Inside This Issue:
- Don’t Touch That “Forward” Button! Attorney-Client Privilege in an E-Mail Age
- Contractor Complaint against Engineer Dismissed for Failure to File Expert Identification Affidavit
- Contractor Forfeited Right to Payment by Performing Work without a License
- Hurricane Katrina’s Impact on Existing U.S. Government Contracts
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NEW BOOK – a/e ProNet’s Risk Management & Contract Guide for Design Professionals by J. Kent Holland
In this a/e ProNet book authored by Kent Holland, detailed examples of over 30 contract clauses are provided. The discussions include risk management ideas and suggestions for negotiating contracts with reasonable allocation of risk between the contracting parties. Much attention is given to explaining how contract language may affect the availability of insurance coverage for claims against design professionals. Several chapters address managing communication and documentation, with particular emphasis on e-mail, and records maintenance, retention, and destruction. Three continuing education courses are included. Each is registered with the AIA. Additional payment is required to receive credit for taking the courses. The cost of the book is only $39.95. A separate announcement will be e-mailed to you in a few weeks providing the information on how you can purchase the book.
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ARTICLE 1
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Don’t Touch That “Forward” Button!
Attorney-Client Privilege in an E-Mail Age
Julie M. McGoldrick, Esq.
The attorney-client privilege is an important protection to enable businesses to seek open and frank legal advice in conducting their business affairs. When the privilege applies, statements and documents that normally would be open to inspection and discovery remain confidential, unless the client waives the privilege. The privilege enables clients to freely consult with their attorneys for confidential advice and can, therefore, help clients to avoid legal problems or disputes before they even arise. However, in the unfortunate situation that a dispute grows towards the need for a more formal resolution, privilege becomes even more crucial as it protects from disclosure documents that outline legal strategy or that explore strengths and weaknesses. In a time when e-mail communications are economical, convenient, and prevalent, it is particularly important to understand the basic principles of attorney-client privilege and to be aware of the unique problems that e-mail presents in protecting the privilege.
Because the attorney-client privilege is an exception to the general concept of open disclosure of evidence during litigation, the privilege is strictly construed. In order to be covered by the privilege, a communication must be made: 1) between an attorney and a client, 2) in confidence, and 3) for the purpose of seeking, obtaining, or providing legal assistance to the client.
Generally, the presence of or disclosure to a third party will prevent the privilege from attaching. There are some exceptions. For instance, if the third party is necessary to the attorney’s complete representation of a client, the privilege may still attach. A necessary third party might be an accountant that the attorney has hired to help interpret books, or a paralegal researching an issue of law. Similarly, a client might require the presence of a translator in order to communicate with the attorney. Also exempt from the definition of “third party” are employees of a corporation that is represented by the attorney, as long as the employees are speaking about things within their scope of employment and understand that they are being questioned for the purpose of obtaining legal advice for the corporation. The general rule remains, however, that a third party who is not necessary to the representation will prevent the privilege from attaching.
Communications covered by the privilege remain confidential, unless the client waives the privilege. Once a communication is shown or repeated to a third party not covered by the privilege, the privilege is deemed to be waived. Waiver can occur voluntarily, such as when a client instructs the lawyer to reveal information to a third party (such as in settlement negotiations), or when the client herself reveals the communication. Waiver can also occur inadvertently. If, for instance, a client had a letter from her lawyer sitting out in plain view during a crowded meeting and a third party saw it, the privilege may be deemed waived as to that letter. A client must take reasonable steps to preserve the confidentiality of her privileged communications.
Just as e-mail has become incorporated into daily business activities, it is also a convenient and quick way for an attorney and client to communicate. E-mails may become privileged just like any other communications. Although the issue of the security of e-mails is beyond the scope of this article, the attorney-client privilege generally has been held to apply to e-mail communications. As such, e-mail is also subject to the same rules of waiver and, for the following reasons, e-mail communications are particularly susceptible to the unintentional waiver of privilege.
First, e-mail is easily shared. The “forward” button is an easy way to convey a lot of information with minimal effort. With the stroke of one key, the recipient can receive a string of e-mails that contain not only your instructions, but the history and context of the problem. However, if an e-mail from your attorney is included in that string, what once may have been a privileged communication may now be available for discovery during litigation if the recipient of the e-mail string is a third party. An e-mail from your attorney is privileged, but once you forward it to anyone not covered by the privilege, the e-mail is no longer a confidential communication.
Inadvertent waiver is particularly a risk with e-mail software containing an auto-text feature that automatically completes e-mail addresses. This convenient feature is perilous to the attorney-client privilege, especially if you have more than one contact with similar e-mail addresses. You may think you are sending your estimation of damages to John White, your attorney’s paralegal, but in fact, your computer took the liberty of sending it to the first “John” in your recent directory—John Smith, the subcontractor you are considering suing.
Just being aware of the relatively frail nature of the privilege in e-mail can go a long way towards protecting your confidential communications. There are also a few precautions to take in order to lessen the chance of inadvertently waiving privilege:
- As noted above, take care not to forward e-mails from your attorney. If your attorney e-mails you with advice about how to handle a situation, start a new e-mail to give instructions to the proper people.
- Similarly, when following your attorney’s advice, it is usually better not to explicitly state that. Instead of writing, “My attorney said that I should research the issue of my liability for negligence on the job before I sign anything,” just request the information that you need.
- Remember facts are not privileged, so you can share factual information with anyone without worrying about waiving your privilege. It is your attorney’s advice and counsel that is protected. If you reveal that, you may be inadvertently waiving the privilege over that communication.
If forwarding e-mails is a convenience you cannot forego, at least be sure to forward only the e-mail that is relevant to the recipient. That way, you are less likely to inadvertently send privileged information. Likewise, be particularly careful if your e-mail software employs an auto-text feature for e-mail addresses. Consider deactivating this feature if possible and double check the recipient list before you send out a particularly sensitive message.
Finally, if you want to communicate information and you are worried that it might waive your privilege, it is always a good idea to consult your attorney. She may be able to communicate factual information orally for you in such a manner as to avoid concerns of waiver.
About the Author: Julie M. McGoldrick is an attorney with the Los Angeles office of Wickwire Gavin, P.C., and focuses her practice on construction law matters. She may be reached at 21 3-688-9500 or at jmcgoldrick@wickwire.com..
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ARTICLE #2
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Contractor Complaint against Engineer Dismissed for Failure to File Expert Identification Affidavit
by J. Kent Holland
Where a contractor that was sued by a project owner for failing to comply with contract specifications filed a claim to implead the project engineer into the suit, it failed to serve an expert identification affidavit within 180 days as required by state statute. As a result, the court dismissed the contractor’s claim against the engineer.
In Middle River-Snake River Watershed District v. Dennis Drewes, Inc., 692 N.W.2d 87 (2005 Minn. ), a contractor, Dennis Drewes, Inc. was contracted by a watershed district to work on a flood impoundment project. Before submitting its bid, the contractor reviewed soil reports that indicated that the soil would be ideal for construction. The contract required the contractor to achieve an overall soil compaction of 95 percent and prohited lifts greater than twelve inches in height. During construction, the contractor encountered wetter soil conditions than anticipated but instead of notifying the district of the changed conditions the contractor deviated from the specifications and used lifts greater than twelve inches in order to complete its work and failed to meet the compaction requirements.
Upon learning of the contractor’s non-compliance the district filed suit against it. The contractor responded with counterclaims against the district and also filed a claim against the project engineer, J.O.R. Engineering, Inc., alleging negligence, estoppel, and tortuous interference with its contract. Contractor failed to comply with the expert witness disclosure requirements of the Minnesota statute. The statue require service of two affidavits on the adverse party. The first is an affidavit of expert review to be filed with the pleadings. The second is an expert-identification affidavit that must be served within 180 days after the first affidavit. A party’s failure to provide the second affidavit “results, upon motion, in mandatory dismissal of each action with prejudice as to which expert testimony is necessary to establish a prima facie case.”
In this case, the contractor filed the expert-review affidavit but failed to serve the second affidavit within the required 180 days. The engineer then filed a motion to dismiss the complaint for failure to file the affidavit. In response to that motion, the contractor filed the missing affidavit three days later.
Under the state statute, there is a 60 day cure period for a defective affidavit. It states that a motion to dismiss may not be granted “unless, after notice by the court, the nonmoving party is given 60 days to satisfy the disclosure requirements.” The contractor argued that since it filed the affidavit within 60 days of the motion to dismiss, it is exempted from the mandatory dismissal provision. In rejecting this argument, the court held that the 60 safe harbor period is only for “claimed deficiencies of the affidavit” and does not apply in the situation of a complete failure to file any affidavit (albeit defective) within the mandatory 180 day period. The court said that this was self evident from the fact that the last sentence of this section of the statute requires the court to issue specific findings on “the deficiencies of the affidavit.” As explained by the court, “When an initial expert-identification affidavit has not been filed, a court would be unable to make specific findings on the deficiencies.” For these reasons, the court affirmed the summary judgment against the contractor.
Comment
Numerous states have statutes requiring some type of expert affidavits to be filed with pleadings and/or to be served on the other party within some period of time following the pleadings. Failure to timely file these affidavits has been the basis for a number of judicial decisions dismissing actions against professionals. This current decision is a reminder of the importance of knowing and following in careful detail the requirements of statutory requirements concerning what must be filed and when it must be filed. Since dismissal with prejudice is mandatory under these statutes, the courts had little leeway (or even no leeway) to do anything but grant a motion to dismiss.
About the author: Kent Holland is a construction lawyer in Tysons Corner, Virginia, and is a risk management consultant for the environmental and design professional liability. He also publisher of ConstructionRisk.com Report.
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ARTICLE #3
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Contractor Forfeited Right to Payment by Performing Work without a License
by J. Kent Holland
Where a contractor executed a contract before having its license and then obtained the license shortly after performance began, the contractor forfeited all right to payment for either the work performed before licensure or the work performed after licensure. Under a second contract with the same contractor for different work on the project, the contractor also had no license when it executed the contract but it obtained its license before beginning to perform any of its work under that contract. The court held that the contract was not null and void merely because the contractor did not have its contract as of the date of signing the contract, and that the contractor was therefore entitled to argue its right to payment for the work performed under that contract.
In MW Erectors, Inc. v. Niederhauser Ornamental and Metal Works Company, Inc. (S123238), the Supreme Court of California, addressed the applicability of the Contractors’ State License Law (CSLL; Bus. & Prof. Code, § 7000 et seq.). That statute imposes strict and harsh penalties for a contractor’s failure to maintain proper licensure. Among other things, the CSLL states a general rule that, regardless of the merits of the claim, a contractor may not maintain any action to recover compensation for “the performance of any act or contract” unless he or she was duly licensed “at all times during the performance of that act or contract.” (§ 7031, subd. (a) (section 7031(a)), italics added.)
The court explained that earlier case law softened the severity of this scheme by allowing contractors, though technically unlicensed at the time of performance, to show they had substantially complied with licensure requirements. But, says, the court, the CSLL has since limited the availability of the substantial compliance exception by specifying that “[t]he judicial doctrine of substantial compliance shall not apply” unless the contractor “had been duly licensed as a contractor in this state prior to the performance of the act or contract” for which licensure was required.
The dispute in question arises out of hotel project being built for Disney Corporation by Turner Construction Company. Turner contracted with defendant Niederhauser Ornamental and Metal Works Company, Inc. (Niederhauser) to perform specialized metal work on the project, and Niederhauser, in turn, awarded two subcontracts to MW Erectors, Inc. (MW).
MW began work under the structural contract on or before the date it signed the contract, but did not obtain a C-51 structural steel contractor’s license (see Cal. Code Regs., tit. 16, § 832.51) until about three weeks later. Work on the ornamental contract began in early January 2000, and by the time this work began MW had obtained the C-51 license. An important side issue in the case was whether the fact that MW didn’t obtain a separate license for performing ornamental work was a bar to recovery.
MW subsequently sued Niederhauser seeking amounts allegedly due in the amount of $955,553 for work under the structural contract and $366,694 for work under the ornamental contract. Niederhauser moved for summary judgment, alleging that MW’s claim was barred under section 7031(a), because MW had not been properly licensed at all times during the performance of its contracts. Niederhauser asserted that MW had no C-51 license when it began performance of the structural steel contract. Niederhauser also averred that MW could not demonstrate its substantial compliance with the C-51 license requirement because it had never held a California contractor’s license before beginning work under the contracts in December 1999.
Niederhauser also argued that both contracts were illegal, void, and unenforceable ab initio because MW was unlicensed when they were executed. The lower Court of Appeal had held that the contracts were not void ab initio because of MW’s unlicensed status when they were executed. Instead, said the appeal court, MW’s right to recover depended on its licensure during its performance of the contracts. It held that MW could not recover for work it performed under the agreements during the relatively short time before it had secured either a license, but that MW could obtain compensation for every individual act it performed under its contracts after all necessary licensure was in place.
Niederhauser sought review, urging that section 7031(a) required due licensure at all times during performance of a contract, and that both contracts were void ab initio because MW was not licensed when they were executed. The Supreme Court reviewed the statute at length, comparing it to an earlier version and also discussing numerous other court decisions that have applied the statute in different situations.
The essential conclusions of the Supreme Court were these: (1) Section 7031(a) bars a person from suing to recover compensation for any work he or she did under an agreement for services requiring a contractor’s license unless proper licensure was in place at all times during such contractual performance; (2) Section 7031(a) does not allow a contractor who was unlicensed at any time during contractual performance to recover compensation for any individual acts performed while he or she was duly licensed; (3) a contractor who had not been duly licensed at some time before beginning performance under the contract may not assert protection under the substantial compliance exception to the strict enforcement of the statute; and (4) If a contractor is fully licensed at all times during contractual performance, the contractor is not barred from recovering compensation for the work solely because he or she was unlicensed when the contract was executed.
The court stated that the Legislature’s obvious intent was to impose a stiff all-or-nothing penalty for unlicensed work by specifying that a contractor is barred from all recovery for such an “act or contract” if unlicensed at any time while performing it. “This all-or-nothing philosophy is directly at odds with the premise that contractors with lapses in licensure may nonetheless recover partial compensation by narrowly segmenting the licensed and unlicensed portions of their performance.”
The statutory language specifies that due licensure must have existed at some time “prior to” performance, and the court said that language cannot be squared with the notion that the contractor could first become licensed at some time during performance.
The court thus held that: “Because MW was not duly licensed “at all times” during performance of the structural contract (§ 7031(a)), and cannot alternatively establish its substantial compliance with the licensure requirements in that it had never held a valid California contractor’s license “prior to” beginning performance… MW cannot sue to recover any compensation for work performed under that contract. Insofar as related to this portion of MW’s complaint, the summary judgment entered by the trial court was proper. On the separate issue of the validity of the contract for the ornamental metal work which was executed by MW before it had its license, the court affirmed the lower appeal court decision which had held that since MW had a contract prior to performing any of the work under that contract, it could present its case for compensation, and the contract was not rendered null and void solely because the contractor didn’t have a license as of the date it signed the contract.
About the author: Kent Holland is a construction lawyer in Tysons Corner, Virginia, and is a risk management consultant for the environmental and design professional liability. He also publisher of ConstructionRisk.com Report.
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Currently available risk management courses written by Kent Holland for RedVector, (http://www.redvector.com/instructors/view_related_courses.asp?id=195) include the following:; Contract Guide for the Design Professional, Design Build Professional Liability Risk Management and Insurance; Site Safety Risk and Liability; Risk Management for the Design Professional; Managing Communication, Documentation and Reports; Insurance for Design-Build and Complex Projects; Construction Contract Law; Contract Claims against Design Professionals; Insurance Coverage Disputes; and Environmental Claims. This is an efficient, easy and cost-effective to get your continuing education credits.
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Article #4
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Hurricane Katrina’s Impact on Existing U.S. Government Contracts
By: Dan Donohue and Hal Perloff – Wiciwire Gavin, P.C.
For contractors performing work on existing federal contracts in affected areas, assessing the impact of the hurricane on their contracts raises a number of issues and concerns. Federal construction and supply contracts typically provide for a non-compensable time extension for unusually severe weather or Acts of God. See, e.g., The Rice Co., AGBCA No. 2003-188-1, 2005-2 BCA Sec. 32,005 (2005)(hurricane that delayed delivery of rice was excusable delay precluding the assessment of liquidated damages). However, under the “Permits and Responsibilities” provisions found in most federal contracts, a contract is responsible for repairing or rebuilding at its own cost any work damaged or destroyed by the storm that has not been accepted by the government.
In DeRalco, Inc., ASBCA No. 41063, 91-1 BCA Sec. 23,576 (1990), a contractor was held responsible for the cost of rebuilding a 97.5% complete brick screen wall damaged by Hurricane Hugo. The Board rejected the contractor’s argument of defective government specifications (the wall was designed to withstand only 100 mph winds and not the 190 mph winds produced by Hugo) because the loss was caused by the hurricane and not the government’s conduct.
A natural disaster such as Hurricane Katrina may also frustrate the purpose of the contract, making continued performance impossible or commercially impracticable. In these situations, the government may choose to terminate the contract for its convenience, entitling the contractor to be paid its costs to date plus certain costs of winding down the contract. Contractors should carefully follow instructions from the government and the procedures contained in the contract’s termination for convenience clause. See Dynatech Building Sys. Corp., ASBCA No. 47462, 95-1BCA Sec. 27,325 (1995) (a contractor forfeited its rights under the clause by filing its claim beyond the one year period provided for, even where its failure to submit its claim was caused by a hurricane).
Natural disasters may also cause the government to make changes in the work, entitling a contractor to equitable adjustments in the contract price and time. For example, a beach renourishment contractor was entitled to an equitable adjustment after a storm dramatically changed the contour of the existing beach and borrow areas and the contracting officer directed the contractor to change the locations where sand was to be deposited. J.A. LaPorte, IBCA No. 1014-12-73, 75-2 BCA Sec. 11,486 (1975). But the burden is on the contractor to prove the merits of such a claim, and relief will be denied where such proof is lacking. See, e.g., L&C Europa Contracting Co, Inc., ASBCA No. 52848, 04-1 BCA Sec. 32,609 (2004) (under a contract to renovate a recreation center contractor failed to prove that it was damaged by delay to start of project due to roof damage caused by Hurricane Fran). Contractors are responsible for pursuing appropriate contractual relief for the effects of the disaster on their work.
The federal government may also assert warranty claims on existing buildings and other structures. Contractors should understand the extent of the warranties they have provided the government. It is the government’s burden to prove its warranty claim. In many cases, there may be questions as to whether the specific weather conditions were within the scope of the coverage of the warranty. If government clients insist on purusing repairs under the warranty clause, contractors should be certain to receive a direction in writing from the contracting officer before starting work to preserve their rights to pursue compensation later, if justified.
Some contractors may be eligible to claim that they are entitled to extraordinary contractual relief under Public Law No. 85-804. Pursuant to that statute, executive agencies have the authority to enter into contracts and to modify existing contracts whenever that would facilitate the national defense. 50 U.S.C. Sec. 1431-1435, see also E.O. 10789, FAR Part 50.3. The granting of so-called “extraordinary contractual relief” is within the discretion of agency officials and is not a matter of right. FAR 50.301. The statute allows such relief when a contractor essential to national defense loses production capability. FAR 50.302-1(a). For instance, a contractor that was the only source of vital components to an ongoing military program might be able to gain 85-804 relief to repair its operations after Hurricane Katrina. There may also be arguments that the relief should be granted to contractors to provide indemnification for environmental liabilities on existing projects that have arisen as a result of the Hurricane.
About the Authors. Dan Donohue (ddonohue@wickire.com) and Hal Perloff (hperloff@wickire.com) are attorneys with the law firm of Wickwire Gavin, with a law practice focusing on government contracts and construction law. 8100 Boone Blvd. , Suite 700 , Vienna , VA 22182 ; 703-790-8750.
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ABOUT THIS NEWSLETTER & A DISCLAIMER
This newsletter Report is published and edited by J. Kent Holland, Jr., J.D., a construction lawyer and risk management consultant for Environmental and Design Professional Liability. The Report is independent of any insurance company, law firm, or other entity, and is distributed with the understanding that ConstructionRisk.com, LLC, and the editor and writers, are not hereby engaged in rendering legal services or the practice of law. Further, the content and comments in this newsletter are provided for educational purposes and for general distribution only, and cannot apply to any single set of specific circumstances. If you have a legal issue to which you believe this newsletter relates, we urge you to consult your own legal counsel. ConstructionRisk.com, LLC, and its writers and editors, expressly disclaim any responsibility for damages arising from the use, application, or reliance upon the information contained herein.
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Copyright 2005, ConstructionRisk.com, LLC
Publisher & Editor: J. Kent Holland, Jr., Esq.
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