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Court Holds That Vague Arbitration Clause Is Still Sufficient To Compel Parties To Arbitrate

Written by Gregory J. Spaun on . Posted in Attorneys' Column.

One clause that is often overlooked as boilerplate when negotiating a construction contract is the arbitration or, more broadly, ADR (alternative dispute resolution) clause. There are definite benefits of using arbitration over litigation: a more streamlined procedure, typically lower cost, a faster resolution (particularly when some courts are still digging out from the covid backlog), and a more informed decision maker (typically a construction lawyer, an engineer or architect, or a construction manager). There are also negatives about agreeing to arbitration, such as the limited remedies if you believe that you are aggrieved by the decision (there is no right to appeal unless you specifically negotiate one into the arbitration clause, and the statutory grounds for overturning an arbitrator’s decision are very limited). However, because of the strong public policy favoring arbitration, an arbitration provision—even one that may leave important details open—will be enforced so long as there is a rational basis for finding that the parties agreed to arbitrate their dispute.

Background

In September of 2015, Y Levy Construction Corp. entered into a contract with Central Sutton, LLC, and its principals Moshe and Beth Weider, for Y Levy to renovate their home in Lawrence, NY, for $500,000. The parties, expressing optimism that the job would end well, but preparing for the eventuality that it might not, included the following clause:

With G-d’s help, all will go smoothly, and Client and Contractor will be satisfied at the completion of the project. However, if G-d forbid, there is any kind of misunderstanding between the parties that cannot be resolved amongst them, then both parties agree to settle their differences with legal arbitration within the city of New York.

Unfortunately, despite the parties’ prayer that all would go well, it did not. After change orders, etc., the adjusted contract sum exceeded $1.2 million, of which Y Levy claimed that it had not been paid $880,134 (and it filed a mechanic’s lien to secure payment therefor). The owners alleged that Y Levy’s work was incomplete and defective, and they were incurring excess completion costs of more than $500,000.

In April of 2023, Y Levy filed a demand with National Arbitration and Mediation (NAM) seeking to arbitrate the dispute under the contract. In May of 2023, the owners filed a reply to the demand (in effect, an answer) containing counterclaims. The following month, the owners filed a special proceeding in court seeking to permanently stay the arbitration. In support, the owners argued that the arbitration clause was not specific enough to enforce as it did not set forth a specific tribunal, and, as to the Wieders themselves, they were not personally signatories to the agreement and, therefore, could not be compelled to arbitrate the dispute. In opposition, Y Levy argued that the owners could not seek to stay an arbitration proceeding in which they had already participated. Further, as to the inclusion of the owners themselves as parties respondent in the arbitration, Y Levy noted that they were signatories to the construction contract, and they did not limit their signatures to their capacities as principals of the LLC.

Decision

The court denied the petition to stay the arbitration. First, the court found that the construction contract was not limited to the LLC and, therefore, the Wieders could be included in the arbitration proceeding. Further, as to the agreement to arbitrate, the court, citing well settled law, held that by participating in the arbitration—and going so far as to assert counterclaims—the owners waived any objection to proceeding in that forum. (Similarly, participating in litigation despite the existence of a valid arbitration agreement may waive a party’s right to arbitration should it change its mind midway through.)

Finally, as to the claimed ambiguity of the arbitration clause, the court held that it was sufficiently clear that the parties agreed to arbitration to be enforced. As to the specific tribunal, since no tribunal was designated, the contractor was free to choose any tribunal that met the contractual requirement of being in the City of New York, and since NAM has its main offices in midtown Manhattan, its selection was appropriate. (The legitimacy and enforceability of arbitration is New York is found in Article 75 of the CPLR, which can provide missing terms and procedures for vague arbitration clauses, such as the one here.)

Comment

Since resolving a dispute by arbitration constitutes a waiver of a party’s Sixth Amendment right to a trial by jury, such a party cannot be compelled to arbitrate a dispute absent clear consent to proceed in that alternate forum. One way to conclusively demonstrate your consent is to participate in the arbitration proceedings. Accordingly, if you are the subject of a demand for arbitration but do not believe that such is permitted under the contract, seek out experienced counsel immediately in order to seek to stay the proceeding. Participating in the arbitration in any substantive way (such as by asserting counterclaims, as the owners did here) demonstrates your consent to proceed in such fashion, and waives any argument that you cannot be compelled to proceed in that forum.

Further, and regardless of whether you agree or disagree that arbitration is the way to resolve construction disputes (based on the clear positives and negatives, which are always the subject of debate), it is important to tailor the ADR clause in your contract or subcontract to suit your own needs before signing the contract. Y Levy Contracting shows the dangers of treating an arbitration clause as mere boilerplate and not negotiating it like any other provision. Here, the owners were compelled to arbitrate before NAM, instead of, for instance, JAMS or the construction panel of the American Arbitration Association, because the only requirement was that the arbitration take place within New York City (which either of those alternate tribunals, and others, would have met the requirement). If your fears about an arbitration are, for instance, the limited review available, you can negotiate in some form of appellate review. However, before blindly signing such a provision—or any other provision—it would be prudent to seek the advice of experienced construction arbitration counsel to explain the positives and negatives of what is being presented, and to negotiate it so that it is more favorable to your cause.

If you would like more information regarding this topic please contact Thomas H. Welby at twelby@wbgllp.com or call (914) 428-2100

New FinCEN Reporting Obligations Under the Corporate Transparency Act (CTA)

Written by Thomas S. Tripodianos on . Posted in Legal Alerts.

At the beginning of 2024 Welby, Brady & Greenblatt, LLP published a Legal Alert concerning the FinCEN Reporting Obligations Under the Corporate Transparency Act (CTA). You can find that Legal Alert here. The Financial Crimes Enforcement Network has setup a website to facilitate the reporting of the necessary information here. you can file online or complete a form and submit online. You will need identification documents for each beneficial owner as well as some identifying information of the entity. If we can be of further assistance please let us know.

If you would like more information regarding this topic please contact Thomas S. Tripodianos at ttripodianos@wbgllp.com or call (914) 607-6440

Court Finds General Contractor’s Mechanic’s Lien Exaggerated As A Matter Of Law, All Subcontractors’ Mechanics Liens Fall Like Dominoes

Written by Gregory J. Spaun on . Posted in Attorneys' Column.

This column has consistenty warned that it is always a bad idea to exaggerate the amount of a mechanic’s lien. While the exaggerating lienor may succeed in getting the owner’s or upstream contractor’s attention, the negative boomerang effects—such as having the lien declared void, being prohibited any recovery on the contract, being forced to pay the costs and attorney’s fees associated with the discharge of the exaggerated lien and, most importantly, being subject to an award of damages against the lienor in the amount of the exaggeration—greatly outweigh the shock value of a big number on the lien. As a court, in the recent case of Borough Construction Group, LLC v Red Hook 160 LLC, demonstrated, another one of these boomerang effects is that the liens of innocent subcontractors can also be swept up and discharged along with the exaggerated lien.

Background

In September of 2016, Borough Construction Group and Red Hook 160 entered into a contract for Borough to construct a mixed-use commercial/retail property with over 70 units on Imlay Street in Brooklyn. The agreement was an AIA A133-2019 form of contract, which provided that the price of the construction was determined on a cost-plus basis, with a guaranteed maximum price. The contract provided that the markup for subcontractor work was limited to 15% of the cost of that subcontractor’s work.

Two years later, Borough alleged that it was owed over $2.5 million by the owner. Accordingly, Borough filed a mechanic’s lien against the property. Several of Borough’s subcontractors, also not being paid, filed their own mechanic’s liens against the property. The subcontractors’ liens, themselves, totaled nearly $1 million. Borough ultimately sued to foreclose its mechanic’s lien, and the lienor-subcontractors filed appropriate counter- and cross-claims to foreclose their own mechanic’s liens. The owner denied that any monies were owing, and asserted a counterclaim alleging that Borough’s mechanic’s lien was willfully exaggerated.

After five years of litigation—including 20 separate motions—the owner moved for summary judgment dismissing Borough’s complaint and mechanic’s lien, discharging the subcontractors’ mechanic’s liens, and for summary judgment on its breach of contract, fraud, and lien exaggeration counterclaims. In support of that motion, the owner provided evidence that the markup on the subcontractors’ invoices was well above the permitted 15%—and by as much as 230%, that after receiving permission to self-perform several scopes of work which were to have been subcontracted, Borough submitted false manpower logs to make it seem like Borough had more workers on site than were actually there (and submitted bills accordingly), and by performing defective work which was to be blamed on a prior contractor, thus enabling Borough to bill for the purported remedial work. Borough opposed, citing to case law which provides that questions relating to the willfulness of the exaggeration of a mechanic’s lien generally must be resolved at trial, and arguing that there were numerous issues of fact which precluded summary judgment.

Decision

The court granted the owner’s motion and dismissed Borough’s complaint in its entirety. In doing so, the Court acknowledged that the general rule is that questions relating to the exaggeration of a mechanic’s lien must await trial, but held that where the evidence of the exaggeration is “conclusive”, it may be determined on a motion for summary judgment. Here, that conclusive evidence consisted of the contracts of one of Borough’s subcontractors, and Borough’s bills showing the invoices on those lump sum contracts were marked up well in excess of the permitted 15% (and, as noted above, by as much as 230%). There was also ample evidence of the submission of falsified manpower logs and exaggerated bills based on those falsified logs, and of the intentional performance of defective work for the purpose of permitting Borough to bill for the repair.

In addition to dismissing Borough’s complaint, the court dismissed Borough’s mechanic’s lien, as well as the subcontractors’ liens. In doing so, the court cited to well settled law that no recovery can be had on an exaggerated mechanic’s lien. As a result, there was no lien fund to which the subcontractors’ liens could attach, and they had to be dismissed as well.

Comment

Mechanic’s liens are a powerful tool because they not only involve the upstream contractor who is not paying, but they also attach to either the title of the property itself, or the public funds held by the municipal owner. Accordingly, in order to prevent abuse of this powerful tool, the state legislature put in a safeguard in the form of an award against an exaggerating lienor of not only the attorney’s fees incurred in discharging the exaggerated lien, together with the interest on monies deposited to discharge the exaggerated lien (or the premium for any lien discharge bond), but an amount of money equal to the amount of the exaggeration itself. Of course, these harsh penalties are in addition to barring recovery on the exaggerated lien or the underlying contract. Unfortunately for innocent subcontractors, the statutory language that “no recovery shall be had thereon” negates the existence of a lien fund, which is necessary because subcontractors’ mechanic’s liens are derivative of any amounts owing to the general contractor. Accordingly, if the general contractor is barred from recovery because it willfully exaggerated a mechanic’s lien, there can be no lien fund, and innocent subcontractors’ mechanic’s liens fall like so many dominoes.

While many exaggerating lienors avail themselves of the shock value of an exaggerated lien while later trying to avoid the ramifications, Borough Construction is a reminder that innocent subcontractors can also get unwittingly caught up in such a scheme. (There were assertions in the motion papers that one of Borough’s subcontractors had been approached in order to participate in a kickback scheme, but nothing addressed one way or the other by the court; accordingly, at least one of the subcontractors may have had knowledge that Borough was up to no good.) If a subcontractor believes that it may be in a position similar to that of Borough’s subcontractors and their upstream contractor’s recovery is somehow endangered, they should consult with experienced construction counsel to determine what remedies may be available to salvage their right to payment. Regardless, contractors must keep in mind that exaggerating a mechanic’s lien is always a bad idea.

If you would like more information regarding this topic please contact Thomas H. Welby at twelby@wbgllp.com or call (914) 428-2100

Fall Protection Must Be Provided To All Employees Working On Heights Greater than Six Feet

Written by Costas Cyprus on . Posted in Safety Policy.

Fall protection must be provided to all employees working at or near edges with a drop of six feet or more either by a guardrail system, safety net system or other fall arrest system. The Occupational Safety and Health Review Commission’s decision in Secretary of Labor v. Gate Precast Company reaffirms the safety requirements for construction companies that have employees working at heights and the precautions and training they must undertake with their permanent, as well as temporary employees, if it is foreseeable that during operations those employees will come close to any edges, at heights over six feet.

This matter actually did not arise from an accident or injury but rather from a citation issued from an OSHA inspection. Gate Precast Company (“Gate”) manufactures and installs precast concrete structures and was a subcontractor in the construction of a six-story hotel in Texas. On May 4, 2015, Gate was intending to work on the uppermost floor or “roof” of a partially completed hotel. Gate had tied to and strung red tape between sticks wedged in gaps of the abutting precast planks of concrete, approximately six feet from the roof’s edge. The edge of the roof was un-protected and was approximately 24 feet above the ground.

Prior to starting work for the day, Gate’s foreman held a safety briefing to use personal fall arrest systems while working on the roof. However, two temporary employees (provided through an employment agency) arrived at the stie after the safety briefing had been held. They were not provided with any fall protection equipment. Gate’s foreman instructed these two temporary employees to assist with laying grout and to perform clean-up tasks on the roof. The foreman also specifically told them to remain behind the red tape. OSHA’s compliance officer was conducting and inspection and observed Gate’s foreman operating a fork-lift at ground level to lift a load of four-foot-wide precast concrete planks onto the roof. To assist with this operation, three Gate employees, one temporary employee and two permanent employees helped guide the load into place as the other temporary employee worked in a different area of the roof.

The OSHA officer upon viewing these operations subsequently issued a citation to Gates for violating the safety provision § 1926.501(b)(1) which requires that “[e]ach employee on a walking/working surface (horizontal and vertical surface) with an unprotected side or edge which is six feet or more above a lower level…be protected from falling by the use of guardrail systems, safety net systems, or personal fall arrest systems.” The Secretary (of Labor) must prove that the cited standard applies, employees were exposed to the violative condition, the employer knew or could have known of the violative condition with the exercise of reasonable diligence. Here, it was undisputed that the roof had unprotected edges of about 24 feet above ground level, neither of the temporary employees were provided with any personal fall arrest systems and that neither was instructed to, or actually utilize such system while conducting work on the roof and that Gate by via its foreman was aware of these conditions as the foreman had instructed the two employees to remain behind the red tape.

The issue in this matter was whether the temporary employees were exposed to the violative condition by showing either “actual exposure or that access to the hazard was reasonably predicable.” To determine access, the Administrative Law Judge (“ALJ”) will look at not that just access to the hazardous condition is theoretically possible but that it could be reasonably predicable by “operational necessity” or inadvertently which would place the employees in the zone of danger, which is the “area surrounding the violative condition that presents the danger to employees which the standard is intended to prevent”.

The Occupational Safety and Health Review Commission (the “Commission”) agreed with the ALJ that the Secretary established exposure as to the one employee who assisted with forklift operations and was guiding the load of planks onto the roof. This employee was standing only about six feet from the unprotected edge and his attention was more focused on guiding the swinging load and keeping it stable, and points even looking up as the load was over his head. The OSHRC agreed with the ALJ that it could be reasonably predictable that this employee could have lost his balance, could have been knocked over by the swinging load of planks, or by inadvertently walking forward to the unprotected edge as his efforts were more focused on guiding the load. Therefore, even if this employee stayed behind the red tape he was still in the “zone of danger” of the unprotected edge. The distance from an unprotected edge is not the sole determinative factor to be considered but rather one of many factors in this “fact-intensive inquiry”. Other facts to be considered, can include the presence of tripping hazards such as debris or pipes, the size and weight of objects an employee was holding and the type of work which could make it reasonably foreseeable that an employee “could stagger…or stumble, placing him within the zone of danger”. Here, taping off the area and providing an instruction to stay behind was deemed insufficient. Lastly, the Commission found Gate’s argument that in looking at potential fall exposure, the temporary employee based on his initial job task, was not reasonably predictable that he would be performing this job task of guiding the planks. The Secretary argued that the performance of guiding loads fell within temporary employee’s role especially given that he was asked by other Gate’s employees to assist when they were encountering problems securing the load, he was never told by the foreman not to engage in such activity, and that the unstable nature of the load, and its weight and size required more than two workers to stabilize and guide. The Commission agreed with the ALJ in finding it was in fact reasonably predictable that he would be performing this task, and the citation was affirmed.

If you would like more information regarding this topic please contact Costas Cyprus at ccyprus@wbgllp.com or call (914) 607-6445

Court Cautions Contractors to Not Rely Exclusively on Drawings when Calculating Bid

Written by Gregory J. Spaun on . Posted in Attorneys' Column.

When first deciding to undertake a construction project, regardless of whether public or private, contractors often first turn to the drawings. The reason for this is simple, the drawings are a graphic representation of what is to be built; or, to cite the old adage, a picture is worth a thousand words. However, a court, in Maric Mechanical, Inc. v New York City Housing Authority, reminds us that where that picture, itself, is accompanied by words—there, a disclaimer—those words can destroy a thousand pictures.

Background

In September of 2021, the New York City Housing Authority solicited bids to replace the boilers at the Ravenswood Housing project in Queens. As is typical, drawings were provided with this bid solicitation showing, amongst other items, 40 shoring towers supporting the temporary boilers that would be needed during the project. The drawings contained a disclaimer providing that the record drawings “may or may not truly reflect existing conditions” and that “such information is included on the assumption that it may be of interest to the Contractor, but the Engineer, Owner and their consultants do not assume responsibility for its accuracy or completeness”. The contract also provided that the contractor had an obligation to determine for itself the true nature of existing conditions. As to the specific work, the specifications provided that all shoring was to be included in the lump sum.

Maric Mechanical was awarded the contract on June 21, 2022, and it promptly discovered that over 160 towers would be required—a fourfold increase from the 40 depicted on the drawings. Maric submitted a change order for over $600,000 in additional costs for the extra towers, and such was promptly denied. Maric then commenced a lawsuit to recover for this claimed extra work. NYCHA moved to dismiss the lawsuit, citing both the disclaimer as to the accuracy of the drawings, and the specifications requiring that Maric take responsibility for “all shoring”, and not just the shoring shown on the drawings. Maric opposed, arguing that the drawings were inaccurate and, therefore, the requirement for additional towers was a change after the contract bid. Therefore, Maric argued, it was entitled to an equitable adjustment under the contract. 

Decision

The court granted the motion to dismiss, holding that the need for the additional towers was not a change in the scope of the work where the contract required Maric to provide “all shoring”. Further, the court, citing well settled case law, held that although recovery may be had where a contract contains affirmative representations amounting to a warranty as to existing conditions, the contract at issue not only contained no affirmative representations, it contained a specific disclaimer as to the accuracy of the drawings. In that regard, the court held that Maric was precluded from seeking an equitable adjustment for work that was included in the original scope, and of which Maric should have been aware.

Comment

It is quite tempting when bidding a project to rely heavily on the project’s drawings—particularly where those drawings can be imported into a CAD program and take offs can be so easily done. The bidding process is literally that which sparks everything else, and without the submission of bids or pricing all else grinds to a halt. Accordingly, in order to “feed the machine”, estimators are in a constant state of reviewing project plans and specifications, and putting dollar values to the work set forth. Accordingly, contractors welcome any efficiency, and digital scalable plans have generally contributed to that efficiency. However, often lost in the proverbial sauce are the details of what the drawings actually stand for. Here, with the disclaimer, the drawings were little more than basic guidelines for the more complete specifications.

Absent the existence of “positive representations as to conditions, substantially amounting to a warranty” referenced by the court, contractors would be well advised to not only review the specifications and other contract documents in detail, but to also investigate the site for themselves to verify what true onsite conditions are. In fact, this requirement is often specifically found in the specifications—which, unfortunately, often gets dismissed as “boilerplate”, although it is as enforceable as any other substantive provision. Surely, as found by the court, if Maric were to have visited the site it could have seen for itself the inaccuracies in the drawings, and then submitted a bid that would have accounted for a sufficient number of shoring towers. Failing that, a contractor is essentially gambling that the drawings are accurate, and taking the entirety of the risk that they may not be.

If you would like more information regarding this topic please contact Thomas H. Welby at twelby@wbgllp.com or call (914) 428-2100

Construction Companies Must Coordinate with Engineers to Establish Rigging Plans

Written by Costas Cyprus on . Posted in Safety Policy.

The decision in Secretary of Labor v. Tower King, II, Inc. should serve as reminder to the construction industry, and companies specifically involved in work on telecommunications towers that rigging plans must be coordinated between the contactor and qualified engineers, and if there is a change to that plan it must be updated, accordingly.

This matter arose from tragic incident in September 2017, in Florida, where three employees of Tower King, II (“Tower King”) were killed while working on equipment attached to a communications tower that detached and fell 1000 feet to the ground. Tower King, was a small company engaged in the construction and maintenance of telecommunications towers. The company was founded by Kevin Barber who had over 30 years of experience in the industry. Tower King had been retained to perform work on a television station’s tower in Miami, Florida. The tower stood at about 1000 feet and had a three-armed structure at the top, which was called an arbor. Each arm of the arbor had a pedestal on which an antenna sits. According to Mr. Barber, the tower was meant to originally hold three antennas for three broadcaster but one broadcaster backed out, so to balance the pedestal a “dummy pole” was installed. Tower King was contracted to remove the dummy pole and pedestal on which it sat and replaced with two-section pedestal and working antennae. To lower the old equipment and erect the new equipment to the top of the tower, Tower King utilized a “gin pole” which is a lifting device consisting of a latticed or tubular boom that would raise or lower parts of the tower into the necessary position. The gin pole would be attached to the arbor using a bridle connection at the top and a basket connection at the bottom. The connections would be made using steel slings tightened with chains. The gin pole and the equipment that would attach to the tower comprised the rigging system.

Tower King contracted with Stainless Inc. (“Stainless”) to perform the engineering review of the project given that Tower King did not employ individuals with an engineering background. Tower King needed to ensure that the tower could ensure that the tower would be able to sustain the loads of the project, inclusive of the rigging system. Stainless was to conduct an engineering review to determine the imposed loads resulting from the rigging system and certify that the structure could withstand them. Mr. Barber chose Stainless for among other reasons, because they had originally designed and manufactured the tower. Mr. Barber followed the standard practice of providing the rigging plan he developed to Stainless, who performed the calculations and certified the plans. Tower King had five employees at the site, and while two remained on the ground, while three worked on the tower and were properly secured by a personal fall arrest system for which they were tied off to the gin pole. The gin pole would be first be attached to the tower by raising it in place and setting it on a track attached to the arbor. Once the gin pole is set, it would be “tied back” or attached to the tower with the rigging equipment and after this process is complete, the workers would begin the process of removing the dummy pole by first detaching the old equipment and lowering it to the ground, using the gin pole. The new equipment would in turn be raised to the arbor by the gin pole where it would then be attached.

At the time of the incident, Tower King’s employees were in the process of completing the work to replace the dummy pole. Three employees were tied to the gin pole while two were working on the ground. As the they were moving the old pedestal that had been lowered, the gin pole detached from the arbor and fell to the ground killing the three workers. Authorities reported to the scene and Tower King notified OSHA who investigated obtained documents and issued a citation against Tower King under the general duty clause which requires each employer to furnish to each of his employee a place which is free from recognized hazards that are likely to cause death or serious physical harm. The Citation provided that in this instance, the “employees were performing work…with out a complete rigging plan and exceeded the capacity of the rigging attachments of a gin pole that was attached to the tower and used to hoist loads, exposing employees who were tied off to the gin pole to fall hazards…” The Citation proposed a feasible abatement method of ensuring “a complete rigging plan was developed and implemented including when appropriate, having a qualified engineer review the pertinent parts of the plan such as the means and methods of rigging attachments of the gin pole. Tower King contested the Citation and the on-going litigation ensued.

The parties did not dispute that the accident was caused by the overloading of the rigging components at the bridle connection. However, the Secretary (of Labor) must establish that the “identified deficiencies could have resulted in a miscalculation sufficient to pose an overloading risk.” The applicable ANSI standards for communication towers as developed by the American Society of Safety Engineers and the Telecommunications Industry Association were discussed and as further commented by expert engineers testifying for either side. The industry standards do not specify the required contents of a rigging plan but rather identify considerations such as operational and non-operation construction loads, construction equipment, supporting structure, required load testing, etc.

Ultimately, the Administrative Law Judge (“ALJ”) gave more weight to Tower King’s expert. The ALJ found that the evidence did not establish that a failure to specify the angle (of the rigging components) at the bridle connections in the rigging plan submitted to Stainless deprived Stainless of information necessary to perform an accurate calculation of the imposed loads and the Secretary failed to establish this omission posed a significant risk. The parties also did not dispute that Tower King utilized a longer (and heavier) gin pole than in the plan submitted to Stainless due to field conditions and requirements. The submitted evidence was unclear as to specific decisions pertaining to the changing of the larger gin pole in the field but the ALJ found it was not the contents of the rigging plan submitted to Stainless that posed the hazard, but the deviation from that plan in the field and the Citation here did not address deviations from the plan but the contents of the plan. In light of the issues with the Citation in respect to the actual conditions in this unfortunate accident, the Citation was vacated. Nonetheless, to prevent accidents during rigging operations, the contractors must communicate with the engineers should there be a deviation of the plans due to field conditions that would impact imposed loads.

If you would like more information regarding this topic please contact Costas Cyprus at ccyprus@wbgllp.com or call (914) 607-6445

Traffic Control Devices and Legible Traffic Control Signs Must Be Present at Points of Hazard During Roadwork Activities To Ensure Adequate Advance Warning

Written by Costas Cyprus on . Posted in Safety Policy.

The decision in Secretary of Labor v. Brubacher Excavating Inc & Traffic Control Services reminds us that construction companies conducting paving and excavation operations in public roadways must take efforts to protect both their workers and the public by maintaining proper and adequate traffic control devices. Moreover, the facts in this matter are typical for construction sites where due to personnel needs, companies send a different set of employees to the same jobsite over the course of multiple days, which further emphasizes the need for consistent coordination and communication.

The matter arose from an incident in which an employee of Traffic Control Services, LLC doing business as Flagger Force (“Flagger Force”), was struck by a vehicle. Brubacher Excavating Inc. (“Brubacher”) had been retained to perform certain construction including the installation of a water line in West Chester, Pennsylvania. After excavation and the installation of pipes, Brubacher covered the trench and began paving. These operations ran a total of four days beginning on May 31, 2017 and being completed on June 5, 2017. The work took place within the northbound lane and shoulder of Pottstown Pike, a multi-lane roadway. A traffic control plan had been approved by Pennsylvania DOT to shift traffic from the northbound lane into the middle lane which was typically a turning lane. The speed limit was not altered for vehicles traveling north and southbound, and remained 45 mph. Cones were placed as barriers for northbound and southbound vehicles, while one flagger worked on the north end of the jobsite while another worked on the south end to alert drivers of the changed traffic pattern. Brubacher retained Flagger Force for implementation of the traffic control plan as it provides traffic control services and had a long-standing relationship with Brubacher.

On May 31, David Duda (“Duda”), Brubacher’s supervisor met with Flagger Force employees to advise of his crew’s activities and the location of their work. As work began on that day, Duda travelled the entire area of the site to ensure that the three sets of advance warning signs were properly in place as set up by Flagger Force’s employees. Specifically, the warning signs were set-up at three locations: (1) the northbound side of Pottstown Pike; (2) the southbound side of Pottstown Pike; and, (3) along the Route 322 exit ramp, which connected another roadway to a portion of Pottstown Pike that was near the worksite at approximately 250 feet. Duda completed a Safety Observation Compliance Form as he typically does on the first day of any of his project to ensure nothing was overlooked. Slight changes were made by Duda in consultation with the Flagger Force employees in the first three days of the project to improve traffic flow. During these three days, the same employees from Flagger Force were present, consisting of a crew leader and a crew member. On the last day of the project, June 5, two different employees were sent. Despite consultations with Duda, these employees only set-up warning signs on the northbound side of Pottstown Pike, the area closed to the paving work but not on the southbound side nor on the exit ramp as had been done on the three prior days. After about two hours of work, a car traveling on the northbound lane failed to adhere to the traffic control pattern and struck one of the Flagger Force employees, seriously injuring him.

OSHA was notified of the incident and after conducting an investigation involving the interview of various Brubacher and Flagger Force representatives as well as receipt of investigative materials from local police’s investigation, issued citations against Flagger Force1 under the relevant safety standard § 1926.200(g)(1) which currently provides that “At points of hazard, construction areas shall be posted with legible traffic control signs and protected by traffic control devices”. OSHA cited a violation of the safety standard by in the failure to provide at least one advance warning sign for motorists approaching the worksite from two directions, the exit ramp linking Pottstown Pike to Route 322 and the southbound lane. To satisfy the standard, companies must convey that work is taking place, provide information about the roadway conditions, and information about how traffic can move through the temporarily revised traffic pattern.

As to the southbound lane, although the traffic control plan did not require a full lane shift for southbound traffic, the lane was partially obstructed and as Duda testified the traffic pattern required a two-foot diversion for southbound traffic, and if motorists were not aware of the diversion they could cross into the northbound lane. Moreover, the traffic control plan required the placement of cones along the middle turn lane so if a vehicle were to strike one of these cones it could act a projectile causing injury. Duda testified that due to all these reasons, a “flagman ahead” sign should have been present both on the north and southbound sides and as further confirmed by Flagger Force’s own policies mandating the need of advance warning signs. These signs were in fact present on the first three days of work. Similarly, the Route 322 exit ramp, had two signs indicating “work area ahead” and “flagmen ahead” for the first three days. Under these circumstances, the Administrative Law Judge (“ALJ”) confirmed that the Secretary (of Labor) met its burden as against Flagger Force showing the cited standard applied, the standard was violated, the employer knew or should have known the violative condition and employees were exposed to the condition.

However, Flagger Force was also able to establish the defense of unpreventable employee misconduct by showing that it had established work rules designed to prevent the violative condition from occurring, (2) adequately communicated those rules to employees, (3) took steps to discovery violations those rules, and (4) effectively enforced those rules when violations discovery. Flagger Force had a specific written work rule and in fact its first “fundamental principle” of flagging was to have advance warning signs in place. Flagger force had general safety rules in place and its employee handbook, received at the commencement of their employment, set forth that employees are to follow the procedures learned in training and any violation of the safety rule was “prohibited and could lead to termination”. Flagger Force incorporated its work rules in a comprehensive training program consisting of a four-hour training course and passing a written exam, in addition to a six-hour orientation program. Employees had to re-take the four-hour course every four years. Crew leaders completed an additional three-day training, as well as an additional one-day re-freshers, three times a year. All crew members and leaders were required to know the “ABCs of Flagging” and they were given written training materials which directed the employees to never start flagging operations “without signs on the road” as well as sign placement, including the placement on both sides of the road. Flagger Force would conduct random checks to ensure compliance with 41 separate issues including proper signage, whether they were abiding by the Manual on Uniform Traffic Control Devices, etc. It had an auditing system in place to visit at least 20% of the company’s worksites per month and if issues are found, more frequent inspections would be conducted. Moreover, none of the Flagger Force employees who had worked at this site had had a record of prior violations. Flagger Force had a progressive system of discipline for violations of the advanced warning sign work rule and showed how it had in fact terminated employees for violating these rules. Under all these circumstances, the ALJ found that Flagger Force could not have anticipated a “potential departure” from its training program and established work rules and vacated the citation.

1 A citation was issued against Brubacher as well which was ultimately dismissed based on their lack of knowledge of the violative conditions under the circumstances.

If you would like more information regarding this topic please contact Costas Cyprus at ccyprus@wbgllp.com or call (914) 607-6445

Court Reminds Us That Claims Generally Must Be Asserted Against Those With Whom You Have A Contract

Written by Thomas H. Welby on . Posted in Attorneys' Column.

Anyone who has undertaken a construction project knows that there are many activities to be coordinated, with many different people performing these activities. It is also accepted that different trades generally have no duty (or right) to direct the work of other trades, and that ultimately all direction comes from the general contractor or construction manager. In a like vein, claims by and against trade contractors must flow in the same direction—up or down, to or from the GC/CM. In the recent case of Greg Beeche, Logistics, Inc. v Cross Country Construction, Inc., successfully argued by my co-author, Mr. Spaun, an appellate court reminds us that absent exceptional circumstances, differing trade contractors cannot assert claims directly against each other, and that all claims must be asserted by or through the GC/CM.

Background

In June of 2014, Cross Country Construction entered into a subcontract with Lendlease, as agent for an owner/developer, VNO 225 West 58th Street, LLC, to perform the concrete and superstructure work for the construction of a 69 story condominium in Manhattan. In conjunction with the preparation for that work, Cross Country was obligated to provide a schedule of its own activities to be incorporated into Lendlease’s master schedule. Cross Country provided such information, and Lendlease ultimately created a master schedule.
Around the same time, Lendlease entered into a similar subcontract with Enclos for it to furnish and install the curtain wall. Enclos, in turn, entered into a fixed term lease with Greg Beeche, Logistics, for Beeche to furnish the scaffolding that would permit Enclos to perform its work. In determining the length of the lease, Beeche referred to Lendlease’s master schedule, and built in a small cushion.
Like many projects, this one was beset with various delays. These delays required that Beeche’s equipment remain on site for 20 months longer than the extended lease term. Ultimately, the project was completed and Beeche’s equipment was removed. In order to obtain its final payment, Beeche executed standard releases and waivers of lien releasing the owner, Lendlease, and Enclos—the very parties against which Beeche may have had a delay claim (and two of which could have backcharged Cross Country, if such were justified).
With the proper targets of its claims released, Beeche commenced suit against Cross Country to recover for the extra time, alleging that it was an intended third-party beneficiary of Cross Country’s contract (which Beeche claimed was breached by Cross Country), and that Cross Country’s misrepresentations (its contribution to the master schedule) were negligent. Cross Country moved to dismiss, arguing that the beneficiaries to the contract were limited to the owner and the construction manager, and that there was no relationship between these two separately retained subcontractors that approached privity sufficient that Beeche was justified on relying on Cross Country’s contribution to Lendlease’s schedule (and assuming that a prediction of future scheduling was actually a statement of fact that could be relied upon at all). Beeche opposed, contending that without language limiting the beneficiaries to those contracting parties, it could also be construed as a beneficiary of the contract. As to the negligent misrepresentation claim, Beeche argued that as the superstructure contractor, Cross Country was the “premier subcontractor” and, thus, all other schedules were built from Cross Country’s and, as such, other subcontractors not in privity with Cross Country could nonetheless maintain claims against it.
The motion court granted the motion to dismiss, first noting that Beeche had released its claims against the parties with which it was in privity, and then finding that the language of the contract specifically precluded third party beneficiaries. As to the negligent misrepresentation claim, the court found that Cross Country had no greater or lesser relationship with Beeche than that of other subcontractors also not in privity of contract with Cross Country, and therefore Beeche could not recover from Cross Country because, to do otherwise, “would subject Cross Country to limitless liability for any project delays”.
Beeche appealed, and the appellate court affirmed. Citing well settled case law, the appellate court held that regardless of any prohibitory language in Cross Country’s contract, Beeche had not carried its burden to establish that Cross Country and the owner intended that Beeche be benefitted by the contract, or that Beeche had the right to enforce the terms of that contract. As to the negligent misrepresentation claim, the appellate court held that Beeche was not a known party to Cross Country. As a result, Cross Country had no duty to speak with care to Beech on the subject of scheduling (or any other subject). Importantly, similar to the motion court, the appellate court also noted that to permit a claim like this to proceed “would be to sanction limitless liability against contractors such as (Cross Country) for delays ubiquitous in construction”. Beeche moved before New York’s highest court, the Court of Appeals, for a further appeal; that motion was denied, leaving the appellate court’s dismissal of Beeche’s claims in place.

Comment

This case reinforces that courts frown on claims asserted outside of a contractor’s own chain of contractual privity, such as those between distinct trade contractors. As the appellate court noted, while all contractors are generally performing for the benefit of the project as a whole, to permit these type of inter-trade claims would be to subject contractors to potentially limitless liability for the type of problems that are pervasive on a construction project. However, contractors are not without recourse and can assert such claims against the GC/CM and/or the owner (who can pass any claim on in the form of a backcharge)—provided that they do not blindly sign a release and waiver of lien for the sake of obtaining a quick payment. While many owners and general contractors will not release payment in the absence of a signed release and waiver of lien, there may still be ways to preserve your right to preserve your right to later pursue such claims. Consulting with experienced construction counsel can help you determine what your exact rights are under your contract, and how to best preserve such claims while still being paid your undisputed contract balance and retainage.

If you would like more information regarding this topic please contact Thomas H. Welby at twelby@wbgllp.com or call (914) 428-2100

Court Reminds Us That Claims Generally Must Be Asserted Against Those With Whom You Have A Contract

Written by Gregory J. Spaun on . Posted in Attorneys' Column.

Anyone who has undertaken a construction project knows that there are many activities to be coordinated, with many different people performing these activities. It is also accepted that different trades generally have no duty (or right) to direct the work of other trades, and that ultimately all direction comes from the general contractor or construction manager. In a like vein, claims by and against trade contractors must flow in the same direction—up or down, to or from the GC/CM. In the recent case of Greg Beeche, Logistics, Inc. v Cross Country Construction, Inc., successfully argued by my co-author, Mr. Spaun, an appellate court reminds us that absent exceptional circumstances, differing trade contractors cannot assert claims directly against each other, and that all claims must be asserted by or through the GC/CM.

Background

In June of 2014, Cross Country Construction entered into a subcontract with Lendlease, as agent for an owner/developer, VNO 225 West 58th Street, LLC, to perform the concrete and superstructure work for the construction of a 69 story condominium in Manhattan. In conjunction with the preparation for that work, Cross Country was obligated to provide a schedule of its own activities to be incorporated into Lendlease’s master schedule. Cross Country provided such information, and Lendlease ultimately created a master schedule.

Around the same time, Lendlease entered into a similar subcontract with Enclos for it to furnish and install the curtain wall. Enclos, in turn, entered into a fixed term lease with Greg Beeche, Logistics, for Beeche to furnish the scaffolding that would permit Enclos to perform its work. In determining the length of the lease, Beeche referred to Lendlease’s master schedule, and built in a small cushion.

Like many projects, this one was beset with various delays. These delays required that Beeche’s equipment remain on site for 20 months longer than the extended lease term. Ultimately, the project was completed and Beeche’s equipment was removed. In order to obtain its final payment, Beeche executed standard releases and waivers of lien releasing the owner, Lendlease, and Enclos—the very parties against which Beeche may have had a delay claim (and two of which could have backcharged Cross Country, if such were justified).

With the proper targets of its claims released, Beeche commenced suit against Cross Country to recover for the extra time, alleging that it was an intended third-party beneficiary of Cross Country’s contract (which Beeche claimed was breached by Cross Country), and that Cross Country’s misrepresentations (its contribution to the master schedule) were negligent. Cross Country moved to dismiss, arguing that the beneficiaries to the contract were limited to the owner and the construction manager, and that there was no relationship between these two separately retained subcontractors that approached privity sufficient that Beeche was justified on relying on Cross Country’s contribution to Lendlease’s schedule (and assuming that a prediction of future scheduling was actually a statement of fact that could be relied upon at all). Beeche opposed, contending that without language limiting the beneficiaries to those contracting parties, it could also be construed as a beneficiary of the contract. As to the negligent misrepresentation claim, Beeche argued that as the superstructure contractor, Cross Country was the “premier subcontractor” and, thus, all other schedules were built from Cross Country’s and, as such, other subcontractors not in privity with Cross Country could nonetheless maintain claims against it.

The motion court granted the motion to dismiss, first noting that Beeche had released its claims against the parties with which it was in privity, and then finding that the language of the contract specifically precluded third party beneficiaries. As to the negligent misrepresentation claim, the court found that Cross Country had no greater or lesser relationship with Beeche than that of other subcontractors also not in privity of contract with Cross Country, and therefore Beeche could not recover from Cross Country because, to do otherwise, “would subject Cross Country to limitless liability for any project delays”.

Beeche appealed, and the appellate court affirmed. Citing well settled case law, the appellate court held that regardless of any prohibitory language in Cross Country’s contract, Beeche had not carried its burden to establish that Cross Country and the owner intended that Beeche be benefitted by the contract, or that Beeche had the right to enforce the terms of that contract. As to the negligent misrepresentation claim, the appellate court held that Beeche was not a known party to Cross Country. As a result, Cross Country had no duty to speak with care to Beech on the subject of scheduling (or any other subject). Importantly, similar to the motion court, the appellate court also noted that to permit a claim like this to proceed “would be to sanction limitless liability against contractors such as (Cross Country) for delays ubiquitous in construction”. Beeche moved before New York’s highest court, the Court of Appeals, for a further appeal; that motion was denied, leaving the appellate court’s dismissal of Beeche’s claims in place.

Comment

This case reinforces that courts frown on claims asserted outside of a contractor’s own chain of contractual privity, such as those between distinct trade contractors. As the appellate court noted, while all contractors are generally performing for the benefit of the project as a whole, to permit these type of inter-trade claims would be to subject contractors to potentially limitless liability for the type of problems that are pervasive on a construction project. However, contractors are not without recourse and can assert such claims against the GC/CM and/or the owner (who can pass any claim on in the form of a backcharge)—provided that they do not blindly sign a release and waiver of lien for the sake of obtaining a quick payment. While many owners and general contractors will not release payment in the absence of a signed release and waiver of lien, there may still be ways to preserve your right to preserve your right to later pursue such claims. Consulting with experienced construction counsel can help you determine what your exact rights are under your contract, and how to best preserve such claims while still being paid your undisputed contract balance and retainage.

If you would like more information regarding this topic please contact Thomas H. Welby at twelby@wbgllp.com or call (914) 428-2100

Adequate Lock-Out/Tag-Out Systems Must Be In Place to Prevent Employee Injuries When Using Energized Equipment

Written by Costas Cyprus on . Posted in Safety Policy.

The decision in Secretary of Labor v. Ward Vessel & Exchange Corporation reminds us that construction companies must have adequate lock-out/tag-out systems in place to prevent injuries to their employees including during the servicing of such equipment. The decision arose from a January 23, 2021 incident in which Ward Vessel & Exchanger Corporation (“Ward”)’s employee had the tips of his fingers pinched in a plate rolling machine as his supervisor who was troubleshooting a power problem, activated the equipment.

Following the reporting of the accident, OSHA’s Compliance Safety and Health Officer Javier Fernandez (“CSHO Fernandez”) appeared, and conducted an investigation, inspected the equipment, a Roundo plate rolling machine (the “Roundo”), and conducted interviews of Ward’s employees. Following its investigation, OSHA issued multiple citations against Ward. OSHA alleged that Ward failed to implement adequate lock-out/tag-out (“LOTO”) procedures. Ward replied that the LOTO safety standard for which they were cited did not apply in this instance and furthermore that the LOTO requirements did not apply to troubleshooting because the work process either required an energization of the Roundo or that the proper implementation of the work processes removed the subject hazard.

The Roundo consists of a series of rollers that turn large metal plates into cylinders. The equipment is powered by a hydraulic motor which is energized by a one cord and plug. The cord is then plugged into a 480-volt breaker on the adjacent wall. Ward’s Vice President of Production, Bob Besh (“Besh”) testified at trial that the roller is a single-plug, single energy source machine, which can be de-energized by simply unplugging it. Ward’s employees can either lock-out the breaker on the wall or place the plug in a lockable container. The latter method was preferred since one could run an extension cord to plug the machine into a different outlet. The roller was energized in the same manner as about 30 to 40 other welding machines at their work-shop which all used a single 480-volt break and single cord and plug. Ward used the same general procedure for LOTO on all 480-volt, cord and plug machines.

During his inspection and investigation, CSHO Fernandez learned that the Roundo had hydraulics in addition to the electric power and deemed that the single, general procedure for LOTO was insufficient. However, CSHO Fernandez during his testimony was unable to describe how the hydraulics worked nor how the hydraulic energy should be controlled to prevent unexpected energization. Besh, though testified that the hydraulics were used to raise the bottom rolls to impact the metal but that there was no stored potential energy to create a pinch point when the equipment was not in use because there was no pressure on the hydraulics.

Ward’s night supervisor, Frank Hernandez further testified as to the process for making steel cylinders and using the Roundo, which requires a two-person team process to clean and prepare the equipment. The process involves creating space between the three rollers to wipe down and clean the rollers and then wrap each one in plastic. Ward does not require its employees to de-energize the Roundo when preparing it for stainless steel applications but rather requires a series of steps to remove any pinch-point hazards or the release of hazardous energy. On the night of the incident, Hernandez directed two employees to prepare the Roundo for stainless steel cylinders but when they tried to lower the bottom rollers to begin the cleaning process the rollers failed to move. Hernandez was called over and two of them began to troubleshoot while Hernandez directed the third employee (the injured employee referred to as “IE”) to gather additional cleaning solution. Hernandez discovered that a superfluous extension cord had been connected from the Roundo to the breaker. In light of the voltage at issue, the employee turned off the breaker, removed the extension cord, reconnected the Roundo’s cord and then re-energized the breaker. At that point, Hernandez activated the rollers when he heard the IE begin to scream. Apparently, and unbeknownst to either Hernandez or the other troubleshooting employee, the IE had not only collected the cleaning solution, but he had begun wiping down the rollers so that once the Roundo was activated, the IE’s fingers were briefly pinched between two rollers before he pulled them out. He was taken to the hospital and received treatment.

Following the accident, Ward conducted its own internal investigation and determined that the injured employee had violated the company rules by attempting to clean before all necessary steps had been taken. Specifically, the two employees knew that they were not supposed to proceed with cleaning when the rollers had not been lowered and they had in fact contacted their supervisor Hernandez regarding the problem. As the rollers were in the “up” position IE attempted to clean, which constituted a violation of company policy. More importantly, Ward determined that Hernandez failed to ensure the area surrounding the Roundo was clear prior to troubleshooting the machine and he was subsequently disciplined.

The LOTO standard covers the servicing and maintenance of machines in which the “unexpected energization or start up… or release of stored energy could cause injuries to employees.” Ward claimed two exceptions to the standard (1) the exception for cord-and-plug machines and (2) the exception from the machine-specific procedure requirements and the Administrative Law Judge (the “ALJ”) agreed. The ALJ found that the “hazards of the unexpected energization… is controlled by the unplugging of the equipment from the energy source and by the plug being under the exclusive control of the employee performing the servicing…” Here, disconnecting the Roundo from its power source removed the hazard of stored energy potential energy as there was no stored pressure in the hydraulics. The lock-out condition was accomplished by placing the plug of the machine in a lockable container. Hernandez had been performing energized troubleshooting at the time of the incident which was governed by a different safety standard and was accounted for in Ward’s LOTO policy. Employees would have to adjust the roller heights to eliminate the pinch points as well as speed down the velocity of the rollers to a “snail’s pace” to wrap them in plastic. Ward’s policy requiring Hernandez to clear the surrounding area from the equipment while troubleshooting was compliant with the LOTO standard, which required it as a condition of performing “operational testing”. Basically, Ward is permitted to conduct energized operational testing of equipment as long as it takes proper precautions to avoid injury. Here, Hernandez violated Ward’s policy which caused this accident and the ALJ agreed. Given that Ward had been cited under certain LOTO standards for which it was determined it was exempt the Citations items were vacated. The Secretary had the burden to match the safety standard with the condition allegedly violated and here it had failed to meet its burden.

If you would like more information regarding this topic please contact Costas Cyprus at ccyprus@wbgllp.com or call (914) 607-6445