Sadly, in Philadelphia, the City that gave birth to the United States Constitution, respect for the Constitution by government officials is woefully lacking.  Luckily, the United States Federal Court for the Eastern District of Pennsylvania, which sits in Philadelphia, has served as a bulwark to Philadelphia bureaucrats who ignore the individual freedoms the Constitution guarantees. Last week, Judge Michael Baylson handed economic liberty advocates a huge win in Checker Cab Philadelphia v. The Philadelphia Parking Authority.  The importance of the decision has national implications.

Continue Reading Huge Win for Economic Liberty

The National Review recently published an article about the wide ranging economic and social impacts of the death of traditional mid-market shopping malls.  The article is not overtly political and at time waxes nostalgic about the prototypical 1980’s shopping mall.  However, the article highlights real problems facing the owners of these malls and other traditional shopping centers.

Continue Reading The Death of Retail and Legal Issues

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.

Continue Reading How to Fund Your Lawsuit to Get the Justice You Deserve

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.

Continue Reading District Court Allows DBE False Claims Act Case to Proceed

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.

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.

Contractors bidding on public contracts know that failing to strictly following all of the technical aspects contained in the instructions to bidders can mean the difference between a winning and losing bid.  In the span of two weeks, I was involved with two cases that underscored the importance of this axiom.  Both cases involved New Jersey’s public bid laws.  While these cases show the importance of following a specific section of New Jersey’s public bid statute, the take away – that details matter – is universal.

The case involved a sewage authority project.  I represented the second low bidder.  The first low bidder submitted a bid package that was complete except for one technical aspect.  It failed to list the name of its electrical subcontractor on the “Subcontractor List” form provided by the authority in the bid package.  Both the instructions to bidders and Section 23.2 of the New Jersey Local Public Contracts Law required that the contractor list the names of its electrical, plumbing, and mechanical subcontractors.  The apparent low bidder listed the name of its plumbing and mechanical subcontractors but not the electrical subcontractor.  Notwithstanding our objections, despite the omission of the name of the electrical subcontractor, the authority decided to award the contract to the apparent low bidder.

Therefore, we challenged the award of the contract to the apparent low bidder in Court by seeking an injunction.  We argued that the instructions to bidders and the New Jersey Public Contracts Law were clear: if a contractor fails to list the name of its electrical subcontractor it is a fatal bid defect, which the local contracting agency cannot waive. The apparent low bidder argued that its failure to list the name of its electrical subcontractor caused no prejudice to the local agency (and ultimately the taxpayers) because the name of its electrical subcontractor was identified elsewhere in the bid package.

The trial court held that the apparent low bidder’s failure to list the name of the subcontractor on the bid form was a fatal non-waivable bid defect and concluded that the authority’s decision to award the contract was in error. Throughout its opinion the trial court emphasized that strict compliance with the bid statutes and instructions to bidders is required in order for a bid to be deemed responsive.  Importantly, the trial court noted bids containing technical defects should still be rejected even when there is an increased cost to the taxpayers because “the overriding interests in insuring the integrity of the bidding process is more important than isolated savings at stake.”

The lack of insurance coverage for a contractor’s faulty workmanship is the bane of both homeowners looking to recover damage for defective work and contractors seeking to defend against such claims.  In many states, like Pennsylvania, courts hold that faulty workmanship is not an “occurrence” that is covered by a standard commercial general liability insurance policy.  In other words, courts hold that CGL policies cover damage to other property not part of the construction project itself.

This is problematic for both the homeowner and the insured.  For the homeowner, the lack of a policy providing indemnification sometimes means the homeowner is left trying to collect against a defendant, who is otherwise but has little to no assets against which to collect a judgment.  For the contractor, the lack of a policy providing coverage means that assets are at risk and it could be forced to spend significant sums in attorneys fees defending the case.

In Cypress Point Condominium Association, Inc. v. Adria Towers, LLC, the New Jersey Supreme Court held that a contractors standard CGL policy covers consequential damages caused by defective workmanship, even if the consequential damages are to the project itself.  At issue in Cypress Point Condominium Association, was language contained in a standard ISO CGL policy that is used in as the standard language in a majority of policies.  The case arose out of a dispute between the insured contractor and its insurer over whether damage caused by leaking windows and facades was covered under the contractor’s CGL policy.  The Court held that such damages are covered holding:

“because the result of the subcontractors’ faulty workmanship here—consequential water damage to the completed and nondefective portions of Cypress Point—was an “accident,” it is an “occurrence” under the policies and is therefore covered so long as the other parameters set by the policies are met.”

The importance of this holding is significant.  First, homeowners stand a much better chance of collecting on a damage claim against a contractor found liable for defective work.  Second, contractor’s can expect coverage from their carriers in almost all defective construction claims.

 

Today, in a precedential opinion, the Third Circuit Court of Appeals, affirmed the District Court’s dismissal of a complaint against my client that alleged that a multi-family building was constructed in violation of the Federal Housing Administration’s (FHA) design and accessibility requirements for disabled persons.  A copy of the Opinion can be found here ( Opinion of 3rd Circuit. ) An adverse decision would have meant that my client could have been exposed to making several million dollars in alterations to its building.

A disabilities rights group filed a complaint against my client in the United States Federal District Court alleging that a multi-family (100+ units) building was constructed in violation of the FHA’s requirements for accessibility by disabled persons.  The project was a multi-million dollar renovation of an old abandoned warehouse into a state of the art apartment building.  The building was original constructed in 1912.  Although FHA and Department of Justice guidelines made clear that the FHA’s requirements did not apply to any building originally constructed before 1988, even if the property was original built and occupied for commercial purposes.  We filed a motion to dismiss the complaint which the District Court granted.  The rights group then appealed.

As the Third Circuit points out in the its opinion, there was no controlling case law on this issue, even though the FHA’s guidelines had existed for nearly 25 years.  The Third Circuit has now filed that void and issued a precedential opinion that says the FHA’s requirements indeed do not apply to building originally constructed before 1988 for any reason and then converted into residential use.

While the Court’s decision likely saved my client significant sums of money, it likely saved apartment developers and other building developers even more.