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On March 9, 2010, the Mississippi Court of Appeals denied a rehearing in the case of J. Criss Builder, Inc. v. White, but it is not clear the controversy has ended.  The Court has not yet released its opinion for publication which means the decision is still subject to revision or withdrawal.  Perhaps that is because the Court was clearly divided regarding the case as reflected in the four to three decision.

In this case, J. Criss Builder, Inc. ("JCB"), an unlicensed residential contractor, purchased land on which it built a house.  Janie Criss ("Criss"), the owner of JCB and an individually licensed residential contractor, oversaw the construction of the home.  On November 21, 1996, Criss purchased the home from JCB and occupied it as her homestead until February 17, 1997, when it was sold to the Whites.  Even though within one year of moving into the house the Whites noticed a hairline crack in the scored concrete floor which grew bigger over time, the Whites did not file suit for damages from foundation problems until February 12, 2003 – 6 years, 2 months and 22 days after the home had first been occupied by a resident.  On that date, the Whites sued both JCB and Criss, individually.

JCB and Criss sought to have the action dismissed on the basis that the Mississippi statute of repose barred the action.  Specifically, Miss. Code Ann. § 15-1-41 requires an action for damages arising out of construction to be brought "no more than six (6) years after the written acceptance or actual occupancy or use, whichever occurs first." There could be no disputing the fact that the first occupancy of the house occurred on November 21 1996, when Criss purchased the home from JCB for her homestead.  Thus, JCB and Criss contended suit had to be filed by November 21, 2002.  The Court also upheld liability against Criss, individually, even though the property was owned and constructed by JCB "[s]ince Criss was the licensed builder and JCB was legally prohibited from performing residential construction."

The Court majority relied upon a prior decision to conclude that the statute of repose did not apply to circumstances where the possessor and builder were the same and that the statute of repose would not begin to run until the "builder/owner, Criss, undisputably the builder, sold the home to the Whites."  Since suit was filed within 6 years of Criss selling the house to the Whites, the Court ruled the action was not barred.  The three dissenting justices would have barred the action.  They concluded that "Criss-even if considered the builder-purchased the completed home from JCB and actually occupied and used the home in her personal capacity."

The decision leaves more questions than answers.  Would the decision be the same if JCB had been properly licensed?  Residential builders commonly build a home which they occupy first and then sell to someone else.  Under this decision, could a licensed builder build a home, sell to its owner, live in the house ten years, thirty years, or more, and yet the statute of repose still not begin to run until the time the owner sells to a third party?  Clearly, more direction from the Court will be necessary.  Until that time, builders beware: "six years" under the statute of repose may not be six years.

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Less than one week after placing readers on alert about the pending decision of Architex Association, Inc. v. Scottsdale Insurance Company, the Mississippi Supreme Court has issued its decision in that case addressing the following narrow issue with regard to a Commercial General Liability ("CGL") policy:

Whether the intentional act of hiring subcontractors by an insured general contractor precludes the possibility of coverage?

The Court found "that under Scottsdale’s CGL policy, the term ‘occurrence’ cannot be construed in such a manner as to preclude coverage for unexpected or unintended ‘property damage’ resulting from negligent acts or conduct of a subcontractor unless, otherwise excluded or the insured breaches its duties after loss." Slip Op. at page 27. Thus, "[f]aulty workmanship, defective work, et al., may be accidental, intentional, or neither." Slip Op. at page 23.

The United States Court of Appeals for the Fifth Circuit in ACS Construction Company v. CGU, 332 F.3d 885 (5^th Cir. 2003) had previously concluded that since hiring a subcontractor is a deliberate and intentional decision by a general contractor, any subsequent act by the subcontractor must be intentional and not covered under the definition of an "occurrence". The insurance industry has used ACS to deny coverage for defective work by subcontractors, even though many general contractors purchased policies and paid premiums with the understanding that their CGL policy would provide coverage.

The Mississippi Supreme Court’s decision in Architex brings clarity to the issue stating that "[w]hile the alleged ‘property damage’ may have been ‘set in motion’ by Architex’s [the general contractor] hiring of the subcontractor, the ‘chain of events’ may not have ‘followed a course consciously devised and controlled by [Architex], without the unexpected intervention of any third person or extrinsic force.’" In other words, hiring a subcontractor will not preclude coverage under a CGL policy.

Even if the insurer does not unequivocally agree that there is coverage under the CGL policy, the insurer may agree to defend the general contractor under reservation of rights. This means the insurer will pay the general contractor for the cost associated with defending the claim of defective workmanship. This does not mean the insurer gets to select the attorney to defend the claim, it means the insurer must pay for the attorney the general contractor selects to defend the claim. Therefore, it would be wise for the general contractor to select a construction lawyer to defend the claim rather than the insurer’s preferred attorney who is likely to have experience in defending slip and fall cases and car wrecks and not complex construction defect cases.

The Architex decision is good news for general contractors. However, the decision also admonishes general contractors that there are other reasons for denial of coverage such as failure to give timely notice of a potential claim. Slip Op. at page 12, fn. 11. This means that general contractors should place their insurance carrier/agent on written notice of any potential claim for which the CGL policy might arguably provide coverage. Otherwise, coverage may ultimately be denied.

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The Mississippi Court of Appeals just released a decision addressing the scope of arbitration clauses. Although the case dealt with an employment agreement, the decision is certainly a warning sign for arbitration clauses in any contract.

At issue in the case was whether tort claims for assault and battery were included within the arbitrable claims of the employment agreement. The agreement required arbitration of "all matters directly or indirectly related to your recruitment, potential employment, or possible termination of employment, including, but not limited to, claims involving and/or against the Company, employees, supervisors, officers, and/or director of [Company] or any affiliates, as well as any other common law claims for wrongful discharge or other similar claims." Even though the Court determined that the foregoing language was broad and that the claims stemmed from a supervisor’s alleged actions while on a business trip, the Court nevertheless ruled that the arbitration provision did not include claims for assault and battery.

One judge disagreed with the Court’s majority. In a separate opinion, the dissenting Justice noted that in a case decided four years prior an agreement that required "any dispute under this agreement" to be arbitrated included intentional tort claims.

The current decision does not overrule the older court decision, and distinguishing factual circumstances can be found between the two decisions. However, the current decision at least constitutes a warning signal that the Court will look more closely when considering whether intentional torts fall within the ambit of arbitration provisions. A delicate balancing act will be required to make arbitration provisions broad enough to capture as much as possible, yet specific enough to include what might be considered more remote claims. Everyone should revisit the language of its contractual arbitration provisions or risk being in court to settle disputes rather than arbitration.

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The U.S. District Court for the Southern District of Ohio has ruled that the Freedom of Information Act ("FOIA") (5 USC § 552) does not require the Department of the Air Force to release a series of emails sent by one contractor about another contractor’s eligibility to participate in an Air Force contracts program. See Tybrin Corp. vs. United States Department of the Air Force, Case No. 3:08-cv-002 (So. Dist. Ohio)(pdf).

The Air Force’s Consolidated Acquisition of Professional Services ("CAPS") program is a five-year indefinite delivery/indefinite quantity contract under which multiple contract awards can be made. Actual work and services are awarded by the Air Force through subsequent competitions among the awardees. Both Tybrin Corporation and HMRTech2 were CAPS awardees.

In May 2007, Tybrin sent emails to the Air force concerning the eligibility of HMRTech2 to receive awards for work under the CAPS program. In July 2007, the Air Force disqualified HMRTech 2 from further participation in CAPS.

HMRTech2 sought release of the emails form the Air Force, and Air Force officials had determined to release them. Tybrin filed a "reverse FOIA" suit, claiming that the "(b)(4)" exemption under the FOIA prevented disclosure of its emails, and demanding that the Air Force be enjoined from releasing them. The (b)(4) exemption exempts "trade secrets and commercial or financial information obtained from a person and privileged or confidential." 5 USC § 552(b)(4).

Tybrin’s position was that its emails were confidential and commercial. The District Court looked to the District of Columbia Circuit for guidance on whether the emails were subject to release under the FOIA. In 1992, the District of Columbia Circuit adopted the following test to determine whether information was "confidential" and therefore not subject to disclosure under FOIA:

financial or commercial information provided to the Government on a voluntary basis is "confidential" for the purpose of [the (b)(4)] exemption] if it is of a kind that would customarily not be released to the public by the person from whom it was obtained.

Critical Mass Energy Project v. Nuclear Regulatory Commission, 975 F.2d 871, 879 (D.C.Cir.1992)(en banc).

Thus, the Court considered whether Tybrin treated as confidential emails such as the ones sent to the Air Force concerning HMRTech2. The District Court determined that because Tybrin did not release them to the general public and controlled distribution of them even within Tybrin, the emails were treated by Tybrin as confidential.

Tybrin also argued that its emails were "commercial" because it had a "commercial interest" in them. Some courts have held that if the information submitted by an entity does not reveal anything about the nature, character, finances, revenues, or other business information the release of which would hurt the submitter, it is not "commercial" information protected from disclosure. However, again following a District of Columbia Circuit decision, the District Court in Ohio determined that Tybrin had a "commercial interest" in the emails concerning HMRTech 2’s eligibility to participate in CAPS. The Air Force was prohibited from releasing the emails it received from Tybrin.

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The Mississippi  courts will enforce forum selection clauses when the intent is clear and unequivocal.  When confronted with challenges to the enforcability of a forum selection clause, the  first step in analysis is whether it is mandatory or permissive. Titan Indemnity Company v. Hood, 895 So.2d 138, 146-47 (Miss. 2005) (.pdf). The determination of what language is considered mandatory as opposed to permissive was carefully examined and discussed in Bently v. Mutual Benefits Corp., 237 F.Supp.2d 699 (S.D. Miss. 2002) (.pdf). In Bently, the district court was tasked with determining whether to enforce a forum selection clause with language strikingly similar to the language found in SCP’s terms and conditions. Its analysis followed the two-step inquiry articulated by the Fifth Circuit in Caldas & Sons, Inc. v. Willingham, 17 F.3d 123 (5^th Cir. 1994) (.pdf). As to whether the forum selection clause was mandatory or permissive, the district court reasoned that "a mandatory forum selection clause has express language limiting the action to the courts of a specific locale which is clear, unequivocal and mandatory." Bently, 237 F.Supp.2d at 702 (emphasis added). The district court when on to cite a number of decisions discussing the importance of limiting language in the forum selection clause to obviate any uncertainty with regard to the exclusivity of the chosen forum.

If the forum selection clause is considered mandatory, the second step in the legal analysis requires the court to consider (1) whether "Its incorporation into the contract was the result of fraud, undue influence or overweening bargaining power; (2) [t]he selected forum is so gravely difficult and inconvenient that the resisting party will for all practical purposes be deprived of its day in court; or (3) [t]he enforcement of the clause would contravene a strong public policy of the forum in which the suit is brought, declared by statute or judicial decisions." Titan Indemnity Company v. Hood, 895 So.2d 138,146-47 (Miss. 2005).

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