The Construction Law Update is published 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. To subscribe to BHBM’s electronic Construction Law Update, please click here. For further information on the decisions and legislative developments, contact John Stewart, Jr. at (504) 585-7846 – email@example.com.
At the end of this newsletter, you will find a section titled Tax Law Alert. It contains a snippet from Baldwin Haspel Burke & Mayer’s most recent Tax Law Alert, which provides information on updates and changes in tax law on both the state and federal level. To subscribe to BHBM’s electronic Tax Law Alert, please click here.
The Louisiana legislature during its 2013 Regular Session amended the Private Works Act, L.R.S. 9:4802(G), to require that the notice a lessor delivers to the owner and the contractor not more than ten days after the movable is first placed at the site of the immovable for use in the work shall contain the name and mailing address of the lessor and lessee and a description sufficient to identify the movable property placed at the site of the immovable for use in the work. The notice shall state the term of rental and terms of payment and shall be signed by the lessor and lessee. Acts. 2013, No. 357.
It also amended L.R.S. 9:4822(G) with respect to the preservation of claims and privileges. Previously, the statute provided a statement of claim or privilege shall set forth the amount and nature of the obligation giving rise to the claim or privilege and reasonably itemize the elements comprising it including the person for whom or to whom the contract was performed, materials supplied, or services rendered. The statute now also provides a claimant is not required to attach copies of unpaid invoices unless the statement of claim or privilege specifically states the invoices are attached. Acts 2013, No. 277.
The legislature also in its 2013 session, adopted several amendments to L.R.S. 38:2212 concerning the advertisement and letting of contracts for public works. The first requires that all bidders for projects let by East Baton Rouge Parish shall submit all bid forms required by statute or by the Louisiana Administrative Code to the governing authority of East Baton Rouge Parish prior to the opening of bids. Acts 2013, No. 364.
The second provides that the annual limit of a public entity for any work to restore or rehabilitate a levee that is not maintained with federal funds, including mitigation on public lands owned by the state or political subdivision, in order to avoid the requirement the project be advertised and let to the lowest responsible bidder, shall not exceed the sum of $1,000,000.00, including labor, materials, and equipment as per the rates in the latest edition of the Associated Equipment Distributors Rental Rate Book, and administrative overhead not to exceed 15%; provided that the work is undertaken by the public entity with its own resources and employees, or with the resources and employees of another public entity through a cooperative endeavor or other agreement with such entity. The foregoing provisions shall remain in effect until December 31, 2018. Acts 2013, No. 63.
The third amendment provides that where the Sewerage & Water Board of New Orleans, itself, prepares and distributes electronic contract documents, the Board may, in lieu of a deposit, charge a fee for each paper document, which shall not exceed the actual cost of reproduction. Acts 2013, No. 125.
Several subcontractors recorded liens for work on a condominium project. The owner argued the lien affidavits did not reasonably identify the immovable with respect to which the work was performed, and did not reasonably identify the property which was the subject of the liens. The owner contended the affidavits referenced the wrong lot numbers (those lot numbers prior to the resubdivision of several lots into one lot for the project), and that they designated property greater than that on which the condominiums were built, which additional property was owned by third persons.
The court of appeal found the property description contained in each of the lien affidavits was adequate under the private works statute. Though the property description used the original lot numbers prior to the resubdivision of the property into one lot, the description comported with the statute’s requirement to put the owners and third persons on notice regarding which immovable property was subject to the privilege. The owner further argued the lien affidavits did not properly identify which work was performed on which particular condominium unit. The court of appeal held the work performed by each subcontractor was performed throughout the entire condominium development prior to the sale of individual units. The affidavits adequately met the statute’s requirements of specificity. The work did not involve separate and distinct parcels of immovable property. Though the condominiums were sold as individual units, the various subcontracts were for construction work to be performed on the condominium complex as a whole.
The owner also argued the lien affidavits did not adequately describe the work performed or the materials supplied. The affidavits for the claims each stated a lump sum amount, and described the work performed as electrical and lighting work; wall preparation and general painting work; framing, insulation, and drywall installation; plumbing installation work; aluminum framing and glass and glazing installation work; and air conditioning and ventilation work. The court of appeal held the descriptions of the work performed were individualized as to each subcontractor and sufficiently described the work performed. Simms Hardin Company, LLC v. 3901 Ridgelake Drive, LLC, 12-469 (La.App. 4th Cir. 5/16/13), 2013WL 2120974.
The Louisiana Department of Transportation and Development contracted with Barber Brothers Contracting Company, LLC for a highway project in Baton Rouge. The contract provided that DOTD would notify all known utility companies, pipeline owners or other parties affected by the work and endeavor to have the necessary adjustments of public or private utility fixtures, pipelines and other appurtenances within or adjacent to the limits of construction made as soon as possible. The contract also contained a provision stating it was agreed the contractor had considered in its bid all permanent and temporary utility appurtenances in their present or proposed relocated positions and that no additional compensation would be allowed for delays, inconvenience or damage sustained due to interference from the said utility appurtenances or the operation of removing them. Further, when the engineer determines the contractor is experiencing significant delays in the controlling items of work because of delays by others in removing, relocating or adjusting utility appurtenances, contract time credits will be considered for such delays.
Some of the public utilities failed to relocate their facilities in time to prevent delays. Contract changes were executed by DOTD and Barber increasing the contract time, but the changes did not increase the contract price.
Barber sued for damages alleging it incurred expenses as a result of the utility delays, and was also assessed stipulated damages by DOTD when the utility delays delayed the installation of the storm drainage system. Both DOTD and Barber filed cross-motions for summary judgment on the issue of whether Barber’s claim for damages relating to delays was waived. The trial court granted Barber’s motion. DOTD appealed.
L.R.S. 38:2216(H) provides that any provision in a public contract which purports to waive, release, or extinguish the rights of a contractor to recover costs of damages, or obtain equitable adjustment, for delays in performing such contract, if such delay is caused in whole or in part by acts or omissions within the control of the contracting public entity or persons acting on behalf thereof, is against public policy and is void or unenforceable and shall be severed from the other provisions of the contract. DOTD contended the statute was not applicable to the issues since L.R.S. 48:250(A) provides that DOTD contracts are to be exclusively governed by Title 48. The statute provides it shall exclusively govern the contracts of the Department of Transportation and Development or let by the Department on behalf of other political subdivisions of the state in addition to the laws of the state relating generally to obligations and the Department not in conflict with it.
The court of appeal held DOTD’s argument overlooked the provision for the applicability of other laws not in conflict with Title 48. The court acknowledged it had previously held the provisions of Title 38 remain applicable to DOTD contracts where they do not conflict with those of Title 48. L.R.S. 38:2216(H) applies to any contract awarded by the State of Louisiana, or any agency, board, commission, department or public corporation of the State. There were no conflicting provisions in Title 48, and L.R.S. 38:2216(H) was applicable to the contract.
DOTD also argued that because equitable adjustment was not waived by the contract, L.R.S. 38:2216(H) was not violated. The court of appeal disagreed, finding the statute does not say that to be prohibited, a contract must waive both cost of damages and equitable adjustment. It states a provision which purports to waive cost of damages or equitable adjustment is prohibited. The judgment of the district court was affirmed. Barber Brothers Contracting Company, LLC v. State of Louisiana, Through Department of Transportation and Development, 2011-2305 (La.App. 1 Cir. 11/8/12), 110 So.3d 1085, writ denied, 2012-2680 (La. 2/8/13), 108 So.3d 87.
The First Circuit Court of Appeal recently considered which party had the burden of proof, the owner or contractor, for the unpaid balance of a contract. The contractor was placed in default, and his contract terminated. The owner contended since there was no substantial completion, the contractor had the burden of proving that it was entitled to compensation for the unpaid balance. The court found substantial completion was not an issue, and relied upon the provisions in the contract dealing with payment on termination. It upheld the award of the trial court to the contractor for the balance of the contract after deducting damages caused by it.
The owner also contended it was entitled to attorney fees from the contractor under the indemnification requirements of the contract. The contract provided the contractor would indemnify and hold the owner harmless for claims arising out of or resulting from the performance of the work, including the payment of attorney fees. The court of appeal recognized it previously held an indemnity provision in a contract was not limited to third party claims, but could apply to claims for negligent performance brought by one contracting party against the other. In this case, the court held that jurisprudence was not dispositive of the issue presented since the claim was not for indemnity for negligent performance, but rather the owner’s entitlement to attorney fees. Further, the prior jurisprudence did not involve reciprocal claims by each contracting party alleging the other had not fulfilled its obligation under the contract as did the current dispute. In the instant matter, both the contractor and the owner prevailed on some of their claims. The contract strictly limited indemnity claims to those arising out of negligent acts or omissions, whereas the claims of both parties were for breach of contract. The claim for attorney fees was denied. St. Bernard Port, Harbor and Terminal District v. Guy Hopkins Construction Co., Inc., 2012-0167 (La.App. 4 Cir. 1/16/13), 108 So.3d 874.
Jefferson Parish and the U.S. Army Corps of Engineers entered into a Project Cooperation Agreement for a portion of the Southeast Louisiana Flood Control Project which included the work on the Gardere Canal. The
Corps contracted with B&K Construction Company, Inc. as the general contractor for the work. Several homes in the vicinity experienced damages. The owners sued Jefferson Parish and B&K. Jefferson Parish moved for summary judgment claiming it was immune from liability under L.R.S. 9:2798.1 for policymaking or discretionary acts. B&K moved for summary judgment contending it was immune from liability under L.R.S. 9:2771 (statutory contractor immunity); and jurisprudentially created contractor immunity (government contractor immunity). The district court granted both motions. The plaintiffs appealed.
L.R.S. 9:2798.1 provides that public entities are immune from liability based on the exercise or performance or the failure to exercise or perform their policymaking or discretionary acts when such acts are within the course and scope of their lawful powers and duties. The law is not applicable to acts or omissions which constitute criminal, fraudulent, malicious, intentional, willful, outrageous, reckless or flagrant misconduct. The plaintiffs claimed the damages were caused by excessive vibrations. It was undisputed the construction activities were actually carried out by B&K and its subcontractors and not by the Parish. The court of appeal found the Parish was not responsible for construction or operational activities that caused the vibrations, nor had it been shown the Parish performed such activities. The Parish’s activities were limited to monitoring the vibrations through a contract with a testing contractor, and reporting the results to B&K and the Corps. The court of appeal held the Parish was entitled to judgment on its discretionary immunity defense as a matter of law.
The plaintiffs also claimed the Parish was liable under a document entitled Standard Operating Procedure which was an agreement undertaken with the Corps. They claimed the Corps and Parish, under the agreement, anticipated damages would occur to plaintiffs’ property, that they had agreed to pay damages in a 75%/25% split, and the Parish had the duty to submit the claims for any property/homeowners within 30 days of notice. Plaintiffs argued the Parish had breached its duties under the document, committed fraud against the plaintiffs, and breached its fiduciary duty to plaintiffs. The court of appeal held the document did not create a duty of the Parish to plaintiffs, and they could not be considered third party beneficiaries.
B&K contended it was immune from suit under the contractor immunity provisions of L.R.S. 9:2771. The court of appeal held the immunity results from proof of compliance with plans and specifications. In general, a contractor owes third parties a duty to exercise ordinary care and refrain from creating hazardous conditions in the fulfillment of its contractual obligations. However, a contractor is not the guarantor of the sufficiency of plans and specifications drawn by another, and if it complies with those plans and specifications, it is entitled to statutory immunity. Nevertheless, a contractor cannot rely blindly on plans and specifications, but rather, to avoid liability, must prove either the condition created was not hazardous or it had no justifiable reason to believe its adherence to the plans and specifications created a hazardous condition. The court of appeal found there were genuine issues of material fact as to whether B&K performed its work in accordance with the plans and specifications.
B&K also argued it was subject to the government contractor immunity defense which provides that contractors hired by the government cannot be held liable for performing their contracts in conformity with specifications established by the government. Three prongs must be satisfied for purposes of the defense: 1) the government must have approved reasonably precise specifications; 2) the work must have conformed to the specifications; and 3) the contractor must have warned of any dangers that were known to the contractor, but not the government. The contractor is not required to warn of dangers which it should have known, only dangers about which it had actual knowledge. The court of appeal found there were genuine issues of material fact as to the second prong of the defense.
Summary judgment in favor of Jefferson Parish was affirmed. Summary judgment on behalf of B&K was reversed. Banks v. Parish of Jefferson, 12-215 (La.App. 5 Cir. 1/30/13), 108 So.3d 1208.
The Louisiana First Circuit Court of Appeal recently considered whether a construction contractor could assert a claim against a design professional, with whom it did not have a contract, for damage resulting from design errors. The court held that absent privity of contract, the contractor may not assert a cause of action against the design professional based on breach of contract, but the contractor was not precluded from asserting a cause of action in tort based upon alleged negligence. Greater Lafourche Port Commission v. James Construction Group, LLC, 2011-1548 (La.App. 1 Cir. 9/21/12), 104 So.3d 84.
The Louisiana Third Circuit Court of Appeal recently considered whether individual members of an LLC could be liable for activities concerning the LLC. L.R.S. 12:1320B provides that except as otherwise specifically set forth in that chapter, “no member, manager, employee, or agent of a limited liability company is liable in such capacity for a debt, obligation, or liability of the limited liability company.” Subsection D provides that nothing in the chapter “shall be construed as being in derogation of any rights which any person may by law have against a member, manager, employee, or agent of a limited liability company because of any fraud practiced upon him, because of any breach of professional duty or other negligent or wrongful act by such person, or in derogation of any right which the limited liability company may have against any such person because of any fraud practiced upon it by him.”
The Third Circuit concluded the legislature intended for the personal liability of members of LLCs to be different from the personal liability of corporate shareholders. Subsection D clearly provides a cause of action against a member of a limited liability company because of any breach of a professional duty, as well as for any fraud or other negligent or wrongful act by such person. It makes no distinction between professional members and non-professional members.
In the case at hand, the court found that allegations an individual who was the sole member of an LLC was negligent with regard to the construction of a home were sufficient to state a cause of action against him under L.R.S. 12:1320D. Additionally, the court found the individual committed fraud, and was personally responsible for the work he performed. Both the LLC and the individual were liable under the New Home Warranty Act for damages and attorney fees. Ogea v. Merritt, 2012-1028 (La.App. 3 Cir. 2/6/13), 109 So.3d 516.
A work product exclusion in a contractor’s CGL policy contained an exception for work performed by a subcontractor. The Louisiana Supreme Court held the insurer has the burden of proving the exception is not satisfied. Veuleman v. Mustang Homes, LLC, 2013-190 (La.4/5/13), 110 So.3d 572.
The Jefferson Parish Standard Bid Terms and Conditions for its public works contracts contain a provision that a bid may be considered irregular and rejected, among other things, if an owner or a principal officer of the bidding firm is an owner or a principal officer of a firm which has been declared by the Parish to be ineligible to bid. The Louisiana Attorney General in a recent opinion found this was an attempt to debar bidders, and Title 38 of the Louisiana Revised Statutes relating to contracts for public works to which Jefferson Parish was subject, did not provide that authority. Title 48, which is applicable to Department of Transportation and Developments contracts, on the other hand, does.
The attorney general distinguished debarment from disqualification of a bidder who is found not to be responsible, which is allowed under Title 38, but only if written notice is given to the bidder which includes the reasons for the proposed disqualification, and the bidder is given an opportunity to be heard at an informal hearing at which he is afforded the opportunity to refute the reasons for disqualification. Disqualification can include issues such as the honesty and integrity of the bidder, the bidder’s skill and business judgment, his experience and facilities for carrying out the contract, previous conduct under other contracts, the quality of previous work, and his pecuniary ability. An unresponsive bid must, of course, be rejected. AG Opinion 13-0008 (4/11/13).
In a contest between a general contractor’s surety to recover for payments made, the general contractor, and its creditors for a public contract, the United States District Court for the Eastern District of Louisiana found the surety was entitled to retainage withheld by the owner from payments to the general contractor. The court held because the general contractor failed to pay claims, the owner was entitled to use the contract retainage to pay them if the surety had not done so. Because the surety paid the claims, it was subrogated to the rights of the owner and the subcontractors, suppliers, lessors and materialmen whose claims it paid. No debt from the owner to the general contractor ever arose regarding those funds.
The surety claimed it was entitled to attorneys fees under L.R.S. 38:2191. The statute provides that any public entity failing to make any final payments after formal acceptance and within 45 days following the receipt of a clear lien certificate by the public entity shall be liable for reasonable attorneys fees. The owner had received notice of a claim by the IRS to the contract retainage. Although the owner had a clear lien and privilege certificate, but knew of pending claims asserted by outside parties regarding the contract funds, the court held it could not be liable for attorneys fees; the lien certificate was not clear when submitted in light of the IRS claim. Hartford Casualty Insurance Company v. MDI Construction, LLC, 848 F.Supp.2d 627 (E.D. La. 2012).
The Third Circuit Court of Appeal considered whether defective work performed by a contractor was covered under a contractor’s CGL insurance policy. The policy contained typical work product exclusions. The court found the claims were excluded pursuant to the exclusions, despite the argument the defects were a result of negligent acts on the part of the contractor, as opposed to a breach of contract. The court held that in order for a claim for negligence to be successful, it must be shown there was a breach of a general duty owed by the contractor to all persons, as opposed to simply the breach of a duty arising out of a contract. Here, there was no such showing. The court concluded the policies were not written to guarantee the quality of an insured’s work or product.
The court also considered the argument the claims were covered under the products-completed operations hazard provisions of the policy. It held coverage did not apply since the claims were for damages for the contractor’s defective work or product itself, and not damages to something else arising out of the faulty work. Damage to real property arising out of faulty work would not be excluded, but damage to the work itself would. Provost v. Homes By Lawrence & Pauline, Inc., 2012-761 (La.App. 3 Cir. 12/5/12), 103 So.3d 1280, writ denied, 2013-0049 (La. 2/22/13), 108 So.3d 776.
Timothy J. Wintz contracted with KRC Construction, LLC to build a home in Sunshine, La. KRC subcontracted the framing work to Kevin Blanchard. Blanchard built temporary steps for the house while it was under construction. John W. Sasser, a building inspector for the Iberville Parish Council, fell and sustained injuries when the temporary steps became detached from the house frame while he was ascending them. Sasser sued Wintz, KRC and Blanchard. Wintz and KRC filed separate motions for summary judgment which were granted by the trial court. Sasser appealed.
The court of appeal first addressed the issue of whether Wintz, as the owner of the bulding under construction, was liable. The court held the owner generally does not have custody for purposes of liability unless he exercises operational control over the contractor’s methods of operation or gives express or implied authority to unsafe practices. The court found there was no evidence to support a claim against Wintz.
The second issue was whether Blanchard was an independent contractor or an employee of KRC. There are five factors to consider in determining whether an independent contractor relationship exists: 1) whether a valid contract exists between the parties; 2) whether the work 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 contractor’s own methods, without being subject to the control and discretion of the principal, except as to the results of the services to be rendered; 4) whether there is a specific price for the overall undertaking; 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.
The most important element to be considered is the right of control and supervision over the individual. The evidence supported the conclusion Blanchard was an independent contractor, and not an employee. To the extent Blanchard was an independent contractor, and not an employee, KRC could not be held liable for his acts
unless Blanchard performed work which was intrinsically or inherently dangerous, or KRC reserved the right to supervise or control the work or gave express or implied authorization for an unsafe practice. None of these conditions were satisfied. The judgment of the trial court was affirmed. Sasser v. Wintz, 2011-2022 (La.App. 1 Cir. 9/4/12), 102 So.3d 842.
James and Vanessa Ledbetter entered into an agreement to purchase a home from Homes by Paige, LLC which was then under construction by Paige in Prairieville, Louisiana. The Ledbetters alleged there were several defects in the work performed by Paige. L.R.S. 9:3145A of the New Home Warranty Act requires that before undertaking any repair or instituting any action for breach of warranty, the owner shall give the builder notice within one year after knowledge of the defect, advising him of such defects, and giving him a reasonable opportunity to comply with the provisions of the law. The court found the Ledbetters prevented Paige from accessing the property and from having a reasonable opportunity to repair or replace the defective items. Accordingly, the Ledbetters did not comply with the statute, and were precluded from recovering under the New Home Warranty Act.
The Ledbetters also claimed they were entitled to recovery of non-pecuniary damages. The court held non-pecuniary damages are available when the contract, because of its nature, is intended to gratify a non-pecuniary interest, and because of the circumstances surrounding the formation or the non-performance of the contract, the obligor knew, or should have known that his failure to perform would cause that kind of loss. The Ledbetters contended they entered into the contract with Paige to satisfy a non-pecuniary interest. The court held neither the contract nor the facts and circumstances surrounding the formation of the contract demonstrated the Ledbetters purchased the house for a significant non-pecuniary purpose.
Finally, the Ledbetters alleged they were entitled to attorneys fees under the contract as a result of a default by Paige. The court held the sole purpose of the agreement was to transfer title to the property. Paige transferred title as required under the terms of the agreement, and it could not be concluded the default provision or the attorney fee provision of the agreement had been triggered. Ledbetter v. Homes by Paige, LLC, 2011-0005 (La.App. 1 Cir. 3/23/12), 110 So.3d 141, writ denied, 2012-0899 (La. 6/1/12), 90 So.3d 445.
On Tuesday, July 2, 2013, the Obama Administration announced that it will delay the enforcement of a major provision of the president’s health care reform, the requirement that medium and large companies offer health care coverage. The Affordable Care Act requires that all employers with more than fifty employees provide affordable coverage for their workers or face potentially large fines if just one worker receives taxpayer-subsidized insurance. This provision of the Act has raised concerns about companies downsizing their workforce or cutting worker’s hours in an attempt to dodge the new mandate. Mark Mazur, Assistant Secretary of Tax Policy, wrote late Tuesday in a blog post, “We have heard concerns about the complexity of the requirements and the needs for more time to implement them effectively. We recognize that the vast majority of businesses that will need to do this reporting already provide health insurance to their workers, and we want to make sure it is easy for others to do so.”
Governor Bobby Jindal has signed new legislation (H.B. 705) that will phase out Louisiana’s current state tax credit for solar energy. The current Louisiana tax credit will expire at the end of 2017, while honoring existing leases between solar power suppliers and customers. Louisiana currently provides a tax credit for solar and wind energy systems purchased and installed in an amount equal to fifty percent (50%) of the first $25,000 of the cost of the system. Beginning July 1, 2013, the credit only applies to certain types of solar systems on single family residences and no longer applies to multi-unit residences. The credit will be reduced and will cover an even smaller percentage of solar units until the credit expires at the end of 2017.
Governor Bobby Jindal has signed new legislation (H.B. 456) creating the Louisiana Tax Amnesty Program, which applies to all taxes administered by the Louisiana Department of Revenue except for motor fuels tax. The bill provides that there shall be an amnesty program for at least two (2) months in 2013 (occurring prior to December 31, 2013), for at least one (1) month in 2014 (occurring between July 1, 2014 and December 31, 2014) and for at least one (1) month in 2015 (occurring between July 1, 2015 and December 31, 2015).
The interest and penalty waiver will vary depending upon the above-referenced periods. The taxpayer must pay all taxes and all applicable interest and penalties if the taxpayer wishes to participate in the tax amnesty program.
The following taxes are eligible for the amnesty program:
-taxes due prior to January 1, 2013 for which the department has issued an individual or business proposed assessment, notice of assessment, bill, notice or demand for payment no later than May 31, 2013; or
-taxes for taxable periods that began before January 1, 2013; or
-taxes for which the taxpayer and the department have entered into an agreement to interrupt the running of prescription pursuant to La. R.S. 47:1580 and said agreement suspends the running or prescription until December 31, 2013.
Please contact Andrew Sullivan if you would like more information on this program.