the HVAC subcontractor sparked cooking grease and other combustible residue in ductwork above the casino’s kitchen.  The spark quickly spread and destroyed large sections of the casino property. Following the fire, three insurance companies paid more than $80 million for the loss.

Empress and the insurers as subrogees sued the general contractor and HVAC subcontractor, alleging among other things that they did not take proper safety measures to prevent the fire. Claims were also asserted against the project’s architect, the mechanical engineer, and a subcontractor, for not providing a sufficient sprinkler and fire protection system. Empress added its cleaning company, Averus, to the lawsuit, contending that Averus failed to properly clean the ductwork of the combustibles that ignited and caused the fire. Empress’s complaint alleged, among other things, negligence, breach of contract, and willful and wanton misconduct against the defendants. The defendants moved for summary judgment.  The defendants contended that the plaintiffs waived their subrogation rights under the construction contract, and the trial court agreed. Empress and the insurance companies appealed.

The appellate court agreed with the trial court on its central ruling: The plain language of the contract required Empress to insure the project and waive its subrogation rights against the architect, general contractor and its subcontractors. In particular, the contract required Empress to purchase all-risk property insurance covering “without limitation, insurance against the perils of fire,” and Empress to “waive all rights […] for damages caused by fire or other causes of loss.”  Elsewhere in the contract, Empress and the general contractor waived all rights against “(1) each other and any of their subcontractors […] and (2) the Architect, Architect’s consultants […] and any of their subcontractors […] for damages caused by fire or other causes of loss […]” to the property during the renovation.

The appellate court determined that “the parties here agreed that any casualty loss resulting from a fire would be borne solely by Empress’s property insurance and that accordingly Empress expressly waived all claims against the defendants arising from such a loss covered by such insurance.” Thus, Empress and the insurance companies could not bring an action against the general contractor, the mechanical engineer, the architect, or any downstream subcontractors or consultants for damages from the fire.

The appellate court rejected the plaintiffs’ argument that the waiver was an exculpatory clause and the allegations of willful and wanton misconduct dictated that, as a matter of public policy, such an exculpatory clause should not be enforced in the face of such allegations.  Subrogation clauses are not exculpatory clauses that “immunize the wrongdoer,” but instead merely shift the risk of loss and the costs of insuring loss between parties negotiating a contract. The parties involved in the renovation, according to the court, freely contracted to place the risk of loss by fire on Empress, regardless of how that fire started.

The appellate court also found that the subrogation waiver trumped the general contactor’s duty to indemnify Empress.  The appellate court’s reasoning  was premised on two main points: first, the subrogation waiver was tied to Empress’s property insurance whereas the indemnity provision was tied to a separate type of coverage, the general contractor’s liability insurance; and, second, the express language of the subrogation waiver supersedes the indemnity provision when it states that the waiver “shall be effective as to a person or entity even though that person or entity would otherwise have a duty of indemnification, contractual or otherwise, […] and whether or not the person or entity had an insurable interest in the property damage.”

Averus—the cleaning company— did not fare so well.  The appellate court found that the subrogation waivers did not apply to Averus because Averus was not a party to (or subcontractor under) the construction contract. Instead, Averus worked for Empress under a preexisting and separate oral contract it had directly with the casino, rather than with the general contractor. Moreover, the vice president for Averus who negotiated the oral contract admitted during his deposition that he never discussed or contemplated a subrogation waiver. Empress thus never waived subrogation rights in its oral agreement with Averus.

 

Update: Texas Court Freezes DOL’s New Overtime Regulation

Posted December 1, 2016 by laurieandbrennan
Categories: Construction Law

In Nevada v. U.S. Department of Labor, a federal judge in the Eastern District of Texas ordered a nationwide injunction on a new rule from the Department of Labor (DOL) that would have required many employers to pay overtime to employees who make less than approximately $47,000 per year.  Laurie and Brennan published a blog entry about the rule back in July, available here, describing how the new rule could have extended overtime pay to more than 4 million workers.  However, the court’s injunction – issued on November 22, 2016, just over a week before the rule was scheduled to take effect on December 1, 2016 – determined that the DOL overstepped its authority when it increased the minimum salary for employees who are exempt from the Fair Labor Standard Act’s overtime requirements. Consequently, the DOL’s new overtime regulation is in limbo pending an appeal to the Fifth Circuit, Congressional intervention, or a shift in the DOL’s position under the new administration.

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TEXAS FEDERAL COURT BLOCKS CONTRACTOR BLACKLISTING RULES

Posted November 16, 2016 by laurieandbrennan
Categories: Construction Law

On October 24, 2016, a Texas federal judge issued a preliminary injunction preventing Executive Order No. 13673 (“EO”) and its rules (FAR Rule and DOL Guidance) – commonly referred to as the “contractor blacklisting rules” – from going into effect. The blacklisting rules would have imposed new – and in the Court’s opinion – onerous reporting requirements regarding labor law violations on contractors that are bidding for certain federal contracts.

Specifically, blacklisting rules would have required contractors bidding on projects in excess of $500,000 to report formal allegations and decisions against the contractor for violations of fourteen federal labor laws, including FLSA, OSHA, NLRA, and the EEO. Contractors would have been under an obligation to report “violations” going back three years from the date of the bid, and would be compelled to report not only proven violations, but also non-final administrative merit determinations, non-adjudicated complaints and unproven allegations. Based on those reports, contractors could be disqualified from consideration for certain federal contracts or required to enter into labor compliance agreements based on their alleged violations to obtain or retain federal contracts. The information would be used by federal employees to make a determination as to whether the bidders were “non-responsible” based on a “lack of integrity and business ethics” and thus not eligible to be awarded a bid on certain federal contracts.

In a thorough and scathing opinion in the case entitled Associated Builders and Contractors of Southeast Texas, et al. v. Rung, Judge Marcia Crone granted the Plaintiffs’ request for a preliminary injunction on three major grounds: 1) The EO, FAR Rule and DOL Guidance exceeded executive power and/or were preempted by existing federal labor laws; 2) the blacklisting rules violated contractors’ First Amendment rights through compelled speech; and 3) the rules would likely violate contractors’ due process rights.

In finding that the blacklisting rules exceeded executive power and were preempted by existing federal law, the Court took particular issue with the blacklisting rules’ disregard for “Congress’s explicit instructions dictating how violations of the labor law statutes are to be addressed.” “It defies reason,” the Court stated, “that Congress gave explicit instructions to suspend or debar government contractors who violate these government-specific labor laws only after a full hearing and final decision, but intended to leave the door open to government agencies to disqualify contractors from individual contract awards without any of these procedural protections.” In short, the blacklisting rules conflicted directly with all the labor laws they claimed to invoke and this formed part of the basis for granting the injunction.

The second major reason the court granted the injunction was that the blacklisting rules would infringe upon contractors’ First Amendment rights in the form of compelled speech. The requirement to make contractors publicly disclose controversial matters – including allegations that are unproven or perhaps even completely false – is a form of compelled speech not allowed under the First Amendment.

Finally, the Court granted the injunction partially on the basis that the blacklisting rules would violate the due process rights of contractors’ bidding on certain federal contracts. The Court’s concern was that contractors would be required to report and defend against non-final allegations of labor law violations without being entitled to a hearing at which they could challenge such allegations.

For these reasons, as well as several others, the Texas federal court enjoined the blacklisting rules from being enforced because the rules had the potential to cause irreparable harm to contractors and create significant financial costs (with little to no clear benefit) both to contractors and to the federal government.

CONTRACTUAL INDEMNITY: IT STILL MATTERS

Posted September 23, 2016 by laurieandbrennan
Categories: Construction Law

The Illinois Appellate Court recently issued an important opinion regarding indemnity provisions in construction contracts. In 933 Van Buren Condo. Ass’n v. W. Van Buren, LLC, 2016 IL App (1st) 143490, a condominium home owner’s association (HOA) sued the condominium developer for various claims based on warranty and fraud theories following the discovery of a leaky roof.   The developer then asserted claims against two roofing contractors that it hired for the project – Illinois Roof Consulting Associates, Inc. (IRCA) and Total Roofing & Construction Services, Inc. (Total) – asserting that both had a contractual duty to indemnify the developer against the HOA’s claims.  The trial court dismissed the indemnity claims because the HOA’s complaint was based on the developer’s failure to disclose the leaks (rather than the defective construction that led to the leaks) and, in any event, the indemnity clauses were not enforceable under the Construction Contract Indemnification for Negligence Act (the “Act”).  See id. at ¶ 23. The Illinois Appellate Court reversed in part and remanded the case. See id. at ¶ 62.

As a threshold matter, the Illinois Appellate Court found that the indemnity provisions from the roofers did not violate the Act.  See id. at ¶¶ 38, 41. This Act provides that a contract provision purporting “to indemnify or hold harmless another person from that person’s own negligence is void as against public policy.” 740 ILCS 35/1 (West 2012). The court noted that IRCA’s indemnity provision with the developer was broader than Total’s, and that IRCA’s contract with the developer “could be construed as indemnifying [the developer] from any party’s negligence, which could include the negligence of itself.” Id. at ¶¶ 6, 36. Nevertheless, the court refused to follow such a construction because Illinois law presumes that parties enter into contracts with full knowledge of the law—including the Act—and because “a construction of a contract which renders the agreement enforceable rather than void is preferred.” Id. at ¶¶ 33, 36, 38. Thus, the indemnity provisions did not violate the Act.

The Illinois Appellate Court further held that the roofing companies had a duty to indemnify the developer against the HOA’s claims for breach of warranty and breach of the implied warranty of habitability, but did not have to indemnify the developer for the HOA’s claims rooted in fraud theories. See id. at ¶¶ 1-2. The HOA’s breach of warranty allegations against the developer arose from faulty work on the leaky roof attributable to IRCA and Total’s scope of work, thus triggering the indemnification provisions.  Id. at ¶¶ 51, 53-54. However, the court found that IRCA and Total did not need to indemnify the developer against the HOA’s fraud claims against the developer because those claims were based on the developer’s intentional misconduct rather than the misconduct of others that could otherwise trigger the indemnity provisions.  See id. at ¶¶ 47-49.

This case demonstrates that courts are inclined to construe contract provisions to have an enforceable meaning rather than invalidate the provisions.  Nonetheless, it is important to be aware of the Act and draft in compliance with the Act rather than rely on serendipity from a court.

LAURIE & BRENNAN WELCOMES NEW PARTNER – RYAN HISS

Posted August 17, 2016 by laurieandbrennan
Categories: Construction Law

Laurie & Brennan is pleased to announce that Ryan A. Hiss has joined us as a partner in the firm.  Throughout his 20+ year career, Ryan has focused his practice on asserting and protecting the legal rights of those involved in the construction industry.  He strives to effectively advocate on behalf of his clients and favorably resolve disputes as efficiently as possible – so his clients can focus on the building process, instead of legal issues.    Ryan is well-known for his tough but practical advocacy for his clients.  We are excited about adding Ryan to our team and look forward to providing even better client service to the construction industry. To learn more about Ryan, feel free to review his biography on our website at http://www.lauriebrennan.com/attorney-ryan-hiss.html

New Overtime Regulations From the U.S. Department of Labor

Posted July 19, 2016 by laurieandbrennan
Categories: Construction Law

On May 18, 2016, President Obama and Secretary of Labor Perez announced the publication of the Department of Labor’s final rule updating the overtime regulations. The Department of Labor states that this will automatically extend overtime pay protections to over 4 million workers within the first year of implementation.

The Department of Labor states the Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt as follows:

  1. The Rule sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker). This is the so-called automatic overtime limit. This is more than double the amount previously set back in 1975;
  2. The Rule sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004); and
  3. The Rule also establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.
  4. Additionally, the Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.

The Final Rule becomes effective December 1, 2016. As a result of this regulation, businesses should immediately start tracking hours for all employees making less than the $47,476 threshold—regardless of whether such employee is currently considered “hourly” or “salaried.”

 


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