In Bezio v. Draeger, No. 13-1910 (December 16, 2013), the Court of Appeals for the First Circuit affirmed a ruling by the United States District Court for the District of Maine, enforcing an arbitration clause in an attorney-client engagement letter. The former client brought malpractice and unfair practice claims, but the action was dismissed and sent to arbitration under Maine law.
The court found that (1) Maine professional responsibility law for attorneys permits arbitration of legal malpractice claims so long as there is no prospective limitation of the firm's liability; and 2) Maine law, like the Federal Arbitration Act, evidences no hostility to the use of the arbitral forum.
There were several material factors in the instant case that could limit its application to its particular facts. The client negotiated the terms of the engagement letter, for example, changing some, and then signed the letter and initialed each page, thus specifically noting his agreement to each term. This client also had specific and particular prior experience with arbitration, thus limiting the amount of explanation of the procedure that was required of the firm in reaching informed consent of the particulars of this type of dispute resolution.
But the broader significance is clear: arbitration of client disputes is permitted and indeed encouraged. If attorneys mimic the procedure followed in this particular engagement letter, by actually getting client signature on letters, there is every reason to believe their choice of arbitration for dispute resolution will be followed. Of particular note, while making sure prospective clients are informed about the process is material to the outcome, the court found no requirement that the law firm encourage the client to seek independent counsel over the meaning of the term in the agreement.
For more information on professional liability and arbitration issues, contact attorney William Saturley or a member of Preti Flaherty's Professional Liability group.
Legal updates, news and commentary from Preti Flaherty's Professional Services Attorneys
Contractors Have No False Claims Act Liability for Overweight Trucks
Wednesday, December 18, 2013
In a refreshing rebuke to the certification theory of False Claims Act (“FCA”) liability, the Fifth Circuit in United States ex rel. Stephenson v. Archer Western Contractors, Case No. 13-30327 (5th Cir. Dec. 2, 2013) affirmed the dismissal of a complaint alleging FCA liability brought by the owner and manager of a trucking company against various contractors working on the reconstruction of the New Orleans levee system for the United States Army Corps of Engineers. The complaint alleged that the contractors had defrauded the government by falsely certifying as part of their requests for payment that they were in compliance with all “Federal, state and municipal laws, codes and regulations applicable to the performance of the work” when in fact they were consistently violating state and local weight limits for trucks on highways. The evidence presented to the Court indicated that the topic of overweight trucks had been raised in emails between the government and the contractors and that it was readily visible on-site. Nevertheless, the government had never issued any stop work orders, never stopped the delivery of clay by the overweight trucks to the project site, and never withheld payment to the contractors. Accordingly, the Fifth Circuit concluded that the alleged “fraud” was immaterial and could not be a basis for FCA liability.
There are innumerable laws and regulations that may apply to a particular construction project. This decision makes it clear that only those violations of law which actually affect the decision of the government to pay for the work being performed on the project are a basis for FCA liability. In particular, the decision suggests that payment by the government with full knowledge of the violation may be a basis to conclude that such violations are immaterial. This should hopefully alleviate any concerns for contractors signing off on such certifications that technical violations of laws or regulations unrelated to the government’s payment decision should not result in FCA liability.
For more information on professional liability and construction issues, contact attorney Nathan Fennessy or a member of Preti Flaherty's Professional Liability group.
There are innumerable laws and regulations that may apply to a particular construction project. This decision makes it clear that only those violations of law which actually affect the decision of the government to pay for the work being performed on the project are a basis for FCA liability. In particular, the decision suggests that payment by the government with full knowledge of the violation may be a basis to conclude that such violations are immaterial. This should hopefully alleviate any concerns for contractors signing off on such certifications that technical violations of laws or regulations unrelated to the government’s payment decision should not result in FCA liability.
For more information on professional liability and construction issues, contact attorney Nathan Fennessy or a member of Preti Flaherty's Professional Liability group.
Why the Project Delivery Method Matters in Construction Litigation
Friday, December 13, 2013
The most common theme in construction litigation is a dispute between owners, contractors, and designers as to who was responsible for a construction defect that caused delays or additional costs. In these cases, the matter is often determined by which construction delivery method was being used by the parties involved.
Most construction is done on a design-bid-build model, meaning that the owner hires a designer (architect/engineer) to put together plans and specs, and then the owner hires a contractor to build to those plans and specs. When the owner hires the contractor, they are given an implied warranty (the Spearin doctrine) that if the contractor builds in accordance with the plans and specs that the design is sufficient so that the contractor will achieve the intended purpose. In other words, if an owner gives the contractor plans and specs that will result in a building envelop, the owner can't then blame the contractor when the contractor builds in accordance with the faulty design.
By contrast, some construction is done on a design-build basis in which the owner hires one firm that is responsible for both the design and construction of the building. In that instance, if something goes wrong, the owner doesn't have to figure out who is at fault - they have one firm that carries all of the responsibility. Notably, even in cases where the construction was generally done on a design-bid-build basis is not necessarily dispositive, because sometimes contracts will leave specific aspects of the construction (such as HVAC) to be done on a design build basis. In those instances, the designer will provide most of the design for the building, but will intentionally exclude certain systems, with the understanding that the contractor (or more likely his sub) will likely design the particulars of their solution anyway.
When litigating this issue, take a look at the plans and specs to find out whether the roof was being done on a design-build basis as that will be critical to your analysis. Part of that analysis is looking to see whether the contract provides a "design spec" or a "performance spec" for that aspect of the work. A design spec allows the contractor to determine the means and methods of construction (how to perform the work), but tells the contractor the specific materials or sizes that are required. Where a design spec is used, the owner (and by extension, the architect) retains responsibility for the design being used. A performance spec, by contrast, simply dictates the desired outcome, but leaves it to the contractor to determine how to achieve that outcome. In these instances (even where the contractor still has to provide shop drawings for their solution to be approved), the contractor ultimately bears all responsibility for all aspects of meeting the defined objective.
For more information on construction or professional liability matters contact attorney Ken Rubinstein at 603-410-1500 or any member of Preti Flaherty's Professional Liability Practice Group.
Most construction is done on a design-bid-build model, meaning that the owner hires a designer (architect/engineer) to put together plans and specs, and then the owner hires a contractor to build to those plans and specs. When the owner hires the contractor, they are given an implied warranty (the Spearin doctrine) that if the contractor builds in accordance with the plans and specs that the design is sufficient so that the contractor will achieve the intended purpose. In other words, if an owner gives the contractor plans and specs that will result in a building envelop, the owner can't then blame the contractor when the contractor builds in accordance with the faulty design.
By contrast, some construction is done on a design-build basis in which the owner hires one firm that is responsible for both the design and construction of the building. In that instance, if something goes wrong, the owner doesn't have to figure out who is at fault - they have one firm that carries all of the responsibility. Notably, even in cases where the construction was generally done on a design-bid-build basis is not necessarily dispositive, because sometimes contracts will leave specific aspects of the construction (such as HVAC) to be done on a design build basis. In those instances, the designer will provide most of the design for the building, but will intentionally exclude certain systems, with the understanding that the contractor (or more likely his sub) will likely design the particulars of their solution anyway.
When litigating this issue, take a look at the plans and specs to find out whether the roof was being done on a design-build basis as that will be critical to your analysis. Part of that analysis is looking to see whether the contract provides a "design spec" or a "performance spec" for that aspect of the work. A design spec allows the contractor to determine the means and methods of construction (how to perform the work), but tells the contractor the specific materials or sizes that are required. Where a design spec is used, the owner (and by extension, the architect) retains responsibility for the design being used. A performance spec, by contrast, simply dictates the desired outcome, but leaves it to the contractor to determine how to achieve that outcome. In these instances (even where the contractor still has to provide shop drawings for their solution to be approved), the contractor ultimately bears all responsibility for all aspects of meeting the defined objective.
For more information on construction or professional liability matters contact attorney Ken Rubinstein at 603-410-1500 or any member of Preti Flaherty's Professional Liability Practice Group.
The Tripartite-Relationship and Insurers' Legal Standing
In a case of first impression, the Washington Supreme Court was asked to determine “whether an attorney hired by a title insurer to represent its insured owed a duty to the non-client insurer and, hence, whether that insurer can sue the lawyer for negligently representing the insured during the defense.” The court concluded that neither the common interest between the insurer and the insured, nor any contractual duty that might be owed by the law firm to the insurer to keep it informed about the progress of the underlying litigation, were sufficient to create a duty of care that would support a malpractice claim by the insurer. Such a duty would also violate the relevant Rules of Professional Conduct, which prohibit an attorney from surrendering his professional judgment when rendering legal services, observed the court.
The case concerned a mechanics’ lien on property in which Sterling Savings Bank had a construction loan. In the litigation over priority of interests, the attorneys hired by Stewart Title to defend the Bank’s interest stipulated that the mechanics’ lien took priority over Sterling’s security interest. Stewart Title then fired the law firm, contending they gave in on the argument too soon. Stewart Title subsequently sued the law firm for legal malpractice. The suit was met with a motion for summary judgment.
On direct review, the Washington Supreme Court held the law firm’s duty ran only to the insured, Sterling, and it owed no duty to Stewart Title, a non-client.
The State of Washington thus joins those jurisdictions which hold the tripartite-relationship gives an insurer no standing to bring a legal malpractice suit against defense counsel for negligence when it defends the insured. Several other jurisdictions have held otherwise, and the Restatement (Third) of the Law Governing Lawyers §51 comment g (2000) argues for a different result.
For more information on professional liability matters, contact attorney William Saturley at 603-410-1500 or any member of Preti Flaherty's professional liability practice group.
The case concerned a mechanics’ lien on property in which Sterling Savings Bank had a construction loan. In the litigation over priority of interests, the attorneys hired by Stewart Title to defend the Bank’s interest stipulated that the mechanics’ lien took priority over Sterling’s security interest. Stewart Title then fired the law firm, contending they gave in on the argument too soon. Stewart Title subsequently sued the law firm for legal malpractice. The suit was met with a motion for summary judgment.
On direct review, the Washington Supreme Court held the law firm’s duty ran only to the insured, Sterling, and it owed no duty to Stewart Title, a non-client.
The State of Washington thus joins those jurisdictions which hold the tripartite-relationship gives an insurer no standing to bring a legal malpractice suit against defense counsel for negligence when it defends the insured. Several other jurisdictions have held otherwise, and the Restatement (Third) of the Law Governing Lawyers §51 comment g (2000) argues for a different result.
For more information on professional liability matters, contact attorney William Saturley at 603-410-1500 or any member of Preti Flaherty's professional liability practice group.
US Supreme Court Upholds the Enforceability of Forum Selection Clauses in Construction Contracts
Thursday, December 5, 2013
The United States Supreme Court in Atlantic Marine Construction Co., Inc. v. United States District Court for the Western District of Texas, No. 12-929 (Dec. 3, 2013) reiterated the priority and enforceability of forum selection clauses in construction contracts. The Supreme Court reversed the decision of the Fifth Circuit upholding the trial court’s decision not to enforce the forum selection clause contained in a construction agreement between Atlantic Marine, a Virginia corporation, and J-Crew Management, Inc., a Texas corporation. The parties’ subcontract included a forum-selection clause, which stated that all disputes between the parties would be litigated in Virginia. When a dispute arose, J-Crew filed an action in the United States District Court for the Western District of Texas. Atlantic Marine responded by filing a motion to dismiss the case or in the alternative to transfer the case to Eastern District of Virginia. The trial court denied both motions and the Fifth Circuit upheld the denials on the basis that Atlantic Marine bore the burden of proving that transfer was appropriate and had failed to meet its burden.
In reversing the Fifth Circuit’s decision, the Supreme Court concluded that “[w]hen the parties have agreed to a valid forum-selection clause, a district court should ordinarily transfer the case to the forum specified in that clause” unless there are “extraordinary circumstances unrelated to the convenience of the parties,” which the Court found lacking in the instant case. The Court noted that the “enforcement of valid forum-selection clauses, bargained for by the parties, protects their legitimate expectations and furthers vital interests of the justice system.” Thus, when considering the appropriate forum for a dispute, “a valid forum-selection clause [should be] given controlling weight in all but the most exceptional cases.” The Supreme Court found that the Fifth Circuit erroneously placed the burden on the party seeking to enforce the forum selection clause rather than the “party acting in violation of the forum-selection clause,” who should have borne the burden of showing that public-interest factors overwhelmingly disfavor a transfer.
This is a very important decision from the Supreme Court that once again reiterates the priority of forum selection clauses in determining where disputes should be litigated. This is a good reminder when entering into a contract to pay attention to the forum selection clause included and where a potential dispute down the road may be litigated because courts are going to hold you to the forum identified in those clauses.
For more information on professional liability matters, contact attorney Nathan Fennessy at 603-410-1500 or any member of Preti Flaherty's professional liability practice group.
In reversing the Fifth Circuit’s decision, the Supreme Court concluded that “[w]hen the parties have agreed to a valid forum-selection clause, a district court should ordinarily transfer the case to the forum specified in that clause” unless there are “extraordinary circumstances unrelated to the convenience of the parties,” which the Court found lacking in the instant case. The Court noted that the “enforcement of valid forum-selection clauses, bargained for by the parties, protects their legitimate expectations and furthers vital interests of the justice system.” Thus, when considering the appropriate forum for a dispute, “a valid forum-selection clause [should be] given controlling weight in all but the most exceptional cases.” The Supreme Court found that the Fifth Circuit erroneously placed the burden on the party seeking to enforce the forum selection clause rather than the “party acting in violation of the forum-selection clause,” who should have borne the burden of showing that public-interest factors overwhelmingly disfavor a transfer.
This is a very important decision from the Supreme Court that once again reiterates the priority of forum selection clauses in determining where disputes should be litigated. This is a good reminder when entering into a contract to pay attention to the forum selection clause included and where a potential dispute down the road may be litigated because courts are going to hold you to the forum identified in those clauses.
For more information on professional liability matters, contact attorney Nathan Fennessy at 603-410-1500 or any member of Preti Flaherty's professional liability practice group.
Subscribe to:
Posts (Atom)
