The Gulf Opportunity Zone Act of 2005 (the “Act”) added several new sections to the Internal Revenue Code that provide certain tax benefits for affected hurricane disaster areas. Section 1400N(a) authorized the issuance of Qualified Private Activity Bonds (“Qualified Bonds”) to finance the construction and rehabilitation of residential and nonresidential property located in the Gulf Opportunity Zone (“GO Zone”). The Act gave private business owners and corporations the opportunity to borrow capital at favorable tax-exempt rates to acquire, construct, reconstruct or renovate qualified property in the GO Zone. The deadline for the issuance of GO Zone Bonds was extended through the end of 2011. However, the Act did not address the current refunding of Qualified Bonds after the applicable issuance deadline had passed.  

In a refunding, an issuer sells bonds and uses the proceeds to redeem outstanding debt that typically has higher interest rates. In a current refunding, the issuer uses the refunding bond proceeds to redeem the outstanding debt within 90 days. On December 23, 2011, the Internal Revenue Service released an advance copy of Notice 2012-3, which provides guidance on current refunding of outstanding prior issues of Qualified Bonds, including GO Zone Bonds and Hurricane Ike Bonds.

A current refunding of Qualified Bonds that meets the conditions of Notice 2012-3 may be issued after the applicable deadline and still be treated as Qualified Bonds. The conditions include that the original Qualified Bonds must have been issued before the deadline for the issuance of such bonds. The issue price of the current refunding issue must be no greater than the outstanding stated principal amount of the refunded bonds. And, the current refunding issue must meet all applicable requirements for the issuance of tax-exempt private activity bonds, including that the average bond maturity must be no longer than 120 percent of the average reasonably expected economic life of the facilities financed or refinanced.

Additionally, as long as the original Qualified Bonds satisfied the designation requirement, no further designation or official state or local governmental action is required for a current refunding of such bonds.

Notice 2012-3 will appear in Internal Revenue Bulletin 2012-3, dated January 17, 2012.

In today’s political and economic environment, in which public resources available for infrastructure development and maintenance are increasingly scarce, Public-Private Partnerships (PPPs) offer a welcome alternative to traditional financing and operation models. A PPP is a contractual agreement between a public agency (federal, state or local) entity and a private sector entity to deliver a service or facility for public use. The Louisiana Supreme Court has recognized the public benefits of PPPs, finding that “public-private partnerships that take advantage of the special expertise of the private sector are among the most effective programs to encourage and maintain economic development, and that it is in the best interest of the State and its local governments to encourage, create, and support public-private partnerships.” See Board of Directors of Indus. Devel. Bd. of City of Gonzales, Louisiana, Inc. v. All Taxpayers, Property Owners, Citizens of City of Gonzales, 938 So.2d 11, 17 (La. 2006).

PPPs differ from joint service agreements in several key respects. Because private partners share in the potential benefit of a project and in the risk of a project’s failure or deficiency, they have a strong incentive to limit costs, avoid delays in construction, and efficiently maintain the facility. Studies suggest that traditional contract-driven projects may be more subject to delays and overruns, whereas PPPs result in greater on-time and on-budget completion. PPPs reward efficiency, innovation, and creativity in the development new facilities. In return, private partners are able to rely upon the broad perspectives, personnel, knowledge of public needs, legal authority, financing resources, and procurement policies that are unique public partners.

Public and private partners must be mindful of several issues when crafting a successful PPP: statutory authority, public commitment to the project, community perception, revenue stream, corporate and public organization structures, and partner compatibility. They must develop a business plan that clearly delineates the responsibilities of each partner and addresses the competing expectations of each partner’s constituents. Clear objectives, consistent benchmarks, and effective management and communication are essential.

PPPs offer many practical advantages to public and private entities: maximizing each sector’s strength, reducing risk, reducing capital investment, sharing resources, improving efficiency, facilitating environmental compliance, and improving cost-effectiveness. When properly structured, PPPs provide clear win-win situations for both private and public actors.
 

The Louisiana First Circuit Court of Appeals has issued the first Appellate Court decision dealing with the Louisiana New Home Warranty Act and its application to Chinese Drywall claims in the case of Jennifer L. Caminita, wife of/and Frank L. Caminita v. Regina, wife of/and Barney Core, Smith and Core, Inc., et al., State of Louisiana Court of Appeals, First Circuit, 2010 CA 1961.

The First Circuit has ruled that the periods of limitation set forth in the New Home Warranty Act provide the exclusive periods by which claims can be brought against home builders for alleged defects related to the installation of Chinese Drywall in new homes. In the Caminita case the First Circuit specifically found that the one year preemptive period provided by La.R.S. 9:3144A(1) was applicable to claims related to Chinese Drywall incorporated into new homes. Based on this finding, the court dismissed the action against the home builder.

This ruling by the Louisiana First Circuit Court of Appeals is the first Louisiana case reported at the appellate level on this issue and is in line with decisions by district courts last year which were also reported on the Kean Miller blog.
 

A recent opinion from the United States Bankruptcy Court in Baton Rouge, Louisiana shows that even experienced lenders and developers may not always understand how Louisiana’s Private Works Act applies to their project, and how much leverage a properly filed notice of contract can provide to a general contractor.  Tuscany Reserve, LLC (“LLC”) was formed by sophisticated developers for the purpose of developing a new apartment complex in Baton Rouge. LLC obtained acquisition and construction financing from a bank (1st Bank), which properly recorded its mortgage on the project before work commenced. LLC hired “Contractor” to build the complex; Contractor recorded its notice of contract in the parish mortgage records.  As often happens, a dispute developed between LLC and Contractor regarding the work performed and lack of payment.  Contractor stopped work and filed a lien on the property under the Louisiana Private Works Act for $1.17 million.  Contractor eventually agreed to cancel its lien in exchange for a promissory note and guarantees from LLC’s principals and collateral provided by an LLC affiliate.  Once the lien was cancelled, 1st Bank funded two draw requests on the construction loan.  LLC needed more money for the project and turned to a new lender (2nd Bank) for additional financing.   2nd Bank secured its loan with a collateral mortgage on the immovable property for the project; there were no liens in the property records when 2nd Bank recorded its mortgage.  The relationship between LLC and Contractor soon soured, again, and Contractor filed two liens on the project, one for the original claim amount, plus interest, and another for $250,000.00.  Contractor sued LLC and its principals on the matured promissory note, and also sued LLC based on its rights under the recorded construction contract and the Louisiana Private Works Act. LLC eventually filed for chapter 11 bankruptcy in the Middle District of Louisiana.

2nd Bank made several arguments for why Contractor’s liens should not relate back to the date the notice of contract was filed. 2nd Bank argued that Contractor’s agreement to take a promissory note in lieu of payment after the first lien was filed, and Contractor’s subsequent cancellation of its lien, was a novation of Contractor’s claims and transformed those claims “from a construction contract claim secured by Private Works Act liens into an unsecured claim” based on the promissory note.  The Bankruptcy Court disagreed.  The Court found that the parties’ agreement did not expressly state that a novation was intended, so no novation occurred. The original debt and related rights remained in place.

The Court also rejected 2nd Bank’s argument that Contractor abandoned its privilege by cancelling its initial lien and accepting LLC’s promissory note and other consideration in payment of that debt. The Court noted that there is no authority for 2nd Bank’s proposition that a contractor is barred from filing a second lien for the same work referenced in an earlier lien that the Contractor cancelled.  So long as a notice of contract is on file, the contractor has the right to file a lien on the project, and that lien will outrank any mortgage put on the project after the notice of contract was filed.  See Shreve Land Constructors, LLC v. Tuscany Reserve, LLC, et al. (In re Tuscany Reserve, LLC), Adv. No. 10-1042 (Bankr. M.D. La., March 3, 2011).

How can a lender considering a new loan on an existing project avoid the same fate that befell 2nd Bank?  First and foremost, thoroughly review the mortgage records before advancing funds.  The absence of liens on the project does not necessarily mean that all is clear. If there is a notice of contract for the project in the mortgage records, the new lender should require the contractor to terminate that contract or subordinate its rights to the new lender as a condition of advancing funds.
 

On March 17, 2010, Mississippi Governor Hayley Barbour signed into law an amendment to Mississippi’s public bid law, more specifically, to Mississippi’s resident “preference law.” Miss. Code Ann. § 31-3-21(3). Under this recent amendment, all non-Mississippi resident contractors who bid on Mississippi public works contracts must attach to their bid a copy of their own state’s bidder preference laws. In other words, if a Louisiana resident contractor wants to bid on a Mississippi public works contract, that contractor must attach to his bid a copy of Louisiana’s resident bidder preference laws, or else the Mississippi public agency must reject the bid.

Each state has different resident bidder preference laws. Some states require either that a non-resident’s bid amount be reduced by a certain percentage or that a resident’s bid be increased by a certain percentage if a non-resident bidder also bids on the project. Other states require that a resident bidder’s amount be increased only to the same percentage as allowed in a non-resident’s state, if a non-resident bids on the contract. Still other states have no bidder preference laws at all. The Association of General Contractors of Mississippi promoted this amendment to the statute in hopes of benefiting the Mississippi construction industry, as prior to this amendment, the failure to include a copy of the non-resident bidder’s state preference laws was insufficient grounds to reject the bid.

Be aware that when bidding for public works projects in Mississippi, Louisiana contractors must attach a copy of Louisiana’s bidder preference laws.
 

In an arbitration, the parties agree to hire one or more neutral third parties to hear the dispute and issue a ruling.  The parties further agree to abide by that ruling.  If one party fails to do so, the ruling can be enforced by a court of law just as if an actual judgment had been entered.  Some suggest the process is less costly and more efficient than litigation; however, significant rights can be lost under the guise of so called legal efficiency.

Federal:  Federal Arbitration Act 9 U.S.C. § 10(a) 

To vacate: 1) award procured by fraud or corruption; 2) arbitration partiality; 3) arbitrator misconduct in failing to postpone a hearing or admit evidence pertinent and material; or 4) arbitrator’s exceeding authority. 

To modify: 1) evident miscalculation; 2) award rendered on subject matter not referred to them; 3) imperfect as to form not affecting the merits. 

State:  (La. R.S. 9:4210)

To vacate: 1) arbitrator fraud or corruption; 2) arbitrator misconduct; and 3) arbitrator exceeded authority. 

To modify: 1) material miscalculation; 2) award of a matter not submitted; and 3) irregularities as to form.

Some federal and state courts recognize one additional non-statutory ground for vacating an arbitration award, i.e., manifest disregard of the law or misapplication of the facts. However, the U.S. Fifth Circuit Court of Appeal recently ruled, “…manifest disregard of the law is no longer an independent ground for vacating arbitration awards under the FAA.” Citigroup Global Markets, Inc. v. Bacon, 562 F.2d 349, 355 (5th Cir 2009).

Louisiana appellate courts are divided on this issue.  Four of Louisiana’s five appellate courts recognize the “manifest disregard for the law as an additional, non-statutory ground for attacking an arbitration award.”  However, to date, the First Circuit Court of Appeal has not.  Instead, the First  Circuit will not consider a challenge to an arbitration unless one of the specified statutory grounds exists.  The First Circuit Court of Appeal, “see[s] no reason to deviate from [its] consistent line of jurisprudence of strict adherence to statutory mandates.” JK Developments, LLC v. Amtek of Louisiana, Inc., 958 So.2d 199, 203 (La. 1st Cir. La. 2008) cert. den, 983 So.2d 1276 (2008).  So even in a situation in which the arbitrator misunderstands or misconstrues the facts and/or disregards Louisiana law, the unsuccessful party may be left without an ability to challenge the award.

In this unfortunate circumstance, the alleged benefits of arbitration hardly seem worth the price.

 

On September 30, 2010, the Internal Revenue Service issued guidance providing relief to homeowners who have suffered property losses due to the effects of certain imported drywall installed in homes between 2001 and 2009.  In particular, the IRS issued Revenue Procedure 2010-36 which enables affected taxpayers to treat damages from corrosive drywall as a casualty loss and provides a ”safe harbor” formula for determining the amount of the loss.

Revenue Procedure 2010-36 provides the following relief:

• Individuals who pay to repair damage to their personal residences or household appliances resulting from corrosive drywall may treat the amount paid as a casualty loss in the year of payment.
• Taxpayers who have already filed their income tax return for the year of payment generally have three years to file an amended return and claim the deduction. The amount of a loss that may be claimed depends on whether the taxpayer has a pending claim for reimbursement (or intends to pursue reimbursement) of the loss through property insurance, litigation or otherwise.
• In cases where a taxpayer does not have a pending claim for reimbursement, the taxpayer may claim as a loss all unreimbursed amounts paid during the taxable year to repair damage to the taxpayer’s personal residence and household appliances resulting from corrosive drywall.
• If a taxpayer does have a pending claim (or intends to pursue reimbursement), a taxpayer may claim a loss for 75 percent of the unreimbursed amount paid during the taxable year to repair damage to the taxpayer’s personal residence and household appliances that resulted from corrosive drywall.

A taxpayer who has been fully reimbursed before filing a return for the year the loss was sustained may not claim a loss. A taxpayer who has a pending claim for reimbursement (or intends to pursue reimbursement) may have income or an additional deduction in subsequent taxable years depending on the actual amount of reimbursement received.

For purposes of this revenue procedure, the term “corrosive drywall” means drywall that is identified as problem drywall under the two step identification method published by the CPSC and the Department of Housing and Urban Development in their interim guidance dated January 28, 2010.

Further details and limitations can be found in Revenue Procedure 2010-36 on www.irs.gov. The Revenue Procedure can be found here.
 

Electronic Discovery, or “E-Discovery”, is not considered the “novel issue” it once was. However, E-Discovery still presents problems that litigants and courts struggle with. Below is a summary of recent Louisiana Federal Court opinions dealing with the issues surrounding E-Discovery.

In Frees, Inc. v. McMillian, 2007 WL 184889 (W.D. La. Jan. 22, 2007), the Western District of Louisiana granted the plaintiff’s motion to compel. In an unfair competition and trade secret theft action, the plaintiff claimed that the defendant, a former employee, had stolen various data files. Plaintiff had unsuccessfully requested production of defendant’s laptop and desktop. The Court granted the motion to compel the defendant to produce these two items because they were the most likely places that the data files would be located. The Court did institute protective measures so as to prevent the disclosure of any irrelevant or personal information.
 

In Green v. Fluor Corp., 2009 WL 1668376 (M.D. La. June 11, 2009), a case in the Middle District of Louisiana, the defendant sought access to the plaintiff’s phone and e-mail system to obtain the original version of a photograph the plaintiff had given to the defendant as part of discovery. The defendant claimed the produced photograph taken from a phone was of low quality and wanted access to the plaintiff’s phone and e-mail to obtain a clearer picture. The Court denied the motion because the defendant failed to ask for the particular form of the discovery in regards to the picture and therefore had to settle with what the plaintiff had produced.

In Marketfare Annunciation, LLC v. United Fire & Casualty Ins. Co., 2007 WL 3273440 (E.D. La. Nov. 5, 2007), the Eastern District of Louisiana dealt with a spoliation issue involving electronic evidence in a claim that arose due to Hurricane Katrina. The defendant failed to produce certain e-mails even after the plaintiff put the defendants on notice to preserve them. However, the plaintiff waited until the eve of the close of discovery to file sanctions and therefore the court denied the request.

In Thomas v. IEM, 2008 WL 695230 (M.D. La. Mar. 12, 2008), the Middle District of Louisiana dealt with a civil rights violation. The plaintiff served a Rule 45 subpoena on the defendant in order to obtain access to nine named individuals’ e-mail boxes. The Court held this was an attempt to circumvent discovery deadlines under Rules 26 and 34 and therefore did not grant the request.

In Canon USA, Inc. v. SAM, Inc., 2008 WL 2522087 (E.D. La. June 20, 2008), the Eastern District of Louisiana granted a motion to compel electronically stored data that the defendant had at his home in Florida. After Hurricane Katrina, defendant moved his computer to Florida but when discovery requests were made he did not search the computer to provide complete answers to interrogatories. The court held that this “lackadaisical” treatment of discovery was unacceptable and held that any undeleted information on the computer was discoverable. The Court ordered the defendant to obtain the services of a “forensic computer specialist” and fully respond to the discovery request.

In re Riverside Healthcare, Inc., 2008 WL 4183609 (M.D. La. Sept. 11, 2008), a case in the Middle District of Louisiana, a bankruptcy liquidating supervisor accused a creditor of destroying evidence and sought the adverse presumption that follows spoliation. The creditor had deleted e-mails that the liquidating supervisor considered necessary evidence. However, the court held that spoliation requires bad faith and here there was no bad faith due to the fact that the creditor destroyed e-mails automatically every sixty to ninety days.

In Johnson v. Big Lots Stores, Inc., 2008 WL 2191357 (E.D. La. May 7, 2008), the Eastern District of Louisiana ruled that a plaintiff could not take another deposition of the defendant’s representatives regarding how the defendants preserved and collected electronic data. The Court stated that since the plaintiffs failed to list “e-Discovery” as an issue at the original deposition and since they waited until two days before the close of discovery, the motion to compel the second deposition was denied. The Court also stated that “e-discovery” matters are no longer the novel issues that they once were with the advent of the Internet and wide expansion of computerized data collection and the plaintiffs had no legitimate excuse as to why they failed to make issue of “e-discovery” at the original deposition.

In Hoover v. Fla. Hydro, Inc., 2008 WL 4467661 (E.D. La. Oct. 1, 2008), the Eastern District of Louisiana allowed discovery of two non-parties’ computers. In this breach of contract claim, the defendant sought the electronic data from the plaintiff’s mother and a friend who helped him in his business. The Court held that this would not create an undue burden on the mother because the non-party was involved in the plaintiff’s business and would have relevant information stored on her computer. The subpoena was quashed as to the friend because he had adequately answered the discovery request.

In May v. Fedex Freight Southeast, Inc., et al., 2009 WL 1605211 (M.D. La. June 8, 2009), a Middle District of Louisiana case, the plaintiff brought suit for sexual harassment while she was employed by the defendant. Plaintiff sought “any and all e-mails referencing, as well as those sent to and from, plaintiff and [the accused sexual harasser].” The defendant claimed that this was not possible because the e-mail was inaccessibly archived and unsorted. The Court held that the plaintiff and defendant had to meet with the defendant’s IT department to discuss the “burden and expense of producing the e-mails requested by plaintiff.” If then there was still no agreement, the plaintiff was urged to reassert her motion to compel.
 

Judges in East Baton Rouge and St. Tammany Parish have issued two of the earliest rulings on the impact of the Louisiana New Home Warranty Act on claims by homeowners against contractors for damages related to Chinese Drywall. Both state district court judges have found that the Louisiana New Home Warranty Act is the exclusive remedy as between a builder and a homeowner for damages caused by Chinese Drywall. Both judges have also ruled that the Chinese Drywall incorporated into homes in Louisiana is not a structural component of the home and is thus subject to a one year warranty period.

In both of the district court cases, the courts dismissed the plaintiff’s case because the suits against the contractors were brought more than one year after the homes were occupied by the original owners.

The rulings by the district court judges should have no impact on homeowner claims against suppliers and manufacturers of Chinese Drywall as the Louisiana New Home Warranty Act only applies to the relationship and rights between a home builder and a home owner in Louisiana.
 

A law passed by the Legislature and signed by Governor Bobby Jindal (Act 945) requires all bidders for public works contracts to certify that they have not entered a plea of either guilty or nolo contendre to certain crimes. Each bidder for public works contracts must certify in writing that they have not pleaded guilty or nolo contendre to: (1) public bribery (La. Rev. Stat. 14:118); (2) corrupt influencing (La. Rev. Stat. 14:120); (3) extortion (La. Rev. Stat. 14:66); or (4) money laundering (La. Rev. Stat. 14:230).

If evidence substantiates that a false attestation has been made and the project must be readvertised 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.
 

A new law (Act 868) passed by the Legislature and signed by Governor Bobby Jindal on July 2, 2010 requires contractors who are awarded no-bid contracts with state and local entities, or $10,000-plus bid contracts with local entities, to disclose all commissions and fees in writing.

If the fee sharing changes, a new affidavit reflecting the changes is required and must be recorded by the contractor in the public record. If the recorded affidavit is determined to be incorrect, then the contract becomes null, and all payment of the commission, fee, or other consideration shall be rebated to the state or local entity that entered into the contract.
 

A new Louisiana law requires non-resident/out-of-state contractors to provide additional information before a building permit can be issued. The new law, amending La. Rev. Stat. 37:2171.2 (Act No. 67), has been signed by the governor.

It requires a non-resident commercial, residential, or home improvement contractor to provide (1) its federal tax payer identification number to the local building permit official and (2) proof of registration to do business in Louisiana before a building permit can be issued.
 

Since that time, a number of lawsuits related to Chinese drywall have been filed in various State and Federal Courts. 

In an effort to organize the numerous lawsuits that have been filed in Federal Courts, the Judicial Panel on Multidistrict Litigation recently issued a Transfer Order that class action suits filed around the country against Chinese drywall manufacturers would be docketed in the Eastern District of Louisiana.

The United States Judicial Panel on Multidistrict Litigation is an entity of the United States Federal Court System.  It was created by Congress in 1968 under 28 U.S.C. §1407.  The Panel has the responsibility of determining whether civil actions pending in two or more federal judicial districts should be transferred to a single federal district court for pretrial proceedings.  When asked to consider a transfer, the Panel will:

1. determine whether civil actions pending in different Federal district courts involve one or more common questions of fact such that the actions should be transferred to one federal district for coordinated or consolidated pretrial proceedings; and

2. Select the judge or judges and court assigned to conduct such proceedings.

[United States Judicial Panel on Multidistrict Litigation]

The rationale behind combining the lawsuits in this way for pretrial proceedings is to avoid discovery duplication, to prevent inconsistent pretrial rulings; and to conserve the resources of the parties, their counsel, and the judiciary.  Generally, the court will set standing orders or pretrial orders informing the lawyers involved of the ground rules, deadlines and procedures the court expects the litigants to follow.  After discovery and completion of pretrial matters, the case will be remanded back to the transferor court for trial.

While the Transfer Order for the Chinese drywall cases listed only ten cases, it is likely that the many other cases filed will be considered tag – along cases.  A case may only be characterized as a "tag-along action" if it involves "common questions of fact with actions previously transferred" under 28 U.S.C. § 1407.  See, Rule 1.1 of the General Rules for Judicial Panel on Multidistrict Litigation for the definition.  Upon learning of the pendency of a potential “tag-along action,” as defined in Rule 1.1, an order may be entered by the Clerk of the Panel transferring that action on the basis of the prior hearings and for the previously expressed reasons of the Panel.  The Panel then issues a Conditional Transfer Order transferring to the court tag-along actions that the Panel determined has “questions of fact common to the actions previously transferred”.  The order does not become effective until it is filed with the transferee district court.  The transmittal of the order to the transferee district court shall be stayed fifteen days from the entry thereof and if any party files a notice of opposition with the clerk of the Panel with in this fifteen day period, a stay will be continued until further order of the Panel. [See Rule 7.4 of the General Rules for Judicial Panel on Multidistrict Litigation]
 

The Louisiana Legislature has adopted House Concurrent Resolution No. 185, authored by Representative Tim Burns.  The resolution urges and requests that the Department of Health and Hospitals and the Deptartment of Insurance, in consultation with the Louisiana State Licensing Board for Contractors, investigate the health risks associated with living in homes that contain drywall imported from China, study the potential homeowners insurance coverage issues, including triggers, endorsements, and exclusions to policies that are related to drywall imported from China, and determine whether such material should be identified as a substandard, unsafe building material.  The resolution goes on to request a report of the findings and recommendations of this study to the legislature prior to the convening of the 2010 regular session.

A copy of the enrolled version of the resolution can be seen here: Download file

In a perfect world, Contractors would only do business with owners, designers, subcontractors, and material suppliers that they know well and trust. No surprises, misunderstandings, or disasters.

In this world, doing business is risky. The trick is to identify and analyze as many of the risks as you can, so that when you take a risk, you know what the risk is, and have some ideas about how to deal with it, should things go badly.

Here are three risks that you always want to identify and analyze:
 

2. What is the history of the building where you are working? Are those asbestos tiles? Is that mold in the corner? The last thing you need is to get into a project and be shut down because you are not licensed to do critical path work.

3. What is the building user’s business? What happens in the building? If you are contracting with the building owner, does the prime tenant’s business keep you from working 9:00-5:00 Monday to Friday? Are there medical records or other confidential documents for which special accommodations must be made? Is there sensitive equipment that your demolition crew needs to know about?

It is hard enough just doing the work that you think you are agreeing to do. Make sure that you are not taking on other problems too.

As Insurance claims continue to be adjusted and paid out, Louisiana residential, commercial, and industrial property owners will begin the process of contracting with Contractors to repair hurricane damage. As you do so, be mindful of Louisiana’s Contractors’ Licensing law and its potential impact on you. First, know that the purpose of the licensing law is to protect Louisiana’s citizens by attempting to ensure that contractors have at least a minimal level of financial resources and insurance coverage, basic construction knowledge, and some accountability for their financial obligations. The benefit to citizens is the initial screening or weeding out of contractors that have absolutely no business in that business. It’s not foolproof, but it does help.
 

What does the Licensing Law Require? The fundamental requirement of the Licensing law is its requirement only a licensed contractor may contract for a commercial or residential construction project of over $50,000. It also provides that for a residential project of over $7,500, the residential contractor be a registered home improvement contractor, and that there be a written contract. Any contractor remediating mold or asbestos must be licensed, regardless of the value of the project.

Where the licensing board discovers or suspects a violation of the licensing law, it can issue a “Cease and Desist” order requiring the project to stop in its tracks. It also has a relatively quick and easy path through the judicial system to seek civil and even criminal penalties for violations.

How do you know if a contractor is licensed? Some of the simplest ways are to contact the Board by phone or email through the contact information provided at their website.  Or, you can search the database maintained by the Board . 
 

A number of construction industry trade groups or associations, such as the American Institute of Architects (AIA) and the Design-Build Institute of America (DBIA), among others, have developed a variety of “standard form” construction contracts that have been used in the industry for many years, and are periodically updated. When engaging an architect or contractor, many owners are requested to sign these standard form agreements.  

But owners should avoid signing the standard form agreement without modifying the more heavy-handed, contractor-friendly provisions to make them fairer to the owner. For instance, the standard form agreements typically allow the contractor to recover delay damages and extend the contract time for completing the work, if the owner delays the contractor’s work. Construction projects can require significant orchestration of effort, and the possibility of owner delay is common and sometimes cannot be controlled by the owners. Thus, we recommend modifying the standard form agreements to provide that an extension of time shall be the contractor’s sole remedy for the owner’s delay.   There are a number of other provisions that allow the contractor to recovery damages for other types of delay, and likewise, we recommend a similar modification. This is just one example of a number of provisions that we recommend modifying when we represent the owner.

In addition to making the standard form agreements more owner-friendly, we also recommend modifying them to reflect the owner protections afforded under the Louisiana Private Works Act. This Act allows subcontractors and suppliers to place a lien on the owner’s property if the contractor fails to remit payment. It also allows the owner to protect itself against such liens by requiring the contractor to obtain a bond and file certain notices in the public records. The standard form agreements, without modification, do not require the contractor to comply with these requirements.

In sum, we highly recommend modifying the industry standard forms to protect the owner. The modifications are typically reflected in an addendum to the standard forms. Contractors are well-versed in these forms, are regularly asked modify them, and should be willing to do so in effort to make the agreement more balanced. 

Much of the time of a construction lawyer is spent assisting clients in finding solutions to the many problems that befall the typical construction project. These problems range from simple contract preparation and negotiation to the more fact-intensive work of constructive defect litigation, surety claims, liens, and payment issues. Each construction project, no matter how complex or simple, involves the same basic issues:

• What is the scope of work that the parties agreed to?

• What documents or plans define the scope of work?

• How is the contractor to be paid for his work?

• How can the owner be assured that the contractor is doing the work properly?

• What is to be done when there are issues or problems with respect to any of the above?

The job of the construction attorney is to help chart a course through this minefield and ideally resolve issues without judicial intervention.

See the rest of the article here. It is an article of some heft, so give it a few seconds to open.  

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For more information, contact a member of the Kean Miller Business and Corporate team, or send an email to client_services@keanmiller.com.

A recent case out of Louisiana could be big news for general contractors, owners, and insurers. Louisiana's Second Circuit Court of Appeals agreed with a lower court's opinion that an upstream contractor was entitled to insurance coverage for the cost of repairing defective work performed by a subcontractor (Broadmoor Anderson v. National Union Fire Insurance of Louisiana).

After construction was completed, the owner began to notice problems with the ceramic tile shower stalls in many of the guest rooms. It was determined that the leaks were caused by defective workmanship in the installation of the shower pans, and the general contractor and subcontractor collaborated on a remediation of the problem.

Shortly after the repair efforts began, the general contractor made a formal demand on the CGL carrier for the cost to the general contractor for the remediation, alleged to be nearly $1,500,000.00. Ultimately, the general contractor filed a lawsuit against the insurer, and obtained a summary judgment against the insurer finding coverage. The Second Circuit affirmed this decision, but remanded the case to the lower court for a determination of the proper amount of coverage.

This is a very important decision because it provides a potential way around a line of cases dating back to at least 1965 which hold that a contractor is not entitled to insurance coverage under a CGL policy for property damage caused by the contractor's own defective performance. The common refrain in these cases is that "a CGL policy is not intended to serve as a performance bond."

The ruling in Broadmoor Anderson does not directly affect that rule, because the downstream contractor which is responsible for the defective work is not going to be entitled to any insurance coverage. Broadmoor Anderson does, however, provide a potential roadmap around those cases where the fact pattern is sufficiently similar - (1) is a CGL policy which names the upstream contractor as an insured or additional insured, (2) damage caused by defective work by a downstream contractor, and (3) the CGL policy provides coverage for completed operations.

This precedent could be of tremendous benefit to owners and contractors by providing for insurer supplied financing for remediation of property damage caused by the defective workmanship of a downstream contractor. The insurer's recourse, however, may be a demand against the contractor guilty of the defective performance, seeking to recoup the insurer's costs.

The Opinion notes that as of the date of this comment, November, 1, 2005, it has not been released for publication in the permanent law reports, and as such, is subject to revision or withdrawal. Additionally, because of the procedural posture of the case, the Supreme Court could still reverse the Second Circuit, and other Appellate Courts could come to a contrary conclusion. Nevertheless, the opinion opens a new door for owners and contractors dealing with the unfortunate situation of remedying defective workmanship of a downstream contractor.