AVOIDING THE DISPUTE RESOLUTION DISCONNECT

R E S U L T S
CO-EDITORS
F I R S T
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R VOLUME XXII | WINTER 2014
CHARLES F. KENNY, PARTNER AND MICHAEL S. ZICHERMAN, PARTNER
AVOIDING THE
DISPUTE
RESOLUTION
DISCONNECT
RECENT
RULINGS
HIGHLIGHT
CLASS
ACTION RISK
FOR UNPAID
INTERNSHIP
PROGRAMS
The wave of class
actions in the
United States now
includes a frontal
assault on unpaid
internship programs,
Jeffrey M.
with plaintiffs’
Daitz, Esq.
attorneys secur­i ng
some suc­cessful
preliminary results
in the Ne w Yor k
federal court. These
victories come at a
time when it is being
Kevin J.
O’Connor, Esq.
widely predicted that
the improving economy will fuel an
increased focus on class action lawsuits in
2014 by the plaintiffs’ bar.
The most recent victory came in Glatt v.
Fox Searchlight Pictures1 (June 11, 2013).
The plaintiffs in Glatt were hired to work
as unpaid interns on the sets of films for
the defendants’ production companies.
After their internships, they sued under
federal and state law, claiming they
were deprived of minimum wage and
overtime compensation. The central
continued on page 5
David A. Fultz
Every major construction project involves a variety of
players with differing contractual obligations, including
owners, architects, engineers, prime contractors,
David A. Fultz
subcontractors, and material suppliers, among others.
A simple dispute – for example a
defective work claim – can easily
implicate multiple parties, and the
contractual ability to join those parties
into a single forum for the resolution of
that dispute is crucial.
This goal can be accomplished by a
carefully drafted provision for alternative
dispute resolution (“ADR”) (i.e., other than
by litigation), but only if proper care is
taken to ensure that the ADR provision
is effectively incorporated into, and
consistent with, the agreements of the
other project participants.
Joining all necessary parties in one forum
is generally not an issue in litigation
because it is typically authorized by the
civil practice statutes,1 encouraged by the
courts, and, in many forums, expressly
required. However, since ADR is purely a
creature of contract, a recalcitrant party
cannot be compelled to participate with
other parties in ADR unless it is expressly
required under that party’s agreement.
Frequently, an ADR provision will require
non-binding mediation as a condition
precedent to the commencement of
binding dispute resolution proceedings,
continued from page 1
AVOIDING THE DISPUTE RESOLUTION DISCONNECT
2
such as in-court litigation or arbitration.2
Mediation is essentially a negotiated
settlement process facilitated by the
presence of a neutral party (i.e., the
“mediator”). The mediator cannot force
a party to make, or accept, a settlement
offer, and unless all parties can reach
agreement, there is no settlement.
Arbitration, in contrast, represents a more
formal – and binding – ADR procedure.
In arbitration, an arbitrator, or panel of
arbitrators, sit as the finder of fact (like
a judge or jury), and although some
discovery may be permitted, it is typically
limited, thus providing a less costly and
expedited resolution process. Arbitration
is generally favored in the construction
industry because of the ability to select
an arbitrator who has some expertise in
the construction field. However, other
parties cannot be joined in the arbitration
proceedings unless that issue is specifically
addressed in the underlying agreements.3
The Consequences
of Failing to Properly
Harmonize ADR
Provisions Can Be
Drastic
Unwary contractors may fall into the
trap of requiring their subcontractors
to enter into the contractor’s standard
form subcontract, without giving much
consideration to the ADR requirements in
the prime contract, or whether those ADR
provisions are sufficiently incorporated
into the subcontract in a way that is logical,
harmonized, and legally-enforceable. This
can result in a rude awakening for the prime
contractor if it finds itself unable to compel
its subcontractor to resolve its disputed
claims by participating in ADR with the
project owner, pursuant to the terms of
the prime contract. Such an outcome
leaves the contractor without a single,
convenient forum within which to resolve
the subcontractor’s or owner’s intertwined
claims. It also exposes the contractor to the
costs of litigating in two or more separate
proceedings and potential double liability
resulting from inconsistent determinations
in the different forums.
By way of example, if an owner claims that
the work of a subcontractor is defective,
it will generally assert a backcharge
against the prime contractor for any costs
associated with correcting the defective
work or any resulting project delays,
among other potential damages. To
challenge the owner’s backcharge, the
prime contractor would be required to
follow the ADR procedures set forth in the
prime contract, which, for this example,
requires arbitration. In the event the prime
contract’s ADR provisions are not properly
incorporated into the subcontract, the
prime contractor will have no mechanism
to compel its subcontractor to participate
in the arbitration, leaving the prime
contractor to defend the work of its
subcontractor in the arbitration between
the contractor and owner.
Assume the owner prevails in the
arbitration and secures a $500,000
award and judgment against the prime
contractor for the defective work of its
subcontractor.
The prime contractor
would, of course, wish to recoup these
losses from its subcontractor, and here
is the bad news: the determination in
the owner’s arbitration award that the
subcontractor’s work was defective is not
binding on the subcontractor because it was
not a party to the arbitration proceedings.4
As a result, the prime contractor would
have no alternative but to pursue its claims
against the subcontractor in an entirely
new legal proceeding, incurring additional
legal fees, and now taking a position
inconsistent with its prior testimony in the
arbitration hearings, by instead trying to
prove that the subcontractor’s work was
defective, rather than defending that work.
The arbitration award itself would likely
be deemed inadmissible as evidence
against the subcontractor as well. More
troubling, however, is the possibility
that, because the arbitration award
is not binding on the subcontractor,
the subcontractor could prevail in the
litigation by convincing the judge or jury
that its work was not defective, leaving
the prime contractor without the ability
to recover its losses.
The same issue of inconsistent results can
arise when dealing with subcontractor
claims that have been passed through
and submitted to arbitration between the
prime contractor and owner.
By contrast, if properly harmonized ADR
provisions are in place, the owner, prime
contractor and subcontractor will all be
in one proceeding and bound by a single
outcome.
Careful Drafting Is
Critical
Properly harmonizing an ADR provision
requires more than just a general clause
that incorporates by reference the terms
of the prime contract into the subcontract
(sometimes referred to as “flow down”
provisions). Because a party contractually
agreeing to submit disputes to ADR is
effectively waiving many of the legal and
procedural remedies it would ordinarily
have, the courts of New York and other
jurisdictions require that the intent to
submit contractual disputes to ADR be
“… clear, explicit, unequivocal, and not
depend upon implication or subtlety.”5 As
such, commonly-used contract provisions
by which the subcontractor agrees to be
bound by the terms of the prime contract
and to “assume toward the Contractor all
obligations and responsibilities which the
Contractor, under [the prime contract],
assumes toward the Owner” 6 may not
survive a challenge by a subcontractor
unwilling to participate in the ADR
procedures called for under the prime
contract.7
In order to effectively bind a subcontractor
to the ADR provisions of the prime contract,
it is incumbent upon the drafter to
specifically call out those provisions in the
subcontract, either by a direct reference,
pursuant to which the “Subcontractor
agrees to be bound by and to participate
in the dispute resolution procedures set
forth in the Prime Contract,” or, preferably,
by identifying the specific provisions of
the prime contract to be deemed
continued on page 16
Adam P. Handfinger and Monique S. Cardenas
Adam P.
Handfinger
FLORIDA SUPREME COURT
LIMITS THE APPLICATION OF
THE ECONOMIC LOSS RULE
In the Florida Supreme Court’s recently issued opinion, Tiara Condominium Ass’n, Inc. v. Marsh
Monique S.
Cardenas
& McLennan, Cos., Inc., Florida’s highest court limited the application of the Economic Loss Rule
(ELR)1 to product liability cases, presumably limiting the protections traditionally thought to be
provided for construction defect claims, generally. As discussed below, we have already seen an
increase in tort claims that would have otherwise been subject to the ELR and perhaps barred.
The facts of the case are instructive. Tiara
Condominium Association (Tiara) retained
Marsh & McLennan (Marsh) as its insurance
broker to secure condominium insurance
coverage, including windstorm coverage,
for Tiara, which Marsh did through
Citizens Property Insurance Corporation
(Citizens). Citizens issued a policy that
contained a loss limit of nearly $50 million.
Subsequently,
Tiara’s
condominium
sustained significant damages from two
hurricanes: Frances and Jeanne. During
Tiara’s loss remediation, Tiara received
assurance from Marsh that the loss limits
coverage for windstorm coverage was
per occurrence, not aggregate, which
would entitle Tiara to approximately $100
million in insurance proceeds for damage
caused by the hurricanes. In reliance upon
Marsh’s assurances, Tiara proceeded with a
more expensive remediation and sought
payment from Citizens. Contrary to Marsh’s
assurances, Citizens claimed that the loss
limit was $50 million in the aggregate not
per occurrence, capping Tiara’s insurance
coverage at $50 million rather than $100
million. As a result of the foregoing, Tiara
filed suit against Marsh alleging: (1) breach
of contract; (2) negligent misrepresentation;
(3) breach of implied covenant of good
faith and fair dealing; (4) negligence; and
(5) breach of fiduciary duty. The trial court
granted summary judgment in favor of
Marsh on all claims resulting in Tiara’s
appeal to the Eleventh Circuit. The Eleventh
Circuit concluded that summary judgment
was proper as to Tiara’s breach of contract,
negligent misrepresentation and breach
of implied covenant of good faith and fair
dealing claims, but with respect to claims
for negligence and breach of fiduciary duty,
the federal court certified the following
3
expense of contract principles.” 5
Justice Pariente further expounded:
4
question to Florida’s Supreme Court:
Does the economic loss rule bar an
insured’s suit against an insurance
broker where the parties are
in contractual privity with one
another and the damages sought
are solely for economic losses?
In addressing the certified question, the
Florida Supreme Court first reviewed the
history of the ELR and its expansion from
products liability cases to contractual
privity cases, noting that the ELR was
adopted by the courts to “prevent
parties to a contract from circumventing
the allocation of losses set forth in
the contract by bringing an action for
economic loss in tort.”2 Specifically, the
Court set forth the circumstances in which
the ELR has historically been applied:
(1) where the parties are in contractual
privity and one party seeks to recover
damages in tort for matters arising out of
the contract (contractual privity ELR);
and/or (2) where the defendant is a
manufacturer or distributor of a defective
product which damages itself but does
not cause personal injury or damage to
any other property (products liability
ELR). With respect to contractual privity
ELR, the doctrine dictates that one party
cannot sue the other party under tort
theories for damages that arise out of the
contract. The rationale being that when
the parties are in contractual privity, the
parties define the “limitation of liability
through bargaining, risk acceptance, and
compensation.” 3
In limiting its expansion and applying its
historical purpose, the Court concluded
that the ELR applies only in the products
liability context:
Having reviewed the origin and
original purpose of the economic loss
rule, and what has been described
as the unprincipled extension of
the rule, we now take this final step
and hold that the economic loss rule
applies only in the products liability
context. We thus recede from our
prior rulings to the extent they have
applied the economic loss rule to
cases other than products liability.4
Concurring with the majority, Justice
Pariente stated that the Court’s
limitation of the ELR “is neither a
monumental upsetting of Florida law
nor an expansion of tort law at the
The majority’s conclusion that the
economic loss rule is limited to the
products liability context does not
undermine Florida’s contract law or
provide for an expansion in viable tort
claims. Basic common law principles
already restrict the remedies available
to parties who have specifically
negotiated for those remedies, and,
contrary to the assertions raised
in dissent, our clarification of the
economic loss rule’s applicability
does nothing to alter these common
law concepts. For example, in order
to bring a valid tort claim, a party
still must demonstrate that all of the
required elements for the cause of
action are satisfied, including that
the tort is independent of any breach
of contract claim.6
The practical application of the Tiara
decision does not deviate from the
common law principles preventing tort
causes of action in contractual privity
cases where the claimed damages are
solely economic, but rather fortifies
these common law principles while
limiting the application of the ELR to
products liability cases. A party must still
demonstrate an independent tort claim
separate and distinct from a breach of
contract claim in order to maintain both
tort and breach of contract claims.
However, parties must now be cognizant
that despite Pariente’s contention
that the limited application of the
ELR will not undermine contract law or
expand tort claims arising from purely
economic damages, the holding in Tiara
does suggest that parties in contractual
privity can now maintain concomitant
tort claims to potentially recover
damages in excess of the recoverable
breach of contract damages and/or
to circumvent the parties’ contractual
rights and remedies. As Chief Justice
continued on page 15
continued from page 1
RECENT RULINGS HIGHLIGHT CLASS ACTION RISK
FOR UNPAID INTERNSHIP PROGRAMS
defense raised by the defendants in Glatt
was that the interns fell within the “trainee”
exception established by the United States
Supreme Court in a 1947 case2. As such,
they argued, the interns were properly
denied any hourly compensation. In
Glatt, the plaintiffs were successful in
challenging the exemption by arguing
for a strict application of the exemption.
Class certification was permitted, opening
up the employers to potential liability to
a class of persons similarly situated to the
named plaintiffs.
These arguments by creative plaintiff’s
lawyers that unpaid interns are really
employees in disguise are not new, but,
in the last sixteen months, they have
been renewed with vigor. Plaintiff’s
lawyers have sought a strict application
of a U.S. Department of Labor Wage
and Hour Adminstrator’s six-part test for
determining when a trainee is not an
employee of a for-profit business. Under
this test, an intern is not an employee if
all six tests are met:
1.The internship, even though it includes
actual operation of the facilities of the
employer, is similar to training which
would be given in an educational
environment;
2.The internship experience is for the
benefit of the intern;
3.The intern does not displace regular
employees, but works under close
supervision of existing staff;
4.T he employer that provides the
training derives no immediate
advantage from the activities of the
intern; and on occasion its operations
may actually be impeded;
5.The intern is not necessarily entitled to a
job at the conclusion of the internship;
and
6.The employer and the intern understand
that the intern is not entitled to wages
for the time spent in the internship.
According to the Department of Labor,
“[i]f all of the factors listed above are met,
an employment relationship does not
exist under the Fair Labor Standards Act
(FSLA), and the Act’s minimum wage and
overtime provisions do not apply to the
intern. This exclusion from the definition
of employment is necessarily quite narrow
because the FLSA’s definition of “employ” is
very broad.” 3
Obviously, the fourth element of the
test could prove problematic if strictly
enforced, as it could be interpreted as
meaning that if an employer derives any
advantage from an intern’s work, the test is
not satisfied and the intern is considered an
employee.
The application of this test is very fact
specific and, up until recently, has been
interpreted by and large to protect
employers with legitimate internship or
vocational programs. In a sixth circuit
court of appeals case, Solis v. Laurelbrook
Sanitarium & School, Inc. (2011), the Secretary
of the U.S. Department of Labor brought
suit against a private religious institution
that provided voca­
tion­
al training in the
nursing context to young people looking
to enter that profession. The Department of
Labor brought suit to enjoin the contin­
uation of the program as being violative of
child labor laws. The District Court disagreed
and dismissed the complaint, which was
affirmed on appeal. Notably, the Sixth
Circuit held the Department of Labor’s
six-part test to be “a poor method for
determining employee status in a
training or educational setting,” and
refused to give it any deference. The court
settled on a “primary benefit” test, which
examined who received the primary benefit
of the training/internship program – the
intern or the program sponsor. Id. It
5
5
continued from page 5
RECENT RULINGS HIGHLIGHT CLASS ACTION RISK FOR
UNPAID INTERNSHIP PROGRAMS
• The courts will look to the “value added”
and overall educational value of an
internship program. Intern programs
where the intern receives little or no
educational value will be subject to
attack. The employer should arrange
workshops and organized training
programs for the intern, and consider
assigning mentors. Consideration
should also be given to rotating the
intern through different departments
at the employer’s business to broaden
the internship experience;
6
affirmed the dismissal of the claims under
this lesser standard.
In a 2013 court of appeals case, Kaplan
v. Code Blue Billing & Coding, Inc., the
court affirmed dismissal of claims by
three former students of a medical
billing and coding program who were
placed in externships with Florida
medical practices to satisfy externship
requirements of the program. They later
sued alleging that they were improperly
exempted under state and federal laws
and should have been paid minimum
and overtime wages. The Court applied
the six-part test and determined that,
on balance, the externs received the
primary benefit from the relationship
and were properly exempt. On August
8, 2013, the plaintiffs in Kaplan filed a
petition with the United States Supreme
Court, and it remains to be seen whether
that issue will be heard by the high court
in the near future.
Even within a single Circuit Judges have
disagreed over how to apply this sixpart test, as shown in two cases pending
in New York. The two judges handling
these two matters reached two different
conclusions. In Glatt, District Judge
William Pauley, III rejected the defendants’
argument that the six-part test should
yield to the more broad “primary benefit
test” followed in Solis and other matters.
Judge Pauley found that interns (class
representatives) working in the media
industry were employees rather than
interns because, among other things, the
employers benefitted from their services
and because they displaced workers.
Judge Pauley’s decision came just one
month after Judge Harold Baear issued
a May 8, 2013 ruling in Wang v. Hearst
Corp. reaching the opposite result
and concluding that the court must
apply a “totality of the circumstances
test,” which was similar to the primary
benefit test found controlling in the
earlier cases. Using that test, the court
denied summary judgment and left the
issue for trial. The decisions in Glatt and
Wang are expected to be ultimately
reviewed by the Second Circuit if not
resolved earlier.
Given these preliminary successes by
plaintiff’s counsel and the uncertainty
that exists in this area of the law,
employers would be well advised to
undertake a review of their internship
programs to ensure compliance with the
six-part Department of Labor test – the
more rigid of the two standards. Some
of the practical business considerations
that can be gleaned from these recent
decisions and from the test are:
• The overall intent of the program should
be educational in nature. Programs
that are created in partnership with
educational institutions for which the
intern receives college or vocational
credit will tend to survive scrutiny;
• Interns should not be taken on to
displace employees who were being
paid for those duties. Using interns
to complete productive tasks that
otherwise would be performed by
paid employees increases the risk
that the intern will be deemed an
employee; and
• The overall length of internships should
be restricted to a limited and defined
period of time and not left open ended.
The new case developments highlight
the importance of closely examining any
internship program to ensure compliance
with applicable law and guidelines to
reduce or eliminate risk of suit and to
avoid prolonged and expensive litigation
in the event there are claims for unpaid
wages.
Our Labor Relations and Employment
Law Department is available to meet
with you and counsel your business in
these areas. n
Glatt v. Fox Searchlight Pictures, 2013 WL 2495140 (June 11,
2013).
1. 2.
Walling v. Portland Terminal Co., 330 U.S. 148 (1947).
3
S DOL Factsheet, available at http://www.dol.gov/whd/regs/
U
compliance/whdfs71.pdf.
MISCONCEPTIONS ABOUT
ATTORNEY – CLIENT PRIVILEGE
Eric M. Gruzen
Eric M. Gruzen
7
A construction manager faces an issue on a project and seeks direction on how to proceed. He drafts an email and
considers who to send it to at his company. The issue is contentious and he wants to ensure that if it ever evolves
into a lawsuit, the email chain will not be subject to discovery. Hoping to trigger the attorney-client privilege, he
addresses the email to a company Vice President, who happens also to be the company’s in-house counsel. As an
additional safeguard, he also copies the company’s outside counsel.
However, despite the construction manager’s best intentions,
the email chain is not necessarily shielded from discovery.
3.I n-house counsel may conduct non-legal tasks without
jeopardizing the attorney-client privilege.
The attorney-client privilege is a commonly misunderstood legal
concept, especially in the context of email communication. Some
misconceptions we often hear include:
In truth, the existence of privilege turns largely on the role of the
attorney and the nature of the correspondence.
1.Copying counsel on an email renders the email privileged;
2.Any email sent exclusively to counsel is always privileged; and
The purpose of the attorney-client privilege is to “safeguard the
confidential relationship between clients and their attorneys so
as to promote full and open discussion of the facts and tactics
surrounding individual legal matters.” Once a communication
is deemed “privileged,” it is undiscoverable even if it contains
unprivileged information.
However, for a communication to be privileged, there must first
exist an attorney-client relationship, and the communication
must take place in the course of that relationship. Additionally,
the transmission must occur “by a means which, so far as the
client is aware, discloses the information to no third persons
other than [(a)] those who are present to further the interest of
the client in the consultation or [(b)] those to whom disclosure
is reasonably necessary for the transmission of the information
or the accomplishment of the purpose for which the lawyer is
consulted ....”
Establishing the Existence of an
Attorney-Client Relationship
8
In the context of attorney-client protection, a “client” is “a
person who . . . consults a lawyer for the purpose of retaining
the lawyer or securing legal service or advice from him in his
professional capacity.” No attorney-client relationship exists
where the attorney’s role is non-legal in nature. For instance,
“it is settled that the attorney-client privilege is inapplicable
where the attorney merely acts as a negotiator for the client,
gives business advice or otherwise acts as business agent.”
Naturally, there are situations in which an attorney’s legal
and business purposes intertwine. In such instances, courts
have shown a willingness to protect communications
with a predominant law-related purpose, but to allow into
evidence communications with a predominant businessrelated purpose. However, where an attorney’s business and
legal roles effectively merge, attorney-client protection may
become entirely unavailable. This risk is especially prevalent
in companies where in-house counsel also perform business
tasks. For example, in one case, in-house counsel for a title
company was responsible for monitoring funds entering and
leaving escrow accounts. The court held that the counsel
acted in such a substantial business capacity that the attorney
and client effectively became “indistinguishable,” and denied
attorney-client protection over the subject communications.
Messages to or from outside counsel also are not categorically
protected. While outside counsel is presumed to serve purely
a legal services role, this presumption may be rebuttable
in circumstances where the counsel deals primarily with the
non-legal aspects of a transaction or operation.
Establishing That a Message Was
Transmitted in the Course of the
Attorney-Client Relationship
If a court determines that an attorney-client relationship exists,
it will look at whether the communication in question was
transmitted in the course of that relationship. Merely copying
counsel on a communication does not create a privilege.
In determining whether a given communication is protected,
courts may review various factors, including the parties to
the message. For instance, in cases where a message was
sent simultaneously to a lawyer and non-lawyer for both their
consideration, courts have denied privilege on the basis that the
primary purpose of the message could not have been to request
legal advice. Even merely copying a non-attorney on a message to
an attorney can jeopardize the “privileged” status of the message.
In some states, courts also scrutinize the contents of the message
before ruling on privilege, whereas in California, for one, such an
examination of contents is generally prohibited.
In theory, a privileged communication must be germane to the
attorney-client relationship and must consist of “information
transmitted between a client and his lawyer, advice given by
the lawyer, or a legal opinion formed and given by the lawyer…”
However, in practice, if a court may not review the contents
of a communication (as is the case in California), determining
whether the substance of the communication fulfills these
criteria might not be possible, forcing the court to rely only on
contextual factors, such as who partook in the communication.
Practice Tips
1. Do not automatically assume that an email or other written
communications are privileged merely because it was sent
to or received by an attorney. If the context in which the
message is sent suggests that the message does not pertain
to a legal matter, it may very well be discoverable.
2. Strictly limit the number of recipients of any message that
contains potentially sensitive content. Where possible, include
only attorneys in the communication, and particularly in the
“To:” line of an email, while placing non-attorneys in the “cc:” line.
3. If a company relies on its in-house counsel to perform
significant non-legal business functions, it would be advisable
to direct sensitive legally related communications to outside
counsel for direction and advice. n
Costco Wholesale Corp. v. Superior Ct. (2009) 47 Cal.4th 725, 740-741 (emphasis added).
vii Chicago Title Ins. Co., 174 Cal.App.3d at 1154.
This is the law in California, pursuant to statute, though the standard in other states may differ. Of course, facts
are not deemed privileged merely by virtue of their being communicated in a privileged transmission.
viii
See 2,022 Ranch L.L.C. v. Superior Court (2003) 113 Cal.App.4th 1377, 1388-89.
i
ii
In re Vioxx Prods. Liab. Litig., 501 F. Supp. 2d 789, 805 (E.D. La. 2007) (citing United
States v. Chevron Corp., No. C 94-18855BA, 1996 WL 444597, at *2 (N.D. Cal. 1996).
ix Id. at 733, citing Cal. Evid. Code § 952.
iii
Cal. Evid. Code § 951.
iv
US ex rel Kalid-Kunz v. Halifax Hospital Medical Center, et al., 2012 WL 5415108 (M.D.
Fla., November 6, 2012) (citing In Re Vioxx, 501 F. Supp. 2d at 812).
x Chicago Title Ins. Co. v. Superior Court (1985) 174 Cal.App.3d 1142, 1151.
v
vi See, e.g., Wellpoint Health Networks, Inc. v. Superior Court (1997) 59 Cal.App.4th 110, 122.
xi Benge v. Superior Court (1982) 131 Cal.App.3d 336, 345.
9
Frank A. Hess and Michael S. Zicherman
Frank A. Hess
Michael S.
Zicherman
NEW JERSEY COURT PROVIDES
“PATCH” FOR GENERAL
CONTRACTORS WHEN THEIR
INDEMNITY CLAIMS AGAINST
SUBS ARE BARRED BY THE
STATUTE OF REPOSE
When a general contractor (GC) or
construction manager (CM) is sued due
to its subcontractor’s defective work or a
subconsultant’s professional negligence,
the general contractor or construction
manager will naturally protect itself
by asserting claims for indemnity and
contribution against the sub. However,
under New Jersey law, all claims against
the sub could be barred due to the
expiration of the statutes of limitations
or repose, measured from the last date
the sub-performed work on the project.
In many cases, the last day of the sub’s
performance is likely to be much earlier
than the substantial completion date
of the entire project, the date by which
claims against the general contractor
or construction manager are measured.
This potentially leaves the general
contractor or construction manager
liable for the sub’s performance
deficiencies with no recourse against
the sub.
Fortunately, the June 2013 New Jersey
Supreme Court decision, in Town of
Kearny v. Brandt, 214 N.J. 76 (2013), has
partially mitigated the harshness of this
outcome. In Kearny, the Court fashioned
a remedy that would allow the GC or
CM to at least obtain apportionment of
damages for any fault attributable to the
sub, while at the same time affording
the sub the benefit of the expiry of the
statutory limitations period. A summary
of the facts illustrates the issue.
10
Following structural failures in a public
safety facility, the Town of Kearny
sued its architect, Brandt-Kuybida
Architects (Brandt), and soils engineer,
Solis Engineering Services, Inc. (SESI),
and the architect’s structural steel
consultant, Harrison–Hamnett, P.C.
(Harrison–Hamnett), for breach of contract
and professional negligence. Kearny
had directly retained SESI to conduct a
soils investigation; SESI completed and
reported on the results in July 1990 and
had no further involvement with the
facility. Brandt retained Harrison–Hamnett
to serve as the structural engineer with
responsibility to design the facility’s
foundations, piles, roof structure and
wall reinforcement. Harrison–Hamnett
completed its work on October 30, 1995.
The completion of the entire project and
Brandt’s work were not completed until
some time later, the exact completion date
being disputed.
On November 24, 1995, Brandt and
Kearny signed a “Certificate of Substantial
Completion” (Certificate). However, neither
an issue date nor a date of completion
was inserted in the appropriate part of
the Certificate. On April 9, 1996, Kearny’s
construction official issued the first
Temporary Certificate of Occupancy,
limited to the police section of the building
and subject to completion of punch list
items. On May 23, 1996, the construction
official issued the second Temporary
Certificate of Occupancy, permitting the
Kearny Fire Department to use its section
of the building.
According to the
Reported Decision:
Structural defects in the facility
surfaced shortly after the Police
Department
took
occupancy.
The building settled differentially,
causing gaps between the ceiling
and a wall, as well as leaks, buckled
tiles and cracks in the walls. The
Police Department reported leaks
in various parts of the building and
doors that could not close because
they did not fit in their frames.
Although the Town continued to
use the facility, there were further
complaints about structural flaws
in the building. In 2003, the Town’s
Construction Official received an
emergency call that the ceiling
in the police dispatch area of the
building was about to collapse. By
2007, ceilings in the facility had
fallen, pipes had separated and
pulled, and glass had broken, all of
which were attributed to uneven
settlement. The Town never issued
a final certificate of occupancy.
The Town’s construction official
ordered all occupants to evacuate
the building on February 8, 2007.
The building has been vacant and
unused since that date.
Kearny filed suit against the design
professionals on April 7, 2006; the design
professionals in turn filed crossclaims
against each other seeking contribution
and indemnification.
Thereafter, all
defendants filed motions to dismiss
the claims asserting that New Jersey’s
ten-year statute of repose and tenyear statute of limitations applicable to
public entities barred Kearny’s claims.
The trial court denied Brandt’s motion,
concluding that the ten-year period for
purposes of the statute of repose began
for Brandt on the date of substantial
completion of the project, ruling that the
critical date was April 9, 1996 when the
first Temporary Certificate of Occupancy
was issued. This meant that the tenyear period for filing suit against Brandt
expired on April 9, 2006, two days after
the Town sued. The trial court, however,
granted the motions filed by SESI and
Harrison–Hamnett, ruling that the tenyear period commenced for these parties
on the date that their involvement in the
project ended, July 31, 1990 for SESI and
October 30, 1995 for Harrison–Hamnett.
With Brandt the only defendant left in
the case, the trial court then precluded
Brandt from asserting its right to
seek apportionment of fault from the
dismissed parties, SESI and Harrison–
Hamnett. The trial court held that by
virtue of the dismissal of the Town’s
claims against them, those defendants
were no longer in the case and Brandt
was not entitled to an apportionment of
fault against them.
At trial, Brandt was found solely liable to
Kearny in the amount of $800,000. Brandt
appealed both the finding of the date of
substantial completion, claiming that it
should date back to the Certificate, as well
as the denial of apportionment against
the dismissed parties. The appellate court,
while upholding the trial court’s ruling that
substantial completion did not occur until
the first Temporary Certificate of Occupancy
was issued, remanded the case for a new
trial to allow Brandt to seek allocation of fault
against SESI and Harrison–Hamnett, ruling
that the judgment against Brandt should
be reduced based on the fault that would
have been attributed to these parties had
Kearny timely sued them. Both Brandt and
Kearny appealed to the Supreme Court,
Brandt seeking to overturn the trial court’s
finding of when substantial completion
occurred and Kearny appealing the ruling
allowing Brandt to reduce its judgment
by apportionment against the dismissed
parties.
The Supreme Court affirmed the trial
court’s ruling that since the Certificate
was never fully completed and issued and
because work needed to be performed
before the building could even be partially
occupied, substantial completion did not
occur until the first temporary certificate
of occupancy was issued on April 9,
1996. In dealing with this issue, the Court
stated that the law distinguishes between
contractors who are hired to perform
continued on page 15
CALIFORNIA APPELLATE COURT RULES
A CONTRACTUAL AGREEMENT BETWEEN
AN OWNER AND A BUILDER
TO SHORTEN THE STATUTE
OF LIMITATIONS IS
ENFORCEABLE, EVEN IF
IT RESULTS IN A CLAIM
BEING TIME-BARRED
BEFORE IT IS DISCOVERED
11
Joseph S. Sestay
In a recent California Appellate Court decision, Brisbane Lodging, L.P. v. Webcor Builders, L.P. the Court
upheld a clause in a construction contract that shortened the statute of limitations and abrogated
California’s delayed discovery rule as to latent defects.
Joseph S. Sestay
This decision was a case of first impression
in the state and is bound to have significant
implications for contractors, owners, and
developers in drafting their construction
contracts.
The Facts in Brisbane
Brisbane Lodging, L.P. and Webcor Builders,
Inc. entered into a contract for the design
and construction of a large hotel. The AIA
contract1 used by the parties modified
California’s applicable statute of limitations
with respect to claims between Brisbane and
Webcor. Article 13.7.1.1 provided that the
time in which to bring any causes of action
began to run at substantial completion:
“any applicable statute of limitations shall
commence to run and any alleged cause of
action shall be deemed to have accrued in
any and all events not later than such date
of Substantial Completion.” The hotel was
substantially completed on July 31, 2000.
In 2005, a break in an underground sewer
line caused wastewater to flow under
the hotel. Webcor admitted that the
problem was caused by a latent plumbing
defect and made some remedial repairs.
When the problem reoccurred, Brisbane
discovered that the plumbing contractor
had constructed the sewer line with
ABS pipe material rather than cast iron
pipe, contrary to the requirements of the
Uniform Plumbing Code.
In response to Brisbane’s complaint for
breach of contract, negligence, and
breach of implied and express warranties,
Webcor moved for summary judgment
on the grounds that the suit was barred
by the contractual limitations period
provided for in Article 13.7.1.1 of the
parties’ construction contract. The trial
court agreed with Webcor and granted
summary judgment. Brisbane appealed.
Appellate Arguments
12
Although Brisbane conceded that Article
13.7.1.1 waived the statutory 10-year
limitations period as to latent defects
(whether discovered or not) under Code
of Civil Procedure 337.15, it argued that the
four- and three-year statutes under Code of
Civil Procedure 337.1 and 338 respectively
were applicable and, in addition, asserted
that the “delayed discovery rule” provided
that these statutes did not begin to run,
at the earliest, until the first manifestation
or discovery of the defects by the owner
in 2005. The delayed discovery rule, in the
construction context, is a long standing
legal doctrine recognized by California
courts (as well as other jurisdictions) which
holds that statutes of limitation for latent
construction defects do not begin to run
until the defects are or should have been
discovered. Thus, the earliest that the
four- and three-year statutes could have
commenced running was in 2005, which
would make Brisbane’s claims timely.
Brisbane then argued that to hold that
Article 13.7.1.1 abrogated the delayed
discovery rule was against public
policy, noting that courts only approve
contractual agreements shortening
statutes of limitations with great caution, if
the shortened time to file suit is deemed
to be “reasonable.” Brisbane asserted that
it would be unreasonable to abrogate the
delayed discovery rule in this instance,
since to do so would essentially bar
Brisbane’s claims before they were (or
could have been) discovered.
Brisbane relied on the case of Moreno
v. Sanchez which the court declined to
enforce a contractual provision shortening
the limitations period and waiving the
delayed discovery rule. Moreno involved
claims by purchasers of a home against
a home inspector who failed to detect
asbestos and other contaminants in the
home. The inspection contract provided
for a shortened one-year limitations
period, commencing on the date of
inspection. The Moreno court refused to
enforce this provision, finding that it was
unreasonable as a matter of law and void
as against public policy.
Webcor countered that the delayed
discovery rule did not apply, that all of
Brisbane’s claims were time-barred by the
unambiguous language of Article 13.7.1.1
even though the latent defects were
not discovered until after the shortened
limitations time period had run, and that
the strong public policy favoring freedom
of contract supported upholding Article
13.7.1.1.
The Appellate Court’s
Reasoning
The Appellate Court agreed with Webcor
and affirmed the trial court’s granting
of summary judgment, dismissing all of
Brisbane’s claims.
The Court acknowledged that this
was a case of first impression in that
no prior California Appellate Court
had upheld a contractual provision
abrogating the delayed discovery rule
in a latent construction defect dispute.
The Court, however, noted that courts
in other states – including Kentucky,
Maryland, Massachusetts, New York,
and Pennsylvania – had upheld similar
or identical language, and that Article
13.7.1.1 was a standard provision in the
industry-wide accepted AIA contract
form. The Court relied on “longstanding
established public policy in California,
which respects and promotes freedom
of private parties to contract.” While
acknowledging that the Moreno decision
struck down a similar contractual clause,
the Court reasoned that, unlike the
parties in Moreno, both Brisbane and
Webcor were “sophisticated parties of
equal bargaining strength where there is
no claim of misrepresentation or undue
influence.” As such, the Court found that
Article 13.7.1.1 was not unreasonable in
that it allowed the parties to “structure
risk-shifting as they see fit without
judicial intervention.”
Implications of Brisbane
Under certain conditions, California courts
may be willing to enforce contractual
provisions in construction contracts that
substantially alter the parties’ statutory
rights, even if those modifications result in
a party being barred from presenting an
otherwise valid claim.
However, it is important to note that the
current (2007) version of the AIA A201
General Conditions2 no longer contains
the language that was enforced by the
Court in Brisbane, and simply defers to
“applicable law but in any case not more
than 10 years after the date of Substantial
Completion.” In other words, the current
AIA A201 language leaves California’s
statutory scheme intact, including the
delayed discovery rule.
Authors’ Note | For parties to
construction contracts who wish to
modify California’s statutory scheme with
respect to the time limit within which
to bring construction related claims,
Brisbane stands for the proposition
that the courts will likely support such
modifications, but only if (a) entered
into freely as a result of arms-length
negotiations (b) between informed
parties of arguably equal bargaining
power. In order for such clauses to be
enforceable, it is important for owners
and contractors to communicate with
their counsel, who can assist them in
making informed decisions that are
consistent with the holding in Brisbane.
And, from a public policy standpoint, the
court’s holding in Brisbane appears to
be consistent with California’s statutory
scheme regarding claims for latent
defects, which strives for certainty and
limitations on liability in barring the
assertion of any such claim more than 10
years after substantial completion – no
matter when they are discovered. n
1
AIA A201- General Conditions – 1997 edition, Article 13.7.1.1
2
AIA A201- General Conditions – 2007 edition, Article 13.7.1.1
PECKAR & ABRAMSON AWARDED
NATIONWIDE “LAW FIRM OF THE YEAR”
DISTINCTION IN LITIGATION
CONSTRUCTION BY BEST LAWYERS©
PECKAR & ABRAMSON AWARDED NATIONWIDE “LAW FIRM OF THE YEAR” DISTINCTION IN
LITIGATION–CONSTRUCTION BY BEST LAWYERS©
U.S. News – Best Lawyers® “Best Law Firms” has named Peckar & Abramson, P.C. “Law Firm of the Year” in Litigation–
Construction for 2014. Nationally, only one law firm per area of practice is selected for this prestigious honor each year.
In addition, the firm was recognized among the top tier in several practice areas in national and multiple metropolitan
categories.
Law Firm of the Year
Metropolitan Awards
Litigation–Construction
Tier 1, Miami, Construction Law
Tier 1, Miami, Litigation–Construction
Tier 1, Miami, Litigation–Real Estate
Tier 1, Miami, Real Estate Law
Tier 1, New Jersey, Construction Law
Tier 1, New Jersey, Litigation–Construction
Tier 1, New York City, Construction Law
National Awards
Tier 1, Construction Law
Tier 1, Litigation–Construction
Tier 1, New York City, Litigation–Construction
Tier 1, Washington DC, Litigation–Construction
Tier 2, Los Angeles, Construction Law
Tier 2, Miami, Commercial Litigation
Tier 2, New Jersey, Commercial Litigation
Tier 2, Washington DC, Arbitration
Tier 2, Washington DC, Mediation
13
CONGRATULATIONS TO THE PECKAR &
ABRAMSON ATTORNEYS NAMED TO 2014
BEST LAWYERS© IN AMERICA LIST
PECKAR & ABRAMSON IS PLEASED TO ANNOUNCE THAT 21 ATTORNEYS AT THE FIRM HAVE
BEEN NAMED TO THE 2014 EDITION OF BEST LAWYERS®, THE OLDEST AND MOST RESPECTED
PEER–REVIEW PUBLICATION IN THE LEGAL PROFESSION.
Attorneys Named to the 2014 Best Lawyers in America List
Richard L. Abramson
Litigation–Construction
Adrian L. Bastianelli, III
Arbitration, Litigation–
Construction, Mediation
Jerry P. Brodsky
Litigation–Construction
Steven M. Charney
Construction Law, Litigation–
Construction
Gregory H. Chertoff
Litigation–Construction
Robert A. Drucker
Litigation–Construction
Melinda S. Gentile
Litigation–Construction
Patrick J. Greene, Jr.
Construction Law,
Litigation–Construction
John D. Hanover
Construction Law
Charles F. Kenny
Construction Law,
Litigation–Construction
Roger S. Markowitz
Litigation–Construction
Bruce D. Meller
Construction Law,
Litigation–Construction
Paul G. Monte
Construction Law,
Litigation–Construction
Gerard Onorata
Litigation–Construction
Robert S. Peckar
Construction Law,
Litigation–Construction
Stephen H. Reisman
Construction Law,
Litigation–Construction
Howard M. Rosen
Construction Law,
Litigation–Construction
Donald S. Rosenberg
Construction Law,
Litigation–Real Estate,
Real Estate Law
Neal I. Sklar
Construction Law,
Litigation–Construction
Gary M. Stein
Commercial Litigation,
Construction Law,
Litigation– Construction
Michael Zicherman
Commercial Litigation
2014 Lawyer of the Year Award
Robert S. Peckar
2014 “Lawyer of the Year” for Construction Law and Litigation–
Construction in the New York Area
Stephen H. Reisman
2014 “Lawyer of the Year” for Litigation–Construction
in the Miami Area
Charles F. Kenny
2014 “Lawyer of the Year” for Litigation–Construction
in the Newark Area
PECKAR & ABRAMSON WELCOMES
THREE PARTNERS TO ITS LOS ANGELES
AND ATLANTA OFFICES
Peckar & Abramson is proud to welcome three new partners to the firm — Mark Stapke and Nicholas Sarris
to our Los Angeles office, and Thomas Hall to our Atlanta office.
14
A B O U T M A R K S TA P K E | Mark Stapke represents public owners, general contractors,
specialty subcontractors, developers, architects, engineers and material suppliers. Mark’s practice
focuses on time-related claims and litigation, offering legal advice and counsel regarding
the contracting process, payment/performance bond enforcement/defense, administrative
proceedings and counseling and transactional services with an emphasis on assisting public
owners. Mark currently serves as legal advisor to the Board of Directors of the Western Council
of Construction Consumers, as Judge Pro Tem of the Los Angeles Superior Court, and has served
on the Citizens Advisory Committee to the California State Contractor’s License Board. Mark
frequently contributes to construction industry publications, including the Western Council
Connection, the Construction Law Anthology, Western Construction Executive and Pool and
Spa News. He has served as an arbitrator and mediator for the Los Angeles Superior Court since
1990, and regularly lectures to trade groups on legal cost control methods. In 2009, Mark was
selected as the Western Council of Construction Consumers “Member of the Year” for the fifth
time.
A B O U T N I C H O L A S S A R R I S | Nicholas Sarris defends Employment Practice Liability
Insurance and Directors & Officers claims on behalf of employers in state and federal courts. He
has also successfully defended employers before various governmental administrative bodies,
including the Equal Employment Opportunity Commission, the National Labor Relations Board,
the California Department of Fair Employment and Housing and the California Department of
Industrial Relations – Division of Labor Standards Enforcement. Well-versed in the California
Labor Code and the Fair Labor Standards Act, Nicholas represents employers in wage and hour
matters, including class actions and representative actions brought under the California Private
Attorneys General Act. Nicholas advises employers on a wide variety of employment related
matters and compliance issues, including employment policies and procedures, contracts,
disciplinary issues, leaves of absence and accommodations, complaints, benefits, proprietary
information and restrictive covenants and compensation.
A B O U T T H O M A S H A L L | Thomas Hall’s practice focuses on construction and design
claim resolution on public and private projects throughout the United States. Thomas works
with clients on the drafting and negotiation of construction contracts, design-build agreements
and subcontracts. Prior to joining Peckar & Abramson, Thomas transitioned from his successful
construction litigation practice to serve for six years as lead U. S. internal legal counsel for
one of the largest general contractors operating in the U. S., ranked amongst the top 10 by
Engineering News Record. He oversaw legal matters for all of their U. S. operations, working
directly with executives and project staff to implement a variety of risk mitigation strategies
and to resolve hundreds of disputed matters. In this role, Thomas gained valuable perspective
on the internal challenges presented to construction and design firms by the current complex
regulatory environment and by the financial and reputational losses that may arise from project
disputes and litigation.
FLORIDA SUPREME COURT LIMITS THE APPLICATION OF THE
ECONOMIC LOSS RULE
continued from page 4
Ricky Polston stated in his dissent:
[T]he majority obliterates the use of
the doctrine when the parties are in
contractual privity, greatly expanding tort
claims and remedies available, without
deference to contract claims. Florida
contract law is seriously undermined by
this decision. 7
Joining Chief Justice Polston’s dissent,
Justice Canady declared “[w]ith
today’s decision, we face the prospect
of every breach of contract claim being
accompanied by a tort claim.” 8
As predicted by Chief Justice Polston and
The ELR is a judicially created doctrine setting forth the circumstances
under which a tort action is prohibited if the only damages suffered
are purely economic losses and the defendant has not breached an
independent duty apart from the breach of contract. AFM Corp. v. Southern
Bell Tel. & Tel. Co., 515 So. 2d 180, 181 (Fla. 1987) ; and Indem. Ins. Co. of N. Am.
v. Am. Aviation, Inc., 891 So. 2d 532, 536 (Fla. 2004).
1
Am. Aviation, 891 So. 2d at 536 (citing Ginsberg v. Lennar Fla. Holdings, Inc.,
645 So. 2d 490, 494 (Fla. 3d DCA 1994) (“Where damages sought in tort are
the same as those for breach of contract a plaintiff may not circumvent
the contractual relationship by bringing an action in tort. ”).
2
AFM Corp., 515 So.2d at 181.
Justice Canady, Florida courts appear to
be allowing an influx of tort claims such as
negligence, negligent misrepresentation,
and breach of fiduciary duty to proceed
notwithstanding the existence of a
contractual relationship between the
parties. 9 n
Kuehne v. FSM Capital Management, LLC 2013 WL 1814903 *4 (S. D.Fla. Apr.
29, 2013) (relying on Tiara, the court declined to dismiss the plaintiff’s
tort claims in managing the plaintiff’s financial accounts) ; Wiand v. Wells
Fargo Bank, N.A. 2013 WL 1401414 *6 (M. D. Fla. Apr. 5, 2013) (citing Tiara
5
Id. Concurring Op. at 408
and finding that the ELR did not bar a negligence claim arising out of
(Pariente, J.).
a bank’s participation in derivative transactions with hedge funds involved in a
6
Ponzi scheme) ; F. D.I. C. v. Floridian Title Group Inc., 2013 WL 5237362 *16 (S. D.Fla.
Id.
Sept. 17, 2013) (denying a defendant’s motion for summary judgment as to
7
Id. Dissenting Op. at 411 (Polston, C.J.).
claims of breach of fiduciary duty and negligent misrepresentation based upon
8
Id. Dissenting Op. at 414 (Canady, J.).
the ELR and rejecting an argument that these claims
3
9
Tiara Condo. Ass’n, Inc.,
110 So.3d at 407.
4
15
NEW JERSEY COURT PROVIDES “PATCH” FOR GENERAL
CONTRACTORS WHEN THEIR INDEMNITY CLAIMS AGAINST SUBS
ARE BARRED BY THE STATUTE OF REPOSE
continued from page 10
limited services (such as subcontractors
and subconsultants), and contractors
with supervisory responsibilities that
span the entire project (such as general
contractors and construction managers).
In determining the date upon which the
ten-year period begins to run for purposes
of the statute of repose for the former
category, it is at the conclusion of the
contractor’s specific task; for the latter
category, it begins to run at the time of
occupancy.
Turning to the apportionment issue,
the Court affirmed the appellate court’s
decision, ruling that allocation of fault to
the dismissed defendants—who will, in
any event, pay no damages—does not
subvert the statute of repose’s purpose
to give construction defendants “the
right not to have to defend ancient
claims or obligations.” Further, the Court
stated that the goals of the comparative
fault statutory scheme are advanced if
the jury assesses the SESI and Harrison–
Hamnett defendants’ potential fault,
noting that within the time constraints
imposed by the statute of repose, the
Town had the opportunity to assert
a cause of action against SESI and
Harrison–Hamnett period. The Court
ruled that the jury’s assessment of SESI
and Harrison–Hamnett’s fault promotes
fair allocation of responsibility and
avoids creating an incentive for a plaintiff
to strategically target only one of a range
of culpable defendants. n
Editors’ Note | The Supreme Court’s
decision is a literal application of the
statute of repose. The statute does not
distinguish between claims made by
owners or by contractors, and it applies
as much to claims for indemnification
and contribution as it does to direct
claims for damages. Though a contractor
may no longer be liable in damages for
the defective work of its subcontractor,
the contractor still is not made whole
by the Court’s decision. The contractor,
through no fault of its own, still has lost its
ability to obtain indemnification from its
subcontractor for attorney’s fees and other
costs of litigation, and to the extent that
the contractor has insurance coverage, it
may be subject to increased premiums. The
only way to rectify such a result is either by
amending the statute of repose, or possibly
by way of a provision in the subcontract,
which states that for purposes of the
subcontractor’s indemnity obligations,
the subcontractor’s work shall not be
deemed to be substantially complete until
a certificate of occupancy is issued for
the entire project or until the contractor’s
work is substantially completed. Such a
provision may be effective to extend the
statute of repose for the subcontractor to
make it commensurate with that of the
general contractor.
continued from page 2
AVOIDING THE DISPUTE RESOLUTION DISCONNECT
applicable to the subcontractor. Otherwise,
a general incorporation-by-reference
provision may be construed only to bind
the subcontractor to those provisions of
the prime contract specifically relating to
the scope, quality, character, and manner
of the work to be performed by the
subcontractor.8
Even where the necessary specificity
referencing the ADR provisions of the
prime contract in the subcontract are
present, it remains incumbent on the
contractor to carefully review those ADR
provisions in order to ensure that those
requirements can be reconciled with the
other provisions of the subcontract, lest
the ADR provisions prove unenforceable
or procedurally troublesome. For example,
an ADR provision in a prime contract
limiting the arbitrability of claims to those
not exceeding $10,000 will prove useless
in the event of a $100,000 pass-through
claim by a subcontractor, notwithstanding
that the same ADR clause may have been
properly incorporated into the terms of
the subcontract.
subcontractors, or others, into the ADR
proceedings, and particular care must
be taken to ensure those provisions are
appropriately incorporated into the terms
of any subcontract. n
This concern about reconciling the
agreements applies with equal force to
the notice provisions in the subcontract,
as well.
1
S ee, e.g., New York CPLR §601(a), cf. New Jersey’s “Entire
Controversy Rule,” New Jersey CPR Rule 4:30A.
See, AIA Form A201-1997, §§ 4.5 and 4.6, addressing
mediation and arbitration, respectively.
2
See, AIA Form A201-1997, § 4.6.4, precluding joinder of the
architect and limiting the ability to join other parties to those
“substantially involved in a common question of fact or law
whose presence is required if complete relief is to be accorded in
arbitration.”
3
Conclusion
See, e.g., Kaufman v. Towers Trans., Inc., 63 AD2d 669, 404
NYS2d 684 (2d Dep’t 1978).
4
In sum, a contractor must take great
care when drafting and reviewing any
contractual agreements in order to
ensure it is protected to the greatest
extent possible. Where ADR provisions
are present in the prime contract, they
must be scrutinized for the ability to join
5
S ee, e.g., Thomas Crimmins Contr. Co. v. City of New York, 74
NY2d 166, 171, 544 NYS2d 580 (1989)
See, AIA Form A401-1997, Mutual Rights and Responsibilities,
§2.1
6
7
S ee, e.g., Navillus Tile, Inc. v. Bovis Lend Lease LMB, Inc., 74 AD3d
1299, 1302, 904 NYS2d 207 (1st Dep’t 2010)
8
S ee, e.g., Bussanich v. 310 East 55th Street Tenants, 282 AD2d
243, 244, 723 NYS2d 444 (2d Dep’t 2001)
16
PECKAR & ABRAMSON
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New York, NY 10010
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The information provided in this Newsletter does not, nor is it intended to, constitute legal advice. Readers should not take or
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