Workplace In-Civility: The NLRB Changes Course

by Hunter Taylor

February 1, 2024

Employers have a vested interest in establishing and maintaining a professional environment for their customers and employees. It seems odd to even consider an alternative approach. After all, some amount of mental gymnastics is required to imagine a scenario in which the alternative would benefit the employer. But the concept is not free of its issues in execution. Some efforts to maintain “civility” in the workplace through employee and similar handbooks can create unintended consequences. The National Labor Relations Board (NLRB) has not hesitated to respond to these unintended consequences, as evidenced by its recent shifts in interpretation and enforcement of restrictions set forth in the National Labor Relations Act.

As an example, Section 7 of the Act guarantees employees “the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” It gives employers the right “to refrain from any or all such activities.” Section 8(a)(1) of the Act also makes it an unfair labor practice for an employer “to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in Section 7” of the Act.

What constitutes an interference, restraint, or coercion made by an employer is less clear. This issue has been the focus of varying (and at times conflicting) NLRB rulings in which the NLRB has attempted to determine where the Act lands on the pendulum between the: (a) employer’s interests in enforcing so-called “civility” policies, and (b) an employee’s freedom to engage in activities protected by the Act.

Confusingly, the NLRB has held that even when an employer’s facially neutral employment policy does not expressly restrict Section 7 activity, was not adopted in response to a protected activity, and has not applied to restrict a protected activity, the policy may still violate Section 8(a)(1) of the Act. Such a violation would occur if the employee “would reasonably construe the language to prohibit Section 7 activity.” Without sufficient regulatory guidance and clarity, an employer cannot adequately protect itself from an employee who may cleverly or unfairly “reasonably construe” language that violates the Act.

Until 2017, this “reasonableness” qualifier was enforced without substantial deference to objective circumstances, such as an employer’s legitimate interests in maintaining civility policies. This changed in the NLRB’s Boeing decision, in which the NLRB acknowledged the existence of special circumstances relative to the employer’s industry, work settings, and events specific to or resulting in the policy in question. Under Boeing, employers found some degree of stability in understanding the types or categories of policies that do not violate the Act.

However, following its invitation for public input (which was notably absent in Boeing), the NLRB changed course in its Stericycle decision. In Stericycle, the NLRB reemphasized a perception-based qualifier as to an employee’s “reasonable” interpretation of a workplace policy and paid particular attention to whether or not an “economically dependent” employee could interpret a policy to restrict Section 7 rights. The decision was a drastic shift in the NLRB’s position on the pendulum because it replaced the NLRB’s use of “categories” of acceptable rules in favor of a case-by-case approach that is contingent on disparate interpretations.

Poised to abandon the precedent it set in Boeing, the NLRB quickly applied the new elements and standards it laid out in Stericycle to Starbucks’ “How we communicate” policy.

Although Starbucks’ policy was facially neutral and included common requirements that its employees practice “professional and respectful” behavior, contained a uniform dress code, and required attendance at HR meetings related to employee benefits, the NLRB determined that Starbucks’ application of these policies created opposing interpretations as to the policy’s true meaning. According to the ruling, Starbucks’ selective implementation of its policies and certain language within its policy suggested there could be negative consequences for union activity. This resulted in the NLRB finding that Starbucks’ policy was “overly broad, vague, and can [be] reasonably construed to intrude on Section 7.” Of note, the NLRB imposed a significant burden of proof on Starbucks, requiring it to demonstrate that it would be “unable” to advance its legitimate interests with a “more narrowly tailored rule.” The impact of a burden of this sort cannot be understated as applied to workplace policies because each employer policy may now be rendered unenforceable if a less “restrictive” alternative is available.

In sum, recent NLRB cases reflect a substantial shift in the legality of workplace “civility” policies that “could” be interpreted to limit union activity and involvement. Further, the NLRB cases serve as a great reminder that employers need to periodically review their handbooks and update the handbooks accordingly. Any such updates should narrowly tailor policies to promote enforceability and hedge against potential contests that a policy violates the Act. 

To discuss how these policy changes could impact your business, contact Hunter Taylor at Griffith Davison’s Dallas office at (972) 392-8900, or email Hunter directly at

This article first appeared in the January 2024 Issue of Dallas Bar Association Headnotes.

Corporate Transparency Act Update

by Hunter Taylor

December 13, 2023

We are writing to remind you about some regulatory changes which are going into effect in the coming weeks which may impact your business. As you may have heard or seen in prior updates, The Corporate Transparency Act (CTA) has been enacted and it is crucial for all business owners to be aware of its applicability and considerations.

Overview of the Corporate Transparency Act

The Corporate Transparency Act, passed as part of the National Defense Authorization Act for Fiscal Year 2021, aims to enhance corporate transparency and combat illicit activities such as money laundering and “terrorism financing.” In short, the CTA requires certain businesses to disclose their beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN) in an effort to hedge against those illicit activities.


The CTA applies to “reporting companies”, which include corporations, limited liability companies (LLCs), and similar entities that do not qualify for one of the available exemptions. If your business falls within the scope of a reporting company, you will need to comply with the disclosure requirements outlined in the Act.

Key Considerations

Reporting companies are required to submit information about their beneficial owners to FinCEN. Beneficial owners are individuals who exercise “substantial control” over a reporting company, or directly or indirectly own or control 25% or more of the ownership interests in the company. 

Compliance Deadlines

It is important to be aware of the compliance deadlines. Entities formed after January 1, 2024 must comply at the time of formation, while existing entities have a grace period to comply which is currently set at one (1) year. This is a key consideration in corporate governance planning for the next year, and may favor filings being made before January 1, 2024 for certain structures.

Information to be Disclosed

The information to be disclosed includes the names, dates of birth, addresses, and unique identification numbers of the beneficial owners; each of which must be submitted using FinCEN’s online portal (which, as of today, has not yet been released for access). There are significant penalties for lack of disclosure, so it is essential to take proactive steps to meet these new regulatory requirements.

Our corporate law team is available to assist you in understanding and complying with the Corporate Transparency Act. Again, if you are considering forming a new entity in the near future, you may want to do so before the turn of the new year. If you have any questions regarding the CTA and its new regulatory requirements, please do not hesitate to reach out to our office. 


This update should not be construed as legal advice or a legal opinion on any specific facts or circumstances. Further, this update shall not create a lawyer-client relationship. The contents are intended for general informational purposes only, and you are urged to consult an attorney regarding the contents hereof.

Legal and Economic Updates Impacting CRE and Construction in Central Texas

by James Hicks

November 16, 2023

Griffith Davison, P.C. recently attended the 2023 Land Development Seminar organized by the Austin Bar Association’s Real Estate Section for critical legal and economic updates affecting real-estate developers and construction professionals in Central Texas.

  • Technical Advisory Review Panel (TARP): The Austin City Council directed the City Manager’s Office to establish a TARP, composed of City staff and industry professionals, to improve the City’s technical criteria manuals and the process for adopting and amending rules. The TARP is expected to reduce the excessive number of new rules coming up to the City Council for adoption.  
  • Site Plan Lite: The City Council exempted up to four unit developments from the time-consuming site plan review process and has directed the City Manager to create a streamlined review process for 5-16 unit developments. Relatedly, McKinsey Consulting recommended 44 initiatives to speed up the City’s regular site plan review process (which currently takes more than a year for 78% of applications).
  • Home Options for Middle-income Empowerment (HOME): In December, the Austin City Council is expected to vote on the pro-housing HOME revisions to the Land Development Code to increase flexibility with respect to minimum lot size, setbacks, height restrictions, floor-to-area ratios, impervious cover limits, and occupancy limits.
  • Texas Regulatory Consistency Act a/k/a Death Star Bill: A new state law, HB 2127, broadly prohibits local governments from regulating agriculture, occupations, labor, finance, natural resources, property, business, or insurance.  The Austin Court of Appeals will soon decide whether the law is constitutional.
  • Right-to-Farm Act Amendment: HB 1750 prohibits cities from regulating agricultural operations unless the regulation (1) uses the least restrictive means, and (2) is necessary to protect persons from imminent danger.
  • Dis-annexation Bills: HB 3053 requires cities to conduct a dis-annexation election in any area unilaterally annexed in 2015-2017.  The City of Grand Prairie has challenged SB 2038, which allows landowners to petition for release from a city’s extraterritorial jurisdiction (“ETJ”).
  • Platting Shot Clock Amendments: HB 3699 amends the Local Government Code to allow cities to delegate plat approval to city staff, with appeal right to city council, require cities to publish a complete list of all requirements for a plat application, and prohibit cities from requiring a dedication of a future street unless it is included, funded, and approved in a city or county capital improvement plan. HB 14 allows third-party review/inspection if a city does not complete review/inspection within 15 days of a statutory deadline.
  • Nonconforming Use Compensation: if a city shutters a nonconforming use, such as a short-term rental, SB 929 requires the city to notify the landowner of its remedies and (1) pay the costs of stopping the use and the loss of property value, or (2) allow the use long enough for the owner to recoup that amount.
  • Parkland Dedication Limits: HB 1526 caps required parkland dedication at 10% of property area and caps fees in lieu of dedication based on the type of property (urban, suburban, central business district), and further requires cities to respond to requests for dedication determinations within 30 days. 
  • Texas Water Fund: SJR 75/Proposition 6 amends the Texas Constitution to create a water fund to assist in financing water infrastructure projects in the state through grants or low-interest loans.
  • Developers Pinched: Market factors—including rising interest rates and construction costs, water supply issues, flagging lot supply hampered by pandemic-era investors who bought land at $3 per square foot and refuse to sell at $2 per square foot, and too many multifamily units in the pipeline—have made it hard for real-estate investors and lenders to find attractive deals. 
  • CRE Capital Markets Recovery? Transactions volume is down precipitously amid higher borrowing costs and an uptick in capitalization rates, but CRE loan maturities may catalyze activity. Institutional investors’ target allocations to CRE continue to increase; and a surge in private wealth globally means there is capital for future investment. A recovery will likely require Fed to signal we have reached peak interest rates, stability in ten-year US treasury bonds, recession risk premium not worsening, increased appetite for larger-scale activity, and more returns to office.
  • Revitalizing 6th Street: Our firm’s landlord in Downtown Austin, Stream Realty, has acquired 60% of the properties on 6th Street between Brazos and I-35, the area called “Dirty 6th” in recent years due to lack of investment. The City Council has passed certain safety measures and has increased building height limits from 45 to 140 feet for Stream’s proposed multi-use and hotel projects. Stream agreed to preserve historic facades. Stream would like the City to widen sidewalks and reduce the street to three lanes, to help attract upscale restaurants, hotels, and other businesses and restore the area as a nightlife hub. 

To discuss how these legal and economic updates could impact your commercial real estate or construction projects in Central Texas, contact Griffith Davison’s Austin office at (512) 686-8648, or email James directly at


This update should not be construed as legal advice or a legal opinion on any specific facts or circumstances. Further, this update shall not create a lawyer-client relationship. The contents are intended for general informational purposes only, and you are urged to consult an attorney regarding the contents hereof.

NLRB Adopts New Standard for Evaluating Workplace Rules

by Caleb Johnston

November 1, 2023

The National Labor Relations Board (“NLRB”) has prescribed a new legal standard for evaluating whether an employer’s workplace rules tend to interfere with the rights of employees which are protected by Section 7 of the National Labor Relations Act (“NLRA”). Specifically, the NLRB’s decision in Stericycle, Inc., 372 NLRB No. 113 (N.L.R.B. Aug. 2, 2023) sets forth the new standard and overturns the old test established in Boeing Co., 365 NLRB No. 154 (N.L.R.B. Dec. 14, 2017)which had governed employer’s workplace rules for the past six years. Employers should be aware of the changes the NLRB has implemented as it may require an employer to revise its workplace rules to comply with the new Stericycle standard. 

Legal Background. 

Under Section 7 of the NLRA, employees have the right to form, join, or assist labor unions and the right to join together as employees to advance their interests as employees. If an employer implements a workplace rule which interferes with, restrains, or coerces an employee in exercising their Section 7 rights, then the employer will have committed “unfair labor practice” in violation of the NLRA. 

A workplace rule which threatens to terminate an employee for joining a labor union is clearly a violation of an employee’s Section 7 rights. However, the analysis is not as clear when an employer implements facially neutral workplace rule. For example, a workplace rule which prohibits employees from discussing or disclosing “confidential information” is facially neutral. If the term “confidential information” can be interpreted to include information such as individual salaries or work schedules, then the rule may violate Section 7 because employees have the right under Section 7 to discuss and disclose their salaries and work schedules. In these more challenging cases, the standard prescribed by the NLRB will be used to determine whether or not the facially neutral workplace rule in question violates an employee’s Section 7 rights. 

The NLRB recently changed its standard for evaluating facially neutral workplace rules. The old standard, established in Boeing, sought to provide greater clarity and certainty for employers by placing workplace rules into one of three categories: (i) rules that were considered lawful; (ii) rules that were deemed unlawful; and (iii) rules that warranted “individualized scrutiny” to determine whether they violated an employee’s Section 7 rights. The three-category system established in Boeing is no longer in effect, however, as the NLRB recently decided to move to a more rigorous standard for analyzing workplace rules in Stericycle.

The New Stericycle Standard. 

The new standard in Stericycle replaces Boeing’s categorical approach with a case-by-case analysis of workplace rules. The Stericycle standard also implements a burden shifting framework. First, the NLRB must prove that the challenged workplace rule “has a reasonable tendency to chill employees from exercising their Section 7 rights.” At this stage, the workplace rule is interpreted from the perspective of a “reasonable employee.”  In other words, if an employee could reasonably interpret the workplace rule to interfere with, restrain, or coerce the employee in exercising their Section 7 rights, then the workplace rule is presumptively unlawful. 

The burden then shifts to the employer to rebut the presumption. This will require the employer to prove “that the rule advances a legitimate and substantial business interest, and that the employer is unable to advance that interest with a more narrowly tailored rule.” If the employer can satisfy its burden, then the challenged workplace rule is upheld as lawful.

Practical Considerations. 

The new Stericycle standard went into effect on August 2, 2023, and applies retroactively, meaning that all workplace rules which are challenged as violating Section 7 of the NLRA will be reviewed by the NLRB under the Stericycle standard moving forward. As a result, workplace rules that were previously lawful for an employer to maintain under the Boeing standard may now be held unlawful under Stericycle. For example, a “no recording” rule which prohibits an employee from recording workplace conversations was categorically approved as lawful under Boeing. Today, however, the same rule may be held unlawful under Stericycle if the rule is not narrowly tailored to serve the employer’s legitimate and substantial business interest.

Employers should consider reviewing their employee handbooks, manuals and other documents containing work rules or policies to ensure compliance with the NLRB’s newly announced standard in Stericycle. In addition, employers should consider adopting a policy which specifically sets out an employee’s Section 7 rights under the NLRA and explains that the employer’s workplace rules should not be interpreted as restricting those rights. While there is no guarantee that such policy would save an employer’s workplace rule from violating the NLRA, the General Counsel for the NLRB has taken the position that such policy should create a presumption that an employer’s rules are lawful.

To discuss how Stericycle may impact your workplace rules, please feel free to contact one of our attorneys at (972) 392-8900. 


This update should not be construed as legal advice or a legal opinion on any specific facts or circumstances. Further, this update shall not create a lawyer-client relationship. The contents are intended for general informational purposes only, and you are urged to consult an attorney regarding the contents hereof.

Griffith Davison joins the Fort Worth Chamber

July 25, 2023

Griffith Davison joins the Fort Worth Chamber! We are excited to be part of the vibrant Fort Worth business community! #businessnetworking #fortworthconstruction #fortworthdevelopment #fortworthchamber

Griffith Davison is excited to be part of the the vibrant Fort Worth business community! 

Contractors and Adjacent Property: Spreading the Neighborly Love

by Tatianna Brannen

June 26, 2023

Contractors and developers often get into disputes with neighboring landowners. Due to the complicated relationship between these parties, unique procedural issues often arise that require special consideration. 

One reoccurring scenario in which disputes between neighbors may arise is where one landowner begins construction on a project that sits next to already developed land. Once construction begins, the neighboring landowner may have complaints concerning the construction. Such disputes may arise relating to nuisance, trespass, negligence, breach of contract, fraud, breach of warranty, and/or property damage. If the neighboring landowner decides to file suit, they may decide to join the contractor performing the construction along with their neighbor. One common basis for a claim against a contractor in this scenario is that a neighboring landowner is owed duties under the construction contract as a third-party beneficiary. 

However, procedural issues may arise with the presence of an arbitration provision in the construction contract at issue. Such a provision raises the question: Can neighboring landowners be compelled to arbitrate their claims even though they are non-signatories to the construction contract at issue? Several recent opinions from the Supreme Court of Texas suggest this result is a possibility.

One way a neighboring landowner may be compelled to arbitrate its claims is through the theory of direct-benefits estoppel. This doctrine is used in many types of disputes, including those involving the construction and real estate industries. The doctrine of direct-benefits estoppel applies to breach of contract claims in which a party seeks to assert a claim as a third-party beneficiary to a contract it did not sign. It prohibits a party from asserting that the lack of its signature on a written contract precludes enforcement of the contract’s arbitration clause when the party itself maintains that other provisions of the same contract should be exploited to benefit it. In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 739 (Tex. 2005). The Supreme Court of Texas recently clarified the scope of direct-benefits estoppel and the doctrine’s application in construction defect cases involving non-signatories to a construction contract. 

In two separate cases, the Supreme Court of Texas recently considered whether non-signatory parties asserting a breach-of-contract claim must arbitrate along with the signatory parties. The first case involved homeowners who sued their homebuilder for construction defects and fraud based on a construction contract containing a mandatory arbitration provision. The homeowners also asserted claims on behalf of their children. The children did not sign the construction contract at issue. The Supreme Court of Texas held that litigants who sue based on a contract subject themselves to its terms, including any arbitration clause within that contract. Taylor Morrison of Tex., Inc. v. Skufca, 660 S.W.3d 525 (Tex. 2023). The court further explained that if any of a plaintiff’s claims are based on a contract, then the plaintiff must arbitrate all claims that fall under the scope of the contract’s arbitration clause. Id.

The court expanded upon the foundation regarding direct-benefits estoppel, holding that suing for factually intertwined construction-defect claims may be compelled to arbitrate through direct-benefits estoppel. Id. at 529. Additionally, it clarified that in making its analysis, the court looks at the causes of action asserted in the petition and whether they implicate the contract at issue. The court further held that because the claims had to be determined by reference to the contract at issue, they satisfied direct-benefits estoppel and were therefore subject to the contract’s terms, including the arbitration clause. Id. 

Lastly, the court made it clear that the non-signatories may not avoid arbitration by amending their petition to allege only tort or other noncontractual claims. The court explained that direct-benefits estoppel also applies when a nonsignatory seeks direct benefits from the contract outside of litigation. Id. Because the non-signatories lived in the home at issue and sued for factually intertwined construction-defect claims, they were required to arbitrate all of their claims.

In a similar case, the Supreme Court of Texas applied direct-benefits estoppel to hold that nonsignatory family members living in the home that was the subject of the construction defect suit were also required to arbitrate their claims. Taylor Morrison of Tex., Inc. v. Ha, 660 S.W.3d 529 (Tex. 2023). 

These two recent cases have expanded the scope of direct-benefits estoppel and have implications that reach wider than construction defect cases. Any party involved in a suit involving third-party beneficiaries should carefully analyze the claims and procedural issues before them to avoid being subject to a forum against their choosing.  

Tatianna Brannen is an attorney at Griffith Davison, P.C. and can be reached at

This article first appeared in the June 2023 Issue of Dallas Bar Association Headnotes.

Federal Government Issues Procedures for “Corporate Transparency”

by Hunter Taylor

March 6, 2023

In an effort to hedge against ill-dealings and potential foreign security threats in American business entities, Congress enacted the Corporate Transparency Act (“CTA”) in 2021 with the intent of increasing the availability of information regarding corporate ownership. Recently, efforts have been made by the Financial Crimes Enforcement Network (“FinCEN”) to establish enforcement mechanisms which serve to give the CTA “teeth.” To this end, FinCEN recently issued a Final Ruling, as further supplemented, which outlines enforcement procedures and disclosure requirements associated with the CTA. This ruling, in short, requires certain non-exempt entities to timely file reports identifying and providing information about their owners and business affairs above and beyond what has ever been previously required. 

The ownership disclosure requirements set forth in the CTA and the Final Ruling will change the way that business owners plan for the future, especially with regard to non-exempt complex and multi-level corporate structures which are involved in more than one industry. For this reason, each business owner, manager, principal, and officer needs to be aware of the potential implications which are associated with these lingering disclosure requirements and plan accordingly.

Disclosure Rules Will Affect Your Business

The basic consequence to each business owner which does not qualify for an exemption (each, a “Reporting Company”) involves disclosure of its ownership to a government authority, itemized down to what the law defines as a “Beneficial Owner”. This disclosure will require (i) the entities full name, (ii) any trade or DBA name, (iii) the entity’s street address, (iv) State or country (if foreign) of formation, and (v) the entities Taxpayer Identification Number (“TIN”). Additionally, each “Beneficial Owner” of each Reporting Company will be required to disclose their (i) legal name, (ii) date of birth, (iii) current address, (iv) a unique identification number from a passport, state driver’s license, or other government-issued identification document, and (v) an image of that document. 

The Final Rule defines a Beneficial Owner as any individual who, directly or indirectly, either (i) exercises “substantial control” over a Reporting Company, or (ii) owns or controls at least 25% of the ownership interests of a Reporting Company. The Final Rule sets forth that an individual exercises “substantial control” if they serve as a senior officer, have authority over appointment or removal of officers or board members, or have “substantial influence” over important matters of the Reporting Company (among others).


Unless an entity qualifies for an exemption, any entity that is a corporation, limited liability partnership, or other entity registered with the Texas Secretary of State will be required to file a Beneficial Ownership Information Report. To the extent that an entity is either (i) publicly traded, or (ii) is a “large operating company” with more than 20 employees and gross receipts in excess of $5 million, an exemption may be available. However, unless an entity is able to qualify for such an exemption, disclosure of its “Beneficial Owners” will be required.


All new non-exempt entities formed on or after January 1, 2024, will be required to file a report with FinCEN detailing its ownership and other required business-related information within thirty (30) days of formation. All applicable entities formed before this date will be required to file a report with the same or similar information on or before January 1, 2025.

Access to Information

The CTA authorizes FinCEN to maintain a database of the information disclosed in Beneficial Ownership Information Reports, and to disclose this information to US Government Agencies, certain foreign agencies and authorized persons, and financial institutions using the information for KYC purposes, among others.


While the penalties actually enforced by FinCEN are unclear pending the CTA’s implementation, the law provides criminal penalties including fines of up to $10,000 or up to two years in prison when a business entity willfully fails to report complete or updated information or willfully provides false or fraudulent information. Accordingly, the timely filing of accurate reports is paramount to continued compliance.

Key Takeaways

Beginning on January 1, 2024, a vast majority of business entities will be required to disclose information regarding their ownership to the government. To discuss how these compliance and disclosure laws could impact your business, please consult with one of our attorneys at (972) 392-8900.


This update should not be construed as legal advice or a legal opinion on any specific facts or circumstances. Further, this update shall not create a lawyer-client relationship. The contents are intended for general informational purposes only, and you are urged to consult an attorney regarding the contents hereof.

Are Your Arbitration Provisions Enforceable?

by Jason Cagle

January 24, 2023

It is common for construction contracts to contain provisions requiring the parties to submit any claims arising out of the contracts to arbitration. Courts tend to enforce such provisions vigorously. However, there are certain situations where courts will decline to enforce arbitration provisions. Three recent cases from the Texas courts illustrate some of these situations.

The first situation involves an unsuccessful attempt to enforce an arbitration provision against the employee of a subcontractor. V3 Constr. Co., LLC v. Butler, 2021 Tex. App. LEXIS 1152 (Tex. App.—Fort Worth Feb. 11, 2021, pet. denied). The general contractor hired a testing company to perform inspections on the jobsite. The parties’ subcontract contained a broad arbitration provision. While working on the jobsite, the testing company’s employee fell off a scaffold and was injured. The employee sued the contractor, claiming its negligence caused his injuries. The general contractor asked the court to compel the employee to submit his claims to arbitration. The court denied the request. Although the testing company signed the arbitration agreement, its employee had not. There are ways in which non-signatories to an arbitration agreement can be compelled to arbitrate, but they did not apply to the employee’s personal-injury claims. For example, the employee’s claims were not based on a right under the subcontract, but rather the contractor’s alleged failure to maintain a safe jobsite under common law. The take-away from this case is that arbitration provisions might not be enforceable against individuals that did not sign the agreement, even if they work for companies that did sign the agreement. It is important to have other measures in place to reduce the risk of liability for such claims, such as obtaining liability insurance.

The second situation involves a company’s failure to bind a customer with an arbitration agreement sent after the transaction had occurred. Nationwide Coin & Bullion Res., Inc. v. Ciarlone, 2022 Tex. App. LEXIS 1721 (Tex. App.—Houston [1st Dist.] Mar. 15, 2022, no pet. h.). A representative of a company which sells coins spoke over the phone with a customer about making a purchase. The representative and the customer agreed to the price of the coins, the customer mailed the company a check, and the company had the coins delivered. The package included an invoice with an arbitration provision on the back. When a dispute arose concerning the coins, the customer filed a lawsuit and the company attempted to enforce the arbitration provision. The court rejected this attempt, finding that the customer had not agreed to arbitrate because the arbitration agreement was sent to him after the transaction had been completed. 

This case provides a situation similar to one often found in the construction industry: transactions with suppliers which send purchase orders or invoices with new terms when they deliver the materials. Whether or not the new terms are binding on the party receiving them often depends on a complex analysis of the parties’ conduct and applicable law. For example, had the coin customer been a “merchant” as defined under the Uniform Commercial Code, the terms of the invoice with the arbitration agreement might have been binding on him unless he communicated an objection to the company. Tex. Bus. & Com. Code § 2.207(b). If the new terms are not binding, however, they will not be enforced even if they contain an arbitration provision.

In the third situation, the documents comprising the parties’ agreement contained not one, but two arbitration provisions. Unfortunately, conflicting language in the provisions made both of them unenforceable. Links Constr. v. United Structures of Am., 2022 Tex. App. LEXIS 2405 (Tex. App.—Houston [14th Dist.] Apr. 14, 2022, no pet. h.). A general contractor hired a roofing subcontractor to perform work on a project. The parties executed a purchase order, which attached and incorporated the subcontractor’s quotation. The purchase order had a provision which required mandatory arbitration. The quotation had an arbitration provision as well, but it gave the subcontractor the sole option to decide whether the claims would be subject to arbitration. The subcontractor later filed a lawsuit against the general contractor, which moved to compel arbitration. The court denied the motion. It explained that the conflicting terms of the arbitration agreements showed that the parties had not had a “meeting of the minds” where they both reached the same understanding of their agreement. As a result, they never formed an arbitration agreement and the lawsuit could proceed. 

Construction contracts sometimes attach or reference quotations or other documents. Inconsistent terms in the attached documents can create problems with interpretation and enforcement of the subcontract’s provisions. This was a worst-case scenario, where a subcontract provision which would otherwise be broadly enforced (arbitration) was rendered unenforceable by inconsistent language in the attachment. Contractors should scrutinize any attachments closely for inconsistent language. They should also include a subcontract provision stating that, in the event there is a conflict with an attachment, the language in the subcontract governs. 

For more information on how these arbitration developments could impact your business, please consult with one of our attorneys at (972) 392-8900.

Three Key Contract Terms in a Volatile Market

by J.P. Neyland

September 14, 2022

Since March 2020, the construction industry has seen unprecedented volatility in its material and labor markets. The costs of key materials have risen substantially over pre-pandemic levels, and supply-chain delays have made it considerably more difficult to estimate lead times. In some cases, costs have more than doubled in just two years. And though these costs have been felt throughout the industry, they have proven costliest to those parties who failed to address them ahead of time—by contract.

Owners and contractors alike have grown increasingly concerned about the construction industry’s volatile material and labor markets and are looking to address these issues upfront. Prices for necessary materials and labor continue to fluctuate, disrupting the bidding process and making it harder to negotiate and execute contracts—particularly those with a stipulated sum or a guaranteed maximum price. And on top of inflation, supply chain issues have created substantial uncertainty: it’s hard for anyone to say whether labor and materials will be available months or years down the line, much less how much they will cost.  

Under these conditions, it’s important for both owners and contractors to pay special attention to the contracting phase of any new project. It is not enough to rely on standard-form contracts, most of which do not sufficiently address the price fluctuations and unavoidable delays that plague today’s construction industry. Fortunately, good legal counsel can provide significant protection from market fluctuations and supply-chain issues. The following three drafting techniques are particularly well suited to addressing these risks in the current environment. 

  1. Express Provisions:

The most conspicuous way to address volatility is to expressly state whether the contractor is entitled to an increase in the contract sum or contract time as a result of price escalations or delays in obtaining labor and materials. Of course, given the risks they pose to all parties, these express provisions are often the subject of intense—and sometimes acrimonious—negotiation. Fortunately, there are a number of ways a carefully drafted contract can regulate these issues to all parties’ satisfaction, including: 

  • limits on the total increase in price and time for performance; 
  • limits on the percentage increase in cost of materials;
  • caps on the total amount of increase in the contract sum or contract time;
  • duties to mitigate;
  • notice obligations; and
  • a threshold of change in cost or time that must be met before an adjustment to the contract sum or contract time is permitted. 

The best way to address these issues in the contract will vary according to the structure of the project. But by discussing their concerns openly and collaborating on a solution, parties can typically agree on a method to limit their exposure. 

  1. Exceptions:

Another way to address volatility is to include specific exceptions related to market fluctuations and supply chain issues. As mentioned above, standard industry forms commonly charge the contractor with responsibility for all costs of materials, labor, and equipment. But contractors can avoid excessive exposure by adding language that “carves out” increases in the cost of materials or delays in contract performance caused by market fluctuations and conditions, governmental actions, supply chain issues, or other causes beyond the parties’ control. These “carve-outs” exclude such costs from the contractor’s responsibility and, when triggered, credit the contractor for the additional costs of price hikes and delays.

  1. Allowances:

Finally, parties can use contractual allowances to mitigate fluctuations in the price and availability of supplies. In general, a construction allowance is an estimated amount included in an initial contract sum as a placeholder until the exact pricing of the material or labor is known. If the actual cost of the material or labor exceeds the allowance, the contract requires the parties to execute a change order to increase the contract sum by the amount of the excess cost. 

As with the express provisions discussed above, the potential exposure from an allowance can easily exceed seven figures when there’s a sudden increase in the price of a material, such as lumber. Parties must also consider the potential for triggering liquidated damages provisions due to delays that are largely outside their control. It is therefore essential for both owners and contractors to consult experienced attorneys who can thoroughly review and negotiate their contracts with an eye toward minimizing the risks of the current market. 

The construction-law specialists at Griffith Davison have extensive experience negotiating contracts in all sectors of the industry and can help you navigate this volatile market. To discuss these issues in more detail or to have a legal professional analyze or draft necessary contractual terms, please consult with one of our attorneys at (972) 392-8900. 

Texas Legislature Relieves Contractors of Liability for Design Defects—With a Few Caveats

by Tatianna Brannen

September 7, 2022

Should contractors be on the hook for defective designs that they didn’t create? For more than a century, the Texas Supreme Court answered that question with a “yes,” placing Texas among the small minority of states that expose contractors to liability for defective plans provided to them by the project owner. But the Legislature has now taken matters into its own hands: its latest addition to the Business & Commerce Code relieves builders of liability for defective plans and brings the Lone Star State into line with the national consensus. As with any law, there are exceptions, but the experienced construction attorneys at Griffith Davison are here to help you navigate them. So, what does the new law say, and what does it mean for you?

Under the newly added Chapter 59 of the Texas Business & Commerce Code, contractors are no longer responsible for the consequences of design defects. Tex. Bus. & Com. Code § 59.051(a). The law also ensures that a contractor need not (indeed, may not) “warranty the accuracy, adequacy, sufficiency, or suitability of plans, specifications, or other design documents provided to the contractor by” anyone other than the contractor’s own agent or associate. Id.

Chapter 59 represents a sea change in Texas’s contractor-liability law. Since 1907, the so-called Lonergan Rule has left contractors responsible for defects in design plans and specifications—even where the plans were made by a separate design professional hired by the owner. See Lonergan v. San Antonio Loan & Trust Co., 104 S.W. 1061 (Tex. 1907). Chapter 59’s new regime frees contractors from the risk of legal liability for plans they had no part in creating. Builders can now rely on plans and specifications given to them by project owners without worrying about being sued for flaws in those designs. The new rule does have some important caveats, though. All actors in the construction industry should be aware of these three qualifications:  

  1. Chapter 59 obliges contractors to disclose any design defect they learn about. Specifically, a contractor must, “within a reasonable time,” inform the other party to the contract about “any known defect in the plans, specifications, or other design documents that is discovered by the contractor, or that reasonably should have been discovered by the contractor using ordinary diligence, before or during construction.” Tex. Bus. & Com. Code § 59.051(b). A noncompliant contractor “may be liable for the consequences of defects that result from the failure to disclose.” Id. § 59.051(c). Texas courts have not yet interpreted the contours of this new disclosure duty, but until they do, contractors should scrupulously document and report any concerns raised by a client’s design plans. 
  2. Chapter 59 does not apply to any project that falls within the statutory definition of a “critical infrastructure facility.” Id. § 59.002(b). That definition includes, among other things, oil refineries, power plants, and a range of oil-and-gas-related sites. Id. § 59.001(3). Contractors should carefully review the full list of critical infrastructure facilities before signing on to any large-scale project. 
  3. Logically enough, Chapter 59 does not shield contractors from design-defect liability if they are the reason for the defect. Thus, the Lonergan Rule remains intact to the extent a contractor is responsible for any design documents that turn out to be defective. To this end, Chapter 59 specifically does not cover (1) design‐build contracts insofar as the designs or plans provided by the contractor are defective; (2) engineering, procurement, and construction contracts (again, to the extent the contractor’s designs are at fault); or (3) any portion of a contract where the contractor agrees to provide signed-and-sealed design input that is ultimately incorporated into the project. Id. §§ 59.002(c)–(d). This last carveout can put contractors in a particularly tough position because it determines liability on a piece-by-piece basis. For example, if a swimming pool subcontractor provides signed, sealed shop drawings that are later used during construction, the contractor is exposed to liability for any defect in the pool’s design. Thus, even if the contract with the owner wasn’t labeled as a “design-build” contract, the contractor may still be exposed to liability for the designs of his subcontractors.  

In short, Chapter 59 is a momentous development for the construction industry. The Texas Legislature has turned more than a century of legal precedent on its head to protect contractors from flaws in other people’s designs. The news isn’t all rosy for builders, though: Chapter 59 carries several important caveats that may limit—or in some cases negate—the statute’s benefits. Careful attention to the letter of the law and its judicial interpretations will be indispensable as the industry adjusts to a new legal landscape. 

To discuss how these design-defect laws could impact your business, please consult with one of our attorneys at (972) 392-8900.

Contracts for Services Vs. for the Sale of Goods

by Kylie Barfield

April 15, 2022

Contracts for Services vs. Contracts for the Sale of Goods: What’s the Difference? 
Different laws govern contracts for services and contracts for the sale of goods. While some statutes apply to particular portions of a contract for services, common law principles (i.e., case law, not statute) govern contracts for services. In contrast, Article 2 of the Uniform Commercial Code (“UCC”) governs contracts for the sale of goods. Article 2 defines “goods” to mean all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale. Tex. Bus. & Com. Code § 2.105. For example, the UCC would govern a contract under which a lumber supplier agrees to provide the lumber used by the framer in framing a building. The contract for the labor to frame the structure, on the other hand, would be a contract for services that is mostly governed by case law and not the UCC. 
Mixed Goods-Services Contracts: The Predominant Purpose Test
Construction transactions often involve a hybrid of goods and services. So, when a contract requires a party to furnish goods and services, which set of laws apply? Determining which set of laws apply requires an analysis of whether the predominant purpose of the transaction is for services or for the sale of goods.

Courts implement the “predominant purpose test” (also known as the “dominant factor test”) to determine whether common law or the UCC applies to mixed goods-services contracts. Under the “predominant purpose test,” the applicability of either common law or the UCC hinges on whether the predominant purpose of the transaction requires either (1) the performance of services with goods incidentally involved; or (2) the sale of goods with labor incidentally involved. 

When legal disputes arise as to whether the UCC or common law applies to a contract, Texas Courts have implemented the “predominant purpose test” under two styles of analysis. First, some Texas Courts have looked at the actual nature of the dispute to determine which aspect of the transaction the issue most closely pertains. Montgomery Ward & Co. v. Dalton, 665 S.W.2d 507, 511 (Tex. App.—El Paso 1983). In other words, is the dispute more about the good or more about the labor? Under this style of analysis, the language in the pleadings often dictates the applicable law. In other cases, Texas Courts have relied on the language of the contract itself and have not looked to the nature of the dispute to determine whether the UCC applies. Freeman v. Shannon Constr., Inc., 560 S.W.2d 732, 737 (Tex. Civ. App.—Amarillo 1977). Under this alternant analysis, Texas Courts have looked at the transaction as a whole and the wording of the contract to determine if the essence of the contract is furnishing of services or supplying of goods. 
Navigating Mixed Goods-Services Contracts 
While the analysis may be far from black-and-white, it is important to know when to utilize contracts for services and contracts for the sale of goods. These two forms of agreements can be, and should be, vastly different. For example, if a services form agreement is used for a sale of goods transaction, the warranty provision may not comply with the UCC and may be deemed void. Unintended results such as this can be the harsh consequence of not utilizing the correct form of agreement. Construction professionals must consider whether the essence of the transaction is for services or the sale of goods when determining which type of contract to implement. Alternatively, to avoid the harsh results of using the wrong form of contract, construction professionals may consider separating the transaction into different agreements, one covering the services and the other covering the sale of goods. Understanding the differences between contracts for the sale of goods and contracts for the labor is critical whether you are the purchaser or seller in the transaction. 

To discuss how these contract laws could impact your business, please consult with one of our transactional lawyers at (972) 392-8900.

Design Defect Bill Passes Texas House, Goes to Governor Abbott

by Patrick Mulry

May 24, 2021

On May 13, the Texas House passed the legislation commonly referred to as the “design defect bill.” The vote in the House was 113-27, again indicating broad bipartisan support for this fundamental change in Texas law.

The design defect bill now goes to Governor Abbott for further action. He has the option to sign it, veto it, or allow it to become law without signature. Given that the bill passed by wide margins in both chambers, Gov. Abbott is expected to sign the bill.

If the design defect bill becomes law, it will go into effect on September 1, 2021. As with other recent changes in construction law-related legislation, application of the law to contracts and subcontracts is not retroactive, but is based upon the date into which the prime contract was entered.

As noted previously, the design defect bill represents a major change in Texas law that should have substantial positive effects for contractors which, under current law, may have exposure to damages caused by a design defect not caused by the contractor and for which the contractor otherwise has no recourse against the responsible design professional.

In advance of the effective date of the law, contractors should consult with counsel for important revisions to their prime contracts, as well as for revisions to subcontract agreements to ensure that all contract forms afford contractors and subcontractors the protections to which they will now be entitled.

Design Defect Bill Passes Texas Senate

by Patrick Mulry

April 12, 2021

The legislation commonly referred to as the “design defect bill” passed the Texas Senate on Thursday, April 8. The vote on Senate Bill 219 was 29-1, indicating that this fundamental change in Texas law has broad bipartisan support. The bill has been forwarded to the House and is expected to be voted on and passed in the next few weeks and then signed into law by Gov. Abbott later this spring.

The heart of the design defect bill is that a contractor cannot be held responsible for the consequences of defects in, and may not warranty the accuracy, adequacy, sufficiency, or suitability of plans, specifications, or other design or bid documents provided to the contractor by the person with whom the contractor entered into a construction contract (or another person on behalf of the contracting person, typically the owner or owner’s representative). Exempted from the protections afforded by the bill are projects designated as critical infrastructure facilities and projects performed under a design-build contract. Also exempted from the bill are design-build portions of work (for example, swimming pools or fire protection systems) that are part of a larger project which is not itself a design-build project.

This bill represents a major change in Texas law that should have substantial positive effects for contractors which, under current law, may have exposure to damages caused by a design defect not caused by the contractor and for which the contractor otherwise has no recourse against the responsible design professional.

Additionally, the design defect bill contains a mandatory prohibition of waiver which prevents the owner from contracting around this protection for the contractor. In return, the bill requires the contractor, which includes all tiers of contractors and subcontractors, to notify the owner if the contractor learns of a defect in the design documents, or of a design defect that the contractor should reasonably have discovered using ordinary diligence before or during construction. Such notice must be given within a reasonable time of learning of the design defect. The language of the bill is thematically similar to the notice concept already embodied in sections 3.2.2 and 3.2.3 of the AIA A201 general conditions, so it does not impose a requirement that should be unfamiliar to most contractors of size.

If passed, the bill will go into effect on September 1, 2021. As we have seen with other construction-related legislation over the past several decades, this bill will not apply retroactively, but instead will apply only to contracts entered into on or after September 1, 2021. Application of the law to subcontracts is based not on the subcontract date, but upon the date into which the prime contract was entered.

Should the design defect bill become law, contractors will want to consult with counsel for important revisions to their prime contracts, as well as for revisions to subcontract agreements to ensure that all contract forms are in compliance with the new law.


About Griffith Davison

Griffith Davison, P.C. is a boutique law firm, which focuses on the legal needs of the commercial construction and real estate industry. Founded in 1993, the firm provides services in the areas of construction law, commercial real estate, complex commercial litigation and corporate transactions. Griffith Davison understands the construction and real estate industry and works closely with its clients at every phase to help them navigate the legal landscape, manage risk and achieve success.

For more information visit us online at or call us at (972) 392-8900.

Timing of Delivery Does Not Always Negate Prompt Payment Act Obligations

by Tatianna Brannen

March 26, 2021

The Fifth District Court of Appeals in Dallas recently affirmed that a contractor violates the Prompt Payment Act by paying themselves with funds intended to pay its subcontractors.

In this case, the contractor subcontracted with a window supplier to provide windows for a hotel project. The window supplier provided the windows and sent the contractor an invoice. The contractor later sent a payment application to the owner requesting payment for several items, including the windows, for work completed in a previous application period.

The owner paid the contractor but withheld payment for the contractor’s overhead and profit. The contractor then decided to pay itself and “select subs” rather than paying all subcontractors. The window supplier did not receive payment.

The contractor argued it was not a violation of the Prompt Pay Act because there was conflicting evidence on whether the windows were delivered to the project before or after the contractor received payment from the owner.  However, because the evidence conclusively established the contractor received payment for the windows pursuant to the pay application, the contractor was obligated to pay the window supplier regardless of when it actually delivered the windows. Unless there is an express contractual provision to the contrary, a contractor is ultimately responsible for its subcontractors’ payment.

Albertelli Constr. v. Ram Indus. Acquisitions, LLC, No. 05-18-01429-CV, 2020 Tex. App. LEXIS 3965 (Tex. App.—Dallas, May 15, 2020, no pet. h.).


About Griffith Davison

Griffith Davison, P.C. is a boutique law firm, which focuses on the legal needs of the commercial construction and real estate industry. Founded in 1993, the firm provides services in the areas of construction law, commercial real estate, complex commercial litigation and corporate transactions. Griffith Davison understands the construction and real estate industry and works closely with its clients at every phase to help them navigate the legal landscape, manage risk and achieve success.

For more information visit us online at or call us at (972) 392-8900.

Pitfalls of Contractor’s Consents

by Michael Lilly

October 23, 2020

You’ve negotiated your Agreement with the Owner and you’ve started to mobilize.  The Owner is still trying to close on its construction financing – but they are “close.”  You receive a call from the Owner’s representative, the representative says “closing is scheduled for tomorrow, the lender just needs you to sign a document before they will fund, it’s no big deal, I’ll send it over to you right now – just sign it and get it to me as soon as possible.”  Finally!  The project is about to start!  You receive the document, a Contractor’s Consent, and you are inclined to just sign it and get to work. Should you?

What Is It Really?

In virtually every construction loan transaction with a commercial lender, the lender will require the borrower (owner) to assign the borrower’s interest in its construction contract with the general contractor, to the lender as additional collateral. This document is generally referred to simply as an Assignment of Construction Contract or Collateral Assignment of Construction Contract.  In connection with the borrower’s delivery of the Assignment of the Construction Contract, the lender will generally require that the borrower’s general contractor consent in writing to such assignment.  Thus, a Contractor’s Consent is first and foremost the general contractor’s written consent to the borrower’s collateral assignment of the construction contract.  However, lenders will ordinarily include multiple additional terms and concepts that the contractor should consider.


If the Lender elects to assume the Construction Contract, when will it happen?

In the event of a borrower default under the loan documents, nearly every Contractor’s Consent sets forth a procedure allowing for the lender to either (i) terminate the project, or (ii) to assume the construction contract and take-over the project. Often, however, the consent will not require that the lender makes its choice, to either terminate or assume the construction contract, within a specific period of time.  Thus, should the lender declare the borrower in default, what is the general contractor to do?  The short answer is – the general contractor must stop work and wait on the lender to make a decision.  This will, in the very least, result in additional de-mobilization costs and potentially significant re-mobilization costs (should the lender elect to proceed with the contract).

What can the general contractor do?  Negotiate a specific time frame for the lender to make its election to terminate or assume the construction contract.

Lender consent to Change Orders.

Often Contractor’s Consents will include a specific obligation that the borrower and contractor obtain the Lender’s prior consent to any Change Orders.  The result – an already time consuming and often difficult change order process become infinitely more time consuming and difficult, as lenders are typically reluctant to agree to changes in cost and scope for a project.

Tracking and logging COVID-19 expenses

April 10, 2020

Time is crucial in every construction project. Delay costs, liquidated damages, back charges, and additional labor hours for slow and untimely completion can ruin profit margins and lead to serious problems down the road. COVID-19, if it hasn’t already, will inevitably create costs and delays, none of which could have been negotiated or realized when an original construction contract was formed. Examples of these costs and delays include:

  • Government mandated shutdown of jobsites
  • Worker unavailability
  • Costs for extra personal protection equipment
  • Health inspection fees
  • Material expense increases for supply chain disruption and delays in production
  • Increased equipment requirements to keep workers busy but apart from each other
  • Technology costs to provide remote meeting capabilities for management, owners, architects, and contractors
  • Labor expenses after jobsite shutdowns
  • Delays and increased inspection costs

Understanding the rights and responsibilities in a construction contract is vitally important for successfully recovering these costs and delays. For example, many construction contracts contain force majeure clauses that provide time extensions to contractors for “acts of god” or for “other causes beyond the contractor’s control” but often require timely notices and ongoing reporting and due diligence. Further, change orders can provide a means of recovering losses but regularly the contract requires the costs and delays be contemporaneously identified and quantifiable. Regardless of the tool used to mitigate losses, consistent and contemporaneous tracking and detailing is key.

Here are three techniques contractors can use to track their COVID-19 related costs and delays: (1) create a new general ledger account or job; (2) create new costs codes for tracking COVID-19 related costs on a per job basis; and (3) encourage superintendents and those familiar with the jobsite to keep notes regarding additional, new restrictions implemented to slow the pandemic’s spread.

When creating cost codes for COVID-19, it is also important to break the code out to specifically identify the labor and material attached to the code. By removing ambiguities, the contractor preserves its claim, eases its later burden when proving its delays, and takes away an easy and available argument for would-be challengers.

By implementing a system(s) for tracking the inevitable delays now, contractors put themselves in the best position to recover later. If you need help understanding the forms of recovery, the implications in a contract, or have any other questions related to COVID-19’s effect on the construction industry, contact us so we can help you continue business.


COVID-19 and the Construction Industry

April 1, 2020

Good news for the construction industry in Texas.

On March 31, 2020, Governor Abbott signed Executive Order GA 14 which clarifies what services are considered essential services during the COVID-19 pandemic. A copy of the Executive Order can be found here:

Fortunately, various construction activities are now included in the definition of essential services and companies may continue, as long as they adhere to the requirements for operating an essential service. This Executive Order supersedes any conflicting local orders, which means that we now have a standard definition which governs construction projects throughout the state.

Under the Governor’s Executive Order, Texas will follow the list of “essential services” as defined by the US Department of Homeland Security in its most recent Guidance on Essential Critical Infrastructure Workforce dated March 28, 2020. This updated Guidance adds Commercial Facilities and Residential Facilities to the list of essential services:

Commercial Facilities includes workers who support the supply chain of building materials from production through application/installation, including cabinetry, fixtures, doors, cement, hardware, plumbing, electrical, heating/cooling, refrigeration, appliances, paint/coatings, and employees who provide services that enable repair materials and equipment for essential functions.

Residential Facilities includes workers performing housing construction related activities and workers supporting the construction of housing.

To review the complete March 28, 2020 list of Essential Critical Infrastructure Workforce, follow this link:

Please note that as the country responds to the virus, local and federal regulations continue to change. Contact us if you need guidance on how the latest rules apply to your construction and real estate projects, and how to comply with the rules regarding operating an essential service.

Liquidated damages are unenforceable if they significantly exceed actual damages

March 27, 2020

The Texas Supreme Court recently clarified the law governing enforcement of liquidated-damage provisions in contracts. Even if the liquidated-damage provision was enforceable at the time the parties formed the contract, a court still may compare the actual damages suffered to the liquidated damages to determine whether the provision should still be enforced.

A liquidated-damage provision in a contract sets a fixed amount or formula to be used to calculate damages from a breach. If it is enforced, then the party enforcing the contract will not be required to prove its actual damages from the other party’s breach.

To enforce a liquidated-damage provision, the party enforcing the contract must prove that, at the time the contract was formed: (1) the harm anticipated from a breach was difficult to predict; and (2) the liquidated damage amount was a reasonable estimate of the harm.

The Court explained that a liquidated-damage provision might still be unenforceable even if these two elements are proven. The party breaching the contract may show that the liquidated damages were significantly higher than the actual damages caused by the breach. If so, the liquidated-damage provision constitutes a punishment or penalty, and therefore is unenforceable. In that instance, the party enforcing the contract may recover only its actual damages.

In construction contracts between owners and contractors, liquidated-damage provisions are often used to address damages caused by delays to completion of the project. Applying the Court’s reasoning to these contracts, the owner must show that at the time the contract was signed, it was difficult to estimate the damage that would be caused by a delay. The owner also must provide evidence to show that the amount or formula used for the liquidated damages was a reasonable estimate of the damages. If the owner makes these showings, the contractor would bear the burden to show that the owner’s actual damages resulting from the delays were significantly less than the liquidated damages in order to avoid enforcement of the provision.

Atrium Med. Center, LP v. Houston Red C LLC d/b/a ImageFIRST Healthcare Laundry Specialists, — S.W.3d —, No. 18-0228 (Tex. Feb. 7, 2020).

Contractor Sentenced to Three Years in Prison Following Employee Death

December 17, 2019

On November 3, 2017, Gerardo Juarez began his first day of work for James Coon Construction. The next day Juarez fell from a roof he was repairing, suffering injuries which later proved fatal. Following the accident, James Coon, owner of Coon Construction, pled guilty to involuntary manslaughter and workers’ compensation fraud and was sentenced to three years in prison.

Coon Construction was hired to repair a roof at a three-story apartment complex in Akron, Ohio. New-hire Juarez was placed on the crew tasked with making the repairs. After two years of criminal litigation following the accident, it was discovered Coon did not provide Juarez with safety equipment adequate for work performed at such height, which is a felony. Evidence suggested that his fall could have been prevented had he been wearing adequate fall protection. Coon also failed to provide workers’ compensation coverage, another felony.

Criminal prosecution for failure to provide a safe environment for employees is an increasing trend. Federal law requires employers to instruct each employee in the recognition and avoidance of unsafe conditions and the systems applicable to his or her work environment to control any hazards or other exposure to illness or injury.  Failure to follow applicable safety laws and provide workers’ compensation insurance as required by law can expose employers to possible criminal action.

Reporting Fraudulent Information to the Workers’ Compensation Board Results in Criminal Charges

December 12, 2019

Lying to the workers’ compensation authorities in order to reduce premiums can result in criminal charges. On September 5, 2019, Manhattan D.A. and other New York state investigators announced the indictment of unlicensed labor broker Salvador Almonte and insurance broker Steven Asvasadourian on multiple fraud charges after they were caught in a scheme which included lying to the New York State Insurance Fund about the status and work of construction employees. Almonte and his accomplice underreported the size of Almonte’s companies and lied to insurance carriers about the type of work being performed to evade more than $1 million dollars in insurance premiums. In doing so, the pair left more than one hundred construction workers underinsured. In one instance, Almonte claimed that workers he sent to perform dangerous tasks on high-rise construction projects were cleaners, thereby drastically lowering the premium rates he paid.  Investigators found that more than 12 of Almonte’s workers have been injured in the past four years, one fatally, and Almonte refused to acknowledge to the New York Workers’ Compensation Board that he was their employer.

While this case illustrates extreme examples of fraud in the workers’ compensation system, the exposure to potential criminal liability for fraudulently reporting information to the workers’ compensation board is a legitimate, serious consequence of such actions.

Property Owners Afforded Extra Protection from Claims of Independent Contractors

December 10, 2019

The Supreme Court of Texas has extended protections for property owners to claims for negligent hiring.

The case involved an oil field worker who died from injuries he sustained while working on a drill site. His estate sued Endeavor Energy Resources, property owner, claiming Endeavor negligently hired the injured person’s employer. Endeavor argued Chapter 95 of the Texas Civil Practice and Remedies Code barred the claims. Chapter 95 protects property owners from liability for injuries to independent contractors who modify improvements to real property assuming the property owner does not actually know about the dangerous condition which caused the injury.

The Texas Supreme Court ruled in favor of Endeavor by extending it Chapter 95 protections. In doing so, the Court recognized negligent hiring involves two instances of negligence: the hiring itself and the negligent act. The Court concluded the negligent act alleged in this instance “arose from the use” of an improvement to real property and therefore Endeavor should be protected by the statute. Consequently, the Court reversed the court of appeals and broadened Chapter 95’s purview to exclude claims for negligent hiring against property owners.

This case is important for property owners as it limits the causes of action that can be asserted against them by parties injured on their property. Further, it shows the Court’s commitment to preserving the broad protection afforded by this statute.

Texas Court Says AS-IS Clause Possibly Unenforceable

October 7, 2019

The Third District Court of Appeals in Austin recently held that an as-is clause in a purchase contract may be unenforceable. The Court found that there was a question of fact as to whether or not the seller fraudulently induced the purchaser to agree to the as-is clause by failing to disclose certain information about the property.

The case involved the sale of a residential property where the seller had owned the property for over 30 years and was well-aware of the condition and history of the property.  Seller provided a Seller’s Disclosure Notice that indicated there were no previous fires and no known encroachments on the property. In fact, there had been a fire in 2007 and the neighbor’s fence was encroaching on the property. The purchaser had an inspection performed, which identified several defects in the property, but the inspection did not reveal the previous fire or the encroachment of the neighbor’s fence. After the inspection, the purchaser proceeded to closing.

Two years later, the purchaser filed suit against the seller regarding the condition of the property. The purchaser argued that had the defects been disclosed, she would not have entered into the as-is purchase contract. The Court held that the purchaser had sufficient evidence to support her claim that she was fraudulently induced to enter into the as-is contract due to the seller’s failure to disclose the fire and the encroachment.

Therefore, while an as-is clause will generally negate a claim against the seller regarding the condition of the property, this Court seems to require a seller to disclose known defects about the property in order to take advantage of the protection of the as-is clause.  It is unknown if this rationale would translate to a commercial contract situation where the buyer is deemed to be more sophisticated.

Ivy v. Garcia, 2019 Tex. App. LEXIS 6962 (3rd Dist. 2019)

Insurance claims can be denied completely unless the owner or contractor can show how much damage resulted from causes covered under the policy

October 17, 2018

An appeals court recently agreed with an insurance company that coverage was properly denied because its policyholder did not present enough evidence showing how much damage occurred during the period covered by its insurance policy. This opinion could have broader implications for project owners and contractors, who may need to make insurance claims for damage resulting from both covered and excluded causes.

In the case, a hotel owner made a claim under its 2012-2013 insurance policy for property damage to its roof caused by hailstorms. There had been multiple hailstorms before and during the 2012-2013 insurance policy period. The insurance carrier obtained a judgment declaring that no coverage existed, which was affirmed on appeal.

In Texas, an insurance carrier is only required to pay for losses covered by the policy. The policyholder bears the burden to prove that its claims are covered by the policy. If property damage was caused by both covered and excluded perils, then the policyholder must present evidence sufficient to allow the court to reasonably allocate the damage.

Here, the hotel owner claimed that some of the hail damage was caused by storms which occurred during the 2012-2013 insurance policy period, but the evidence showed that some or all of the damage could have been caused by storms before the policy period started. The owner’s expert admitted that there was no way to tell which storms caused or contributed to the damage, or how much damage was caused by storms during the policy period. Under these circumstances, the court sided with the insurance company and allowed it to deny the claim completely.

The issues raised in this case can arise on construction projects. Project owners or contractors may make insurance claims for property damage which occurred over an extended period of time or which may have resulted from multiple causes. This situation can be further complicated when multiple insurance policies are involved.

For these reasons, when preparing insurance claims, owners and contractors should take care to gather evidence which would permit a reasonable determination of what damage was (or was not) caused or worsened by the perils covered under the applicable insurance policy.

Certain Underwriters at Lloyd’s of London v. Lowen Valley View, LLC, 892 F.3d 167  (5th Cir. 2018).

Liquidated-damage provision enforced by Houston Court of Appeals

April 18, 2018

The First District Court of Appeals in Houston recently enforced a liquidated-damage provision. The opinion analyzes whether the liquidated damages constituted an unenforceable “penalty” under Texas law.

A liquidated-damage provision permits a party enforcing a contract to recover damages based on an amount or formula agreed upon in advance. However, the breaching party may invalidate the liquidated-damage provision if it demonstrates that it is a penalty for noncompliance rather than “just compensation” for the actual loss caused. A liquidated-damage provision is enforceable (and is not a penalty) if (1) the harm caused by the breach is incapable or difficult of estimation; and (2) the amount of liquidated damages is a reasonable forecast of just compensation. These elements are evaluated from the parties’ perspective at the time the contract was formed. The amount of actual damages incurred is also relevant; if the actual damages are far less than the liquidated damages, then the liquidated damages might not be a reasonable forecast.

In this case, the court found that the harm caused by the breach was difficult to estimate due to the inherent fluctuations of the luxury-condominium real-estate market, and that the parties reasonably estimated the damages.

Belfiore Developers, LLP v. Sampieri, No. 01-17-00847-CV (Tex. App.—Houston [1st Dist.] Mar. 6, 2018, no pet. h.).

Texas Supreme Court refuses to look beyond the contract language to determine a party’s obligations

April 3, 2018

The Texas Supreme Court recently declined to look beyond an agreement’s clear language to trigger one party’s obligations. This was despite the other party’s insistence that pre-contract negotiations proved that the obligations had to be triggered. As a result, the other party did not get the performance that it thought was included in its bargain.

In URI, Inc. v. Kleberg County, the parties entered into an agreement in which URI could resume its uranium-mining operations, provided URI restored water quality in certain wells. At the time the agreement was formed, data suggested that multiple wells would meet the criteria to qualify for restoration. However, later data showed that no wells met the criteria. Kleberg County argued that URI should be required to restore wells based on the earlier data and not the later data.

The Texas Supreme Court disagreed, finding that the agreement was unambiguous as to URI’s obligations. Under the parol-evidence rule, facts and circumstances surrounding a unambiguous contract’s execution can be used to determine the context and meaning of the contract language, but cannot be used to augment, alter, or contradict the contract’s terms. Here, the parties’ expectation that the data would show that some wells’ water was suitable for specified uses before mining was extrinsic evidence that contradicted the agreement’s language requiring actual data showing that the water met the criteria to trigger URI’s restoration obligation. The Court therefore determined the parties’ intent based on the unambiguous language in the agreement, even though that language excused URI from performing any well restorations prior to resuming its mining activities and despite Kleberg County’s expectations.

This case illustrates the importance of carefully drafting contract provisions, particularly when one party’s obligations are conditioned on facts that will not be fully known until a later date.

URI, Inc. v. Kleberg Cty., No. 16-0336, 2018 Tex. LEXIS 253 (Tex. Mar. 23, 2018).

This blog entry was written by Eric Etheridge and Jason Cagle.

2017 Legislative Updates

January 23, 2018

In Texas, the 85th Legislature enacted several important pieces of legislation relevant to construction. Overall, only 18.3% or 1,211 total bills, passed the Texas Legislature and 50 bills were vetoed by Gov. Greg Abbott. Among other budgetary items, funding for schools was reduced by approximately $1.1 billion and about $2 billion was taken from highway projects.

While high-profile reforms such as lien-law modernization and right-to-repair failed to pass, several important pieces of construction legislation did pass:

SB 807 – Modified Tex. Bus. & Comm. Code § 272.0001, 272.001. Effective Sept. 1, 2017.

The Texas Business & Commerce Code allows a construction contractor working on a project in Texas to void provisions in a construction contract selecting another state’s law or requiring litigation in an out-of-state venue.

SB 807 expanded the ability to void out-of-state choice-of-law and venue provisions to include architect and engineers. It also expanded the statute to include contracts “collateral to or affecting the construction contract.”

HB 3021 – Modified Tex. Govt. Code § 2254.0031. Effective Sept. 1, 2017.

Engineers and architects can no longer be required to indemnify or defend a state governmental entity for claims or liabilities resulting from the negligent acts or omissions of the entity or its employees.

HB 3270 – Modified Tex. Education Code § 22.08341. Effective Sept. 1, 2017.

The Texas Education Code requires background checks for the employees of contractors and subcontractors working on public schools. However, HB 3270 amends the Education Code to exempt employees not working around children. Stated another way, if children are not present, background checks will not be required.

SB 1289 – Modified Tex. Govt. Code § 2252.202. Effective Sept. 1, 2017.

Iron and steel used on state projects must be from the United States. However, there are several exceptions:

  1. If there are insufficient quantities of US iron or steel;
  2. If US iron or steel isn’t reasonably available;
  3. If the quality of U.S. steel is insufficient;
  4. If there is a more than 20% price increase;
  5. If buying US iron or steel is inconsistent with the public interest; and,
  6. Electrical components are not considered to be iron or steel products.

In addition, political subdivisions such as cities and counties are exempt.

Partial performance can overcome the absence of a written contract

November 15, 2017

In Thomas v. Miller, the lack of a written contract became the focal point of the dispute. Leorris Thomas verbally agreed to sell two acres of land to the Millers in exchange for payment of the amount remaining on Thomas’s mortgage. The Millers paid Thomas’s mortgage from 2004 to 2010 and made improvements to the property during that time. However, continual threats from Thomas caused the Millers to abandon the property in 2009. Thomas subsequently sold it to a third party.

The Millers sued and won their lawsuit against Thomas for breach of contract. Thomas appealed claiming the oral contract was unenforceable under the statute of frauds, which considers certain agreements unenforceable for a variety of reasons, including when they are not in writing.

The appellate court found the partial performance by the Millers was sufficient to trigger an exception to a statutory requirement for the contract to be in writing. It also found that refusing to enforce the contract would amount to a virtual fraud. The Millers relied on the contract to their substantial detriment, had no adequate remedy, and Thomas would reap an unearned benefit. The appellate court therefore affirmed the trial court’s ruling and enforced the oral contract.

Thomas v. Miller , 500 S.W.3d 601 (Tex. App.—Texarkana 2016, no pet.).

The attached information is general in nature, is presented for discussion purposes only, and may not reflect current legal developments, nor fully explore all potential areas of this topic. The information included should not be relied upon or construed as legal advice and is not a substitute for obtaining legal advice from an attorney. No legal representation is undertaken or implied with the distribution of this information.

Construction contracts can incorporate documents executed by the parties without describing them with specificity

November 15, 2017

Construction contracts often “incorporate by reference” other documents that provide additional terms or further define a party’s obligations. However, the specificity required when describing the document differs depending on whether the document has been executed by the parties. As discussed in a recent case, if the parties execute the document to be incorporated, courts apply less-stringent standards on how the document must be identified in the contract.

A contractor, Dyonyx, entered into an agreement with a consultant, Castillo, to provide consulting services related to a project for the City of Houston. Under the agreement, the contractor would issue separate purchase orders specifying the consultant services during a five-year contract term. The contractor could terminate the agreement early if the City terminated the primary contract. The contractor and the consultant signed an initial purchase order for services to be provided during the first year of the contract term. Four months later, the City terminated its agreement with the contractor. The contractor then terminated its agreement and its purchase order with the consultant.

The consultant sued the contractor for breach of contract. It argued that the purchase order was not subject to the termination provisions in the agreement because the purchase order did not specifically incorporate the agreement. The court of appeals rejected this argument. Both parties executed the agreement and the purchase order, they referenced each other, and they related to the same transaction. Thus, the agreement and the purchase order had to be read together to determine the parties’ intent and to give effect to the terms governing their respective obligations and rights. These rights included the contractor’s right to terminate the contract early. Since the contractor properly terminated the consultant agreement, any purchase orders issued pursuant to that agreement also terminated without constituting a breach of the contract.

Of course, if you intend to incorporate documents into another agreement, you should make the intent clear in the agreement. However, if you have two or more documents, executed by the parties, which relate to the same project or subject matter, Texas courts will likely read them together to determine the parties’ intent.

Castillo Information Technology Srvcs. v. Dyonyx, LP , 2017 Tex. App. LEXIS 7182, Case No. 01-16-00649-CV (Tex. App.—Houston [1st Dist.] Aug. 1, 2017, no pet. h.).

The attached information is general in nature, is presented for discussion purposes only, and may not reflect current legal developments, nor fully explore all potential areas of this topic. The information included should not be relied upon or construed as legal advice and is not a substitute for obtaining legal advice from an attorney. No legal representation is undertaken or implied with the distribution of this information.

Failure to investigate contractor’s performance may prevent an owner from later recovering damages for latent defects

October 17, 2017

A construction project’s owner sued the general contractor for breach of contract after the four-year limitations period expired. The owner claimed that it had discovered issues with the contractor’s work, including improperly installed interior doors at exterior locations and the use of incorrect flooring materials. The owner argued that the “discovery rule” tolled the limitations period and allowed it to bring the claims as “latent defects.”

The court declined to apply the discovery rule, pointing to evidence suggesting that the owner knew or should have known about each issue. It emphasized that contracting parties must exercise reasonable diligence in ensuring the performance of a contractor complies with the contract documents. Reasonable steps include, for example, asking the contractor for information needed to verify its compliance with the plans, specifications, and other contract documents.

While the underlying facts of every claim will be different, it is important to recognize that a construction “defect” will not necessarily be considered a latent defect just because the owner did not have actual knowledge of the defect. If it is determined that the owner could have discovered the defect through the exercise of reasonable diligence, the defect will not be considered latent. Of course, what constitutes “reasonable diligence” (or the lack thereof) will depend upon the factual circumstances of each project and claim.

B. Mahler Interests, L.P. v. DMAC Construction, Inc. , 503 S.W.3d 43 (Tex. App.—Houston [14th Dist.] 2016, no pet.).

Challenges to overall enforceability of a contract can be determined by an arbitrator

October 17, 2017

The parties to a dispute entered into an informal written settlement agreement, which contemplated execution of a more-formal settlement agreement later. The informal settlement agreement stated that “any disagreement result[ing] from negotiation and completion of this documentation” would be submitted to arbitration. One party argued the informal settlement agreement was wholly unenforceable because it was not approved by that party’s Board of Directors.

The court of appeals analyzed whether the arbitrator or the trial court should decide whether the entire informal settlement agreement was enforceable. The parties’ dispute concerned a challenge to the enforceability of the entire contract, rather than a challenge specifically to the arbitration provision. Under these circumstances, the court held that the arbitrator should decide whether the contract is enforceable.

It seems rather ironic that the parties are required to use the arbitration process, as set forth in the agreement, to determine whether the agreement (which contains the arbitration clause) is indeed enforceable. On the other hand, if a party challenged only the enforceability of the arbitration clause (but not the enforceability of the entire contract), most cases have held that a court should decide that dispute.

Human Biostar, Inc. v. Celltex Therapeutics Corp. , 514 S.W.3d 844 (Tex. App.–Houston [14th Dist.] Jan. 19, 2017, pet. denied).

The attached information is general in nature, is presented for discussion purposes only, and may not reflect current legal developments, nor fully explore all potential areas of this topic. The information included should not be relied upon or construed as legal advice and is not a substitute for obtaining legal advice from an attorney. No legal representation is undertaken or implied with the distribution of this information.

Arbitration agreement found unenforceable because employer could modify it without advance notice to the employee

October 17, 2017

An employee had a dispute with his employer arising out of personal injuries on a worksite. The employer’s written Dispute Resolution Policy contained an arbitration provision. The employee asserted the arbitration provision was unenforceable because the employer was permitted to modify or terminate Dispute Resolution Policy at its sole discretion. As a result, the employee argued the arbitration provision was an illusory promise, that is, it was unenforceable due to lack of mutuality because only one side was bound to perform under the agreement.

The court held that the arbitration provision in this instance was unenforceable. Under Texas law, an agreement giving the employer power to modify or terminate the agreement is enforceable (and not illusory) so long as the power: (1) extends only to prospective claims; (2) applies equally to the employer’s and employee’s claims; and (3) requires the employer to give advance notice to the employee before the modification or termination is effective. In this case, the Dispute Resolution Policy complied with the first two criteria, but failed the third because it permitted the employer to modify the policy without providing advance notice to the employee. The arbitration provision was therefore unenforceable.

This case illustrates the importance of careful drafting of arbitration provisions to ensure their enforceability.

Henry & Sons Construction Co., Inc. v. Campos , 510 S.W.3d 689 (Tex. App.–Corpus Christi Oct. 1, 2016, pet. denied).

The attached information is general in nature, is presented for discussion purposes only, and may not reflect current legal developments, nor fully explore all potential areas of this topic. The information included should not be relied upon or construed as legal advice and is not a substitute for obtaining legal advice from an attorney. No legal representation is undertaken or implied with the distribution of this information.

Pay attention to the signature block and guaranty provisions when signing a contract

May 31, 2017

The president of a builder signed a contract, but (1) neglected to put the full legal name of his business in the signature block and (2) a provision of the contract stated that “the obligations under this agreement are also a personal obligation of the builder representative signing below.” After the builder defaulted, the owner sued the president of the builder as an individual.

The Court ruled that the president was not individually liable because (1) the contract recited the parties as the legal entities, not as the president, individually, (2) the word, “president” appeared after the signature of the builder’s president, and (3) the personal guarantee section referred to the “builder’s representative” and not a specific individual.

The lesson here is to be very clear in the signature block to avoid disputes such as this. While eventually the builder’s president was found not personally liable, this was after a lengthy and expensive court proceeding.

Mission Grove, L.P. v. Hall, 503 S.W. 3d 546 (Tex. App.—Houston [14th. Dist.] 2016, no pet.).

The attached information is general in nature, is presented for discussion purposes only, and may not reflect current legal developments, nor fully explore all potential areas of this topic. The information included should not be relied upon or construed as legal advice and is not a substitute for obtaining legal advice from an attorney. No legal representation is undertaken or implied with the distribution of this information.

Court narrowly construes law limiting contract-notice requirements

May 31, 2017

Under the Texas Civil Practice & Remedies Code, “a contract stipulation that requires a claimant to give notice of a claim for damages as a condition precedent to the right to sue on the contract is not valid unless the stipulation is reasonable. A stipulation that requires notification within less than 90 days is void.” Tex. Civ. Prac. & Rem. Code § 16.071.

In a recent case, an owner sought to enforce a provision in a construction contract which stipulated that the contractor had to initiate a “claim” against the owner within seven days of the event. The Court ruled in favor of the owner, holding that the parties’ freedom to contract should be respected. The Court drew a distinction between giving notice of a “claim” and giving notice of a “claim for damages,” reasoning that a claim under the provision at issue was just giving notice of facts giving rise to a claim for damage. A claim for damages, in contrast was a cause of action (such as a claim for breach of contract).

As such, depending on the contractual language at issue, this statute might not provide protection from short-notice periods in construction contracts. The statute is more likely to apply if the language requires suit to be filed within a certain time period, or otherwise equates a claim with a cause of action.

El Paso Cty. v. Sunlight Enters. Co., 504 S.W. 3d 922 (Tex. App.—El Paso 2016, no pet.).

The attached information is general in nature, is presented for discussion purposes only, and may not reflect current legal developments, nor fully explore all potential areas of this topic. The information included should not be relied upon or construed as legal advice and is not a substitute for obtaining legal advice from an attorney. No legal representation is undertaken or implied with the distribution of this information.

Contractor’s officer successfully defends against claims for misapplication of trust funds

May 17, 2017

The U.S. Court of Appeals for the Fifth Circuit recently analyzed a defense against a subcontractor’s claims asserted under the Texas Construction Trust Fund Act. Under the Act, contractors can be held liable as trustees for misapplication of payments received for the benefit of downstream contractors. Tex. Prop. Code § 162.031 (a). Owners, officers, and agents of contractors who have control or direction of trust funds can also be held individually liable as trustees. Id. § 162.002. However, the trustees can defend against the claims by showing that the trust funds were used to pay the contractor’s actual expenses directly related to the construction of the improvement. Id. § 16.031(b).

In this case, a contractor applied for and received funds for a construction project that included funds requested by a subcontractor. The subcontractor never received the funds and asserted claims against the contractor’s officer individually for misapplication of funds under the Act. The contractor’s officer showed that the funds at issue were spent on the contractor’s salaries, overhead, and supervision for the project. The Fifth Circuit found this showing was sufficient to support his defense and to defeat the subcontractor’s claims under the Act.

Monaco v. TAG Invs., Ltd. (In re Monaco), 839 F. 3d 413 (5th Cir. 2016).

The attached information is general in nature, is presented for discussion purposes only, and may not reflect current legal developments, nor fully explore all potential areas of this topic. The information included should not be relied upon or construed as legal advice and is not a substitute for obtaining legal advice from an attorney. No legal representation is undertaken or implied with the distribution of this information.