Construction Law Today : Construction Lawyer & Attorney : Joshua Glazov : Design Build Contracts, Construction Bankruptcy

When both a mortgage lender and a mechanics lien holder foreclose against the same piece of property, who gets priority to the money paid at the foreclosure sale?  One recent Illinois judicial decision, LaSalle Bank, N.A. v. Cypress Creek 1, LP, says they both do, depending on what part of the property you're talking about:

• The lender's mortgage gets priority on the value of the property before improvement by designers and contractors
   
• The mechanics lien gets priority on value added to the property by improvements from designers and contractors
   
• Then, to the extent the lender pays off a designer or conractor who holds a properly perfected mechanics lien (each a "Payee"), the lender succeeds by subrogation to the priority of the Payee's mechanics lien.  By paying a Payee, the lender essentially buys the Payee's mechanics lien.  But that works only to the extent the lender pays off a Payee who holds a properly perfected mechanics lien.  The lender doesn't succeed, and doesn't get priority, just because they pay money to a designer or builder who provided lienable work, but didn't perfect a mechanics lien to secure payment

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In Vacating Arbitration Awards: Reasons In The Federal Arbitration Act Are The Only Way For Now - Part 1, we talked about the background facts and the judges' decision in Saipem America v. Wellington Underwriting Agencies Limited.  That was the case about claims for damage to an oil drilling platform while in transit from Texas to Israel.  Today we're going to talk about some of the lessons from the Saipem decision and how they could affect you.

• If you're going to have an arbitration clause in your contract, you need to think about what you want it to cover and ensure its language expresses your intentions.  If you have a dispute with your counterparty, the verbal perimeter you establish in your arbitration clause will decide which disputes get arbitrated, which disputes don't, and which ones you spend time and money on disputing whether they get arbitrated.

• Do you want to narrowly circumscribe the claims that get arbitrated?  For instance, arbitrate only claims for beach of your contract.  But keep in mind that if you pick this option, you may wind up with a dispute where some of the claims (breach of contract) get arbitrated, but others (negligence) don't.  If that happens you might have to can pay for two parallel proceedings - one in arbitration and one in court.  And those proceeding may even yield contradictory decisions.
  
• Or do you want a broader sweep on which claims go to arbitration?  For instance, all of claims the could arise from your relationship with your counterparty, regardless of classification (e.g., fraud, violation of statutes, interference with other contracts you have with third-parties).
  

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The U.S. Court of Appeals for the 5th Circuit (hearing cases in Texas, Louisiana, and Mississippi) just issued a new arbitration decision re-affirming that the reasons for vacating an arbitration award in Section 10 of the Federal Arbitration Act (the "FAA") are the only reasons for vacating an arbitration award governed by the FAA. 

The case is Saipem America v. Wellington Underwriting Agencies Limited.  Making the case a little more remarkable, retired U.S Supreme Court Justice Sandra Day O'Connor was one of the judges who heard and decided this case.  (Even after they retire from the Supreme Court, justices still hear cases in lower federal courts).

Factual Backstory

The owner of an offshore oil drilling platform in Texas (the "owner") hired an international oil equipment installation and transport contractor (the "prime contractor") to move the platform to Israel and install it there.  The prime contractor bought insurance from several insurers (collectively, the "insurers") to insure the load-out, transportation, and installation of the platform.

The prime contractor entered into a subcontract with Saipem America, Inc. (the "subcontractor") to act as the prime contractor's maritime warranty surveyor.  And the owner also entered into a separate contract with the subcontractor.  Under that contract the subcontractor acted as the owner's "certified verification agent" during transportation and installation of the platform. 

The subcontract included the following arbitration provision:

Any dispute arising out of or in connection with this Subcontract which cannot be amicably settled shall be referred to arbitration in The Hague, The Netherlands, in accordance with the Rules of the International Chamber of Commerce currently in force. Any settlement agreement or arbitral award shall be final and binding upon Parties.

The platform got damaged between Texas and Israel.  The owner and prime contractor made insurance claims against several of the insurers.  The insurers then looked for who might be responsible for the damage.  They wanted to make subrogation claims to get back at least part of the money they just paid-out to the owner and prime contractor.
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Most British readers already know that Lord Justice Jackson and his panel of assessors issued an interim report earlier this month in their Review of Civil Litigation Costs. 

The interim report raises a lot of issues that should interest readers outside Great Britain too, especially in other countries with common judicial systems (e.g., the United States, Australia, Canada).  Sometimes stepping outside our own system here in the United States fosters new ideas for solving chronic problems.  The US Navy's adopting the Royal Navy's angled flight decks on its aircraft carriers for safer and more efficient operations comes to mind as a good example. 

In January 2009 British Lord Justice Jackson was appointed to lead a fundamental review of the rules and principles governing the costs of civil litigation. His goal is to identify recommendations for the United Kingdom's Ministry of Justice to promote access to justice at proportionate cost.  The final report is due at the end of 2009.

Lord Justice Jackson emphasizes that the preliminary report is to promote discussion during the consultation period before he and his assessors prepare their final report, So, the interim report focuses on areas where they seek comments from the lawyers and the public at large.  They urge people to submit comments by July 31, 2009.

The following are some of the principal areas of focus in the report:

• Court fees. The report expresses disagreement with the Ministry's policy of full-cost pricing - where litigants pay for the court service they receive. It suggests shifting more costs of the civil justice system from litigants to taxpayers.
• Cost shifting. The report requests comment on whether fee and cost shifting should be abolished in select areas, although it tentatively concludes that cost shifting must remain in some form for most litigation.
  

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In the last post we talked about how a judge decides who's the "prevailing party" that's entitled gets their attorneys fees and costs under the attorneys fee and cost provision in a contract (an "F&C provision").  Today we pick-up on the next issue - if you are the prevailing party, how much of your fees and costs do you get from the loser?

Both the contract and the statue exceptions to the American Rule mentioned in the last post limit what the prevailing party may get.  You're usually limited to "reasonable" before attorneys fees and costs.  So if you pass the hurdle of being the prevailing party, you're on to the next.  Proving:

• How much you spent on attorneys fees and in costs.
• The amount you spent is reasonable.

I assure you the other, non-prevailing, side will oppose this at least as obstinately as they did original issues in your dispute.  Odds are they'll say you spent too much on attorneys fees and costs; what you spent was not just unreasonable, it was excessive, profligate, and scattergood. 

Also, when it comes to "costs", don't expect that all the expenses you paid will qualify as a costs that the other side must pay.  The world of costs is often smaller than you think.

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Construction contracts and architects agreement often include attorney fee and cost provisions. These are those sections saying that if there is a dispute, the losing side must pay for the winning side's attorneys fees and costs. Sounds pretty simple. But it isn't. There's a lot of before getting the other side to pay for your attorneys fees and costs. Most hurdles fall into one of the following categories:

• Deciding who is the winner.
• Deciding how much should the winner get from the loser.

But before we start looking closer at these issues, you need to understand some legal history.

The American Rule

Traditionally, the "default rule" in the United States is that the loser of a lawsuit does not have to pay the winner's attorneys fees or costs. For over a century, lawyers and judges have called this the "American Rule". But in other Anglo-American countries (e.g., Great Britain, Australia), the default rule is that the loser does pay the winner's attorneys fees and costs.  Lawyers and judges call this the "British Rule".

Like nearly all rules, the American Rule has exceptions. When one of the exceptions applies, the loser must pay the winner's attorneys fees and costs. So what are the exceptions? The one's you see most often are..... Continue Reading...

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