Supplemental Conditions

District Court denies Carpenters Union Motion to Dismiss RICO case- What it Means

Posted in Unions

In a case that has been widely discussed on this blog, a United States federal district court Judge denied the Philadelphia Carpenters’ Union’s motion to dismiss a federal RICO case filed against it by the Pennsylvania Convention Center.  Judge Nitza I. Quiñones Alejandro issued the ruling on the Union’s motion.

Unfortunately, Judge Quinoses Alejandro did not issue an opinion to go along with her order.  This is a bit unusual. Federal Judges routinely issue opinions (if only in footnote form) even on motion dealing with procedural issues. like discovery disputes.  The lack of an opinion prevents us from knowing the Judge’s rationale for denying the motion. Therefore, the order lack precedental value for subsequent cases.  However, I do not believe the order is any less significant.  Potential plaintiffs now know that a federal RICO case against a union can survive a motion to dismiss. Moreover, the attorneys for the Convention Center have provided potential plaintiffs a road map for doing so. As I have stated before, the fact pattern in the Convention case is hardly unique and the tactics the Carpenters used in that case are de ri·gueur.  

Faced with the threat of trebel (triple damages) and attorneys fees from a successful RICO claim, unions should certainly be on notice following this decision.  In particular, the attorney fees provision of the RICO act makes these cases attractive to attorneys that will bring such cases on a contingent or reduced fee.  This removes the burden of the high costs that a plaintiff in a RICO case would usually have to bear and the prohibitive effect that high fees would have on an otherwise solid case .

How to Fund Your Lawsuit to Get the Justice You Deserve

Posted in Construction Law

This is a guest blog post from LexShares, a leading funder of commercial litigation. They can be reached by emailing info@lexshares.com or calling 877-290-4443. 

As many daily headlines in the business sections of newspapers across the country will attest, business is not for the faint of heart.  Meticulously planned deals can fall through at the eleventh hour; partners may prioritize their own short-term gains over the long-term well being of the company; competitors could engage in smear campaigns meant to expand their base at any cost, even at the expense of good will others took decades to build.  When your business suffers unfairly from the misdeeds of third parties, sometimes the only recourse is to resolve the dispute in court.

For these sorts of injuries, a business tort lawsuit can be the best way to set things right.  Business torts, also known as economic torts, encompass a range of claims, mostly stemming from principles at common law, that can be brought against businesses, their officers, or other parties whose actions lead to an economic injury or loss.  Actions commonly categorized as business torts include:

  • Unfair competition (where competitors use illegal means to gain an advantage)
  • Breach of fiduciary duty (where a person who serves in a fiduciary capacity – such as an officer, board member, or employee – fails to fulfill his or her responsibility)
  • Commercial disparagement or trade libel (where someone publishes derogatory information about an individual or business meant to discourage others from dealing with them)
  • Fraudulent misrepresentation (where a false representation is made knowingly or recklessly with the intention of being relied upon, and that representation is, in fact, detrimentally relied upon)
  • Tortious interference (wrongful interference with a contractual or business relationship)
  • Trade secret misappropriation (theft of economically valuable information whose secrecy is a core aspect of the advantage it confers)

Frequently, however, proving another party’s misdeeds to a court’s satisfaction can be a difficult and protracted endeavor.  As is often the case with complex litigation in general, a business tort lawsuit has the potential to be arduous, time-consuming, and expensive for all involved.  Not every business is equipped to handle the stresses and costs of litigation, especially if it is already reeling economically due to the malfeasance that gave rise to the claim.

Where resources rather than merits limit your capacity to seek justice for business wrongs, litigation finance can help.  Also called litigation funding or lawsuit funding, it allows third-party investors to help fund case-related expenses. Litigation finance can be used to retain top-tier legal counsel, acquire expert testimony, and engage in premier courtroom strategies such as mock trials and simulations, or even additional funding to give an underlying business the ability to endure the litigation process, in exchange for a portion of the recovery should the lawsuit succeed.  Even then, the process of seeking out and acquiring litigation finance can itself be an onerous task, especially for plaintiffs already strained to the breaking point both by the demands of litigation and the economic injury underlying the lawsuit.  This is where LexShares excels at connecting meritorious plaintiffs with accredited investors to the mutual benefit of both.

By the very nature of the action, plaintiffs in business tort lawsuits come to court in less than optimal financial shape.  When the other party has profited from the malfeasance, the divide between the resources that plaintiffs and defendants can bring to bear only widens.  LexShares and its base of accredited investors can provide plaintiffs equal access to the resources, expertise, and support they need to give them their day in court and the chance to obtain the just outcome they deserve.

 

District Court Allows DBE False Claims Act Case to Proceed

Posted in Construction Law, Disadvantage Business Enterprises (DBE), False Claims Act

Last week, I posted about how whistleblowers continue to receive large settlements related to DBE fraud. A somewhat recent case from the federal court in Maryland shows how whistleblowers are ferreting out DBE fraud on construction projects receiving any form of federal funding.

The Case

The case involves a bridge painting project in Maryland that was let by the Maryland State Highway Administration. The contract required the prime contractor to meet a 15% DBE participation goal.  The prime contractor submitted a bid stating it would have 15.12% DBE participation.  After it was awarded the contract, the prime contractor – as is typical – submitted additional forms certifying to the MSHA that 15.12% of its contract price would be performed by a DBE firm.  The prime contractor indicated that one DBE subcontractor, Northeast Work and Safety Boats, LLC (“NWSB”), would perform the 15.12% of the work.

Two employees of another subcontractor, Brighton Painting Company, brought a claim against the prime contractor under the False Claims Act.  They alleged that Northeast was merely a pass through entity that performed no commercially useful function on the project and that the work was actually performed by Brighton, a non-DBE firm.

Plaintiffs’ False Claims Act case was based on five categories of allegedly false documents submitted by the prime contractor to MSHA: (1) the initial bid proposal; (2) payroll documents; (3) quarterly DBE participation reports; (4) contractor progress estimates; and (5) documents related to the prime’s request for final payment.  In all of these documents, the prime contractor made some form of certification about its DBE utilization and its compliance with the DBE program.

The prime contractor moved to dismiss the case.  In denying the motion to dismiss, the District Court held that all of the five categories of documents satisfy the “claim” requirement under the False Claims Act.  Moreover, the District Court ruled that all of these documents could be material false statements because the false statements had the “natural tendency” induce the government to make payment.

The Takeaway

There are several:

  1. Because of the number of documents a prime contractor submits to a transportation agency that make representations concerning utilization of DBE subcontractors, transportation contracts are ripe for False Claims Act cases.
  2. The documents that the prime contractor submitted in the Maryland case are required in one form or another in all jurisdictions.  For example, on PennDOT projects the prime contractor is required to submit (a) a monthly DBE status report (FORM EO-402); (b) an annual DBE Commercially Useful Function Report (FORM EO-354); and (c) a DBE Participation form (FORM EO-380).  Additionally, PennDOT contracts contain language stating that failure of the prime contractor to carry out the requirements of the Department of Transportation’s DBE program is a material breach of contract.
  3. Anyone on the project with knowledge of the pass through scheme can act as a potential plaintiff.
  4. The case has probably cost the prime contractor several hundreds of thousands of dollars in legal fees thus far.

Whistleblowers Continue to Receive Large Settlements in DBE Fraud Cases

Posted in Disadvantage Business Enterprises (DBE), False Claims Act

It has been awhile since I last blogged about fraud involving the Department of Transportation’s disadvantaged business enterprise (DBE) program.  Trust me, the problem has not gone away. If anything, prosecutions and civil claims filed under the False Claims Act alleging DBE fraud have become so frequent, I could not write a blog post about each one.  The biggest winners in 2016 may have been the whistleblowers that brought the DBE fraud to the attention of the Department of Justice, who were awarded millions of dollars for doing their part to ferret out fraud.  Recent whistleblower settlements include:

  • June 2016 – $1,485,000 awarded government contractor;
  • May 2016 – $500,000 awarded to a former employee of Mountain States Construction;
  • June 2015 – $1.8 million awarded to two former employees of a commercial facilities contractor; and
  • May 2014 – $12 million awarded to former project manager on airport project.

Because whistleblowers are typically represented by attorneys on a contingent fee basis, they do not incur attorneys fees in filing such a claim.

Suing a Local Government in Land Use Cases – Part 2 – Procedural Due Process

Posted in Government Contracts, Public Contracts

In my last post I discussed suing a local government for a substantive due process violation. In this post, I discuss a the right to procedural due process.

The Fourteenth Amendment of the United States Constitution protects prohibits the government from depriving an individual or business of life (in the case of an individual), liberty, or property without due process of law.  Unlike the somewhat abstract and subjective concept of substantive due process, procedural due process is direct and objective. Generally, if an individual or business maintains a property or liberty interest, a local government must afford that individual or business notice that the government intends to deprive them of a liberty or property interest and a reasonable opportunity to be heard to contest the proposed deprivation.  Unless there is an emergency, the notice and opportunity to be heard must be given before the government deprives an individual or business of a liberty of property interest.  This is known as a pre-deprivation hearing.  Because of the clear contours of the right, procedural due process violations are typically easier to prove than substantive due process violations.

The first step in determining whether a procedural due process violation has occurred is to determine whether an individual or business has been deprived of a liberty or property interest.  Besides the obvious, what classifies as a liberty or property interest is a question of state law and, therefore, varies from state to state.  (An obvious property interest would be ownership in a building. In a case, that I brought against the City of Philadelphia for demolishing my client’s building without notice or an opportunity to contest the proposed demolition, the federal court easily found that a procedural due process violation occurred. Bullard v. City of Philadelphia (E.D. Pa., 2012))  Other not so obvious things that courts have concluded amount to a liberty or property interest include: zoning permits, building permits, business licenses, a contractor’s pre-qualification to bid on government contracts, and the general beneficial use of land.

The second step is determining whether a party have been given notice and an opportunity to be heard.  The notice the government provides must only be “reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.” Actual notice is not required.  The opportunity to be heard requires the government to provide an party to present objection to the proposed deprivation before it occurs.

While this may seem obvious and well-settled, local government actors frequently revoke licenses or cancel permits without a pre-deprivation hearing.  It happens quite frequently in cities like Philadelphia, despite being chastised by both state and federal courts for doing it.

A revoked permit or suspended business license can significantly damage a business even if done for a short period of time.  If its done with first having a hearing, an affected business could recover damages for a constitutional violation.

Suing a Local Government in Land Use Cases – Part 1 – Substantive Due Process

Posted in Public Bidding, Public Contracts

Because of my personal political persuasions (pro-freedom) and success in litigating cases against the government and other media about those cases businesses frequently approach me about bringing claims against local governments and agencies for interfering with their Constitutional rights.  Actions by local government agencies that could give rise to a Constitutional violation include: treating a developer’s project differently than a similar project, revoking a previously issued zoning or building permit, disqualifying a contractor from bidding on a government contract, retaliating against a business owner for speaking out against the local agency or one of its members, or unnecessarily delaying the issuance of a permit. The Constitutional rights most typically implicated in these cases are those guaranteed by the 5th and 14th Amendments to the United States Constitution.  However, the 1st Amendment is also frequently implicated.

Suing a local government agency for violating your Constitutional rights is not easy.  However, the federal statute under which the cases are brought, 42 U.S.C. Section 1983, provides for the award of a successful plaintiff’s attorneys fees.  This is true even if the Judge or jury awards a mere $1 is damages.  Moreover, sometimes there can be a strategic value in the litigation.

This is the first in a series of blog posts exploring claims available to businesses harassed by local government agencies and officials and the challenges inherent in successfully bringing those claims.  We will start with a claim for a substantive due process violation.

Under the 5th Amendment, businesses and individuals cannot be subject to arbitrary and capricious application of the law.  In other words, there must be some objective standards for a laws application.  Before 2003, substantive due process claims in the land use context were fairly common. a party could bring a substantive due process claim whenever there was an “improper motive” by the local government authority. However, the Third Circuit changed that standard in United Artists v. Township of Warrington, 316 F.3d 392 (3rd Cir., 2003), where it held that in land use cases, only those actions by a local government agency that “shock the conscious” could act as a basis for a substantive due process claim.  The Third Circuit’s rationale is that it did not want to turn the federal courts into a super zoning board.

While determining what actions meet the “shock the conscious” standard is fact sensitive, Courts in the Third Circuit have set a high bar for plaintiffs bringing substantive due process claims.  Under existing precedent, Courts in the Third Circuit have said the following could be conscious shocking:

  • corruption and self dealing;
  • fraudulent conduct;
  • personal animus towards the property or business owner; and
  • conduct that violates some other constitutionally protected right

A substantive due process claim is usually brought together with other claims such as an equal protection or procedural due process claim.  So, even if the facts do not a support a claim for a violation of substantive due process rights, a person or business may still have a constitutional claim.

Because substantive due process claims are fact sensitive, a business that feels that its substantive due process rights are being violated should start to create a record and document those actions that it believes amount to a substantive due process violation.  This record can then be used to defeat a motion to dismiss which likely will be filed by the defendants.

 

Commonwealth Court Strikes Blow to Philly Window and Door Ordinance

Posted in Construction Law

On December 22, 2016, the Pennsylvania Commonwealth Court issued an important opinion that has flown under the radar somewhat.  The case Rufo v. Board of Licenses and Inspection Review, invalidates a major portion of Philadelphia’s so called windows and doors ordinance, which requires owners of vacant properties to install glass windows and doors with frames on vacant properties.   A copy of the opinion can be found here.  (I only learned about the case because of a tweet by a litigator with the pro-freedom group the Institute for Justice.)

The Windows and Doors Ordinance

The case concerns Section 306.2 of the Property Maintenance Code which requires “the owner of a vacant building that is a blighting influence, as defined in this subcode, [to] secure all spaces designed as windows with windows that have frames and glazing and all entryways with doors.”  Property owners found in violation of the ordinance can face stiff fines.  Property owners are subject to a daily fine for each door and window in violation of the Ordinance.   The fine is $300 per window or door.  However, because most vacant properties have multiple windows and doors the fines can add up exponentially.

The key part of the ordinance is the term “blighting influence” and how it is determined that a property is a blighting influence.  The Ordinance only applies to those properties that are a “blighting influence.”  In other words, a property could be missing windows and doors but if it is not determined to be a “blighting influence,” then the property owner is not subject to the fines.

Under the Property Maintenance Code, there are two ways that a property is determined to be a blighting influence. First, there is an objective standard.  If the property without windows and doors is located on a block where 80% or more of the properties are occupied, it is a blighting influence.  Second, there is the subjective standard.  The Commissioner of Licenses and Inspections in consultation with other City officials, can declare a property a blighting influence if it has a significant adverse impact on the community based on variety of factors including, the safety of the surrounding community, community morale, marketability of the property, and the value of surrounding properties.

The Property at Issue

The property at issue is a large commercial property that was formerly a brewery.  In 2012, the City cited the property owner for violating the Ordinance – among other things.  Because of the number of windows and doors involved, the fines equaled $33,000 per day.  Moreover, the cost to replace all of the windows and doors exceeded the assessed value of the property.

The Appeal

The owner appealed the fine.  The owner argued that installing windows and doors would not make the property safer.  To the contrary, it would make it less safe as vandals could easily enter the building by breaking the glass. The owner pointed out that when he installed three windows at the property they were broken in a matter of days.  The owner further argued that the ordinance was concerned with making the property aesthetically pleasing rather than safe.  Finally, the owner argued that the ordinance was unconstitutionally vague.

The Board’s Decision and Appeal to the Trial Court

The License and Inspection Review Board upheld the fine.  The owner then appealed to the Philadelphia Court of Common Pleas.  The trial court overturned the fine.  The trial court found that the ordinance had a purely aesthetic goal because it was not aimed at making the property safe and had a minimal impact on reducing blight – if at all.

The Commonwealth Court’s Ruling

The City appealed the trial court’s order to the Commonwealth Court.  The Commonwealth Court upheld the trial court.  Like the trial court, the Commonwealth Court held that a municipality’s police power may not be grounded solely on aesthetics.  Despite the City’s claims that “numerous studies” showed that installing windows and doors reduced blight, the City could not point to any.  The Court also found that the owner could install wood and blocking behind the windows and doors to secure the property and still be in compliance with the ordinance.  Therefore, the ordinance was purely aesthetic.

Conclusion

There are several takeaways.  First, property owners cited for violating the windows and doors ordinance under the subjective standard should challenge the fine.  Second, when bureaucrats hostile to private property rights bully property owners, the property owner should first check to see if the ordinance or law is it susceptible to a challenge before he cedes his freedom to the state.

Texas Jury Awards $5.3 Million to Company Defamed by Union: Could it work in Pennsylvania?

Posted in Secondary Boycotts, Unions

In early September a Texas jury awarded a janitorial $5.3 million against the local chapter of the SEIU.  The janitorial firm claimed that the SEIU damaged its reputation and caused it damages when it spread false, defamatory, and disparaging stories about the firm.  Specifically, the janitorial firm claimed that the SEIU told the janitorial firms customer and potential customers that the firm “systematically failed to pay its employees for all hours worked, instructed janitors to work off the clock and had fired, threatened or refused to hire janitors who supported joining a union.”  According to Law360.com, the union did this with “fliers, handbills, letters, emails, newsletters, speeches and postings on its website accused [the firm] of violating wage-and-hour and other labor laws.”

The SEIU’s apparently tactics are hardly unique. Union campaigns that use fliers, handbills, letters, emails, newletters, ect. to pressure third-parties from doing business with a targeted employer are hardly unique.  In fact, they are quite common place in Philadelphia and its surrounding suburbs, particularly with the building trades unions.  Most of the business owners of the company’s that are the target of the campaign are frustrated – to say the least – with the truthfulness of the statements contained in the union’s literature.  For example, many unions claim a non-union employers pays substandard wages or wages less than what the union pays.  However, the union has no way of know whether that is truthful or not and the many firms offer packages that are better than the union rate.

Could a suit similar to the one brought in Texas be successful in Pennsylvania?  Yes.  In the Texas case, the SEIU was sued for defamation.  Pennsylvania recognizes the tort of defamation.  In the commercial context, defamation concerning a business is referred to as “commercial disparagement.”  A plaintiff in a commercial disparaging case needs to prove the following elements: (1) the statement is false, (2) the publisher either intends the publication to cause pecuniary loss or reasonably should recognize that publication will result in pecuniary loss, (3) a loss does in fact result, (4) the publisher either knows that the statement is false or acts in reckless disregard of its truth or falsity, an (5) no privilege attaches to the statement.

In many of the union campaigns that we see, the first three elements can usually be found.  The fourth could probably be proved through discovery, unless the plaintiff’s customer outright terminates their contract, in which case the company would have other remedies against the union.  The challenge would be element 5.

A conditional privilege attaches to a commercially disparaging statement when the statement involves some interest of the person who publishes it, some interest of the person to whom it is published or some other third person, or a recognized interest of the public.  KBT Corp. v. Ceridian Corp., 966 F. Supp. 369, 374 (E.D. Pa. 1997).  However, this privileged is lost when it is abused by “publication that is the result of malice, i.e. ‘a wrongful act done intentionally or without excuse or generated from reckless or wanton disregard of another’s rights.'”
There are no know reported cases in Pennsylvania involving a case against a trade union for commercial disparagement.  This might be because of the previous difficulty plaintiff had in proven the fifth element of the claim. However, as the Texas case showed, in the digital age proving that element is getting easier. In the Texas case, the plaintiff obtained emails showing that the intent of the union was to put the janitorial firm out of business and bragging about when the firm in fact lost business.  If a plaintiff can find emails like that, it makes it very hard for the defendant to claim that it was not acting in a manner done with the intent to harm the business.

Philadelphia Proposed Best Value Procurement Bill

Posted in Construction Law

An opinion piece in today’s Philadelphia Inquirer concerning proposed legislation that would change the way the City of Philadelphia awards public construction projects is causing quite a stir. The article concerns legislation that would allow the City to award public construction contracts based on a “best value” approach rather than the current requirement that the contract be awarded to the lowest responsible and responsive bidder.  The author worries that by removing the current objective criteria and replacing it with subjective ones, contracts can be steered to politically favored contractors.  The author cites the recent no-bid contract awarded to a law firm run by the friend of Mayor Jim Kenney as an example of the chaos would ensue if this bill was passed.

Considering that the Bill’s sponsor, Bobby Hennon, is under FBI investigation,  and some of the Mayor’s biggest supporters are as well, the author has ever right to be concerned.  However, article comes up short in explaining what the Bill says and what best value procurement, if adopted, would mean for public construction work in Philadelphia.

First, the Bill that Councilman Hennon is proposing is actually a Bill that would make the best value procurement question a ballot question next November.  In other words, the Bill, if passed, would but to a City wide vote the question of whether the City should change it procurement practices to permit the best value approach to be used in addition to the low bid approach that is current used.

Second, the best value approach that the citizens would be asked to vote on in November, would not permit the current administration – or any future administration – to steer contracts to favored contractors by fiat or decry. Rather, before the best value approach can be used, the Procurement Commissioner must determine in writing that the low bid approach may not yield the best value to the City.  This would be done proposals for the project are solicited.

This approach is similar to the approach that the Commonwealth uses and has been permitted to use since 2014 (the federal government also uses a best value approach).  Under 62 Pa.C.S.A Section 513, when a contracting officer determines in writing that the use of the low bid approach is not practicable or advantageous to the Commonwealth, a best value approach may be used.

While low bid does provide objective criteria that can prevent corrupting and favoritism, it also can cost the taxpayers more money because the contract has to be awarded to the low bidder who sometimes provides inferior work that has to be corrected.  Or, the contractor intentionally underbids the project only to make up the difference via change orders.  The key to best value working is to require that the criteria for evaluating each proposal be adequately set forth in the request for proposal.  That way if a proposal is simply steered to a favored contractor without regard to the evaluating factors, the award is subject to challenge.  I would suggest that the City go one step further an adopt requirements similar to the federal rules that mandate that the contracting officer support in writing the award to a specific contractor.

The Biggest Change to the Mechanics Lien Law Since 1963

Posted in Mechanics Liens

The New Year will bring with it the biggest change to Pennsylvania’s Mechanics Lien Law since the current law was passed in 1963.  These changes will impact owner, contractors, and subcontractors equally.  However, the biggest benefits will probably be for real estate developers and other project owners.

On December 31, 2016, Pennsylvania will go live with a website known as the State Construction Notices Directory. On that date, owners will have the option of making projects costing $1,500,000 or more “searchable projects.”  An owner makes a project a searchable project by filing with the Notices Directory a “Notice of Commencement” before works begins.  The Notice of Commencement must include the name, address, and email address of the contractor, full name and location of the searchable project, the county where the project is located, a legal description of the searchable property, and the name address, and email address of the searchable project owner. Importantly, the owner must also post a copy of this Notice of Commencement at the project site.

If an owner does this, a subcontractor wishing to maintain its lien rights must file a Notice of Furnishing within forty-five (45) of first performing work on the project.  The notice of furnishing must include the general description of the labor and materials provided, the full name and address of the person supplying the services or items, the full name of the person that contracted for the services, and a description of the searchable project.

The impact of these changes cannot be emphasized enough.  First, subcontractors can no longer wait to take action in order to preserve their lien rights.  This means no more waiting for your invoice to age a few months before filing a lien. The old rule that you have six months after completion of your work to file your lien no longer applies if you fail to act within 45 days of starting your work.

Second, owners need to diligent file the Notice of Commencement and post the Notice at the project.  It is expected that many subcontractors (at least those that do not follow this blog) will not file a required Notice of Furnishing within forty-five days of beginning their work.  That means if you – the owner – have filed the required Notice of Commencement you can bar a significant number of mechanics liens.

These rules only apply to projects beginning on or after December 31, 2016.  But failure to understand these new rules going forward will have significant consequences to owners and subcontractors.