Beware of Copyright Infringement in Construction Projects

On November 8, 2013, the Fifth Circuit Court of Appeals affirmed a $3.2 million jury award in favor of Kipp Flores Architects, L.L.C. ("KFA") against Hallmark Design Homes, L.P. (“Hallmark”), in a copyright infringement action.  The jury in the U.S. District Court in Houston found that Hallmark infringed KFA's copyrights by constructing hundreds of houses from KFA’s architectural plans without purchasing the plans for each house as required.  KFA alleged that Hallmark obtained copies of certain of its  copyrighted architectural designs pursuant to a license from KFA allowing Hallmark to build one home based upon each design.  According to KFA, the agreement expressly provided that additional licenses for additional units could be purchased, but Hallmark failed to pay the additional license fees in connection with its reuse of the licensed plans.  The jury returned a verdict compensating KFA for the amount of profits that Hallmark earned from the sales of the homes in question that were built based upon KFA’s architectural plans. The appellate court rejected Hallmark's arguments that the evidence was insufficient to support a jury finding of “substantial similarity” and concluded that the matter had been well tried at the district court.

This is a reminder for all architects and design professionals to take care in ensuring that they do not copy or otherwise infringe another professional's copyrighted designs.  It also creates an incentive for design professionals to take steps to register their designs with the U.S. Copyright Office to ensure that their hard work is not being copied and used without appropriate compensation.

For more information on professional liability matters contact attorney Nathan Fennessy at 603.410.1500 or a member of Preti Flaherty's Professional Liability Group.

Massachusetts High Court Voids Advance Waiver of Subcontractor Bond Rights

Last month, the Massachusetts Supreme Judicial Court held that a contract provision that required a subcontractor to waive its bond rights for work to be performed on a public project was void and unenforceable.

The court explained its ruling by noting, among other things, that the bond requirement set forth in M.G.L. c. 149 § 29 was designed to benefit subcontractors who work on public construction projects, as these subcontractors lack the right obtain a mechanic's lien. The court noted that Massachusetts already prohibits advance mechanic's lien waivers, and the same policy reasoning should apply to prohibit advance waivers of bond claims.

Contractors and subcontractors should be aware that the court only discussed claims involving bonds supplied pursuant to M.G.L. c. 149 § 29, and this ruling does not necessarily apply to other payment bonds.

A copy of the court's decision in the matter of Costa v. Brait Builders Corporation and Arch Insurance Company (SJC-11011) can be found here. For further information, please contact Ken Rubinstein at 617-226-3868 or William Whitney at 603-410-1571

New Hampshire to Allow Liens for Professional Design Services

The New Hampshire Legislature has passed, and the Governor has signed, a bill amending Chapter 447 of the New Hampshire Statutes which covers Liens for Labor and Materials. The amended statute will allow those who provide "professional design services" to file and perfect mechanic's liens for nonpayment of work related to a construction project. Formerly, the statute only applied to those who performed labor or provided materials for a construction project. The statute defines "professional design services" to include "any services provided by a licensed architect, licensed landscape architect, licensed engineer, permitted septic designer, certified wetlands scientist, certified soil scientist, or licensed land surveyor that is directly related to the improvement of real property." The amendment also extended the right to file and perfect liens to subcontractors who provide professional design services. If you have any questions regarding this development in the law, please contact Kenneth Rubinstein at (603) 410-1568 or William Whitney at (603) 410-1571.

The Growing Risk of Personal Liability for Senior Executives

Executives face significant risks as they conduct business in an increasingly challenging and litigious environment, and as business leaders struggle to help their business recover from the Great Recession, personal liability for senior executives is fast becoming a growing concern.  Construction executives frequently believe they have no personal risk in operating their businesses.  Unfortunately, they may learn a costly lesson when they incur defense costs or, worse, pay settlements, judgments, or even face criminal liability.  There are countless potential bases for personal liability.  Many stem from the construction work itself, while others are tied more to the management activities.  The following are a few of the growing areas that should concern senior executives:

• Errors and Omissions and Insurance Gaps - It is well known that architects and engineers can be personally liable for any performance that deviates from the standard of care in the industry.  However, most professionals are unaware of the many exclusions and conditions within their policies, and professionals can easily find themselves without coverage if they are not careful.  In addition, as the construction community strives for more collaboration, contractors may find themselves without insurance coverage to the extent that they provide design-assist services, as most commercial general liability and builders risk policies exclude this risk, leaving contractors who perform design services unprotected.

• Foreign Corrupt Practices - As construction firms expand their business overseas, they frequently encounter cultures where bribery is an accepted business practice.  Regardless of the foreign culture, such conduct could expose the executives involved to civil or even criminal penalties at home, as U.S. authorities clamp down on U.S. firms involved in corruption overseas.

Ken Rubinstein Quoted in ENR on Controlling Personal Liability for Construction Executives

Preti Flaherty construction law attorney Ken Rubinstein has been quoted in a recent article published by ENR focusing on the growing risks of personal liability for construction executives.

The article quotes Ken in discussing potential gaps in insurance coverage and the growing risks that are emerging in the new economy.

ENR is the leading publication for contractors, project owners, engineers, architects, government regulators and industry suppliers nationwide. For a link to the article, click here.

Learn more about Ken Rubinstein's Professional Services Law Practice here, or contact him at 617.226.3868.