Articles, Alerts & Perspectives

Smart Business

(by Sue Ostrowski with Boyd Stephenson)

The rules of international investment in U.S. real estate have changed, and failure to understand these new rules — issued by the Committee on Foreign Investments in the United States (CFIUS) in February — could cause huge headaches.

“If you’re not aware of or don’t understand the rules, that could cause a real estate deal to be undone by CFIUS, potentially resulting in financial harm or making a business liable to a foreign entity,” says Boyd A. Stephenson, an attorney at Babst Calland.

The president has the authority to reverse certain business transactions involving a foreign entity if it is determined they pose a national security risk. CFIUS advises the president on when to do that. In February 2020, that authority was extended to real estate ownership.

Smart Business spoke with Stephenson about the impact of the new rules.

What is CFIUS, and how does it work?

CFIUS is an interagency committee of the federal government that advises the president about mergers and acquisitions, financings, and real estate transactions that involve foreign actors. If a foreign entity wants to invest in or buy a cardboard box manufacturer, it’s generally not a concern. But if it wants to invest in a U.S. startup that’s developing technology with better AI, such an investment would result in a review from CFIUS to determine whether the deal should be cancelled based on national security concerns. This authority is retroactive, so if your deal consummates on April 15 and the transaction is reversed on May 1, you lose that equity stake.

How does the new rule extend into real estate transactions? …

Breaking Ground

(by Marc Felezzola)

The COVID-19 pandemic has resulted in a “new normal” that was likely not accounted for in pricing and scheduling for projects awarded prior to the pandemic (“existing projects”). As owners and contractors move forward with new projects in a post-pandemic world, there is incredible uncertainty to what extent COVID-19-related requirements will impact future projects (“Future Projects”). This article addresses some of the major risks that owners and contractors face on both existing projects and future projects.

Existing Projects
A. Impacts
The forced COVID-19 shutdown and subsequent resumption of existing projects will likely result in costs to contractors for demobilization and remobilization, downtime/standby, possible material and labor escalation costs, and extended general conditions (“primary impacts”). These primary impacts typically arise with every suspension or delay to a project and are not unique to COVID-19 forced stoppages. Whether and to what extent these costs are recoverable by contractors depends on the terms of the applicable contract, and in particular its force majeure language. However, because a force majeure event is by definition an event not caused by the owner or contractor, the parties typically bear their own costs associated with the delay caused by the force majeure event. The contractor cannot recover its delay/suspension costs but does get a schedule extension; and the owner cannot recover any costs it incurs as a result of the delay. If nothing else, the contractor will almost certainly be entitled to a change order extending the project schedule for at least the length of the forced shutdown.

Beyond the primary impacts are the costs and schedule impacts associated with resuming work under drastically different circumstances. These impacts range from new social distancing requirements and correlating prohibitions (e.g., limiting use of an elevator at the job site to one worker at a time; …

The Foundation Water Law Newsletter

(By Lisa M. Bruderly)

On September 4, 2020, the U.S. Army Corps of Engineers (Corps) published, for 30-day public comment, draft Pennsylvania State Programmatic General Permit 6 (PASPGP-6). See Corps, Special Pub. Notice SPN 20-57 (Sept. 4, 2020). The public notice was jointly issued by the Corps’ Baltimore, Philadelphia, and Pittsburgh Districts. PASPGP-6 would replace the current PASPGP-5, which was issued on July 1, 2016, and will expire on July 5, 2021, unless suspended or revoked prior to that date.

PASPGP-6 would be issued under section 404(e) of the Clean Water Act, 33 U.S.C. § 1344(e), which allows the Corps to issue general permits on a statewide basis for categories of activities involving discharges of dredged or fill material to “waters of the United States” (WOTUS) if the Corps determines that the activities (1) are similar in nature, (2) will cause only minimal environmental impact when performed separately, and (3) will have only minimal cumulative adverse impacts on the environment. In Pennsylvania, the Corps relies primarily on the state programmatic general permit, rather than nationwide permits, to authorize impacts to regulated waters that meet the criteria of the general permit. Projects impacting WOTUS that do not qualify for coverage under the programmatic permit must obtain an individual permit under section 404.

As discussed below, PASPGP-6 would revise PASPGP-5 in several ways that would likely impact energy projects in Pennsylvania, especially natural gas pipelines. Generally, PASPGP-6 is expected to ease permitting obligations for projects with temporary impacts, and to impose more stringent threshold eligibility and reporting requirements for projects with permanent impacts to regulated waters. The proposed general permit would also require consideration of cumulative effects of the overall project when determining whether the project required additional Corps review. …

The Legal Intelligencer

(by James Miller and Benjamin Wright)

The recent decision in STI Oilfield Services v. The Williams Companies, Inc. f/k/a Access Midstream Partners, No. 2018-1003 C.P. (Pa. Com. Pl., Susquehanna County, March 16, 2020 Opinion), highlights the challenges those in the construction industry face when contractors or subcontractors seek additional compensation based upon an alleged oral change order or modification, even when the underlying contract contains a clear “no oral modification” (NOM) clause.

Most construction contracts contain one or more NOM clauses, including a requirement that valid change orders be in writing. Generally, these clauses provide that a contract cannot be modified absent a writing executed by the parties. This is intended to avoid having the carefully drafted written agreement of the parties set aside based on alleged oral conversations that are often supported only by memory or by piecing together evidence of conduct of the parties. Oral modifications naturally breed disagreements, misunderstandings and protracted litigation—everything a well-written contract seeks to avoid. However, Pennsylvania courts have not strictly enforced NOM clauses, especially with respect to construction contracts and alleged oral change orders for extra work.

In Universal Builders v. Moon Motor Lodge, 244 A.2d 10, 15 (Pa. 1968) the Pennsylvania Supreme Court held that, outside of a contract subject to the statute of frauds, a written “contract can be modified orally although it provides that it can be modified only in writing.” “Construction contracts typically provide that the builder will not be paid for extra work unless it is done pursuant to a written change order, yet courts frequently hold that owners must pay for extra work done at their oral direction.” “The effectiveness of a nonwritten modification in spite of a contract condition that the modifications must be written depends upon whether enforcement of the condition is or is not barred by equitable considerations, not upon the technicality of whether the condition was or was not expressly and separately waived before the non-written modification.”

Courts have significant discretion in determining whether to allow oral modification claims to survive dispositive motions and move to trial. …

Smart Business

(by Adam Burroughs with Molly Meacham)

As states begin to relax restrictions on social gatherings, businesses are trying to reopen in a manner that is safe for their employees, vendors, customers and clients. They’re also trying insulate themselves from the legal exposures they face as they work out a plan to get their business up and running.

“I’m getting a lot of questions from employers who want to do right on all of those fronts,” says Molly Meacham, a shareholder at Babst Calland. “They are really working hard, thinking through the issues, listening to state, local and federal government advice, all while trying to keep their businesses running.”

Smart Business spoke with Meacham about addressing the legal risks that come with operating during the pandemic.

What legal concerns do companies have as they reopen?

The most significant concern is that a company will have an outbreak at their workplace. If that happens, it means considering the company benefits employees should be entitled to, such as sick leave or short-term disability, if they are eligible for leave under the Family and Medical Leave Act (FMLA), if they are covered by Families First Coronavirus Response Act (FFCRA) and eligible for those leaves, or if they’re entitled to any accommodation under the Americans with Disabilities Act.

Another risk is that contracting the illness could lead to a lawsuit or workers’ compensation claim. In a classic workers’ compensation scenario, the employee would need to prove they contracted the virus at the workplace. Some states are reducing employees’ burden of proof, or covering COVID-19 illness for certain groups of employees. For those states that are not making changes, whether or not COVID-19 is covered by workers’ compensation is likely to be a hotly litigated issue. …