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On January 17, 2014, the California Contractors State License Board issued Industry Bulletin – 1/17/2014 clarifying that the new law effective January 1, 2014 (Senate Bill 407) requiring replacement of plumbing fixtures with water-conserving models is not triggered by property “maintenance” or “repairs.” Water.jpgThe new law requires anyone applying for a building permit for work that will “alter” or “improve” a single-family residence built in 1994 or earlier to replace all plumbing fixtures with water-conserving models. Replacement of the fixtures is a condition of receiving final permit approval from the local building department. Contractors are encouraged to verify requirements with their local building department before taking any action to maintain, repair, alter or improve a single-family residence. (The new law also requires, by 2019, water-conserving plumbing fixtures in multi-family dwellings and commercial properties when specific renovations are made.)

Although not binding legal authority, the California Building Officials (CALBO) group has interpreted the terms “alterations” and “improvements” to mean “any construction to an existing structure that enhances or improves the structure. Construction that is related to repairs or maintenance of the structure is not considered to be an alteration or improvement.” CALBO consider the following to be “repairs” or “maintenance” that do not trigger the requirements of the new law:

* electrical service change out * HVAC change out * sewer line replacement * siding or stucco * site work: retaining wall, fences, walkways, etc.
* water heater replacement * window replacement * other repairs, as determined by the state Building Code
Additional Sources: Contractors State License Board; CALBO’s Legislative Analysis; Tri-Chapter Uniform Code Committee Guidelines

Photo: Jesus Rodriguez, Taken Oct. 3, 2012 – Creative Commons

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January 8, 2014, Judge Jon S. Tigar, U.S. District Court for the Northern District of California, in Cordy v. USS-Posco Industries, et al., 2014 BL 4209, N.D. Cal., No. 3:12-cv-00553, granted preliminary approval of the amended settlement agreement between approximately 700 steelworkers and their employer for $3.5 million to settle claims that the company failed to pay its hourly employees for, among other things, time spent donning and doffing protective gear and denying them meal and rest periods. Steelworker.jpgThe amended settlement agreement also provides for injunctive relief, including requiring the employer to confirm that it is “routinely maintaining records of the actual hours worked by its employees” and that “employee wage statements contain all information required under California law.”

Pittsburg, California Plant Steelworkers’ Claims

The February 2012 complaint alleges causes of action for violations of California’s Labor Code, the California Industrial Welfare Commission Wage Orders and California’s Unfair Business Practices Act. According to the complaint, the employer allegedly failed to pay non-exempt hourly employees statutorily mandated wages for time spent (1) swiping-in using an electronic card system, (2) donning and doffing protective equipment and (3) communicating with workers from the previous shift regarding incidents, problems, etc. at the plant during the previous shift. It also alleged that the employer denied workers bonafide off-duty meal and rest periods and, in addition, that it did not provide the workers with timely and accurately itemized wage statements.

The Settlement Fund

Of the total settlement fund, (1) $3,480,379 is designated as structured settlement payments to class members, with an initial deposit of $19,621 due within 5 business days of the court’s preliminary approval order; (2) sub-class representatives Carl Cordy and Donald Jones may receive up to $8,000 and $1,500, respectively, as enhancement awards, according to an addendum to the agreement; (3) $33,333 is allocated to resolve the steelworkers’ Private Attorney General Act (PAGA) claims, with 75% of this amount payable to California’s Labor & Workforce Development Agency and the remainder to be distributed to the sub-classes. Judge Tigar, approving the amended settlement, confirmed his belief that the average award will vary depending on which sub-class a steelworker belongs too, but generally will fall between $984 and $5,300. The Legal Aid Society-Employment Law Center is designated as the sole cy pres recipient. In addition, class counsel is set to receive no more than 33% of the total settlement fund.

Judge Tigar: The Settlement Is “Fair, Adequate, And Reasonable”

After rejecting the original settlement agreement last August, conditionally certifying four sub-classes, Judge Tigar concluded that the amended settlement meets the “fair, adequate, and reasonable” standard in that it now calculates awards based on the nature of the alleged injuries, rather than the previous proposition of awarding settlement funds based solely on the number of weeks each employee worked at the Pittsburg, California plant, even if the person worked just one shift a week. “While class settlements need not treat all members precisely equally, the parties’ effort to tailor relief based on individual class members’ circumstances is substantially fairer than the previous proposal,” Judge Tigar wrote.

Additional Source: Cordy v. USS-Posco Industries, et al Docket; Department of Labor, Summary of the Major Laws of the Department of Labor

Photo: Richard, Taken on Oct. 19, 2012 (Steelworker riding steel beam, Frankford El Construction, 1913) – Creative Commons

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A recent report by the California Department of Industrial Relations (DIR) that the State of California does not collect between $800 million and $1.2 billion as a result of the “underground economy” could be a catalyst to the State increasing its efforts to combat what is commonly referred to as the underground economy and, in turn, to increase revenues payable to the State. Tax Day.jpgThe term “underground economy” refers to those individuals and businesses that deal in cash and/or use other schemes to conceal their activities and their tax liability from government, licensing, regulatory, and taxing agencies. This includes employers paying workers in cash, under-reporting wages paid to employees, failing to pay into the workers’ compensation fund, reporting employees as independent contractors, and underpaying taxes, tax evasion or engaging in tax fraud. It is also commonly referred to in slang terms as cash pay, tax gap, payment under-the-table and payment off-the-books.

The State of California Employment Development Department (EDD) has a charge to investigate businesses that avoid paying payroll taxes. The EDD’s Underground Economy Operations (UEO) organization was established in 1993 to implement and administer the activities of the Joint Enforcement Strike Force. The mission of UEO is to reduce unfair business competition to protect the rights of workers. It does so by (1) coordinating the joint enforcement of tax, labor, and licensing laws, (2) detecting and deterring tax violations, (3) conducting research on strategies to increase compliance with payroll tax laws, and (4) educating customers to increase compliance with payroll laws. Three of UEO’s program focus areas are the Employment Enforcement Task Force, Department of Industrial Relations, and Contractors State Licensing Board.

Additional Source: Sacramento Business Journal; State of California Employment Development Department ; CA Employment Development Depart Now Authorized To Share New Employee Information

Photo: Simon Cunningham, Taken on Dec. 18, 2013 – Creative Commons

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Employers often would prefer an arbitral forum for employee-related disputes because they are perceived as a venue that typically delivers a fair, efficient and cost-effective resolution for such disputes. Employment agreements that require arbitration of claims on an individual basis, including Fair Labor Standards Act (FLSA) claims, Overtime.jpg have been subject to numerous challenges, including that such provisions violate the National Labor Relations Act. On January 1, 2014, the U.S. District Court for the Northern District of Texas, in Pacheco v. PCM Constr. Servs., LLC, N.D. Tex., No. 3:12-cv-04057, held that the seven disgruntled construction workers’ FLSA claims against their employer for unpaid overtime must be arbitrated. Including such a provision, including a waiver of the right to pursue claims as a class representative, in your employee contracts certainly is worth considering in light of the courts’ recent willingness to enforce such clauses.

The FLSA establishes, among other things, overtime pay standards affecting employees in the private sector as well as federal, state and local government employees. The construction workers claimed that there was a company-wide practice of not paying overtime in violation of the FLSA, and that there are 40 to 50 similarly situated employees. These workers had each signed employment agreements which required them “to submit any dispute between employee and the company, or any of the company’s employees, representatives, or agents, to mandatory, binding arbitration.” The construction workers argued that the arbitration provision was unenforceable because it restricted class arbitration, it was unconscionable and it didn’t permit an award of liquidated damages, as available under the FLSA, and that their employer had waived the right to compel arbitration. Judge Sam A. Lindsay rejected their arguments, compelling arbitration and dismissing the civil action with prejudice.

Note, however, that the Ninth Circuit Court of Appeals in Wal-Mart Wage & Hour Empl. Practices Litig. v. Class Counsel & Party to Arbitration, recently held that a non-appealability clause in an arbitration agreement that eliminates all federal court review of arbitration awards, including review under § 10 of the Federal Arbitration Act, is not enforceable.

Additional Sources: U.S. Department of Labor; National Labor Relations Board; US Supreme Court Gives Green Light To Class Action Waivers In Consumer Contracts; Rials v. Apex Bulk Commodities Inc., Los Angeles Superior Court Case No. BC527219 (Judge Johnson’s tentative ruling confirmed that she was going to enforce the arbitration agreement, leaving it to the arbitrator to decide if the plaintiffs’ claims could proceed as a class arbitration or as individual arbitrations because the contract contains no language on the matter)

Photo: Sam Greenhalgh, Taken on Sep. 8, 2007 – Creative Commons

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The recent decision by the Texas Supreme Court in Ewing Constr. Co., Inc. v. Amerisure Ins. Co., No. 12-0661, 2014 WL 185035 (Tex. Jan. 17, 2014), has insureds in Texas and throughout the country breathing a sigh of relief. The decision confirms the limited scope of the Texas Supreme Court’s earlier decision in Gilbert Texas Constr., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118 (Tex. 2010), and makes clear that the contractual liability exclusion in general liability policies does not preclude coverage where an insured contractually undertakes to perform its work in a good and workmanlike manner.

Ewing Construction Company served as the general contractor to renovate and build additions to a school in Corpus Christi, Texas, which work included the construction of tennis courts. Shortly after the tennis courts were completed, they began to flake, crumble and crack, rendering them unusable. Ewing was sued by the school district that hired it for breach of contract and negligence.

Ewing tendered the suit to its liability insurer, who denied coverage. The insurer argued that the claims, which were all tied to Ewing’s breach of contract for failure to perform its work in a good and workmanlike manner, were precluded by the contractual liability exclusion. The district court, relying in large part on Gilbert, 247 S.W.3d 118, agreed with the insurer. The district court explained that Gilbert “stands for the proposition that the contractual liability exclusion applies when an insured has entered into a contract and, by doing so, has assumed liability for its own performance under that contract.” Ewing Constr. Co. v. Amerisure Ins. Co., 814 F. Supp.2d 739, 746-48 (S.D. Tex. 2011).

The case of Gilbert involved the construction of a light rail system for the Dallas Rapid Transit Authority (“DART”), with Gilbert Texas Construction serving as the general contractor. The contract between Gilbert and DART required Gilbert to protect adjacent property, including property of a third party, and to repair any damage to that property resulting from a failure to comply with the requirements of the contract or a failure to exercise reasonable care in performing the work. Heavy rains during construction caused flooding to a building adjacent to the work site. The building’s owner, RTR, sued Gilbert for, among other claims, breach of contract as a third-party beneficiary of Gilbert’s contract with DART. After motions for summary judgment, only RTR’s claim for breach of contract remained.

Gilbert then settled with RTR and sought indemnification from its liability insurer. Gilbert’s general liability insurer denied Gilbert’s request based on the contractual liability exclusion. Agreeing with the insurer’s denial of coverage, the Texas Supreme Court explained:

The obligation to repair or pay for damage to RTR’s property “resulting from a failure to comply with the requirements of this contract” extends beyond Gilbert’s obligations under general law and incorporates contractual standards to which Gilbert obligated itself. The trial court granted summary judgment on all RTR’s theories of liability other than breach of contract, so Gilbert’s only potential liability remaining in the lawsuit was liability in excess of what it had under general law principles. Thus, RTR’s breach of contract claim was founded on an obligation or liability contractually assumed by Gilbert within the meaning of the policy exclusion.

Gilbert Texas Constr., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118, 127 (Tex. 2010).

The Texas Supreme Court found that the facts in Ewing were different from those in Gilbert. The court explained that Ewing’s agreement to construct the tennis courts in a good and workmanlike manner did not enlarge Ewing’s obligations beyond any general common-law duty Ewing already had. By contrast, the obligation assumed by Gilbert – to protect adjacent property and to repair or pay for damage to property of third parties “resulting from a failure to comply with the requirements of this contract” – did enlarge and extend beyond Gilbert’s obligations under general law. Ewing, 2014 WL 185035 at *6.

In short, the court held that the contractual liability exclusion applies only where the “insured has assumed a liability for damages that exceeds the liability it would have under general law.” Id. The court concluded “that a general contractor who agrees to perform its construction work in a good and workmanlike manner, without more, does not enlarge its duty to exercise ordinary care in fulfilling its contract, thus it does not ‘assume liability’ for damages arising out of its defective work so as to trigger the Contractual Liability Exclusion.” Id. at *7.

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On January 16, 2014, Pillsbury attorney John E. Jensen  published his alert titled Affiliates of Indicted Contractor May Face Longer Suspension, which discusses the U.S. Court of Appeals for the Eleventh Circuit decision in Agility Defense & Government Services, Inc. v. United States Department of Defense, No. 13-10757, 2013 WL 6850891 (11th Cir. Dec. 31, 2013). Gavel.jpgAmong other things, the Court of Appeals confirmed that the Government has the ability to suspend “affiliates” of a suspended contractor, even though there is no allegation that the affiliates themselves had done anything wrong. This decision reversed the holding of an Alabama federal district court, which had held the affiliates’ suspension past 18 months impermissible.

Photo: Martin Bowling, Taken on November 16, 2011 – Creative Commons

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On January 8, 2014, Pillsbury attorneys Jeffrey A. Knight and Alina J. Fortson, and Joseph Ferranti, Environmental Division Director of InDepth Corporation, published their alert titled Be Careful What You Look For: EPA Updates “All Appropriate Inquiries” Environmental Diligence Standard. The alert discusses the EPA’s recent amendment of its “All Appropriate Inquiries” rule. epa.jpgThis rule sets out the standard for environmental due diligence in commercial and industrial property transactions in order to qualify for certain defenses to liability under the federal “Superfund” law.

Photo: TexasGOPVote.com, Taken on Feb. 14, 2011 – Creative Commons

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On January 16, 2014, Pillsbury’s Insurance Recovery & Advisory team published their alert titled Insurance and the Polar Vortex: Recovering Losses from the Big Chill of 2014 discussing anticipated insurance coverage issues stemming Globe Polar Vortex.jpgfrom the extraordinary weather disaster during the first two weeks of 2014. Among other things, the big chill froze pipes and sprinkler systems, interrupted chemical manufacturing and disrupted transportation systems, causing extensive property damage and business interruption as a result of freezing temperatures.

Photo: AIRS, the Atmospheric Infrared Sounder, Taken on January 10, 2014 – Creative Commons

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UPDATES: Stanford engineers develop state-by-state plan to convert U.S. to 100% clean, renewable energy by 2050; Energy Department Offers Conditional Commitment to Cape Wind Offshore Wind Generation Project (Jul. 1, 2014); Energy Department Announces $10 million for Wave Energy Demonstration at Navy’s Hawaii Test Site (Apr. 28, 2014)

On December 12, 2013, in its article titled For Major Cities, Offshore Wind Farms Could Provide Both Electricity And Hurricane Protection, The Huffington Post reported on Stanford University’s recent presentation at the American Geophysical Union fall meeting on the feasibility of building “tens of thousands of wind power turbines off the shores of some of America’s cities most vulnerable to extreme weather to reduce wind speeds and lessening sever storm surges.” wind turbine.jpgReportedly, Stanford civil and environmental engineering professor Mark Z. Jacobson and his research team “concluded that the wind turbines could have sapped Katrina of so much energy that wind speeds would have been reduced by up to 50 percent at landfall and the hurricane’s storm surge could have been reduced by about 72 percent.” In addition, it “would have generated 0.45 terawatts of wind power.”

Jacobson isn’t just garnering the media attention of the likes of The Huffington Post for his and Stanford’s ambitious wind, water and solar-related renewable energy initiative. Just months earlier, on October 9, 2013, Jacobson talked about this ambitious renewable energy initiative with David Letterman (part 1) and (part 2). Stanford’s website confirms that “Jacobson and his co-authors have published studies on how to switch to all solar, wind and water energy sources for the world, the United States and New York state. They will soon publish a study for California, and they have plans to do studies for all 50 U.S. states.” It further confirms that there is “confidence in U.S. ability to attain all-renewable energy by 2050.”

Additional Sources: Wind Energy Symposium, University of Delaware, Taming Hurricanes With Arrays of Offshore Wind Turbines, Mark Z. Jacobson, Cristina Archer, Willet Kempton (Feb. 27, 2013); Stanford University; Scientific American, A Path To Sustainable Energy By 2030, Mark Z. Jacobson and Mark A. Delucchi (Nov. 2009); The Huffington Post, For Major Cities, Offshore Wind Farms Could Provide Both Electricity And Hurricane Protection (Dec. 12, 2013); RenewEconomy, Offshore wind farms could protect against hurricanes (Dec. 11, 2013); Climate Central, Offshore Wind Farms Could Protect Cities from Hurricanes (Dec. 9, 2013); Wikipedia; Pillsbury, The Yin and Yang of offshore wind power
 (Mar. 21, 2012)

Photo: CGP Grey, Taken Jul. 12, 2009 – Creative Commons

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UPDATE: The Sacramento Bee, SPI Solar and KDC Solar Announce Joint Ownership of Mountain Creek Project (Feb. 21, 2014)

On January 8, 2014, SPI Solar announced that it has “executed agreements with KDC Solar and China Development Bank (CDB) to provide immediate financing for the previously announced Imclone [solar power] project,” securing its receipt of a $28.5 million cash payment, enabling it to remove $28.5 million of the Imclone project construction loan liability from its balance sheet, and paving the way for it to obtain funding for other solar projects. SPI Solar is a self-proclaimed “global turnkey [vertically integrated] developer and EPC contractor for large-scale solar energy facilities.” SPI Solar’s completed solar projects include the Staples Center and Nokia Theater located in Los Angeles, California, Aerojet located in Folsom, California, and Twentieth Century Fox Motion Picture Studios located in Los Angeles.

Other Sources: The Wall Street Journal; pv tech; The Sacramento Bee