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Last month, in its decision in Transtar Electric, Inc. v. A.E.M. Electrical Services, Corp., Slip Opinion No. 2014-Ohio-3095, the Ohio Supreme Court ruled that the inclusion of term “condition precedent” in a contractual payment provision was an explicit statement of the parties’ intent to transfer the risk of the project owner’s non-payment from the general contractor to the subcontractor. This decision is significant for Ohio, a state that enforces the validity of pay-if-paid provisions, unlike other states that have found them void as against public policy.

Transtar involved a contract between a general contractor and an electrical subcontractor for the construction of a pool at a Holiday Inn. The subcontractor fully performed its work under the subcontract, but the general contractor failed to pay the last three of the subcontractor’s invoices because the owner had not paid the general contractor for the work reflected in those invoices. The subcontractor filed suit alleging both breach of contract and unjust enrichment, and both sides moved for summary judgment. While the general contractor did not dispute the facts asserted by the subcontractor, it argued that, under the contract, it did not have to pay the subcontractor until it received payment from the owner. The trial court agreed with the general contractor, but the appeals court reversed, stating that the contract’s payment provision was not sufficient to shift the risk of non-payment by the owner to the subcontractor. The Ohio Supreme Court then reinstated the judgment of the trial court.

The contract between the general contractor and the subcontractor contained the following language:

RECEIPT OF PAYMENT BY CONTRACTOR FROM THE OWNER FOR WORK PERFORMED BY SUBCONTRACTOR IS A CONDITION PRECEDENT TO PAYMENT BY CONTRACTOR TO SUBCONTRACTOR FOR THAT WORK

The Ohio Supreme Court acknowledged that, for a pay-if-paid clause to be valid, the parties’ intent to transfer the risk of owner non-payment must be clear. The court held that the language in the contract at issue satisfied this standard because the use of the term “condition precedent” negates the need for additional language to demonstrate the parties’ intent to transfer the risk.

For parties contracting in Ohio – and perhaps other jurisdictions that enforce pay-if-paid provisions – the Transtar opinion makes clear that special attention should be given to the term “condition precedent” when negotiating a payment provision. And going forward, understanding this bright-line rule announced by the Ohio Supreme Court could simplify payment disputes between contractors and subcontractors.

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In the case of Belle Company, L.L.C., et al., v. U.S. Army Corps of Engineers, decided July 30, 2014, the US Court of Appeals for the Fifth Circuit affirmed the lower court’s decision to dismiss a lawsuit challenging the Corps issuance of a wetlands jurisdictional determination (JD) on several grounds.

The New Orleans District Office issued a JD that Belle’s property, intended to be used as a solid waste landfill, contained wetlands subject to the Corps’ Clean Water Act § 404 permitting jurisdiction. Belle argued that this determination reflected an illegal change in administrative policy, and the Corps’ administrative appeals process deprived Bell of its liberty and property interests without due process of law. In the main, however, Belle argued that the precedent established by the US Supreme Court in Sackett v. EPA, 132 S. Ct. 1367 (2012), required the courts to revisit the issue of final agency action for purposes of the judicial review of agency actions. The Sackett case involved an EPA compliance order under the CWA involving consequences that were so serious and final as to warrant pre-enforcement judicial review.

The Fifth Circuit, applying the Sackett decision to the consequences of a Corps’ JD, determined that while the JD represented the consummation of the Corps’ decision-making process as to the question of its jurisdiction under the CWA, it was still “nonfinal and nonreviewable” because it did not, in itself, adversely affect the complainant–it was only a threshold determination. Therefore, it was not a final agency action subject to judicial review at this time. The Fifth Circuit noted that the issuance of a notice of violation by EPA under the Clean Air Act was recently held by a panel of the Fifth Circuit not to be a final agency action in Luminant Generation Co., L.L.C. v. EPA, ___ F.3d ___, Nos. 12-60694, 13-60538, 2014 WL 3037692, at *3 (5th Cir. 2014). It concluded that to hold otherwise in this case would undermine the current complicated and sophisticated system used by the Corps by which property owners can ascertain their rights and obligations before they are subject to any enforcement action under the CWA.

The Fifth Circuit also turned aside Belle’s constitutional due process challenge filed under 28 U.S.C. § 1331 because a waiver of sovereign immunity had not been established, and a challenge to the Corps’ use of a new policy regarding the regulatory status of prior converted cropland. Belle argued in this instance that the new policy was formulated by the Jacksonville, Florida office of the Corps without APA-required notice and comment, but the Fifth Circuit noted there was no evidence in the record that the New Orleans office relied on this policy–and the applicable statute of limitations had expired.

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Recently enacted law establishes a new public works program to replace the Compliance Monitoring Unit and Labor Compliance Program requirements for bond-funded and other public works projects. Effective July 1, 2014, the California Department of Industrial Relations‘ (DIR) program covers all bond-funded and public works projects in the state rather than just selected processes. Public works refers to construction, alteration, demolition, installation, or repair work (including maintenance) done under contract and paid by public funds. It does not include those done by a public agency with its own employees. With minor exceptions, all workers employed on public works projects must be paid the prevailing wage determined by the Director of the DIR according to the type of work and location, and the prevailing wage rates are usually based on rates specified in collective bargaining agreements.

Among other things, the new law requires contractors and subcontractors to be registered and qualified by the DIR in order to bid on, be listed in a bid proposal for, or engage in the performance of any contract for a public work. Contractors and subcontractors will be required to register using the DIR’s new online application, pay an initial $300 non-refundable registration fee, pay an annual renewal fee each July 1 thereafter and, as part of the registration process, provide specified information to establish the contractor’s/subcontractor’s eligibility to be registered; the new law excepts contracts determined to be for public work only after the contract has been awarded or the bid has been awarded, except as specified.

To be eligible to bid and work on California public works projects, contractors and subcontractors must meet minimum qualifications:

o Must have workers’ compensation coverage for any employees and only use subcontractors who are registered public works contractors o Must have Contractors State License Board license if applicable to trade o Must have no delinquent unpaid wage or penalty assessments owed to any employee or enforcement agency o Must not be under federal or state debarment o Must not be in prior violation of this registration requirement once it becomes effective; however, for the first violation in a 12 month period, a contractor may still qualify for registration by paying an additional penalty

DIR’s new online application is available for contractors and subcontractors who must register with DIR. The online features also provide agencies that oversee California public works projects with a searchable database of qualified contractors; for example, the California Labor Commissioner’s Office will continue to monitor and enforce prevailing wage requirements.

The requirement to list only registered contractors and subcontractors on bids is effective March 1, 2015, and the requirement to only use registered contractors and subcontractors on public works projects applies to all projects awarded on or after April 1, 2015.

Additional Source: DIR, Public Works; DIR, New Public Works Contractor Registration Law (SB 854) Fact Sheet; DIR News Release No.: 2014-55 Department of Industrial Relations Launches Public Works Contractor Online Application System (Jul. 1, 2014)

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UPDATE:
*S.B. 315, Sep. 17, 2014, Governor signed into law *S.B. 1159, Sep. 28, 2014, Governor signed into law *A.B. 26, Sep. 30, 2014, Governor signed into law
*A.B. 1702, Sep. 18, 2014, Governor signed into law *A.B. 1705, Sep. 27, 2014, Governor signed into law *A.B. 1870, Sep. 30, 2014, Governor signed into law *A.B. 2396, Sep. 28, 2014, Governor signed into law

The California Contractors State License Board (CSLB) monitors legislation that it is sponsoring as well as bills that may have an impact on the construction industry. In its Summer 2014 Newsletter, the CSLB identifies a handful of bills that it is watching.

Senate Bills
S.B. 315 (Lieu) — Contractors — Among other things, this bill would authorize a person who is not licensed California contractor to advertise for construction work or a work of improvement only if the aggregate contract price is less than $500 and the person states in the advertisement that he or she is not licensed.

S.B. 1159 (Lara) — Professions and vocations: license applicants: individual tax identification number — This bill would require licensing bodies to require a license applicant (other than a partnership) to provide either an individual tax identification number or SSN, if one has been issued to the applicant, and would require the licensing bodies to report to the State Franchise Tax Board, and subject a licensee to a penalty, for failure to provide that information.

Assembly Bills
A.B. 26 (Bonilla) — Construction: prevailing wage — This bill would revise the definition of “construction” to include work performed during the post-construction phases of construction, including, but not limited to, all cleanup work at the jobsite.
A.B. 1702 (Maienschein/Mitchell) — Professions and vocations: incarceration — This bill would provide that an individual who has satisfied any of the requirements needed to obtain a license while incarcerated, who applies for that license upon release from incarceration, and who is otherwise eligible for the license will not be subject to a delay in processing the licensing application or a denial of the license solely on the basis that some or all of the licensure requirements were completed while the individual was incarcerated.
A.B. 1705 (Williams) — Public contracts: payment —
Existing law (until January 1, 2016) authorizes the retention proceeds withheld from any payment by an awarding entity from the original contractor, by the original contractor from any subcontractor, and by a subcontractor from any subcontractor to exceed 5% on specific projects where the director of the applicable department has made, or the governing body of the public entity or designated official of the public entity has approved, a finding prior to the bid that the project is substantially complex and requires a higher retention and the department or public entity includes both this finding and the actual retention amount in the bid documents. A.B. 1705 would extend the operation of these provisions until January 1, 2020 and, instead of requiring that the finding and actual retention amount be included in the bid documents, it would require that the bid documents include details explaining the basis for the finding in addition to the actual retention amount. It would also define projects that are not “substantially complex.”
A.B. 1870 (Alejo) — Public works: prevailing wage: multiemployer apprenticeship program grants — This bill would, if there are two or more approved multi-employer apprenticeship programs serving the same craft or trade and geographical area for which the training contributions were made to council, require the grant to be divided among all the approved multi-employer apprenticeship programs serving the same craft or trade in California based on the number of apprentices registered in each program.
A.B. 1918 (Williams) — Energy: design and construction standards — Among other things, this bill would require the Public Utilities Commission, in an existing proceeding, by January 1, 2016, to authorize a program to improve compliance with the State Building Standards Code requirements, and any applicable local ordinances, for heating and air conditioning equipment through existing energy efficiency programs administered by electrical corporations and gas corporations, or administered by third-parties on behalf of electrical corporations and gas corporations.
A.B. 1939 (Daly) — Public works: prevailing wages: contractor’s costs– Signed into law on July 21, 2014 — The new law authorizes a contractor to bring an action in a court of competent jurisdiction to recover from the hiring party that the contractor directly contracts with, any increased costs, including labor costs, penalties, and legal fees incurred as a result of any decision by the Department of Industrial Relations, the Labor and Workforce Development Agency, or a court that classifies, after the time at which the hiring party accepts the contractor’s bid, awards the contractor a contract when no bid is solicited, or otherwise allows construction to proceed, the work covered by the project, or any portion thereof, as a public work, except under the circumstances specified.
A.B. 2396 (Bonta/Skinner) — Convictions: expungement: licenses — This bill would prohibit a licensing board from denying a license based solely on a conviction that has been dismissed, as contemplated by existing law.

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A Minnesota bill contemplating minimum wage increases (Minnesota H.F. 2091) was signed into law on April 14, 2014, and is effective August 1. It contemplates minimum wage increases commencing on August 1 and continuing thereafter.

Except as otherwise provided in the Minnesota Fair Labor Standards Act, Minn. Stat. §§ 177.21 to 177.35 (the “Act”), every large employer must pay each employee wages at a rate of at least:

$8.00 per hour beginning August 1, 2014;
$9.00 per hour beginning August 1, 2015;
$9.50 per hour beginning August 1, 2016; and the rate established under Minn. Stat. § 177.24(f) beginning January 1, 2018

“Large employer” is defined as “an enterprise whose annual gross volume of sales made or business done is not less than $500,000 (exclusive of excise taxes at the retail level that are separately stated) and covered by the Act.

Except as otherwise provided in the Act, every small employer must pay each employee at a rate of at least:

$6.50 per hour beginning August 1, 2014;
$7.25 per hour beginning August 1, 2015;
$7.75 per hour beginning August 1, 2016; and the rate established under Minn. Stat. § 177.24(f) beginning January 1, 2018

“Small employer” is defined as “an enterprise whose annual gross volume of sales made or business done is less than $500,000 (exclusive of excise taxes at the retail level that are separately stated) and covered by the Act.

Exceptions include wages payable by an employer to an employee under the age of 20 years or to an employee under the age of 18. During the first 90 consecutive days of employment, an employer may pay an employee under the age of 20 years a wage of:

$6.50 per hour beginning August 1, 2014;
$7.25 per hour beginning August 1, 2015;
$7.75 per hour beginning August 1, 2016; and the rate established under Minn. Stat. § 177.24(f) beginning January 1, 2018

Similarly, a large employer must pay an employee under the age of 18 at a rate of at least:

$6.50 per hour beginning August 1, 2014;
$7.25 per hour beginning August 1, 2015;
$7.75 per hour beginning August 1, 2016; and the rate established under Minn. Stat. § 177.24(f) beginning January 1, 2018

There is also a provision applicable to an employer that is a “hotel or motel,” “lodging establishment,” or “resort,” as defined in Minnesota Statutes.

Minn. Stat. § 177.24(f) requires, no later than August 31 of each year, beginning in 2017, the Commissioner of Labor and Industry (or authorized designee or representative) to determine the percentage increase in the rate of inflation, as measured by the implicit price deflator, national data for personal consumption expenditures as determined by the United States Department of Commerce, Bureau of Economic Analysis during the 12-month period immediately preceding that August or, if that data is unavailable, during the most recent 12-month period for which data is available. The minimum wage rates in Minn. Stat. § 177.24(b), (c), (d), and (e) are increased by the lesser of: (1) 2.5%, rounded to the nearest cent; or (2) the percentage calculated by the Commissioner, rounded to the nearest cent; a minimum wage rate may not be reduced under this paragraph. The new minimum wage rates determined under Minn. Stat. § 177.24(f) will take effect on the next January 1.

Additional Resources: Minnesota House of Representatives, New Laws Effective Aug. 1, 2014

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In the California Contractors State License Board’s (CSLB) Summer 2014 Message from the Board Chair, the CSLB’s new Board Chair David Dias voices his concern about the increasing number of consumer complaints alleging predatory practices by C-20 Warm-Air Heating, Ventilating and Air-Conditioning (HVAC) contractors. Reportedly, vulnerable consumers are being taken advantage of after calling an HVAC contractor for simple repairs or routine maintenance. He confirms that the CSLB is “taking steps to warn and weed out this element,” efforts which have included hosting a conference in San Jose in May that brought together industry officials, regulators, and C-20 contractors to discuss HVAC installation-related issues. He further confirmed that the CSLB’s Enforcement Division “will be reinforcing its HVAC scam zero-tolerance policy through targeted undercover sting operations.”

In its CSLB Turns Up the Heat on HVAC Rip-Offs, the CSLB identifies the predatory practices that it intends to curtail:

• Hard-sell tactics to obtain grossly inflated contracts • Misrepresenting work as critical or safety-related, needing immediate correction • Failing to provide the three-day right to rescind a home improvement contract • Failing to obtain building permits • Lack of workers’ compensation insurance or under-reporting employees

As part of the effort to crack down on such practices, the Better Business Bureau has been sharing its consumer complaint files with the CSLB, aiding the CSLB to identify potential violators.

Its efforts will also include workshops that will involve reviewing state service and repair contract laws, including a customer’s 3-day right to rescind a home improvement contract, permit requirements and related inspections from local building departments, and contractors’ responsibilities to maintain workers’ compensation insurance to cover on-site worker injuries.

Additional Source: CSLB Announces 2014 Pilot Program Focused On HVAC Contractors

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In an unusual case, the US Court of Appeals for the Seventh Circuit held, in Gibson v. American Cyanamid Co., et al., that the Wisconsin Supreme Court’s “risk contribution theory” would apply to the manufacturers of lead pigments that were added to commercial paint products until their use was banned in 1978 by the Consumer Product Safety Commission.

The plaintiff suffers from neurological defects which were allegedly caused by the white lead carbonate pigments that were contained in the paint used to paint the house he lived in. The plaintiff could not identify the pigment manufacturer. In these situations, the Wisconsin Supreme Court has developed a risk contribution theory for use a in such litigation. The defendant paint manufacturers argued that this doctrine violated established substantive due process constitutional principles in that it is arbitrary and capricious. Moreover, the Wisconsin legislature recently enacted a statute nullifying this court-made doctrine.

The case was dismissed by the federal trial court, but the Court of Appeals, in a ruling released on July 24, 2014, reversed the trial court. The Court of Appeals noted that the new Wisconsin law has itself been ruled to be unconstitutional by a Wisconsin state court, and it agreed with this ruling. Then applying US Supreme Court precedents, which it holds applies with equal force to state judicial common law rulings, state economic regulation need only be rational and non-arbitrary to satisfy substantive due process standards. As to the defendant companies’ argument that the Supreme Court’s 1998 ruling in Eastern Enterprises v. Apfel, 524 U.S. 498 (1998), fashioned a new rule for applying substantive due process to retroactive federal legislation, the Seventh Circuit notes that Eastern Enterprises was such a fractured decision that it cannot stand for the proposition embraced by the defendants.

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In an opinion filed July 3, 2014, the California Supreme Court provided some clarification to California law concerning an architect’s liability to foreseeable third-party purchasers of residential units for design errors and omissions. In Beacon Residential Community Association v. Skidmore, Owings & Merrill LLP (July 3, 2014) ____Cal.4th ____; 2014 WL 2988058, Cal. July 03, 204 (NO. S208173), the Court held that a principal architect (defined by the Court as an architect who in providing professional design services is not subordinate to other design professionals) of a residential project owes a duty of care to future homeowners.

Beacon concerned a dispute over a residential condominium project in San Francisco. The original developers of the project engaged two architects to provide architectural and engineering services. Although the finished units were rented out for two years after construction, a condominium association had been created prior to construction, and eventually the finished units were sold as condominiums.

The condominium association sued the original developers of the condominiums, along with the architects, alleging numerous design defects. As against the architects, the association asserted causes of action in negligence and violations of California’s Right to Repair Act (Cal. Civil Code sections 895 et seq.). The architects, who had allegedly been paid more than $5 million for their work, demurred on the basis that they owed no duty of care to the association or its individual members. The trial court agreed with the architects that they owed no duty of care, as final design decision authority rested in the developers.

The appellate court reversed the trial court, applying the multi-factor test set out in California’s principal duty of care case, Biakanja v. Irving (1958) 49 Cal.2d 647, to determine that the architects owed the association a duty of care.

On review, the California Supreme Court affirmed the appellate decision. In California, the existence or absence of a duty of care in negligence in the absence of privity is governed primarily by a multi-factor test set out in Biakanja. The Beacon court found that the Biakanja factors demonstrated a duty of care if the facts as alleged in the condominium association’s complaint were proven:

(1) [The architects’] work was intended to benefit the homeowners living in the residential units that [the architects] designed and helped to construct.
(2) It was foreseeable that these homeowners would be among the limited class of persons harmed by the negligently designed units.
(3) [The association’s] members have suffered injury; the design defects have made their homes unsafe and uninhabitable during certain periods.(4) In light of the nature and extent of [the architects’] role as the sole architects on the Project, there is a close connection between [the architects’] conduct and the injury suffered.
(5) Because of [the architects’] unique and well-compensated role in the Project as well as their awareness that future homeowners would rely on their specialized expertise in designing safe and habitable homes, significant moral blame attaches to [architects’] conduct.
(6) The policy of preventing future harm to homeowners reliant on architects’ specialized skills supports recognition of a duty of care. Options for private ordering are often unrealistic for typical homeowners, and no reason appears to favor homeowners as opposed to architects as efficient distributors of loss resulting from negligent design.

The Beacon court further found that a negligence action against the principal architects was permitted by the Right to Repair Act. The architects had argued, in the face of language in the Act addressing “design professionals,” that nevertheless the Right to Repair Act was not intended to impose a duty greater than that imposed under common law. The Beacon court noted that even if the architects were correct regarding the intent of the Act, a duty of care existed at common law.

Beacon is a win for condominium associations and individual homeowners in these circumstances, in that it allows them potential recourse for design defects against the principal design professionals engaged by the developers.

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UPDATE: Sacramento Business Journal, March Madness coming to Sacramento for the first time since 2007 (Nov. 17, 2014) ~ The Sacramento Business Journal confirmed that “[o]n Monday, the National Collegiate Athletic Association said Sacramento will host the first two rounds of the 2017 Division I Men’s Basketball Tournament in the new downtown arena.” The new arena is expected to open the fall of 2016.
Sacramento Business Journal, Demolition for future downtown arena begins Friday (Jul. 30, 2014)

Recently it has been confirmed that demolition for the new Kings’ arena is scheduled to commence in late July 2014. The demolition effort will include 3 square blocks of Downtown Plaza. Downtown Sac.jpgBy late December, the construction site is expected to include a temporary, 30-foot-deep canyon where the mall shops once stood. Although barriers will surround much of the worksite, it has been reported that viewing areas will be set up on two sides of the mall, allowing onlookers to catch a glimpse of the demolition and construction efforts.

Hundreds of construction workers are expected to be involved in the Arena project, working from 6 a.m. to 11 p.m., Monday through Saturday, with a few 24-hour shifts expected. The outside shell and roof of the new arena are expected to be completed by the fall of 2015 and, reportedly, Kings officials are confident that the new facilities will be completed in time to open the 2016 NBA season.

Additional Sources: CBS Sacramento, Court Ruling Clears Way For Sacramento Kings Arena Construction To Begin (Jul. 25, 2014); Sacramento Business Journal, Tentative ruling denies preliminary injunction against arena construction (Jul. 24, 2014); The Sacramento Bee, Mall demolition for Sacramento Kings arena to start in late July (Jun. 25, 2014); Sacramento Kings Arena Plan Headed to Planning Commission April 10; Latest Concepts for Sacramento Kings Arena Unveiled; Turner Construction Company to Build New Sacramento Kings Arena; Sacramento Kings Announce They Will Be The First Pro Sports Franchise To Accept Bitcoin

Photo: Hey Paul, Downtown Sacramento – Creative Commons

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Today, Pillsbury attorneys Julia Judish and Teresa Lewi published their advisory titled New EEOC Developments Expand Employers’ Pregnancy Accommodation Obligations. The Advisory discusses the Equal Employment Opportunity Commission’s recent overhaul of its guidance on pregnancy discrimination issues–broadening anti-discrimination coverage and cautioning employers on their obligation to provide reasonable accommodations to employees with pregnancy-related conditions.

If you have any questions about the content of this blog, please contact the Pillsbury attorney with whom you regularly work or Julia Judish or Teresa Lewi, the authors of this blog.