Real Estate and Construction Law Blog

By James G. Higgins

Prompt payment laws can pose significant risk to owners and contractors.  In S&S Cummins Corp. v. West Bay Builders, Inc. 2008 Cal. App. LEXIS 160, *, a public works general contractor was stung under Public Contract Code section 7107 for delaying retention payments to an electrical subcontractor.

By Mathew R. Troughton

For the first time in a decade, the American Institute of Architects ("AIA") revised several of the key standard forms of contract it publishes for use on construction projects.  The various AIA forms are widely used as the starting point for negotiating the terms of contracts between various project participants.  The AIA last revised its key documents in 1997.

Shepard v. Edward Mackay Enterprises, Inc., et al., --- Cal. Rptr. 3d ---, No. C052564, 2007 WL 853456 (Cal. Ct. App. Mar. 22, 2007)

While Section 1298.7 of the California Code of Civil Procedure generally allows homebuyers to pursue defect litigation in court regardless of an agreement to arbitrate, the Third District Court of Appeal recently ruled the Federal Arbitration Act preempts California law and binds homebuyers to arbitration provisions when the transaction involves interstate commerce.  Because homes built in California today likely incorporate at least some construction materials originating outside the state and therefore implicate interstate commerce, the court's ruling may effectively preclude homebuyers from relying on this section of the Code of Civil Procedure to avoid arbitration.

Kemp Bros. Construction, Inc. v. Titan Electric Corp. (2007) Cal.App.4^th

By Thomas B. Snyder

In this case, Kemp was a prime contractor on two public works projects for the Los Angeles Unified School District ("LAUSD").  It subcontracted the electrical work to Titan Electric on both projects.  Partway through performance, Titan began to struggle with its payroll obligations and Kemp agreed to informally advance payments to Titan to assist in completing the work.  When problems continued, Kemp stopped the advance payments and Titan was unable to meet its payroll.  Kemp then retained another electrical subcontractor who completed the work.  Simultaneously, Kemp requested that the LAUSD approve Titan's substitution as the listed subcontractor under Public Contracts Code Section 4107, arguing that Titan was failing and refusing to perform its work and/or delaying or disrupting the progress of the work.  The LAUSD hearing officer agreed that Titan had been disrupting and delaying the work and therefore determined that Kemp had the statutory right to substitute Titan.

By Richard M. Freeman

In December, 2006, the Departmentf Industrial Relations adopted a new, official position which could adversely affect the real estate development and construction community.  Its new position is that any type of public subsidy, waiver of permitting fees, discount or assistance from a public body to a developer does not have to be for the purpose of facilitating construction in order for the requirement to be imposed that prevailing wages (i.e., the union wage rates) be paid to the construction workers on the any project within the development.  In 2005, the California Supreme Court, in interpreting California Labor Code § 1720(a)(1), ruled that in order for the prevailing wage requirement to be imposed, any public assistance or benefit under § 1720(a)(1) had to be provided to the developer for the purpose of facilitating the construction.  Even though the amendments to the prevailing wage law under SB975 did not change the language in § 1720(a)(1) of the Labor Code, the DIR has chosen to take the position that the City of Long Beach decision is no longer good law and that any public benefit to a developer relative to its overall development, converts the development into a prevailing wage project.  The DIR's decision is being appealed.  However, this new interpretation makes its increasingly important for developers, contractors, and others to analyze very carefully what the ramifications of any public assistance are to a real estate development.

For further information please contact Richard M. Freeman.  Richard Freeman is a partner in the Real Estate, Construction & Land Use Litigation Practice Group and the Labor and Employment Practice Group in the firm's Del Mar Heights Office.

On May 8, 2006, Immigration and Customs Enforcement ("ICE") arrested 76 undocumented workers and 4 construction site managers at Fischer Homes, Inc. worksites in Kentucky. Fischer and its managers were charged criminally with harboring and transporting undocumented workers for financial gain. Tax investigators were also involved. On May 2, 2006, ICE carried a similar operation against a stucco contractor in Indiana, and charged the owner with harboring and money laundering. Both operations took place under the new Homeland Security "get tough" policy against companies who use undocumented workers.

The following article contains a brief analysis of the "labor through contract" theory of sanctions liability (specifically addressing the building and construction industry) and a 3-point compliance plan including a training component for managers and supervisors who are authorized to retain subcontractors on building projects.

Click here to view entire article

Michael v. Denbeste Transportation, Inc. California Court of Appeal, Second Appellate District

By Robert T. Sturgeon

Defendant Denbeste Transportation, Inc. hired plaintiffDavid Michael as an independent contractor to haul hazardous waste from a construction site. Michael was injured when he fell from his truck while attempting to roll a tarp over the top of the trailer to cover the load. Michael sued various parties for his injuries, including Denbeste; Chemical Waste Management, Inc. ("CWM"), the party that had hired Denbeste; Aman Environmental Construction, Inc. ("Aman"), the general contractor on the project and the party who had hired CWM; and Secor International, Inc. ("Secor"), a consultant to the project owner. Michael alleged the defendants owed him a duty of care under the peculiar risk doctrine, which provides that a party who hires a contractor to perform inherently dangerous activities can be held vicariously liable for tort damages when the contractor's negligence causes injury to others. Michael alleged the defendants had breached their duty by not providing fall protection while he was covering the load.

New Legislation Creates Additional Carve-out

by Candace Matson 

Legislation effective January 1, 2006 (AB 758), amending California Civil Code §2782, creates a further exception to parties’ ability to negotiate indemnity terms in construction agreements. AB 758 has been touted as addressing the “insurance crisis” of residential subcontractors. Some opine that, viewed in conjunction with SB 800 (Civil Code, Title 7, “Requirements for Actions for Construction Defects”), it prohibits builders from pushing down their strict liability obligations onto subcontractors through indemnity agreements. Others maintain that it basically deals with an issue of fairness, i.e., whether liability is fairly imposed on subcontractors.

Click here to view the full article.

Candace Matson is a partner in the Real Estate, Environmental and Construction Practice Group in Sheppard Mullin's Los Angeles office.

By Thomas B. Snyder

In AF Brown Electrical Contractor, Inc. v. Rhino Electric Supply, Inc., issued March 23, 2006, the Fourth Appellate District was faced with the question of whether an electrical supplier's conduct in filing a stop notice fell within the ambit of C.C.P. § 425.16, the anti-Slapp statute.

By Doug Van Gessel

On August 4 the California Supreme Court ruled, in Grafton Partners v. Superior Court (Pricewaterhouse Coopers LLP), 2005 DJDAR 9387 that California contractual provisions in which the parties thereto pre-agree to waive the right to a trial by jury are unenforceable. The unanimous opinion stated that a right to a jury trial is a fundamental constitutional entitlement that cannot be waived in advance of a dispute between the contracting parties unless such a waiver is permitted by statute. Thus, the court has left the door open for the legislature to pass a statute allowing such waivers, and the forum for interests pursuing this debate will likely shift to the legislature now.