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ConstructionRisk.com Report
http://www.ConstructionRisk.com
Vol. 7, No. 6, October 05
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Inside
This Issue:
• Don’t Touch That “Forward” Button!
Attorney-Client Privilege in an E-Mail Age
• Contractor Complaint
against Engineer Dismissed for Failure to File Expert Identification
Affidavit
• Contractor Forfeited
Right to Payment by Performing Work without a License
• Hurricane
Katrina’s Impact on Existing U.S. Government Contracts
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by J. Kent Holland
In this a/e ProNet book authored by Kent Holland, detailed examples of over 30 contract clauses are provided. The discussions include risk management ideas and suggestions for negotiating contracts with reasonable allocation of risk between the contracting parties. Much attention is given to explaining how contract language may affect the availability of insurance coverage for claims against design professionals. Several chapters address managing communication and documentation, with particular emphasis on e-mail, and records maintenance, retention, and destruction. Three continuing education courses are included. Each is registered with the AIA. Additional payment is required to receive credit for taking the courses. The cost of the book is only $39.95. A separate announcement will be e-mailed to you in a few weeks providing the information on how you can purchase the book.
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ARTICLE 1
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Don’t
Touch That “Forward” Button!
Attorney-Client
Privilege in an E-Mail Age
Julie M. McGoldrick, Esq.
The
attorney-client privilege is an important protection to enable
businesses to seek open and frank legal advice in conducting their
business affairs. When the
privilege applies, statements and documents that normally would be open
to inspection and discovery remain confidential, unless the client
waives the privilege. The
privilege enables clients to freely consult with their attorneys for
confidential advice and can, therefore, help clients to avoid legal
problems or disputes before they even arise.
However, in the unfortunate situation that a dispute grows
towards the need for a more formal resolution, privilege becomes even
more crucial as it protects from disclosure documents that outline legal
strategy or that explore strengths and weaknesses.
In a time when e-mail communications are economical, convenient,
and prevalent, it is particularly important to understand the basic
principles of attorney-client privilege and to be aware of the unique
problems that e-mail presents in protecting the privilege.
Because
the attorney-client privilege is an exception to the general concept of
open disclosure of evidence during litigation, the privilege is strictly
construed. In order to be
covered by the privilege, a communication must be made: 1) between an
attorney and a client, 2) in confidence, and 3) for the purpose of
seeking, obtaining, or providing legal assistance to the client.
Generally,
the presence of or disclosure to a third party will prevent the
privilege from attaching. There
are some exceptions. For
instance, if the third party is necessary to the attorney’s complete
representation of a client, the privilege may still attach.
A necessary third party might be an accountant that the attorney
has hired to help interpret books, or a paralegal researching an issue
of law. Similarly, a client
might require the presence of a translator in order to communicate with
the attorney. Also exempt
from the definition of “third party” are employees of a corporation
that is represented by the attorney, as long as the employees are
speaking about things within their scope of employment and understand
that they are being questioned for the purpose of obtaining legal advice
for the corporation. The general rule remains, however, that a third
party who is not necessary to the representation will prevent the
privilege from attaching.
Communications
covered by the privilege remain confidential, unless the client waives
the privilege. Once a
communication is shown or repeated to a third party not covered by the
privilege, the privilege is deemed to be waived.
Waiver can occur voluntarily, such as when a client instructs the
lawyer to reveal information to a third party (such as in settlement
negotiations), or when the client herself reveals the communication.
Waiver can also occur inadvertently.
If, for instance, a client had a letter from her lawyer sitting
out in plain view during a crowded meeting and a third party saw it, the
privilege may be deemed waived as to that letter.
A client must take reasonable steps to preserve the
confidentiality of her privileged communications.
Just
as e-mail has become incorporated into daily business activities, it is
also a convenient and quick way for an attorney and client to
communicate. E-mails may
become privileged just like any other communications.
Although the issue of the security of e-mails is beyond the scope
of this article, the attorney-client privilege generally has been held
to apply to e-mail communications. As
such, e-mail is also subject to the same rules of waiver and, for the
following reasons, e-mail communications are particularly susceptible to
the unintentional waiver of privilege.
First,
e-mail is easily shared. The
“forward” button is an easy way to convey a lot of information with
minimal effort. With the
stroke of one key, the recipient can receive a string of e-mails that
contain not only your instructions, but the history and context of the
problem. However, if an e-mail from your attorney is included in that
string, what once may have been a privileged communication may now be
available for discovery during litigation if the recipient of the e-mail
string is a third party. An
e-mail from your attorney is privileged, but once you forward it to
anyone not covered by the privilege, the e-mail is no longer a
confidential communication.
Inadvertent
waiver is particularly a risk with e-mail software containing an
auto-text feature that automatically completes e-mail addresses.
This convenient feature is perilous to the attorney-client
privilege, especially if you have more than one contact with similar
e-mail addresses. You may
think you are sending your estimation of damages to John White, your
attorney’s paralegal, but in fact, your computer took the liberty of
sending it to the first “John” in your recent directory—John
Smith, the subcontractor you are considering suing.
Just
being aware of the relatively frail nature of the privilege in e-mail
can go a long way towards protecting your confidential communications.
There are also a few precautions to take in order to lessen the
chance of inadvertently waiving privilege:
·
As noted
above, take care not to forward e-mails from your attorney.
If your attorney e-mails you with advice about how to handle a
situation, start a new e-mail to give instructions to the proper people.
·
Similarly,
when following your attorney’s advice, it is usually better not to
explicitly state that. Instead
of writing, “My attorney said that I should research the issue of my
liability for negligence on the job before I sign anything,” just
request the information that you need.
·
Remember
facts are not privileged, so you can share factual information with
anyone without worrying about waiving your privilege.
It is your attorney’s advice and counsel that is protected.
If you reveal that, you may be inadvertently waiving the
privilege over that communication.
If
forwarding e-mails is a convenience you cannot forego, at least be sure
to forward only the e-mail that is relevant to the recipient.
That way, you are less likely to inadvertently send privileged
information. Likewise, be
particularly careful if your e-mail software employs an auto-text
feature for e-mail addresses. Consider
deactivating this feature if possible and double check the recipient
list before you send out a particularly sensitive message.
Finally, if you want to communicate information and you are worried that it
might waive your privilege, it is always a good idea to consult your
attorney. She may be able to
communicate factual information orally for you in such a manner as to
avoid concerns of waiver.
About
the Author: Julie
M. McGoldrick is an attorney with the
Los Angeles
office of Wickwire Gavin, P.C., and focuses her practice on construction
law matters. She may be
reached at 21
3-688-9500 or at jmcgoldrick@wickwire.com..
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ARTICLE #2
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Contractor
Complaint against Engineer Dismissed for Failure to File Expert
Identification Affidavit
by
J. Kent Holland
Where a
contractor that was sued by a project owner for failing to comply with
contract specifications filed a claim to implead the project engineer
into the suit, it failed to serve an expert identification affidavit
within 180 days as required by state statute.
As a result, the court dismissed the contractor’s claim against
the engineer.
In Middle
River-Snake River Watershed District v. Dennis Drewes, Inc., 692
N.W.2d 87 (2005
Minn.
), a contractor, Dennis Drewes, Inc. was contracted by a watershed
district to work on a flood impoundment project.
Before submitting its bid, the contractor reviewed soil reports
that indicated that the soil would be ideal for construction.
The contract required the contractor to achieve an overall soil
compaction of 95 percent and prohited lifts greater than twelve inches
in height. During
construction, the contractor encountered wetter soil conditions than
anticipated but instead of notifying the district of the changed
conditions the contractor deviated from the specifications and used
lifts greater than twelve inches in order to complete its work and
failed to meet the compaction requirements.
Upon
learning of the contractor’s non-compliance the district filed suit
against it. The contractor
responded with counterclaims against the district and also filed a claim
against the project engineer, J.O.R. Engineering, Inc., alleging
negligence, estoppel, and tortuous interference with its contract.
Contractor failed to comply with the expert witness disclosure
requirements of the
Minnesota
statute. The statue require
service of two affidavits on the adverse party.
The first is an affidavit of expert review to be filed with the
pleadings. The second is an
expert-identification affidavit that must be served within 180 days
after the first affidavit. A
party’s failure to provide the second affidavit “results, upon
motion, in mandatory dismissal of each action with prejudice as to which
expert testimony is necessary to establish a prima facie case.”
In this
case, the contractor filed the expert-review affidavit but failed to
serve the second affidavit within the required 180 days.
The engineer then filed a motion to dismiss the complaint for
failure to file the affidavit. In
response to that motion, the contractor filed the missing affidavit
three days later.
Under the
state statute, there is a 60 day cure period for a defective affidavit.
It states that a motion to dismiss may not be granted “unless,
after notice by the court, the nonmoving party is given 60 days to
satisfy the disclosure requirements.”
The contractor argued that since it filed the affidavit within 60
days of the motion to dismiss, it is exempted from the mandatory
dismissal provision. In
rejecting this argument, the court held that the 60 safe harbor period
is only for “claimed deficiencies of the affidavit” and does not
apply in the situation of a complete failure to file any affidavit
(albeit defective) within the mandatory 180 day period.
The court said that this was self evident from the fact that the
last sentence of this section of the statute requires the court to issue
specific findings on “the deficiencies of the affidavit.”
As explained by the court, “When an initial
expert-identification affidavit has not been filed, a court would be
unable to make specific findings on the deficiencies.”
For these reasons, the court affirmed the summary judgment
against the contractor.
Comment
Numerous
states have statutes requiring some type of expert affidavits to be
filed with pleadings and/or to be served on the other party within some
period of time following the pleadings.
Failure to timely file these affidavits has been the basis for a
number of judicial decisions dismissing actions against professionals.
This current decision is a reminder of the importance of knowing
and following in careful detail the requirements of statutory
requirements concerning what must be filed and when it must be filed.
Since dismissal with prejudice is mandatory under these statutes,
the courts had little leeway (or even no leeway) to do anything but
grant a motion to dismiss.
About the author: Kent
Holland is a construction lawyer in Tysons Corner, Virginia, and is a
risk management consultant for the environmental and design professional
liability. He also publisher of ConstructionRisk.com Report.
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ARTICLE #3
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Contractor
Forfeited Right to Payment by Performing Work without a License
by
J. Kent Holland
Where
a contractor executed a contract before having its license and then
obtained the license shortly after performance began, the contractor
forfeited all right to payment for either the work performed before
licensure or the work performed after licensure.
Under a second contract with the same contractor for different
work on the project, the contractor also had no license when it executed
the contract but it obtained its license before beginning to perform any
of its work under that contract. The
court held that the contract was not null and void merely because the
contractor did not have its contract as of the date of signing the
contract, and that the contractor was therefore entitled to argue its
right to payment for the work performed under that contract.
In
MW Erectors, Inc. v. Niederhauser
Ornamental and Metal Works Company, Inc. (S123238), the Supreme
Court of California, addressed
the applicability of the
Contractors’ State License Law (CSLL; Bus. & Prof. Code, § 7000
et seq.). That statute
imposes strict and harsh penalties for a contractor’s failure to
maintain proper licensure. Among
other things, the CSLL states a general rule that, regardless of the
merits of the claim, a contractor may not maintain any action to recover
compensation for “the performance of any act or contract” unless he
or she was duly licensed “at all times during the performance
of that act or contract.” (§ 7031,
subd. (a) (section 7031(a)), italics added.)
The
court explained that earlier case law softened the severity of this
scheme by allowing contractors, though technically unlicensed at the
time of performance, to show they had substantially complied with
licensure requirements. But,
says, the court, the CSLL has since limited the availability of the
substantial compliance exception by specifying that “[t]he judicial
doctrine of substantial compliance shall not apply” unless the
contractor “had been duly licensed as a contractor in this
state prior to the performance of the act or contract”
for which licensure was required.
The
dispute in question arises out of hotel project being built for Disney
Corporation by Turner Construction Company.
Turner contracted with defendant Niederhauser Ornamental and
Metal Works Company, Inc. (Niederhauser) to perform specialized metal
work on the project, and Niederhauser, in turn, awarded two subcontracts
to MW Erectors, Inc. (MW).
MW
began work under the structural contract on or before the date it signed
the contract, but did not obtain a C-51 structural steel contractor’s
license (see Cal. Code Regs., tit. 16, § 832.51) until about
three weeks later. Work on the ornamental contract began in early
January 2000, and by the time this work began MW had obtained the C-51
license. An important side
issue in the case was whether the fact that MW didn’t obtain a
separate license for performing ornamental work was a bar to recovery.
MW
subsequently sued Niederhauser seeking amounts allegedly due in the
amount of $955,553 for work under the structural contract and $366,694
for work under the ornamental contract.
Niederhauser moved for summary judgment, alleging that MW’s
claim was barred under section 7031(a), because MW had not been properly
licensed at all times during the performance of its contracts.
Niederhauser asserted that MW had no C-51 license when it began
performance of the structural steel contract.
Niederhauser also averred that MW could not demonstrate its
substantial compliance with the C-51 license requirement because it had
never held a
California
contractor’s license before beginning work under the contracts in
December 1999.
Niederhauser
also argued that both contracts were illegal, void, and unenforceable ab
initio because MW was unlicensed when they were executed. The lower
Court of Appeal had held that the contracts were not void ab initio
because of MW’s unlicensed status when they were executed.
Instead, said the appeal court, MW’s right to recover depended
on its licensure during its performance of the contracts.
It held that MW could not recover for work it performed under the
agreements during the relatively short time before it had secured
either a license, but that MW could obtain compensation for every
individual act it performed under its contracts after all
necessary licensure was in place.
Niederhauser
sought review, urging that section 7031(a) required due licensure at all
times during performance of a contract, and that both contracts were
void ab initio because MW was not licensed when they were
executed. The Supreme Court
reviewed the statute at length, comparing it to an earlier version and
also discussing numerous other court decisions that have applied the
statute in different situations.
The
essential conclusions of the Supreme Court were these:
(1) Section 7031(a)
bars a person from suing to recover compensation for any
work he or she did under an agreement for services requiring a
contractor’s license unless proper licensure was in place at all
times during such contractual performance;
(2) Section 7031(a) does not allow a contractor who
was unlicensed at any time during contractual performance to recover
compensation for any individual acts performed while he or she was
duly licensed; (3) a
contractor who had not been duly licensed at some time before
beginning performance under the contract may not assert protection
under the substantial compliance exception to the strict enforcement of
the statute; and (4) If
a contractor is fully licensed at all times during contractual performance,
the contractor is not barred from recovering compensation for the
work solely because he or she was unlicensed when the contract was executed.
The
court stated that the Legislature’s obvious intent was to impose a
stiff all-or-nothing penalty for unlicensed work by specifying that a
contractor is barred from all recovery for such an “act or
contract” if unlicensed at any time while performing it.
“This all-or-nothing philosophy is directly at odds with the
premise that contractors with lapses in licensure may nonetheless
recover partial compensation by narrowly segmenting the licensed and
unlicensed portions of their performance.”
The
statutory language specifies that due licensure must have existed at
some time “prior to” performance, and the court said that language
cannot be squared with the notion that the contractor could first become
licensed at some time during performance.
The
court thus held that: “Because MW was not duly licensed “at all
times” during performance of the structural contract (§ 7031(a)),
and cannot alternatively establish its substantial compliance with the
licensure requirements in that it had never held a valid
California
contractor’s license “prior to” beginning performance… MW cannot
sue to recover any compensation for work performed under that contract.
Insofar as related to this portion of MW’s complaint, the
summary judgment entered by the trial court was proper.
On the separate issue of the validity of the contract for the
ornamental metal work which was executed by MW before it had its
license, the court affirmed the lower appeal court decision which had
held that since MW had a contract prior to performing any of the work
under that contract, it could present its case for compensation, and the
contract was not rendered null and void solely because the contractor
didn’t have a license as of the date it signed the contract.
About the author: Kent
Holland is a construction lawyer in Tysons Corner, Virginia, and is a
risk management consultant for the environmental and design professional
liability. He also publisher of ConstructionRisk.com Report.
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Design Build Professional Liability Risk Management and Insurance; Site
Safety Risk and Liability; Risk Management for the Design Professional;
Managing Communication, Documentation and Reports; Insurance for
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Claims against Design Professionals; Insurance Coverage Disputes; and
Environmental Claims. This is an efficient, easy and cost-effective to
get your continuing education credits.
=====================================
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Article #4
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Hurricane
Katrina’s Impact on Existing U.S. Government Contracts
By:
Dan Donohue and Hal Perloff – Wiciwire Gavin, P.C.
For
contractors performing work on existing federal contracts in affected
areas, assessing the impact of the hurricane on their contracts raises a
number of issues and concerns. Federal
construction and supply contracts typically provide for a
non-compensable time extension for unusually severe weather or Acts of
God. See,
e.g., The Rice Co., AGBCA No. 2003-188-1, 2005-2 BCA Sec. 32,005
(2005)(hurricane that delayed delivery of rice was excusable delay
precluding the assessment of liquidated damages).
However, under the “Permits and Responsibilities” provisions
found in most federal contracts, a contract is responsible for repairing
or rebuilding at its own cost any work damaged or destroyed by the storm
that has not been accepted by the government.
In DeRalco, Inc., ASBCA
No. 41063, 91-1 BCA Sec. 23,576 (1990), a contractor was held
responsible for the cost of rebuilding a 97.5% complete brick screen
wall damaged by Hurricane Hugo. The
Board rejected the contractor’s argument of defective government
specifications (the wall was designed to withstand only 100 mph winds
and not the 190 mph winds produced by Hugo) because the loss was caused
by the hurricane and not the government’s conduct.
A natural disaster such as Hurricane Katrina may also frustrate
the purpose of the contract, making continued performance impossible or
commercially impracticable. In
these situations, the government may choose to terminate the contract
for its convenience, entitling the contractor to be paid its costs to
date plus certain costs of winding down the contract.
Contractors should carefully follow instructions from the
government and the procedures contained in the contract’s termination
for convenience clause.
See
Dynatech
Building
Sys. Corp., ASBCA No. 47462,
95-1BCA Sec. 27,325 (1995) (a contractor forfeited its rights under the
clause by filing its claim beyond the one year period provided for, even
where its failure to submit its claim was caused by a hurricane).
Natural disasters may also cause the government to make changes
in the work, entitling a contractor to equitable adjustments in the
contract price and time. For
example, a beach renourishment contractor was entitled to an equitable
adjustment after a storm dramatically changed the contour of the
existing beach and borrow areas and the contracting officer directed the
contractor to change the locations where sand was to be deposited.
J.A. LaPorte, IBCA No.
1014-12-73, 75-2 BCA Sec. 11,486 (1975).
But the burden is on the contractor to prove the merits of such a
claim, and relief will be denied where such proof is lacking.
See, e.g., L&C Europa
Contracting Co, Inc., ASBCA No. 52848, 04-1 BCA Sec. 32,609 (2004)
(under a contract to renovate a recreation center contractor failed to
prove that it was damaged by delay to start of project due to roof
damage caused by Hurricane Fran). Contractors
are responsible for pursuing appropriate contractual relief for the
effects of the disaster on their work.
The federal government may also assert warranty claims on
existing buildings and other structures.
Contractors should understand the extent of the warranties they
have provided the government. It
is the government’s burden to prove its warranty claim.
In many cases, there may be questions as to whether the specific
weather conditions were within the scope of the coverage of the
warranty. If government
clients insist on purusing repairs under the warranty clause,
contractors should be certain to receive a direction in writing from the
contracting officer before starting work to preserve their rights to
pursue compensation later, if justified.
Some contractors may be eligible to claim that they are entitled
to extraordinary contractual relief under Public Law No. 85-804.
Pursuant to that statute, executive agencies have the authority
to enter into contracts and to modify existing contracts whenever that
would facilitate the national defense.
50 U.S.C. Sec. 1431-1435, see
also E.O. 10789, FAR Part 50.3.
The granting of so-called “extraordinary contractual relief”
is within the discretion of agency officials and is not a matter of
right. FAR 50.301.
The statute allows such relief when a contractor essential to
national defense loses production capability.
FAR 50.302-1(a). For
instance, a contractor that was the only source of vital components to
an ongoing military program might be able to gain 85-804 relief to
repair its operations after Hurricane Katrina.
There may also be arguments that the relief should be granted to
contractors to provide indemnification for environmental liabilities on
existing projects that have arisen as a result of the Hurricane.
About
the Authors. Dan Donohue
(ddonohue@wickire.com)
and Hal Perloff (hperloff@wickire.com)
are attorneys with the law firm of Wickwire Gavin, with a law practice
focusing on government contracts and construction law.
8100 Boone Blvd.
, Suite 700
,
Vienna
,
VA
22182
; 703-790-8750.
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ABOUT
THIS NEWSLETTER & A DISCLAIMER
This newsletter Report is published and edited by J. Kent Holland,
Jr., J.D., a construction lawyer and risk management consultant for Environmental and
Design Professional Liability. The
Report is independent of any insurance company, law firm, or other
entity, and is distributed with the understanding that
ConstructionRisk.com, LLC, and the editor and writers, are not hereby
engaged in rendering legal services or the practice of law. Further,
the content and comments in this newsletter are provided for educational
purposes and for general distribution only, and cannot apply to any
single set of specific circumstances. If you have a legal issue to which
you believe this newsletter relates, we urge you to consult your own
legal counsel. ConstructionRisk.com, LLC, and its writers and editors,
expressly disclaim any responsibility for damages arising from the use,
application, or reliance upon the information contained herein.
=====================================
Copyright 2005, ConstructionRisk.com, LLC
Publisher & Editor: J. Kent Holland, Jr., Esq.
8596 Coral
Gables Lane
Vienna, VA
22182
703-623-1932
Kent@ConstructionRisk.com
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