Thursday, April 10th, 2014
Much has been written about the expanding role of OSHA in investigating and enforcing the whistleblower protection provisions of 22 federal safety and consumer protection laws and for good reason. In just the past two months, OSHA has issued Interim Final Rules outlining its procedures for processing whistleblower claims arising under the Food Safety Modernization Act (FSMA) and the Consumer Financial Protection Act (CFPA) (collectively the “Interim Rules”).1 In all material aspects, these procedures are consistent with the Interim Final Rules previously issued to process and decide whistleblower complaints made under the Affordable Care Act (ACA), and the Final Rules for whistleblower complaints under the Sarbanes-Oxley Act (SOX) and Consumer Product Safety Information Act (CPSIA).2
This article assumes a certain level of familiarity with the federal laws in question and the type of acts which constitute protected activity. The focus of this piece is to highlight certain key procedural rules that companies need to understand about this new OSHA process.
- Oral Complaints Permitted. It is very easy for an individual to bring a whistleblower complaint. Any individual who believes that she has suffered adverse action by virtue of pointing out or objecting to an alleged violation of one of these 22 federal laws can simply pick up her mobile phone and call OSHA. An oral complaint of retaliation is permitted so long as the call is received by OSHA within the prescribed time period.3 Unlike an employment discrimination, harassment or retaliation charge filed with the EEOC, there is no requirement for the disgruntled employee to submit a sworn written statement alleging facts in order to bring a complaint. To make it as easy as possible for individuals to make a complaint, on December 5, 2013, OSHA established a portal that allows employees to file complaints online at its website www.whistleblowers.gov and issued a Fact Sheet – Your Rights as a Whistleblower [link opens in a new window].
- Low Threshold for Retaliation Claim. Unlike a retaliation claim under Title VII and most other employment discrimination statutes, when a whistleblower brings a claim under most of these 22 federal statutes, the individual will only be required to provide a reasonable basis for an OSHA investigator to conclude that the protected activity engaged in was a “contributing factor” in the decision to take adverse action against the employee.4 This requirement is a very low standard to meet and according to the OSHA comments to the new Interim Rules, an employee is not required to prove that an employer’s proffered legitimate reason is a “pretext” in order to prevail.
- Prompt Responses Required. In recent years, many employers have experienced long delays in EEOC investigations before a decision is made. The new OSHA whistleblower rules are designed to avoid this result, and OSHA has added many new investigators to carry out this new mission. Employers must be prepared to act swiftly in response to a notice that an OSHA complaint has been filed. While it may be possible to secure an extension for good reason, it is important to know some of the key deadlines:
- OSHA is given 60 days from the filing of a complaint to complete its investigation and issue written findings as to whether there is “reasonable cause” to believe that the complaint has merit. (In contrast, the EEOC is supposed to act in 180 days.)
- The company is given 20 days from receiving notice of the complaint to file a response. During this period, it may also request a meeting with OSHA to present its views on the complaint. Any information submitted to OSHA will be shared with the complainant who must be given a chance to respond.
- If during this initial review process the OSHA investigator concludes that there is “reasonable cause” to conclude the company has retaliated against a whistleblower, the investigator is required to contact the company, provide a summary of the relevant evidence developed, and give the company 10 business days to meet and discuss the complaint, submit additional written information, affidavits and present legal and factual arguments in response to this initial assessment. (Remember, all of the exchange of information is supposed to occur within 60 days from when the original complaint is filed in order that findings can be issued.)
- If following the exchange the OSHA investigator moves forward with the “reasonable cause” finding, then a written report of the findings and a preliminary order awarding relief will be sent by certified mail. Upon receipt, the company has only 30 days to file an objection and/or request a hearing. If a timely objection is not filed, then the order becomes final.
- Gatekeeper Function. The Interim Rules give OSHA a gatekeeper function, but many have questioned how neutral the agency can or will be when discharging this duty, especially when processing an oral complaint. After receiving a whistleblower complaint, OSHA has the power to conclude that the complaint should be dismissed without an investigation if it concludes the employee is unable to make a prima facie showing that the protected activity was a contributing cause to the alleged adverse action. Further, OSHA can stop an investigation and dismiss the complaint if a company is able to persuade the OSHA investigator by “clear and convincing evidence” that it would have taken the same adverse action in the absence of any protected activity. There is little track record yet to show how OSHA will perform this function, but the Interim Rules do provide a mechanism for a company which has clear evidence to attempt to short circuit an investigation if it can persuade the investigator that the claim is frivolous.5
- Mandatory Reinstatement. One of the most troublesome features of the Interim Rules protecting whistleblowers is the provision that a complainant must be reinstated to his/her job immediately if the OSHA investigator issues a finding of reasonable cause that a violation occurred when an employee was discharged. The presumption under the OSHA Interim Rules is that a discharged employee will be reinstated to the job right away, even though all other forms of relief, such as back pay, will be stayed if an objection is filed. The comments to the Interim Rules recognize that there may be circumstances where OSHA may order only an “economic reinstatement” as opposed to actual reinstatement at the threshold level, but OSHA has said this alternative will very rarely be used. If this alternative arrangement is used, the discharged employee will not be put back to work, but will be paid full salary and benefits while the OSHA litigation process unfolds. Notably, if reinstatement occurs and the company ultimately prevails, there is no mechanism for it to recover the payments made to the reinstated employee during the litigation process.
- Challenging Investigative Findings. Either party can challenge the investigator’s findings and preliminary order. If a timely objection is filed, all provisions of the preliminary order are stayed with the exception of the portion requiring preliminary reinstatement (discussed above). If an objection is filed, then a full evidentiary hearing will be held as expeditiously as possible by an Administrative Law Judge (ALJ). The ALJ’s decision will be based solely on the evidence introduced at the hearing. The ALJ has broad discretion to limit discovery in order to expedite the hearing, and the rules of evidence do not apply in these proceedings.
- Adverse Decision by ALJ. If the ALJ concludes that the employer retaliated against the employee, the ALJ can issue an order that requires affirmative action to abate the violation, and award back pay plus interest, compensatory damages and attorney’s fees. The ALJ’s decision is effective in 14 days unless a timely petition for review is filed with the DOL’s Administrative Review Board (ARB).
- Petition for ARB Review. The ARB has discretion whether to accept an appeal of the ALJ’s decision. If the appeal is declined, then the ALJ’s decision is final. If the case is accepted for review, a final decision of the ARB must be issued within 120 days after the appellate hearing. No new evidence is introduced at this level; the ARB will make its decision based on the record developed by the ALJ. An adverse decision by the ARB can be appealed to an appropriate Federal Court of Appeals.
- Employee Opt-Out. At any time before an ARB final decision, an employee can (within certain parameters) opt out of the OSHA administrative process and file a lawsuit in federal district court. If a federal lawsuit is timely filed, the OSHA administration process stops and the court will hold a de novo hearing on the merits of the claim. The key time periods for an employee to file a lawsuit are: (a) within 90 days of OSHA’s written investigative findings, or (b) within 210 days of the filing of the original complaint if the ARB has not issued a final decision. So, much like an employee who files an EEOC charge that is dismissed, a decision by an OSHA investigator that there is no reasonable cause to believe retaliation occurred is not binding on the employee as long as the employee objects and files a lawsuit. At any time after the initial findings by the OSHA investigator, the employee can take the case to federal court and start over as long as the ARB has not taken final action.
In conclusion, a whistleblower complaint by a current or former employee or even a third party requires prompt attention and a well-informed response. Time will be of the essence in this process. OSHA has designed this process to move very quickly, and employers can be easily caught off guard if they are unaware of the tight deadlines that apply to this new process.
In those situations where an employer knows it has a strong basis to attack the validity of the whistleblower claim, and/or can show the adverse action would have been taken regardless of the protected activity, it should consider taking full advantage of the gatekeeper role granted to OSHA. In an appropriate case, consideration should be given to the utility of a face-to-face meeting to persuade OSHA that no investigation is required or appropriate. If the decision is made that no investigation should occur, then the complaint can be dismissed early in the process. While employers are not required to submit a written response to OSHA in the first 20 days after receiving notice of the complaint, ignoring this notice carries with it the peril of a decision that there is “reasonable cause” to believe a violation occurred and an order to reinstate the employee “immediately.”
1 These OSHA rules are Interim Final Rules, which means they are subject to future change, but they are current and will be followed until changed. The Interim Final Rules for FSMA (29 CFR Part 1987) were effective February 13, 2014; and Interim Rules for CFPA (29 CFR Part 1985) were effective April 3, 2014.
2 OSHA’s Interim Final Rules for processing whistleblower complaints under ACA were issued on February 27, 2013 (29 CFR Part 1984). The Final Rules for SOX were issued November 3, 2011 (29 CFR Part 1980), and the Final Rules for whistleblower complaints under the Consumer Product Safety Improvement Act (CPSIA) were issued July 10, 2012 (29 CFR Part 1983). The CPSIA rules are now being used on a temporary basis by OSHA for whistleblower complaints under Moving Ahead for Progress in the 21st Century (MAP21). Last month (March 2014), the GAO issued a detailed report on how to strengthen the whistleblower protection program in the transportation industry by increased cooperation between OSHA and the DOT.
3 The time period for filing a whistleblower claim varies by statute from 30, 60, 90 to 180 days. Under ACA, CFPA, CPSIA, FSMA, MAP21, and SOX, the employees have 180 days.
4 Last year the U.S. Supreme Court decided that a plaintiff alleging unlawful retaliation for protected activity in opposing Title VII violations must prove that the desire to retaliate was the “but for” cause for the challenged adverse action. Univ. of Texas SW Med. Ctr. v. Nassar, 133 S. Ct. 2517, 2530 (2013).
5 The Interim Rules also provide a very limited remedy for an employer who is victimized by a frivolous claim that is dismissed. OSHA can in this circumstance issue an order requiring the complainant to pay up to $1,000 if a frivolous claim or a claim filed in bad faith is made. See 29 CFR § 1985.105(b).
Monday, March 31st, 2014
The VTLA just wrapped up another terrific annual meeting at the Homestead. I learned many things during the CLE sessions, including that I would like to be Mike Imprevento when I grow up.
But one of the absolute highlights of the meeting was a session called “Supreme Court Thoughts and Muses,” in which Jeffrey Breit moderated a panel made up of Justice Lemons, Justice McClanahan, and Justice Powell.
One of Breit’s best questions was something along the lines of: “When we are arguing before a writ panel, how do we get the Court to want to grant our appeal?” This is a particularly timely question, given the impending appellate apocalypse in Virginia state courts.
Justice Lemons responded that appellate arguments are all about keeping score, and that during the writ stage, you need to convince only one justice to grant your appeal. That’s it. Just one. (The merits stage demands multivariable calculus by comparison; it usually requires you to count all the way to four.) Although a writ panel is made up of three or four justices, the petitioner can always force the entire Court to review his argument by filing a petition for rehearing. But he still needs to convince only one justice. Not having to assemble a majority, or even convince more than a single person, should allow the petitioner to tailor his or her argument to a justice who is likely to be sympathetic to the petitioner’s arguments, based on past jurisprudence.
Justice Powell added that, at the writ stage, the fact that a case is one of first impression will often get her attention and make her more likely to grant the appeal. Justice McClanahan amplified that answer, noting that it’s necessary to convince the Court both that your case is one of first impression and that it’s a case worth the Court’s time to hear. The focus at the writ stage is on why the Court should take the case in the first place, not why the petitioner should have won below. Justice McClanahan also warned listeners that if they assert multiple assignments of error, the Court will want to know if it needs to grant all of them. That is a common query at the writ argument. Petitioner’s counsel should come in ready to respond.
On the subject of oral argument, Breit asked the justices whether they discuss cases before oral argument.
Justice Lemons offered a historical perspective. When he first came to the Court, those discussions did not take place. The Court’s culture at the time forbade discussions of cases before oral argument. The first conversation about the case took place at the decision conference after oral argument. That is no longer true. Now, the justices talk to each other by e-mail and telephone, discussing things like how they feel about particular issues, or whether they believe points were preserved for appeal. Justice Lemons urged the lawyers in the audience to remember this image: When they stand at the lectern, they are enjoying their first and only chance to participate in the Court’s discussion of the case. He noted that anecdotal evidence shows that nationwide, the outcomes of 15 to 20% of cases are affected by oral argument.
Another interesting tidbit from the panel: Justice Powell is the only member of the panel who reads like a normal human being. From start to finish. More specifically, she reads the briefs in the order in which they are submitted, starting with the opening brief of the appellant, moving on to the appellee’s brief, and finishing with the reply brief.
Justice McClanahan, on the other hand, starts with the reply brief, because when it is done well it will go directly to the flashpoint of contention in the case. (Also, when done poorly, the reply brief just regurgitates the arguments from the opening brief–but it does so in 15 pages instead of 50.) There is a certain logic to this approach. I’ve heard of other judges reading this way, so I do try to start my reply briefs with an introduction that recalibrates the arguments after the appellee’s offensive.
And then there’s Justice Lemons, who employs a method that is somewhat more difficult to anticipate. He waits until all of the briefs are in. Then he starts by reading the summary of the appellant’s case. (Important note to appellants: Please include a summary of your argument for Justice Lemons. You’re welcome.) Having been at this game for a while, Justice Lemons knows what the Court has decided, what it hasn’t, and what areas of the law he feels that it needs to develop. So after reading the summary of the appellant’s case, he goes directly to the portions of the brief that are interesting to him and reads them piecemeal. He does the same thing with the appellee’s brief.
Friday, March 28th, 2014
When people hear “intellectual property” they often think of complicated software source codes, top-secret formulas or sophisticated patents developed by large tech companies headquartered in the Silicon Valley. What most business owners do not realize is that every company has intellectual property (“IP”) and they do not have to be Google or Facebook to benefit from it.
Smaller, closely-held companies of all kinds here in the Roanoke and New River Valleys can, and do, benefit greatly from protecting and taking advantage of their IP. Whether your business is in the market of developing software for use by professional institutions or cupcakes made from a time-honored family recipe, building and maximizing your company’s IP can add significant value to the company and expand the company’s presence in the marketplace.
Develop and Protect your Company’s IP
Each company has IP that can be developed in order to protect its operations. Once a company determines what types of IP it has (or could have, potentially) finding the right protection to prevent infringement by other companies and individuals is important.
Protecting your company’s IP can be as simple as registering your company’s name and logo as a federal trademark to prevent infringement by other companies that operate a similar business, or as involved as filing a patent application for a new invention.
IP is typically grouped into four main branches: trademark, patent, copyright and trade secret.
(1) Trademark:
A trademark is a word, phrase, symbol, and/or design that identifies and distinguishes the source of the goods (or services) of one party from those of others. Companies may trademark nearly anything; brand names (Xerox), slogans (Just Do It), logos (McDonald’s golden arches), colors (UPS brown) and even sounds (NBC chimes).
Once a valid mark is used in commerce, the owner acquires the right to prevent others from using a mark so similar that it may create a likelihood of confusion among consumers. Trademark rights are territorial. Common law rights arise upon use in the immediate geographic area where the trademark is used in commerce. Upon State registration, the trademark is protected statewide. Federal trademark registration offers the most elevated form of protection and once federally registered, the trademark is protected from infringement nationwide.
(2) Patent:
A patent is a limited duration property right relating to an invention, granted by the United States Patent and Trademark Office in exchange for public disclosure of the invention. In order for an invention to be patentable it must be “new” as defined in the patent law, which provides that an invention cannot be patented if: (a) the invention was known or used by others in the United States, or patented or described in a printed publication in the United States or a foreign country, or (b) the invention was in public use or on sale in the United States for more than one year prior to the application for patent in the United States.
(3) Copyright:
A copyright protects works of authorship, such as writings, music, and works of art that have been tangibly expressed. Copyright rights arise automatically, as soon as an “original work of authorship” is “fixed in a tangible medium of expression.”
While not required, companies may inexpensively register their copyrighted materials online through the United States Electronic Copyright Office to add an extra level of protection for a minimal price. Company manuals, presentation materials, articles written by company employees and marketing materials are some examples of common copyrighted materials companies may have.
(4) Trade Secret:
A trade secret is any valuable corporate information (a formula, device, technique, etc.) that provides a business with an economic advantage over competitors who do not have that information. Some examples of potential trade secrets include a formula for a sports drink, computer algorithms, recipes, specific manufacturing techniques and marketing strategies.
Trade secrets are protected by the Uniform Trade Secrets Act (“UTSA”). As long as the company takes reasonable precautions to protect any information the business regards as a trade secret — such as marking documents containing trade secret information as “confidential” or better yet, having the company enter into a nondisclosure agreement with employees that need to access the trade secret — that trade secret gains protection under the UTSA.
Take Advantage of Your Company’s IP
Does your company have a patent that similar businesses are eager to use? A logo that another company has asked to “borrow”? Copyrighted materials that others would pay for copies of? If so, then consider entering into a license agreement with fellow companies.
Once your company has established what types of IP it has or what forms it could develop, if it makes sense, cash in on your company’s IP through licensing. By doing so, this can provide your company with an additional stream of revenue and add substantial value to the company in the event of a future sale.
Licensing agreements may be instituted to add supplemental income to a company while protecting the company’s valuable IP assets. A licensing agreement is a partnership between an IP rights owner (licensor) and another who is authorized to use such rights (licensee) in exchange for an agreed payment (fee or royalty). Different IP rights will require different types of licensing agreements, some more complicated than others, however, each licensing agreement is an opportunity to add additional income to your company.
So, remember, it does not matter what kind of business your company conducts, the size of your company, or your company’s geographical footprint, every company receives an advantage by building and protecting their IP portfolio and using its IP assets to grow and add value.
Friday, March 21st, 2014
Dunlap v. Cottman Transmission Systems, LLC — Another Round for Contract v. Tort Claims in Virginia
Contracts. Torts. These twin pillars of U.S. jurisprudence are core curriculum at every law school. But just like they are taught separately, courts take pains to keep these theories of liability distinct from one another.
The Supreme Court of Virginia is no different. A legion of cases stand for the seemingly straightforward proposition that mere breach of a contract cannot constitute a tort. The practical meaning of this principle, however, continues to be defined and refined.
Four years ago, the Supreme Court applied this principle to Virginia’s business conspiracy statute in Station #2 v. Lynch, 280 Va. 166 (2010). Violations of the conspiracy statute are commonly alleged, in part because such claims can provide for triple actual damages and attorneys’ fees.
In Station #2, the Supreme Court held that “a conspiracy merely to breach a contract that does not involve an independent duty arising outside the contract is insufficient to establish a civil claim.” Id. at 174. It reasoned that”[t]o permit a mere breach of contract to constitute an ‘unlawful act’ for the purposes of the conspiracy statute would be inconsistent with the diligence” that it has exercised to prevent turning a breach of contract claim in to a tort. Id.
This contract v. tort distinction under the business conspiracy statute was clarified last month by Dunlap v. Cottman Transmission Sys., LLC, Record No. 131318, 2014 Va. Lexis 33 (Feb. 27, 2014). There, the Fourth Circuit had asked in certified question whether a Virginia plaintiff could use a tortious interference with contract claim as the predicate unlawful act under the conspiracy statute. Dunlap, 2014 Va. LEXIS 33, at *1.
The federal district court had held that such a claim was inconsistent with Station #2. Because all of the duties at issue “flowed from contractual obligations,” the court concluded that to allow “allegations of . . . contractual interference . . . to serve as the requisite unlawful act for purposes of the business conspiracy statute would turn what should be contractual claims into a tort.” Dunlap, 2014 Va. LEXIS 33, at *3-4.
A unanimous Supreme Court disagreed, answering the Fourth Circuit’s question in the affirmative. The Supreme Court observed that a tortious interference with contract claim—despite requiring the breach of a contract—is a tort claim. In other words, the duty to not interfere with contracts “does not arise from the contract itself but is, instead, a common law corollary of the contract.” Thus, the Supreme Court held that tortious interference with contract can be the “unlawful act” for a business conspiracy claim. Id. at *13-18.
The distinction between Station #2 and Dunlap might seem esoteric. A conspiracy to breach a contract is impermissible, but a conspiracy based on tortious interference with a contract is okay. But while the principle distinguishing tort and contract claims is well-established, its precise contours evolve. The Dunlap case is the latest significant marker for Virginia pleading and practice.
Monday, March 17th, 2014
On March 13, President Obama prominently “used his pen” in a ceremony in which he announced the Administration’s intent to give more Americans the chance to earn the overtime pay that “they deserve.” What the President actually did was sign a memo addressed to the new Secretary of the Department of Labor to consider how the white collar overtime exemptions can be changed in order that more people will be eligible to earn overtime.
At present, to qualify for one of three “white collar” exemptions, an employee must be paid at least $455.00 a week on a “salaried” basis and his/her job duties must meet specific tests, which require the use of independent judgment, advanced training and knowledge, or supervisory responsibility for multiple employees. Despite the pomp and circumstance of this signing ceremony and the direction to make this change happen “right away,” there is little chance that any changes in the federal overtime laws will occur this year.
The rules regarding overtime were last addressed in 2004 during the Bush Administration when the minimum salary threshold for the white collar exemptions was raised from $155.00 a week to $455.00 a week. The previous effort to revise these exemptions generated a great deal of controversy. The Department of Labor has no right to change the rules unilaterally, but must go through the rule-making process for new federal regulations. This process requires the Department to develop a proposed new rule, make it public, give members of the public 60-90 days in which to comment, take time to consider making revisions to the proposed rules based on the public comments, submit the rule for final approval, and then a new rule will be issued. Any rule that is adopted will apply prospectively.
It is not clear at this point exactly what changes the Department of Labor may make to the proposed “white collar” exemptions. What seems certain is that the Department will push to increase the current salary threshold of $455 a week, but it may also propose making changes to the types of duties considered supervisory or require that workers devote specific percentages of their time to certain duties, all of which is likely to lead to litigation. It is noteworthy that in 2004, the Democratic legislators tried to head off proposed regulatory changes in Congress by threatening to derail funding for the Department for the next fiscal year because the Democrats were afraid this proposed rule change would cause workers to lose the eligibility for overtime. This time around the shoe will be on the other foot, and Republicans will be concerned that any proposed changes will be viewed as a “job killing” rule.
The President’s overtime pronouncement is part of the Administration’s larger economic and social agenda to raise wages paid to all employees. Earlier this year, the President announced that on all new government contracts beginning January 1, 2015, government contractors will have to pay a minimum of $10.10 per hour. The Administration is currently lobbying Congress to raise the minimum wage across the board so all employees will be paid more. While the Administration has authority to revise starting pay on federal contracts and the details of the exemptions without having to obtain Congressional approval, only Congress can approve an increase in the minimum wage. As another example of this agenda, in September 2013, the Department of Labor issued its final rules on domestic service employees who will now be entitled to earn overtime pay as of January 1, 2015. This change eliminated a long-recognized exemption from overtime for those individuals who provide in-home custody and care for infirm and disabled individuals.
It seems inevitable that the Administration will increase salary level threshold for these “white collar” exemptions at some point in 2015. What this new salary level will be, and whether the Administration tries to tie that new salary threshold to some type of periodic adjustment for inflation, is almost certain to be a battleground. By way of example, in New York and California, employers are currently required to pay a salary of at least $600 a week to qualify for state exemptions, and in New York this salary threshold will rise to $800 a week by 2016. For this reason, some have speculated the Department of Labor may try to require a salary threshold of $1000 a week or $50,000 a year before a “white collar” exemption will apply under federal wage and hour laws.
The timing of the President’s announcement now seems clearly intended to create a political issue that the parties will fight about in advance of this fall’s election. A significant rise in the salary threshold could have a significant economic impact on employers, especially those with small workforces. Employers need to take this initiative seriously. Those who are active in trade/industry associations should make sure that thoughtful responses to any proposed regulatory charges are submitted and that all concerns about the changes are raised.
For additional information on overtime issues, wage and hour laws and other compliance issues involving the Department of Labor, please contact David Paxton (540.983.9334) or any other members of Gentry Locke’s Labor and Employment Team.
Monday, March 17th, 2014
Well, it appears that the Carnell Construction case is not over yet, and it continues to create interesting construction law precedent. The Fourth Circuit is sending the case back down for trial number four! This case is starting to remind me of the famous Zubulake cases, with its several important e-discovery opinions numbered Zubulake I through V. A quick look on Google Scholar shows fifteen Carnell opinions! So, let’s take a look at the latest iteration (perhaps, we should call it Carnell XV) as it relates to construction law. Note that there are many interesting (and apparently controversial – check out the unusual website – Danville Justice Delayed) legal points related to race discrimination claims under Title VI of the Civil Rights Act, but those are beyond the scope of this blog’s focus.
Here is an abbreviated summary of the facts:
Carnell entered into a $793,541 contract with the Danville Redevelopment and Housing Authority to perform the site work on the Blaine Square project in Danville, Virginia, and it began its work in June 2008 with a planned June 2009 completion date. The relationship between Carnell and the Housing Authority “steadily deteriorated as each party became dissatisfied with the other’s performance.” The Housing Authority complained about unacceptable work, and Carnell complained about race discrimination.
In May 2009, the Housing Authority advised Carnell that it would not extend Carnell’s contract beyond the completion date, and that Carnell must vacate the project site in June regardless of whether the work had been completed. Carnell left the project before the June 2009 completion date, and requested payment for unpaid work. The Housing Authority rejected Carnell’s request and declared a default under Carnell’s performance bond.
Carnell sued the Housing Authority for race discrimination and breach of contract. Carnell’s contract claims focused on allegations that Carnell was directed to perform work for which it was never paid, and that Carnell improperly was removed from the project and declared in default of its contract obligations. The Housing Authority and Blaine filed a counterclaim for breach of contract and, at trial, framed Carnell’s lawsuit as an example of “occasions when false claims of race discrimination are made in order to cover up poor performance.” There have now been three trials of the case.
In the first trial, the jury awarded Carnell over $3.1 million in damages on the race discrimination claims and found in favor of both parties on their respective breach of contract claims, but did not award damages on any of the contract claims. In a post-trial ruling that certain testimony admitted on behalf of Carnell was false, the district court ordered a new trial.
After the second trial, the jury could not agree on a verdict and the district court declared a mistrial.
In the third trial, Carnell did not prevail on its race discrimination claims, but the jury found in favor of both parties on their respective breach of contract claims. The jury awarded Carnell $915,000 on its contract claims, allocating $515,000 for the defendants’ failure to pay Carnell for extra work and $400,000 for the removal of Carnell from the project without just cause. The district court later issued a post-trial ruling that significantly limited the jury’s award of contract damages to a reduced total of about $215,000, based on the court’s determination that Carnell had failed to plead special contract damages, and that the Virginia Public Procurement Act, Virginia Code §§ 2.2-4300 through 4377, restricted the amount by which the parties’ fixed-price, public contract lawfully could be increased.
Those are the facts, and here are our top 3 construction law take-aways from the opinion:
- In Virginia, on public jobs, proper notice of claims is critically important. Carnell continues the tradition of the AMEC case – on which it relies. (Here is the AMEC opinion.) The Fourth Circuit held that Carnell was limited to recovery of its contract claims ONLY to the extent that it had provided proper notice, which complied with Va. Code § 2.2-4363 (A).
- The Fourth Circuit reaffirmed the Virginia Public Procurement Act’s cap on change orders to $50,000 or 25% of the original contract amount (whichever is greater) unless there is “advance written approval of the Governor or his designee, in the case of state agencies, or the governing body, in the case of political subdivisions.” See Va. Code 2.2-4309.
- In Virginia, if you want to try to recover consequential or special damages, then you must plead them. The Fourth Circuit affirmed the District Court’s decision to reduce the jury’s verdict by removing the “lost profits” consequential damages portion of the verdict because Carnell had not sought that form of damages in its pleadings.
Friday, March 14th, 2014
The Supreme Court’s Expansion of Warrantless Searches in Fernandez v. California
Put yourself in the following situation: you hear a knock on the door and open to find the police requesting to search your home for a robbery suspect. Your spouse consents and you refuse. The police then arrest you and take you from the scene. Can the police search after you have been hauled away in cuffs?
According to the Supreme Court (and surprisingly) the answer is now yes … so long as the police were justified in removing you from the scene and did not do so solely to negate your lack of consent to search. Of course, there were more facts in the case of Fernandez v. California that make the Supreme Court’s decision slightly more rational. For instance, the police observed Fernandez running from the scene of an armed robbery to the apartment. When Fernandez’s partner opened the door, she clearly had been beaten and was bloodied. The police arrested Fernandez on the suspicion he battered his partner and then sought to search the property for evidence from the robbery as well. (And, as one might imagine, they found plenty of incriminating evidence).
This case begs the question of whether it is good policy to expand the reach of the exceptions to the Fourth Amendment rather than make police go through the process of obtaining warrants through a neutral magistrate (as the Constitution requires). In the Fernandez case, there was no exigent circumstances or emergency that would prevent the police from swearing a statement to the magistrate that they had probable cause to search the apartment for two independent reasons: (1) to further investigate a probable violent encounter between Fernandez and his partner; and (2) to further investigate the possibility that evidence from the armed robbery may have been discarded into the apartment where the subject had been observed seeking shelter only moments before.
After Fernandez, courts will have to analyze the intentions of the police and determine whether they had good cause for removing the non-consenting party from the scene. And while we all like to think the police are well-intentioned and upstanding members of the community, officers are human and make mistakes.
What remains to be seen, however, is whether the Supreme Court’s 1948 distinction between the American system and the police state will continue to have force: “Any other rule would undermine ‘the right of the people to be secure in their persons, houses, papers and effects,’ and would obliterate one of the most fundamental distinctions between our form of government, where officers are under the law, and the police state where they are the law.” Johnson v. United States, 333 U.S. 10, 17 (1948).
For those that wish to read the Court’s full opinion, click on this link: Hernandez v. California Decision (opens in a new window).
Friday, March 7th, 2014
In my 46 years of practice in the litigation area, I have prepared literally hundreds of witnesses, usually my clients, to be deposed. Among the myriad admonitions I give to such witnesses in preparing them for their depositions is the following: “Listen to the questions, make sure you understand the questions, and then answer only the questions that are asked; do not volunteer information.”
To drive home this instruction, I frequently use the following illustration: “I meet you on the street and, being acquainted with you, ask you where you are going. You answer that you are going downtown, to buy a black hat, your favorite uncle died and you are going to his funeral. What was the question that I asked? Answer: “Where are you going?” The rest of your response is volunteered information. If the questioner wants to know why you are going downtown, wait for the questioner to ask that question, and the next and the next.
Some legal commentators have, however, questioned this kind of standard instruction (see, for example, Kanazawa and Helton, “Preparing Witnesses for Deposition,” For The Defense, DRI, July 2006). They argue that the instruction not to volunteer information creates unnecessary anxiety in the witness and does not promote the goal of the witness, which should be to credibly present truthful testimony that cannot be easily impeached, distorted or misunderstood. They further argue that not volunteering information invites misunderstanding and creates the distorted impression that the witness has something to hide. They further posit that not volunteering information could lead to the witness being more easily impeached at trial for not disclosing facts that should have been disclosed in response to questions at the deposition. According to this line of thinking, not volunteering information undermines the credibility of the witness that is supposed to be testifying to the “whole truth” and “nothing but the truth.”
Furthermore, Kanazawa and Helton maintain that volunteering information can create the following positive effects: First, by volunteering information the witness reduces the possibility that the volunteered information will be excluded from trial because of the failure to disclose the information in a deposition. Second, spontaneously volunteered information appears credible and enhances the impression that the witness has nothing to hide. Third, a longer answer is more difficult to use for impeachment than a short response. Long responses may force the opposing attorney to either read the entire response or select portions of the response and face an objection that the opposing attorney is distorting the record and not reading the entire response.
Nonetheless, as a general proposition, it remains my belief that deponents should, in most situations, be careful not to volunteer information and to answer only the questions that are asked of them. As they say in the military, however, “everything depends upon the situation and the terrain.” In some cases, the standard instruction may be ill-suited. In such instances, the thoughtful attorney will appropriately modify the preparation of the witness.
Monday, March 3rd, 2014
E-Discovery has been a hot legal topic over last several years, and it has impacted most all areas of the law. For the non-lawyers out there, discovery is the exchange of information during litigation, and it has changed drastically because the way we (as a society) keep information has changed. Our important information used to be all on paper, but now it is primarily digital. And, so, we have e-discovery, which is more complicated than just sending the lawyer on the other side a box of documents. Now, we need to be able to understand all of the places where this digital information lives and how it can be transported from the client to the lawyer for an opposing party — without altering or deleting any important information.
For the construction lawyer, e-discovery is extremely important. In fact, e-discovery is probably more important for the construction lawyer than for most other areas of the law. This post provides a list of the reasons that e-discovery is important to the construction lawyer. In future posts, we will talk about some particular e-discovery issues that we hope will be helpful to construction lawyers as well as to stakeholders in the construction industry. So, here is a list of the reasons e-discovery is important in the practice of construction law:
- There are just more documents in construction law than in other areas. Usually, the largest category of documents are e-mails, and construction cases are very e-mail intensive. Why? Because the owner e-mails the engineer or architect, the engineer or architect e-mails the general contractor (who is also e-mailing the owner or the owner’s representative), then the contractor is e-mailing the subcontractors, the subcontractors are e-mailing their sub-subcontractors. All of this e-mailing back and forth often creates a huge set of e-mails for any given case. As we will discuss in a later post, this makes the e-discovery concept of de-duplication very important in construction litigation.
- The records in construction cases tell the story. Construction cases often include delay claims or other types of claims where lawyers have to piece the story back together and re-live it. We can do that using the important documents – progress meeting minutes, daily reports, logs, calendars, change orders, work change directives, etc.
- Most of the construction industry has been progressive in using new software and hardware to become more efficient and sophisticated. Many project superintendents now keep all of their information on iPads or other digital devices (instead of on notepads). Many contractors use Primavera (project scheduling software) and work closely with architects and engineers in using Computer Aided Design (“CAD”) and Building Information Modeling (“BIM”) software to assist with project design and construction.
So, it is very important for construction lawyers to keep up with the evolving law of e-discovery, and it is important for other stakeholders in the construction industry to know about some key e-discovery concepts.
Friday, February 28th, 2014
The digital revolution has ushered us into the information age. On a daily basis, we entrust our personal information, from the mundane to the highly sensitive, to a variety of recipients. For the most part, this free flow of information adds to our quality of life. Check-out lines are effortless; rarely do we even have to sign. We can enroll in a yoga class, deposit a check, and pay our utility bill, all from our smart phone.
Want to simultaneously track your spending, the current balance of your checking account, mortgage, credit cards, as well as your 401k, all while lounging by the pool? There’s an app for that.
This free flow of information comes with an expectation that those who receive our information will safeguard the privacy and security of the information.
But what if “we” are one of those who are entrusted with information? I am. Attorneys, accountants, physicians, banks, retailers, credit card companies, data storage companies, service providers, the list goes on and on of those who receive sensitive information every day. We all recognize the expectation and value of protecting the privacy and security of the information we are entrusted with. And if anyone doesn’t, they should!
We care because we value our clients and our reputation. Laws and regulations may mandate special treatment of certain financial and health information. And frankly, it matters to our bottom line. A large retailer saw net earnings fall following the December 19, 2013 announcement of a wide spread data breach. You may have seen something about this mentioned in the paper….and on the evening news….and in stories of affected individuals flooding your social media feeds. Not only will sales likely continue to be impacted for a time, but this retailer will also have ongoing costs associated with credit monitoring, investigation, and litigation.
But you don’t have to be a Fortune 500 company to experience a data breach. Very few businesses have large IT departments that can provide 24-hour service with a matching data security budget to secure every server, laptop, smart phone and mobile device. This makes smaller businesses very attractive to outside attackers.
We need to recognize expectations and also our limitations. We are human, technology will fail, criminals will develop new and more innovative ways to attack and infiltrate our systems. What can we do? A lot, actually.
Plan
Don’t wait for an attack or a government audit to develop a data privacy and security plan. Review your current technology and how you handle and store information to identify weaknesses. Make sure your software is up to date and continues to receive ongoing support, including updated security patches. Update company policies to mitigate the risk that a data breach could result from relaxed handling and storage of sensitive information. Identify key individuals within the company who should be alerted if a breach is known or suspected, and develop an investigation and response plan if and when such an event occurs.
Educate
Educate yourselves and employees. A company policy is only as good as its implementation. Reinforce expectations on an ongoing basis, whether through day-to-day interactions, regularly scheduled meetings, company bulletins, or lunch and learn programs.
Monitor
Perform ongoing internal audits on your system, including your technological capabilities, existing policies, and your data breach response plan. Encourage employees who believe they may have recognized a weakness in security or discovered a data breach to report their concerns to the company.
Communicate
Communicate within the company to raise awareness of the importance of data privacy and security. If you do experience a data breach, work with your trusted advisors to communicate, as appropriate, the nature of the breach and your response. Do not assume that stopping an ongoing breach and uncovering no evidence of harm is as far as you have to go.
Learn
Stay updated on significant changes in technology. Recognize that laws and regulations will continue to catch up with the reality of today’s technology, and this will in all likelihood result in increased duties and reporting requirements for those who have access to sensitive information. Importantly, learn from your experiences and learn from the experiences of others.
This is by no means a step-by-step formula. A successful data privacy and security plan and data breach response plan will involve many of these concepts happening simultaneously.
