Posts in "Legal Alerts"
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Contract Defeats Virginia’s Defense of Sovereign Immunity
A recent decision from the Supreme Court of Virginia established an important precedent for contractors doing business with the Commonwealth. The doctrine of sovereign immunity generally prevents parties from being able to sue the government when it is acting within the scope of its governmental authority, unless the government consents to suit. However, in Montalla, LLC v. Commonwealth, 303 Va. 150, 900 S.E.2d 290 (2024), the Court ruled that the Commonwealth cannot invoke sovereign immunity as a defense when the government enters into a valid contract through an authorized agent. This ruling affirms that when the Commonwealth enters into a legally binding contract, it must uphold its contractual obligations and allow contractors to pursue legal remedies, even without the government’s consent.
The dispute arose after a government contractor named NXL sought reimbursement for overhead costs under its contract with the Virginia Department of Transportation (“VDOT”). VDOT denied payment based on its interpretation of certain Federal Acquisition Regulations (“FAR”) provisions. NXL ultimately entered into an unfavorable settlement with VDOT based, in part, on this interpretation of the FAR. However, during settlement negotiations, VDOT received guidance from the Federal Highway Administration (“FHWA”) on the correct interpretation of the relevant FAR provisions. The FHWA’s interpretation confirmed that NXL was entitled to reimbursement. VDOT intended to adopt FHWA’s interpretation but withheld this information from NXL during settlement negotiations.
Thereafter, Montalla, LLC acquired NXL’s contracts with VDOT. Montalla, LLC discovered that VDOT withheld this information and sued VDOT seeking equitable rescission of NXL’s settlement agreement and recovery of contract damages. The trial court and Court of Appeals dismissed the case based on VDOT’s asserted defense of sovereign immunity. The Supreme Court of Virginia reversed. Although the Supreme Court noted that the doctrine of sovereign immunity is “alive and well” in Virginia, it ultimately found that the defense does not extend to actions based on valid contracts entered into by authorized agents of the government.
This decision strengthens protections for contractors and confirms that the Commonwealth of Virginia must uphold its contractual obligations. Moving forward, contractors should be cognizant of their ability to enforce their contractual rights against the Commonwealth.
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Updates to FHWA’s Buy America Requirements for Manufactured Products
On January 14, 2025, the Department of Transportation’s Federal Highway Administration (FWHA) published a final rule erasing the long-standing Manufactured Products General Waiver to FHWA’s Buy America requirements. For more than four decades, the general waiver has allowed states and contractors to use foreign manufactured products on federally funded transportation projects. Under the FHWA’s new rule, (1) final assembly of manufactured products must occur in the United States (the “final assembly requirement”), and (2) components mined, produced, or manufactured in the United States must be greater than 55 percent of the total cost of the manufactured products (the “55 percent requirement”). FWHA will impose the new rule in two phases. The final assembly requirement will take effect for projects obligated on or after October 1, 2025. The 55 percent requirement will take effect for projects obligated on or after October 1, 2026.
During the rule’s public notice and comment period, commentators expressed concerns over increased cost and domestic availability of many manufactured products routinely used in federal-aid projects, such as lighting systems, Traffic Management Systems (TMS) equipment, Intelligent Transportation Systems (ITS) equipment, and rolling stock.
Going forward, contractors involved in federal-aid transportation projects should understand FHWA’s new rule and pay close attention to any updates to the rule. They should also discuss the new requirements with suppliers to ensure compliance with the requirements as they take effect on future federal-aid projects.
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The Recent Amendments to F.R.E. 702 for Expert Testimony
On December 1, 2023, the most significant changes in almost 25 years to the federal rule governing expert testimony (Federal Rule of Evidence 702) took effect. The changes to Rule 702 are shown below, with additions underlined and deletions indicated as strike-through text:
Rule 702. Testimony by Expert Witnesses
A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if the proponent demonstrates to the court that it is more likely than not that:
- the expert’s scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue;
- the testimony is based on sufficient facts or data;
- the testimony is the product of reliable principles and methods; and
- the expert has reliably applied expert’s opinion reflects a reliable application of the principles and methods to the facts of the case.
The first change clarifies that the proponent of expert testimony has the burden of establishing all four criteria by a preponderance of the evidence. “Some evidence” is not enough—the proponent must prove the expert’s methods are “more likely than not” reliable. As the Advisory Committee observed, “many courts have held that the critical questions of the sufficiency of an expert’s basis, and the application of the expert’s methodology, are questions of weight and not admissibility. These rulings are an incorrect application of Rules 702 and 104(a).” The second change requires that the opinions offered by an expert reliably follow from the expert’s methodology. This is designed to address the problem of expert’s overstating or exaggerating the conclusions that can be drawn from applying a given method.
Expert testimony is critical in most construction, class action, and healthcare litigation cases. Going forward, litigants should expect courts to have a renewed focus on expert admissibility issues and their critical gatekeeping role. Litigants should be prepared for increased attention by courts to threshold expert admissibility questions and be prepared to establish and/or challenge that admissibility. Litigants should also be wary of case law that incorrectly applied the prior version of Rule 702.
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Virginia Enacts New Law Prohibiting “Pay-if-Paid” Clauses
Beginning January 1, 2023, “Pay-if-Paid” clauses will no longer be enforceable in public and private construction contracts in Virginia. “Pay-if-paid” provisions in construction contracts have long been enforceable under Virginia law. These conditional payment provisions are intended to protect general contractors from the risk of nonpayment by the owner by making the duty to make payment to subcontractors or downstream parties expressly conditioned on receipt of payment from the owner. Enacted on April 27, 2022, Senate Bill 550 is a bill that prohibits contractors on both private and public construction projects in Virginia from including provision in subcontracts that condition payment on the receipt of funds from the owner or high-tier contractor. SB 550 does not, however, prohibit a general contractor from issuing a back charge to a subcontractor for noncompliance with the terms of the subcontract as long as it notifies the subcontractor in writing of the intent to withhold and the reason for withholding payment. This new law is scheduled to take effect January 1, 2023.
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This Settlement Cannot Stand: Eleventh Circuit Rejects $35 Million Class Settlement Citing TransUnion and Article III Standing
In an opinion issued in July 2022, the Eleventh Circuit Court of Appeals vacated an order certifying a class and approving a class settlement after deciding, sua sponte, that the class lacked Article III standing. See Drazen v. Pinto, 41 F.4th 1354 (11th Cir. 2022).
The district court had approved a $35 million dollar class settlement between GoDaddy.com LLC and a putative nationwide class of consumers. GoDaddy sought to resolve allegations that it violated the Telephone Consumer Protection Act of 1991 by sending “robocalls”—automatic, unsolicited calls and texts—to market its services. The putative class was defined to include all persons in the United States who received a call or text message to their cell phone from GoDaddy from November 4, 2014 through December 31, 2016.
A relatively small number of absent class members—approximately 7%—fit within that definition but had received only one unsolicited text message during the class period. Under Eleventh Circuit precedent, however, receipt of a single unwanted text message was not a sufficiently concrete injury to give rise to Article III standing. See Salcedo v. Hanna, 936 F.3d 1162, 1168 (11th Cir. 2019). After ordering further briefing on this issue, the district court, relying on Cordoba v. DIRECTV, LLC, 942 F.3d 1259, 1273 (11th Cir. 2019), determined that only the named plaintiffs were required to have standing. The district court ruled that GoDaddy was, therefore, entitled to settle with the prospective plaintiffs, even if they lacked standing under Eleventh Circuit precedent, because they may have had viable claims under the law of their respective circuits (due to a circuit split). (In dicta, the Eleventh Circuit rejected this line of reasoning outright).
The Eleventh Circuit, citing TransUnion LLC v. Ramirez, __ U.S. __, 141 S. Ct. 2190 (2021), determined that it lacked jurisdiction because the class, as certified, was defined to include members who lacked Article III standing. Therefore, the court could not affirm the district court’s decision to certify the class or approve the proposed settlement. Acknowledging that Cordoba contemplates the possible certification of a class with putative class members who lack standing, the court pointed out that Cordoba also recognizes standing may, in some cases, be “exceedingly relevant” to the certification analysis and, in any event, must be established before relief is granted. Of course, in TransUnion, the Supreme Court ruled, inter alia, that class members must have Article III standing to recover individual damages. Reading those cases together, the Eleventh Circuit found that “[a]ny class definition that includes members who would never have standing under our precedent is a class definition that cannot stand.”
Drazen underscores the importance of analyzing whether the named plaintiffs and every absent class member has Article III standing at every stage of the litigation. This decision could have broad implications for not only TCPA class actions but any class action where Article III standing is in question.
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Can a Text Message Form a Binding Contract? In at Least One Court, the Answer is Yes.
As more business is conducted via text messaging, new legal problems will continue to arise. Recently, a court addressed whether a letter of intent was binding based on an exchange of e-mails and text messages between real estate brokers. In St. John’s Holdings, LLC v. Two Electronics, LLC, No. 16 MISC 000090 RBF the court examined whether the parties merely engaged in negotiations regarding the purchase of certain property, or whether their text messaging gave rise to a binding and enforceable contract for the purchase and sale of the real estate.
Because this was a sale of real estate, the issue at hand was whether the text messaging was sufficient to satisfy the Statute of Frauds. To resolve this issue, the court looked at whether (a) a text message can be a writing under the Statute of Frauds, (b) whether the alleged writing contains sufficiently complete terms and an intention to be bound by those terms, (c) whether the text message is signed, and (d) whether there is an offer and acceptance.
The factual timeline in St. John’s Holdings, LLC involved a number of drafts of the letter of intent sent from the Buyer to the Seller. None of these drafts were signed by the Buyer. Eventually, the Seller’s agent sent the Buyer’s agent a text asking the Buyer to sign the letter of intent and provide a deposit. The Seller’s agent included his name at the end of this text message. The Buyer signed the letter and provided the deposit, and then texted to the Seller’s agent: “Tim, I have the signed LOI and check it is 424[pm] where can I meet you?” Thereafter, the Seller’s agent met the Buyer’s agent and accepted the signed letter and deposit. After this exchange, the Buyer’s agent sent a text message requesting a copy of the letter executed by the Seller, but was informed via text message, “[Seller] was out of town today. He will get back to us tomorrow.” The Buyer was later informed that the Seller had accepted a separate offer from a third-party, and did not close on the deal with the Buyer.
The court found that the text messages, read in the context of the negotiations and exchanges between the parties, contained sufficient terms to create a binding contract between Buyer and Seller. The court found sufficient support that multiple writings relating to the subject matter of the agreement may be read together as long as they contain all of the material terms of the agreement and are eventually authenticated by signature. Therefore, the text messages, together with the previous negotiations and draft letters exchanged, satisfied the writing element of the Statute of Frauds. The ultimate factor for the court was that “[t]he way in which the parties handled the transaction was sufficient for them to appreciate that the text message would memorialize the contractual offer and acceptance.” Therefore, the court embraced a contextual approach to effectuate the intent of the parties.
Once determining that the text messaging constituted a writing, the court liberally construes the “signature” element and inferred from the Seller’s agent adding his name to the end of the text message that it was intended to create a binding signature. The court found that “the use of his signature at the end of the February 2nd text message is evidence of his intent to have the writing be legally binding.” Therefore, the court found that the text message from the Seller’s agent, asking the Buyer to sign the letter of intent and provide a deposit, was a binding contract.
While this case concerns the purchase of real property, and therefore involves the Statute of Frauds, it does provide instruction for construction projects in the 21st century. As more and more communication is conducted informally via text messaging, parties need to be aware that text messages can and will have legal ramifications. A text message may not be as informal as one thinks, at least in the eyes of the law. Further, this case shows the importance of preserving documentation. While e-mail is routinely stored and backed-up, text messages are more prone to deletion or being lost. It is important to remember that steps must be taken to preserve text messages, as a claim could survive or fail based on text messaging documentation. Law firms should instruct clients on the need to preserve all relevant documentation, including text messaging. Issues can arise if team members are discussing change orders or potential claims via text messaging, which may also raise notice issues.
Ultimately, cases such as this remind us that the law must continually adapt to modern technologies and business practices, and that parties must be aware of how modern communication methods will be interpreted by courts.
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What’s Your Excuse? COVID-19 and the Contractor’s Excusable Delay Claim
With the successful progress of the COVID-19 vaccine rollout, life in the U.S. is beginning to return to what many people will refer to as “the new normal.” While most of the country is preparing to return to “business as usual,” for those in the construction industry, business – for the most part – never really took a break from its usual pace. And while the regular pace of the construction industry is no stranger to delays and disputes arising from schedule disruptions, the construction industry, like many other industries, has and continues to face issues directly related to the COVID-19 pandemic. Such impacts include, for example, disruptions in the material supply chain, project site closures, and labor impacts. In the face of these unexpected new challenges directly resulting from the pandemic, those in the construction industry and particularly, construction lawyers, must consider whether such delays are excusable and, if so, whether they are entitled to compensation.
Whether a delay is excusable depends on the contract language and the circumstances surrounding the delay. For government contracts, the Excusable Delay clause (FAR 52.249-14) provides that any delay arising from “causes beyond the control and without the fault or negligence of the contractor” is excusable. The clause includes enumerated examples of circumstances that result in excusable delays like acts of God, fires, floods, epidemics, and even quarantine restrictions. Similarly, under the AIA’s Delays and Extensions of Time clause (section 8.3.1), a reasonable extension of time can be provided in circumstances where the delay was caused by something out of the contractor’s control like bad weather, labor disputes, or delivery delays. However, in order to be compensated for the delay under the FAR, the contractor must show that the Government was the sole and proximate cause of the delay. Likewise, under the standard AIA contract, the contractor must show that the owner solely caused the delay without any concurrent contractor delay. Examples of compensable delays include the Government’s failure to give timely work orders or an owner providing defective drawings; situations where the contractor can readily demonstrate that they had no fault in the delay.
In the case of the COVID-19 pandemic, it’s safe to say that such delays are beyond the reasonable control of and not reasonably anticipated by contractors. Still, that doesn’t necessarily mean that any delay in construction since the start of the pandemic in early 2020 can be deemed compensable or even excusable.
While there is no significant caselaw development specifically related to COVID-19 construction delays at this time, there’s plenty of guidance relating to government contracts from past unforeseeable events and their subsequent construction delays. In Ace Electrical Assoc’s, Inc., a contractor sought to change its termination for default into a termination for convenience by arguing that “a flu epidemic that had passed through its plant causing a 30% to 40% rate of absenteeism over a period of several weeks” had caused production delays. ASBCA No. 11781, 67-2 BCA ¶ 6,456. While accepting the notion that a flu epidemic could be cause for an excusable delay, the Board noted that the mere existence of a flu epidemic does not make a delay excusable per se. Id. Instead, the Board made clear that to establish an excused delay, the contractor must not only show the existence of the excusable cause for delay but also how the delay specifically affected the contractor, its work, and the efforts made to mitigate such delay. Id. Later, in Asa L. Shipman’s Sons, the Board faced a similar flu-related excusable delay claim and, in denying the contractor’s argument, made clear: “the essence of the ‘Ace Electronics’ test is the requirement that a defaulted contractor prove that an epidemic was the sole cause, not merely a contributing cause, of the performance delay.” GPOBCA No. 06-95, 1995 WL 818784 (Aug. 29, 1995). Similarly, in Crawford Development and Mfg. Co., a contractor maintained that its 4-week delay in production was caused by a flu epidemic that caused several key employees to become ill. ASBCA No. 17565, 74-2 BCA ¶ 10,660. The contractor’s records showed, however, that during the period the contractor was delayed, only two employees were absent and that the rest of the delay period was actually due to an industrial accident – not the flu epidemic. Id. Again, because the contractor failed to precisely establish how the flu epidemic materially affected its ability to perform, the Board denied the claim. Id.
Past flu epidemic excusable delay cases suggest that contractors claiming a delay in performance due to the COVID-19 pandemic should be prepared to establish, with specificity, how the pandemic directly caused their delays. Merely pointing to COVID-19 as a cause for delay will likely be insufficient, especially because – unlike past flu epidemics – the COVID-19 pandemic has impacted industries across the country for longer than just a few months. In other words, while certain Stay-at-Home Orders that did not identify construction workers as “essential” is likely cause for an excusable delay, lack of manpower due to employee illness may require more detail.
Legal precedent suggests, however, that contractors should not hold their breath for delay-related compensation. As mentioned earlier, the FAR and standard AIA contracts are very particular when it comes to a contractor’s right to delay-related compensation (i.e., the owner or government must be the sole cause of the delay to justify compensation). Contractors will have a difficult time arguing that delays resulting from COVID-19 were foreseeable by the government or owners in a way that would entitle them to compensation. In Pernix Serka JV c. Department of State, a contractor was unable to meet certain deadlines due to the Ebola virus outbreak in Sierra Leone. CBCA No. 5683, 20-1 BCA ¶ 37,589. The contractor was given time extensions by the government agency but was ultimately terminated due to the continued delays. Id. The contractor brought suit, seeking compensation for the costs it incurred to protect the health of its employees by arguing that the government agency’s expectation that work continue during the Ebola outbreak constituted a constructive and cardinal change. Id. The Civilian Board of Contract Appeals denied the claim, noting that the government agency never changed the scope of work expected of the contractor and that, even though the Ebola outbreak was unexpected, the government agency did not direct the contractor to make any changes as it related to the construction to justify compensation. Id. Using this example, contractors may be expected to show an actual owner or government ordered revision to the schedule or scope of work in lieu of the pandemic, which would then entitle the contractor to compensation. Additionally, contractors should note that any delay in their own project management during the pandemic may provide the government or owner with a concurrent delay counterclaim that could eliminate the ability to receive compensation.
In conclusion, contractors and their counsel should understand that COVID-19 related excusable delay claims must be equipped with detailed documentation that establish the causal link between the pandemic and the specific delays. Contractors should also be able to identify the precise ways in which they attempted to mitigate such delays in order to avert owner or government claims of concurrent delay. Moving forward, contractors should consider inserting more delay-related protective provisions and should consider expanding the definition of Force Majeure in their contracts to shield themselves from future problems associated with unforeseeable pandemics and the need for greater (and more costly) safety measures for their employees. As the country begins to reemerge from the chaos of the pandemic, we will likely see more caselaw specifically on these issues and continue to update our clients.
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Attention Contractors – New Defense to Joint Liability Available
By now, most contractors are cognizant of the impact of Virginia Code § 11-4.6. Enacted in 2020, this statute allows general contractors to be liable if their subcontractors fail to properly pay their employees. In 2021, the General Assembly modified this statute and general contractors need to be aware of this revision.
The modified statute provides that a general contractor may provide a “certification” as evidence that they did not know, and had no reason to know, that their subcontractors were not paying their employees properly. The general contractor must obtain this certification, in writing, from their subcontractor, and the certification must be signed by the subcontractor under oath. The certification must also state that the subcontractor and its sub-subs, paid all of their employees all wages due for the work performed on the project. Construction companies should review this newly modified statute and update their subcontracts and lien waivers accordingly.