July 2012

First, I need to thank Philly.com for giving me not one but two stories to comment on today.  Bill Reed at the Inquirer reports that the Pennsylvania State Department of Environmental Protection ban on new sewer hookups is holding up construction of several projects in Bucks County.

According to the story, last month Pennsylvania DEP issued new regulations banning any new sewer hookups in lower Bucks County because of allegations that the pumping station that treats the waste is overloaded.  The Bucks County Water and Sewer Authority disagrees with DEP and states that the system is not overloaded.  As a result:

“The DEP sent the authority a notice of violation in March and banned new hookups on June 26. The ruling prohibits new building permits in Newtown Township and Newtown, Langhorne, Hulmeville, and Penndel Boroughs. It also bans building permits for parts of seven other townships – Bensalem, Bristol, Falls, Lower Makefield, Lower Southampton, Middletown and Northampton – and Langhorne Manor Borough.”

In order to for the ban to be lifted, the DEP is requiring the Authority to upgrade the system’s capacity.  Because the State will not pick up the tab for the cost associated with upgrading the system, like in Chattanooga, the local taxpayers will be on the hook for the cost of the upgrade unless an alternative agreement can be reached.  While I am all for upgrade outdated and inefficient water and sewer systems, we need to come up with a way that this is done other than through environmental fiat.

Philly.com is reporting that the Philadelphia Police Department has arrested two union members for assault arising out of shenanigans at the Goldtex site.  Here is the video of the incident that led to the arrests:

In an early post this month, we asked if there should be more arrests of union leaders and members for engaging in the type of activity seen at the Goldtex site.  Unlike, the incident in New York, which prompted that post, where those charged were the organizers of the protest, the arrests here appear to be limited only to the individual protesters that took part in the assault.  In any event, the arrests are significant and is certainly the first time  in recent memory that union members have been criminal charged for there actions at a job site.  We will see if the Philadelphia District Attorneys Office – or even the US Attorneys Office – brings additional charges against any additional participants in the protests or, like in New York, union leaders themselves.

In his epic song “Stay,” Jackson Browne muses about the end of show:

“Now the seats are all empty

Let the roadies take the stage

Pack it up and tear it down”

Who knew that Jackson’s lyrics could aptly describe what will happen with the London Olympic Stadium at the end of the 2012 games.  The Wall Street Journal has an interesting article about how the stadium’s 80,000 capacity will be reduced to 25,000 after the games with the removal of a tier of stadium seating.  Make sure to check out the link in the article to the cool interactive graphic that explains it all.

For Pennsylvania attorneys interested in the fast growing construction defect area of litigation or those just  looking for last minute CLE credits, I am moderating and presenting a CLE for the Philadelphia Bar Association entitled “Construction Defect Litigation: Claims and Coverage.”  It will take place August 21, 2012 from 12:00-4:15 pm live in Philadelphia and simultaneously via online web cast and via video feed in Mechanicsburg, Norristown, and Pittsburgh.  A copy of PBI flyer containing sign up information and more is available here:  PBI CLE Flyer.

Photo courtesy of nakedphilly.com

My crossfit buddy Chris Brennan over at Philly Clout beat me to the punch this morning with a blog post about today’s massive water main break in Philadelphia intersecting with Mayor Nutter’s call for funding to overhaul aging infrastructre.

Needless to say, the reality of our City’s aging water system hit many Philadelphians smack in the face this morning.

My friend BJ Kraemer at  MCFA passed along this article from blog post from Walter Mead’s blog at the American Interest discussing the prospects that:

“So dramatic are America’s [oil and natural gas] finds, analysts talk of the US turning into the world’s new Saudi Arabia by 2020”

Mead’s post concludes that the recent shale oil and gas finds in North America and the abundance of energy contained in those finds will reshape geopolitics in the 21st Century returning America to its mid-twentieth century zenith of power.  Obviously, Mead’s conclusions are some of the most bullish by far as to the potential for shale oil and gas plays.  However, the statistics in the post are what bolsters my belief – and the beliefs of others – that the future in this country is not green – but brown.

Still skeptical?  Then, consider, according to the post, the  following:

  • “A GAO report released last May (pdf link can be found here) estimates that up to the equivalent of 3 trillion barrels of shale oil may lie in just one of the major potential US energy production sites. If half of this oil is recoverable, US reserves in this one deposit are roughly equal to the known reserves of the rest of the world combined.”
  • “our natural gas reserves are so large that the US is likely to become a major exporter, and US domestic supplies for hydrocarbon fuels of all types appear to be safe and secure for the foreseeable future. North America as a whole has the potential to be a major exporter of fossil fuels for decades and even generations to come.”
  • Since 2008, fracking alone has created nearly 600,000 new jobs in the United States.

Naturally, there continue to be brown energy haters, who believe American will not or should not maximize the potential of its oil and natural gas reserves.  Indeed, a recent article on the investment web page Seeking Alpha that is making its rounds concludes that America only has a few years of proven natural gas left and calls for a short on basically every E&P company’s stock.  Never mind that it was written, not by a geologist, but by a self described “IT professional” who apparently lacks any qualifications (which I define as those sufficient to survive a Daubert motion in federal court)  to make the conclusion reached in the article (although he apparently found of cowboy hats).

The reality is that a preponderance of all reliable evidence shows that there exists a strong probability that the conclusions in Mead’s article are correct.  American oil and natural gas has the potential to reshape the economy like no other industry.  Even the most optimistic studies on the potential for green jobs do not even come close to the job creation estimates in oil and natural gas.  Moreover, even after the largest investment in green jobs in our nation’s history, job growth in “brown” jobs has outpaced green job growth in the last four years almost exponentially.

The impact of oil and natural gas to the construction industry specifically are obviously profound and contractors not already positioning themselves in this niche should figure out how they can operate in this industry fast.  So, I say let’s go all in with oil and natural gas.  I have no problem with America becoming the new Saudi Arabia by 2020, so long as, unlike Saudi Arabia, we still permit woman to drive.


The Chattanooga (TN) Times Free Press reports that the City of Chattanooga will be forced to spend hundred of millions of dollars to upgrade its nearly 130 year old sewer system pursuant to a consent decree entered into with the EPA and DOJ.  What lead to the consent decree should be a warning to any municipality struggling with an aging water and sewer system.

The action that lead to the consent decree began in October 2010 as a private “citizen suit” under the Clean Water Act.  A copy of the complaint can be found here: TCWN v. Chattanooga Complaint.  The Tennessee Clean Water Network, who bills itself as “a citizens environmental organization,” brought the complaint against the City.  According to the complaint, Section 505(a)(1) of the Clean Water Act, authorizes citizens to bring private rights of action to enforce the Act.  In general, the Network claimed that the City’s 130 year old sewer and storm water treatment system was inadequate to treat the amount of sewer and storm water the City generated causing pollution into the local waterways and, therefore, violating the Act.  After initially rejecting the Network’s call to action, EPA and DOJ eventually intervened in the action and no doubt contributed to the breadth of the consent decree.

According to the Times Free Press, the consent decree, which is not yet public, will require the City to:

“to revamp the city’s wastewater treatment plant and hundreds of miles of underground sewer lines and alleviate system failures that have plagued the city for nearly a decade.”

Basically, the consent decree acts as a work order “directing what needs to be done to repair and improve the city’s 130-year old sewer system.”  Municipalities should note that the article mentions that similar agreements have been entered into between the EPA and other municipalities in Tennessee.  Additionally, a quick review of the EPA’s website reveals similar decrees have been entered into between the EPA and other municipalities.  Although, I am unaware if any of those decrees are as broad or costly as the Chattanooga  decree or if any of the decrees resulted from a complaint initiated by a private citizens group.

The cost to comply with the decree are staggering and it will be interesting how the City pays for it absent a massive tax increase.  Most municipalities barely have the finances to simply maintain current aging systems let alone undertake an unplanned wholesale upgrade to a system.  Municipalities should be on notice that if even if they lack the political will to make upgrades to aging water and sewer systems activist environmental groups may force them to make them.

On the flip side, should left-wing environmental groups and un-elected officials at the EPA have the power to enact what amounts to an unfunded mandate and force already cash strapped municipalities to make upgrade to systems which may run afoul of the act?

In the meantime, this may be just another reason for municipalities to stop kicking the can down the lane when it comes to water and sewer system upgrades and face the harsh reality that the upgrades will be made voluntarily or at the barrel of a gun.

Wind power is far from the solution to America’s energy dependency problem, nonetheless wind power is part of  the solution.  Moreover, the construction of wind turbines creates hundreds if not thousands of construction industry and manufacturing jobs.

Wind power generation firms stand to lose a generous tax credit related to power generated by wind turbines.  Currently, generators of wind power receive a 2.2 cent credit for ever kilowatt of wind energy they produce and Congress has extended the credit seven times since 1992.  Loss of the credit may result in layoffs and furloughs in the industry.  This is hardly the time for more layoffs.

I am all for tax credits over direct subsidies for industries in which we want to encourage growth.  However, tax credits should not be limited to wind power.  Similar tax credits should be extended to equally, if not more, promising forms of power such as natural gas, and mini-nuclear.

Interesting piece about Nationwide Mutual’s decision not to issue policies designed to cover fracking.  All reliable non-left wing/ energy from algae proponents unbiased  studies on fracking show that when its done properly – just like when any other construction technique is done properly – there is little risk of harm to the environment, water supplies, or surrounding geography in general.  So, Nationwide’s decision not to cover companies engaged in this growing area of work would appear to be Nationwide’s loss alone.  While the loss of competition is probably bad news for anyone involved with drilling for oil and natural gas, I would imagine there will be no shortage of carriers eager to fill whatever void Nationwide created.

This blog post appeared as a guest blog post on Christopher Hill’s blog “Construction Law Musings.”   Many thanks to Chris for allowing me to be a guest blogger.  

When a developer defaults on a loan and subcontractors are left unpaid who “owns” the unpaid funds?  That is what must be decided in a dispute between unpaid subcontractors and the project’s lender on a Radisson hotel project in Wisconsin.    ENR reports that the unpaid subcontractors on the project are competing with the project’s lender over unpaid funds in a foreclosure action.  ENR concludes that

“[b]ecause [the lender’s] claim for legal remedy outweighs that of the subcontractors, there is a possibility that the missing payments will never reach the contractors’ mailboxes.”

In most jurisdictions this is true if the battle is over the superiority of a mechanics lien versus a construction loan lien (because the construction loan lien is usually superior) or over whether a subcontractor has a third party beneficiary right in un-dispersed loan proceeds (they do not).  However what about earned funds that the insolvent developer is still holding?  Or, what about funds held in the developer’s account with the bank that the bank seeks to use to off-set any amounts owed to it under the loan agreement (which loan documents often give lenders the right to do)?  In many jurisdictions, case law suggest that in either of those situations, the subcontractor may prevail.

Since the U.S. Supreme Court’s 1962 decision in Pearlman v. Reliance Ins. Co., 371 U.S. 132 (1962), federal courts and several state courts have recognized unpaid subcontractors have a “super-priority” to unpaid funds against a competing third party.  Indeed, federal courts hold that in a bankruptcy context money retained by an owner from a bankrupt general contractor is not property of the bankruptcy estate.

In Pearlman, a dispute arose between the trustee and a payment bond surety over funds retained by the construction project’s owner, the federal government. In constructing what has become known as the Pearlman doctrine, the Court held that not only were the retained funds not property of the bankruptcy estate, but also that unpaid subcontractors had a right to be paid directly from the retained funds.  Numerous Circuits  have applied the Pearlman doctrine in varying contexts to uphold a subcontractor’s super priority to unpaid funds against a competing third party.

The scope of relief that the lender in the Raddison case requested is unclear.  If it is a run of the mill foreclosure action against the property, then as the ENR article suggest it would likely prevail, as it would in most jurisdictions.  However, if scope of relief goes beyond simply seeking title to the hotel property and seeks to foreclose on funds the insolvent developer has not paid or is holding in an account with the lender, then the subcontractors may want to keep checking their mailboxes.