GIBBS, GIDEN, LOCHER & TURNER LLP NEWSLETTER

Vol. XI

Summer 2001

STATUTORY RELEASE FORMS:
IS THECONSTRUCTIONINDUSTRY

LIVING IN AFOOL'SPARADISE?
by Kenneth C. Gibbs and Barbara L. Hamilton

HIGH COURTS APPROVE MANDATORY ARBITRATION OF EMPLOYMENT DISPUTES
by Gary E. Scalabrini

CHANGES IN SECURED TRANSACTIONS
by William D. Locher and Marion T. Hack 

EXECUTIVE ORDER PROHIBITS

PROJECTLABORAGREEMENTS
ON

FEDERALLY FUNDED PROJECTS
by Robert P. Judge

by Kenneth C. Gibbs and Barbara L. Hamilton

    It is no secret that Civil Code §3262 provides that claims and liens on construction projects may be released only by claimants’ written consent.  Further, §3262 prescribes specific language that must be used for a claimant’s release to be valid; unless release language “substantially” follows that set forth in the statute, a release runs the risk of being deemed ineffective.  As a result, when progress and final payments are made for work performed on a project, prudent owners, contractors and subcontractors routinely require lower-tier contractors to execute conditional and unconditional release forms, as appropriate, that contain the precise statutory language of §3262.  Relying on the statutory releases alone, however, may not be sufficient to fully resolve all payment issues.

    In hewing to the industry standard of relying solely on execution of statutory release forms in connection with payments made on a project, it now seems clear that the construction industry is living in the proverbial Fool’s Paradise.  Each of those forms (“Conditional Waiver and Release Upon Progress Payment,” “Unconditional Waiver and Release Upon Progress Payment,” “Conditional Waiver and Release Upon Final Payment,” and “Unconditional Waiver and Release Upon Final Payment”), on its face, releases only “any mechanic’s lien, stop notice, or bond right” the claimant has on the job.  The statutory release forms do not include a release of contract rights.  As such, a claimant who has released its lien, stop notice and bond rights by signing a statutory release still maintains the right to make claims under its contract.

    At least one appellate court recently acknowledged this gap in the statutory release language.  In Amelco Elec. v. City of Thousand Oaks (2000) 82 Cal.App.4th 373 (review granted), the City of Thousand Oaks contended that the contractor released its claim for contract damages against the City by executing Unconditional Waiver and Release forms containing the language mandated by Civil Code §3262.  The Court of Appeal was not persuaded by the City’s contention and stated:  “The argument [that contract claims are released] is without merit.  The releases at issue are expressly limited to Amelco’s mechanic’s lien, stop notice or payment bond rights....  Amelco’s release of one available remedy does not, without more, release its right to pursue other remedies.”  Amelco at p. 391.

    Although the Court of Appeal opinion in Amelco has been depublished pending review by the California Supreme Court, the Court’s comments underscore the need to obtain separate forms releasing a claimant’s contract rights, together with the statutory release forms, when payments are made for work performed on a construction project.  Note that the release language specified in Civil Code §3262 may not be altered without risk of invalidating the release; accordingly, our firm has developed a set of separate release forms pertaining to contract rights, to be used in conjunction with the statutory forms to ensure a complete waiver of all potential claims.  If you are interested in obtaining the forms please contact us.

* * *

by Gary E. Scalabrini

     Both the United States Supreme Court and the California Supreme Court recently upheld the use of agreements requiring employees to arbitrate employment disputes, including claims of wrongful termination or employment discrimination. (Circuit City Stores, Inc. v. Adams (2001) ___ U.S. ___, 121 S.Ct. 1302; Armendariz v. Foundation Health Psychcare (2000) 24 Cal.4^th 83.)  Although the high courts generally approved such agreements, their enforceability in California may depend on the precise claims asserted by the plaintiff, the forum in which the plaintiff asserts his or her claims and the terms of the arbitration agreement at issue.

     In Circuit City, the United States Supreme Court held that employment arbitration agreements are not excluded from the Federal Arbitration Act (the “FAA”).  In particular, the Court reversed the Ninth Circuit Court of Appeals, which previously held that all “contracts of employment” were excluded by Section 1 of the FAA.  In reversing the Ninth Circuit, the Supreme Court concluded the exclusion provided in Section 1 was to be narrowly construed, and excluded only transportation-related employees, such as seamen and railroad employees.

     Although not directly at issue, the Circuit City decision seems to undermine other Ninth Circuit opinions that prohibit the enforcement of pre-dispute arbitration agreements with respect to claims asserted under Title VII of the Civil Rights Act of 1964. (See, Duffield v. Robertson Stephens & Co. (9^th Cir. 1998) 144 F.3d 1182.) Although Duffield and related Ninth Circuit authority rely on the interpretation of Title VII, as opposed to the Supreme Court’s interpretation of the FAA, the broad decision in Circuit City may signal an ultimate reversal of Duffield and its progeny.  For the present time, however, the Duffield case remains controlling authority in federal courts seated in California, and such courts will not enforce arbitration agreements for Title VII claims.  (See, e.g., Equal Employment Opportunity Commission v. Luce, Forward, Hamilton & Scripps, LLP (C.D. Cal. 2000) 122 F.Supp.2d 1080.)

     The California Supreme Court in Armendariz, on the other hand, expressly rejected the Ninth Circuit’s enforcement prohibition set forth in Duffield as it pertained to a claim under the California Fair Employment and Housing Act (the “FEHA”).  In Armendariz, the state high court determined that arbitration agreements are enforceable if the employee is permitted to vindicate his or her statutory rights by meeting certain minimum requirements, including: (i) availability of all statutory remedies including punitive damages and attorneys fees; (ii) a neutral arbitrator; (iii) adequate discovery; (iv) a written decision; (v) a limited form of judicial review; (vi) limits on arbitration costs; and (vii) mutuality of claims.

     Since Armendariz, several California Courts of Appeal have concluded that arbitration agreements that did not conform with the above requirements were unenforceable because they contained “multiple defects [indicating] a systematic effort to impose arbitration on an employee not simply as an alternative to litigation, but as an inferior forum that works to the employer’s advantage.” (See e.g., Pinedo v. Premium Tobacco, Inc. (2000) 85 Cal.App.4^th 774; McCoy v. Superior Court (2001) 87 Cal.App.4^th 354.)  Additionally, State Senator Kuehl has introduced legislation prohibiting an employer from requiring an employee to agree to arbitrate any claims arising under the FEHA as a condition of employment or continued employment.

     Ultimately, Duffield and Armendariz provide significant constraints on arbitration agreements with respect to Title VII and FEHA claims in California.  Like Duffield, however, Armendariz may be reversed if challenged under the FAA, since the FAA preempts conflicting state law. Until that time, however, California employers should adopt or revise agreements that comply with the guidelines set forth in Armendariz.  Indeed, it would be prudent to have an employment law attorney from our firm review your existing agreements or draft new agreements to ensure compliance with Armendariz.

* * *

by William D. Locher and Marion T. Hack

     Article 9 of the Uniform Commercial Code deals with a wide variety of consensual security interests in personal property.  Effective July 1, 2001, the California Commercial Code will be revised to reflect new changes in Article 9 (“Revised Article 9”).  The scope of the revisions is extensive.  This article outlines a few of the significant changes.

Scope of Revised Article 9

     Article 9 generally applies to any interest in personal property and fixtures that is created by contract and secures payment or other performance of an obligation. The title of a security instrument or the label used to describe the transaction is irrelevant.  So long as the transaction creates a security interest in personal property it falls under Article 9.  The only requirement for a secured transaction is that it be based on a consensual agreement between the parties.  If the security interest created is not consensual then Article 9 does not apply.

     One of the most important changes found in Revised Article 9 is the expansion of the type of transactions covered.  For example, agricultural liens and consignments are now covered, as well as the sale of payment intangibles and promissory notes.  A payment intangible is a general intangible under which the principal obligation of the account debtor is to pay money, such as in the case of a loan not evidenced by an instrument or chattel paper.  The beneficial aspect of these two additions is that the sale of payment intangibles as well as promissory notes are automatically perfected under Revised Article 9.

Filing requirements

     The most significant change under Revised Article 9 is the change in the place where financing statements must be filed.  Under the new law, the financing statement is to be filed with the Secretary of State in the state where the debtor is located, not where the goods are located (with exceptions for fixture filings, minerals, and timber).  Local filings for consumer goods and farm products are abolished.

     The debtor’s location has a new meaning for corporations and other “registered” legal entities (e.g., limited liability companies).  These entities are located at the place of registration (i.e., the state of incorporation). Therefore, for purposes of filing a financing statement under Revised Article 9, a Delaware corporation is located in Delaware even if none of its business is done there and the collateral is located in another state.

     The good news is that all proper filings made before July 1, 2001 remain effective for the same term as under the old law, even if the proper filing would be in a different location under Revised Article 9.  The old filings expire on the earlier of June 30, 2006 or the normal lapse date.  Therefore, until July 1, 2006, anyone searching for filed financing statements on secured collateral should search the Secretary of State filings in the state where the collateral is located as well as in the state where the debtor is located/registered.

     The revisions to Article 9 also simplify some of the filing requirements for financing statements. In order to accommodate electronic filings, a debtor’s signature on the financing statement is not required.  Moreover, a financing statement will be effective if it contains the following three items:  (a) name of the debtor, (b) name of the secured party, and (c) a generic description of the collateral.  Under Revised Article 9, the secured creditor is no longer required to describe collateral by item or type; any description that identifies the collateral is effective in the financing statement.

     Although generic descriptions of collateral are acceptable in financing statements, they are not acceptable in security agreements.  Security agreements should still include a complete description of the collateral.

     There are many more changes to Article 9 that are not discussed here. If you utilize personal property security interests in your business and you have any questions regarding Revised Article 9, do not hesitate to contact us in order to ensure that all existing and planned security interests are properly perfected and that your rights are secure.

* * *

by Robert P. Judge

     On February 17, 2001, President Bush signed an executive order prohibiting “Project Labor Agreements” on federally funded construction projects.  A Project Labor Agreement, or “PLA,” requires all work on a given project to be done under union contract.  President Bush’s order revokes a 1993 order signed by President Clinton, which gives preference to union workers in jobs using federal funds.  The new order is prospective only in its application, which means that it does not apply to contracts awarded prior to the date of the order.  The new order appears in the Federal Register at 66 FR 11225.

* * *

The information contained in this Newsletter should not be relied upon as legal advice or opinion regarding any specific matter.
All readers should contact professional legal counsel to obtain advice on specific projects or issues.

SPECIAL NOTICE:  The State Bar of Nevada does not certify any lawyer as a specialist or expert.
© 2001 Gibbs, Giden, Locher & Turner LLP.  All Rights Reserved.