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“Crowdfunding Architecture” – AIA Examines Innovative Approach to Project Financing

By: William E. Kelley, Jr., LEED AP BD+C

What is “crowdfunding”?  By definition, it is “the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.”  Many individuals, groups, and small businesses (especially startups) have attempted to tap into crowdfunding as an alternate to loans, private financing, angel investors, or venture capitalists in order to launch new products, services, or business ventures.

As outlined in an article from Forbes.com, until last year, “crowdfunding sites were only permitted to operate on a reward or donation basis, essentially offering a product or enticement in exchange for monetary funding.”  That prohibition may soon be obsolete, however, thanks to the launch of the JOBS Act, which is short for Jumpstart Our Business Startups.  Under the JOBS Act, the SEC is empowered to issue regulations on crowdfunding, which set forth rules under which the general public can receive company equity in exchange for funding.  Once the SEC issues those regulations, then crowdfunding sites may go beyond reward and donation basis funds, and offer would-be investors equity or other forms of return on investment.

So why should architects (or anyone in the construction industry, for that matter), care about crowdfunding?  In what has been extremely difficult economic times for a lot of design and construction professionals, crowdfunding may provide an alternate approach to project financing.  At least this is the theory examined by the American Institute of Architects (AIA) in a commissioned white paper titled, “Crowdfunding Architecture”.  A copy of that white paper can be downloaded here.

“Crowdfunding Architecture” outlines the various models for crowdfunding, including donation-based and reward-based crowdfunding, and crowdfunding with financial returns.  As outlined in the white paper, each of these models carries potential benefits and deterrents for investors and owners alike.  For example, under the donation-based model, there is no tangible reward or return on investment for donors.  Donors under this model have to be emotionally connected to the cause or project in order to be motivated to contribute financially.  Projects seeking financing under this model also have to avoid potential pushback from doubters who question why no other financing or funding vehicle is available for this particular project.  As the white paper notes, this model requires the most carefully thoughtful communications strategy and the most persistent communications effort.

“Crowdfunding Architecture” also addresses real life examples of crowdfunding used successfully and unsuccessfully for various projects.  For example, after thunderstorms and tornadoes damaged buildings throughout Joplin, Missouri in 2011, a group known as Rebuild the Joplin Mosque organized a crowdfunding campaign, seeking $250,000 to rebuild the Joplin Mosque, which had been damaged not only by tornadoes, but also by fire damage that caused it to burn to the ground.  The Rebuild the Joplin Mosque not only raised the $250,000 needed in one week, but it exceeded its goal, by raising more than $400,000.  Through its crowdfunding site, the organizers disclosed that any proceeds above the $250,000 goal would be used to finance additional safety features, expansion of the original structure, and access roads.

Clearly the Rebuild the Joplin Mosque effort is a huge success story for crowdfunding.  There are misses in the crowdfunding world as well.  For example, “Crowdfunding Architecture” points to a Kansas City campaign to fund the KC Streetcar Starter Line.  The campaign did not succeed, but not for a lack of community outreach or creative reward structures under the crowdfunding model.  Instead, the campaign failed because its funding goal was $10 Million, and “Crowdfunding Architecture” notes that “for something like that to happen, a campaign needs intensive promotion way in advance of the campaign, and preferably a strong signal (a pledge of funds) that shows that the campaign has secured a considerable amount of pledges from day one.”

So can crowdfunding help launch stalled projects and give the design and construction industries a much-needed economic boost?  Perhaps.  The point made by “Crowdfunding Architecture” seems to be that small, community-based projects are likely the best candidates for crowdfunding, especially those with some tangible reward for investors and/or the presence of matching funding from other public or private contributors.  In other words, crowdfunding might be good for communities looking to leverage available funds in order to take on larger projects that might not otherwise get off the ground without other funding.  “Crowdfunding Architecture” also touches on some of the potential risk and liabilities for organizations seeking to utilize crowdfunding.  Organizers cannot expect to set up a crowdfunding site and simply wait for the funds to roll in.  Successful crowdfunding campaigns involve a tremendous amount of planning and effort.

It will be years before we can fully analyze whether or not crowdfunding will serve as a viable financing tool for design and construction projects.  At the very least, though, it is a creative approach to the question of how to jumpstart not only small businesses, but also design and construction projects.

Court Holds Recess Appointments to the NLRB Were Unconstitutional

By: Christopher S. Drewry

On January 25, 2013, the D.C. Circuit Court of Appeals handed down its decision in the case of Noel Canning v. National Labor Relations Board.  While the facts of the case itself involve an unfair labor practice charge against Noel Canning for allegedly refusing to reduce to writing and then execute a collective bargaining agreement, the key issue on appeal became whether President Barack Obama’s recent appointments to the National Labor Relations Board (“NLRB”) were legal.  Specifically, Noel Canning questioned the NLRB’s authority to issue its order on the basis that (1) the NLRB lacked authority to act because there was not quorum, as three members of the five-member NLRB were never validly appointed because they took office under recess appointments which were made when the Senate was not in recess, and (2) that the vacancies the three members filled did not occur during the recess of the senate, as required by the United States Constitution.

Flash back to one year ago in early 2012.  An administrative law judge had concluded that Noel Canning had violated the NLRA.  Thereafter, a three-member panel of the Board affirmed the findings in February of 2012.  At that time, the NLRB ostensibly had five members, two of which had been confirmed by the Senate in June of 2010, while the other three were all appointed by President Obama on January 4, 2012, purportedly pursuant to the recess appointments clause of the Constitution.  At the time of these appointments, the Senate was operating pursuant to a unanimous consent agreement which stated that the Senate would meet every three business days from December 20, 2011 through January 23, 2012.  During one of the sessions, the Senate acted to convene the second session of the 112th Congress and to fulfill its constitutional duty to meet on January 3rd as set forth in the 20th Amendment.

The long and the short of it is that the NLRB is not allowed to issue decisions unless it has three or more members.  President Obama invoked his recess appointment powers to appoint three members to the Board while Congress was on break.  By doing so, the appointees did not have to be approved by the Senate.  Under the Recess Appointments Clause, an appointment made during a recess expires upon conclusion of the following congressional session.

Based on this, Noel Canning asserted that the Board did not have a quorum for the conduct of business on February 8, 2012, that being the date that the NLRB issued its decision.  Noel Canning argued that the NLRB cannot act without a quorum of three members and that the NLRB lacked a quorum on that date because the recess appointments of the last three members of the Board were invalid under the Recess Appointments Clause of the Constitution – namely because there was not an actual recess and the vacancies to be filled did not arise during an actual recess (i.e. the vacancies occurred during a congressional session).  The D.C. Circuit Court agreed that the appointments were constitutionally invalid and the NLRB therefore lacked a quorum.

The outcome of this case is significant…at least for the time being.  With this decision, the NLRB now lacks authority to act since it only has two valid members.  Likewise, every decision that has been issued since the “recess appointments” on January 4, 2012 is subject to attack and/or challenge based upon the same arguments made by Noel Canning.  This includes a large number of cases where the NLRB has expanded its focus to areas beyond the traditional labor context, including non-unionized employers.  The aforementioned caveat “at least for the time being” is made because the Noel Canning decision will likely be appealed to the United States Supreme Court, who could overturn the D.C. Circuit.  And, even if the Supreme Court upholds it, President Obama will have an opportunity during his second term to appoint new members to the NLRB, either through the senate or via valid recess appointments that could continue the same policies pursued by the 2012 Board.  In the meantime, the NLRB is expected to move forward with issuing decisions and orders, notwithstanding the possibility that those decisions risk being declared void and unenforceable.

Hunt Construction: Same Case, Slightly Different Result

By: Sean T. Devenney

Last Month the Indiana Court of Appeals issued a not-for-publication decision in the case of Clade v. Hunt Construction Group, Inc.   This case arose on the same Project (under the same contract) that we have discussed in prior blog posts relating to the Indiana Supreme Court case in Garrett v. Hunt Construction.  In this case, like Garrett, the injured employee Clade was injured while working for a subcontractor on the Project.   Clade could not sue his employer due to the exclusivity of the worker’s compensation remedy.  However, Clade did bring suit against Hunt, who was the Construction Manager Agent on the Project, claiming that Hunt owed him a non-delegable duty regarding jobsite safety on the ingress and egress routes to the Project site where Clade allegedly slipped and fell on ice.  Not surprisingly, Hunt argued that the Supreme Court case in Garrett controlled the outcome of the case and Hunt argued that since the case arose on the same Project with the exact same contracts at issue, Hunt was entitled to summary judgment.  The trial court agreed and found that Hunt did not owe Clade a duty to protect him from his slip and fall and granted Hunt’s motion for summary judgment.

The Court of Appeals, however, reversed.  The Court noted that there were two ways Hunt could be found to have assumed a duty to Clade:  (1) by contract; or (2) by conduct.  Presumably, the Court agreed with Hunt that the contracts (because they were the exact same as those analyzed in Garrett) did not create a duty to individual employees of subcontractors on the Project.  However, the Court found that there was no evidence presented by any party as to what, if anything, Hunt had actually done with respect to snow and ice removal in the particular spot where Clade allegedly fell.  Since there was no evidence presented on the subject, under Indiana’s liberal summary judgment standard Hunt was not entitled to summary judgment.  The Court did appear to leave open the possibility that Hunt could present evidence that it did not perform snow and ice removal on the Project in the area where the Plaintiff fell (prior to when he fell), in which case, presumably Hunt would be entitled to summary judgment.  Under Garret, it seemed that a construction manager might be able to insulate itself from assuming a duty for jobsite safety by drafting the appropriate contractual language and limitations.  However, the Clade case appears to require an examination by the court that looks beyond the contractual language to the parties’ conduct as well in order to determine whether or not the construction manager assumed a duty for jobsite safety.  What appeared to be clear direction from the Indiana Supreme Court may have just gotten murkier.

EEOC Focus: Hiring

By: Melanie M. Dunajeski

The EEOC issued its draft Strategic Enforcement Plan (SEP) in September, setting out nationwide enforcement priorities for the Agency in the coming years.  One of the major areas where it appears  the EEOC will be focusing its attention is in the recruitment and hiring process.  The EEOC will be looking past ostensibly “neutral” hiring practices to find out whether protected groups have been adversely impacted by how these practices are applied. For example, the SEP suggests pre-employment screening tools such as pre-employment tests, background screens, and date of birth screens in online applications that adversely impact protected groups will be the target of the EEOC’s investigatory process, and that the EEOC will be looking for opportunities to pursue class-based enforcement actions. The EEOC also listed hiring or recruiting practices that have the effect of channeling or steering individuals into specific jobs due to their status as a member of a particular protected group or a restrictive application process as other enforcement targets.

What can employers do? Employers should examine their recruitment and hiring practices from top to bottom, including the ways that a job is made known, the application that is used, the process for review of applications, interviewing,  testing, and decision making. Of particular concern is to be sure that there is a single, unified recruitment policy and procedure and that managers are not permitted to create their own de facto systems.  Employers should also take care to maintain all of the application and hiring records required by the EEOC. For those interested in reading the whole SEP, see http://www.eeoc.gov/eeoc/plan/sep_public_draft.cfm.

Industry Groups Congratulate Obama on Re-election

By: Joseph M. Leone

Construction trade groups offered congratulations and admonitions to President Obama on his re-election.  Barry Rutenberg, chairman of the National Association of Home Builders (NAHB) offered his congratulations in a statement released on November 7.  “The National Association of Home Builders (NAHB) congratulates President Obama on winning a second term as President of the United States of America and all the lawmakers who were elected to the 113th Congress.”  Mr. Rutenberg also admonished the President to address the upcoming “fiscal cliff.”  “In the closing weeks of the 112th Congress, NAHB urges President Obama and congressional leaders to work together to resolve issues related to the ‘fiscal cliff’ by extending all of the 2001 and 2003 tax cuts while being mindful of how broad-based tax reform will affect the fledgling housing recovery.”

American Institute of Architects (AIA) President Jeff Potter urged both parties to work together to solve the country’s current economic problems “[n]ow that the election battle is over, we urge both the White House and the newly elected Congress to launch a new era of statesmanship by putting aside differences on the budget and by enacting policies that will help put the economy on a more solid footing for all Americans.”  Mr. Potter similarly implored both sides to resolve the looming fiscal cliff.  “In particular, we urge both parties to solve the impending budget impasse known as the ‘Fiscal Cliff,’ where mandatory budget cuts and tax hikes threaten to cost more than 60,000 construction jobs.”

American Road & Transportation Builders Association (ARTBA) President and Chief Executive Officer Pete Ruane stated, “[w]e congratulate President Obama on his hard fought victory; . . . the centerpiece of both campaigns was about growing the economy, creating jobs and getting America’s fiscal house in order.”  Mr. Ruane then put in a plug for the transportation industry, “[d]eveloping a comprehensive solution for the nation’s staggering transportation infrastructure challenges is one of these areas, and is wholly consistent with the economic and budgetary priorities shared by both parties.”

Notwithstanding Wall Street’s immediate negative reaction to the President’s re-election, there may be reason to be optimistic on the economy.  Overall construction volume has continued to grow at a steady pace for the last year and a half.  Residential construction in particular has shown strong growth especially in the last three to four months.  Of course, any hope for continued growth depends on resolution of the “fiscal cliff” before the end of the year.

50 Shades of Green: Indiana’s Greenwash Lawsuit

By: William E. Kelley, Jr., LEED AP BD+C

Defining what products or services are “green”, and how “green” those products or services really are, can be daunting tasks.  The rise in popularity in products and services that purport to positively impact the environment has given rise to a new term:  “greenwash”.  The concept of greenwash generally relates to use of deceptive, unsupported, or misleading statements or claims made for the purpose of portraying one’s business, product or service as having a positive effect on, or benefit to, the environment.

The term “greenwash” is not a legal term of art.  There is no official cause of action or lawsuit that can be brought for “greenwashing”.  However, acts giving rise to what is known as “greenwash” can have legal consequences.  For example, the Federal Trade Commission (FTC) recently released an updated version of its green marketing guidelines, known as the “Green Guides”, in order to “help marketers ensure that the claims they make about the environmental attributes of their products are truthful and non-deceptive.”  As businesses clamor to be a part of the emerging “green” industry, there is more potential for false or misleading claims to unsuspecting consumers.

The mere presence of exaggerated claims or “puffery” in advertising materials does not automatically result in liability to the seller.  The basis of the bargain between seller and consumer is predominantly found in the terms of the contractual agreement—not the pre-sale advertising materials.  In those instances, disappointed expectations by the consumer may not be actionable.  However, in some instances, the pre-contract sales materials and representations can give rise to liability to the seller, despite contrary language in the contract.  The Indiana Court of Appeals recently addressed these concepts in the context of the sale and installation of a residential wind turbine system.

In Wind Wire, LLC v. Finney, 2012 WL 4903026 (Ind. Ct. App. 2012), the seller/installer of a residential wind turbine system was sued by homeowners for fraud in the inducement relating to advertising materials containing misleading information about the potential benefits of a residential wind turbine.  The evidence at trial indicated that in 2008, the seller/installer distributed brochures claiming that (1) residential owners could see a cost savings of “75% to 100% of current electric service”; (2) residential owners could see a complete return on investment within three to four years; and (3) residential owners could receive a “substantial refund” on their taxes for the installation of the wind turbine system.  The brochure also stated, “With a savings of approximately $160 plus per month and a payoff span of 3–4 years you would control 75% to 100% of your electric supply utilizing nature and doing your small part for the ecology? (sic)”

In addition to the statements in the sales brochures, a sales representative from seller/installer told the homeowners that the local utility provider would purchase excess energy produced by their wind turbine, and that the homeowners would be entitled to a tax credit equal to a percentage of the purchase price.  In reliance upon the sales materials and the statements from the sales representative from seller/installer, the homeowners purchased the wind turbine for their residence.

According to the lawsuit, the wind turbine failed to live up to expectations.  It did not produce any excess power, and it had no effect on the homeowners’ electric bills.  In fact, the evidence at trial indicated that the wind turbine actually consumed energy while it sat idle.  Further, the local utility provider testified that it would not be possible for the wind turbine to pay for itself in three to four years, but rather it would typically take twenty-five years for such a wind turbine to pay for itself.

The homeowners sued seller/installer for fraud in the inducement.  The homeowners argued that the sales brochures and statements from the sales representative were knowingly and falsely misleading, and were allegedly made for the sole purpose of inducing the homeowners to enter into a contract for the purchase and installation of a wind turbine.  The seller/installer argued that the sales materials were not part of the contract, and therefore could not be considered as part of the contractual agreement with the homeowners.  In support of its argument, the seller/installer pointed out that the contract had an integration clause that provided that the entire agreement between the parties was contained in the contract, and that the terms of the contract superseded any prior discussions or communications about the products or services to be provided.  In other words, if the sales materials were not part of the agreed upon services or products, the homeowners could not sue over mere disappointed expectations in performance of the wind turbine.

The trial court ultimately entered judgment in favor of the homeowners, and the Indiana Court of Appeals affirmed the judgment.  Specifically, the Indiana Court of Appeals found that the integration clause in the contract did not preclude evidence of the sales material since the core issue was whether the allegedly fraudulent statements induced the homeowners into signing the contract originally.  The Court of Appeals held that the trial court properly considered evidence of the sales materials and the representations made in those materials, and the Court of Appeals upheld the finding of fraud in the inducement against the seller/installer.

The Wind Wire case is a strong reminder to all businesses to closely monitor the representations and statements made in advertising materials.  However, for those businesses involved with products or services in the “green” industry, the Wind Wire case is also a reminder of the potential consequences for statements that are later deemed to be unsupported or unverified.  Businesses in the green industry should take due care to review not only the statements in their marketing materials, but also their contract forms, to ensure that the agreements capture a full understanding of the expectations of the parties and the entire agreement between the parties for the products or services at issue.

Recent Impact of Indiana’s Right-to-Work Law

By: Christopher S. Drewry

Earlier this year, Indiana became the 23rd state to enact a right-to-work (RTW) law (Ind. Code § 22-6-6 et seq.) in which workers cannot be compelled to pay union dues.  The statute applies to union contracts which were/are entered into, modified, renewed, or extended after March 14, 2012 and makes it a Class A misdemeanor to require an individual as a condition of employment to: (1) become or remain a member of a labor organization, (2) pay dues, fees, assessments, or other charges of any kind or amount to a labor organization, or (3) pay to a charity or third party an amount that is equivalent to or a pro rata part of dues, fees, assessments, or other charges required of members of a labor organization.

In a recent article in the Indiana Lawyer, some of the recent activity on Indiana’s RTW law was addressed, namely as it relates to the Indiana Department of Labor’s rule promulgation and ongoing litigation in state and federal court here in Indiana.

While passage of the RTW law took place in February of this year, the rules as to how it will be enforced are still being ironed out.  In June, the IDOL published notice of, and on a public hearing, which was held on July 10th, on the proposed rule was held in order to establish procedures for the filing and adjudication of complaints of violations of the statute.  As the article points out, the current plans suggest that the IDOL will finish promulgating its rules sometime this month, after which they will be reviewed by the attorney general and governor.  From there, as IDOL spokesman Bob Dittmer indicated, the rules will then be published and finalized, potentially by October 1st.

In addition to the rules regarding enforcement, there are other current issues that could impact the RTW law in Indiana.  Despite the statute stating that no one may be compelled to be a member of a union or pay dues for political activity or for general membership representation, litigation has nonetheless been initiated.  The article identifies one such case, United Steelworkers, et al. v. Mitch Daniels, et al., 45D01-1203-PL-19, in which the United Steelworkers Region 7 filed suit in Lake Superior Court alleging the RTW law violates a section of the state constitution that says “No person’s particular services shall be demanded, without just compensation.”  Essentially, the union has argued that they still are legally required to provide services to workers they represent, whether or not those workers are dues-paying members.  The State filed a motion for summary judgment, though no ruling has been issued at this time.  Additionally, the National Right to Work Legal Defense Foundation also intervened by filing an amicus brief on behalf of two steelworkers who said forced payment of dues violates their First Amendment right of freedom of speech.

In another similar case – James L. Sweeney, et al. v. Mitch Daniels, et al., 2:12-CV-81, filed in the U.S. District Court for the Northern District of Indiana – the International Union of Operating Engineers Local 150 challenged the RTW statute on grounds that it too, among other things, violates Article I Section 21 of the Indiana Constitution because it requires unions to render “particular services” without “just compensation”.  As in the United Steelworkers case, the State has filed summary judgment to dispense of the claims and is awaiting ruling on that motion.

Needless to say, between the IDOL’s much anticipated promulgation of rules and the ongoing litigation in the federal and state courts, the coming months should provide a great deal of insight on the application of RTW in Indiana and its impact on organized labor.


Daniel M. Drewry

Daniel M. Drewry

Daniel M. Drewry

About This Blog

The DSV Construction Law Blog is hosted by Daniel M. Drewry. Dan is a Partner with the law firm Drewry Simmons Vornehm, LLP and concentrates his practice in the areas of Construction Law and Litigation, and Labor & Employment Law.

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