Janus v. AFSCME

On June 27, 2018, the Supreme Court of the United States issued its decision in Janus v. AFSCME1. By a 5-4 vote, SCOTUS ruled that public employee unions cannot require non-members to pay union dues, even if those employees are benefiting from the services provided by the union. 28 states already had “right-to-work” laws on the books, meaning that unions in those states were already precluded from collecting fees from non-union members. This ruling makes that ban a national standard.

The case centered on a child-support specialist for the Illinois Department of Healthcare and Family Services, Mark Janus, who argued that he should not, as a non-member of the American Federation of State, County, and Municipal Employees (the union representing him) be required to pay even a limited fee to cover the cost of collective bargaining. Janus argued that the $45 in union dues deducted from his paycheck each month violated the First Amendment because it forced non-members to associate with political ideas with which they did not agree.

Justice Alito, writing for the majority, agreed with Janus that government “extraction of agency fees from nonconsenting public-sector employees violates the First Amendment.” In doing so, the court overruled its 1977 decision in Abood v. Detroit Board of Education, in which it held that a union could require non-members to pay agency fees as long as it did not use the fee to advance political or ideological issues. The Court in Janus found that Abood did not provide a “clear or easily applicable standard” to separate fees for collective bargaining from those from political activities.  In her dissent, Justice Kagan accused the court of “weaponizing the First Amendment in a way that unleashes judges, now and in the future, to intervene in economic and regulatory policy.” “Its decision will have large-scale consequences,” Kagan said. “Public employee unions will lose a secure source of financial support. State and local governments that thought fair-share provisions furthered their interests will need to find new ways of managing their workforces.”

Although the decision only affects public sector employees, some early commentators such as Kenneth Thomas2, executive director for the New York Construction Alliance, have argued that Janus does not signal the end for organized labor and construction trade outfits. Thomas said it could spark a discussion within the private sector about how construction trade unions collect and spend dues and how they engage with private-industry players.

1 http://www.scotusblog.com/case-files/cases/janus-v-american-federation-state-county-municipal-employees-council-31/
2 https://commercialobserver.com/2018/06/nyc-construction-alliance-on-janus-the-sky-isnt-falling/

Convenience at the Cost of Contractors

An owner’s option to terminate a contract for convenience is a well-established right dating back to military procurement contracts in the American Civil War. SAK & Assocs. v. Ferguson Constr., Inc., 189 Wn. App. 405, 410 (2015).  In fact, today termination for convenience clauses are required in most government procurement contracts. Id. (citing Krygaski Constr. Co. v. United States, 94 F.3d 1537, 1540 (1996)). The use of termination for convenience clauses has since transitioned to the private sector and can be found in most standard construction contracts, including forms provided by the American Institute of Architects, the Associated General Contractors of America, the American Subcontractors Association, the Engineers Joint Contract Documents Committee, and the Design-Build Institute of America. Id. (citing Ryan P. Adair, Limitations Imposed by the Covenant of Good Faith and Fair Dealing upon Termination for Convenience Rights in Private Construction Contracts, 7 J. Am. C. Construction Law. 127, 128 (2013)). However, as Washington’s Court of Appeals recently acknowledged, “[t]here is very limited authority addressing termination for convenience clauses in private contracts.” SAK & Assocs., 189 Wn. App. at 410.

In SAK & Assoc., the general contractor terminated a concrete subcontractor for convenience on a project involving the construction of airport hangars. The subcontractor was paid for the work actually performed, but sued for damages alleging the general contractor breached the subcontract “by unilaterally terminating ‘without cause.’” SAK & Assocs., 189 Wn. App. at 408. The subcontractor argued that the termination for convenience clause was “illusory” and the general contractor failed to give proper notice. Id. The Court disagreed by noting the subcontractor had partially completed its work (24% of the project), which provided adequate consideration to terminate for convenience. The Court also rejected any notion that terminating a contract for convenience runs contrary to the implied covenant of good faith and fair dealing. Rather, “an unambiguous termination for convenience clause is not limited by the implied duty of good faith.” Id. at 415(citing Badget v. Sec. State Bank, 116 Wn.2d 563, 570, 807 P.2d 356 (1991). The Court found that the termination for convenience clause was valid so long as the general contractor provided written notice of termination and payment was made for completed work proportionate to the total fixed price of the subcontract. No further explanation or justification beyond “convenience” was required to terminate the contract.

Is The Failure To Comply With A Change Order Notice Provision A Material Breach?

Division I of the Washington Court of Appeals recently sought to answer this question. It held that the failure of an owner and builders to comply with a written change order requirement did not materially violate a loan agreement. In Top Line Builders v. Bovenkamp, 179 Wn. App. 794, 320 P.3d 130 (2014) the property owner entered into a fixed-price contract with a builder to construct a custom residence. The owner secured a loan from his bank in an amount sufficient to cover the contract price with an allowance for potential cost overruns. The owner, builder and bank subsequently entered into a tri-party Loan Procedures Assignment and Consent Agreement (“LPA”) which mandated that any change orders resulting in cost overruns would be in writing and would be submitted to the Bank.

Over the course of construction the owner and builder agreed on a number of modifications to the construction plans—modifications which caused overruns. As you can guess, the owner and builder failed to execute the required change orders in violation of the LPA. Following completion of the home the builder moved to foreclose its lien for the balance of the unpaid contract price and overruns. The amount sought, however, did not exceed the total loan amount. The bank, a named defendant, sought to limit the builder’s recovery to the unpaid balance of the fixed price contract by arguing that the bank had no obligation to pay overruns because the change orders were never submitted.

The Court of Appeals ruled that the builder was entitled to the entire unpaid balance, including the amount owed under the change orders. The court held that the failure of the owner and builder to submit written change orders was a technical and immaterial breach of the LPA because “even if change orders were presented to [the bank], it had no right to object or require [the owner] to deposit additional funds.” In short, no harm no foul.

Although the court held that no material violation of the LPA occurred, this ruling should not be construed as an invitation to disregard the terms of your construction contracts. Had the change orders created overruns in excess of the total loan amount, the court likely would have found a material violation of the LPA.

Washington Appellate Opinion on “Attorney Judgment Rule” May Aid Design Professionals Trying to Satisfy Standard of Care

The Washington Court of Appeals recently adopted the “attorney judgment rule” to determine when a judgment decision violates an attorney’s duty of care.  In so ruling, the Court of Appeals relied upon a similar “error in judgment rule” applied in medical malpractice actions.  Although no similar case has addressed design professionals in Washington, the court’s ruling provides a solid foundation for design professionals to argue that decisions made within a range of “reasonable alternatives” satisfy the standard of care.

An attorney may be liable for legal malpractice for failing to properly evaluate a case for settlement and other pretrial strategic decisions.  On April 24, 2014, the Washington Court of Appeals, Division Two, issued the first Washington appellate opinion recognizing the “attorney judgment rule” — Clark County Fire District No. 5 v. Bullivant Houser Bailey PC, 2014 Wash. Ct. App. Div. II 42864-4 (April 24, 2014).  The attorney judgment rule “determines when an attorney’s error in professional judgment breaches his or her duty of care.”

Clark County Fire District No. 5 arose out of a legal malpractice action filed by a local fire district and its insurer against the fire district’s previous attorney for losing a $3.2 million sexual harassment lawsuit.  The attorney moved for summary judgment on most of the legal negligence claims asserted, including allegations of failure to properly evaluate the case for settlement purposes, mishandling various pretrial matters, and failure to preserve an issue for appeal.  The trial court granted the attorney’s motion and the trial court dismissed the claims, finding as a matter of law that the attorney could not be liable to his client for “judgment decisions.”

Upon review, the appellate court found all of the conduct at issue involved the exercise of the attorney’s professional judgment.  The appellate court established a two-prong test for determining whether the “attorney judgment rule” applied, noting that an attorney cannot be liable for making an erroneous decision involving honest, good-faith judgment, if:

(1)    the attorney’s “decision was within the range of reasonable alternatives from the perspective of a reasonable, careful and prudent Washington attorney;” and

(2)   the attorney “exercised reasonable care” in making that judgment decision.

Applying this test to the case at hand, the appellate court reviewed the record and found (1) factual disputes existed as to whether the attorney’s judgment decisions regarding settlement advice, pretrial handling of the case, and failure to preserve an issue for appeal were “within the range of reasonable alternatives from the perspective of a reasonable, careful, and prudent attorney in Washington”; and (2) the opinions of the fire district’s legal malpractice experts created questions of fact regarding most of the fire district’s allegations.

Accordingly, the appellate court reversed the trial court’s grant of summary judgment in favor of the attorney on all of the fire district’s claims except two (the failure to object to the improper closing argument and the failure to file an appropriate motion in limine regarding the subject of the improper argument) and remanded the case to the trial court for further proceedings.