The Construction Advantage – Issue 3

We hope you enjoy Bernstein Shur’s third edition of The Construction Advantage. This newsletter will provide you with insight into the current legal issues in construction, news and updates. Our goal is to provide practical information for your everyday construction issues. 

Reaffirming the Iron Hand of an Arbitration Agreement
by Asha Echeverria

Does the fact that the named arbitration company has gone out of business make an arbitration clause unenforceable? Given the legislative bias toward arbitration, a North Carolina court has said “no.” In Torrence v. Nationwide Budget Finance, No. COA 12-453 (N.C. Ct. App. Feb. 4, 2014), the North Carolina Court of Appeals reaffirmed that arbitration clauses will be enforced unless the very high bar of substantive unconscionability is met. In Torrence, the trial court refused to enforce an arbitration agreement in the loan note and disclosure agreement, holding the clause unconscionable. The appellate court overruled the trial court holding, “the United States Supreme Court has made it clear that the use of unconscionability attacks directed at the arbitration process can no longer serve as a basis to invalidate arbitration agreements.” The appellate court held that the fact that the named arbitrator, National Arbitration Forum, had ceased conducting arbitrations in accordance with a 2009 consent judgment with the Attorney General of Minnesota, does not negate the arbitration clause. The appellate court disagreed, holding that the agreement to arbitrate is tantamount. Issues, like the unavailability of the named arbitrator, can be resolved in accordance with the Federal Arbitration Act with the trial court naming a substitute arbitrator.

Contractor Enters $928K False Claims Settlement
by Mike Bosse

Do you work on federal projects? If so, you will want to make sure you are familiar with the False Claims Act, because the Department of Justice is becoming more aggressive and the Act is ensnaring more contractors. In Utah, Okland Construction Co. Inc. of Salt Lake City has agreed to pay $928,000 to settle the federal government’s allegations that Okland misrepresented its employees as employees of Saiz Construction Co. Inc., a participant in the federal Small Business Administration’s small disadvantaged business (SDB) program. The government alleges that Okland and Saiz failed to form an SBA-approved joint venture which would allow them to jointly bid contracts in the SDB program. The government alleges that Okland, with Saiz, improperly bid nine such contracts, primarily involving work at Nellis Air Force Base in Nevada. Allegations by the government extended beyond the bidding phase as the government alleged that Okland “violated the False Claims Act by knowingly submitting, or causing to be submitted, false or fraudulent claims for payment to the United States and making or using, or causing to be made or used, false records or statements to obtain payment for false or fraudulent claims.” The agreement also settles a 2011 lawsuit that Saiz and its owner, Abel Saiz, filed against Okland under the False Claims Act’s whistle-blower provision. The settlement agreement indicates that it “is neither an admission of liability by Okland nor a concession by the United States that its claims are not well-founded.”

Mechanics’ Liens – Parties’ Intent Controls Whether Materials and Services are Lienable
by Meredith Eilers

Before beginning work, construction professionals may want to know more about an owner’s intended use for the materials and services provided. 

A recent Maine Law Court decision, Thayer Corp. v. Maine School Administrative District 61, 2012 ME 37, 38 A.3d 1263, affirmed the longstanding principle that materials and labor are lienable only if the parties intended the product of that material and labor to become a permanent part of the real estate upon which the lien is asserted.  In Thayer Corp., a subcontractor recorded a lien against a school based on materials and work performed to assemble and install a boiler on the school property.  However, the subcontractor had been hired by an energy company whose agreement with the school provided that the energy company—and not the school—would own and operate the boiler and that the energy company would remove the equipment and restore the premises to its former condition when the agreement terminated.  Based on the agreement, the Law Court concluded that the parties had not intended the boiler to become a permanent part of the real estate, and therefore the subcontractor’s materials and work related to the boiler were not lienable. 

To adequately assess and manage the risk of nonpayment, it is important to know if the mechanics’ lien remedy is available. 

Topics:  Arbitration, Arbitration Agreements, Construction Contracts, Mandatory Arbitration Clauses

Published In: Alternative Dispute Resolution (ADR) Updates, Civil Remedies Updates, Construction Updates, Government Contracting Updates, Commercial Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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