Pay attention contractors… first-ever prosecution in Indiana

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Anytime I read something that includes “first of its kind” and “prosecution,” I am naturally intrigued as a lawyer.  When it also involves a contractor, it warrants a post here on Law under Construction.

Recently, the Marion County Prosecutor’s Office announced that it has reached a plea agreement with a local contractor in a matter involving a common construction wage violation.  As most readers know, the Indiana Common Construction Wage Act (f/k/a the prevailing wage law) requires any entity awarded a contract for public work (including subs) to pay no less than the common wage, as predetermined by a committee in each county.   Employees are classified as either unskilled, semi-skilled, and skilled.  Further, a contractor or subcontractor who knowingly fails to pay the rate commits a Class B misdemeanor.

The contractor in question worked on two Indianapolis Public School projects.  A grand jury investigation showed that several employees on the projects were underpaid.  The company had incorrectly listed skill levels and pay rates and misrepresented the status of employees to the IRS.  As part of the plea agreement, the company was fined $1,000 and had to submit to an audit to determine amounts owed, which were estimated to be greater that $50,000.

Hopefully, there won’t be a “second-ever prosecution” anytime soon…

OSHA crackdown revisited

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Back in October 2010, in our very first substantive post “OSHA crackdown coming?” (where oh where does the time go), Law under Construction reported the following:

OSHA announced on October 19, 2010 its intent to expand its interpretation of the word “feasible” as related to occupational noise exposure standards.  Under current standards, a citation can be issued if a company fails to use engineering and administration controls (i.e. limit employee exposure) when they cost less than hearing conservation equipment or such equipment is ineffective.  OSHA intends to update “feasible” to “capable of being done,” which will result in citations for not implementing engineering and administration controls unless such controls will put them out of business or threaten the company’s viability.  OSHA is accepting comments on the proposed interpretation until December 20, 2010.

Well, it appears that the OSHA crackdown on this issue recently turned into an OSHA backdown, although those representing businesses and workers differ on whether this is a beneficial change.  Earlier this year, OSHA withdrew this proposed change to workplace noise standards, which, if adopted, would basically have required employers to adopt increased safety measures to protect the hearing of employees instead of just providing them with ear protection gear, such as ear phones.  It appears that OSHA is exploring how to address the hearing loss issue without incurring these types of significant costs. 

We will keep you updated here at Law under Construction if the proposed change resurfaces in some other form.

It’s A Beautiful Day In This LEED Neighborhood

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Mister Rogers’ Neighborhood is my 2 year old’s favorite show.  Since she could talk, she has looked up at me and asked for, “Rogers?”  If you have children, you know, what a 2 year old wants, a 2 year old generally gets.  So, I watch Mister Rogers, every day, twice a day.  After literally watching hundreds of episodes (most of them at least twenty times) I’ve relearned old songs (“Shoo Turkey Shoo”) and found out that Mister Rogers is just as relevant now as he was when I little.  In fact, he was ahead of his time.  (In one favorite episode, Mister Rogers test drives an electric car, complete with 15 car batteries linked together to run the car.)  After spending many hours in Mister Rogers’ neighborhood, I wondered whether Mister Rogers’ neighborhood is the type of neighborhood that the LEED Neighborhood Development Certification strives for, an integrated neighborhood of smart locations, neighborhood design, and green infrastructure and building.

A seldom discussed LEED certification area is the LEED-ND Certification.  By integrating LEED Neighborhood Development polices, profit and non-profit developers, builders, city and neighborhood planners can build a more sustainable, attractive and vibrant community.  Here is a brief overview of what the USGBC looks for and the general process for certifying a neighborhood project.  Visit the USGBC site () for more information regarding getting your project plan certified LEED-ND. 

Projects that qualify for LEED for Neighborhood Developments can range from small infill projects to large master planned communities.  Existing communities may also be retrofitted using LEED standards and policies. 

The following credit categories are included in the rating system:

Smart Location and Linkage assesses location, transportation alternatives, and preservation of sensitive lands and discouraging sprawl.

Neighborhood Pattern and Design assesses overall design for vibrant neighborhoods that are healthy, walkable, and mixed-use.

Green Infrastructure and Buildings assesses the design and construction of buildings and infrastructure that reduce energy and water use, use of sustainable materials, and renovating existing and historic structures.

Innovation and Design Process recognizes exemplary and innovative performance reaching beyond the existing credits in the rating system, as well as the value of including an accredited professional on the design team.

Regional Priority encourages projects to focus on earning credits of significance to the project’s local environment.

There are three stages of certification, which relate to the phases of the real estate development process.

Stage 1 – Conditionally Approved Plan: provides the conditional approval of a LEED-ND Plan available for projects before they have completed the entitlements, or public review, process.

Stage 2 – Pre-Certified Plan: pre-certifies a LEED-ND Plan and is applicable for fully entitled projects or projects under construction.

Stage 3 – Certified Neighborhood Development: completed projects formally apply for LEED certification to recognize that the project has achieved all of the prerequisites and credits attempted.    

The rating system can be downloaded for review by interested parties.  If you are developing a project its worth taking the time to review the rating system for possible incentives or as an evaluation tool.

Mister Rogers believed strongly in living a deep and simple life.  He invested in our future and community. He taught us all to make the same investment.  His legacy will always live on through his good work on television.  In fact, the Fred M. Rogers Center building officially opened on the Saint Vincent College Campus in October 2008.  It’s only fitting that the facility was awarded the LEED gold rating. 

We live in a world in which we need to share responsibility. It’s easy to say ‘It’s not my child, not my community, not my world, not my problem.’ Then there are those who see the need and respond. I consider those people my heroes.  -Fred Rogers

www.????.com – Protecting Your Digital Presence

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I wanted to take a break from my usual posts about more traditional construction issues and address a problem that contractors (and businesses in general) are increasingly facing: how to properly secure your long-term digital presence.

As a personal intro, my father, the owner of a mechanical construction company, recently discovered the wonders of the internet, including “the Google” and YouTube (solely for guitar videos).  Since pigs are officially flying, I figure it is only a matter of time before all contractors bring their presence online.  

As a professional intro, I was recently involved with a matter that addressed many of these issues.  Thus, hopefully this post will help organizations deal with these issues before they turn into litigation.

First Issue: Domain names

Securing the proper domain name (www.????.com) for your organization is often the first place to start when creating a website.  Getting a domain name involves registering the name you want with an organization called ICANN (Internet Corporation for Assigned Names and Numbers, a non-profit company that contracts with the government) through a domain name registrar (like GoDaddy.com).

For instance, if you choose a name like “example.com”, you will have to go to a registrar, pay a registration fee that costs between $10-$35.  That will then give you the right to the name for a year, and you will have to renew it annually for the same amount (generally).

If a domain name is available, it is yours.  Basically, think of it as a digital version of the Oklahoma land rush.  Domain names have been disappearing extremely fast.  Thus, if you want a domain name for your site (or future site), act now, or face the agony of having someone else scoop it up first.  After all, $10 for a year’s ownership of the domain name is minimal compared with losing the perfect name for your website.  And, if the domain is already taken, you can always try to buy it from the current owner (but this is often cost prohibitive).

Now what if a domain name that clearly represents the trademark of your company, such as www.uniquecompanyname.com, is already taken.  There are options to gain control if you think someone has registered your trademark with only the intent to profit by selling it to you (often referred to as “cybersquatting”).  Note: generally, a trademark is a distinctive sign or indicator used to identify a company’s products or services to consumers, and to distinguish its products or services from those of other entities.

First, all registrars must follow the Uniform Domain-Name Dispute-Resolution Policy (“UDRP”). Under the policy, most types of trademark-based domain-name disputes must be resolved by agreement, court action, or arbitration before a registrar will cancel, suspend, or transfer a domain name.  However, disputes alleged to arise from abusive registrations of domain names (i.e., cybersquatting) may be addressed by expedited administrative proceedings that the holder of trademark rights initiates by filing a complaint with an approved dispute-resolution service provider.    

Second, you can also file a lawsuit in federal court under the Anticybersquatting Consumer Protection Act (“ACPA”).  The purpose of the law is to thwart cybersquatters who register domain names containing trademarks with no intention of creating a legitimate web site, but instead plan to sell the domain name to the trademark owner or a third-party.

Generally, a UDRP proceeding can be faster and cheaper for trademark owners than an ACPA lawsuit 

Second Issue: Dealings with information technology (“IT”) vendors

In creating and maintaining a website, organizations often rely heavily on internet consultants or vendors, as this is specialized knowledge and is generally better in the hands of professionals.  However, there are risks to such relationships, which can be minimized.  For example, when registering a domain name with a registrar (see above), you have to provide the name of the “registrant.”  The registrant is generally presumed to be the owner, so if your vendor registers as the registrant, it may lead to issues later if you transfer vendors and want to take your domain name with you.

Also, vendors often contract with other third parties for hosting services or to acquire licenses and software on behalf of the client.  These contracts could provide that ownership of the licenses or software is with the vendor.

Overall, any organization that outsources its IT work should have a clear contract that lays out the rights and liabilities of the parties, which may include: specifying what is being purchased, identifying the owner of all relevant items, providing for a smooth unwinding of the relationship at the end of the term, and requiring the vendor to help in a transition.

The irony of a post on an internet blog about helping companies get an online presence is not lost on me.  However, my hope is that anyone with access to “the Google” can find this post and gain some helpful information.

Tis the season … for mechanic’s lien priority cases

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I hope everyone is having a nice holiday season.  After digging out from a pile of work, and dusting the Christmas cookie crumbs off my keyboard, I was able to catch up on a few recent decisions from the Indiana Court of Appeals.  And wouldn’t you know, the court left two decisions addressing the priority of mechanic’s liens under my tree.  So I wanted to take a moment to update you on these two decisions before returning to the last of my Christmas cookies (if I can find where my wife hid them!).

On December 22, 2010, the court handed down

The facts:  Grand Innovations borrowed money to construct a single family residence pursuant to a mortgage that was properly recorded.  Neises was hired to help construct, and, yadda, yadda, yadda, filed a mechanic’s lien against the real estate and a complaint to foreclose the lien.  The bank then filed to foreclose the mortgage.

Issue 1:  The bank asserted that Neises “left the property in jeopardy of being destroyed or subject to significant damage due to the weather,” including a lack of roof and wrapping the exposed framing.  The bank paid another contractor to install a roof and otherwise protect the structure.  The bank sought priority over the mechanic’s lien for the expenses to protect the partially-constructed house.  Neises opposed, citing the lack of any provision in the statute for such “super prioritization.”

The court noted that an action to foreclose on a mortgage is essentially equitable in nature and that the bank’s actions were for the “benefit of all” the lienholders and not unreasonable or ill-advised.  Thus, because all parties were engaged in a “common enterprise” and each benefited from the measures, the preservation expenses properly received priority over Neises’ mechanic’s lien. 

Issue 2:  Neises also argued that its mechanic’s lien, filed in July, should have a higher priority than the mortgage lien because it began construction in April, which it argued should be the effective date of the lien.  The court rejected because “the plain language of the statute provides that the lien is created when the statement and notice to intention to hold a lien is recorded.”  Further, the “relation back” provisions of the mechanic’s lien statute apply to obtaining compensation for work done since the project began, not lien priority.   Regardless, the court also found that it is well-settled that a mortgage lien for the construction of a house has the same priority as all mechanic’s liens.  Thus, pro-rata distribution was appropriate.

On December 27, 2010, the court handed down    

The facts:  The Hendersons owned commercial property in Indiana that was destroyed by a fire.  McIntyre has hired to clean up the debris and construct a new building on the property, and, yadda, yadda, yadda, filed a mechanic’s lien against the property.  Subsequently, a bank loaned money to the Hendersons to pay off two mortgages that pre-dated the filing of the mechanic’s lien.  The bank, however, failed to discover the mechanic’s lien held by McIntyre.  In subsequent foreclosure proceedings, lien priority was disputed.

The issue:  The bank claimed that the doctrine of equitable subrogation (lawyerese for “step in the shoes” of the mortgagee refinanced) granted priority to its mortgage lien, to the extent the funds were used to pay off one of the pre-existing mortgages.  McIntyre countered that the bank was not entitled to equitable subrogation because of its culpable negligence in not discovering the lien when refinancing.  The court, relying on Bank of New York v. Nally, found that the proper inquiry was not whether the bank had notice, but whether the intervening lienholder was prejudiced, (although “culpable negligence” on behalf of the bank was still relevant, although none existed in the case).  Thus, since the mortgage existed prior to McIntyre’s work and McIntyre would have expected it to be superior, there was no prejudice and equitable subrogation applied.

Happy New Year from Law under Construction!  Now… where are those cookies….

Guards? Moats? Indiana court addresses jobsite protection

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And I quote: “Lee could have protected himself from liability only by stationing a guard upon the premises to insure that neither Rider, nor anyone else entered upon the inherently dangerous worksite.”  A guard?  Complete with a shack and taser?  Is that the rule?  Let me explain.

The facts…

On December 6, 2010, in , the Indiana Court of Appeals addressed the duties owed by both a general contractor and an independent subcontractor to the purchaser of a home when she visited the construction site, without permission, and suffered serious injuries.

The purchaser, Rider, entered into a contract to buy a house from a general contractor.  The general was also the landowner, as possession would be transferred at closing.  The general hired Lee, a sub, to perform most of the labor.  Importantly, the contract required that any visitor needed permission from the general or the real estate agent to enter the premises. 

Although Rider obtained permission once, she visited 30-35 other times without anyone’s permission.  On the ill-fated visit in question, Lee and his crew were working on the deck.  When rain set in, they split from the site for an early lunch, leaving an unfinished deck.  Rider subsequently arrived, leaned on the unattached railing, fell, and suffered severe injuries.  Lee and his crew returned, discovered the incident, and nonetheless, finished the deck.

The majority’s view…

Rider filed a complaint for negligence against the general and sub.  The court first addressed the liability of the general.  As a threshold issue, the court noted that since the general still owned the property and was in possession, its duties are judged based on its status as the landowner.  The court ultimately relied on the fact that the general/landowner was neither in actual possession or control of the deck when the accident occurred nor was in control of the premises because he did not perform any actual work.  Since the sub did all of the immediate work, Rider’s negligence claim against the general failed.

The court next addressed the sub’s liability.  Since the independent contractor had worked on the deck right before the incident and a short time after, the court first held that it was in control for purposes of establishing a duty to Rider.  The court then held that the sub’s liability was dependant on whether Rider was rightfully on the premises or whether it was foreseeable that she would visit and be harmed.  Although there were unanswered questions of fact, foreseeability was the key issue. 

The dissent…

One judge disagreed with the majority’s analysis of the sub’s liability.  The judge noted that the construction process is fraught with peril and involves many inherent dangers.  To him, the key fact was that the contract required permission to enter.  End of story.  She didn’t follow the protocol and the sub was not present when the injury occurred.   Therefore, it was not foreseeable that she would be there.   The dissent felt the issue is more properly the risk incurred by Rider in entering a dangerous site, rather than the duty owed.  The dissent stated that the majority’s view “places an impossible burden on contractors” and added the statement I initially quoted. 

The moral…

  • Don’t wander around dangerous construction sites.  Everyone loves watching their dream house as it’s built.  However, I think everyone also loves actually moving into that dream home.  Take the time to follow the procedure specified in the contract when you want to visit.   
  • Despite the dissent’s strong rhetoric, the majority is the law.  Thus, if you are in control of the construction, and it is foreseeable that a homeowner (or similar party) will come on the site, take the necessary precautions.  (consult a qualified attorney for such precautions). 
  • Kudos to the sub for finishing the deck.

More “Final” and More “Binding”?

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I recently came across a situation concerning a modification of the standard American Institute of Architects (AIA) general conditions that I found very interesting (hopefully you do as well).   

In this situation, an owner and a contractor entered into a contract for the construction of a project.  They used a modified version of the A201-1997 document.  As you may know, subparagraph 4.4.5 of the form document states that the approval or rejection of a Claim by the Architect shall be “final and binding” on the parties but subject to mediation and arbitration.  However, the parties decided to modify the contract and removed subject to mediation and arbitration, as well as all other references to mediation and arbitration.  No language was added concerning review.   

So what next?  What implications arise when the parties remove alternative dispute resolution from the equation?  Is the architect beyond reproach?  Can the parties still litigate?  Such questions made me look at the how Indiana treats situations where the parties to a construction contract designate a party as the final arbiter of all claims, without any articulated review process.

First, it appears to be well-settled in Indiana that contracts appointing a party as sole arbiter, like the situation discussed above, are valid.  Second, judicial review may still be available under certain circumstances.  The court in James I. Barnes Construction Co. v. Washington Township of Starke County, 184 N.E.2d 763 (1962), held that it is a rule of law in Indiana that where a contract provides that work shall be done to the satisfaction, approval or acceptance of an architect or engineer, he is thereby constituted a sole arbitrator by the parties, who are bound by his decision in the absence of fraud or such gross mistake as to imply bad faith or a failure to exercise honest judgment.  Thus, the decision is not absolute.  It appears that this is still the general rule today. 

Other states that appear to have similar cases on point are Massachusetts (Fontaine Bros., Inc. v. City of Springfield) and New Jersey (Ingrassia Construction Co., Inc. v. Vernon Township Board of Education).  This is by no means an exhaustive list. 

Overall, grounds for reviewing the decisions of appointed sole arbiters could include fraud, bad faith, gross mistake, failure to exercise honest judgment, arbitrary and capricious decisions, or decisions outside the scope of her authority.  However, parties should consider the full implications of removing ADR references and be sure that the modified agreement accurately reflects their intent. 

This post is neither final nor binding.  There are other concerns raised by the modification described herein, which may warrant further discussion.  If you have any experiences with such modifications or comments on a different state’s treatment of the issue, drop us a comment.

Caveat emptor . . . now just an old latin phrase.

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Having recently purchased a home built the same year the yo-yo was invented (1929), I was especially interested in a recent opinion of the Indiana Court of Appeals discussing the doctrine of caveat emptor.   In Kent and Elizabeth Hizer v. James and Rebecca Holt, No. 71D06-0907-PL-176 (Oct. 27, 2010), the Court addressed liability where a seller fails to disclose certain items AND a buyer fails to independently inspect those same items. 

In 2008, the plaintiffs entered into an agreement with the defendants to purchase a home and reserved the right to conduct an inspection.  As you may expect, they did not conduct an independent inspection of the home itself.  The sellers reported that a prior inspection by a prospective buyer had revealed virtually no problems.   The sellers completed the Sales Disclosure Form, as required by I.C. 32-21-5-7, at closing.  They disclosed only that the microwave oven and ice maker did not work.

Lo and behold, after the closing, the buyers discovered numerous problems, including faulty mechanical items, extensive mold, recalled pipe, and a leaking crack in the basement wall.  They contacted an inspector, who, coincidentally, was the same inspector that had inspected the house for the prior potential buyers.  He reported that he had previously discovered the mold, the recalled pipe,  and indications of water flow into the basement.   A lawsuit was born. 

Basically, the dispute concerned whether fraudulent statements made on the Sales Disclosure Form are negated when an inspection would have revealed the alleged defects.  The sellers cited a 2009 opinion, Dickerson v. Strand, wherein the court held that sellers could not be liable for fraud in misrepresenting the quality of the property when the buyers had the opportunity to inspect.  The Court rejected this earlier case, holding that it failed to account for the statutory disclosure requirements under Indiana law, and that there would be no purpose for such forms if sellers cannot be liable for fraud.  Thus, the Court rejected any interpretation of the common law that might allow sellers to make written misrepresentations with impunity regarding items that must be disclosed on the Sales Disclosure Form.

The Court did not address whether the microwave and ice maker were fixed in time for football season.

For the full text of the opinion, see .

OSHA crackdown coming?

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A positive note from 2009 –  it appears that it was a safer year to be a construction worker.  

The Labor Department recently reported that the number of nonfatal injuries and illnesses, an indicator of jobsite safety, declined in 2009.  The department’s Bureau of Labor Statistics released its latest annual workplace safety report on October 21, 2010 reporting construction injuries and illnesses on the job decreased 22% last year, or in numerical terms, to 251,000.  Looking at the data from a different perspective (always fun with stats) - injuries and illnesses per worker – also showed a decline.   In 2009 the rate was 4.3 cases per 100 workers, down from 4.7 in 2008.  See the report .   

Or maybe not.

As one would guess, part of the dip in workplace injuries and illnesses can be traced to the drop in construction activity.  However, the Labor Dept. highlighted that its own data may not be complete, because, as it sees it, some companies have not reported all injuries that occurred.  A representative added, “We are concerned about the widespread existence of programs that discourage workers from reporting injuries and we will continue to issue citations and penalties to employers that intentionally under-report workplace injuries.”

This data may be especially relevant in light of OSHA’s “National Emphasis Program on Recordkeeping,” launched last year after several academic studies found that many companies were underreporting or incorrectly reporting workplace-related injuries and illnesses.  Through this program, OSHA aims to correct such inaccurate reporting via stricter enforcement.  The program did not specifically target the construction industry, yet included several pilot inspections of construction employers in  an effort to better understand how to approach potential underreporting issues within the industry on a broader scale.  OSHA more recently issued a revised directive for the national emphasis program that cracks down on underreporting of occupational injuries and illnesses.

It remains to be seen whether the lower rates bundled with scepticism regarding the construction industry underreporting may trigger increase scrutiny by OSHA…

UPDATED - November 1, 2010:  A new tidbit of news seemed especially relevant to this post….  

OSHA announced on October 19, 2010 its intent to expand its interpretation of the word “feasible” as related to occupational noise exposure standards.  Under current standards, a citation can be issued if a company fails to use engineering and administration controls (i.e. limit employee exposure) when they cost less than hearing conservation equipment or such equipment is ineffective.  OSHA intends to update “feasible” to “capable of being done,” which will result in citations for not implementing engineering and administration controls unless such controls will put them out of business or threaten the company’s viability.  OSHA is accepting comments on the proposed interpretation until December 20, 2010.

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