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Jenner && Block Construction News Construction Law Practice Construction News FALL 2004 Congratulations to the Chair of Jenner & You Can’t Have Your Cake Block's Construction Law Practice, And Eat It Too: “Optional” Joseph G. Bisceglia, who was recently elected Third Vice- Liquidated Damages Clauses President of the Illinois State Bar Association (ISBA) and will automatically assume the posi- Are Unenforceable tion of President in 2007. Mr. Bisceglia has a long history of involvement in the ISBA during his 30 years of practice in Construction contracts often Resource’s repeated delays, the commercial and construction litigation at include “liquidated damages” parties amended their contract to Jenner & Block. Mr. Bisceglia is the clauses. A proper liquidated add a liquidated damages clause. third Jenner & Block lawyer to be elected damages clause is meant to Id. at *1. The liquidated damages President of the ISBA. The first was memorialize the parties’ clause stated: Judge Floyd Thompson. The second was name Partner Albert E. Jenner, Jr. agreement in advance as to the amount of damages that will arise Liquidated Damages Payment. from a breach of contract. If Contractor fails to commence However, those in the commercial operation of the Table of Contents construction industry need to be Gas-to-Electric Plant on or mindful that an improperly worded before the date specified in You Can’t Have Your Cake Paragraph 7(b)(15) . Seller And Eat It Too 1 clause may not be effective. In a recent case, the United States may assess and collect from U.S. Supreme Court to Consider Contractor, at Seller’s Major Issue for CERCLA Cost District Court for the Northern Recovery Scheme 3 District of Illinois affirmed a option, liquidated damages in bankruptcy court’s ruling that an an amount equal to Two Contractor Defamed During Thousand Five Hundred and Unionization Campaign May Be “optional” liquidated damages Entitled To Punitive Damages 4 clause was unenforceable under No/100 Dollars ($2,500.00) Illinois law. Resource Tech. Corp. for each day after the Milestone Recent Developments Relating to Date that the Gas-to-Electric the City of Chicago Construction v. Congress Dev. Co., 2003 WL Contract Set-Aside Program 6 22057489 (N.D. Ill. Sept. 4, Plant fails to commence 2003) (Darrah, J.). commercial operation. Such Be “Mold” Sensitive 7 liquidated damages shall be Contractor Recovers Damages for In Resource Tech. Corp., the paid by Contractor on a weekly Utility’s Delay in Responding to owner of a landfill, Congress basis in arrears each Monday Requests for Information 8 Development Company after the Milestone Date until Recent Decision Confirms That (“Congress”), entered into a commercial operation has The Value Of “Additional Insured” contract with Resource occurred. If Seller assesses Coverage May Be Limited 10 Technology Corporation and collects from Contractor Update: Illinois Supreme Court Decides (“Resource”) for the construction such liquidated damages for One-Year Limitations Period Applies for and operation of a landfill gas any period of delay, such Injuries at Local Government Construction Sites 12 collection system. Due to liquidated damages shall be in 1 Construction News full and complete settlement of [and] such clause was construed liquidated damages or for actual all claims, losses and damages as granting the option to sue for damages means that the “parties of Seller resulting from such actual damages and was did not agree in advance to the period of delay; provided, unenforceable.” Id. amount of damages that might however, that if the delay arise from a breach.” Id. at *5. If exceeds ninety (90) days, The district court upheld the this type of optional clause was Seller may also elect to bankruptcy court’s summary enforceable, it will allow a party to terminate this Agreement in judgment ruling. Id. at *6. The “have its cake and eat it too.” accordance with the provisions district court applied four criteria Id. (internal quotations omitted). of Paragraph 11 of this to determine if the liquidated The court also noted that while Agreement [which includes damages clause was valid and the Illinois Supreme Court has not default by the Contractor or enforceable. Id. at *3. The court addressed this specific issue, the default by Owner] and pursue held that in order for the Illinois Appellate Court addressed any of the rights and remedies liquidated damages provision to it in Catholic Charities of the provided for therein. Seller and be enforceable, (1) the parties Archdiocese of Chgo. v. Thorpe, Contractor acknowledge and must have agreed in advance to 318 Ill. App. 3d 304, 741 N.E.2d agree that the liquidated the amount of damages that 651 (1st Dist. 2000), and damages provided for therein might arise from the breach, invalidated an optional liquidated constitute a reasonable (2) the liquidated damages damages clause because the forecast of the actual damages amount must have been option showed that the parties Seller would sustain as a result reasonable at the time the never intended to establish a of such delay and are not contract was entered into, specific sum to constitute what intended as a penalty. Id. bearing some relation to the the damages would be in the (Emphasis added.) damages that might be incurred event of a breach. Id. in a breach, (3) the amount of Before the project was actual damages must be Companies in the construction completed, some of Resource’s uncertain and difficult to prove, industry should take heed of the creditors filed an involuntary and (4) the amount must be ruling in Resource Tech. Corp. petition for bankruptcy against specific and for a specific breach, and closely examine the language Resource. Id. at *2. After the not a threat to secure in their liquidated damages case was converted to a case performance or as a penalty to clauses to assess whether they under Chapter 11 of the punish a breach. Id. With these are unenforceable “optional” Bankruptcy Code, Resource filed four criteria in mind, the court clauses. a motion for partial summary construed the parties’ contract judgment on Congress’s claim for and affirmed the bankruptcy liquidated damages for delay. Id. court’s decision that the clause The bankruptcy court granted was an unenforceable penalty. Id. Resource’s motion, holding that at *6. the liquidated damages clause was an “optional liquidated The court reasoned that a damages clause that failed to liquidated damages provision that identify an alternative remedy . allows a party to either sue for 2 FALL 2004 U.S. Supreme Court to Consider Major Issue for CERCLA Cost Recovery Scheme On January 9, 2004, the U.S. environmental agency, Aviall conducting remediation activities Supreme Court agreed to cleaned up contamination on its without first being required to do consider an issue under the property. Aviall tried to recover so, potentially disrupting federal Comprehensive its cleanup costs by suing the “voluntary” remediation programs Environmental Response, property’s former owner, Cooper, currently ongoing throughout the Compensation, and Liability Act under CERCLA Section 113. A country. Moreover, if the (“CERCLA” a/k/a Superfund) that divided Court of Appeals for the Supreme Court were to rule in could have a significant impact on Fifth Circuit ruled that a PRP, Cooper’s favor, other PRPs in remediation activities throughout such as Aviall, may sue to recover currently pending CERCLA the country. The Court will response costs even though Aviall actions would, like Aviall, lose consider whether a potentially had not first been subject to a their ability to recover remediation responsible party (“PRP”) under CERCLA civil action. Cooper, costs under federal law. In light CERCLA must first be subject to 312 F.3d 677, 686 (5th Cir. of the negative impact on state a CERCLA claim before it is 2002) (en banc). Cooper then and federal remediation permitted to bring a CERCLA asked the Supreme Court to programs, such a ruling by the Section 113 contribution claim to consider the question and the Supreme Court would likely recover remediation costs. Supreme Court asked the U.S. prompt calls for a legislative Section 113 provides that a claim Solicitor General to provide an response by Congress. for contribution may be brought opinion on whether the Court “during or following” a claim should consider this issue of brought under CERCLA Section statutory interpretation. 538 106 (an administrative order U.S. 976 (2003). The Solicitor brought by the USEPA) or under General urged the Court to 107 (a lawsuit brought by the reverse the appellate court as a USEPA or a private party to matter of statutory construction recover cleanup costs). and to protect the federal courts However, the last sentence of from the “substantial burden of Section 113 provides that resolving these complex cases.” “nothing [in Section 113] shall The Supreme Court granted diminish the right . to bring an Cooper’s and the Solicitor action for contribution in the General’s request for a review of absence of a civil action [under this issue. 124 S. Ct. 981 CERCLA].” These two (2004). The Supreme Court provisions seemingly contradict heard oral argument on October each other and have caused 6, 2004 but has not yet issued its confusion regarding when it is decision. permissible to bring a CERCLA contribution claim. If the Court rules that a party must be subject to a CERCLA In Cooper Industries, Inc. v. Aviall lawsuit before it can bring a Services, Inc., responding to CERCLA contribution claim, direction from the Texas many PRPs may cease 3 Construction News Contractor Defamed During Unionization Campaign May Be Entitled To Punitive Damages Unionization campaigns can be NOTICE TO THE PUBLIC required in a claim of defamation stressful for companies, unions LOWE EXCAVATING DOES per quod. and employees. Nevertheless, all NOT PAY THE parties need to be mindful of the PREVAILING On appeal, the Illinois Appellate serious legal consequences that WAGES AND ECONOMIC Court reversed the trial court’s dismissal of the defamation claim.
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