Spend Less Time with Your Lawyer with these Tips (Tue Tip)

 “The best time to plant a tree was 20 years ago.  The next best time is now.”  ~Chinese Proverb


If you haven’t yet acted to streamline your contracts and your new client procedures, do so now.  Unless, that is, you like spending time with your lawyer.  Lawsuits take time and money.  Avoid them (and your lawyer) through good risk avoidance practices.  

Last year I wrote a post on 6 Ways to Limit Risk through effective use of contracts on your Projects.   Included in that list were such tips as:

  • Always, always, always use a contract for each new project.  (Verbal agreements are very hard to prove in Court).   Without a written contract, you are trusting yourself to laws you may not agree with or giving up valuable protections.   
  • Get your contract reviewed by your insurance carrier.  Insurance check-ups through your agent or broker are usually free.  Why risk it? 
  • Have your contract reviewed by your attorney.  ( I happen to know someone who does this regularly for her clients.)
  • Establish a new client protocol.  Make sure all new clients sign proposal or engagement letters.  Document now; worry less later.

These are all extremely important ways to minimize your risk.  Of course, if you are reading this blog, I recognize that I am probably preaching to the choir.  But it is worth repeating.  Just do it.

Do you have procedures that minimize your company’s risk?  Tell me in the comment section, below, what has worked for you.

If you need help creating or revising your contracts or client protocols, drop me an email at [email protected] 

Photo: (c) Freephoto.com via Creative Commons License.

Engineering flaws cited in Oil Spill Report

Horizon explosion

The Chief Counsel’s Report on the BP Deepwater Horizon Oil Spill and Offshore Drilling has been released.  Following on the heals of the January National  Commission report to the President, the Chief Counsel’s report “provides damning evidence that preventable engineering and management mistakes—rather than mechanical failings—were the primary cause of the Deepwater Horizon rig explosion last spring,” notes ENR’s Pam Hunter.

Among the Technical Findings, the Report states that the root cause of the failure was that the cement that BP and Halliburton pumped to the bottom of the well did not seal off hydrocarbons in the formation.  The report acknowledges several factors which may have increased the risk of cement failure, including:

  • drilling complications forced engineers to plan a finesse  cement job that called for, among other things, a low overall volume of cement.
  • the cement slurry itself was poorly designed—some of Halliburton‘s own internal tests showed that the design was unstable, and subsequent testing by the Chief Counsel‘s team raised further concerns.
  • BP‘s temporary abandonment procedures—finalized only at the last minute—called for rig personnel to severely underbalance the well before installing any additional barriers to back up the cement job.

Among the Management Findings, the Report states:

  • BP did not adequately identify or address risks created by last-minute changes to well design and procedures. BP changed its plans repeatedly and up to the very last minute, sometimes causing confusion and frustration among BP employees and rig personnel.
  • Halliburton appears to have done little to supervise the work of its key cementing personnel and does not appear to have meaningfully reviewed data that should have prompted it to redesign the Macondo cement slurry.
  • Transocean did not adequately train its employees in emergency procedures and kick detection, and did not inform them of crucial lessons learned from a similar and recent near-miss drilling incident.

Legal Status?  The lawsuits that will be flowing (pardon the pun) from this disaster will be extreme.  Expect to see possible class action certifications requested for some of those that were suffered damages.  In any lawsuit related to the spill, the report by the Chief Counsel will, undoubtedly, be Exhibit A.


Photo credit:  Richard Sullivan, via Wikimedia/Creative Commons license.

Can a designer limit his liability to his fees for service?

Architects and engineers (and the owners/contractors with whom they contract) often wonder whether limiting liability language is enforceable.  The answer, as in much of construction law, is very much dependent on what state’s court will be interpreting the contract.  Some states allow such limiting language, and others do not.  Josh Glazov’s Construction Law Today blog recently tackled the enforceability of such provisions in the context of a recent Illinois case, in which the Illinois court found such limitations perfectly acceptable, so long as they (1) are not “unconscionable” and (2) do not violate public policy.

sign: proceed at own risk

North Carolina takes a very similar approach to such limitations of liability.  Here, so long as the limitation of liability is not also an agreement to be liable for the other party’s negligence (which is barred as against public policy), such a limitation of liability is enforceable.  A case discussing this issue from the engineering perspective is Blaylock Grading Co., LLP v. Smith et al, 189 N.C. App. 508, 658 S.E.2d 680 (2008).  In that case, a surveying engineer limited his liability, via contract, to $50,000.  The Court, citing an earlier state Supreme Court decision, ruled that the limitation was valid and enforceable:

People should be entitled to contract on their own terms without the indulgence of paternalism by courts in the alleviation of one side or another from the effects of a bad bargain.  Also, they should be permitted to enter into contracts that actually may be unreasonable or which may lead to hardship on one side.  It is only where it turns out that one side or the other is to be penalized by the enforcement of the terms of a contract so unconscionable that no decent, fairminded person would view the ensuing result without being possessed of a profound sense of injustice, that equity will deny the use of its good offices in the enforcement of such unconscionability.  Id. at 511, 658 S.E.2d at 682.

Is this rule absolute?  Clearly not, as the above quote indicates.  Unconscionable limitations will not be enforced.  Moreover, a third party, not subject to the contractual terms, is free to sue in negligence.  But as between the contracting parties, such a limitation on damages can be a powerful tool to minimize exposure to risk.

Questions about limitations on liability?  Comment below or drop me a line.  And be sure to sign up for email delivery of blog posts directly to your inbox.


Photo:  “Proceed at own risk” by Dave Nicoll via Flickr/Creative Commons license 

Root canals & Lawsuits: two things to avoid (Law Note)

man flossing

 No one (with the exception of sadistic dentists)  likes root canals, and no one (except lawyers) likes lawsuits.  In the same way you can prevent (or limit) the need for root canals through proper flossing habits, you can limit the number of lawsuits you need to be involved in if you include everyone you should the first time around.  For those involved in filing construction liens, this means that when you perfect a lien by filing the lawsuit, be sure you include everyone you need to include.  A recent North Carolina Court of Appeals case demonstrates this principle in full living color.

In Lawyers Title Insurance Corp. v. Zogreo, LLC, __ N.C. App. __ (November 16, 2010), two contractors filed and perfected valid liens on a piece of property.  They did not include, in the lawsuits to perfect the liens, the banks which had given funds to the property owner after they first began work on the property.  The Court held that it was entirely proper not to include the banks (who held deeds of trust on the property to secure their loans); however, by the contractors’ failure to include them, they were forced to later litigate priority issues with the banks.  This is because “if a subsequent encumbrancer is not joined [in the underlying lien perfection lawsuit], he is not bound by the judgment in the action between the contractor and the owner.” 

In other words, even though they filed proper liens, filed the lawsuits timely, and even won final judgment in those lawsuits, because they did not include the banks, the banks were free to start a new action, which they did in this case.  The banks also obtained an injunction to stop any judicial sale of the property until priorities could be established.

Moral of the story? It is better to include all subsequent encumbrancers (i.e., the banks) when perfecting a lien.  It’s not required, but it is better practice.  (And flossing your teeth isn’t required, either).   After all, who wants a root canal, or, in this case, to re-litigate your right to be paid money in yet another expensive lawsuit?  When it comes to root canals and lawsuits, fewer is better.

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Photo: Day One Hundred Fifty-One by Eric Mesa via Flickr/Creative Commons License

Unlicensed Contractor & his partnership take a hit (Law Note)

man banging head against wallImagine being told that you will not be paid for a house you constructed pursuant to a contract with homeowners.  And imagine that the reason for not getting paid had to do with whether or not you signed a contract “on behalf of” your partnership or whether you simply signed your individual name.  This is the exact case that Ron Medlin, partner in Ron Medlin Construction, is facing thanks to a recent North Carolina Supreme Court case, Ron Medlin Construction v. Raymond A. Harris, __ N.C. __, (December 20, 2010).

Ron Medlin entered into a contract with the Harris’ for the construction of a home not to exceed $604,800.  Of note, Medlin did not have a licensed general contractor’s license, as is required.  However, Ron Medlin Construction, a partnership, was appropriately licensed as a general contractor, and the partnership performed the work relating to the construction of the residence.

When litigation arose over cost overruns, the Harris’ claimed they did not need to honor the contract because it was with an unlicensed contractor.  Under North Carolina law, any person who performs work in excess of $30,000 needs to be appropriately licensed or he cannot recover for his work in the Courts.  (See Brady v. Fulghum, 309 N.C. 580, 586, 308 S.E.2d 327, 331 (1983)).  The partnership argued that it did not have a contract with the Harris’, yet it performed work in constructing the residence and, therefore, was entitled to recover a just amount under a theory called quantum meruit.  The Court held that the partnership ratified Ron Medlin’s individual acts, and as such the partnership was bound by the (unenforceable) contract and could not recover. 

The Court held, as a matter of law, that:

a contract for the construction of a home or building executed by a partner in a licensed partnership engaged in the construction business is the contract of the partnership unless the remaining partners can show that the partner was not authorized to act on behalf of the partnership and, if not so authorized, the partnership did not ratify the contract.

Moral of the story?  It is important that you follow the rules in signing and performing under construction contracts, as well as in maintaining your proper corporate formalities.  It might even be worth having your attorney review your construction contract before you sign it.    Unless, that is, you don’t mind that chance that you may end up performing some of your work for free.

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Photo:  “361/365 days -it feels good to stop” by badjonni via Flickr/Creative Commons license.