Seven Trends That Impact Commercial Construction Litigation in 2021

Jeffrey Kozek and E. Mitchell Swann | Construction Executive

2021 stands to bring sizeable change to the commercial construction industry as trends that had been on the horizon meet the impact of the pandemic. That means it will be even more important for architects, engineers, contractors and owners to prioritize revisiting their project plans as the industry adapts so that they can better reduce their likelihood of facing litigation down the line.

While many in the industry will struggle to react to the ongoing environment, building stronger contractual understanding and preparedness to adapt could be the difference in being able to complete the work and move onto the next project in a timely manner. Meanwhile, contractors are using a wider usage of technologies for improved project communication and efficiency. 

In the coming year, there are seven trends will have the greatest impact on commercial construction 

1. SAFETY MEASURES ON SITE

The continuing challenges of COVID-19 may seem familiar after all these months, but continuing to navigate safety measures on site will remain a necessity in 2021. Although the execution of parameters such as distancing, staggered shifts and proper PPE, is likely to impact projects’ cost and schedule, these measures are critical for the protection of all workers on site, and ignoring them could result in fines, shutdowns or even litigation. 

2. DISPUTES AND BANKRUPTCY

Not only will onsite work see the effects of the pandemic, but supply chain delays, pricing increases on materials and project funding shortfalls, to name a few, are likely to lead to claim and payment disputes. Yet, as a number of small businesses across the country have had to declare bankruptcy during this period, owners and contractors whose work has been disrupted need to be prepared for related complications to their payments and project completions. 

3. COURT BACKLOGS

The other side of that equation is that the pandemic has impacted the court system itself, with many state and federal facilities shutting down for weeks, if not months, beginning last March. This not only delayed the progress of numerous cases and projects, but created a legal backlog that has only slowly been addressed throughout the year. With parties on all sides looking to recoup the lost time and/or cost from the pandemic as well as their case, some will opt to settle to more quickly to resolve these matters. 

4. DESIGN OF AIR HANDLING STRUCTURES

In a last COVID-19-related trend, building and construction owners need to be aware of how the design of air handling structures will likely change as a result of this period. In facing an airborne virus, strong evidence shows the importance of ventilation air system effectiveness in reducing the transmission rate of infection in sort of a “dilution as a solution to pollution” approach with a finite indoor biological point source. Yet, increased ventilation air quantities will also increase equipment sizes and operating energy costs for heating and cooling. This should increase the attention to, and consideration of, dedicated outdoor air systems and demand-controlled ventilation so that the quantity of ventilation air supplied is responsive to the population being served. 

5. PREFABRICATED OR MODULAR CONSTRUCTION TECHNIQUES AND ASSEMBLIES

With eyes to the future, the implementation of new designs and materials will begin to have a greater impact on projects. Already, more than 80% of contractors report using prefabricated or modular construction techniques and assemblies on projects, and those numbers only stand to increase. As the technology advances, these materials can greatly improve efficiency and quality control, reduce construction safety risk and, in the age of COVID-19, offer better control over workforce virus exposure due to “social distancing” and related transmission risk.

6. BIM ADOPTION

The construction industry has often been slow to adopt technology, but one of the more impactful ways U.S. companies are beginning to change their approach to projects is with wider adoption of Building Information Modeling, a digital process to construct more detailed 3D models for new buildings. Properly developed and implemented BIM strategies can enhance team communication, coordination and “what if” collaboration during design and construction. All of these efficiency technologies can help nip potential problems in the bud. BIM tools software can also greatly help an owner with on-going maintenance and operations – both of which will have a heightened profile in the post-COVID world.

7.  GREEN BUILDING

Finally, among the new projects arising in 2021, many more will highlight continued increases in green building. LEED certifications have grown by more than 69,000 projects over the last 10 years, with nine design and building categories in which a project can earn points toward LEED recognition from the U.S. Green Building Council. Green buildings often focus on a better Indoor Environment and “wellness”’ of the occupants. In the COVID-19 context, that focus area is a natural fit for reducing potential paths of transmission. Verification of performance will take on an even more significant presence on the green building stage.

Although every project faces a unique set of circumstances, the impacts of these seven areas are likely to be felt across the board. Stronger preparedness and flexibility can go a long way in helping mitigate the risk of litigation and find greater success in the coming year.

Environmental Justice: A Changing Landscape for Virginia Developers

William Shewmake | Woods Rogers PLC

A company in the formative stages of locating, permitting, and constructing any substantial industrial or commercial project needs to be keenly aware that the legal and regulatory landscape related to environmental justice is changing in Virginia. We anticipate that change will accelerate in the coming year.

The Virginia Department of Environmental Quality (DEQ) commissioned an environmental justice study by SKEO Solutions, Inc. which issued a report in October 2020 (PDF). The report contains numerous recommendations the DEQ is likely to adopt. One of the first is to begin the process of hiring a Director for Environmental Justice, which is underway.In the General Assembly session just ended, the House and Senate approved competing bills to create a permanent environmental justice advisory group that would include representatives from state agencies across the spectrum. This group would establish policies and recommend statutory and regulatory changes to promote the goals of environmental justice. While the Senate and House could not reconcile their respective bills during this past legislative session, new environmental justice legislation is likely to emerge and pass in the General Assembly session next year.

Moreover, the Governor’s current environmental justice advisory group has recently issued a report with recommendations, and Governor Northam ordered that the advisory group remain in place.

What is environmental justice?

While it is unclear what precise definition of environmental justice Virginia will ultimately adopt, the concept of environmental justice generally involves concentrating intensive, disruptive projects in majority-minority and less affluent communities. According to the U.S. Environmental Protection Agency (EPA):

Environmental justice is the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income, with respect to the development, implementation, and enforcement of environmental laws, regulations, and policies. EPA has this goal for all communities and persons across this Nation. It will be achieved when everyone enjoys the same degree of protection from environmental and health hazards and equal access to the decision-making process to have a healthy environment in which to live, learn, and work.

Historically, major projects, such as heavy industry and substantial infrastructure projects like roadways, have disproportionately burdened poor communities and communities of color with pollution and physical dislocation. The people who live in these communities had little say in the process because of the lack of resources needed to affect the outcome.

Why is there a need for environmental justice?

For years, several factors contributed to the pattern of concentrating intensive uses in historically underrepresented communities.

  • Discrimination and implicit bias
  • Cheaper land and lower development costs
  • Poorer and minority communities represented a path of least resistance. As an experienced zoning attorney can attest, no matter how meritorious the project and appropriate the site selection, obtaining zoning for a large intensive use near an affluent community can be an arduous and uncertain venture.

How can developers respond to environmental justice concerns?

In the wake of Friends of Buckingham v. Virginia State Air Pollution Control Board (January 2020) and the administration and General Assembly’s recent focus on environmental justice issues, developers should assume that simply complying with environmental laws and regulations may be insufficient when addressing environmental justice issues. Failure to proactively address these issues could delay a project.

While we cannot predict the details of environmental justice policies and regulations that will be adopted in the future, companies should consider the following when approaching a potential project:

  • Identifying potential nearby environmental justice communities early is a key step.
  • Mitigation of a project’s impact on these communities will become more demanding.
  • Greater engagement with any potential environmental justice community will be ultimately beneficial.
  • The universe of projects that implicates an environmental justice analysis will substantially expand. The analysis will no longer be confined to substantial infrastructure projects and heavy industry, but will likely include larger commercial projects such as distribution and data centers.

Thus, for any larger commercial or industrial project, we strongly recommend you consider performing a demographic study near the outset of the project. The study should determine if communities, including micro-communities, exist in the area of the project that might qualify for environmental justice consideration. The results of that study may influence your site selection when deciding among competing sites as well as how you approach the project as you go forward. Your being in a position to persuasively argue that your project does not impact a community that invokes environmental justice consideration could expedite your permitting process, reduce your development and operational costs, and lessen potential mitigation measures.

If the site you select might involve environmental justice considerations, you should be prepared to explain why alternative sites are not preferable and the steps you are taking to mitigate any negative effects of your project. We predict that DEQ will be requiring a more detailed alternative site analysis and an explanation of what steps the applicant is taking to mitigate impacts on minority and less affluent communities.

You also should adopt a process that demonstrates your forethought and commitment to engaging possibly affected majority-minority and poorer communities. We recognize that this can involve a delicate consideration of how and when to open a dialogue because you want to establish a good faith line of communication while not simply providing fodder to those who will oppose your project no matter the merits and no matter the steps you are willing to take to address very legitimate concerns. A first step is to identify and establish a dialogue with community leaders while recognizing that large projects often require confidentiality in the formative stages. One-on-one conversations with community leaders and community partners often set a better tone than surprising community members in a public hearing at the beginning of the formal permitting process. When you have those meetings, you also need to be able to explain the benefits your project will provide to those most affected.

This type of environmental justice approach also may provide you with some protection from unfair and unfounded accusations of economic injustice. As anyone experienced in the zoning and permitting processes can tell you, many times opponents of a project will not let facts get in the way of an argument. They typically adopt a “kitchen-sink” approach when opposing a project. Because the accusation of racial or economic insensitivity can taint a project, no matter how unfounded the claim may be, you must be prepared for opponents who will try to manufacture any conceivable environmental justice argument.

Preparing for unfounded claims does not downplay the very legitimate environmental justice concerns that exist or the historic pattern of imposing intensive projects disproportionately on poorer and majority-minority communities. However, baseless claims involving environmental justice will become more prevalent, so you need to prepare and not find yourself in a reactionary and defensive posture if they occur.

In conclusion, if any possibility exists that a nearby community may qualify as an environmental justice community, identify that community early in the process. Then develop a strategy of how and when to engage the community and establish an open line of communication while keeping in mind the need for confidentiality during the project’s formative stages because discussing your project publically too early when you do not have answers to important questions can be just as damaging as waiting too long to establish a dialogue. Remember, winning friends near the beginning of the process is easier than converting adversaries later. Taking these steps may pay dividends as the project unfolds.

Close Enough Only Counts in Horseshoes and Hand Grenades

Garret Murai | California Construction Law Blog

In State Farm General Insurance Company v. Oetiker, Inc., Case No. B302348 (December 18, 2020), a manufacturer sued in subrogation action under the Right to Repair Act almost got away. Almost.

The Oetiker Case

James and Jennifer Philson’s home was substantially completed, and a notice of completion was recorded, in 2004. In 2016, the Philsons tendered a claim to their homeowner’s insurance carrier, State Farm General Insurance Company, after their home experienced significant water damage due to a defective stainless steel ear clamp.

In 2018, after paying the Philson’s claim, State Farm filed a subrogation action against the manufacturer of the ear clamp, Oetiker, Inc. State Farm’s complaint, which included causes of action for negligence, strict products liability and breach of implied warranty, alleged that the home was “damaged by a water leak from the failure of a defective stainless steel ear claim on a water PEX fitting” and that the ear clamp was “defective when it left the control of [Oetiker].”

Because Philson’s home was newly constructed when purchased, Oetiker claimed that State Farm’s subrogation claim was subject to the Right to Repair Act which included a 10-year statute of repose for latent defects and filed a motion for summary judgment on that basis. The trial court granted Oetiker’s summary judgment finding that “Oetiker has established that Plaintiff’s claims for property damage . . . fall within Civil Code section 896(a)(14), (15) [of the Right to Repair Act].”

State Farm appealed.

The Appeal

On appeal, the 2nd District Court of Appeal explained that the Right to Repair Act, while it applies generally to “builders,” also applies as set forth in the Act, “to the extent set forth in Chapter 4 . . . [an] individual product manufacturer . . . [who] shall, except as specifically set forth in this title, be liable for, and the claimant’s claims or causes of action shall be limited to violation of . . . the standards [set forth in the Act].”

Thus, explained the Court of Appeal, the threshold question was whether the defective ear clamp fell within the standards set forth under the Right to Repair Act. The Court held that it did explaining that the standards require that the “lines and components of the plumbing system . . . shall not leak” and that the “[p]lumbing lines . . . shall not corrode so as to impede the useful life of the systems.” And, here, explained the Court, the ear claim at issue was installed on a PEX fitting, a type of plumbing line fitting, and thus was part of the “lines and components of the plumbing system.”

In response to State Farm’s claim that the Right to Repair Act did not apply because Section 896(g)(3)E) of the Act excludes “any action seeking recovery solely for a defect in a manufactured product located within or adjacent to the structure,” the Court of Appeal held that the exception does not apply when a defective product causes a violation of the standards set forth in the Act.

Nevertheless, explained the Court of Appeal, while the Act precludes State Farm’s negligence cause of action, the Act did not preclude State Farm’s strict products liability and breach of implied warranty claims. Citing, McMillin Albany LLC v. Superior Court (2018) 4 Cal.5th 241, in which the California Supreme Court held that the Right to Repair Act replaces common causes of action including causes of action for negligence, strict products liability, breach of contract, and breach of warranty, the Court held that the Act applies different standards to builders versus non-builders, and as to product manufacturers Section 936 of the Act only provides that the Act only applies to a product manufacturer’s negligent act or omission or breach of contract. Thus explained the Court of Appeal:

[A] product manufacturer is liable under the Act only where its negligence or breach of contract caused a violation of the standards [set forth under the Act]. . . . State Farm is therefore precluded from bringing its negligence cause of action . . . [but] [w]e reach a different conclusion with respect to State Farm’s strict liability and breach of implied warranty causes of action. Nothing in the Act restricts a homeowner or its insurer from bringing causes of action which fall outside of the Act.

Conclusion

I’ve never had the chance to the see the Right to Repair Act applied to a products manufacturer, so this case was interesting. The Right to Repair Act is a relatively dense statute with a complicated history and I’m always surprised when reading the cases that come out of it.

2021 Construction Related Bills to Keep an Eye On

Christopher G. Hill | Construction Law Musings

Each year here at Musings, I try and highlight some key construction industry-related bills that are winding their way through the Virginia General Assembly.  This year is no different, though this year does not have the action level that prior years have had.

Without further ado, here are those that I spotted and which I will be “Tracking” as they move through the sausage-making process:

HB2288– Virginia Public Procurement Act; construction contracts; requirement to submit list of subcontractors. Requires bidders or offerors on contracts for construction of $250,000 or more to submit along with their bid or proposal a list of all subcontractors, regardless of tier, that the bidder or offeror intends at the time of submitting the bid or proposal to use on the contract to perform work valued at $50,000 or more, including labor and materials. The bill requires such list to include certain information about each contractor. This bill also includes a re-passage provision that requires that it be re-enacted in the 2022 session to become effective.  Finally, the Senate General Laws and Technology committee has continued this to the First Special Session.

SB1209– Liability of general contractor for wages of subcontractor’s employees. Provides that there is a valid defense to a claim of nonpayment of wages by a general contractor to a subcontractor’s employees if the general contractor obtains a written certification that (i) the subcontractor and each of his sub-subcontractors has paid all employees all wages due for the period during which the wages are claimed for the work performed on the project and (ii) to the subcontractor’s knowledge all sub-subcontractors have also paid their employees. The bill also provides that the terms “general contractor” and “subcontractor” shall not include persons solely furnishing materials for the purposes of the liability of a contractor for wages due to a subcontractor’s employees.

This bill passed the House and was continued to Special Session 1 by Senate committee.

SB1305– Virginia Public Procurement Act; construction contracts; subcontractor workforce requirements. Requires all public bodies in a locality with a population in excess of 25,000 and covered institutions, defined in the bill, to include in every construction contract of more than $500,000 certain provisions related to the outsourcing of subcontracted work, which a contractor shall agree to during the performance of such contract. Such provisions mandate that a contractor shall only utilize subcontractors that certify in writing to the contract that they will outsource no more than 10 percent of the cost of the work subcontracted for, excluding the provision of materials, with specified exceptions.

Bill passed the Senate and has been postponed to the first Special Session by the House.

SB1108–  General district courts; jurisdictional limits. Increases from $25,000 to $50,000 the maximum civil jurisdictional limit of general district courts for civil actions for personal injury and wrongful death. The bill contains an emergency clause.

This Bill has passed the Senate and the House Civil Courts subcommittee has recommended reporting it out of committee with amendments.

As always, I recommend that you read the full text of these bills and consult a Virginia construction lawyer with questions.  If there are other bills of note that I have missed, please let me know in your comments or by email.

Since When do Attorneys Have to Pay the Opposing Counsel Fees?!

Deena Duffy | Spencer Fane

ATTORNEYS CAN BE HELD RESPONSIBLE FOR OPPOSING LEGAL FEES IF DISCOVERY RULES ARE NEGLECTED

This may be a question that has never crossed your mind. If so, then good for you. It means you’ve likely never been faced with sanctions. However, just because you haven’t, doesn’t mean you shouldn’t be aware of the possibility.

What happens when your client is served discovery requests that require review of a large number of documents prior to production to the other side, yet, your client refuses to be involved in the review? What if not only does your client refuse to engage in the review, but also refuses to engage in any negotiations aimed at making the review more manageable? Quite clearly, these actions likely won’t bode well for your client. Even more unfortunately for you, as this client’s attorney, you yourself could land in hot water with the court, even resulting in you being personally responsible for a portion of opposing counsel’s fees.

As we all know, some jurisdictions are more lenient when it comes to discovery rules while others – not so much. To that extent, it is crucial to be familiar with the discovery rules for the jurisdiction you’re in. Moreover, the growing importance of becoming aware of the potential ramifications of not complying with those discovery rules cannot be understated.

In a recent case out of Second District Court of Appeals of Ohio, an attorney learned the hard way what happens when you let the client run the show.[1] As attorneys, our duty is obviously to be zealous advocates for our clients and to provide them with advice and guidance related to their case. However, we need to recognize that during the course of our representation, it becomes our responsibility to ensure that the client is doing what the court has ordered.

This particular discovery and sanctions issue arose out of a civil action where Plaintiff alleged that Defendant engaged in tortious interference with business relationships, defamation, invasion of privacy, intentional infliction of emotional distress, and civil conspiracy. During the discovery phase, which began in December 2017, the Defense served Plaintiff with several requests for document production. In Plaintiff’s interrogatory responses, Plaintiff identified 68 witnesses as having information related to his claims. Defense counsel proposed that Plaintiff provide his multiple email accounts and their passwords to the Defense’s expert, who would then run searches for the 68 witness names. The Court approved of the plan; however, the Plaintiff did not, arguing that this approach did not account for the protection of privileged information.

On appeal, the case was remanded and the parties came to an agreement regarding production wherein the first search the expert would conduct would be the names of privileged individuals. The results of that search would go to Plaintiff counsel to review and produce a privilege log related to those documents. The remainder of the non-privileged emails that hit on the 68 witness names would then be produced. Defense counsel provided a list of potential search terms to Plaintiff counsel, who had no objections or modifications to the list. Herein appears to be the end of Plaintiff’s cooperation in the discovery process.

The search for privileged names returned roughly 3,200 emails. Plaintiff’s counsel identified roughly 2,700 of them as actually being privileged and produced a privilege log, though woefully insufficient. The second search, for the 68 witness names, returned roughly 50,000 emails. Following the second search, Defense counsel requested that Plaintiff modify his discovery responses. This would assist in modifying the search term list in an attempt to cull out potentially non-responsive results to make the potentially responsive population easier to manage. Defense counsel didn’t hear anything from Plaintiff counsel for two weeks, at which point the Plaintiff refused to modify the discovery responses. Plaintiff did suggest that Defense counsel somehow modify the search term list to be able to discern between “material” and “relevant” discoverable information, yet provided no suggestion on how this might be accomplished. Plaintiff counsel also informed Defense counsel that Plaintiff blatantly refused to review any emails prior to 2013, arguing that there is no way they could be relevant. Defense counsel continued attempting to negotiate with Plaintiff to methodically deal with the large population of emails; however, Plaintiff counsel never responded to Defense counsel’s suggestions.

After roughly 15 months, the Defense filed a motion for sanctions, arguing that Plaintiff (1) refused to provide a sufficient privilege log, (2) refused to review or provide any emails from pre-2013, (3) refused to review or provide any emails related to the second search, and (4) failed to respond or negotiate regarding any suggestions made by the Defendant to move forward in the discovery phase. At the sanctions hearing, Plaintiff counsel wasn’t in any position to help himself or his client. Plaintiff admitted that he didn’t review a single email out of the 50,000 that resulted from the search, saying that he glanced at the list but found it overwhelming, repeatedly stating that the expert never actually ran the search terms. In response to being asked about the pre-2013 emails, Plaintiff said, “I did not even [expletive] know the defendant during that time and it wasn’t relevant to this particular action.” The Defense claimed they were relevant for two reasons – first to prove that Plaintiff routinely engaged in vexatious litigation, and second to prove that Plaintiff had been engaging with the witnesses as early as 2010 due to his involvement with the Defendant’s church business.

Eventually, Judge Hall granted the sanctions motion, finding Plaintiff in contempt for failing to comply with the December 2018 agreed discovery order. A few months later, a hearing was held on the matter of attorneys’ fees, of which the court ordered Plaintiff and Plaintiff counsel, jointly and severally, to pay Defense counsel’s attorney fees, totaling $11,835.00.

In its analysis, the Court routinely returned to the fact that Plaintiff not only failed to review any of the documents, but that he blatantly refused to do so. The Court noted that the discovery order to which the parties had agreed did not give Plaintiff the option to choose to review the emails but rather the duty to do so. Plaintiff alleged more than once that the list of documents to review was overwhelming; however, Plaintiff refused to engage in any negotiations with the Defense regarding potential modifications to make the population more manageable.

In Ohio, the civil rules allow for an attorney to be sanctioned for failing to comply with discovery orders per Civ. R. 37(B)(3). The Court, in granting sanctions against Plaintiff counsel, argued that Plaintiff counsel continued to repeat baseless allegations about Defense counsel’s motives and that it was “especially egregious” for Plaintiff counsel to continually blame the Defendant for Plaintiff’s negligent conduct regarding discovery.

This case, while unfortunate for Plaintiff and Plaintiff counsel, should serve as a reminder to attorneys of the need to be genuine in their efforts regarding discovery. It should go without saying that, due to attorney ethics and candor requirements, attorneys are responsible for following orders issued by the court and that failure to do so could result in the misbehaving attorney being found personally responsible for a portion of opposing counsel’s fees.

MORAL OF THE STORY

Not only is it important to understand what is required with regard to jurisdictional discovery rules, but also to understand what could happen if the rules aren’t followed.