Baldwin Haspel Burke & Mayer LLC

Construction Law Update – October 2011


The Construction Law Update is published twice a year by Baldwin Haspel Burke & Mayer, LLC for the benefit of its clients and others having interest in the construction industry. It includes discussions of Louisiana state and federal court decisions, legislative developments and tax issues concerning construction related matters. For further information on the decisions and legislative developments, contact John A. Stewart, Jr. at (504) 585-7846 – jstewart@bhbmlaw.com. For information on tax related issues, please contact Andrew Sullivan at (504) 585-7734 – asullivan@bhbmlaw.com. If you would like to receive an electronic version of this update instead of the paper copy, please contact Katie Kelly at (504) 585-7816 – kkelly@bhbmlaw.com.

For information about the firm, please visit our website at www.bhbmlaw.com.

AVAILABILITY OF A WRIT OF MANDAMUS FOR THE FAILURE TO PROMPTLY PAY OBLIGATIONS UNDER PUBLIC CONTRACTS

TheLouisiana legislature during its 2011 session adopted a statute, L.R.S. 38:2191D, making mandamus proceedings available in instances where a public entity fails to make progressive stage payments arbitrarily or without probable cause, or any final payment when due, to compel payment up to the amount of the appropriation made for the award and execution of the contract.  Acts 2011, No. 184.  The new law became effective on August 15, 2011.  Mandamus is a writ directing a public officer or a corporation or an officer thereof to perform certain duties.  It is subject to a summary proceeding which is conducted with rapidity, within the delays allowed by the court, and without citation and the observance of all of the formalities required in ordinary proceedings.

VERIFICATION OF STATUS OF EMPLOYEES

The Louisiana legislature adopted two new statutes during its 2011 session concerning the verification of the status of employees.  L.R.S. 38:2212.10 provides no private employer shall bid on or otherwise contract with a public entity for the physical performance of services unless it verifies in a sworn affidavit that it is registered and participates in a status verification system to verify that all employees in the State of Louisiana are legal citizens of the United States or are legal aliens, the private employer will continue, during the term of the contract, to utilize a status verification system to verify the legal status of all new employees in the State of Louisiana, and shall require all subcontractors to submit similar affidavits.  Any employer failing to comply with the foregoing may be subject to cancellation of any public contract, resulting in ineligibility for any public contract for a period of not more than three years from the date the violation is discovered, and shall be liable for any additional costs incurred by the public entity occasioned by the cancellation of a contract or loss of any license or permit to do business in the state as provided in the statute.  The new law applies only to contracts entered into or bids offered on or after January 1, 2012.  Acts 2011, No. 376.

The second statute, L.R.S. 23:995, provides that no person shall employ, hire, recruit, or refer for private or public employment within the state, an alien who is not entitled to lawfully reside or work in theUnited States.  Employers are exempt from civil penalties for violations upon a showing the citizenship or work authorization status of every employee has been verified by the United States Citizenship and Immigration Service E-Verify system, or the employees have provided a picture identification and one of the following documents; a copy of one of which has been retained by the employer for his records:

(a) United States birth certificate or certified birth card;

(b) Naturalization certificate;

(c) Certificate of citizenship;

(d) Alien registration receipt card;

(e) United States immigration form – I-94 (with employment authorized stamp).

Civil penalties may be assessed for violations of the statute, or when appropriate, information will be sent to the proper governing or licensing authority to suspend a license or permit to do business. Penalties for a first violation are not to be more than $500.00 for each alien employed, hired, recruited, or referred.  For a second violation, the penalty shall not be more than $1,000.00 for each alien.  For a third or subsequent violation, the employer’s permit or license to do business in the state shall be suspended for not less than thirty days, nor more than six months and a fine assessed of not more than $2,500.00 for each alien.  Acts 2011, No. 402.  The statute became effective on August 15, 2011.

The governor signed both Acts.  They are conflicting, and it remains to be seen which will prevail.  The opinion has been expressed Act 402 will since it was the last Act passed and signed by the governor.

PROHIBITION AGAINST SPLITTING PROFITS, FEES OR COMMISSIONS AND RECORDATION OF CONTRACT AMENDMENTS, REVISIONS AND CHANGE ORDERS

The Louisiana legislature revised L.R.S. 14:141 during its 2011 session to prohibit splitting of profits, fees or commissions, past or present, derived from the sale of any commodity, goods, services, insurance, or anything of value to the state or any political subdivision thereof whereby a public officer or public employee, representing the state or political subdivision, in his official capacity receives or offers to receive a portion of the profits, fees and/or commissions.  Whoever commits the crime of receiving or offering to receive a portion of such profits, fees or commissions shall be subject to a fine of not more than $10,000.00 or shall be imprisoned, with or without hard labor, for not more than ten years, or both.

Two new statutes, L.R.S. 38:2192 and 2222, were enacted providing that each amendment or other revision to any service or insurance contract or change order to a public works contract or to a contract for materials and supplies which adds an amount of 10% or more of the original contract amount and which additional amount is at least $10,000.00, or all amendments, revisions or change orders to such contracts aggregating in an amount of 20% or more of the original contract amount and which additional amount is at least $10,000.00 shall be recorded by the public entity which entered into the contract not later than thirty days after the date of the amendment, revision or change order.  The original contract shall be recorded together with the amendment or revision and with the change order if the original contract affected by the change order was not previously recorded.  The provisions with respect to change orders do not apply to the Office of Facility Planning and Control and the Office of State Purchasing.

L.R.S. 39:1557.1 was enacted providing similarly.  Acts 2011, No. 343.  The new law became effective on August 15, 2011.

PROHIBITION AGAINST PROJECT LABOR AGREEMENTS

During its 2011 session, the Louisiana legislature adopted a new statute, L.R.S. 38:2225.5, requiring that public entities when engaged in procuring products or services or letting contracts for construction, manufacture, or operation of public works paid for in whole or in part by state or local funds, or when overseeing or administering such contracts, shall ensure that bid specifications, project agreements and other controlling documents do not require bidders and contractors and subcontractors to enter into or adhere to agreements with one or more labor organizations on the same or related projects or enter into any agreement whereby the public entity is required to remain neutral toward any labor organization or pay predetermined or prevailing wages.  The new statute also prohibits public entities from discriminating against bidders, offerors, contractors, subcontractors and operators for refusing to become or remain signatories or otherwise adhere to agreements with one or more labor organizations on the same or related projects, or enter into any agreement whereby the public entity is required to remain neutral toward any labor organization, or require any bidder, offeror, contractor, subcontractor or operator to enter into, adhere to, or enforce any agreement that requires any employee as a condition of employment to become a member of or become affiliated with a labor organization or pay dues or fees to a labor organization over the employee’s objection.  There are limited exceptions.  Acts 2011, No. 134.  The statute becomes effective upon the signature of the governor or, if not signed by the governor, upon expiration of the time for bills to become law without signature by the governor.  If vetoed by the governor and subsequently approved by the legislature, the Act becomes effective on the day following such approval.

PRIOR APPROVAL OF PRODUCTS FOR NEW ORLEANS SEWERAGE AND WATER BOARD WORK

The legislature during its 2011 session amended L.R.S. 38:2295C to provide that for projects of the New Orleans Sewerage and Water Board, if a potential supplier wishes to submit for prior approval a particular product other than a product specified in the contract documents, he shall do so no later than fourteen working days prior to the opening of bids.  Within three days, exclusive of holidays and weekends, after such submission, the prime design professional shall furnish to both the public entity and the potential supplier written approval or denial of the product submitted.  The Act becomes effective upon the signature of the governor or, if not signed by the governor upon expiration of the time for bills to become law without signature by the governor.  If vetoed by the governor and subsequently approved by the legislature, the Act shall become effective on the day following such approval.  Acts 2011, No. 51.

ACKNOWLEDGMENT OF ADDENDA FOR SEWERAGE AND WATER BOARD PROJECTS

During its 2011 session, the Louisiana legislature amended L.R.S. 38:2212(A)(8) to require that the acknowledgment of addenda of the bid form for public works projects of the New Orleans Sewerage and Water Board shall also include attachment of the addenda if pricing information is contained therein and the addenda specifies attachment.  Acts 2011, No. 338.

BID FORMS FOR PUBLIC WORKS

The portion of L.R.S. 38:2212 dealing with the bid form for public works was amended by the Louisiana legislature during its 2011 session.  Under the amended law, the bid form developed and prescribed by the Division of Administration, Office of Facility Planning and Control, shall require only the information necessary to determine the lowest bidder, and the following:  the bid security or bid bond, acknowledgment of addenda, base bid, alternates, signature of the bidder, name, title, and address of the bidder, name of the firm or joint venture, corporate resolution and Louisiana contractor’s license number, and on public works projects where unit prices are utilized, a section on the bid form where the unit price utilized in the bid shall be set forth, however, unit prices shall not be utilized for the construction of building projects unless the unit price is incorporated into the base bid.  Other documentation and information required shall be furnished by the low bidder within ten days after the bid opening, except the Sewerage and Water Board of New Orleans and all agencies of the City of New Orleans shall require that the other documentation and information be furnished by the two lowest bidders within three days of the bid opening.  Acts 2011, No. 281.  The new law became effective on August 15, 2011.

LIST OF REGISTERED CERTIFIED BUILDING INSPECTORS TO BE PROVIDED BY MUNICIPALITIES OR PARISHES

The legislature during its 2011 session adopted a new statute, L.R.S. 40:1730.23(F) and (G), providing that any municipality or parish which issues a permit for construction pursuant to Title 40 shall provide a list of registered certified building inspectors to the applicant for the permit at the time the permit is issued.  A parish or municipality may accept determinations made by the state fire marshal as they pertain to life safety and fire protection.  Acts 2011, No. 391.  The new law became effective on August 15, 2011.

EXEMPTION TO LICENSING REQUIREMENT FOR BIDDERS ON FEDERALLY FUNDED PROJECTS REPEALED

The legislature during its 2011 session repealed L.R.S. 37:2157(A)(6) which established an exception from licensing requirements for persons bidding work funded by the federal government if a federal regulation or law prohibits the requirement of said license.  The repealed statute required that the successful bidder apply for a license and meet all requirements of the law and rules and regulations of the licensing board prior to commencement of work.  Acts 2011, No. 107.  The law became effective on August 15, 2011.  As it stands now, all bidders, as well as those performing the work, must be licensed.

New Law Prohibiting Indemnity for the Fault of Others

The Louisiana legislature during its 2010 session adopted a new statute, L.R.S. 9:2780.1, providing that any provision contained in, collateral to, or affecting a motor carrier transportation contract or construction contract which purports to indemnify, defend, or hold harmless another from any liability for loss or damage resulting from the negligence or intentional acts or omissions of such other party, or a third party over which the indemnitor has no control, is contrary to the public policy of the state and is null, void and unenforceable.  Oilfield contracts are excluded as are contracts involving public works.  Oilfield contracts are currently governed by L.R.S. 9:2780, and public contracts by L.R.S. 38:2195.

The statute also provides that the laws of the State of Louisiana shall apply to and govern any construction contract performed in the state and any motor carrier transportation contract relative to activities and services which occurred in the state, and any conflicting contractual provisions are null, void and unenforceable.  This would seem to restrict a contractual choice of law requirement.

The statute, further, declares null, void and unenforceable any contract clause, covenant or agreement with respect to covered contracts which purport to require an indemnitor to procure liability insurance covering the acts or omissions or both of the indemnitee, its employees or agents, or the acts or omissions of a third party over whom the indemnitor has no control.  A somewhat similar requirement is contained in the statute prohibiting indemnification agreements in oilfield contracts.  L.R.S. 9:2780G.  It prohibits any provision in any agreement which requires waivers of subrogation, additional named insured endorsements, or any other form of insurance protection which would frustrate or circumvent the prohibitions of the statute.  The jurisprudence has developed an exception in instances where the indemnitee is allowed to pay the indemnitor’s underwriter the actual cost of the premium to name the indemnitee as an additional insured on the indemnitor’s policies.  This cost may not be merely included in the contract price, but is based upon a direct billing relationship between the indemnitee and the insurance brokers or underwriters.  It is presently unknown if a similar exception would be applicable to the new statute.  Its provisions could be considered broader.

The new law does not apply to contracts entered into prior to January 1, 2011.  It also does not apply to contracts executed before the effective date which govern a specific terminable performance of a specific job or activity.  The new law became effective on August 15, 2010.  Acts 2010, No. 492.

Retainage for Private Works Projects to be Deposited in an Interest Bearing Escrow Account

The Louisiana legislature during its 2010 session adopted a new statute with respect to retainage for private works projects.  According to the new law, L.R.S. 9:4815, when a contract in the amount of $50,000.00 or more is entered into between an owner and a contractor which requires that funds be withheld as retainage, the funds shall be deposited by the owner into an interest bearing escrow account.  The requirement does not apply to contracts for single family or double family residences, or to specifically designated industry groups, including:

  • electric power generation
  • wood products manufacturing
  • paper manufacturing
  • petroleum and coal products manufacturing
  • chemical manufacturing
  • plastics and rubber products manufacturing
  • primary metals manufacturing
  • hazardous and solid waste landfills
  • bulk stations and materials
  • crude oil pipelines
  • refined petroleum products pipelines
  • natural gas pipelines
  • other pipelines
  • natural gas processing plants

Upon completion of the work, the funds held in retainage, together with the interest, shall be released.  If there are no existing claims by the owner, the whole amount shall be paid to the contractor within three business days.  Provisions are set forth for the release of funds if there are any claims or disputes as to the amounts due.  Acts 2010, No. 638.

Peremption and Claims for Fraud in Non-Residential Contracts

L.R.S. 9:2772 provides a peremptive period of five years with respect to claims concerning construction and design.  L.R.S. 9:2772H provides that the peremptive period does not apply in cases of fraud.  That subsection was amended by the Louisiana legislature during its 2010 session to also provide that if fraud is alleged in a non-residential contract in an action commenced after the expiration of the five-year period, and the court determines the allegation was brought in bad faith and no fraud is found, then the party who made the allegation shall be liable for court costs and attorney’s fees.  If fraud is proven, then the party that has committed the fraud shall be liable for court costs and attorney’s fees.  Acts 2010, No. 651.

Contractors Barred From Public Works Project When Certain Crimes are Committed

The Louisiana legislature adopted a new statute, L.R.S. 38:2227, concerning the disbarment of contractors from bidding on public projects.  Each entity submitting a bid for a public project must attest that it and no individual partner, incorporator, director, manager, officer, organizer, or member, who has a minimum of a 10% ownership in the bidding entity, has been convicted of, or has entered a plea of guilty or nolo contendere to certain crimes.  The conviction or plea of guilty or nolo contendere as to some crimes results in permanent disbarment from bidding on public projects.  A conviction or plea as to certain other crimes bars the person or bidding entity from bidding for a period of five years from the date of conviction or from the date of entrance of the plea.  If evidence is submitted substantiating that a false attestation has been made and the project must be re-advertised or the contract cancelled, the awarded entity making the false attestation shall be responsible to the public entity for the costs of rebidding, additional costs due to increased costs of bids and any and all delay costs due to the rebid or cancellation of the contract.  The new law applies prospectively only, and to convictions or pleas entered after its effective date.  Acts 2010, No. 945.

The legislature also adopted a related statute, L.R.S. 38:2212.8, authorizing a public entity to reject the lowest bid from, or not award a contract to, a business in which any individual with an ownership interest of 5% or more has been convicted of, or has entered a plea of guilty or nolo contedere to, any state felony crime or equivalent federal felony crime committed in the solicitation or execution of a contract or bid awarded under the laws governing public contracts.  If a public entity rejects the bid of such an entity which is the lowest bidder, the company whose bid is rejected shall be responsible to the public entity for the costs of rebidding, the increased costs of awarding to the second low bidder, or forfeiture of the bid bond, whichever is higher.  That new law applies to pubic contracts in general.  Acts 2010, No. 864.

DISCLOSURE OF SPLITTING OR SHARING COMMISSIONS, FEES OR OTHER CONSIDERATION FOR PUBLIC CONTRACTS

A new statute, L.R.S. 38:2196.1, was enacted by the Louisiana legislature during its 2010 session concerning the disclosure of splitting or sharing of fees or other consideration with respect to public contracts.  The statute provides that when any person or other entity enters into any contract awarded without bidding with a state entity or local entity, or any contract with a local entity exceeding $10,000.00 awarded with bidding, in which a commission, fee or other consideration is paid to the contractor for the contractor to sell to or provide to the state entity or local entity any commodity, goods, brokerage service or other service of any kind, insurance, or anything of value, then the full disposition, splitting, or sharing of such commission, fee or other consideration shall be disclosed to the state entity or local entity by the contractor in writing by an affidavit the form for which is to be prescribed by the Board of Ethics.  The completed affidavit shall be attached to and made a part of the contract, and recorded in the public record.  If at any time, the disposition, splitting or sharing of the commission, fee or other consideration changes, or the amount thereof changes, a new affidavit shall be prepared, executed, notarized and recorded.  If the information in the affidavit is found to be incorrect, the contract shall become null and void and all payments of the commission, fee or other consideration shall be rebated to the state or local entity. Acts 2010, No. 868.

NULLITY OF CONTRACTS ENTERED INTO AS A RESULT OF FRAUD, BRIBERY, CORRUPTION OR OTHER CRIMINAL ACTS

The Louisiana legislature during its 2010 legislative session adopted a new statute, L.R.S. 9:2716, concerning the nullity of contracts.  The statute provides that any contract between a political subdivision and a person or entity entered into as a result of fraud, bribery, corruption, or other criminal acts, for which a final conviction has been obtained, shall be absolutely null, void and unenforceable.  Any person whose conviction causes the nullity of such a contract shall be responsible for the payment of all costs, attorneys fees and damages incurred in rebidding the contract.  Acts 2010, No. 970.

Worker Classification

The hiring and classification of workers is a problem that many companies in the construction industry face on a daily basis.  Employers generally prefer independent contractor status because there is no income tax withholding, no payroll or employment tax obligations and no workers’ compensation obligation.

Worker-classification issues have existed for many years, but this problem has surfaced recently as the IRS and the Department of Labor have increasingly been focusing on the distinction between an employee and an independent contractor.

In Rev. Rul. 87-41, the IRS detailed twenty factors that have traditionally been used to determine whether an individual is an employee or independent contractor.  These factors include:

1. Instructions-a worker who is required to comply with other persons’ instructions about when, where and how he or she is to work is ordinarily an employee.

2. Training-the more training a worker receives, the more likely the worker is an employee.

3. Integration-integration of the worker’s services into the business operations generally shows that the worker is subject to direction and control and is therefore more likely an employee.

4. Services rendered personally-if the services must be rendered personally by the worker, the worker is more likely an employee.

5. Hiring, Supervising and Paying Assistants-if an individual can hire, supervise and pay assistants, then the individual is more likely an employee.

6. Continuing Relationship-a continuing relationship between the worker and the person for whom the services are performed indicates an employment relationship.

7. Set Hours of Work-if the worker’s hours are set by the person for whom the services are performed, then the worker is more likely an employee.

8. Full Time Required-if the worker devotes substantially full time to the business for which the services are performed, then it is more likely that the worker is an employee.

9. Doing Work on Employer’s Premises-if the worker performs the work on the company’s sites, then this suggests an employer-employee relationship.

10. Order or Sequence Set-if the worker must perform services in the order or sequence set by the person for whom the services are performed, then this suggests an employee relationship.

11. Oral or Written Reports-if the worker must submit regular or written reports to the employer, this suggests an employee relationship.

12. Payment by Hour, Week or Month-if the worker is paid hourly, weekly or monthly, this tends to suggest employee status.

13. Payment of Business and Traveling Expenses-if the employer pays business and traveling expenses, then this suggests employee relationship.

14. Furnishing of Tools and Materials-if the employer provides tools and materials, then this suggests employee status.

15. Significant Investment-if the worker invests in facilities that are not typically maintained by employees, this suggests independent contractor status.

16. Realization of Profit or Loss-if the worker realizes a profit or loss as a result of the services, then the worker is generally an independent contractor.

17. Working for More than One Firm at a Time-if the worker performs more than de minimis services for multiple unrelated persons, then the worker is generally an independent contractor.

18. Making Service Available to General Public-if the worker makes his or her services available to the general public then the worker is generally an independent contractor.

19. Right to Discharge-if the company maintains the right to discharge a worker, this suggests employee status.

20. Right to Terminate-if the worker has the right to end the relationship without incurring any liability, then the worker is likely an employee.

Although the IRS generally uses the twenty-factor test provided in Rev. Rul. 87-41, the IRS also considers three major factors in making the determination of whether a worker is an employee or an independent contractor: behavioral control; financial control; and, the type of relationship.  Behavioral control encompasses facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.  Financial control includes facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job.  The type of relationship factor relates to how the worker and business owner perceive their relationship.  In evaluating the three major factors, the IRS tends to bring up several of the twenty-factors mentioned above.  The two different tests evaluate many of the same factors.

The IRS allows a taxpayer to use either the twenty-factor or the three-factor approach.  However, the common law twenty-factor formula may provide a greater insight into making the ultimate determination of worker status because this method provides more detailed information.

From time to time the IRS releases tax tips and rulings which discuss the growing size of the worker classification problem that companies are facing.  Many of these articles focus on the top items that every business owner should know about hiring workers as independent contractors versus employees.  The IRS has initiated more random worker classification audits recently than in past years.

In order to avoid any worker classification issues, the IRS has issued a SS-8 form, the purpose of which is to allow workers and companies to request a determination of the status of a worker for purposes of federal employment taxes and income tax withholding.  There is no requirement that a fee be paid with this form.  In filing this form, either the worker or the employer should list all of the key details of the relationship.  The IRS will then determine whether the worker is an employee or an independent contractor.

If a worker is incorrectly classified and there is no reasonable basis for doing so, the IRS may hold the employer liable for all employment taxes for that worker retroactively or prospectively on a case-by-case basis.

The status determination of a worker by a company is a very fact-intensive inquiry.  In making the determination as to whether a worker is an employee or an independent contractor, it will be necessary to evaluate the twenty-factor test or the more general, three-factor test.

Tax Incentives for the Construction Industry

In times of economic distress, both federal and state legislatures use tax incentives to spur economic growth in targeted industries.  One often targeted industry is construction.  Construction, both residential and commercial, is considered a key indicator of economic growth.  Furthermore, with the global environmental push to “go green”, tax incentives in the construction industry are as abundant as ever.

This article provides a brief summary of the potential tax incentives that are presently available to the construction industry.  This article is not designed to be “all encompassing” and focuses on some of the key incentives available.  Should you have questions regarding particular incentives not discussed in this article, or should you require further information with regards to an incentive that is discussed in this article, please do not hesitate to contact us.

Federal Incentives

Bonus Depreciation

Bonus depreciation is an incentive designed to increase investment in new property to be used in a trade or business.  Under this incentive, a 50% depreciation deduction is allowed for the first year in which qualified property is placed in service with the taxpayer.  This applies to qualifying property acquired after December 31, 2007, and placed in service before January 1, 2013.  However, in the case of property with a longer production period (i.e. property that has a production period greater than one year and a cost exceeding $1 million and certain other qualifying property), the property must be placed in service before January 1, 2014.

As a further incentive, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 increases the bonus depreciation deduction to 100% of the cost of qualified property acquired after September 8, 2010, and before January 1, 2012, and placed in service before January 1, 2012 (or before January 1, 2013, for longer production period property).

Increased Expense Deduction  

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 increased the Section 179 dollar limit for tax years beginning in 2012 from $25,000 to $125,000.  Furthermore, the investment limit for 2012 is increased from $200,000 to $500,000.

Section 179 provides an expense deduction for taxpayers who elect to treat the cost of qualifying property as an expense rather than capitalizing such cost.  Qualifying property is generally defined as new or used depreciable tangible property that is purchased for use in the active conduct of a trade or business.

Credit for New Energy Efficient Homes

The credit available to eligible contractors for the construction or manufacture of a new energy efficient home is extended through December 31, 2011.  To help encourage the construction of more energy efficient homes, an eligible contractor may claim, as part of the general business credit, a tax credit of $1,000 or $2,000 for the construction or manufacture of a new energy efficient home that meets the qualifying criteria.  An “eligible contractor” is a person who constructed a qualified new energy efficient home, or with respect to manufactured homes, the producer of that home.

In order to be considered a qualified new energy efficient home, the dwelling must be located in the United States, must meet specified energy saving requirements, and must be purchased or acquired by a person from the eligible contractor before January 1, 2012 for use as a residence during that tax year.  Further, a qualified new energy efficient home must receive a written certification that describes its energy-saving features including the energy efficient building envelope components used in construction and energy efficient heating or cooling equipment that has been installed.

State Incentives

Modernization Tax Credit

The Louisiana Modernization Tax Credit program provides a 5% refundable state tax credit on capital expenditures by manufacturers to modernize or upgrade existing facilities in Louisiana.  To qualify for the program, a company must show that either: 1) The modernization helped improve the entire facility’s or a specific unit’s efficiency by greater than 10%; or 2) The facility is in competition for capital expenditures within a company’s established, competitive capital expenditure program.

While this credit is not a direct credit to those in the construction industry, the credit indirectly creates construction demand by decreasing the costs of renovations and upgrades.

Restoration Tax Abatement

The Restoration Tax Abatement program provides five-year property tax abatement for the expansion, restoration, improvement and development of existing commercial structures and owner-occupied residences.

Conclusion

In addition to the tax incentives detailed above, there are a host of other incentives that could potentially apply to individual companies or individual projects.  Potential tax incentives should be reviewed before the commencement of each project as many tax incentive programs require project disclosures prior to commencement.

PEREMPTION OF A THIRD PARTY CLAIM FOR INDEMNITY OF A CONTRACTOR AGAINST A SUBCONTRACTOR

In 1995, Charles and Charlene Ebinger contracted with Venus Construction Corporation to build a home in Lafayette.  A certificate of occupancy was issued on April 22, 1997.  On October 9, 2003, the Ebingers sued Venus alleging defects in the home’s foundation caused cracks in the drywall, tile, brick walls, and floor.  The Ebingers sought recovery under the New Home Warranty Act, 9:3141, et seq.  On September 22, 2006, Venus filed a third party demand seeking indemnification from the engineer, Roy Carubba, and the subcontractor that supplied the foundation, Post-Tension Slabs, Inc.

Carubba filed an exception of peremption based upon L.R.S. 9:5607 which provides a five-year peremptive period for actions against architects and engineers.  The trial court granted the exception ruling the statute applied retroactively.  The court of appeal affirmed, finding Venus acquired an unvested, conditional right to indemnification when the Ebingers filed suit, but that it was by that time perempted under the statute.

After the court of appeal rendered its decision with respect to the claim against Carubba, Post-Tension Slabs filed an exception of prescription based on L.R.S. 9:2772 which currently provides a five-year peremptive period for actions against contractors.  The trial court granted the exception.  The court of appeal reversed.  The Louisiana Supreme Court granted certiorari.

When it was first enacted in 1964, L.R.S. 9:2772 provided a ten-year period for actions against contractors.  In 1999, it was amended to establish a seven-year period of limitation.  The 1999 Act amending the statute stated: “The provisions of this Act shall have prospective application only and shall apply to contracts entered into on or after the effective date of this Act.”  The 2003 amendment established a five-year period of limitation, and did not contain the language with respect to prospective application which was found in the 1999 amendment.

Venus contended the restriction which was applicable to the 1999 amendment applied to the 2003 amendment as well.  The Supreme Court found it could not read into the statute language that was absent from it.  Venus also argued the amendment could not be applied to perempt its third party demand since to do so would disturb a vested right.  A law may not be applied retroactively if it would impair contractual obligations or disturb vested rights.  The court held the statute was procedural, and in the absence of contrary legislative expression, procedural and interpretive laws applied both prospectively and retroactively.

The Supreme Court found, however, it was not necessary to accord the statute retroactive application.  The 2003 amendment became effective on August 15, 2003, approximately two months before the Ebingers filed suit against Venus.  Therefore, its application was not necessarily retroactive.  Although the applicable peremptive period commenced in 1997, before the amendment took effect and before the suit was filed, this antecedent did not in itself require retroactivity.  Relying upon a French commentator, the Supreme Court held a law is retroactive when it goes back to the past either to evaluate the conditions of the legality of an act, or to modify or suppress the effects of a right already acquired.  Outside of those conditions, there is no retroactivity.  L.R.S. 9:2772 goes back to the past not to evaluate the legality of an act, but to begin the peremptive stopwatch.  Therefore, it is retroactive only if it affects a right already acquired, i.e., a right which has vested.  The 2003 amendment would apply prospectively to perempt the claim if it did not disturb a vested indemnification right.

A cause of action accrues when a party has a right to sue.  Fault, causation, and damages are required for a cause of action to accrue.  Once a party’s cause of action accrues, it becomes a vested property right that may not constitutionally be divested.  A right is vested when the right to enjoyment, present or prospective, has become the property of some particular person or persons as a present interest.  The right must be absolute, complete and unconditional, independent of a contingency and a mere expectancy of future benefit does not constitute a vested right.

The Supreme Court disagreed that Venus’s indemnification right vested as soon as the Ebingers noticed damage to their home.  It recognized the distinction between prescription and peremption.  Peremption differs from prescription in two respects: 1) the expiration of the peremptive time period destroys the cause of action itself; and 2) nothing may interfere with the running of a peremptive time period.  The Supreme Court also recognized the difference between the commencement of peremption and the accrual of a cause of action.  The peremptive period began on April 22, 1997, the date the certificate of occupancy was issued.  Although cracks in the Ebingers’ brick veneer may create a cause of action for the homeowners, it did not create Venus’s cause of action for indemnity.  Indemnity is a separate substantive cause of action, independent of the underlying wrong.  In its most basic sense, indemnity means reimbursement, and may lie when one party discharges a liability which another rightfully should have assumed.  Unless and until Venus was cast in judgment, it had discharged no liability for which it could seek reimbursement from Post-Tension.  A third party defendant is liable to a third party plaintiff only if the third party plaintiff is cast in judgment.  Liability on a third party demand is contingent upon the result of the main demand.  Until Venus had been cast in judgment, it had not suffered damages that could be recovered from Post-Tension through indemnity because liability had not been established.  Therefore, Venus’s indemnification right was conditional and incomplete when the Ebingers filed suit against it.  For those reasons, the Supreme Court found Venus’s right to indemnification was not vested when the 2003 amendment to the statute became effective, the five-year peremptive period applied, and Venus’s third party demand against Post-Tension was perempted.  Ebinger v. Venus Construction Corporation, 2010-2516 (La.7/1/11), 65 So. 3d 1279.

PUBLIC BID LAW AND DEMOLITION CONTRACTS AND CERTIFICATIONS REQUESTED, BUT NOT INCLUDED, IN THE LOUISIANA UNIFORM PUBLIC WORK BID FORM

The Board of Commissioners of the Port of New Orleans advertised for bids for the demolition of the Henry Clay Avenue Wharf shed.  In addition to the Louisiana Uniform Public Work Bid Form required by law, the Board required that bidders “clip” to their bid an acknowledgment of receipt of all addenda issued for the project.  D.H. Griffin of Texas was the lowest bidder.  Concrete Busters of Louisiana, Inc. was the next lowest bidder.  Griffin did not attach the acknowledgment; Concrete Busters did.  Concrete Busters protested Griffin’s bid.  The protest was rejected by the Board.  Concrete Busters then filed a Petition for Writ of Mandamus and Preliminary Injunction.  The trial court denied the petition.  Concrete Busters appealed.

The first issue addressed by the court of appeal was whether a demolition contract was subject to the public bid law, L.R.S. 38:2211, et seq.  Declining to follow a decision of another court of appeal and an opinion of the Louisiana attorney general, the court of appeal held the demolition of a building on public property falls within the definition of a “public work” for purposes of the public bid law.  With respect to the required acknowledgment of receipt of addenda, the court of appeal held the Board made the acknowledgment a part of the bidding documents, and it could not waive the requirement.  Griffin’s bid should have been disqualified.  The judgment of the trial court was reversed.  Concrete Busters of Louisiana, Inc. v. The Board of Commissioners of the Port of New Orleans, 2010-1172 (La.App. 4 Cir. 2/2/11), 2011 WL 322336.

DISQUALIFICATION OF BIDDER FOR NON-RESPONSIVE BID

The St. James Hospital Service District advertised for bids to construct a new community hospital.  Four general contractors submitted bids, including J. Caldarera & Company, Inc. and Yates Construction Company, Inc.  The hospital determined Yates was the lowest responsible bidder and voted to award the contract to it.  The other three bids were determined to be defective, rendering them non-responsive to the requirements of the bid documents.  Caldarera sued to stop the awarding of the contract to Yates.  The trial court granted a motion for summary judgment of the Hospital dismissing the claims.  Caldarera appealed.

The court held, in accordance with the express and unambiguous language of L.R.S. 38:2212A(1)(b), any requirements of the public bid law, any requirements stated in the advertisement for bid, and any requirements of the bid form shall not be waived by the public entity.  Once the public entity establishes a requirement, it must be uniformly followed by the bidders.

The Hospital found three deficiencies in Caldarera’s bid.  The court of appeal focused on one deficiency, pretermitting consideration of the others.  The bid form asked the bidders to provide certain information concerning construction experience, licenses, incomplete projects, claims or suits, financial information and references.  The court found Caldarera did not fully or satisfactorily provide the requested information, and did not, therefore, comply with the requirements of the bid form preventing Caldarera from qualifying as the lowest responsive and responsible bidder.  The judgment of the trial court was affirmed.  J. Caldarera & Company, Inc. v. St. James Parish Hospital Service District, 09-166 (La.App. 5 Cir. 11/24/09), 28 So.3d 1112, writ denied, 2009-2814 (La. 3/26/10), 29 So.3d 1262.

RESPONSIBILITY FOR DEFECTIVE WORK

Amigo Building Corporation was the general contractor for a project for the U.S. Army Corps of Engineers at Fort Polk.  The work included, among other things, sheet rock, plastering and acrylic wall coating.  Amigo subcontracted that work to Priola Construction Corporation, and Priola subcontracted it to Miller Plastering, Inc.

Under the contract between Priola and Amigo, the cost of superintendent labor and quality control management were specifically excluded from Priola’s responsibility.  Nevertheless, both Amigo and Priola had employees on site at all times while work was being performed by Miller, and both participated daily in quality control over the project, including quality control over Miller’s work.  At no time did any representative of Priola or Amigo indicate to Miller that any of its work was unacceptable or not in compliance with the Corps of Engineers’ plans and specifications.  Witnesses for both Priola and Amigo testified they believed Miller’s work was in compliance.

After Miller fully completed the work on one of the buildings, the inspector for the Corps of Engineers rejected its work and demanded it be redone.  The inspector threatened that if Miller caused trouble over the demand, he would make it difficult for Miller to proceed on the remaining work to be done under the main contract between Amigo and the Corps of Engineers.  Miller, believing it was useless to argue with the Corps of Engineers inspector, proceeded to redo the building in question.  At no point did Priola or Amigo object to Miller redoing the building.  Amigo and Priola refused to pay Miller for the cost of redoing the work.  Miller sued Priola and Amigo.  The trial court found in favor of Miller, awarding damages equal to the expenses incurred for labor and materials under the doctrine of equitable estoppel.  Priola and Amigo appealed.

The court of appeal found the record supported the findings of the trial court.  Amigo and Priola’s failure to object to the demand of the Corps of Engineers, or to Miller’s efforts to comply with the demand by redoing the work, prevented them from protesting that the subsequent work was neither authorized nor necessary.  The court of appeal identified three elements required in applying equitable estoppel: 1) a representation by conduct or work; 2) a justifiable reliance thereon; and 3) a change of position to one’s detriment because of the reliance.  The court held Miller had a right to rely on the conduct and representations made by Priola and Amigo through their daily supervision and observation of its work, and their failure to voice any objection to the quality of the work.  Miller Plastering, Inc. v. Amigo Building Corporation, 2009-237 (La.App. 3 Cir. 10/7/09), 20 So.3d 1190.

A PARTY MUST BE ALLOWED A REASONABLE TIME TO PERFORM A CONTRACT

J.S. Rugg Construction, Inc. subcontracted the installation of a parking lot for a church to Amethyst Construction, Inc.  Construction was delayed, and Rugg was not ready for Amethyst to begin work according to the original schedule.  After Amethyst was allowed to start work, it completed grading and application of the soil cement.  When the asphalt could be placed, Amethyst was committed to begin another project, and could not return to the site.  Amethyst told Rugg it would not be able to work that week, and would be closed the next two weeks for the Christmas and New Year’s holidays.  Amethyst told Rugg the church parking lot would be its first job after the new year began.  On January 2, 2008, Amethyst did not appear at the site, and Rugg wrote advising it that the contract was cancelled effective January 4, 2008, and if Amethyst had not completed all work by that time, it would make arrangements with another asphalt company to complete the project.  Amethyst checked the weather forecast, and determined the temperature would be too cold to place asphalt on January 2 and 3, 2008.  Since the parking lot was a two-day job, it told Rugg it would not be able to meet the deadline.  Amethyst removed its equipment from the site.

Amethyst sent Rugg an invoice in the amount of $69,249.00 for work which had been performed.  Rugg paid $56,945.00 after deducting $10,804.00 for the additional amount paid to another contractor to complete the work.  Amethyst filed a lien.  Rugg bonded the lien.  Amethyst then filed a petition for damages against Rugg and the bonding company.  The trial court found, because Rugg had attempted to make arrangements for completion of the job after sending the notice to Amethyst, Amethyst’s interpretation of Rugg’s notice as a cancellation of the contract was not reasonable.  Amethyst’s claims were dismissed.  It appealed.

The court of appeal held a party’s notice to another to perform within a certain period of time must allow the other party a reasonable time for such performance according to the circumstances.  The evidence showed Amethyst could not reasonably be expected to haul and place asphalt when the temperature was as low as forecast, and Amethyst necessarily responded to Rugg’s notice on the basis of the weather information which was available at the time.  The court of appeal held the trial court erred in failing to address the issue of whether Rugg’s notice allowed Amethyst a reasonable time in which to perform under the existing circumstances.  The judgment of the trial court was reversed.  Amethyst Construction, Inc. v. J.S. Rugg Construction, Inc., 44,850 (La.App. 2 Cir. 12/9/09), 26 So.3d 881.

CONSTITUTIONAL CHALLENGES TO THE FAILURE TO PAY INTEREST ON JUDGMENTS

Newman Marchive Partnership, Inc. won state court judgments against the City of Shreveport for the unpaid balance on two architectural contracts.  The City agreed to pay the principal but refused to pay judicial interest.  Newman sued the City in federal court alleging the refusal to pay judicial interest violated the Equal Protection Clause of the Fourteenth Amendment and an unconstitutional retaliation against its exercise of the First Amendment right to sue.  The district court granted motions for summary judgment in favor of the City.  Newman appealed.

The Equal Protection Clause requires that similarly-situated persons be treated alike.  A plaintiff alleging a violation must show 1) it was intentionally treated differently from others similarly situated, and 2) there was no rational basis for the difference in treatment.  The district court found Newman satisfied the first element.  It rejected all of the potential rational bases supplied by the City for purposes of the second element, but nevertheless held the refusal to pay legal interest was rationally based on the legitimate state goal of protecting taxpayer money.  The court of appeals held, to pass the rational basis review, it was not sufficient for the state action merely to serve some legitimate government purpose.  Instead, there must be some rational basis for the classification, which must serve legitimate state ends; there must be some rational basis for the government to treat an individual or group differently from others similarly situated.

The court of appeals found the objective of protecting the public fisc in no way serves to distinguish Newman from other judgment creditors whose judgments were paid in full.  The same could be said of the district court’s assertion that the unenforceability of the judgment against the City provided another rational basis for denying this plaintiff legal interest. The plaintiff bears the burden of showing there is no conceivable rational basis.  The court held there may be a reasonably-imaginable rationale that would survive the test other than the explanations offered by the City and the district court.  It was Newman’s burden to show there is none.  The summary judgment on Newman’s Equal Protection claim was based on the erroneous belief Newman had failed to negate the public fisc doctrine.  Because that reasoning provides no explanation for treating Newman’s claim differently from that of the other judgment creditors, the summary judgment was premature.  A conceivable rational basis may exist for the City’s actions.  The court vacated the summary judgment on the Equal Protection claim and remanded for further proceedings.

The district court reviewed Newman’s claim that the refusal to pay legal interest was in retaliation for its exercising its constitutional right to seek judicial relief under a four-prong test.  The elements of the test are: 1) a specific constitutional right; 2) the defendant’s intent to retaliate against the plaintiff for his or her exercise of that right; 3) a retaliatory adverse act; and 4) causation.  The district court found there was no retaliatory adverse act because Newman was not deprived of a substantive or vested property right.  The court held, because Newman had no right to enforce its judgment against the City, it did not suffer the requisite injury to show an adverse act.  The court of appeals held a decision by the City not to pay a plaintiff interest because it has sued the City has the potential to chill the exercise of First Amendment rights and is therefore sufficient to satisfy the third element.

In the alternative, the district court held Newman’s claim failed for lack of causation.  Once a prima facie retaliation claim has been established, the burden shifts to the defendant to show that it would have taken the same action regardless of any retaliatory motive.  The district court held the City satisfied that burden through deposition testimony indicating that its actions were motivated primarily by a desire to save taxpayer money.  The court of appeals disagreed.  The City’s discovery responses indicated Newman’s decision to litigate was precisely the trigger for the City’s adverse actions.  Assuming, as did the district court, the plaintiff made out its prima facie retaliation claim, the City failed to satisfy its summary judgment burden to show lack of causation.  Summary judgment on the retaliation claim was reversed and remanded for consideration of the remaining elements of the analysis.  Newman Marchive Partnership, Inc. v. Hightower, 349 Fed.Appx. 963 (5th Cir. 2009).

PAYMENT FOR WORK AND BUILDING CODES

The Louisiana First Circuit Court of Appeal held a contractor could not recover the cost of a drainage system which was not included in the contract amount where the contract provided that any material and/or labor not mentioned in the specifications was to be considered not included in the contract proposal, except as required to complete the project in a manner to meet prevailing codes, and the contractor would be responsible for the completion of the work in accordance with the specifications and drawings and according to prevailing construction codes.  The court also held where a parish or city has in effect a building code, the provisions of the code form a part of every construction contract executed in that parish or city.  Such a contract contemplates a building constructed in accordance with local building code requirements, as though expressly written into the contract.  Bonvillain Builders, LLC v. Gentile, 2008-1994 (La.App. 1 Cir. 10/30/09), 29 So.3d 625, writ denied, 2010-0059 (La. 3/26/10), 29 So.3d 1264.

PEREMPTION

Sherie and Raymond Burkart, Jr. purchased a home in Covington, Louisiana.  The home experienced leaks.  They sued several parties, and on April 11, 2008, filed a supplemental and amending petition naming John E. Bruce, d/b/a Advanced Design Group, Inc. as a defendant alleging Bruce was negligent in failing to properly design the structure.  Bruce excepted representing the claim was barred by the expiration of the one-year prescriptive period which he averred ran from the date his design drawings were completed.  The trial court granted the exception.  The Burkarts appealed.

The court of appeal found the issue was whether the claim was perempted under L.R.S. 9:2772, and not whether it was prescribed.  The statute provides, among other things, no action against a party arising out of the design of an improvement to immovable property shall be brought more than five years after the improvement has been occupied by the owner.  The court held it was undisputed the original owners occupied the home in May of 1995.  Accordingly, the claim against Bruce filed on April 11, 2008 was perempted.  The decision of the trial court was affirmed.  Burkart v. Williamson, 2009-0294 (La.App. 1 Cir. 11/13/09), 29 So.3d 635.

DAMAGES FOR CIVIL TRESPASS

The Plaquemines Parish Government obtained a servitude of way agreement from Richard and Diane Barney for purposes of the placement of water and sewer lines in conjunction with a highway project.  The Barneys’ home bordered the project.  The servitude allowed the parish and its contractor, Boh Brothers Construction, Inc., to enter the Barneys’ property in order to place the water and sewer lines.  The Barneys claimed Boh stored material, equipment and vehicles on the property for approximately six months during the course of the project, and as a result of this and Boh’s activities, they suffered significant mental anguish and inconvenience.  The trial court rendered judgment in favor of the Barneys, and against Boh, awarding a total of $35,251.32 in damages.  Boh appealed.

The court of appeal found the servitude agreement was for the purpose of constructing the water and sewer lines only, and did not include the right to store material, equipment and vehicles on the property.  As a result, Boh committed a civil trespass and was liable to the Barneys for damages.  The judgment of the trial court was affirmed.  Barney v. Plaquemines Parish Government, 2009-0396 (La.App. 4 Cir. 9/30/09), 22 So.3d 1117.

LOUISIANA UNIFORM PUBLIC WORKS BID FORM

The Louisiana Attorney General, at the request of the City of Covington, issued an opinion concerning whether the Louisiana Uniform Public Works Bid Form was mandatory, and, if so, whether failure to use the form is a mere formality that can be waived.  The Attorney General opined the form was mandatory for all public works projects let by bid, and the failure to use it could not be considered a mere informality or waivable error.  Since the City of Covington did not use the form for the project at issue, all bids, according to the Attorney General, were required to be rejected.  Attorney General Opinion 09-0304, January 21, 2010.

REDHIBITION

Shakertown 1992, Inc. sold shingles for use as siding on two apartment complexes in Louisiana to Lindy Investments III and Magnolia Creek Apartments (collectively, Lindy).  Soon after installation, the shingles showed signs of deterioration.  Lindy filed a claim for redhibition, i.e., an action for rescission of a sale of a defective product, against Shakertown in Louisiana state court.  Shakertown removed the action to federal court.  In 1998, a federal court jury awarded damages to Lindy in the amount of $136,905.00 for rescission of the sale/reduction of the purchase price, $3,000.00 for diminution of value, and $14,063.00 in reasonable expenses.  The federal district court entered judgment reflecting the verdict, but also requiring Lindy to return to Shakertown the shingles made the subject of the rescission of the sale as a condition precedent to the execution of any money judgment.  The federal Fifth Circuit Court of Appeals affirmed the district court judgment.

Instead of returning the shingles and otherwise executing the judgment, Lindy continued to use them.  Lindy did not advise Shakertown it was ready to return the shingles and collect the 1998 money judgment until August 2007.  Shakertown refused to accept a shipment of the shingles or pay the judgment.  Instead, it moved in the district court for relief claiming Lindy had nullified the judgment by continuing to use the shingles for eight years.  The district court granted the motion.  Lindy appealed.

Lindy raised two procedural issues: the district court lacked subject matter jurisdiction to amend the judgment, and Shakertown’s motion for relief was untimely.  The court of appeals held it had jurisdiction, and the district court did not abuse its discretion in holding Shakertown’s motion was timely.  On the merits, the court of appeals found the district court implicitly concluded exceptional circumstances warranting relief were present since it determined it was patently unfair for Lindy to continue to use the allegedly defective product for eight more years and then expect restoration of the purchase price.  Louisiana law contemplates in an action for redhibition a tender of the goods must be made within a reasonable time; it does not contemplate retention of the defective goods for an extended period of time.  The judgment of the district court was affirmed.  Lindy Investments III v. Shakertown 1992, Inc., 360 Fed.Appx. 510 (5th Cir. 2010).

CLAIMS FOR INDEMNITY AND CONTRIBUTION AND PROTECTION FROM LIABILITY UNDER L.R.S. 9:2771

The Louisiana Fourth Circuit Court of Appeal recently issued a decision dealing with claims for indemnity or contribution of a contractor against a material supplier.  There was no contract requiring indemnity.  Accordingly, there could be no claim for contractual indemnity.  In order to be entitled to tort indemnity, the party claiming indemnity must be free from fault.  The contractor’s representative admitted to deviating from the plans and specifications.  The court of appeal held, as a result, the contractor was precluded from recovery for tort indemnity as a matter of law.

The contractor contended it could not be held liable pursuant to L.R.S. 9:2771. The statute provides that a contractor shall not be liable for the destruction or deterioration of, or defects in, any work constructed, or under construction, by him if he constructed or is constructing the work according to plans and specifications furnished to him which he did not make or cause to be made, and the destruction, deterioration, or defect was due to any fault or insufficiency of the plans or specifications.  The court of appeal held, since the contractor did not follow the original plans and specifications, it was not entitled to the statute’s protection.

The court of appeal found, since no contract existed between the owner and material supplier, as there was between the owner and contractor, the contractor and the supplier were not solidary obligors, and the contractor had no claim for contribution.  Additionally, the 1996 amendments to the Civil Code limited solidary liability to intentional tortfeasors.  Liability for injuries caused by two or more non-intentional tortfeasors is now a joint and divisible obligation; each tortfeasor is assessed its own portion of fault.  With this new policy, the right of contribution among solidary tortfeasors disappeared; it was no longer necessary in light of the abolishment of solidarity.  The Paragon Lofts Condominium Owners Association, Inc. v. The Paragon Lofts, LLC, 2009-0943 (La. App. 4th Cir. 2/10/10), 32 So.3d 303.

CONTRACTOR’S LIEN RIGHTS

John Nobles and Tee It Up Golf, L.L.C. contracted with Bayou State Construction, Inc. to serve as the general contractor for a strip mall in Pineville, Louisiana and to perform work on Nobles’ private home in Pineville.  A dispute arose concerning the projects.  Bayou State filed materialman’s liens on both properties.  Nobles claimed the liens were improper and demanded, in writing, that Bayou State cancel the liens.  Bayou State did not respond to the request within the ten (10) day period allowed, and Nobles brought a writ of mandamus to have the liens canceled.  Nobles contended there were numerous deficiencies in the liens, including an insufficient property description and a failure to reasonably itemize the elements comprising the amounts and obligations asserted.  The trial court ruled in favor of Nobles, finding the liens did not satisfy the requirements of the Private Works Act and ordered cancellation.  Nobles was also awarded $3,000 in attorney’s fees for Bayou State’s failure to have the liens canceled within the ten (10) day period.  The trial court did not make an award for damages incurred by Nobles as a result of Bayou State’s refusal to cancel the liens, finding no such proof was offered.  Bayou State appealed.  Nobles answered the appeal, requesting the matter be remanded to the trial court for presentation of proof as to damages incurred due to Bayou State’s refusal to cancel the liens.  Nobles also requested an additional award of attorney’s fees necessitated by Bayou State’s appeal.

The court of appeal first addressed the question of whether Bayou State had the right to file the liens.  L.R.S. 9:4811D provides that a general contractor shall not enjoy the privilege granted by L.R.S. 9:4801 if the price of the work stipulated or reasonably estimated in its contract exceeds $25,000; unless notice of the contract is timely filed.  It was stipulated the value of the contract exceeded $25,000 and notice of the contract was not timely filed.  Thus, as a general contractor, Bayou State could not advance a claim under The Private Works Act.  Nevertheless, Bayou State argued it could file a laborer’s lien or a lien as an ordinary contractor.  The court of appeal did not disagree with that contention, and held because Bayou State’s employees performed work on the projects, it was not barred from filing a labor lien.

The court of appeal found, however, the purported lien did not reasonably identify the immovable as required by law.  The only reference to the property was the municipal address, which was insufficient to perfect a privilege.  Additionally, the court of appeal found Bayou State failed to properly set forth the amount and nature of the obligation giving rise to the claims or privileges, and reasonably itemize the elements comprising them.  Bayou State filed two claims or privileges, one on each property, both for the same amount.  It was not reasonable to assume that two separate projects at two different locations would have required the same amount of material and labor expenses.  Bayou State offered no explanation for this, and it was concluded it simply listed a lump sum for both projects.  Such a listing did not meet the statutory requirements to set forth the amount and nature of the claim giving rise to the privilege against each property.  It was impossible to know how much was for the claim for the strip mall as opposed to the claim for the private residence.  The trial court did not err in ordering cancellation of the liens.

With respect to the claim for damages, the court of appeal noted no reason for the failure to advance the claim by presenting sufficient evidence in the trial court was offered.  The request for remand on the issue of damages was rejected.  Nobles requested an additional award for attorney’s fees as a result of the appeal.  The court of appeal held additional attorney’s fees was warranted, and awarded an additional $3,000.  Tee It Up Golfing v. Bayou State Construction, L.L.C., 2009-855 (La. App. 3 Cir. 2/10/10), 30 So. 3d 1159.

LIABILITY OF A GENERAL CONTRACTOR FOR WAGES OF EMPLOYEES OF A SUBCONTRACTOR

Several individuals alleged that they had not been paid for work they performed as employees of Harris Builders, LLC, Essential Quality Construction, Inc. and/or Quang Nguyen on the Oak Villa Project.  They alleged they were hired by Harris, and Essential Quality to work as painters, and to float, tape and finish sheet rock on the project.  Harris was the general contractor.  It hired Essential Quality as the subcontractor.  Nguyen was the principal or manager of Essential Quality.

Plaintiffs contended they worked for the defendants from December 2008 through February 2009, but were not fully paid in violation of the Fair Labor Standards Act (FLSA) and the Louisiana Wage Payment Act, L.R.S. 23:631-632.  Alternatively, they claimed breach of contract.  They alleged Harris and Essential Quality were their joint employers, and sued Harris as well as Essential Quality.  Harris filed a motion to dismiss pursuant to the Federal Rules of Civil Procedure, Rule 12(b)(6) on the grounds it was not plaintiffs’ employer as defined by the FLSA or the LWPA.  Additionally, it moved to dismiss the claim for breach of contract.  A Rule 12(b)(6) motion requires that the court accept all well-pleaded facts as true and liberally construe all factual allegations in the light most favorable to the plaintiff.

The district court first analyzed the motion to dismiss under the FLSA.  To establish a claim for failure to compensate under the FLSA, there must first be an employer/employee relationship.  An employer is defined as any person acting directly or indirectly in the interest of an employer in relation to an employee.  An entity employs an individual under the FLSA if it suffers or permits that individual to work.  An entity suffers or permits an individual to work if, as a matter of economic reality, it functions as the individual’s employer.  Several factors are considered in making that determination.  They include: 1) the employer’s right to control the work; 2) the workers’ opportunity to influence his profit or loss depending on his managerial skill; 3) the workers’ investment in equipment and materials; 4) whether the service requires special skills; and 5) the degree of permanence of the working relationship.  The touchstone of economic reality is dependency, i.e., whether the personnel are so dependent upon the business with which they are connected that they come within the protection of the FLSA or are sufficiently independent to lie outside its ambit.

Although a general contractor/subcontractor relationship does not establish joint employment, neither does the fact that such relationship exists preclude the possibility that the employees of the subcontractor are also the employees of the general contractor.  Common law concepts of employment such as employee and independent contractor have been specifically rejected as determinants of who is protected by the FLSA.

Applying the first factor, plaintiffs alleged they were jointly hired and employed by Harris and Essential Quality and that Harris’ superintendent monitored their work on a daily basis.  This suggested that Harris had the right to control the work of plaintiffs.  As to the second factor, plaintiffs alleged their rates of pay were determined by Nguyen and approved by Essential Quality and/or Harris.  This would support a finding that plaintiffs had little ability to influence their profit or loss.  As to the third factor, plaintiffs’ assertion that the defendants provided plaintiffs with paint, sheet rock, tape and/or other supplies to do the job suggested their investment and materials may have been minimal.

With respect to the last factors, plaintiffs did not state whether or not their jobs involved any special skills, nor did they allege a specific duration of employment, although they stated their work was performed over a period of three months.

The foregoing suggested an employment relationship as defined by FLSA may have existed between plaintiffs and Harris.  Although, as Harris argued, plaintiffs’ allegations also suggested that Essential Quality may have exercised greater control over them than Harris, the court could not determine at that stage whether this would preclude the possibility of an employment relationship with the other.  Considering the standard applicable to a Rule 12(b)(6) motion, it was plausible Harris was plaintiffs’ employer under the FLSA.

The court next considered whether plaintiffs were Harris’ employees under the Louisiana Wage Payment Act.  The factors applicable to that determination are: 1) whether there is a valid contract between the parties; 2) whether the work being done is of an independent nature such that the contractor may employ non-exclusive means in accomplishing it; 3) whether the contract calls for specific piecework as a unit to be done according to the independent contractor’s own methods, without being subject to the control and direction of the principal, except as to the result of the services to be rendered; 4) whether there is a specific price for the overall undertaking agreed upon; and 5) whether the duration of the work is for a specific time and not subject to termination or discontinuance at the will of either side without a corresponding liability for its breach.

It is not supervision or control which is actually exercised by the employer that is significant, but whether, from the nature of the relationship, the right to do so exists.  The fact that one defendant exercises more control over an individual than another defendant does not preclude an employment relationship between the individual and the second defendant.  Allegations by plaintiff they were jointly hired and employed by Harris and Essential Quality and that Harris’ superintendent monitored their work on a daily basis suggested that Harris had the right to control plaintiffs’ work.  As to other factors, plaintiffs alleged defendants and plaintiffs were parties to a verbal employment contract.  Further, their claims that Harris’ superintendent monitored the work daily suggested plaintiffs could not employ non-exclusive means when attempting to accomplish their work.  Their allegations Harris approved the daily rates of pay indicated the work was not for a specific, overall price.  The complaint did not address whether plaintiffs’ work was performed according to Essential Quality’s methods without being subject to the control and direction of Harris, although they did aver their work was monitored daily by Harris.  As to the duration factor, plaintiffs merely stated they performed work on the project over a period of three months.  Again, considering the standard applicable to a Rule 12(b)(6) motion, the court found plaintiffs alleged sufficient facts to support a plausible employment relationship between them and Harris under the Act.

Finally, the court considered the breach of contract claim.  It held oral contracts for employment are enforceable under Louisiana law.  Plaintiffs alleged they entered into such a contract and were jointly hired and employed by the defendants.  The court found plaintiffs alleged they performed their obligations under a verbal contract and Harris had not fulfilled its reciprocal obligation to pay their agreed upon wages.  Plaintiffs set forth factual allegations in support of their breach of contract claim that, if true, would entitle them to relief.  The motion was denied.  Mendoza v. Essential Quality Construction, Inc., 691 F.Supp.2d 680 (E.D. La. 2010).

PEREMPTION

The Lafayette Parish School Board contracted with Corne-Lemaire Group, An Architectural Corporation to design and supervise the construction of the N. P. Moss Middle School on October 13, 1997.  A certificate of substantial completion was issued on July 29, 1999.  In the summer of 2007, eight years after the school was constructed, water damage was discovered.  The School Board sued Corne-Lemaire, as well as others, on July 24, 2008.  Corne-Lemaire excepted to the claims relying upon L.R.S. 9:5607.  The statute provides that no action for damages against an architect, and others, may be brought unless filed within five years, among other things, from the date of registry in the mortgage office of acceptance of the work by the owner.  The statute creates a peremptive bar as to claims.  The trial court sustained the exception.  The School Board appealed.

The School Board argued its right to pursue its claim against Corne-Lemaire vested at the time the parties entered into the contract on October 13, 1997, and since the statute was enacted in 2003 after the contract date, it could not be applied retroactively to divest the School Board of its vested rights.  The School Board also contended the trial court erred in failing to apply the provisions of L.R.S. 9:2772, another peremptive statute, as it existed in 1997 when the contract between the parties was executed.  At the time, that statute provided a 10 year time bar against claims.  The court of appeal found both of the School Board’s arguments required it to find the School Board’s rights vested in 1997 when it entered into a contractual relationship with Corne-Lemaire.

The court of appeal rejected the arguments, and found the School Board did not acquire the right to sue Corne-Lemaire until it discovered the damage to the school in 2007.  By that time, the governing peremptive statute was L.R.S. 9:5607.  Since more than five years passed after the work was accepted by the School Board, the lawsuit brought in 2008 was untimely.  A cause of action accrues when a party has a right to sue.  Before 2007, the cause of action had not accrued.  Fault, causation and damages are required for a cause of action to exist.  The judgment of the trial court was affirmed.  Lafayette Parish School Board v. Ratcliff Construction Co., 2009-762 (La. App. 3 Cir. 2/3/10), 30 So.3d 279.  The Louisiana Supreme Court granted a writ, in part, remanding the matter to the district court to allow the plaintiff an opportunity to remove the grounds for the exception by amendment of the petition.  Lafayette Parish School Board v. Ratcliff Construction Co., 2010-0931 (La. 9/17/10), 45 So.3d 1059.


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