The West Virginia Legislature recently passed a bill designed to regulate Marcellus Shale Drilling. The City of Wellsburg West Virginia just passed an ordinance that bans hydraulic fracturing in the City Limits. The City of Morgantown passed a similar ordinance but was struck down by a circuit court judge and the time for appeal elapsed and the Supreme Court of Appeal for West Virginia did not have the opportunity to rule on the trial court’s decision. The Wellsburg ordinance will be challenged. Meanwhile cities and counties in West Virginia and in surrounding states are leasing its properties to oil and gas developers to shore up depleting city coffers and as a means to finance public projects. Airports and County park systems are leasing undeveloped land as well. Meanwhile the plaintiffs’ bar in West Virginia, Maryland, Pennsylvania, and Ohio are having public meetings to sign up potential litigants. The lawsuits range from allegations of contaminated water, property destruction, nuisance, trespass, and personal and bodily injury. Owners of the surface have created groups and organizations to fight the ability of the producers to construct the large drilling pads on the property. The surface owners contend that when the minerals were severed from the surface there was no intent to permit large drilling pads that sometimes exceed an acre or more to be placed on the surface One of the arguments is that the technology in use today was never contemplated as being possible at the time the surface was separated from the minerals. Moreover, as drilling has increased so has the number of injuries to workers. OHSA and other regulatory agencies are investigating the conduct of the producers and their contractors. Personal injury suits are on the rise and insurers are beefing up their reserves in anticipation of the increased number of lawsuits. State environmental agencies are being pressured to step up monitoring of drilling activities and fines and penalties are being levied in record numbers.

The biggest source of controversy is the alleged water contamination to water caused by hydraulic fracturing or also known as “fracking.” Many environmental groups are filing actions to limit or all together ban “fracking” because of charges the well water and streams are being contaminated. There are even charges that “fracking” is causing earth quakes. Yet, the economic boom that the Marcellus Shale and the Utica Shale exploration has brought to rust belt areas in West Virginia, Pennsylvania, and Ohio, as well as other states has pitted public officials and local business supporters against the anti-drilling advocates. Labor unions who may benefit from the increased drilling are at odds with some of their traditional allies that support union labor. However, unions are fighting the out of state developers demanding that jobs go to local workers and not “out of state scabs.” Most of the states within the Marcellus Shale region are heavily unionized. The states mentioned above are all vying for the construction of a “Cracker” facility in their state. WV has passed specific legislation to induce the construction of a “Cracker” facility, which will create an economic boom to any area where it is built. A cracker plaint can turn the bi-products of Marcellus shale gas drilling into plastics and other industrial items. See “Pennsylvania in Running for Cracker Plant,” Pittsburg.cbslocal.com/2012/02/06, “Cracker plant tax break passes West Virginia Legislature,” http:// The register-herald.com/todaysfrontpage, “Start-up waiting on funds for plant, dailymail.com/business, February 16, 2012

Law firms are flocking to regions where the drilling activities occur. Many of these towns and municipalities would have never attracted major firms to open their doors there. Papers in Pennsylvania, West Virginia, Ohio, and Maryland are announcing the hiring of specialized energy lawyers. Courthouse record rooms are so crowded in some areas that waiting times have been established. Locals comment about the number of out of state license plates seen in the local restaurants and taverns; complaints that it is hard to find hotel rooms in the near vicinity; traffic jams are now common in towns with only one stop light, crossing the road is hazardous for the first time in years and yes rental and home values are increasing and so are property taxes. The word boomtown is being used in Appalachia and western Pennsylvania for the first time since the decline in the steel and coking industry. Go to any courthouse in the region and the legal talk is about Marcellus Shale. There is only one thing to do, I suggest we all dust off our property law textbooks and reacquaint ourselves with transfer rights.

For more information on Hydraulic Fracturing you can request a paper prepared by our firm. Send requests to cbailey@bailewyant.com.

Charles R. Bailey is a managing member of Bailey & Wyant, P.L.L.C. We have offices in Charleston and Wheeling WV. David Wyant past president of the West Virginia Defense Trial Lawyers is the managing member of the Wheeling office. Web site is www.baileywyant.com , phone 304 345 4222, fax 304 345 3133, visit our facebook page Bailey & Wyant. 

In its 2011 legislative session, the Alabama Legislature made significant changes affecting the construction industry, specifically relating to the Prompt Payment Act and the Statute of Repose.  This article provides practitioners with an update on those amendments.

A.      Prompt Payment Act

Since 1995, Alabama law has provided a Prompt Payment Act, Ala. Code § 8-29-1 et seq., to assist contractors and subcontractors with recovering prompt payment for their services on construction jobs.  The 2011 amendments modified the maximum retainage provisions included in the Act.  These amendments went into effect on September 1, 2011, and apply to contracts entered into on or after that date. 

The maximum retainage allowed to be withheld by the owner is 10% of the estimated amount of work properly done and the value of materials stored onsite or suitably stored and insured offsite.  Ala. Code § 8-29-3(i).  After 50% project completion has been accomplished, no further retainage may be withheld.  Id.

In practical terms, therefore, an owner is limited to retaining 5% of the total contract sum as security for proper completion of the job (10% of earned payments for the first half of the job). 

Contractors and subcontractors are limited by the same caps.  Any retainage withheld in excess of the allowable amount will accrue interest at the rate of 1% per month (12% per annum).

The owner is required to release and pay retainage to the contractor for work completed on any construction contract no later than sixty (60) days after completion of the contractor's work as defined in its contract or "substantial completion" of the project, whichever occurs first.  Ala. Code § 8-29-3(l)(1).  "Substantial completion" means "the stage in the progress of the project when the project or designated portion thereof is sufficiently complete in accordance with the contract documents with all necessary certificates of occupancy having been issued so that the owner may occupy or use the project for its intended purpose."  Ala. Code § 8-29-3(l)(2).

The contractor is required to release and pay retainage to its subcontractors for work completed in accordance with the payment terms agreed to in the parties' contract, but if payment terms are not agreed to, then within seven (7) days of receipt of payment from the owner.  Ala. Code § 8-29-3(l)(1); Ala. Code § 8-29-3(b).  Owners, contractors, and subcontractors may condition payment on the receipt of a full release of any lien of the contractor, subcontractor, or sub-subcontractor for the amount of work being paid.  Ala. Code § 8-29-3(n).

The Prompt Payment Act does not apply to:  (1) residential home builders; (2) improvements to real property intended for residential purposes which consist of 16 or fewer residential units; (3) contracts, subcontracts, or sub-subcontracts in the amount of $10,000.00 or less; or (4) contracts with state or local governments (although these contracts do have the benefit of payment bonds under Alabama's Little Miller Act, Ala. Code § 39-1-1 et seq.).  Ala. Code § 8-29-7. 

In addition, the Prompt Payment Act is not applicable in civil actions to enforce mechanics' or materialmen's liens under Ala. Code § 35-11-210 et seq.  Ala. Code § 8-29-8.  Finally, the retainage caps and 60-day rule do not apply to construction projects for or by an electric utility regulated by the Public Service Commission.  Ala. Code § 8-29-3(m).

B.      Statute of Repose.

The 2011 legislative session also saw amendments to the Statute of Repose that significantly limit the potential liability of architects, engineers, and general contractors for damages relating to their work on construction projects.  Ala. Code § 6-5-220 et seq.

The amendments provide that no lawsuit may be filed against any architect, engineer, or licensed general contractor for any cause of action (whether in contract, tort, or otherwise) which arises more than seven (7) years after substantial completion of the construction project.  Ala. Code § 6-5-221(a).  (Formerly, lawsuits could be filed up to thirteen (13) years after substantial completion of a project.) 

Under the statute, a cause of action "arises" at the time of injury or, where the injury is latent in nature, at the time the injury should reasonably be discovered.  Ala. Code § 6-5-220(e).  In general, a lawsuit must be brought within two (2) years after the cause of action arises, Ala. Code § 6-5-221(a), but a latent defect may not cause any actual injury or be discovered for many years after the project has been completed. 

Before the current legislation, a latent defect could create a situation where potential liability could go on almost indefinitely.  Under the amended Statute of Repose, however, if the cause of action does not arise within seven (7) years of substantial completion of the project, then the injured party is forever barred from filing a lawsuit against the architect, engineer, and general contractor on the project. 

The amendments are not retroactive, so the new time limits will only apply to projects that are substantially completed on or after September 1, 2011.

Jaime W. Betbeze
Hand Arendall LLC
Mobile, AL
jbetbetbeze@handarendall.com

Virginia is in the minority of states that generally permit parties to be contractually indemnified for their own negligence, as long as the provision is clear and explicit.   In 2007, the Virginia Supreme Court upheld contractual indemnification clauses which shift the burden of liability to the indemnitor, even though the injury was the fault of the indemnitee.  Estes Exp. Lines, Inc. v. Chopper Exp., Inc., 273 Va. 358, 641 S.E.2d 476 (2007); W.R. Hall, Inc. v. Hampton Roads Sanitation Dist., 273 Va. 350, 641 S.E.2d 472 (2007).

In Estes Exp. Lines, Inc. v. Chopper Exp., Inc., a Chopper employee was injured while operating a truck leased from Estes.  The employee filed a personal injury action against Estes and a repair company on the basis that their negligence was the proximate cause of his injuries.  The parties settled their claims and, Estes then requested that Chopper reimburse it for the settlement amount and attorneys' fees in reaching settlement pursuant to the indemnification clause in the lease agreement.  Chopper had agreed to indemnify Estes for:

C. Any and all loss, cost, claim, expense, cause of action, loss of use and liability by reason of injury (including death) to persons or damage to property arising out of the use, operation, ownership, maintenance or control of a [leased] Vehicle whether covered by insurance or not, including claims in excess of insurance limits and all claims determined not to be covered by insurance irrespective of who, among [Chopper] or its insurance carrier or others, may be the cause for such failure of coverage or recovery in excess of coverage.

D. Any liability by reason of any claim asserted by an agent or employee of [Chopper].

Chopper refused, and Estes filed suit. 

The Virginia Supreme Court stated that indemnity provisions, including those indemnifying a party against future liability for personal injury caused by its own negligence, do not invoke the same public policy concerns as pre-injury release agreements.  The primary reason for this distinction is that, unlike pre-injury release provisions, indemnity provisions do not bar or even diminish an injury party's ability to recover from a tortfeasor.  The Court found that the indemnification was enforceable even to the extent that it would entitle Estes to be reimbursed for its own negligence.

On the same day as it rendered its Estes opinion, the Virginia Supreme Court issued its opinion in W.R. Hall, Inc. v. Hampton Roads Sanitation Dist.  In this case, the Hampton Roads Sanitation District (“HRSD”) hired W. R. Hall, Inc. to replace sewer lines.  W. R. Hall’s employee was injured when a train hit him.  The employee sued Belt Lines.  HRSD assumed Belt Line’s defense pursuant to the utility line agreement between them.  HRSD then sought indemnity from W. R. Hall for its expenses incurred in defending Belt Line under two indemnity provisions in favor of HRSD.

Article 6.16 specified that W. R. Hall

Shall assume full responsibility for any damage to any such land or area [on which the work is to be done], or to the owner or occupant thereof.  [W.R. Hall] shall indemnify and hold harmless [HRSD] from and against all claims . . . brought by any such owner or occupant against [district] to the extent caused by or based upon [W. R. Hall’s] performance of the Work.

Article 6.31 required W. R. Hall to indemnify and hold harmless HRSD against any claim or loss for bodily injury "arising out of or resulting from the performance of the Work," provided that the claim or loss was caused in whole or in part by any negligent act or omission of W. R. Hall regardless of whether or not caused in part by any negligence or omission of a person or entity indemnified.  The Court noted that this provision operates to place the ultimate burden for  personal injury upon the negligent party causing said injury.

The Virginia Supreme Court found both Articles enforceable. The Court found that HRSD held harmless Belt Line against the consequences of its operations.  HRSD then sought to transfer that risk to the entity actually performing the operations (i.e. W. R. Hall) using Article 6.16.  The Court held that this transfer of risk to the active party is not repugnant to public policy.  Similarly, Article 6.31 sought to place the ultimate burden for a personal injury upon the negligent party causing that injury, but only if the indemnitor was at least in part responsible for the injury.  Consistent with Estes, the Court held that a contractual provision whereby a party is indemnified against losses incurred as a result of personal injury caused by its own future negligence is enforceable and does not violate public policy.

It is important to ensure that clients doing business in the Commonwealth of Virginia are clear about the language of the agreements in these cases and indemnification agreements in their own contracts.  While the indemnification language in these cases may not be suitable for the needs of all clients, it provides an important foundation for creating indemnification language in other contracts.  Moreover, when a client is faced with potential liability, an understanding of the language in these cases proves important in recognizing whether a clients’ current contract will exempt them from (or expose them to) liability.

I find it important to note, however, that Virginia does have a statutory limitation on indemnification of one's own negligence specifically for construction contracts.  VA. CODE. ANN. § 11 4.1.  Otherwise, pursuant to Estes and W.R. Hall, there is no public policy in Virginia that prohibits a party from negotiating away its own negligence in indemnity agreements.

Kevin M. Cox
Semmes Bowen & Semmes
kcox@semmes.com