Gravel2Gavel Construction & Real Estate Law Blog

In LAN/STV, a Joint Venture of Lockwood, Andrews & Newman, Inc. v. Martin K. Eby Construction Company, Inc., the Texas Supreme Court considered “whether the rule permits a general contractor to recover the increased costs of performing its construction contract with the owner in a tort action against the project architect for negligent misrepresentations — errors — in the plans and specifications.” Under the circumstances presented, the Court concluded that “the economic loss rule does not allow recovery” for the general contractor’s claim against LAN/STV for negligent misrepresentation, reversing the judgment of the Court of Appeals and rendering judgment for the architect; the “economic loss rule,” a common law doctrine, restricts recovery of purely economic damages unaccompanied by injury to the plaintiff or its property.

The Dallas Area Rapid Transportation Authority (“DART”) contracted with the architect to prepare plans, drawings, and specifications for the construction of a light rail transit line from Dallas’s downtown West End to the American Airlines Center about a mile away. LAN/STV was contractually responsible to DART for the accuracy of the plans, as was DART to the general contractor, but LAN/STV owed the general contractor no contractual obligation. Days after beginning construction, the general contractor discovered that LAN/STV’s plans were full of errors; approximately 80% of LAN/STV’s drawings had to be changed. The required changes disrupted the general contractor’s construction schedule and required additional labor and materials, resulting it what the general contractor calculated to be nearly a $14 million loss on the project and a 25-month job instead of a 7-month job.

In addition to pursuing a claim against DART, the general contractor sued LAN/STV, asserting causes of action for negligence and negligent misrepresentation. After the general contractor and DART settled their dispute, the general contractor’s claim against LAN/STV went to trial. The jury found in favor of the general contractor, but they also apportioned responsibility 45% to LAN/STV, 40% to DART, and 15% to the general contractor. The trial court agreed that “LAN/STV should be liable only for its apportioned share of the damages,” rendering judgment for the general contractor in the amount of $2.25 million plus interest. Both the general contractor and LAN/STV appealed.

On appeal, the Court noted that “… Texas courts of appeals have uniformly applied the economic loss rule to deny recovery of purely economic losses in actions for negligent performance of services.” It recognized the typical backdrop for construction projects: “Construction projects operate by agreements among the participants. Typically, those agreements are vertical: the owner contracts with an architect and with a general contractor, the general contractor contracts with subcontractors, a subcontractor may contract with a sub-subcontractor, and so on. The architect does not contract with the general contractor, and the subcontractors do not contract with the architect, the owner, or each other.” Even so, it concluded that it is “beyond argument that one participant on a construction project cannot recover from another — setting aside the architect for the moment — for economic loss caused by negligence.” It explained that “[I]f the roofing subcontractor could recover from the foundation subcontractor damages for extra costs incurred or business lost due to the latter’s negligent delay of construction, the risk of liability to everyone on the project would be magnified and indeterminate — the same result Justice Holmes rejected in [Robins Dry Dock & Repair Co. v. Flint, 275 U.S. 303 (1927).].”

With regard to whether an architect should be treated differently, it confirmed that “the contractor’s principal reliance must be on the presentation of the plans by the owner, with whom the contractor is to reach an agreement, not the architect, a contractual stranger.” It explained that “[t]hough there remains the possibility that a contractor may not do so, we think the availability of contractual remedies must preclude tort recovery in the situation generally because, as stated above, ‘clarity allows parties to do business on a surer footing’.” It found no “reason not to apply the economic loss rule to achieve this end.”

Additional Source: The Supreme Court of Texas Blog, The economic loss rule in Texas is more restrictive than the Restatement (Jun. 23, 2014)

UPDATES: Ayala v. Antelope Valley Newspapers Inc., ___ Cal. ___ (Jul. 1, 2014)–California Supreme Court clarifies the test for independent contractor status; Ruiz v. Affinity Logistics Corp., 2014 BL 166620, No. 12-56589 (9th Cir. Jun. 16, 2014)–Ninth Circuit found “overwhelming evidence” that the defendant controlled details of the delivery drivers’ work and, accordingly, the drivers were employees not independent contractors under California law, citing S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 769 P.2d 399 (Cal. 1989).

The California Contractors State License Board (CSLB) recently issued an Industry Bulletin reminding contractors of the importance of properly classifying workers as employees or independent contractors to avoid being subject to penalties and fines. Helpful information can also be found on the California Department of Industrial Relations’ website, including, for example, a publication on independent contractors versus employees.

The CSLB reminds contractors that the California Employment Development Department (EDD) provides free classroom style and online training to help contractors to learn their obligations under the state employer reporting laws. Its Industry Bulletin lists some of the EDD tax seminars offered and includes links to EDD’s website for these seminars:

• Federal/State Basic Payroll Tax Seminar
• Quick Course in Federal and State Payroll Taxes
• State Labor Law and Payroll Tax Seminar
• Employee or Independent Contractor Seminar
• State Payroll Tax Workshop
• How to Manage Unemployment Insurance Costs Tax Seminar
• Audits and Appeals Payroll Tax Seminar
• Employment Taxes and the Nonprofit Organization Seminar
• Household Employers Payroll Tax Seminar
• State Basic Payroll Tax Seminar
• Avoid Errors on Payroll Tax Reporting Seminar

It also notes that the Department of Industrial Relations and Internal Revenue Service offer State Labor Law and Federal Payroll Tax presentations at some of the EDD seminars.

Additional Source: U.S. Department of Labor, $10.2M awarded to fund worker misclassification detection, enforcement activities in 19 state unemployment insurance programs (Sep. 15, 2014);

Photo: JoshBerglund19, Wax Wizard of Oz, Taken Aug. 5, 2007 – Creative Commons

The U.S. Supreme Court has agreed to review two decisions of the DC Circuit, which held that “when an agency has given its regulation a definitive interpretation, and later significantly revises that interpretation, the agency has, in effect amended its rule, something it may not accomplish [under the Administrative Procedure Act without notice and comment”. The cases to be reviewed are Perez, et al. v. Mortgage Bankers Association, et al., and Nickols, et al. v. Mortgage Bankers Association, and they involve the Department of Labor’s (DOL) application of the Fair Labor Standards Act (FLSA) to mortgage loan officers: Are they exempt from the FLSA’s overtime wage requirements, or are they not?

In the space of just a few years (2006 and 2010), the DOL issued two conflicting interpretations of the FLSA without providing notice and comment to the regulated community, in particular, the Mortgage Bankers Association. While the APA requires federal agencies to provide notice and comment when they engage in rulemaking, the law also provides that the requirement to provide notice and comment does not apply to interpretative rules.

The DC Circuit’s rationale, in ruling in both cases, which has not been followed by all the federal courts of appeal, is that when a definitive interpretation is so closely intertwined with a regulation, a significant change in the interpretation can be regarded as a repeal or amendment of the rule itself, necessitating these APA protections.

The consequences of the Court’s eventual decision could be very significant because most federal agencies utilize interpretative rules as an expedient and useful way to administer and implement the growing number of federal rules and policies, and subjecting this procedure to the APA could make the administrative process more equitable yet somewhat more cumbersome.

If you have any questions about the content of this blog, please contact the Pillsbury attorney with whom you regularly work or Anthony Cavender, the author of this blog.

Beginning in the fall of 2014, the University of Texas at Arlington plans to offer a new Master of Construction Management (MCM) degree with an option to take courses online to help meet industry demand in Texas, especially in the thriving North Texas region. It will focus on management of construction projects in three main categories: (1) heavy, which includes highways, pipelines and infrastructure; (2) residential and commercial construction; and (3) general construction. Southern Association of Colleges and Schools’ approval for the program is required and it is expected by August 2014 . Once its approval is obtained, students may apply and be admitted to the program.

Additional Sources: Loud Buzzing Coming From Downtown Austin

Most of us relish Fridays, but the opposite holds true for Mondays. Inc.com came up with a list of 7 Things You Can Do on Friday to Make Monday Awesome. I’m game. Are you?

Here’s Inc.com’s list:

1. Set up some exciting contacts
2. Organize the week
3. Get one thing off your desk
4. Shake up your routine
5. Work on your future
6. Surprise yourself
7. End the week on a high

Can we add start the week on Tuesday? Or, can we meet for lunch on Monday? If we schedule lunch for Monday now, I can end the week on a high!

Additional Sources: Do These 10 Things on Friday to Make Monday Awesome; 20 Ways To Make Your Monday Awesome

UPDATE: Arc Fault Circuit-Interrupter (AFCI) and Ground Fault Circuit-Interrupter (GFCI) Protection — Effective July 1, 2014, Washington will require Arc Fault Circuit-Interrupter Protection (AFCI) as specified in the 2014 National Electrical Code (NEC).

Proposed rule changes to Washington Administrative Code § 296-46B were adopted on May 20, 2014 and will become effective on July 1, 2014. In addition to the changes to WAC 296-46B, the 2014 edition of the National Electrical Code (“NEC”) (NFPA 70-2014) will also become effective July 1, 2014. The Washington State Department of Labor & Industries recently confirmed that Permits purchased prior to July 1, 2014 may conform to either the 2008 NEC or 2014 NEC. However, permits purchased July 1 or after must comply with the 2014 NEC.

It further confirmed it will enforce 2014 NEC § 210.64 for indoor electrical service areas only. 2014 NEC § 210.64 states: “At least one 125-volt, single phase, 15- or 20-ampere rated receptacle outlet shall be installed within 15 m (50 ft) of the electrical service equipment.” It recognized that this new requirement responded to concerns that cords used to power equipment used for testing and monitoring service equipment being routed down hallways, across rooms, and through doorways creating slip, trip and fall hazards. It confirms that it understand this intend and therefore will only enforce the requirements of NEC § 210.64 for indoor electrical service areas; if service equipment is located outdoors, the requirements of NEC § 210.64 will not apply.

Additional Sources: Washington 2014 Electrical Rule Development