Year: 2017

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Defend, Indemnify, and Hold Harmless – What Does this Contract Language Mean for A/E Professionals

One of your clients has probably proposed contract language that requires you to “defend, indemnify, and hold harmless” the project owner for specific (or not so specific) types of claims that might arise in the future. This language hopefully caught your attention raised some concern. But what do these words actually mean and why should you object?

Starting at the beginning, a “duty to defend” is well defined through cases involving insurance contracts. The idea is that when a specific category of claims is asserted against one contracting party, the other party will step in to “defend” those claims. For example, an insurance policy is a contract. When you notify your insurance carrier of a claim asserted against you that is covered by your policy, the insurer will step in to help you hire a lawyer (and most importantly, pay the legal fees).

If you agree to similar language in your design contract, then you are agreeing to hire the project owner’s lawyer to defend a lawsuit filed against the project owner. You must be careful to distinguish between duties to defend within your insurance policy and duties to defend within your own contracts for professional services. If you agree to defend your client, then that defense cost will likely be coming out of your own pocket. Your insurance policy requires the insurer to defend you, but not necessarily your client.

So, what claims must the contracting party defend? The answer lies in the scope of what that party has agreed to “indemnify,” meaning the loss that the party has agreed to reimburse. For example, if you are an A/E and your client alleges errors and omissions in your professional services, then your professional liability insurer will defend your claim. The insurer has already agreed to “indemnify” a judgment arising from errors and omissions in your professional services, so they will also defend such a claim.

As with the duty to defend, you must be thoughtful about what you are agreeing to indemnify for the project owner. If you are not careful, you might find yourself on the hook even if everyone agrees you performed your services properly.

This leaves the term “hold harmless,” which would probably be interpreted to mean the same thing as “indemnify.” For example, Black’s law dictionary defines both “hold harmless” and “indemnify” by cross-referencing the other term. This is an example of a legal “couplet” of words that have historically been stated together, such as “cease and desist” or “aid and abet.”

This is just one example of why it is important to discuss contracts for professional services with a lawyer before signing. You do not want to unknowingly agree to terms that risk taking money out of your own pocket.

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NLRB Comes to its Senses on Joint-Employer Liability, Overruling its Browning-Ferris Decision

On December 14, 2017, the National Labor Relations Board (“NLRB”) in Hy-Brand Industrial Contractors, Ltd. overruled its 2015 decision in Browning-Ferris Industries, which had redefined the joint-employer liability standard under the National Labor Relations Act (“NLRA”). Going forward, the NLRB will apply its earlier joint-employer liability standard.

“Joint employer” is the legal doctrine whereby one business can be held legally liable for the employment law violations of another business, such as a subcontractor or franchisee. In Browning-Ferris, the NLRB held that simply having the right to control another business’s workers, even if that right is never exercised, was sufficient to confer joint employer liability. The NLRB’s Browning-Ferris decision was roundly denounced by businesses. In response, Congress proposed legislation—the Save Local Business Act (H.R. 3441)—that, if passed, would restrict the definition of “joint employer” under both the NLRA and the Fair Labor Standards Act (FLSA) to businesses that actually control another business’s workers. The Save Local Business Act passed the House with bipartisan support and is pending in the Senate.

The NLRB must have seen the writing on the wall when it issued an opinion in Hy-Brand Industrial Contractors, Ltd. that described the Browning-Ferris decision as “a distortion of common law … contrary to the [NLRA], … [and] ill-advised as a matter of policy …” Based on this reversal of Browning-Ferris, the NLRB announced that in future and pending cases, two or more entities will be deemed joint employers under the NLRA only if there is “proof that one entity has exercised control over essential employment terms of another entity’s employees (rather than merely having reserved the right to exercise control) and has done so directly and immediately (rather than indirectly) in a manner that is not limited and routine.” This means that going forward, “proof of indirect control, contractually-reserved control that has never been exercised, or control that is limited and routine will not be sufficient to establish a joint-employer relationship.”

The NLRB’s rejection of its own Browning-Ferris fiasco is welcome news to employers. But take heed: even under the more restrictive definition of joint employer, the NLRB still found that the respondents in the Hy-Brand Industrial Contractors, Ltd. case were joint employers and thus liable for each other’s violations of the NLRA because the same decisionmaker decided employee terminations for both businesses and the two businesses’ employees participated in the same benefits plans and attended the same corporate training. It is still critical that businesses evaluate potential liability for subcontractors’ or franchisees’ misdeeds, particularly when providing or sharing labor.

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Twenty-two Vandeventer Black Attorneys Recognized as Top Lawyers

Twenty-two attorneys from Norfolk-based business and litigation law firm Vandeventer Black have been awarded Coastal Virginia’s Top Lawyers of 2017-2018 by Coastal Virginia Magazine and CoVa Biz Magazine. Candidates for this award are selected by their peers and nominated for exemplifying excellence in their specialty. The lawyers being recognized are:

The lawyers receiving these honors are:

Attorneys for Non-Profit

  • Anita O. Poston

Aviation, Admiralty, Maritime and Transportation Law

  • Edward J. Powers

Appellate Law

  • Dustin M. Paul

Arbitration and Mediation

  • William E. Franczek

Banking and Financial Law

  • Bryant C. McGann

Business Law                    

  • Christopher Ambrosio

Civil Trial

  • Anne G. Bibeau
  • Richard H. Ottinger

Commercial Litigation

  • Richard H. Ottinger

Construction Law

  • James R. Harvey
  • Neil S. Lowenstein

Environmental and Land Use

  • Patrick A. Genzler

Government and Administrative

  • Daniel R. Weckstein

Health Care

  • Anita O. Poston

International Law

  • Anthony J. Mazzeo

Intellectual Property Rights

  • Jane D. Tucker

Labor and Employment

  • Dean T. Buckius

Real Estate

  • Richard J. Crouch

Tax Law

  • Geoffrey G. Hemphill
  • Patrick W. Herman

Will, Trusts, and Estates

  • Patrick W. Herman

Workers’ Compensation

  • Adam S. Rafal
  • Brian L. Sykes
  • Kimberley H. Timms

Other National Awards

Previous recognitions for Vandeventer Black attorneys include: Virginia’s Business Legal Elite, Best Lawyers in America, Lawyers of the Year and Virginia Super Lawyers, among others. Additionally, the firm’s attorneys are active within various local and charitable organizations.

Vandeventer Black Attorneys Recognized as 2017 Legal Elite

Virginia Business Magazine recently released its Virginia Business ‘Legal Elite’ winner’s list for 2017, which includes Vandeventer Black attorneys. Eligible attorneys were nominated by their peers for this recognition.

“We are proud of all of the attorneys awarded in this year’s edition,” said Michael Sterling, Managing Partner. “This award is a reflection of their dedication to our clients and their commitment to the legal profession.”

The 24 attorneys selected are:

Alternative Dispute Resolution: Michael L. Sterling

Appellate Law: Mark C. Coberly

Business Law: Bryant C. McGann

Construction: William E. Franczek, James R. Harvey

Corporate Counsel: Richard S. Guy

Environmental Law: Patrick A. Genzler

Health Law: Mark S. Brennan and Anita O. Poston

Intellectual Property:
Jane D. Tucker

Labor & Employment: Anne G. Bibeau and Dean T. Buckius

Legal Services/Pro Bono: Robert O’Donnell

Legislative/Regulatory/Administrative:
Daniel R. Weckstein

Real Estate/Land Use:
Christopher Ambrosio

Taxes/Estates/Trust/Elder Law:
Patrick W. Herman

Young Lawyer (under 40): Jennifer L. Eaton and James B. Rixey

Previous recognitions for Vandeventer Black attorneys include Best Lawyers in America, Lawyers of the Year, CoVaBiz Top Lawyers, and Virginia Super Lawyers, among others. Additionally, the firm’s attorneys are active within various local and charitable organizations.

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Writing Off Bad Debt

It is an unfortunate fact of life that businesses often have difficulties collecting debts. It is important that businesses take proactive steps to address their bad debt so that they can either collect the debt or obtain the benefit of a tax deduction.

The Internal Revenue Code (as of the date this article was published) allows businesses to take an ordinary deduction for a debt that is “worthless” and if the business has suffered an actual loss or claimed the debt as income. This would include businesses using accrual accounting or debts relating to defaulted loans. The Internal Revenue Code does not define “worthlessness,” but courts have determined a debt to be worthless if the creditor is justified in abandoning hope of recovery. This must be determined on a case-by-case basis, but generally the business must establish that it has exhausted all of the usual reasonable means of collection without a full recovery.

The burden is on the business to establish that the debt is “worthless.” An attorney experienced in creditor’s rights can assist with collecting debts and proving that the business has used all reasonable methods to pursue the debt. This may include reducing the debt to a judgment and then pursuing collection activities based on the judgment, including levies and garnishments. In Virginia, and depending upon the nature of the debt, there may be other remedies available, including landlord’s and mechanic’s liens. In many cases, it is possible to collect a portion of the debt and at the same time establish that the remainder of the debt is “worthless.”

Businesses should be proactive in managing their debt. Often, the more aggressive creditor is more likely to be paid. If the debt cannot be collected, the Internal Revenue Code only allows a deduction for the tax year that the debt became “worthless.” Vandeventer Black LLP has attorneys experienced in creditor’s rights and tax law who can assist with pursuing collection of debts and establishing that the business has taken all reasonable efforts to pursue collection.

An Overview of Virginia Law on Electronic Signatures

As business increasingly takes place digitally instead of on paper, electronic signatures have become an important facet of completing transactions.  Now, instead of executing transactions the traditional way by having the parties provide signatures in ink on paper, many transactions are now completed by clicking a button, typing one’s name into a form, signing a tablet using a finger or a stylus, or even via audio or video recording where the signers denote that they agree to complete a transaction.   Such electronic signatures aid efficiency in that as soon as the transaction is completed, there is presumably a digital record of what took place.  However, in light of the challenges presented by identity theft, many forms of electronic signatures may also lend themselves to scrutiny as to their legitimacy.

Virginia law recognizes electronic signatures as valid.  Virginia’s version of the Uniform Electronic Transactions Act, which is set forth in Virginia Code sections 59.1-479 through 59.1-498, provides that an electronic signature will suffice when the law requires a document to be signed.  The law defines an electronic signature to include “an electronic sound, symbol, or process” affiliated with a document that is made by a person with intent to sign that document.  The law also provides that a document can be notarized electronically.  However, it should be noted that while the Virginia Uniform Electronic Transactions Act applies to most transactions, it does not apply to wills, codicils or testamentary trusts, and it does not apply to transactions to the extent they are governed by certain parts of the Virginia Uniform Commercial Code.

When creating processes involving electronic signatures, companies should create policies and procedures to ensure an electronic signature will be upheld as a valid signature of the signer in court.  When determining the impact of an electronic signature, Virginia law provides that courts should examine whether the signature is able to be verified, whether the signature is unique to the signer, whether the signature was under the signer’s control only, whether it is possible that the document could have been changed after the signature was executed, and whether the procedure used to create the signature was sufficiently reliable for the purpose of the signature.  Signatures executed using stringent processes to ensure their legitimacy are most likely to be upheld as valid by a court of law.

Virginia’s version of the Uniform Electronic Transactions Act also enables non-court governmental entities, including local governments and state agencies, to allow or disallow electronic signatures when parties are contracting with the government entity.  The law also gives these governmental entities the ability to specify their individual requirements and procedures for electronic signatures in a transaction in which the government entity is a party.  Thus, companies that transact business with governmental entities should consult the electronic signature rules of the relevant entity.

In light of the increasing reliance on technology in business, it is likely that compliance with Virginia’s electronic signature rules will continue to be an important issue for businesses in the future. Businesses with questions about Virginia law on the issue of electronic signatures should seek the assistance of legal counsel.

Can an Architect Be Held Liable for Defects in Construction

It is common on commercial construction projects for the owner to hire the architect to perform services during construction, in addition to designing the project.  Among other things, the architect’s construction phase services will typically consist of periodic observations and evaluations of the progress of the construction work.  An architect may be charged with observing the work to determine whether or not the building is being constructed in accordance with the contract documents, including the drawings the architect has prepared.

When there are defects in the construction, an owner may attempt to hold the architect liable (usually in addition to the contractor) for said defects, even if there are no errors or omissions in the architect’s design or specifications.  The theory behind such an assertion is typically that, even if the defect was caused by the contractor, the architect was charged with observing the work and should have called out the contractor’s defect and seen that it was corrected.

In such a situation, can the architect be held liable for defects in the contractor’s work?  The answer – as is so often the case – depends on the architect’s contract with the owner.  While many owner/architect agreements contain provisions requiring the architect to make periodic inspections of the work, it is typical for the agreements to contain language limiting the architect’s responsibility, such as the language used in the AIA Document B101-2017 Standard Form of Agreement Between Owner and Architect:

“The Architect shall not have control over, charge of, or responsibility for the construction means, methods, techniques, sequences or procedures …, nor shall the Architect be responsible for the Contractor’s failure to perform the Work in accordance with the requirements of the Contract Documents.”

AIA B101-2017, at § 3.6.1.2.

An architect in this situation would likely argue that this provision is exculpatory in nature, i.e., that it relieves the architect from any liability for the contractor’s acts or omissions.  The argument, according to the architect, is that the language “nor shall the Architect be responsible for the Contractor’s failure to perform the Work in accordance with the requirements of the Contract Documents” truly means that the architect cannot be responsible for the contractor’s failure to perform the work in accordance with the contract documents.  Some courts have adopted this position, and have dismissed claims by owners suing architects for construction defects.

But the majority of courts have taken a more nuanced view of this often-used contract language.  These courts have found that exculpatory language such as the quoted-language from the B101 doesn’t necessarily mean the architect is off the hook.  The Supreme Court of Alabama explained this distinction in one such case:

While the agreement may have absolved the Architect of liability for any negligent acts or omissions of the contractor and subcontractors, it did not absolve the Architect of liability arising out of its own failure to inspect reasonably.  Nor could the Architect close its eyes on the construction site and not engage in any inspection procedure, and then disclaim liability for construction defects that even the most perfunctory monitoring would have prevented, or fail to advise the owner of a known failure of the contractor to follow the plans and specifications.

Watson, Watson, Rutland/Architects, Inc. v. Montgomery Cty. Bd. of Educ., 559 So. 2d 168, 173 (Ala. 1990) (emphasis added).  In other words, while the architect is not responsible for the contractor’s negligence, the architect is required to perform its construction observation services reasonably, as required under its contract.  Further, when the architect actually observes deviations from the contract documents, it is required to report these to the owner.

There are several takeaways respecting such designer liability:

First, courts distinguish between full-time construction observation, and periodic evaluations of the work.  Courts will hold the architect to a higher standard vis-à-vis construction defects in the latter situation.  Architects should make sure that, unless they are truly being engaged to perform full-time observation, their contracts require observations of the work to occur only at periodic, reasonable intervals.

Second, the contract language matters. For example, an obligation to notify the owner of any defects in the work, whether or not observed by the architect, can be interpreted as something more akin to a guarantee of the contractor’s work; which is at odds with the exculpatory language, discussed above.

Lastly, performance matters.  Whatever the contract language, all parties to the contract must perform as contracted, and if they do they have meet their obligations. Even the strongest exculpatory language will absolve an architect for failing to perform the construction administration services it agreed to perform. But performance as agreed shields that architect when performed as agreed.

Handling Document Subpoenas

Businesses, large and small, are served with subpoenas with regularity.  My experience leads me to believe that many businesses do not understand the significance of subpoenas.  The purpose of this article is to provide some recommendations for handling subpoenas.

First, what is a subpoena?  Although subpoenas are usually signed by attorneys, rather than by judges or clerks of court, they are nevertheless court orders.  The reason is that attorneys are advocates, but they are also officers of the court. Both the applicable federal and Virginia rules provide for the issuance of subpoenas by attorneys.

Subpoenas come in different forms.  Some demand the production of documents; some demand the appearance of a witness for testimony; some demand both.  In any event, the recipient of a subpoena must provide what it demands and only what it demands; object to portions of it; or seek to have it quashed by a court of competent jurisdiction.  It is essential that you engage counsel to assist you in complying with a subpoena because failure to comply could result in a finding that you are in contempt of court.

Many subpoenas are overbroad and your counsel can sometimes work with the issuer to agree to narrow the scope of the subpoena.  If an agreement cannot be worked out, then your counsel may wish to file objections as well as a motion for a protective order or a motion to quash the subpoena.

Some subpoenas, of course, are fairly innocuous.  Your counsel will work with you in responding properly to a subpoena, especially with respect to the preservation and production of electronically stored information (“ESI”).  More and more litigation all over the country, in federal and state courts, concern ESI that has disappeared for one reason or another.

If your business has professional liability insurance (“PLI”), it is essential that you notify your PLI carrier.  Many such policies contain coverage for handling subpoenas and many PLI policies require you to notify the carrier immediately upon receipt of a subpoena.

In conclusion, treat subpoenas very seriously.

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Vandeventer Black LLP ranked in 2018 “Best Law Firms”

Vandeventer Black LLP was recently recognized by the U.S. News & World Report and Best Lawyers in the 2018 “Best Law Firms” list. Firms included in the list are recognized for their professional excellence with persistently impressive ratings from clients and peers.

Achieving this ranking signals a unique combination of quality law practice and breadth of legal expertise. The “Best Law Firms” designation reflects the high level of respect a firm has earned among other leading lawyers and clients in the same communities and the same practice areas for their abilities, their professionalism, and their integrity.

Sexual Harassment: Reducing Employer Risk of Liability

Recent events involving powerful figures from the media, Hollywood, and Silicon Valley have created a renewed focus on sexual harassment claims.  From former Fox News political commentator Billy O’Reilly to former Uber CEO Travis Kalanick, and even Hollywood’s Harvey Weinstein, 2017 has been a year in which companies have been forced to re-evaluate their internal culture and policies regarding sexual harassment claims and investigations.  In light of the current landscape, all employers should do the same in order to limit their risk of liability for unlawful harassment and discrimination.

Starting with the basics, every employer should establish a written policy prohibiting unlawful harassment and discrimination in the workplace.  To be effective, the policy must cover all forms of harassment and it must include a user-friendly internal complaint procedure.  The anti-harassment policy and internal complaint procedure should be provided to all employees, no exceptions, with each employee signing a form to acknowledge their receipt and review of the policy.  As part of the policy and procedure, an internal investigation plan or protocol should be established.  The way complaints are investigated and resolved is critical.  Mishandling this process could swing the door of liability wide-open.

Employers should develop a uniform plan for internal investigations, with built-in flexibility so that investigations can be adapted to each situation.  The plan should include at least four inflexible mainstays that apply uniformly to all investigations.  First, all investigations must begin promptly after the complaint is received. Failure to do so may allow any existing harassment to continue or escalate, which in turn exposes employers to liability and perhaps even punitive damages if a court finds that the employer knowingly allowed unlawful harassment to persist. Second, the plan should provide for the appointment of a neutral investigator who is trained, credible, and knowledgeable about state and federal anti-harassment law.  If necessary, an outside investigator may need to be retained.  Third, both the accuser’s and the accused harasser’s work history and personnel file should be thoroughly reviewed in connection with the investigation.  This would include performance evaluations, prior disciplinary notices, and all similar records.  Lastly, the investigator’s results should be documented in a written report.  The report should include the investigator’s conclusions as to the credibility of witnesses, the accuser, and the accused harasser; factual findings regarding the underlying events; and recommendations for appropriate corrective actions.

The flexible aspects of the investigation would include the length of the investigation, the number of witnesses or other persons involved, and the range of corrective actions to be taken on valid complaints. The appropriate time span for an investigation depends on the circumstances, but could range from a few weeks to several months. The key is that the investigation begin promptly, and courts will judge this “promptness” based on an objective reasonableness standard.  Once the investigation is completed, the employer should notify the accuser and the accused harasser of the results as soon as possible.  If the investigator finds that unlawful harassment occurred, then appropriate corrective action must be taken. The corrective action should be implemented in a timely manner and be tailored to the underlying conduct.  An off-color remark may warrant a mere verbal warning, while inappropriate unwelcome touching may instead require a suspension or discharge.  Further, the employer should be prepared to withdraw or correct any prior action taken against the accuser by the accused harasser or incidental to the harassment.  Here are additional preventive measures employers can take:

· Train supervisors on how to identify, prevent, and eliminate unlawful harassment and discrimination.

· Do not presume that harassment or discrimination cannot involve persons of the same gender.

· Implement a zero-tolerance policy for retaliation against employees who make complaints of unlawful harassment.

· Foster a culture where employees feel free to say something if they observe potentially harassing or discriminatory conduct.

For more information about this article or a review of your organizations’ anti-harassment policies or procedures, please contact the Vandeventer Black Labor and Employment Law team. 

Also, consider attending one of our upcoming Labor & Employment Law seminars on either January 30, March 14, or May 1, 2018.  Register here. 

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