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On September 19, 2012, New Jersey enacted the Revised Uniform Limited Liability Company Act (N.J.S.A. 42:2C-1 et seq.), colloquially known as RULLCA. Although the new law became effective on March 18, 2013 (the “Effective Date”), it was not until March 1, 2014 that RULLCA controlled or applied to limited liability companies (LLCs) formed prior to the Effective Date. Between the Effective Date and March 1, 2014, RULLCA applied only to LLCs formed during that period or to LLCs that voluntarily amended their operating agreements to specify that RULLCA would govern. Therefore, it was not until March 1, 2014, when the prior act was repealed, that the complete impact of RULLCA applied to all NJ LLCs.
What does this mean to your business? Well, whether you are a new or existing LLC, RULLCA has upgraded and modernized the rules for the formation and operation of LLCs. The key changes can be divided into two categories: those that impact on the formation and governance of LLCs and those that affect the relationships between the members of LLCs.
Formation and Governance of LLCs
There are four important changes regarding the formation and governance of an LLC:
Relationships between Members
As for the changes relating to the relationships between the members of an LLC, there are four that can drastically affect how members interact under the new law:
While the prior act allowed members to more freely extricate themselves from an investment in a company, RULLCA recognized the crippling effect this automatic right of withdrawal could have, especially where the economic impact of the withdrawal and required payout could prove detrimental to the operations of the LLC. To address this issue while still providing redress for an aggrieved member, RULLCA requires that the aggrieved member establish that he has been oppressed. This is a critical change in how disputes among members may be resolved, and it will take time for the courts to develop a body of case law related to the oppressed minority member provisions. However, the courts will likely look to the case law developed in response to the Corporation Act.
The bottom line is that key changes have been made to RULLCA that impact the formation and governance of New Jersey LLCs, as well as the relationships between the LLC members. If it was not the case before, it is certainly now critically important for members of LLCs in New Jersey, who have not already done so, to negotiate and execute an operating agreement. For assistance with this or if you have any further questions as to how RULLCA now affects your LLC, please contact the attorneys in our Business Practice Group.
Marian is a Partner with the Firm and Alexander is an Associate, both practicing in the Business Practice Group. They can be reached at (215) 564-1700, firstname.lastname@example.org or email@example.com.
What is a Public-Private Partnership?
Public-private partnerships (P3s) are contractual arrangements whereby resources, risks and rewards are shared among partnering public entities (federal, state, or local government agency or authority) and private companies to deliver a service or facility for the use of the general public. Although there are many ways to describe P3s, forward looking definitions of P3s focus more on the partnership and collaborative relationship between the public and private sectors, and less on the mechanics of how the agreements are structured.
How are P3s different from the traditional design-bid-build model?
Unlike the design-bid-build model traditionally used by public entities, P3s are typically based on the design-build model, and can take a variety of forms, such as: design-build (DB), design-build-maintain (DBM), and design-build-finance-operate-maintain (DBFOM). In the design-build model, the private sector partner designs and constructs the public project. The primary advantages to the public entity of the design-build model over the traditional design-bid-build approach are:
However, in order to maximize the benefit of using an approach premised on one of the design-build models where the design risk is shifted to the private sector partner, the public entity must give up a significant amount of control over the design. This can create tension within a public entity that is used to controlling the design process and can create problems during the project if the scope of the public entity’s input into the design is not clearly articulated in the contract.
The latest DBFOM P3 trend involves agreements where the private sector partner is responsible to design, build, finance, operate, and maintain the public project. This model differs from the basic design-build model in two significant ways: (1) the private sector partner obtains financing to help pay for the project; and (2) the private sector partner agrees to operate and maintain the public project for an extended period of time, which could run from 15 to 50 years. Recent DBFOM P3s have 20 to 35 year durations.
By requiring the private sector partner to operate and maintain the project for an extended period of time, there is an incentive to design the project in a manner that takes into account the life-cycle costs and performance of the project, resulting in a focus on energy efficiency. This approach also addresses one of government’s most difficult problems — the culture of deferred maintenance, as budgetary constraints make it difficult for public entities to budget sufficient resources for the necessary maintenance of aging public facilities and infrastructure. In these DBFOM P3s, the public entity pays the private sector partner over the maintenance period using “availability” payments based on the project achieving contractually-specified performance measures, such as a train station or courthouse being available or open to the public. The failure to achieve such requirements could result in the public entity withholding or deducting amounts from payments otherwise due.
How are P3s being used across the country?
While P3s are a hot topic in construction today, they have been around for a long time. P3s were first used to build, operate and maintain transportation infrastructure like interstate highways. P3s are still used that way today. Nevertheless, the economic downturn in recent years and the deteriorating condition of the nation’s infrastructure has resulted in increased interest in the use of P3s. For example:
Modern trends are applying P3s beyond traditional infrastructure projects to hospitals, schools, community centers, and courthouses across the country. These social infrastructure projects are a growing source of P3s. Here are some examples of other public entities making use of P3 contracts:
What are some of the challenges associated with P3s?
Shrinking public funding is being met with increasing populations and growing needs for transportation, education, health care, and other infrastructure. These dynamics suggest that the role of the private sector will continue to expand in public projects in the United States. While there has been increasing publicity involving P3s and the opportunities they present to address infrastructure and other public needs, enthusiasm must be tempered by challenges that remain:
What should you take away from this article?
As with any new and unique public-private collaboration, challenges remain and participants should keep a close eye on the laws and regulations applicable in each state and for each project. Nevertheless, P3s could create a win-win situation for all involved. In tight economic times, P3s can enable public entities to take advantage of private sector financing to help bring needed public projects to fruition. Moreover, combined resources of the public and private sectors can result in a shorter construction schedule and other cost savings for the public entity. For contractors and developers, this recent trend in construction opens an exciting, new market offering both short-term, as well as long-term, financial returns. For communities, these partnerships could mean that once deferred, desperately needed public projects will have a better chance of getting off the ground. Additionally, because private entities may be obligated to operate and maintain what they build, the result is likely to be higher quality design and construction, including green and energy-efficient public facilities.
When federal or local governments and private sector developers exchange expertise and share investment burdens, communities can benefit from the resulting broader network of resources and sharing of best practices and industry knowledge, all while stimulating economic activity and creatively meeting public needs.
Jason is Senior Counsel with the Firm and Catherine is an Associate, both practicing in the Construction Group. They can be reached at (215) 564-1700, firstname.lastname@example.org or email@example.com.
Bernie Conaway recently joined Cohen Seglias as a Partner in the Firm’s Wilmington office. In addition to his bankruptcy, commercial, and construction litigation practice, Bernie is an accomplished mediator. For the last ten years, Bernie has also volunteered as an Attorney Guardian Ad Litem representing minor children in Delaware.
Q: A good portion of your practice is conducted in the Delaware Court of Chancery. Can you explain what the Court does and talk a little about your practice before the Court?
A: Most U.S. corporations are incorporated in Delaware. The Delaware Court of Chancery is where most of those corporations resolve their legal disputes. The Court of Chancery is nationally respected for its fairness, business sense, and intellectual depth. Attorneys who practice regularly before the Court of Chancery develop a specialized skill set that enables them to navigate critical business problems through some very intricate legal and factual issues. The Court also has a reputation for its willingness to act very quickly. I’ve filed, tried and successfully appealed billion dollar cases within three months. By comparison, in some jurisdictions, it can take a year or more to set a trial date.
I was also privileged to serve nine years as the Special Master of Complex Litigation in the Superior Court of Delaware. As Special Master, I was responsible for the pre-trial supervision of large, multiple-party cases involving mass torts like asbestos and claims regarding insurance coverage, construction, and environmental liability.
Q: Tell us about your clients.
A: As a litigator, I serve as lead and local counsel in Delaware for bondholder claims, bankruptcy matters, corporate control disputes, commercial contract claims, insurance coverage, and other complex civil matters. My clients range from Wall Street investors, to corporate directors and officers, to mom and pop shops caught up in a bankruptcy of a larger corporation. I enjoy working on different kinds of matters and working with a variety of different clients—authentically understanding my clients’ business broadens my knowledge base and benefits all aspects of my practice.
Q: You are also well-known for your Alternative Dispute Resolution (ADR) practice.
A: I’ve served as a mediator since 1994. Since that time I’ve mediated thousands of cases. For most of those mediations I was mutually selected by the parties. In twenty years of ADR practice, I’ve successfully mediated every kind of dispute including corporate espionage, law firm break-ups, mass tort, employment/workplace, construction, environmental, contract, and personal injury disputes.
Bernie is a Partner in the Firm’s Wilmington Office. He can be reached at (302) 425-5089 and firstname.lastname@example.org.
On New Jersey DOT projects, road contractors are encouraged to construct as smooth a road surface as possible or face monetary penalties. The surface of a road is gauged by the International Roughness Index (IRI), which measures the roughness of all types of roads in countries around the world. According to the NJDOT’s Standard Specifications, the IRI is applicable to all paving in excess of one mile in length. The NJDOT’s specifications allow for positive pay adjustments for superior quality paving and negative pay adjustments, also known as penalties, for inferior quality paving. The dollar amount of the pay adjustments by roughness value are included in a NJDOT project’s specifications.
The Tilcon Case
In Tilcon New York, Inc. v. New Jersey Department of Transportation, the NJDOT imposed $419,125 in penalties due to a contractor’s failure to achieve the desired IRI values required by the Project’s specifications. Tilcon, a road contractor, sued the NJDOT, arguing that the NJDOT applied the IRI specification in an unreasonable and unfair manner. Specifically, Tilcon argued that impediments such as manholes, water valves, catch basins, and intersections skewed the averages of readings taken in the tested segments. Further, Tilcon argued that on an earlier pilot project, the NJDOT omitted such areas from the IRI testing, but failed to omit them on the project at issue. The court noted that the specifications did not state that such areas would be omitted and required bidders on the project to carefully examine the project areas and alert the NJDOT of any problematic circumstances prior to bidding. Thus, the court held that Tilcon was not justified in arguing that certain areas should be omitted from testing, since Tilcon did not raise its concerns about such areas prior to bidding. Therefore, the trial court entered judgment in the NJDOT’s favor and upheld the penalties.
Recently, the NJ Appellate Division upheld the trial court’s decision, noting that the NJDOT’s specifications did not discuss the waiver of any areas from roughness testing. Further, the Appellate Division held that the specifications required the contractor to inform the NJDOT pre-bid that it would be difficult or impossible to achieve the desired IRI on particular areas of the roadway due to the existence of manholes or water inlets. Moreover, the fact that the NJDOT waived testing in certain areas on another project was not controlling on Tilcon’s project, since the IRI specification did not mention waivers. Hence, the NJDOT was not required to issue Tilcon any waivers on the project at issue.
Impact of the Decision
Since this decision is the only appellate level case interpreting the IRI specification, courts across New Jersey will likely look to it for guidance. It is imperative that contractors thoroughly review the project area and alert the NJDOT of any impediments that could make it difficult to achieve the desired IRI roughness goal prior to bidding a project. The NJDOT has eased roughness requirements in the past when notified of contractors’ concerns. However, if the NJDOT does not make such an adjustment and a contractor submits a bid, the contractor may be required to meet the specified IRI goals or face penalties.
On the other hand, it is not clear how the Courts will react to other IRI challenges. For example, if events occur during the course of a project that interfere with a contractor’s ability to achieve the desired roughness value, a court may not uphold the penalties. If this happens, it is critical that such events be documented and reported to the Resident Engineer. A court will be less likely to relieve the penalties if the NJDOT was not given an opportunity to fix whatever circumstances made it difficult for the contractor to achieve the desired roughness value.
Further, the NJDOT may use the Tilcon decision to justify a “bidder beware” approach to any existing site conditions, even if the condition is not as obvious as a manhole. It is imperative that contactors carefully review the specifications and the site, and alert the NJDOT, pre-bid, to any issues that may prevent conformity with the specifications.
Spring has finally arrived! After a winter filled with shoveling and project delays due to weather, what a breath of fresh air spring brings. We are excited to introduce you to a few new faces at the Firm, as well as congratulate two of our attorneys on their promotions. Finally, a warm welcome to Jennifer Budd, who is serving as our new Associate Editor. Enjoy the first 2014 edition of Construction in Brief!
Kathleen Garrity has joined the Firm as Executive Director. She is responsible for the management and direction of the accounting, human resources, facilities, information systems, and marketing functions. Prior to joining the Firm, Kathleen worked at Ballard Spahr LLP as Controller and Director of Finance. She spent the first 15 years of her career at Arthur Andersen LLP serving professional services clients both as an auditor and as a consultant. She is a member of the Pennsylvania Institute of Public Accountants.
The Firm also welcomes Bernie Conaway as a new Partner in the Wilmington office who concentrates his practice on alternative dispute resolution, bankruptcy, and matters litigated before the Delaware Court of Chancery. Bernie is also an accomplished arbitrator and mediator — and is featured in this issue’s Q&A on page 7.
We are pleased to announce that Jennifer Horn has been promoted to Partner and Jeffrey Brydzinski has been promoted to Senior Counsel.
A trial attorney who focuses her practice in the areas of construction, commercial litigation, and real estate, Jennifer has spearheaded numerous successes in multiple state and federal jurisdictions. Admitted to practice law in Maryland, Pennsylvania, New Jersey, and the District of Columbia, Jennifer also serves as Managing Editor of the Firm’s construction blog.
As Senior Counsel, Jeffrey maintains a practice concentrating on complex commercial matters and construction law claims on behalf of owners, contractors, design-builders, subcontractors, suppliers, and manufacturers in multiple jurisdictions.
After more than six years of litigation, Edward Seglias and Robert Ruggieri negotiated a settlement for $5.1 million on Sept. 10, 2013, just prior to opening statements at trial in the matter of Springton Pointe Condominium Association v. Pulte Homes. The pre-trial settlement was for alleged design and construction defects in the Newtown Square townhome development. A previous June 2012 settlement between the parties for $467,500 was the result of alleged defects elsewhere on the Springton Pointe site including roads, sidewalks, and retention basins. The Association settled with defendant homebuilder Pulte Homes Inc. for a total of $5,567,500 in Delaware County court.
U.S. News – Best Lawyers ® has named Cohen Seglias a 2014 Best Law Firm for Litigation – Construction and Arbitration in Philadelphia.
Labor & Employment Law Seminar
Cohen Seglias welcomes you to our 6th Annual Labor & Employment Law Seminar! Join our speakers Marc Furman, Jonathan Landesman, Shawn Farrell, and Steven Williams for a seminar on cutting edge labor and employment law issues impacting your business.
When: Wednesday, April 30, 2014
Time: 8:00am – 12:00pm
Where: The Union League 140 South Broad Street, Philadelphia, PA 19102
When: Tuesday, May 6th, 2014
Time: 8:00am – 12:00pm
Where: Hershey Country Club 1000 East Derry Road, Hershey, PA 17033
For questions, please contact Kerstin Isaacs at email@example.com or (215) 564-1700.