1 r e s u l t s f i r s t sm n e w s l e t t e r Volume XxIII winter 2015 Co-Editors Charles F. Kenny, Partner and Michael S. Zicherman, Partner Indemnity and Hold Harmless Clauses in Florida Construction Contracts At its most basic le vel, indemnification is the concept of allocating or shifting risks, both anticipated as well as unforeseen, that Ralf R. Rodriguez may arise in the performance of a contractual agreement or other relationship. The person agreeing to indemnify (the indemnitor ) assumes the obligation to compensate or otherwise make whole another party (the indemnitee ) in the event they suffer a loss as a result of some event or the performance of a contract. In Florida, a claim for indemnification may arise from a common law cause of action or as a result of a contractual provision.1 The distinction between a common law cause of action for indemnity and a contractual indemnity claim is significant because, in order to prevail on a common law claim, a party must show the complete absence of any fault.2 Accordingly, parties should not rely on a common law indemnification claim, and should take care to include unequivocal, specific, and enforceable indemnification language in their contracts to effectively allocate and manage future risk. Peckar & Abramson, P.C. Honored by Chambers & Partners as the Nation s Top Construction Law Firm for Unprecedented Second Consecutive Year Peckar & Abramson is pleased to announce that Chambers & Partners has selected the firm as the nation s top construction law firm for the second consecutive year and for the third time in the twelve-year history of Chambers USA. P&A is the first construction law firm to have been awarded this recognition three separate times by Chambers, and is the first to receive the award two years in a row, thereby demonstrating P&A s indisputable standing as the nation s foremost construction law practice. Peckar & Abramson was honored with this award at the ninth annual Chambers USA Awards for Excellence, hosted on May 22, 2014 in New York City. Substantial Expertise and Enviable Track Record Chambers & Partners hailed Peckar & Abramson s expertise and widespread influence, recently announcing that the firm has a superb reputation across the USA for the high quality of its representation of leading construction managers and general contractors on a broad array of legal matters. The firm has continued to impress with its expertise on disputes, regulatory and compliance matters. Peckar & Abramson has substantial expertise and an enviable track record advising clients on policy issues and government contracts. Most Outstanding Boutique Firm in the Country For the 12th straight year, Chambers USA ranked the firm highly among a list of elite national and regional construction law firms, praising it as one of the more outstanding continued on page 3 continued on page 2
2 continued from page 1 Peckar & Abramson, P.C. Honored by Chambers & Partners as the Nation s Top Construction Law Firm for Unprecedented Second Consecutive Year 2 boutique firms in the country. The publication also noted that when it comes to clients, P&A attorneys are very responsive they get answers quickly. While affirming that P&A has an impressive team in offices across the country, Chambers USA singled out the New York, Florida, Washington, D.C. and California offices as leading practices within their respective cities. Chambers USA recognized a number of Peckar & Abramson attorneys as the nation s leading construction lawyers, commenting as follows: Adrian L. Bastianelli III the dean of construction in DC, a stalwart of the industry and cool, calm and collected. Michael A. Branca has a very good head on his shoulders for managing large and complex trial litigation. Todd N. Bressler is very good at seeing the big picture, and very good at strategy. Steven M. Charney incredibly knowledgeable and exceedingly effective. Gregory H. Chertoff very knowledgeable and takes a very practical approach. Melinda S. Gentile very easy to deal with and very professional. John D. Hanover has extensive experience in construction litigation. Bruce D. Meller a respected presence on high-value and complex matters. Robert S. Peckar very personable and extremely bright, understands the industry and is a compellingly skilled lawyer. Stephen H. Reisman very practical and results-oriented practitioner. Howard M. Rosen praised by sources for his impressive handling of complex disputes. He is a frequent choice to represent clients in construction litigation and arbitration matters. Stephen M. Seeger A very capable litigator, knows construction law, he evaluates and solves his clients problems and if it can t be solved he is prepared to go to trial. He will represent the client zealously but will do the right thing by them. Gary M. Stein well regarded for his broad expertise, working on residential, municipal and commercial matters and representing construction professionals. n Congratulations to Chairman Steven Charney & Founding Partner Robert Peckar And to the Two P&A Attorneys Honored by The Legal 500 The Legal 500 named P&A Chairman Steven M. Charney and Founding Partner Robert S. Peckar on the exclusive list of Leading Lawyers and placed them, as well as two other P&A attorneys, on The Legal 500 s 2014 list for the practice area of construction. The P&A attorneys selected for the construction practice area are: Steven M. Charney Chairman Robert S. Peckar Founding Partner Patrick J. Greene Partner Nicholas W. Sarris Partner Both Mr. Charney and Mr. Peckar are exemplars of P&A s continued success, widespread influence and 35 years of experience within construction law. The Legal 500 notes that Mr. Charney is one of the most accomplished construction lawyers out there, and praises Mr. Peckar for his specialization in government contracts. Peckar & Abramson, P.C. Named Team of the Year In Real Estate: Construction And Top Tier Firm in Construction Law by The Legal 500 The Legal 500 awarded Peckar & Abramson, P.C. Team of the Year in Real Estate: Construction at its inaugural United States Awards, and has named the firm a top tier firm in construction law in the United States for The Legal 500 United States Awards 2014 is a brandnew recognition that rewards the nation s best inhouse and private practice teams and individuals over the past 12 months. P&A received the Team of the Year in Real Estate: Construction award for demonstrating immense dedication to the construction industry and for consistently distinguishing itself as an elite legal practitioner with unrivaled expertise and a pristine record of success. The award is based upon The Legal 500 s comprehensive research into the U.S. legal market, which included over 50,000 interviews with key practitioners and clients. P&A ultimately stood out as the industry s most distinguished practice team, having outshone numerous other top tier firms in prestige and legal expertise. n
3 In relation to construction projects, common law indemnification typically arises in the context of construction defect litigation. For example, in the event that an owner sues a contractor for defective work, the contractor can assert a common law indemnification claim against the subcontractors who were solely recontinued from page 1 Indemnity and Hold Harmless Clauses in Florida Construction Contracts Contractual indemnification clauses are usually included in most construction contracts because they serve to manage risk and limit or even eliminate a party s obligation to be held responsible for events that take place during the course of a project. An indemnification clause should only be accepted after a risk/reward analysis has occurred, where the indemnitor fully understands the risks he is assuming and the indemnitee recognizes the risks for which he is no longer responsible. An indemnification clause will typically include a statement in which the indemnitor agrees to indemnify and hold harmless the indemnitee. While most jurisdictions treat this as a unitary phrase, Florida is unique in that it draws a distinction between the indemnify and hold harmless duties. 3 Under Florida law, the hold harmless clause is the exculpatory provision that may serve as a release or bar a claim by an injured party against another who was negligent or caused the injury. 4 In contrast, the indemnify language only shifts the responsibility for the payment of damages to someone other than the party who caused the injury. 5 Another notable risk shifting mechanism found in an indemnification clause is the duty to defend, which is construed by Florida courts as a separate and distinct obligation from any duty to indemnify and/or to hold harmless. 6 The duty to defend requires the indemnitor to provide a defense to the indemnitee and pay the legal expenses associated with defending a claim. It is important to note that when an indemnification clause encompasses the duty to tender a defense, the obligation will attach regardless of the outcome or merit of the claim. Conversely, the duty to indemnify and the duty to hold harmless will only arise if the outcome of a claim is adverse to the indemnitee. Since construction disputes often involve complex, multi-party actions, indemnitees are wise to include the duty to defend in their contracts in order to shift this financial burden because the cost of a legal defense may be more than the cost of the underlying claim. COMMON LAW INDEMNIFICATION In Florida, one can assert a common law indemnification claim, which is not contingent on a contractual provision, shifting the risk or exposure resulting from a loss event to another party who is wholly responsible for the injury or damages caused. In order to establish a common law claim, a party must prove: (1) that the party to be indemnified is without fault; (2) that the party s liability is exclusively due to the wrong of another; (3) that the indemnification is coming from a party who was at fault; and (4) that a special relationship exists between the two parties. 7 For the purposes of this common law claim, a special relationship is typically created through a contractual agreement or an employee employer relationship (i.e., master servant relationship recognized in common law). 8 The most common scenario for a common law indemnity claim is that in which the party seeking indemnity was exposed to tort liability; a party s liability for breach of contract can also form the basis for a common law indemnification claim against a third party. 9 continued on page 4 53
4 continued from page 3 4 sponsible for the defective work in order to pass all liability onto them. However, the contractor must plead and prove all of the elements specified above to establish a common law claim for indemnity, and proving that it was without any fault can be a difficult hurdle to overcome. In the previous example, if the contractor is partially liable, the entire common law indemnity claim will be extinguished. 10 CONTRACTUAL INDEMNIFICATION Unlike common law indemnity, contractual indemnity provides the contracting parties with the opportunity to define and distribute risks between them or any third parties. In Florida, a claim for contractual indemnification is subject to the statute of frauds and must be supported in writing because the provision promises to answer for the debt of another. 11 A contractual indemnity claim is governed by the express terms stipulated in the contract, and unlike a common law indemnification claim, it is not conditioned upon the existence of a special relationship or the fault of one of the parties. 12 Contractual indemnity can be categorized into three different forms: (1) Limited Form Indemnity; (2) Intermediate Form Indemnity; and (3) Broad Form Indemnity. Limited Form Indemnification covers losses exclusively caused by the indemnitor s negligence. Therefore, an indemnification claim resulting from a loss caused by the negligence of the indemnitee may be barred under this type of contractual indemnity clause. A Limited Form Indemnification clause can be expressed as follows: Subcontractor agrees to indemnify and hold harmless Contractor from and against liability arising out of Subcontractor s negligent acts, omissions, or conduct. A claim arising from the negligence of the Contractor is specifically excluded from this provision. An Intermediate Form Indemnification does not cover the indemnitee for its sole negligence, but does provide for the indemnitor to indemnify against a loss that is caused in whole or in part by the negligence of the indemnitor. In the event the indemnitee is not completely at fault, the indemnitor will still be held responsible. An Intermediate Form Indemnification provision can be expressed as follows: Subcontractor agrees to indemnify and hold harmless Contractor from and against all liability that is caused in whole or in part by the negligence of Subcontractor. A Broad Form Indemnification provides the most protection for an indemnitee and requires the indemnitor to hold the indemnitee harmless from all liabilities, regardless of which party s negligence caused the loss. A Broad Form Indemnification clause is enforceable in Florida, but not in many other states, and can be expressed as follows: Subcontractor agrees to indemnify and hold harmless Contractor from and against all liability arising out of the performance of the contract including any liability that is caused by Contractor s sole negligent acts and/or omissions. FLORIDA STATUTE When possible, a contracting party will request indemnification for their
5 continued from page 4 sole negligence under a Broad Form Indemnification Clause. Parties can include such a provision in their contracts to avoid any entanglement in regard to Florida s comparative negligence doctrine, where a party can be held liable for its percentage of fault or negligence associated with a specific event. 13 The use of this clause can serve to shift the risk associated with an event or claim where the indemnitee s negligence is connected to the claim. These clauses are enforceable in Florida, but they are disfavored. Any attempt to limit one s liability for its own negligent acts will not be inferred from an agreement unless the intention is clearly expressed in unequivocal terms. 14 Although Broad Form Indemnification is enforceable, Florida has enacted additional requirements for construction contracts that include an indemnity clause that purports to indemnify a party for its sole negligent conduct. The statute serves to protect indemnitors from harsh and unenforceable consequences resulting from this form of indemnification. Accordingly, the Broad Form Indemnification provision above would be unenforceable in the context of a construction contract because it does not comply with Specifically, applies to construction contracts between any combination of an owner, architect, engineer, contractor, subcontractor, or materialman where a party seeks to obtain indemnification from another party for its own active negligence. 16 Construction contracts within the contemplation of the statute exclude service or maintenance contracts; 17 however, leases for construction equipment are covered within the scope of the statute. 18 The statute explicitly provides that it is enforceable in a construction contract to indemnify first party negligence so long as there is a monetary limit on the indemnity of not less than $1,000,000 per occurrence, unless otherwise agreed upon by the parties. 19 The monetary limitation must be placed in the contract and any accompanying bid document or project specifications, if any. 20 Although the limitation may be placed anywhere within the contract, it is recommended that the limitation be placed within the indemnification clause itself. Also, the monetary limit must bear a reasonable relationship to the contract. 21 Presumably, the limitation is reasonable when the cap is not disproportionate to the scope of the work or the contract price specified in the agreement. 22 Notably, does not allow the indemnification obligation in a contract to include claims resulting from gross negligence or willful, wonton, or intentional misconduct. 23 Noncompliance with the provisions of will result in an invalid and unenforceable indemnification clause. 24 An indemnification clause that comports with can be expressed as follows: Subcontractor agrees to indemnify and hold harmless Contractor from and against all liability arising out of the performance of the contract, including any liability that is caused by Contractor s sole negligent acts and/ or omissions. The Subcontractors obligations herein shall not exceed $1,000,000 per occurrence. Moreover, limits indemnification provisions in construction contracts on projects let by a public agency. 25 With the exception of indemnification language that provides for an indemnitor to indemnify and hold harmless a first party indemnitee to the extent caused by the negligence of the indemnitor, any language attempting to indemnify or hold harmless a party in connection with a public agency construction contract is void as against public policy. 26 Thus, the only indemnification language that will be enforceable in this situation is a Limited Form Indemnification Clause where an indemnitee will only be indemnified in the event the loss is caused by the negligence of the indemnitor. Several states have adopted laws that reflect a view that holding someone harmless from his or her own wrongful conduct is simply not fair, against public policy, and should not be enforceable by any legal right recognized under the law. 27 Florida s statutory scheme addressing indemnity provisions in construction contracts reveals a similar view that contractual indemnification is a subtle and complex concept that should include substantial limitations and warnings regarding the duty to hold someone harmless for their own negligence. Understanding Florida s statutory requirements governing indemnification clauses is critical in drafting enforceable indemnification provisions in construction contracts. RECOMMENDATIONS WHEN DRAFTING INDEMNITY AND HOLD HARMLESS CLAUSES Contractual indemnity provisions are often drafted in a manner that is not readily obvious to the untrained eye, and as a result, indemnification is often overlooked as boilerplate language. Although indemnification is a complex concept, each party should analyze and understand the implications of what they are potentially agreeing to. The threshold consideration may be whether the indemnity or hold harmless provision is necessary at all. For example, if the indemnity or hold harmless provision does not provide greater protection than 5 continued on page 14
6 The Resurrection of Conforti & Eisele, Inc. v. John C. Morris: Design Professionals may be Liable to contractors for Economic Loss 6 Just as Mark Twain famously remarked on the erroneous publication of his own obituary, recent cases from the New Jersey Federal District Court suggest that reports of the demise of the holding in Conforti & Eisele, Inc. v. John C. Morris Associates 1 have been greatly exaggerated. Alexander X. Saunders The decisions suggest that Conforti s holding that a design pro fessional can be liable for economic loss to a contractor based on the design professional's negligence, even when there is no contract between the parties is alive and well. Construction litigators may be excused for believing that the Conforti holding was mortally wounded after the 2011 unpublished decision by the New Jersey Appellate Division in Horizon Group of New England, Inc. v. New Jersey Schools Const. Corp. 2 The Horizon decision held that the contractor could not pursue tort claims against the design professional where the contracts between the parties prohibited the creation of third-party beneficiaries, among other things. Despite the result in Horizon, however, one recent New Jersey District Court decision, Bedwell Co. v. Camden County Improvement Authority, 3 explicitly approves of Conforti and finds the Horizon decision erroneous. These conflicting decisions understandably create some uncertainty for construction litigators and it is therefore important to assess the status of the law in the area of contractor claims against design professionals and chart the development of this area of case law. The 1980 Conforti decision was simple, concise and left little to be debated. The
7 continued from page 6 rule in New Jersey seemed perfectly well-established by Conforti: recovery cannot be denied to an innocent contractor who suffers injuries, albeit economic damage, as a result of the negligence of the design professional. 4 However, the 2011 Horizon decision cast doubt on the viability of the longstanding principle first laid down in Conforti 30 years ago. In Horizon, the contractor, Horizon Group of New England, Inc. ( Horizon ), sued the design professional, EI Associates ( EIA ), and its subcontractor GZA GeoEnvironmental, Inc. ( GZA ) under tort theories. EIA and GZA moved for summary judgment arguing, among other things, that the contractor s claims against the design professional were barred by the economic loss doctrine. While the contractor argued that the Conforti decision controlled, the Appellate Division ultimately disagreed. The Court found that the contractor could invoke contractual remedies to request change orders and obtain other accommodations and, if necessary, could sue [the owner] directly for breach of contract. Therefore, it held that the contractor had sufficient remedies. 5 The Horizon decision calls forth a number of issues. For one, the decision couches its findings on the fact that the contract documents in Conforti lacked the sophisticated contractual scheme present in the Horizon case, and that the contractor in Conforti did not have a direct contractual relationship with the owner as opposed to the contractor in Horizon. 6 These statements are surprising since it is unclear which Conforti contract documents were reviewed by the Horizon court. Indeed, the cited pages from the Conforti decision contain no details about the contracts at issue in that case. The Horizon decision s problematic rationale is most clearly exposed in its conclusion that the contractor could not pursue claims against the design professional because it did have a direct contractual relationship with [the owner] and possessed contractual remedies to address the situation it encountered in the performance of its work. 7 This reasoning would seem to violate basic principles of law as it is difficult to see how a contract between an owner and an architect, with or without a prohibition on third-party standing, could bar all claims, including tort and contract claims, by individuals and companies who are strangers to that contract. As an unpublished decision, Horizon is subject to New Jersey court rule 1:36-3, which states that [no] unpublished opinion shall constitute precedent or be binding upon any court. Despite this, the Horizon case and the nebulous implications of the economic loss doctrine applied in construction cases continue to present problems for trial-level courts. 8 Two recent New Jersey District Court cases, however, have sought to elucidate the economic loss doctrine in the context of construction litigation and have called the Horizon decision into doubt, concluding that Horizon is not in accordance with the weight of New Jersey authority. Although these District Court cases are not binding on New Jersey trial courts, as federal decisions they are to be accorded due respect by trial-level courts 9 and undeniably shed much needed clarity on this issue. In the case, SRC Const. Corp. of Monroe v. Atlantic City Housing Authority, 10 the District Court concluded that Horizon could not be reconciled with prior New Jersey cases on the economic loss doctrine. In SRC, a contractor brought tort claims action against an architectural firm on a construction project; the architectural firm argued that the economic loss doctrine precluded the contractor s claims. The Court found that the doctrine precluded negligence actions only when the claimant and defendant had a contractual relationship themselves and, therefore, the existence of a contract with a third party, such as a project developer, could not limit the contractor s remedies against the design professional. 11 In Bedwell Co. v. Camden County Improvement Authority, 12 the District Court similarly concluded that the Horizon case does not control the Court s analysis. 13 In Bedwell, the design professional sought to dismiss the negligence claims by application of the economic loss doctrine. The Bedwell court found that the economic loss doctrine did not apply because the doctrine only bars a tort claim when the claim (i) is brought in addition to a contract action, and (ii) does not stem from an independent duty of care. 14 The design professional in Bedwell argued, as did the design professional in Horizon and in SRC, that the contractual relationships between the owner and the contractor, and between the owner and the designer, barred a tort claim on the part of the contractor. The court rejected this argument and found that a contract cannot define the legal obligations between two entities unless those two entities are parties to the contract. 15 Consequently, the Bedwell court concluded that because there was no contract between the contractor and the design professional, the obligations of the parties are defined by tort law, unaffected by third-party agreements. 16 Notwithstanding these recent decisions, the issue of the proper application of the economic loss doctrine in construction cases in New Jersey needs clarification. Nonetheless, SRC and Bedwell tell us that the Conforti holding is alive and well. n N.J.Super. 341 (N.J.Super.L., 1980) aff d by 199 N.J.Super.498 (App.Div.1985) WL (N.J.Super.A.D.,2011) WL (D.N.J.,2014) 4 Conforti, 175 N.J.Super. at Horizon, 2011 WL at *6. 6 Id. at *6-*7. 7 Id. 8 See, e.g., Spectraserv, Inc. v. Middlesex County Utilities Authority, No. L , 2013 WL (N.J. Super. Ct. Law Div. July 25, 2013). 9 Dewey v. R.J. Reynolds Tobacco Co., 121 N.J. 69, 577 A.2d 1239 (N.J.,1990) F.Supp.2d 796, 800 (D.N.J.,2013). 11 Id. at WL at FN4 (D.N.J.,2014). 13 Id. (citing SRC, 935 F.Supp.2d at 800). 14 Id. at *3 [Citing Saltiel v. GSI Consultants, Inc., 170 N.J. 297, 310 (2002)] 15 Id. at *3. 16 Id.
8 8 Making the Most Out of Your Attorney s Fees Clause: Why Indemnity Alone Won t Protect You Eric M. Gruzen Shiva Fatoorechi While many construction contracts contain a prevailing party 1 provision that allows the successful party in a litigation to recoup its legal fees and costs from the losing side, often times only a small amount of the total expenses incurred are recovered. Although this loss is occasionally attributable to court-imposed fee reductions, more often it is a direct result of restrictive drafting of the attorney s fee provision in the contract. Generally, prevailing party attorney s fee provisions contain some variation on the following language: In the event of a dispute between the parties regarding the terms or enforcement of this contract, the prevailing party in any such action shall recover its reasonable attorney s fees and costs from the non-prevailing party. This standard provision, however, fails to adequately protect parties to contracts who seek the broadest possible margin to recover legal expenses in the event of a dispute. Fortunately, a few simple changes can ensure the maximum recovery. Indemnity Provisions Do Not Cover Attorney s Fees The first step is to make certain that the provision is properly drafted as a separate and distinct clause in the contract. In California, courts have been very clear in their stance that any alternative provision, such as an indemnity clause, will not cover attorney s fees for the prevailing party. For example, in M. Perez Company v. Base Camp Condominiums Association No. One, 2 the California Court of Appeal explained that there is a distinction between a prevailing party attorney s fees clause, and an indemnity provision that includes the right to reimbursement for legal expenses in connection with various types of claims. The indemnity clause at issue stated that the non-prevailing party in a litigation must indemnify the prevailing party
9 continued from page 8 against any third party claims arising from performance under the agreement. In that case, the trial court denied a prevailing contractor s post-trial motion for the recovery of attorney s fees against a subcontractor and an owner. In affirming the trial court decision, the Court of Appeal stated: Where a party on a cause of action for breach of contract seeks the right to attorney s fees premised on a specific attorney s fee provision that allows such a recovery, the scope and purpose of Civil Code is to provide mutuality of contract remedies. Therefore, a prevailing party should recover such fees. In contrast, when a party seeks recovery of attorney s fees based on breach of contract and an examination of the contract reveals that the provision at issue is (i) nonspecific in nature or (ii) is an indemnity clause, the reciprocal nature of 1717 does not come into play unless the prevailing party pursued an indemnity cause of action. Furthermore, the Court of Appeal rejected the contractor s assertion that, because the owner claimed a contractual right to attorney s fees and lost, the owner was judicially estopped from arguing that the contract did not in fact include a prevailing party attorney s fees clause. The Court of Appeal explained that: Where a litigant is uncertain that a contractual provision allows the recovery of attorney fees, it is not improper to assert a claim based on that provision, just as it is not improper for the opponent to claim the provision does not allow such recovery. But those parties should not be estopped thereafter to assert a contrary position if their interests become reversed. (Emphasis added) New York courts take a very similar stance. In Gotham Partners, L.P. v High Riv. Ltd. Partnership 4, a New York appellate court held that unless an indemnification clause in a contract is unmistakably clear and meets the exacting test 5 set forth nearly 20 years ago in Hooper Associates v AGS Computers, 6 the winning side of a dispute between two parties to a contract will not be entitled to attorney s fees, regardless of the contracting parties original intent. Therefore, the standard boilerplate language proved insufficient to entitle a prevailing party to attorney s fees. If the provision can be read as an indemnification for claims by third parties, it will not be adequate in ensuring the full recovery of attorney s fees incurred in litigating with a counterparty. Therefore, although a contractual indemnity provision may appear broad enough to cover the recoupment for attorney s fees, such a provision is not a substitute for a separate prevailing party attorney s fee provision. Improving Your Contract with an All-Inclusive Prevailing Party Fee Provision The standard fee and cost provision has proven inadequate in protecting a litigant s right to recover the expenses of litigation. Particularly with respect to large scale litigation, the substantial cost for legal counsel and expert testimony warrants that contractors revisit the prevailing party provisions of their standard contracts to ensure that they will provide for the recovery of all fees and costs incurred in litigating a dispute. The following fees/costs sample provision can be added to a prevailing party attorney s fee provision to ensure the broadest recovery possible: Attorney Fees: In any litigation, arbitration, or other proceeding by which one party either seeks to enforce its rights under this Agreement (whether in contract, tort, or both), or seeks a declaration of any rights or obligations under this Agreement, the prevailing party shall be awarded its reasonable attorney fees, and costs and expenses incurred, including, but not limited to: costs of investigation; costs of copying documents and other materials, whether for discovery, filing with the court, internal review, or any other purpose; costs for electronic discovery; Westlaw, Lexis-Nexis, or other electronic research service charges; telephone charges; mailing, commercial delivery service, and courier charges; travel expenses, whether for investigation, depositions, hearings, trial, or any other purpose; information technology support charges; any and all consultant or expert witness fees, whether or not such fees are incurred in connection with a court-ordered report or testimony at a deposition, hearing, or trial; court reporter and transcript fees, whether for deposition, trial, or an evidentiary or non-evidentiary hearing; mediator fees; expert witness fees and costs; and any other reasonable cost incurred by the prevailing party in connection with the dispute. Conclusion In order to ensure that a fee-shifting provision affords the maximum protection, contracting parties should periodically review and re-examine the clause to ensure it is up to date. You can contact the authors of this article for assistance with drafting, reviewing, and/or revising the ideal language that provides the broadest recovery. n 9 1 The term prevailing party refers to the party in whose favor a judgment, decree, or final order is rendered Cal. App. 4th 456 (2003) 3 Civil Code 1717a, which is the relevant portion of the statute, states In any action on a contract, where the contract specifically provides that attorney s fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney s fees in addition to other costs NY Slip Op Under the exacting test, for an indemnification clause to cover claims between the contracting parties rather than third-party claims, its language must unequivocally reflect that intent N.Y.2d 487 (NY )
10 AMERICAN ARBITRATION ASSOCIATION ISSUES NEW ALTERNATIVE RULES FOR ARBITRATING CONSTRUCTION DISPUTES ON A MORE EXPEDITIOUS BASIS 10 Scott G. Kearns In June 2014, the American Arbitration Association ( AAA ), working with the National Construction Dispute Resolution Committee ( NCDR ), 1 introduced supplementary rules that limit the time and cost of arbitrating construction disputes. The new rules, entitled Supplementary Rules for Fixed Time and Cost Construction Arbitration ( the Rules ), were developed in response to construction practitioners concerns over the mounting time and costs involved in traditional construction arbitrations. Most notably, the Rules set limits upon (a) the maximum time to complete arbitration, (b) the number of hearing days, (c) arbitrator fees, and (d) administrative fees charged by the AAA. Maximum periods and fees are subject to a sliding scale and depend upon the amount in controversy. Below is the modified base time/cost schedule provided for in the Rules: 2 The Rules encourage greater client involvement and awareness. Each party is required to designate an employee, such as in-house counsel or a senior-level executive, whom the AAA will copy on all correspondence and communications relating to the arbitration. Not all types of construction disputes will be effectively arbitrated under the Rules. For example, the Rules only apply to two-party arbitrations; however, a third party surety may be added if it (a) is represented by the same counsel as its principal, and (b) has not asserted an independent claim in the arbitration against either its principal or the other named party. 3 The Rules are only intended to be
11 used in connection with construction disputes that have discrete issues that would benefit from limited document exchange and discovery. 4 Although it may be tempting to expand the use of the Rules to more complex cases as a means of controlling time and cost commitments, parties will likely find that the Rules, with their restrictive time frames, limitations upon discovery, and abbreviated arbitration awards (limited to three pages) are simply not suitable for larger, more complex cases. Of course, the needs of a particular arbitration may not be easy to predict in advance. If, following the commencement of arbitration under the Rules, it becomes apparent that additional time or hearing days are required, the arbitrator may, on application of a party (signed by the party s designated client representative) and for good cause shown, permit additional hearing days or time frame extensions. 5 If an extension is granted, it is within the discretion of the AAA to either continue administering the arbitration under the Rules, or treat it as having been commenced under its regular or complex track construction arbitration rules. Likewise, if the parties fail to adhere to the requirements of the Rules, the AAA may discontinue their use and apply its regular or complex track construction arbitration rules. 6 In that event, either party may ask the arbitrator to rule that any resulting additional costs be borne by the other party, whose conduct presumably necessitated the transfer. 7 Use of the Rules may be invoked by either (a) providing for their use in the arbitration clause of a contract of agreement, or (b) by the filing of a submission agreement to arbitrate under the Supplementary Rules, signed by both parties. Parties who choose arbitration as the vehicle to resolve disputes are encouraged to familiarize themselves with the Rules, the entire breadth of which is not detailed here. Certainly, the potential for less expensive and more efficient arbitrations is a powerful incentive for opting to proceed under this new protocol. n 11 Claim/Counterclaim Amount Above $75,000 $250,000 Above $250,000 $500,000 Above $500,000 $1M Above $1M $5M AAA Fees $2,500 $5,000 $7,500 $10,000 Maximum Days from Filing to Award Number of Arbitrators Maximum Number of Hearing Days Arbitrator Hearing/Study Compensation per Hour Up to $250 Up to $275 Up to $300 Up to $350 Maximum Arbitrator Study Time-Hours Maximum Total Fees* $10,500 $14,900 $25,500 $52, The NCDR is an advisory committee made up of approximately 30 industry groups. Fox, Rahn, & Strober, New AAA Construction Rules Offer Certainty to Arbitration of Construction Disputes, Association of Corporate Counsel, June 19, Fees references in this fee schedule may be modified based upon services rendered in a particular arbitration. 3. Rules, SR Rules, Introduction 5. Rules, SR Rules SR Rules SR-14.
12 SINGLE EMPLOYER AND JOINT EMPLOYER ALLEGATIONS IN WAGE AND HOUR CLASS ACTIONS Kevin J. O Connor For many years now, employers have faced a veritable onslaught of class actions that allege violations of federal and/or state wage and hour laws, such as the Fair Labor Standards Act of 1938 ( FLSA ) and its state counterparts. One strategy on the part of plaintiffs that continues to develop and presents a formidable threat to employers through the class action device is the use of either a single employer or joint employer theory, or both. Joseph M. Vento Employing one or both theories, a class plaintiff, who was simultaneously employed by two or more companies with a close functional relationship, will argue that the aggregation of the individual s hours is necessary for overtime purposes, thereby entitling the plaintiff to unpaid overtime, liquidated damages, and attorneys fees. This article addresses how various federal courts have dealt with this evolving issue and how the rather fact-intensive approach often taken by these courts can pose a significant risk to employers by requiring expensive and time-consuming discovery before the validity of allegations are rigorously tested. Background On FLSA FLSA institutes a minimum wage for employees who are either engaged in or produce goods for interstate commerce. In adopting [FLSA], Congress set the floor for workplace standards but permitted states to adopt more generous wage and hour laws. Typically, FLSA claims deal with either an employer s failure to provide a minimum wage or a failure to pay non-exempt employees who work more than forty hours in a week at no less than time and a half their hourly wage. Where violations are proven, employees may be entitled to the unpaid wages plus liquidated damages, costs, and attorneys fees. An employee suing under FLSA must show that each named defendant is an employer as that term has been broadly defined. The FLSA defines employer and employee expansively. 1
13 Single Employer/Joint Employer Theories FLSA and its implementing regulations provide that multiple business entities can be held jointly and severally liable for a single employee s wages under a joint employer or single employer theory. Such is the case when two or more organizations have common employees and ownership. If employees are shared between two organizations and their weekly time exceeds forty hours between the two entities, the employers can be held jointly and severally liable if the employees are not paid overtime. The Code of Federal Regulations provides that [a] single individual may stand in the relation of an employee to two or more employers at the same time under [FLSA], since there is nothing in the act which prevents an individual employed by one employer from also entering into an employment relationship with a different employer. 2 The provision goes on to state in broad terms that two companies can be held jointly liable for wage and hour violations where there is shared control. Individual business entities that have common ownership and management and that exercise direct or indirect control over the employees of the other can therefore be clustered together and treated as a single employer for FLSA purposes. 3 The Class Action as a Means of Imposing Joint Employer or Single Employer Liability In class actions, the intent on the part of the plaintiffs is always to plead a case in such a way as to avoid a pre-answer dismissal motion and to achieve the first step of a collective action. Unfortunately for employers, given the way the regulations are written, the joint employer or single employer theories can be difficult to challenge at the pre-answer motion stage, provided the pleadings contain adequate factual allegations and the defendants offer sufficient proof the employers functional relationship. Whether the plaintiff characterizes the theory as a joint employer, single enterprise, or single employer theory (the cases often conflate the terms), the courts will generally require the plaintiff to show that two or more nominally separate businesses performed related activities through a unified operation or common control and for a common business purpose. 4 For example, a joint employment relationship may exist in which one employer is controlled by another entity, or where both are under common control. Whether an employee is jointly employed by two entities requires the examining court to consider the economic realities of the relationship to determine whether formal or functional control was exerted by the putative employers. 5 In this regard, courts will deny a motion to dismiss that alleges that while the organizations were separate on paper, they were run quite differently in practice. For example, in Perez v. Westchester Foreign Autos, Inc., 6 plaintiffs were sales consultants and managers at a New York Toyota dealer which was allegedly owned and operated by a management company that owned twenty other dealerships. Plaintiffs claimed they were not paid minimum wage; they also claimed that they never received wages for spread-of-hours and were frequently deducted pay for poor customer ratings and reporting late to work. They filed a collective action on a joint employer theory against both the dealership and the management company. Both parties moved to dismiss. Using the same factors outlined above (formal or functional control), the court denied the motion and found the allegations adequate that the dealer and management company jointly employed the sales consultants. In making this determination, district courts are required to examine the circumstances of the whole activity viewed in light of economic reality, and are thus free to consider any other factors it deems relevant to its assessment of the economic realities. 7 Thus the court found that at the pre-answer stage, the consultants had offered sufficient factual information to entitle them to discovery. The employers in Perez later settled for nearly $400,000 after the district court found that the consultants sufficiently alleged that the management company was a single employer due to: (1) a common employee handbook which contained company policies regarding timekeeping, pay, loans, work schedules and pay deductions; (2) a shared website and marketing campaign; and (3) a letter from the management company s president defining the Company as it and its dealerships. However, even in the face of a class action pursuing such theories, employers may be able to challenge the pleading on its face and obtain dismissal. The Third Circuit Court of Appeals, which hears Pennsylvania, New Jersey and Delaware federal cases, recently adopted the more stringent standard previously utilized by the Second Circuit, which deals with cases from New York, Connecticut, and Vermont federal courts in FLSA cases. 8 The latest word from the Third Circuit Court of Appeals (the court that decided the Enterprise case discussed herein) on continued on page 14 13
14 continued from page13 joint employer allegations demonstrates the plaintiff-friendly standard that is being progressively utilized by courts in evaluating joint and single employer theories on a motion to dismiss. In Thompson v. Real Estate Mortgage Network, 9 the court vacated a pre-answer dismissal and remanded for factual discovery after observing that the employee has had no opportunity for discovery as to payroll and taxation documents, disciplinary records, internal corporate communications, or leadership and ownership structures This ruling reflects the lenient pleading standard allowed in reviewing the sufficiency of an employee s claim that the employers operated as a joint enterprise. Id. at 149. The Third Circuit s opinion provides further evidence of the fact-intensive nature of these claims and the uphill battle for employers faced with a class action asserting single/joint employer liability. The court s subscription to this increasingly popular approach suggests a nationwide shift towards the abovedescribed method of adjudicating FLSA cases brought on by these theories. This expanding trend only serves to emphasize the need for employers to engage qualified counsel to perform an audit of wage and hour practices, as well as their general marketing practices, to ensure that the risk of liability is minimized. n 1. In re Enterprise Rent-A-Car Wage & Hour Emp t Prac. Litig., 683 F.3d 462, (3d Cir. 2012) C.F.R In re Enterprise Rent-A-Car, 683 F.3d at Gonzalez v. Old Lisbon Restaurant & Bar LLC, 820 F.Supp.2d 1365, 1369 (S.D. Fla. 2011). 5. Davis v. Abington Memorial Hospital, 817 F.Supp.2d 556, 563 (E.D. Pa. 2011) WL (S.D.N.Y. Feb. 28, 2013) 7. Id. at *6 (quoting Zheng v. Liberty Apparel Co., 355 F.3d 61, 66; (2d Cir.2003)). 8. See Davis v. Abington Mem. Hosp., 2014 WL (3d Cir. Aug. 26, 2014)(adopting the middle-ground approach in Lundy v. Catholic Health Sys. Of Long Island, Inc., 711 F.3d 106 (2d Cir. 2013)) F.3d. 142 (3d Cir. 2014). continued from page 5 14 Indemnity and Hold Harmless Clauses in Florida Construction Contracts would normally be available for breach of warranty or breach of contract, then the indemnity provision is not needed. The next consideration must be whether the indemnification is subject to statutory authority such as discussed above. In Florida, indemnity and hold harmless provisions are strictly construed in favor of the indemnitor, so ambiguity will generally result in less coverage. 28 In order to avoid this dilemma, the indemnification clause should be drafted using clear language with as much specificity as possible. It is recommended that the drafter (1) establish the events that trigger the indemnity and hold harmless obligations; (2) identify and list the parties to be indemnified, including directors, officers, employees, agents, and other third party beneficiaries; (3) expressly refer to the losses that are to be covered, including the duty to defend; and (4) provide a time frame where the indemnification obligations would remain available for enforcement. Indemnity and hold harmless provisions are inherently flexible and should be drafted to suit the specific transaction contemplated by the parties. When drafted appropriately, indemnity provisions can significantly mitigate the risks undertaken and provide a considerable degree of security. Finally, if you are the indemnitee, it bears emphasizing that you should include the duty to defend within the indemnification clause. The duty to tender a defense is often the most expensive obligation for the indemnitor. Other Drafting Considerations Do not copy and paste indemnification language from previous or unrelated contracts. It is likely that the indemnification from another contract will not make sense in the context of the current contract. Remember, any ambiguity will be held in favor of the indemnitor. Explore the possibility of entering into a mutual indemnification provision where both parties are responsible for their own negligence. However, you should consider who is more likely to be accused of negligence, and therefore, is more likely to gain or lose from this proposal. The duty to defend should be specified in a different sentence, separate from the duties to indemnify and hold harmless. In the event the indemnity and hold harmless obligations are deemed unenforceable, courts are more likely to sever the unenforceable language and apply the duty to defend if it is asserted as a separate and distinct contractual obligation. 29 Indemnification language should be clear and prominent within the contract. The drafter could use a bold face font, large font size, or capitalization to achieve this. Aside from the statutory limitations described earlier, it may be continued on page 16
15 Peckar & Abramson Welcomes Seeger, P.C. Legal Team and Solidifies its Position as Washington, D.C. s Dominant Construction Law Practice Peckar & Abramson is pleased to announce the expansion of its Washington, D.C. office with the addition of seven attorneys from Seeger, P.C. The Seeger team, consisting of some of the D.C. area s leading construction litigators, will enhance P&A s construction, commercial and surety law practice in the D.C. area, as well as its government contracts practice nationwide. Combining Knowledge & Expertise P&A s addition of the Seeger attorneys reinforces our position as the premier construction law firm, said Steven M. Charney, Chairman of P&A. P&A is committed to providing unparalleled legal services to the construction community. Delivering results for our clients, through excellence, foresight, leadership and innovation, is at the center of our culture at P&A. Stephen M. Seeger and Michael C. Zisa, and the talented associates they bring with them, are a perfect fit, will strengthen our team, and provide expanded resources to our clients. Stephen M. Seeger, Founding Partner of Seeger, P.C., added, It just made sense. P&A shares our results oriented approach. Joining P&A allows us to expand our practice while continuing to provide personal service and attention to our clients. We look forward to working with the extraordinary P&A attorneys we have known for many years, including Adrian L. Bastianelli III and Michael A. Branca in P&A s D.C. office. About Stephen M. Seeger Stephen M. Seeger joined the P&A team as a partner. He concentrates his practice in construction, commercial and government contracting, and has successfully tried many complex cases in the state and federal courts of the District of Columbia, Maryland and Virginia, and before arbitral panels, boards of contract appeals, and the Court of Federal Claims. Mr. Seeger is intimately familiar with the nuances and pitfalls found in construction documents and jobsite realities and uses these insights to serve clients from project concept to final completion. He was ranked AV Preeminent by Martindale and has been recognized by Washington, D.C. Super Lawyers, Best Lawyers and Smart CEO Magazine as a leader in the D.C. construction bar. Chambers also identified Mr. Seeger as a leader in the District of Columbia Construction Bar, noting: Talented litigator Stephen Seeger is highly regarded as a hard working straight shooter. He impresses sources with his intelligent performance in substantial litigation and arbitrations. About Michael C. Zisa Michael C. Zisa also joined the P&A team as a partner. His primary areas of practice include construction, surety and government contract law. He has successfully represented sureties, general contractors, subcontractors and owners in disputes before federal and state courts in Washington, D.C., Maryland and Virginia, as well as contract appeals boards and alternative dispute resolution forums. While Mr. Zisa is well-versed in the litigation process, he regularly counsels clients through planning and preemptive actions, including contract review and negotiation, contract administration assistance and claim development and analysis. Mr. Zisa frequently speaks on construction and surety issues and was recently recognized by Washington, D.C. Super Lawyers in the areas of surety, construction and government contracts. P&A has also brought on a team of highly experienced associates, including Jesse S. Keene, Christopher Sweeney, Eric D. Marlowe and Anthony J. LaPlaca. n 15
16 continued from page 14 Indemnity and Hold Harmless Clauses in Florida Construction Contracts 16 advantageous to place a ceiling and a floor on the amount of the indemnity, hold harmless, and defense obligations. The floor will ensure the indemnitee will not seek indemnification for small or frivolous claims while the ceiling will identify the indemnitor s maximum exposure. CONCLUSION The scope and operation of indemnity and hold harmless clauses within the realm of the construction industry in Florida are often misunderstood, especially in light of Florida s specific statutory treatment of construction contracts. Parties to a construction contract should carefully articulate and accurately reflect their indemnity obligations and expectations into the express terms of their contract to avoid any future misunderstanding or economic hardship. n 1 Federal Ins. Co. v. Western Waterproofing Co. of America, 500 So.2d 162, 163 (Fla. 1st DCA 1986). 2 See Dade County Sch. Bd. v. Radio Station WQBA, 731 So. 2d 638, 642 (Fla. 1st DCA 1999). 3 Kitchens of the Oceans, Inc. v. McGladrey & Pullen, LLP, 832 So. 2d 270, 272 (Fla. 4th DCA 2002). 4 See Id. 5 See Id. 6 Westinghouse Electric Corp. v. Metropolitan Dade County, 592 So. 2d 1134, 1135 (Fla. 3rd DCA 1991). 7 See Radio Station WQBA, 731 So. 2d at Diplomat Properties Ltd. Partnership v. Tecnoglass, LLC, 114 So. 3d 357, 359 (Fla. 4th DCA 2013). 9 Id. at See Radio Station WQBA, 731 So. 2d at Fla. Stat.(1998) ( No action shall be brought whereby to charge the defendant upon any special promise to answer for the debt, default or miscarriage of another person unless the agreement or promise upon which such action shall be brought, or some note or memorandum thereof shall be in writing and signed by the party to be charged therewith or by some other person by her or him thereunto lawfully authorized. ); Fidelity and Deposit Co. of Maryland v. Tom Murphy Const. Co., Inc., 674 F.2d 880 (11th Cir. 1982). 12 Camp, Dresser & McKee, Inc. v. Howard, 853 So. 2d 1072, 1077 (Fla. 5th DCA 2003) (3) Fla. Stat. (2011); Fabre v. Marin, 623 So.2d 1182, 1186 (Fla.1993) (holding that each defendant should pay for damages only in proportion to the percentage of fault by which that defendant contributed to the accident. In order to do this, it is necessary to determine the percentage of fault of all entities who contributed to the accident regardless of whether they are joined as defendants); See also Bearint v. Dorell Juvenile Group Inc., 389 F.3d 1339, 1349 (11th Cir. Fla. 2004). 14 Rosenberg v. Cape Coral Plumbing, Inc., 920 So. 2d 61, (Fla. 2nd DCA 2005) was last amended in 2001 and remains in current form (1) Fla. Stat. (2014). 18 See Griswold Ready Mix Concrete, Inc. v. Reddick, 134 So. 3d 985 (Fla. 1st DCA 2012) (1) Fla. Stat. (2014) ( Any portion of any agreement or contract wherein any party referred to herein promises to indemnify or hold harmless the other party to the agreement, contract, or guarantee for liability for damages to persons or property caused in whole or in part by any act, omission, or default of the indemnitee arising from the contract or its performance, shall be void and unenforceable unless the contract contains a monetary limitation on the extent of the indemnification that bears a reasonable commercial relationship to the contract and is part of the project specifications or bid documents, if any. Notwithstanding the foregoing, the monetary limitation on the extent of the indemnification provided to the owner of real property by any party in privity of contract with such owner shall not be less than $1 million per occurrence, unless otherwise agreed by the parties. ) 20 Lexington Ins. Co. v. Morrow Equipment Co., LLC, 2010 WL (S.D. Fla., Mar. 16, 2010) (holding that section did not require the monetary limitation to be within the indemnification provision, and the monetary limitation requirement was satisfied by an insurance clause that required a party to furnish liability insurance even though there was no language in the contract stating that the indemnity was limited to the insurance.) (1) Fla. Stat. (2014). 22 To date, there has not been a published case in Florida that examines when a monetary limitation bears a reasonable relationship to the contract in the context of (1)(c) Fla. Stat. (2014) ( However, such indemnification shall not include claims of, or damages resulting from, gross negligence or willful, wanton or intentional misconduct of the indemnitee ) 24 Reddick, 134 So. 3d at (2)-(3) Fla. Stat. (2014). 26 Id. 27 Cal. Civ. Code 2782; Mass. Gen. Laws 29C; Mich. Comp. Laws ; Minn. Stat ; N. M. Stat ; N.Y. Stat ; R.I. Gen. Laws ; Utah Code ; Wash. Rev. Code Sol Walker & Co. v. Seaboard Coast Line R.R. Co., 362 So.2d 45, 49 (Fla. 2nd DCA 1978). The 17 Kone, information Inc. v. Robinson, provided 937 So. 2d 238, in this 241 (Fla. Newsletter 1st DCA 2006). does not, nor is it intended to, 29 constitute See Metropolitan legal Dade advice. County, Readers 592 So.2d should at 1135; See not also take Metro. or Dade refrain County from v. Fla. taking Aviation any action based on any information contained in this Newsletter without first Fueling seeking Co., 578 legal So.2d 296 advice. (Fla. 3rd DCA 1991). NEW YORK NEW JERSEY FLORIDA CALIFORNIA WASHINGTON, D.C. I L L I N O I S G E O R G I A P E N N S Y L V A N I A W W W. P E C K L A W. C O M