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Over a strong dissent, the U. S. Court of Appeals for the Ninth Circuit rejected the lower court’s approval of several proposed de minimis consent decree settlements. The Arizona Department of Environmental Quality (ADEQ) had negotiated these settlements with a number of potentially responsible parties (“PRPs”) at the Broadway-Patano Landfill, a former hazardous waste site located in Tucson, Arizona; the site is being cleaned up at an expected cost of $75 million. Several parties claiming to be de minimis PRPs approached the ADEQ seeking early settlements of their alleged liability. Their allocations at the site ranged from 0.01% to 0.2% of the overall liability, and the ADEQ’s review of the record agreed with these conclusions. A proposed Consent Decree was filed with the U.S. District Court for Arizona. Although opposed by many intervenors, the court approved the Consent Decree. An appeal followed; the case is State of Arizona v. Raytheon, et. al., decided August 1, 2014.

The Court of Appeals held that the lower court was obliged to independently scrutinize the terms of the settlement, and that it had erroneously deferred to the ADEQ’s judgment that these settlements were in the public interest. In its decision, the lower court noted that the allocation was based on a record consisting of 800 witness interviews, and a 100,000 page record, and it did not feel compelled to second guess the ADEQ. The Court of Appeals held that no special deference was owed to a state agency interpreting a federal statute such as CERCLA. The dissent argued that the majority will now require the lower court to “wade deep into the abyss of liability allocation” and gauge the accuracy of the state agency’s decision which will require expertise that most courts do not possess. In addition, the majority did not acknowledge the significant role the states play in the CERCLA cleanup process. The majority, in a footnote, criticizes the dissent for engaging in a de novo review of the evidence by concluding that there was evidentiary support for the settlements. The dissent, for its part, rejected this criticism.

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Today, Pillsbury attorneys Jerry Jacobs, Julia Judish, and Dawn (Crowell) Murphy issued their advisory titled The ADA and Private Professional Certification. Their Advisory discusses Title III of the Americans with Disabilities Act (ADA), as amended, which mandates that private entities offering examinations or courses related to certain applications, licensing, certification, or credentialing ensure that such exams and courses are accessible to individuals with disabilities or offer alternative accessible arrangements. They encourage those involved with any aspect of credentialing examinations to pay careful attention to what aids or accommodations must be offered by law.

If you have any questions about the content of this blog, please contact the Pillsbury attorney with whom you regularly work or Jerry Jacobs, Julia Judish, or Dawn (Crowell) Murphy, the authors of this blog.

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Zurich has updated its “Litigation Management Guidelines” to give the insurer an unprecedented level of control over defense counsel’s activities. The new Guidelines adopt the Recommended Case Handling Guidelines for Insurers created by The Defense Research Institute, and also append an extensive Addendum covering business policies, expense and professional fee payment, and other administrative points.

The Guidelines purport to impose a sweeping waiver of attorney-client privilege and work product protection, even though the law in most states imposes significant limitations on an insurer’s access to privileged or protected information developed by defense counsel – especially where the insured is entitled to so-called Cumis or independent counsel as a result of conflicts of interest with its insurer. Zurich’s Guidelines mandate almost complete and constant transparency in case development and strategy, stating “counsel should provide a significant development report to immediately communicate important case developments to the claims professional, such as settlement overtures by other parties, codefendant strategies or developments, new information obtained through discovery, etc.” The Addendum also requires counsel to “enunciate the impact of the information being conveyed,” specifically on “case strategy, evaluation, posture, and resolution opportunities.” Zurich essentially attempts to coerce insureds to waive the attorney-client privilege and work product protection by expressly stating that Zurich reserves the right to review defense counsel’s files and will not pay for defense activities for which Zurich is not given access to “full” explanation and documentation.

The Guidelines require development reporting by the defense counsel to Zurich including:

Acknowledgement – counsel should send a letter acknowledging receipt of the new case and outlining the legal team assigned, along with any matters of immediate concern/information that may resolve the case quickly
Initial Report – counsel should send an initial report with:

– a summary of the complaint allegations, factual basis for litigation, a summary of preliminary investigation information, and preliminary evaluation of liability and damages – a litigation plan identifying significant activities (investigation, motions, discovery, etc.) counsel proposes to initiate, discovery and motions that have been or may be initiated by others, and estimated completion dates and expenses for each activity – settlement discussion with any recommendations on arbitration, mediation, or negotiations – discussion on the potential success of dispositive motions before/after the commencement of discovery and when motions to dismiss or for summary judgment are appropriate – trial date estimate
Significant Development Report – counsel should communicate significant developments including summaries of depositions, pretrial reports, and, if applicable, settlement options and/or dispositive motions, updated liability and damages evaluation, updated litigation plan, and trial report (no later than 45 days prior to the trial date)

Other specific guidelines and restrictions are included, regarding such issues as time charges, multiple attorney attendance at certain functions, and required measures on updating. On matters of planning and case building, Zurich requires that any discovery contemplated by counsel must be discussed during the Case Management Conference (“CMC”) between counsel and the insurer’s claims professional and confirmed in the Case Management Plan (“CMP”) completed by counsel and sent to the claims professional to be reviewed and authorized with a corresponding budget. CMPs must be also re-evaluated at least every 180 days, and the CMC must include an Early Resolution Action Plan. The Guidelines require defense counsel to obtain Zurich’s permission before performing such core defense functions as conducting legal research, pursuing discovery, retaining experts, filing dispositive motions, preparing exhibits, and deciding how a matter should be staffed and whether more than one attorney should attend major litigation events.

Courts across the country have refused to enforce litigation management guidelines that unduly interfere with the independent professional judgment of defense counsel. For example, in Dynamic Concepts, Inc. v. Truck Insurance Exchange, 61 Cal. App. 4th 999, 1009 (Cal. Ct. App. 1998), the California Court of Appeal made clear that an insurer cannot impose restrictions on defense counsel that hinder counsel’s ability to provide a full and complete defense, stating that “[i]nsurer-imposed restrictions on discovery or other litigation costs may well violate the insurer’s duty to defend as well as the attorneys’ ethical responsibilities to exercise their independent professional judgment in rendering legal services.” Thus, if Zurich’s Guidelines are challenged and shown to encroach upon defense counsel’s ethical and professional responsibilities, they are unlikely to be enforced.

State ethics boards have also refused to permit such rigid oversight of the policyholder’s defense counsel as is mandated by Zurich’s Guidelines. The Supreme Court of Ohio Board of Commissioners on Grievances and Discipline, for example, has expressly forbidden such insurer influence on the defense, stating in an advisory opinion that “it is improper under DR 5-107(B) for an insurance defense attorney to abide by an insurance company’s litigation management guidelines in the representation of an insured when the guidelines interfere with the professional judgment of the attorney. Attorneys must not yield professional control of their legal work to an insurer.” Again, provided an influence upon the professional judgment of defense counsel is shown, guidelines like Zurich’s are likely to fail before the ethics boards of many jurisdictions.

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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.