Monthly Archives: November 2014

An Ounce Of Prevention Is Worth A Pound Of Cure: Why Your Business Needs a Lawyer

Time and time again I hear small business owners say that they cannot afford a lawyer. They usually follow that statement with something like “Hopefully, I’ll never need one”. This is simply a HUGE mistake and a bad business practice.

Would you invest 50% of your companies earnings in the stock market but wait until you’ve lost most of the money before you hire an investment banker? Would you wire your business for electricity but wait until after the building catches on fire before you decide to consult an electrician? No? Then why spend thousands of dollars into building a business only to lose it, or a large amount of its revenue in a lawsuit because you did not consult a lawyer, and tried to do all the legal work?

An attorney should be an essential part of your business. In the start-up phase of your company, you should anticipate ongoing legal expenses. You should desire to have an ongoing business relationship with an attorney so that he or she can provide regular consultations to help your company avoid criminal and civil liability. Waiting until after you are sued or sanctioned to consult a lawyer is like waiting until you are very sick before going to the hospital. Little good can come from it and the money that was saved by avoiding legal consultation is often lost in a judgment or defending suit. This is is especially true if your business does transactions with other businesses.

BUT LAWYERS ARE SOOOOO EXPENSIVE!

It is true that business attorneys are not cheap and they shouldn’t be. The practice of business law is very complex and meticulous. If a business attorney is billing anything less than $150.00 per hour you may want to question the quality of service. However, It is possible to save money and find a good business attorney.

Attorneys at large firms are VERY expensive. Big law firms have big overhead and pay big salaries. Those costs get passed to you. You also pay for the firm’s reputation. Even the young lawyers at big firms are billed to companies at $400-$600 per hour right out of law school. However, smaller firms have less overhead and less attorneys salaries to pay out. They can often offer billing at lower rates such as $150-$400 depending on the attorneys experience. In addition, some smaller firms are sometimes willing to offer lower rates for a commitment to ongoing business.

OK SO WHAT SHOULD I DO NOW?

Contact a lawyer immediately! Inform them that you are looking to build a business relationship and that you are seeking regular legal counsel for your company. The meeting can be very informal. In fact, I often take meetings of this variety during lunch. I save the office meetings for the more serious issue specific cases where a company is already being sued.

During the meeting, you should get a feel for the attorney and see if you feel that you all can have a workable relationship. Also, check and see if the attorney has experience in your industry. If all goes well, offer to allow the attorney to come and see how the business is operated so the he or she can become more familiar with the company. I often make site visits and see the way my clients business is ran. Your goal should be to help the attorney help you avoid liability. Do not look at the lawyer as an expense. Consider the lawyer to be long term investment and asset to your business.

Should you have any questions regarding your business, please feel free to reach out to our office at 832-930-0529 or info@kestephenslaw.com.

None of the information given here is intended to be legal advice and it should not be construed as such.

Zachry Constr. Corp. v. Port of Houston Auth.: Limits On Contractual Freedom In Construction

Zachry Constr. Corp. v. Port of Houston Auth.

Limits On Contractual Freedom In Construction

Generally speaking, as long as your contract isn’t illegal or unconscionable, courts have a tendency to allow parties to enter into agreements at their own risk. Courts reason that any mitigation of risk can and should be negotiated by the parties to the contract. However, in Zachry Constr. Corp. v. Port of Houston Auth., the Texas Supreme Court’s ruling demonstrates that sometimes public policy can dictate the validity of a contract’s provisions.

Background Facts

Zachry Construction Corporation (“Zachry”) and Port of Houston Authority (“Port”) entered into a contractual agreement whereby Zachary was to build a wharf on a ship channel. There was a very tight timetable which Zachary was aware of when they entered into the contract. To complete the project on time, Zachry developed a plan that required it to use a freeze wall.

At some point during the construction, Port decided it needed the wharf to be 332ft larger than it originally planned. Zachary elected to use another freeze wall but the Port had reservations regarding the use of the freeze wall. However, the Port waited until two weeks after a change order was issued based on Zachary’s plan and then demanded that Zachary submit a plan without the freeze wall.

Zachary completed the original section of the wharf and begin constructing the second section without the freeze wall. This delayed completion by two years and it caused $2.36 million in liquidated damages. Zachary eventually filed suit for $30 million in damages.  However, the Port pointed to a No-delay-damages provision which stated in part:

Zachry or any of its subcontractors or suppliers shall receive no financial compensation for delay or hindrance to the Work, regardless of the source of the delay;

Zachry was not entitled to financial compensation even if the source of the delay resulted from events of force majeure or the negligence, breach of contract, or other fault of the Port; and

Zachry’s sole remedy shall be an extension of time.

 

Generally speaking, there are five exceptions to the rule that a contractor may agree to assume the risk of construction delays and not seek damages under Texas law. The two exceptions relevant to this case are: where the delay

(ii) resulted from fraud, misrepresentation, or other bad faith on the part of one seeking the benefit of the provision;  

(v) was based upon active interference with the contractor or other wrongful conduct, including arbitrary and capricious acts, willful and unreasoning actions, without due consideration and in disregard of the rights of other parties.

Although Zachry was able to convince a jury that the intentional acts of Port voided the no delay damages provisions, the court of appeals stated that the “other fault” language in the no-delay-damages provision was intended to cover the kind of misconduct by the Port found by the jury. However, the Texas Supreme Court disagreed.

The Law

The Texas Supreme Court doubted whether “other fault” was intended to include the kind of deliberate, wrongful conduct in which the Port engaged. The court stated that experienced contractors can assess potential delaying events when estimating and bidding public works, but they cannot assess potential delays that may arise due to an owner’s direct interference, willful acts, negligence, bad faith fraudulent acts, or omissions. See Zachry, No. 12-0772, 2014 Tex. LEXIS 768, at *40-41.

Secondly and more surprisingly, the court stated that, a contractual provision exempting a party from contract liability for harm caused intentionally or recklessly is typically unenforceable on public policy grounds. The court reasoned that this case was comparable to cases where pre-injury waivers of future liability for gross negligence were void as against public policy. The court stated that its conclusion was supported by lower courts in Texas and 28 other U.S. jurisdictions. See Zachry, No. 12-0772, 2014 Tex. LEXIS 768, at *41-44.

What This Means

This case is important for a number of reasons. However, the biggest reason is that outside of this case, generally speaking, courts only interfered with waivers and other immunizations in tort or injury cases. The public policy exception’s extension to contract law is something that all contractors should be aware of.

Nothing here is intended to be legal advice nor should it be construed as such. If you have questions or would like to discuss an issue with your company, please call 832-930-0529 or visit http://www.StephensBell.com