Letter of the Law: October 2011

IN THIS ISSUE:

CONSTRUCTION: The Importance of Construction Contract Review and Negotiation

CONSTRUCTION: Subcontractor Licensing

FAMILY: Death During Divorce

PRODUCTS LIABILITY: Joint and Several Liability Under Nevada Law

You Win or Lose Before You Tee Off: The Importance of Construction Contract Review and Negotiation

By: Kyle D. Kring

I was very fortunate to get to play golf regularly with my dad and Uncle Dean and their foursome. Every Saturday morning was the same, standing on the first tee in the dark and fog at 6 a.m., and a lot of loud "negotiating" back and forth on the numerous bets that would be placed and how many strokes each person would get or give. I was always a bit naïve and cocky. I did not appreciate the fact that it really didn't matter how well I played if I did not negotiate the right bet before we teed off; or in other words, get a fair and reasonable number of strokes before we teed off. I learned quickly that "winning" was really done before we began playing.

The same strategy applies to construction contracting. A lot of the time, whether you win or lose on a construction project or job depends on what you do before you start work. Are there hidden risks that you did not consider because you just wanted to get the work? While getting work is important, so is staying in business; not getting stuck with someone else's liability; not paying liquidated damages; having to pay another subcontractor's union dues or payroll taxes; or after the project is complete, paying your profit on the job to an insurance carrier to cover a deductible or Self-Insured Retention as a result of a construction defect claim.

In this day and age, when margins are tight and owners are squeezing general contractors; general contractors are squeezing subcontractors; and some owners, general contractors, and subcontractors are finding themselves financially insolvent, it is absolutely necessary to have a reasonable and fair contract. No one should have to take on unreasonable and unfair risk. I know this is easier said than done, but you must try to get what is fair and reasonable so you do not regret the consequences after the project. So, before teeing off, please consider the following:

For General Contractors:

  • Make sure your subcontractors are paying materials suppliers, union dues, and payroll taxes (yes, you as the GC are responsible for unpaid payroll taxes).
  • Make sure subcontractors, and their sub- subcontractors are properly insured.
  • Make sure you and the owner are named as Additional Insureds and this documentation is up to date. This is especially important if the project lasts longer than the initial policy period.
  • Make sure you are fully indemnified if a subcontractor screws up his work or injures someone on the job site.
  • Should you have a mandatory arbitration provision? Should you incorporate American Arbitration Association provisions? We generally recommend against it.
  • Should you include a "prevailing party" attorney fee provision?
  • On Federal projects, you must have flow-through provisions advising subcontractors of federal law (as set forth below) and ensuring subcontractors' compliance.

For Subcontractors:

  • Are there egregiously harmful terms in the prime contract that you are tacitly agreeing to? Have you received and reviewed the prime contract?
  • Are you on the hook for liquidated damages that you never considered?
  • Are you agreeing to provide insurance that you do not have, or that you are unable to obtain?
  • Are you responsible for project delays? Is the General Contractor allowed to accelerate your work without being obligated to pay your overtime wages?
  • Are you agreeing to a warranty that you cannot provide? Are you agreeing to warrant work involving other trades that you have no control over?
  • Are you agreeing to indemnify others whom you have no control over?
  • On Federal projects, have you protected your bond rights? Or have you waived them?
  • On Federal projects, have you complied with E-Verify, Federal Acquisition Regulation (FAR) Contractor Code of Business Ethics and Conduct requirements, Davis-Bacon Act (Prevailing Wage), Buy American Provisions of the American Recovery and Reinvestment Act, Contract Work Hours and Safety Standards Act, and the Copeland "Anti-Kickback" Act (which requires weekly payment of all laborers and mechanics)?

In all cases, we recommend that you have an attorney, well-versed in construction, labor and employment, and the pitfalls of litigation, review your contracts to ensure that when you get to the 19th hole, you have done the best job protecting your business and ensuring that your project is profitable.

Subcontractor Licensing - Recovery Allowed Where Subcontractor Held Class A General Engineering License Rather Than Class C Specialty License Required by Contract

By: Paul T. McBride

California law provides a stiff penalty for unlicensed contractors. They may not sue to recover payment. California Business & Professions Code ("BPC")

§ 7031(a) states:

"No person engaged in the business or acting in the capacity of a contractor may bring or maintain any action or recover in law or equity in any action in any court of this state for the collection of compensation for the performance of any act or contract where a license is required by this chapter without alleging that he or she was a duly licensed contractor at all times during the performance of that act or contract, regardless of the merits of the cause of action brought by the person." (Emphasis added)

Thus, even if the job is completed competently and to the owner's satisfaction, the owner may still refuse to pay the unlicensed contractor and there is nothing the unlicensed contractor may do.

There are three general classifications of contractors licenses under California's licensing scheme. Class A licenses are general engineering contractor's licenses. Class B licenses are general building contractor's licenses. Class C licenses are specialty trade licenses, e.g. stucco, roofing, grading, etc. BPC § 7055.

In a recent California Court of Appeals decision, Pacific Caisson & Shoring, Inc. v. Bernards Bros., Inc., 2011 DJDAR 12647, the court considered whether a subcontractor who possessed a general engineering license, but not a specialty license, was entitled to recover for work performed under a subcontract which required a specialty license. The court ruled that recovery was allowed, on the theory that the specialty license was subsumed within the greater requirements of the general engineering license.

In the case, the general contractor, Bernards Bros., had a contract from the City of Malibu to build a medical center. Bernards' contract with the City included a requirement that the subcontractor hired by Bernards to excavate the foundation and prepare the ground for the medical center hold a C-12 grading contractor's license. Bernards hired Pacific Caisson & Shoring to perform the excavation work. Pacific did not possess a C-12 license. Instead, it possessed a Class A general engineering contractor's license.

Due to a dispute which is not detailed in the appellate opinion, Bernards Bros. refused to pay Pacific at the conclusion of the work. Pacific filed suit seeking payment of $544,000 owed to it under the contract. Bernard Bros. moved for judgment on the grounds that Pacific did not hold the requisite license, i.e. a C-12 grading contractor's license, and therefore was barred by BPC Code 7031(a) from bringing suit to recover payment. The trial court granted Bernard Bros.' motion, entering judgment against Pacific.

The trial court's ruling was reversed on appeal. The appellate court ruled that Pacific's possession of a Class A general engineering license was more than sufficient to qualify it to perform work expected of a C-12 grading licensee. Accordingly, it was entitled to be paid for its work.

The appellate court carefully detailed the statutory definition of a general engineering contractor. BPC section 7056 states that a general engineering contractor:

"Is a contractor whose principal contracting business is in connection with fixed works requiring specialized engineering knowledge and skill, including the following divisions or subjects: irrigation, drainage, water power, water supply, flood control, inland waterways, harbors, docks and wharves, shipyards and ports, dams and hydroelectric projects, levees, river control and reclamation works, railroads, highways, streets and roads, tunnels, airports and airways, sewers and sewage disposal plants and systems, waste reduction plants, bridges, overpasses, underpasses and other similar works, pipelines and other systems for the transmission of petroleum and other liquid or gaseous substances, parks, playgrounds and other recreational works, refineries, chemical plants and similar industrial plants requiring specialized engineering knowledge and skill, powerhouses, power plants and other utility plants and installations, mines and metallurgical plants, land leveling and earthmoving projects, excavating, grading, trenching, paving and surfacing work and cement and concrete works in connection with the above mentioned fixed works. (Emphasis added).

In contrast to a general contractor, "a specialty contractor is a contractor whose operations involve the performance of construction work requiring special skill and whose principal contracting business involves the use of specialized building trades or crafts." BPC § 7058(a). Specialty licenses are established by the California State Contractors Licensing Board; the criteria for each specialty license is published in the California Code of Regulations ("CCR"). An earthwork and paving contractor (License C-12) "digs, moves, and places material forming the surface of the earth, other than water, in such manner that a cut, fill, excavation, grade, trench, backfill, or tunnel (if incidental thereto) can be executed." 16 CCR 832.12.

Finally, the court detailed the scope of work performed by Pacific under its subcontract with Bernard Bros. Under the subcontract documents, Pacific agreed to excavate the site for footing, grade beams, plumbing and utility lines, backfill and grade, and provide temporary support. It also agreed to prepare and submit "calculations of subsurface conditions and geotechnical design parameters, factors of safety, assumptions, design criteria, overstress values, and serviceability/deflection tolerances." In short, Pacific contracted to perform both grading work and engineering work. The court stated, "The subcontract required of Pacific activities that fall beyond the purview of a C-12 contractor but within the expertise of a Class A licensee."

The importance of this case is its emphasis on the broad qualifications required of a Class A general engineering contractor or, by implication, of a Class B general building contractor. It is difficult to imagine a scenario where the possessor of a Class A or a Class B license would be considered unqualified to perform work under any specialty license.

Death During Divorce

Tomorrow is promised to no man. So what happens to a divorce action and property if one party dies during a dissolution proceeding?

The answer depends upon several things, most notably: 1) Did the other party cause the death? and 2) Was the marital status terminated early by bifurcation?

For purposes of this article, I am going to assume that the death is a result of accidental or natural causes, not criminally expedited.

During a divorce proceeding, either party has the right to ask the court to terminate the marital status before the other issues are finalized. With the current California budget cuts, a typical divorce in California is taking, on average, 1½ to 2 years to finalize. This being the case, a party may wish to remarry before then, or may just want the emotional closure that comes with being pronounced a single person again. By completing a bifurcation of marital status, the parties' marital status is dissolved early.

If a party's death occurs after their marital status is dissolved, then the family court maintains jurisdiction over the assets, and the decedent's personal representative steps into the shoes of the decedent (figuratively speaking), and continues to process the property division.

If a party's death occurs before their marital status is dissolved, then the property passes according to intestate succession or other governing estate plan, including survivorship and community property rights, and the family court loses jurisdiction over the property which now must be adjudicated by the probate court.

Notwithstanding whether a bifurcation of marital status has been completed in a case, there are several things that a concerned litigant may want to do to ensure that the spouse they are divorcing will not inherit any more than is necessary.

With real estate being valued as high as it is in California, probably one of the most important things to consider is severing any joint tenancies to properties. Holding property as joint tenants allows for the surviving spouse to receive the decedent's entire property interest without probate. By severing the joint tenancy, the parties will no longer hold title as joint tenants, but rather as tenants in common. Each party will then be permitted to bequeath their ownership interest to someone else of their choosing. This can be a double edged sword however, because no one knows whether they will outlive their spouse.

Another important consideration is creating a "divorce will." Although the back page of a California Family Law Summons contains automatic restraining orders ("ATROS"), the ATROS do not prevent either party from creating a new will and a new unfunded trust. The new will enables a party to decide an alternate inheritance plan other than their divorcing spouse. I recommend that parties make the effort to do such while their divorce is pending, "just in case."

Joint and Several Liability under Nevada Law

By: Merielle Enriquez

The concept of joint and several liability provides that if a Defendant is found negligent in a case involving multiple negligent Defendants, each negligent Defendant will be responsible for the entire amount of the judgment awarded to the Plaintiff. Common law has dictated that when the negligence of multiple tortfeasors combines to injure the Plaintiff, both tortfeasors will be jointly and severally liable for the damages incurred by the Plaintiff. The most common example of cases where joint and several liability is imposed are those involving product defects. For example, in Nevada, if a product is found to be defective under the legal principals of products liability, then the manufacturer, distributor, and/or supplier will be held jointly and severally liable for the damages the defective product has caused.

In contrast, the concept of several liability provides that tortious Defendants are only responsible for the percentage of fault attributed to them. The most common example of this involves multiple motor vehicle accidents. If one negligent defendant driver is found 5% responsible for the Plaintiff's damages and another negligent defendant driver is found 95% responsible, then each negligent Defendant is only liable in the amount of their proportionate share of the judgment.

Nevada has limited the reach of joint and several liability by statute. NRS § 41.141(5) dictates that joint and several liability is limited to the following actions:

  • Strict liability
  • An intentional tort
  • The emission, disposal or spillage of a toxic or hazardous substance
  • The concerted acts of the defendants; or
  • An injury to any person or property resulting from a produce which is manufactured, distributed, sold, or used in the state (Products Liability Actions).

There is, however, one huge exception to the causes of action articulated in NRS § 41.141(5). Joint and several liability in Nevada can still be imposed in negligence cases where there is absolutely no evidence of comparative negligence by the injured Plaintiff. This exception is best illustrated in the Nevada case, Buck v. Greyhound Lines, 105 Nev. 756 (1989). In Buck, twin three-year old daughters were passengers in a car driven by their mother, Marsha Buck. While attempting to make a U-turn on the I-95 north of Las Vegas, the car stalled, blocking the northbound lane of the highway. Shortly thereafter, a Greyhound bus came into view driving northbound on the highway. The bus was unable to stop in time and struck Ms. Buck's vehicle and her sleeping infants.

The main issue before the Court with respect to damages was whether the twin children were entitled to collect their damages based on the theory of several liability, or whether the twins could collect based on a theory of joint and several liability. If the court ruled that the twins were entitled to joint and several liability, the twins could potentially take advantage of Greyhound's liability policy. In making its decision, the Court focused on the statute itself. The Court held that NRS §41.141 was intended to apply only to those actions where "contributory negligence is asserted as a defense." See NRS §41.141(1). In this case, the court held that the "claims asserted on behalf of the three-year old twins sleeping in Ms. Buck's Mustang at the time of the collision would not, as a matter of law, be subject to the defense of contributory negligence." Buck, 105 Nev. at 764.

In summary, Ms. Buck, who was comparatively at fault, could only collect her damages via several liability. However, her twin daughters, who were not comparatively at fault and did not contribute to the cause of the accident, would be able to collect their damages under the theory of joint and several liability.

As personal injury defense attorneys, we recognize the need to build a strong defense in cases involving multiple tortfeasors. We have successfully defended cases involving motor vehicle accidents, premises liability, commercial trucking, products liability and intentional conduct. Kring & Chung can assist in the defense of any potential joint and several liability claim.

Attorney Advertising. This client newsletter is a periodical publication of Kring & Chung, LLP and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have. Any tax information or written tax advice contained herein (including any attachments) is not intended to be and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

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