Construction Law Ed.
July 2024
In Loper Bright Enterprises v. Raimondo, decided on June 28, 2024, the U.S. Supreme Court overruled Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837 (1984). The decision, involving a rule promulgated by the National Marine Fisheries Service, marks a monumental change in federal administrative law. While the “Chevron Doctrine” is not itself a matter of construction law (I do not routinely cover the doctrine in my courses), participants in the construction industry should take note of the case because of the many federal regulations to which they are subject.
Chief Justice Roberts, writing for the majority in this 6-3 decision, explained that the now-defunct doctrine established a “framework to interpret statutes administered by federal agencies.” Under Chevron, if ‘the statute is silent or ambiguous with respect to the specific issue’ at hand, the court must . . . defer to the agency’s interpretation if it ‘is based on a permissible construction of the statute.’”
Roberts summarized the new standard in the opinion’s penultimate paragraph:
“Courts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority, as the APA [the Administrative Procedures Act] requires. Careful attention to the judgment of the Executive Branch may help inform that inquiry. And when a particular statute delegates authority to an agency consistent with constitutional limits, courts must respect the delegation, while ensuring that the agency acts within it. But courts need not and under the APA may not defer to an agency interpretation of the law simply because a statute is ambiguous.”
This term, the U.S. Supreme Court decided two cases (neither arising out of a construction industry dispute) that interpret narrow aspects of the FAA.
The case most likely to impact construction contracts is Smith v. Spizzirri, 144 S. Ct. 1173 (2024), decided on May 16. The delivery drivers who brought the case asserted violations of federal and state employment laws. Justice Sotomayor’s opening paragraph in her brief opinion for the unanimous Court tells the essential story: “The Federal Arbitration Act (FAA) sets forth procedures for enforcing arbitration agreements in federal court. Section 3 of the FAA specifies that, when a dispute is subject to arbitration, the court “shall on application of one of the parties stay the trial of the action until [the] arbitration” has concluded. 9 U.S.C. § 3. The question here is whether § 3 permits a court to dismiss the case instead of issuing a stay when the dispute is subject to arbitration and a party requests a stay pending arbitration. It does not.”
The opinion’s penultimate paragraph provides a similarly concise explanation of what may be the holding’s chief practical significance: “staying rather than dismissing a suit comports with the supervisory role that the FAA envisions for the courts. The FAA provides mechanisms for courts with proper jurisdiction to assist parties in arbitration by, for example, appointing an arbitrator, see 9 U.S.C. § 5; enforcing subpoenas issued by arbitrators to compel testimony or produce evidence, see § 7; and facilitating recovery on an arbitral award, see § 9. Keeping the suit on the court’s docket makes good sense in light of this potential ongoing role, and it avoids costs and complications that might arise if a party were required to bring a new suit and pay a new filing fee to invoke the FAA’s procedural protections. District courts can, of course, adopt practices to minimize any administrative burden caused by the stays that § 3 requires.”
The second case, decided on May 23, is Coinbase, Inc. v. Suski, 144 S. Ct. 1186 (2024), which involved two contracts between the parties. The first (a user agreement for a cryptocurrency exchange platform) contained an arbitration provision specifying that an arbitrator should decide any dispute over whether a particular matter was arbitrable. The second contract (governing participation in a cryptocurrency sweepstakes) included a forum selection clause, specifying that all disputes related to that contract should be decided in California state or federal courts. Justice Jackson’s opinion for the Court provides this summary: “Coinbase insists that the first contract’s delegation clause established the terms by which all subsequent disputes were to be resolved, so the arbitrability of a contract-related dispute between these parties is a matter for the arbitrator to decide. But respondents maintain—and the Ninth Circuit held—that the second contract’s forum selection clause superseded that prior agreement. This case thus presents the following question: When two such contracts exist, who decides the arbitrability of a contract-related dispute between the parties—an arbitrator or the court?”
The Court affirmed the Ninth Circuit’s decision, relying on the logical basis that because arbitration is matter of contract, these conflicting dispute resolution provisions in related contracts presented a question of contract interpretation for a court to decide under contract law principles. This decision was also unanimous, although Justice Gorsuch filed a concurring opinion to express his view that the affirmance should not be read as endorsing all aspect’s of the Ninth Circuit’s reasoning and analysis.
Construction industry cases are beginning to reflect the U.S. Supreme Court’s decision in Students for Fair Admissions, Inc. v. Pres & Fellows of Harvard College, 600 U.S. 181 (2023). Applying strict scrutiny under the Equal Protection Clause, the Court held that race-conscious affirmative action admissions criteria at Harvard College and The University of North Carolina were unconstitutional.
One of the most recent cases of interest to the construction industry is Nuziard v. Minority Business Development Agency, 2024 WL 965299 (N.D. Tex. Mar. 5, 2024). That case involved a program of the Minority Business Development Agency pursuant to the federal Infrastructure Act. The Construction Litigation Reporter summarizes the holding concisely: “A federal program created under the Infrastructure Act of 2021, to provide assistance to socially or economically disadvantaged individuals presumptively defined as specific racial or ethnic groups, but not including white-owned businesses, violates the Fifth Amendment’s Equal Protection Clause and is permanently enjoined.” 45 No. 5 Construction Litigation Reporter NL 16. In another application of the Students for Fair Admissions case, a court enjoined use of a “‘rebuttable presumption’ of social disadvantage for certain minority groups to qualify them for inclusion in a federal program that awards government contracts on a preferred basis to businesses owned by individuals in those minority groups.” Ultima Servs. Corp. v. U.S. Dep’t of Agric., No. 220CV00041DCLCCRW, 2023 WL 4633481, at *1 (E.D. Tenn. July 19, 2023).
Such cases could have profound impacts on affirmative action programs that federal, state, and local governments use for awarding contracts—and not only for public projects but also for private projects that benefit from government funding. At a minimum, governmental agencies need to reassess their affirmative action programs based on the Supreme Court’s analysis in the Students for Fair Admissions case.
Construction industry participants and their lawyers will find many reasons to take note of the federal Inflation Reduction Act, passed in 2022. Among other things, the IRA offers incentives for greener construction projects. For example, it provides several billion dollars for spending on “low-carbon” materials for certain federal projects, which can include both new construction and renovations. Low-carbon materials include all materials that have “substantially lower levels of embodied greenhouse gas emissions associated with all relevant stages of production, use, and disposal.” This focus on “low-carbon” materials is part of a broader initiative by the Biden administration to reduce the construction industry’s demand for steel, concrete, asphalt, and flat glass, which the administration cites as accounting for one-sixth of total U.S. greenhouse gas emissions.
Here are two technological developments attracting the attention of construction lawyers. Both can benefit from artificial intelligence. Of course, AI holds a much broader array of promises and perils for the industry.
Animations in Dispute Resolution Proceedings: In a wide range of cases, experts are preparing 4D animations (the fourth dimension being time) to replace or supplement traditional 3D trial graphics. For example, with the help of advanced forms of scheduling and design software, forensic delay claim analysists are increasingly using animations to illustrate their analysis and conclusions about the causes and consequences of project delays, which they can play out over a timeframe coordinated with the expert’s report. Because they can serve to simulate the expert’s version of highly complex matters of cause and effect, animations can be powerful and persuasive tools in construction delay disputes. With the emerging popularity of animations to explain forensic delay claim analysis, construction lawyers will increasingly need to address new questions under the rules of evidence.
Payment Management Systems: Innovations in payment management systems can impact payment procedures in industry contracts. One popular system is Oracle’s Textura, which automatically generates invoices, manages payment approvals, and facilitates digital lien waivers, among other things. A principal challenge for lawyers is to understand such processes well enough to advise clients about potential conflicts between contractual requirements and how these systems manage the payment process. This can be especially complex when steps in the automated programs conflict with state prompt payment or lien laws.
New prevailing wage standards and regulations: The federal Davis-Bacon Act, along with related regulations, requires employers to pay “prevailing wages” for certain projects. Recent regulatory changes, some stemming from the federal Inflation Reduction Act, include the process for determining the prevailing wage for a project, an expanded definition of “prime contractor,” and new guidance for apprenticeship. Under related provisions of the Internal Revenue Code and Regulations, taxpayers may earn federal income tax credits associated with prevailing wage and apprenticeship requirements.
Build America Buy America Act: Enacted as part of the federal Infrastructure Investment and Jobs Act in 2021, this legislation establishes a domestic content procurement preference for new, federally assisted infrastructure projects. The procurement preferences directly concern iron, steel, manufactured products, and construction materials used in covered infrastructure projects.
Revisiting Diversity, Equity, and Inclusion programs: In response both to recent cases challenging affirmative action programs and state law developments, many companies are reviewing their DEI initiatives.
The Corporate Transparency Act: Enacted into law as part of the National Defense Authorization Act for Fiscal Year 2021, this law requires many businesses to report information about their beneficial owners. The goal is to combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity,
The increasing use of joint ventures in the industry requires lawyers to refine legal risk management and risk allocation practices. Lawyers are also reassessing the professional complications they face when asked to represent the joint venture while also representing one of the members of the venture.
In this arena, legal counsel currently have been advising their clients more and more about two topics—wage theft and human trafficking, which can intersect with international, federal, and state laws and regulations.
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