Home-Court Rules and Construction Disputes: An Update

Christopher N. Thatch, Kevin O’Brien and Daniel D. McMillan | Jones Day

In Short

The Situation: A growing number of states have enacted “home-court” laws of varying scope that require construction disputes to be litigated or arbitrated in the state where the project is built, and under the governing law of that state.

The Result: While these statutes differ in some respects, most of them declare unenforceable any provision in a construction contract that requires litigation or arbitration in a state other than the home state or under another state’s law.

Looking Ahead: Construction industry participants should know where home-court statutes exist and how the rules might impact their construction contracts. Because several federal courts have held that the Federal Arbitration Act (“FAA”) preempts home-court statutes, the most predictable way to guard against a home-court statute nullifying a forum-selection clause is to specify in the contract that the parties’ agreement involves interstate commerce and that all disputes will be arbitrated pursuant to the FAA.

Home-Court Statutes Continue to Spread. Forum-selection and choice-of-law provisions are meant to give contracting parties control over where a potential dispute between them will be litigated, and what law will govern their dispute. In the case of construction contracts, “home-court” statutes limit that control by mandating that disputes arising out of contracts to build in-state projects must be litigated or arbitrated in the home state under that state’s governing law. Most home-court statutes expressly declare that any contract provision requiring litigation or arbitration in another state under another state’s law will be considered void and unenforceable as a matter of public policy. In some states, the home-court statutes also invalidate contract provisions that require that mediation or other settlement processes take place outside the home state. In large part, states have enacted home-court statutes in response to advocacy by the subcontracting community, who maintain that requiring a local subcontractor to litigate or arbitrate a dispute in another state would increase the subcontractor’s costs and make pursuing relief impractical.

As we described eight years ago in our original Commentary, several states have adopted home-court rules for disputes that stem from construction contracts to build in-state projects. There are now 31 states with home-court laws on the books that apply specifically to in-state projects: Arkansas, Arizona, California, Colorado, Connecticut, Delaware, Florida, Illinois, Indiana, Iowa, Kansas, Louisiana, Minnesota, Montana, Nebraska, Nevada, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, Wisconsin, and Wyoming. Most of these states’ laws require that litigation occur in the home state and that the laws of the home state govern the parties’ disputes. Four states (Florida, South Carolina, Utah, and Virginia) control the forum for the litigation but not the governing law. One state (Colorado) controls the governing law but not the forum.

The end of this Commentary links to a map that shows which states have enacted home-court rules applicable to construction contracts, as well as a list of the statutes and relevant excerpts from each. Each statute must be carefully considered to determine its scope and applicability.

Exceptions to Enforceability and Applicability. Of course, for every rule there is usually an exception. In our original Commentary, we described several scenarios in which construction-specific, home-court rules may not apply.

For instance, where a construction project is located within a federal enclave, the state’s home-court statute likely will not render a contractual forum-selection clause void and unenforceable. See, e.g.United States ex rel. J-Crew Mgmt. v. Atlantic Marine Constr. Co., 2012 U.S. Dist. LEXIS 182375 (W.D. Tex. Aug. 6, 2012) (Fort Hood, Texas); United States ex rel. Milestone Contractors, L.P. v. Toltest, Inc., 2009 U.S. Dist. LEXIS 44382 (S.D. Ind. May 27, 2009) (Camp Atterbury, Edinburg, Indiana).

Also, some courts have held that the scope of the home-court statute does not extend to certain services or project participants and therefore cannot be enforced. Compare Landform Eng’g Co. v. Am. Prop. Dev., Inc., 2007 U.S. Dist. LEXIS 47183 (D. Minn. June 28, 2007) (holding that Arizona statute was inapplicable to “preliminary engineering services” contract for improvement to real property) and Cashman Equip Corp. v. Kimmins Contracting Corp., 2004 U.S. Dist. LEXIS 44 (D. Mass. Jan. 5, 2004) (“Florida venue provision statute is simply irrelevant, because the Charter selected Massachusetts law to govern the dispute,” while also noting the statute’s inapplicability given that the Charter was not “a contract for improvement to real property.”) with Vita Planning & Landscape Architecture, Inc. v. HKS Architects, Inc., 240 Cal. App. 4th 763 (2015) (extending California home-court statute to dispute between architect and landscape design sub-consultant even though statute applies to “contract between the contractor and subcontractor”).

Similarly, where a lawsuit originates outside the home court but in the state that is identified as the proper forum in the parties’ contract, and that state has jurisdiction over the claims, courts may look past the home-court statute and refuse to apply it. See, e.g., Walbridge Aldinger Co. v. Angelo Iafrate Constr. Co.,2013 Mich. App. LEXIS 1287 (Mich. Ct. App. July 25, 2013) (“[The] mere fact that an Indiana statute voids a choice of law provision under Indiana law does not preclude Michigan courts from properly exercising the jurisdiction provided under Michigan law.”).

Finally, if neither party objects to resolving their dispute pursuant to the forum-selection and choice-of-law clause in the contract, then they will have no reason to fight over whether the home-court rule should determine jurisdiction, and the question may never come up at all.

Unfortunately these exceptions are difficult to plan for and cannot always be controlled.

FAA Preemption of Home-Court Statutes. The FAA, by contrast, gives parties a more predictable option for maintaining control over questions of jurisdiction in the face of home-court statutes applicable to construction disputes. Under Section 2 of the FAA, a “written provision in any … contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction … shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2; id. § 1 (with limited exceptions, commerce defined as “interstate” or “foreign” commerce). The Supreme Court has held that this “primary substantive provision” of the FAA “is a congressional declaration of a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary.” Moses H. Cone Mem’l Hospital v. Mercury Constr. Corp., 469 U.S. 1, 24 (1983).

Applying the FAA, courts have generally held that, where parties mutually agree to submit their construction dispute to arbitration in a state other than where the project is located, home-court jurisdiction statutes cannot void the parties’ agreement to arbitrate in their chosen location. See, e.g.OPE Int’l LP v. Chet Morrison Contractors, 258 F.3d 443, 447 (5th Cir. 2001) (holding that the FAA preempted a state statute invalidating forum-selection and choice-of-law provisions); United States ex rel. TGK Enterprises, Inc. v. Clayco, Inc., 978 F.Supp.2d 540, 548 (E.D.N.C. 2013) (holding that question of whether Arizona home court statute applied was within the jurisdiction of the out-of-state arbitrator); Millenium 3 Techs. v. ARINC, Inc., 2008 U.S. Dist. LEXIS 111350 (D. Ariz. Oct. 28, 2008) (declining to decide whether Arizona home-court statute applied as a question properly within the jurisdiction of the out-of-state arbitrator); Sachse Constr. & Dev. Corp. v. Affirmed Drywall, Corp., 251 So. 3d 1005, 1011 (Fla. Dist. Ct. App. 2018) (upholding arbitration provision in construction contract requiring arbitration in state outside of Florida on a Florida project based upon the finding that Florida law cannot require procedure inconsistent with the FAA); Cleveland Constr., Inc. v. Lecvo Constr., Inc., 359 S.W.3d 843, 855-56 (Tex. App. 2012) (holding that the FAA preempted state statute invalidating forum-selection and choice-of-law provisions in construction contracts); R.A. Bright Constr., Inc. v. Weis Builders, Inc., 930 N.E.2d 565, 571-72 (Ill. App. Ct. 2010) (holding that, if the FAA applies to the contract at issue, the FAA preempts Illinois’s home-court statute); Tritech Elec., Inc. v. Frank M. Hall & Co., 540 S.E.2d 864, 866 (S.C. Ct. App. 2000) (finding that the FAA preempted state statute invalidating forum-selection clauses in arbitration agreements).

Notably, whether the parties’ contract involves interstate commerce sufficient to trigger application of the FAA is a question that only some of these courts have addressed. For instance, in Bright, the court reasoned that the FAA applied to the parties’ transaction because materials for the project were purchased outside of the home state and because the contractor was an out-of-state corporation. R.A. Bright, 930 N.E.2d at 568-570. Likewise, in Sachse, the court disagreed that the parties’ agreement necessarily involved interstate commerce simply because their contract described the contractor as an out-of-state LLC, and it remanded the case with instructions to “address the question of interstate commerce … because the trial court did not first determine whether the contract involves interstate commerce so as to make the FAA applicable.” Sachse, 251 So. 3d at 1007. Other courts, however, have held that the FAA preempts home-court statutes without analyzing whether the contracts at issue involve interstate commerce. See, e.g., Bell Products, Inc. v. Hospital Bldg. & Equip. Co., No. 16-cv-04515, 2017 WL 282740, at *4-5 (N.D. Cal. Jan. 23, 2017); TGK Enters., 978 F.Supp.2d at 548-49; Allen v. World Inspection Network Int’l, Inc., 911 A.2d 484, 492-93 (N.J. Super. Ct. App. Div. 2006).

Against this backdrop, construction industry participants may find it wise to contemplate whether a home-court statute exists in the state where they plan to conduct their work, and the extent to which that statute might impact the participants’ choice of forum for disputes. If a home-court statute threatens to void the parties’ disputes provision, identifying arbitration as the forum for disputes in the contract and explaining in the contract that the parties’ agreement involves interstate commerce may result in preemption of the home-court statute and enforcement of the parties’ disputes provision. These steps can help contracting parties better prepare for potential construction disputes and regain control over specifying the forum where—and under what governing law—the disputes will be heard.

Click here to see states with home-court rules applicable to construction contracts.

Click here to see the state-by-state chart of citations.

Three Key Takeaways:

  1. Parties to construction agreements should know which states have enacted home-court rules for construction disputes, and what those rules say.
  2. If both contracting parties are comfortable litigating disputes in the home state and under the home state’s laws, the construction agreement should identify that state as the proper forum and refer to the home-court statute in the agreement.
  3. If, however, the home state and its governing law are not preferrable, the parties should consider choosing arbitration pursuant to the FAA to resolve disputes, instead of litigation. The decision to arbitrate pursuant to the FAA should be clearly described in the parties’ agreement, and a recital explaining that the project involves interstate commerce can be inserted.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Construction Law History Lesson No. 1: What Do Thomas Jefferson and Mechanics Liens Have in Common?

David K. Taylor | Buildsmart

Construction law is NOT boring, at least that’s what I tell my daughters. In these series of posts, I will explore some of the VERY interesting historical facts about construction law that can be used at your next motion hearing, family gathering, social event or fellow lawyer meeting.  While these anecdotes may not keep your kids or significant others from rolling their eyes, hopefully they can provide a small respite from your (yes, I admit) sometimes boring life in construction law.

Fact: if there is anything state court judges hate more than discovery disputes, it’s dealing with mechanic’s liens. You see their judicial eyes roll up. How many times has an owner uttered sheer astonishment when their lawyer says that they may have to pay twice for materials or labor on a project?  How is that even possible in the good old U.S. of A? No matter what side you are on, to spice up a brief or oral argument when lien statutes are at issue, make a note to “get patriotic” by mentioning one of our founding fathers: our third president, Thomas Jefferson. Why? Because TJ, as he is affectionally called, actually is the founding father of United States lien law.

To encourage construction in the new capital city of Washington, the federal government, as well as the new state of Maryland, were trying to convince mechanics (back then that meant “laborers”) to do work and provide “credit” to get the new capital built. The history books show that TJ worked with the Maryland General Assembly to establish the United States’s (and the world’s) first set of unique construction lien laws. 

However, don’t go too far out on a lien limb because TJ, despite his many attributes, did not conceive the basic idea of a lien. There were already lien-like privileges in some civil law countries such as France (which TJ loved) and Spain, and some historians trace their roots to the mighty Roman Empire (please do not buy a lien history book for your favorite construction lawyer…if they even exist). Also, remember that despite the Louisiana purchase, since Louisiana had been controlled by both Spain and France, the French Napoleonic Code had been adopted.  With knowledge about some of these civil law concepts, what then occurred was the encouragement and colonial arm twisting of landowners (“thou must be joking…”) to pass legislation to provide to builders and suppliers rights against the land itself, along with their basic breach of contract rights against the entity that hired them to do the work. Pretty much all states eventually followed Maryland’s lead, and in Texas and California, mechanic’s liens are a constitutional right.

The result was the “builders” that built our great capital and our country know they have statutory legal rights even if the entity that hires them “takes the money and runs.” While these days debtors prisons are out, when payments for work do not properly “flow down,” like ants at a picnic, there are many claims and little opportunity to recover spent money and materials.  These rights have become even more important in these modern days when many commercial (and residential) prime contractors do not self-perform and subcontract out 100% of the actual work. As the great philosopher Tom Cruise famously said, “Show me the money!” 

Of course, since liens are against common law, most case law and judges agree that lien laws have to be strictly interpreted: 100% compliance is generally the rule versus the exception. While many states have attempted to update and modernize lien laws, the next time you pull out your state’s lien statutes, take a look at the legislative history of a few specific statutes and you will see references to the 1800s and case law from the early 1900s. It also goes without saying that lien laws differ in every state, so be very, very careful if you represent a client in a lien law issue in an unfamiliar state. Local counsel who knows the nuances and ins and outs of sometimes ambiguous lien laws is many times a must.      

So, what’s the bottom line and why refer to Thomas Jefferson in your next brief, at the dinner table or in front of a state court judge who may just want to move on and handle a discovery versus lien law dispute? You can, first of all, liven things up. When have you been able to — no matter what side of the lien table you are on — stand up and talk about the founding of our country and the laws that began in the early 1800s by one of the most revered presidents in United States history? If you represent a lien claimant, how dare the owner try to get out of paying a laborer/supplier? How unpatriotic and ashamed TJ would be. If you represent the owner, you can cite the common law and state that even TJ, also a renowned lawyer and landowner, made sure that the “t’s” and “i’s” of this purely unique statutory scheme must be enforced and followed. Either way, sometimes even judges need some entertainment in the middle of a long, tedious, and sometimes boring motion docket, and fathers need to know that sometimes their kids do not think that they are the most boring lawyers in the world.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Insurers Challenging Awards When Appraisers’ ‘Disinterest’ in Question

Claims Journal

Insurers created the appraisal process to provide an efficient way to resolve disputes outside of the courtroom using disinterested experts, but lately insurer skepticism about appraiser impartiality has become a new source of litigation.

Insurance defense attorneys are increasingly likely to challenge appraisal awards that they believe are tainted by appraisers who are not disinterested or impartial, as required by most insurance contracts.

“If an unbiased panel tells our client it owes the claim, great. Our client will pay it,” said Steve Badger, a partner with the Zelle law firm in Dallas who represented the insurer. “But if a crooked panel tells our client that it owes $56 million on a claim truly worth a tenth of that, we are fighting back. And aggressively.”

Badger represented Brotherhood Mutual Insurance Co. is a dispute with the First Baptist Church of Odessa, Texas over the value of claim resulting from a June 2017 hail storm. The insurer filed a counterclaim accusing the church of colluding with an appraiser and an umpire on the appraisal panel in an attempt to defraud it.

That was just the latest of several cases where insurers challenged repair estimates that they say were made by biased appraisers. Last month, a jury in Denver County, Colorado found that an appraiser had defrauded Travelers Indemnity Co. and awarded more than $500,000 in damages.

Badger said the appraisal process has no procedural rules or ethical guidelines.

“As a result, a small group of fraudsters have realized they can manipulate the appraisal process for the financial gain of their clients and also for themselves,” he said.

‘Untethered from reality’
The First Baptist Chuch in Odessa, Texas is shown.

Brotherhood Mutual had accused appraiser Raymond Choate and umpire Mark Weeks of being among those fraudsters in the counterclaim the insurer filed last December, after the church filed a lawsuit to recover hail damages.

Proceedings in the case, which was removed to federal court, were stayed in 2020 for the appraisal process. Both the church and the insurer designated appraisers, who mutually agreed to an umpire to resolve any differences.

But the umpire selected by the appraisers withdrew because of his heavy workload. Brotherhood alleges that this is when the church and its appraisers conspired to defraud it.

On June 15, 2020, an attorney for the church, Christopher G. Lyster, asked Judge Michael Moore, of the 29th Judicial Circuit in Palo Pinto County to appoint a replacement umpire. Moore complied the next day, appointing Mark Weeks in Wichita Falls (300 miles from Odessa). Weeks returned the $56.6 million appraisal award that Brotherhood Mutual challenged in court.

Moore’s courthouse is 269 miles from the First Baptist Church in Odessa, according to Google.com/maps. Wells resides in Wichita Falls, about 300 miles away.

According to Brotherhood Mutual’s pleadings, Choate and Weeks conspired to make misrepresentations and produce a damage estimate “untethered to reality,” knowing that the church would attempt to bind Brotherhood Mutual to it.

The insurer’s counterclaim states that the church’s own contractor submitted an estimate in 2018 that repairs of the hail damage would cost $10,660,764 and repairs to interior damage $40,708. The new $56.6 million appraisal included $38 million in interior damages, the suit says.

Brotherhood Mutual persuaded US District Court Judge David Counts to throw out the appraisal award, but not because of the fraud allegations. As it turned out, the church’s attorney had acted too soon. Judge Moore appointed a replacement umpire only 14 days after the previous umpire withdrew. Counts ruled that the policy required the church to wait 15 days before asking for a replacement umpire.

Counts granted the insurer’s motion to vacate the appraisal on Feb. 16. On Feb. 28, the parties submitted a notice of settlement for an undisclosed amount.

Badger is not allowed to discuss the settlement terms. But his point was clear.

“The days of compromising outrageous appraisal awards just to be done with the matter are over,” he said in an email.

The court never ruled on the merits of Brotherhood Mutual’s fraud arguments, but the involvement of a Palo Pinto County judge in a far-away claims dispute raised eyebrows even among policyholder attorneys. Chip Merlin, a Florida lawyer who runs a national practice representing insurance claimants, wrote about the First Baptist Church appraisal in a blog post last April.

“In some jurisdictions, writing a unilateral letter to a judge knowing that another party is represented I would suggest could be a major ethical issue,” Merlin wrote.

Lyster, Moore and Choate did not respond to requests for comment. Weeks said Monday that he did nothing wrong. He said he agreed to the appraised amount only after the insurer’s appraiser stopped participating in the process, leaving only one damage estimate in play. He said he signed documents releasing him from liability for the claim.

Good faith

Bob Horst, managing partner of the Horst Krekstein + Runyon law firm in Plymouth Meeting, Pennsylvania, outlined the inherent flaws of the appraisal process from an insurer’s perspective during a presentation at the Property Liability Resource Bureau conference in San Antonio earlier this month. He questioned whether appraisers who are paid on a contingency basis can be truly disinterested, as required by insurance contracts.

Shawn D. Woodie, a claims examiner for Erie Insurance Group, said during the presentation that appraisals, instead of settlements, are being used to resolve claims more than ever before.

Horst said the appraisal process itself is also being litigated more frequently, with multiple decisions from different jurisdictions in the last several months alone.

Some examples: In January, a US District Court judge in Miami dismissed a lawsuit filed by a homeowner who attempted to cancel an appraisal that took longer to complete than she wished and did not include the full scope of damages. In February, a US District Court Judge in Chicago ordered AmGuard Insurance Co. to participate in the appraisal process despite the insurer’s concern that its dispute with the homeowner was over whether coverage existed, not the extent of damage. In March, a US District Court judge in Tennessee compelled State Farm to appoint an appraiser to resolve a claim by a policyholder who says her historic home was damaged by a tornado.

“One issue generating attention is whether an appraiser — and/or an umpire, for that matter — is disinterested,” Horst said in an email. “Some policies and courts have also considered an appraiser’s impartiality as well. The existence of an appraiser’s contingency interest in a potential appraisal award (or loss payment) is likely one factor in an analysis of whether that appraiser is interested.”

Public adjusters generally agree that the appraisal process is being used more often than it should, said Brian Goodman, counsel for the National Association of Public Insurance Adjusters. But Goodman said there’s plenty of blame to go around.

Goodman said natural disasters are more frequent and insurers are responding by sending inexperienced out-of-state adjusters who don’t always know how to value a claim. On top of that comes a general lack of civility in society that discourages a good faith effort among the parties involved to resolve claims.

Goodman said there are two requirements for an appraiser: They must be competent and disinterested.

“If you look at the plethora of reported cases now, the notion of who/what is a disinterested appraiser is litigated all the time,” he said in an email.

Bad faith

Many cases involving alleged bias by an appraiser cite a 2019 Colorado Supreme Court decision in a lawsuit brought against Owners Insurance Co. by the Dakota Station II Condominium Association. The insurer paid the claim after an appraisal, but later challenged that appraisal because the appraiser’s contract with the insured capped her fee as a percentage of the insurance payout, Also, the appraiser had testified that it is appropriate for an appraiser to act as an advocate for the insured.

The Supreme Court did not agree that the contingent fee agreement necessarily meant the appraiser was biased, but remanded the case with directions to the trial court to determine whether the appraiser’s statement about being an advocate for her client had disqualified her.

The Supreme Court’s ruling states that appraisers must be “unbiased, disinterested, without prejudice, and unswayed by personal interest, [and] must not favor one side more than another.”

Travelers Insurance Co. banked on that Dakota Station language when it challenged an appraisal award that found $1.6 million in hail damage to policyholder GSL Group’s property.

Travelers paid the appraisal award, but later learned that the policyholder’s appraiser, Juan Cartaya, had used a fraudulent invoice to support his estimate of the extent of damages.

The insurer said Cartaya had received $603,864 bid from a contractor to repair the metal roof over GSL Group’s property, which included a $23,000 line-item estimate to repair beams, called purlins, that support the roof. But Cartaya included the entire $603,864 as the cost of purlin repairs alone and added additional line items that increased his appraisal to $1.6 million.

Travelers alleged that Cartaya had billed himself as an “advocate” for policyholders when advertising his business, located in Fort Lauderdale, Florida. He also received received numerous referrals from the Merlin Law Group — the very law firm mentioned earlier that is managed by policyholder attorney Chip Merlin. What’s more, attorneys for Merlin’s practice often provided free legal services to Cartaya’s clients.

“One is reminded of the adage that ‘there is no such thing as a free lunch,’” US District Court Senior Judge Marcia S. Krieger said in a September 2021 ruling. “Here, it is reasonable to believe that Mr. Cartaya would feel obligated to return that favor, such that he could be swayed in his appraisal activities in this case by that personal interest.”

Krieger found that the evidence showed Cartaya has submitted a “grossly overinflated estimate” of the damage to the GSL Group property and that he was not impartial as required by the policy. She vacated the appraisal award, but also denied Travelers request to recoup $805,054 that the insurer said it had overpaid.

Travelers filed a separate lawsuit against Cartaya in Denver County Circuit Court. The case was tried and on March 29 a jury returned a civil verdict finding that Cartaya had committed fraud. The jury found that Travelers’ damages were $603,864, but 10% of that amount was the fault of the insurer’s appraiser, Trent Gillette.

“Sadly, these abuses are ruining a process that was intended to help policyholders promptly resolve disputed claims without the need for litigation,” Badger said. “To the contrary, the current schemes are ensuring these disputes end up in years of litigation.”

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

A Riveting (or at Least Insightful) Explanation of the Privette Doctrine

Garret Murai | California Construction Law Blog

“The wheels of justice turn slowly, but grind exceedingly fine” – Plutarch

And grind they do . . . slowly. For long time readers of the California Construction Law Blog you may recall a case we reported on over three years ago in 2018 – Sandoval v. Qualcomm Incorporated – a rather sad case about a severely injured employee of an electrical subcontractor with an even more surprisingly ending.

In Sandoval, the 4th District Court of Appeals affirmed a $7 million judgment against project owner Qualcomm Incorporated in which a jury found that Qualcomm was liable under the Privette doctrine for injuries sustained by the employee who was severely burned over one third of his body by an “arc flash” from a live circuit breaker. The Court of Appeals, in a surprising decision, upheld the verdict holding that Qualcomm was liable even through: (1) Qualcomm had informed the electrical subcontractor that certain live circuit breakers were energized; (2) Qualcomm had not authorized the lower-tiered contractor to remove a panel that resulted in the arc flash; and (3) employees of Qualcomm were not in the room when the accident happened.

Fast forward three years to September 2021. Qualcomm attorneys petition the California Supreme Court for review of the Court of Appeal’s decision. And the Supreme Court granted review.

The Supreme Court Decision

In Sandoval v. Qualcomm Incorporated, Case No. S252796 (September 9, 2021), the California Supreme Court, describing the Privette doctrine and two of its exceptions – the “concealed hazard” exception and the “retained control” exception – explained:

Strong public policy considerations readily acknowledged in our past decisions generally support a straightforward presumption about the responsibilities of hirers and contractors for worker injuries in situations like this: A person or entity hiring an independent contractor (a “hirer”) ordinarily delegates to that independent contractor all responsibility for the safety of the contractor’s workers. This presumption is rooted in hirers’ reasons for employing contractors in the first place, and society’s need for clear rules about who’s responsible for avoiding harms to workers when contractors are hired. We have therefore generally avoided subjecting hirers to tort liability for those workers’ injuries. But that presumption gives way to two recognized exceptions: where the hirer either withholds critical information regarding a concealed hazard (Kinsman v. Unocal Corp. (2005) 37 Cal.4th 659, 664 (Kinsman)); or retains control over the contractor’s work and actually exercises that control in a way that affirmatively contributes to the worker’s injury (Hooker v. Department of Transportation (2002) 27 Cal.4th 198, 202 (Hooker)).

Describing the “concealed hazard” exception under Kinsman, the Supreme Court explained:

In Kinsman we recognized that a landowner-hirer cannot effectively delegate its duties respecting a concealed hazard without disclosing that hazard to the contractor. In this context, a “concealed” hazard means something specific: a hazard that the hirer either knows or reasonably should know exists, and that the contractor does not know exists and could not reasonably discover without the hirer’s disclosure. We draw no distinction between a hazard whose very existence is concealed and a hazard which is in some way apparent but whose dangerousness is concealed. The sufficiency of the hirer’s disclosure is “measured by a negligence standard,” that is, a standard of reasonable care. If the hirer does not sufficiently disclose the concealed hazard, the hirer retains its tort duties owed to the contract workers respecting that hazard. A contrary conclusion would cut against the rationale justifying Privette‘s presumption of delegation. A contractor is not best situated to perform work safely when the contractor lacks critical information about relevant hazards. Nor is there any unfairness in holding the hirer liable where only the hirer possessed that critical knowledge.

Describing the “retained control” exception under Hooker, the Supreme Court explained:

In Hooker, we recognized that hirers do not always fully delegate control to their contractors. We concluded that in some such “retained control” situations, notwithstanding Privette‘s presumption to the contrary, the hirer must owe a duty of care to the contract workers.

The plaintiff in such cases must establish not only that the hirer retained control over the contracted work, but also that the hirer actually exercised that retained control in a manner that affirmatively contributed to the contract worker’s injury. Because Hooker‘s application has produced significant confusion, we dwell at some length here on the meaning of Hooker‘s three key concepts: retained control, actual exercise, and affirmative contribution.

A hirer “retains control” where it retains a sufficient degree of authority over the manner of performance of the work entrusted to the contractor. This concept simply incorporates the Restatements’ theory of retained control: Against a backdrop of no hirer duty respecting the manner of performance of work entrusted to a contractor, the Restatements provide that a hirer who retains control over any part of that work owes others a duty of reasonable care respecting the hirer’s exercise of that retained control. So “retained control” refers specifically to a hirer’s authority over work entrusted to the contractor, i.e., work the contractor has agreed to perform. For simplicity we will often call this the “contracted work” — irrespective of whether it’s set out in a written contract or arises from an informal agreement. A hirer’s authority over noncontract work — although potentially giving rise to other tort duties — thus does not give rise to a retained control duty unless it has the effect of creating authority over the contracted work. Furthermore, a hirer’s authority over the contracted work amounts to retained control only if the hirer’s exercise of that authority would sufficiently limit the contractor’s freedom to perform the contracted work in the contractor’s own manner. 


A hirer “actually exercise[s]” its retained control over the contracted work when it involves itself in the contracted work “such that the contractor is not entirely free to do the work in the contractor’s own manner.” In other words, the hirer must exert some influence over the manner in which the contracted work is performed. Unlike “retained control,” which is satisfied where the hirer retains merely the right to become so involved, “actual exercise” requires that the hirer in fact involve itself, such as through direction, participation, or induced reliance.

“Affirmative contribution” means that the hirer’s exercise of retained control contributes to the injury in a way that isn’t merely derivative of the contractor’s contribution to the injury. Where the contractor’s conduct is the immediate cause of injury, the affirmative contribution requirement can be satisfied only if the hirer in some respect induced — not just failed to prevent — the contractor’s injury-causing conduct. It is not enough for the hirer’s exercise of control to incidentally give the hirer the opportunity to prevent the contractor’s injury-causing conduct.

A hirer’s conduct also satisfies the affirmative contribution requirement where the hirer’s exercise of retained control contributes to the injury independently of the contractor’s contribution (if any) to the injury. 

The critical factor here is the relationship between the hirer’s conduct and the contractor’s conduct, not whether the hirer’s conduct, assessed in isolation, can be described as “affirmative conduct.” Importantly, neither “actual exercise” nor “affirmative contribution” requires that the hirer’s negligence (if any) consist of an affirmative act. The hirer’s negligence may take the form of any act, course of conduct, or failure to take a reasonable precaution that is within the scope of its duty under Hooker.

Applying each of these exceptions, the Supreme Court held that Qualcomm owed no tort duty to the injured worker, Sandoval, because Qualcomm neither failed to sufficiently disclose the hazard of a potential arc flash under Kinsman nor affirmatively contributed to Sandoval’s injuries under Hooker. The Supreme Court also held that the pattern jury instruction used in the case – CACI No. 1009B – does not adequately capture the elements of a Hooker claim.

With respect to the “concealed hazard” exception under Kinsman, the Supreme Court explained that Frank Sharghi, President of TransPower Testing, Inc., the general contractor who had hired the subcontractor employing Sandoval, had testified that that he was aware of which circuits were live and which were not. Thus, explained the Supreme Court, the condition of the live circuits “was not actually concealed.” Further, explained the Supreme Court,  the testimony of Qualcomm’s plant operator Mark Beckelman, was that he reminded Sharghi and his team that some circuits in the switchgear room would remain live. Thus, explained the Supreme Court, Qualcomm had in fact disclosed that there would be live circuits in the switchgear room. “Either way,” held the Supreme Court, “Qualcomm effectively delegated to TransPower any tort duties Qualcomm otherwise would have owed Sandoval respecting these live circuits under Kinsman.”

With respect to the “retained control” exception under Hooker, the Supreme Court explained that, while Qualcomm had control over the power-down process, by powering-down the circuits to be worked on but not powering down other circuits. this did not constitute “retained control” over the contracted work because the power-down process was not within the scope of work Qualcomm had entrusted to TransPower:

True: Qualcomm directed TransPower to observe the power-down process. And it asked TransPower to confirm that TransPower was satisfied with Qualcomm’s performance of the power-down process. Qualcomm nonetheless stopped short of offering — and TransPower never agreed — that TransPower take responsibility for actually performing the power-down process. Nor is it enough here that the power-down process was a necessary precondition for TransPower’s work, or that both the power-down process and TransPower’s work were essential components of a single larger job. Instead, Qualcomm’s performance of the power-down process implicates a retained control duty only to the extent that performance actually resulted in retained control over the work Qualcomm did entrust to TransPower: the inspection of the main cogen circuit.

Further, explained the Supreme Court, although Qualcomm’s performance of the power-down process arguably limited TransPower’s own freedom to power down “additional” circuits during its inspection, Qualcomm did not retain control over the inspection of the main cogen circuit merely by keeping certain other circuits live:

Qualcomm’s creation of this condition at the worksite imposed too little a degree of control over TransPower’s manner of performing the inspection. Even if Qualcomm could be said to have conveyed an expectation that TransPower perform its work in the presence of live circuits, TransPower was aware of and had ample freedom within the scope of its entrusted work to accommodate the presence of the live circuits effectively in its own manner, particularly since they were safely covered by bolted-on protective panels and not relevant to TransPower’s inspection. Qualcomm did not retain control over the inspection merely by declining to shut down these circuits or to give TransPower the authority to do so. Under the circumstances here, Qualcomm’s control over what was and what was not powered down did not constitute retained control over the contracted work.

Finally, explained the Supreme Court, even though Qualcomm may have had authority to require specific precautions during the inspection, such as by powering down the generator, Qualcomm did not “actually exercise” that authority:

Even assuming that Qualcomm retained control by retaining the authority to require or provide such precautions — e.g., supervision, a personal warning for Sandoval, arc flash protection suits, barricades, and/or additional warning signage — TransPower remained entirely free to implement (or not) any of these precautions in its own manner, issues over which Qualcomm exerted no influence. Although Sandoval argues that Qualcomm’s performance of the power-down process gave rise to a “duty” on Qualcomm’s part to take these precautions, he does not argue — nor is there any indication in the evidence — that Qualcomm’s performance of the power-down process induced TransPower’s failure to take any of these precautions itself. Likewise, that Qualcomm may have previously supervised TransPower’s work does not establish, in this case, that Qualcomm induced TransPower’s reliance on Qualcomm supervision. Sharghi’s uncontradicted testimony established that the reason TransPower did not request or wait for Qualcomm’s supervision was that Sharghi felt “in charge,” “knew what [he was] doing,” and didn’t “need” a monitor. That Qualcomm’s employees may have been trained to provide personal warnings to everyone in the room, or that Qualcomm’s managers and experts may have considered such warnings “critical,” does not establish that Qualcomm induced TransPower’s reliance on Qualcomm to provide them. Substantial evidence does not support the conclusion that Qualcomm actually exercised its retained control with regard to any of these precautions.


Sandoval provides important clarifications under Privette doctrine and, specifically, with respect to the “retained control” exception under Hooker. First, even if a hirer could make a worksite safer, as in the present case had Qualcomm powered down all of the circuits, if the scope of work does not involve work in the still dangerous areas, the hirer will not be deemed to have retained control over those dangerous areas. Second, even if there are dangerous areas of a worksite, so long as a contractor has adequate means of ensuring the safety of its workers, the hirer will again not be deemed to have retained control over those dangerous areas. And, finally, even if a hirer could require that its contractors implement certain worksite safety measures, a hirer will not be deemed to have retained control over the contractor’s means and methods so as to avoid injury to the contractor’s employees. 

Extra Credit Points: Can you guess what the illustration above is based on? If you guessed Plutarch, sorry. If you guessed the “Wheel of Pain” from 1982’s Conan the Barbarian, featuring our former Governor, you guessed right. We’re very high brow here at the California Construction Law Blog.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

State Fire Marshall to Rescind Grab Bar Requirements in 7th Edition of Florida Fire Prevention Code

Robert S. Fine, Esq. | GreenbergTraurig

Since the late 1980s, Florida has had in place legislation that preempted all accessibility requirements to the state Legislature. See, e.g., §§ 553.503, 553.513 (and formerly 553.495). Between 1989 and today, all state-mandated accessibility requirements were found in the Florida Accessibility Code or prescribed by the Florida Fair Housing Act.

When the National Fire Protection Agency (NFPA) published the 2018 edition of its Life Safety Code (NFPA 101-2018), the base reference for the Florida Fire Prevention Code, Seventh (2020) Edition (the Fire Prevention Code), it contained requirements for grab bars in specified configurations in the bathrooms of a number of building types, including but not limited to new apartment buildings (including residential condominiums). Because of the manner in which NFPA incorporated the language requiring grab bars, the requirement was not easily seen. As a result, when the State Fire Marshal’s Office undertook the rulemaking to adopt the 2020 edition of the Fire Prevention Code, the new code brought along with it the requirement for such grab bars to be installed in new apartment buildings, residential condominiums, and other building types as specified by the Fire Prevention Code. Local fire officials have typically been sympathetic to the position that accessibility requirements are preempted to the state, but because the grab bars requirement is included in the Fire Prevention Code that they are charged with enforcing, the officials feel they have no choice but to enforce the requirement.

The State Fire Marshal’s office was informed of the grab bar issue (including the state’s preemption requirement) going back a number of months and requested to remove the grab bar requirement. After reengaging the rulemaking process, the State Fire Marshal’s office has now adopted a rule to amend the Fire Protection Code, effective April 26, 2022, to eliminate the grab bar requirement.

The amendment to the Fire Prevention Code (eliminating the grab bar requirement) will apply to development projects whose initial application for building permit is filed on or after April 26, 2022. Because of how Florida law determines what edition of its building and fire prevention codes apply to construction projects, this curative Fire Prevention Code amendment may not necessarily apply to projects that are subject to the 2020 (or Seventh) edition of the Fire Prevention Code but have applied for building permits before April 26, 2022. Those with a development project that is being subjected to the Fire Prevention Code’s grab bar requirement and who have already filed an application for building permit (or plan to do so before April 26, 2022) may wish to contact their project’s building code law attorney or fire prevention consultant to discuss potential options and strategies.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.