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2016 VOLUME 2Construction In BriefA quarterly publication brought to you byA Construction Manager asa Fiduciary in New York?MaybeBy Carol A. Sigmond and Gary J. Repke, Jr.In the words of iconic singer-songwriter Bob Dylan, “the times they are a-changin’.”A new case in New York may alter the legal relationship between owners and construction managers in the State. Traditionally, courts have viewed an owner and aconstruction manager as business partners, and their contract as an arms-lengthtransaction between equally sophisticated parties. Indeed, the New York courtshave firmly held that an owner cannot maintain an independent claim against aconstruction manager for breach of fiduciary duty, which alleges a violation of theduty of the utmost trust imposed on persons such as trustees, corporate officers,attorneys and estate executors. Courts routinely hold that such a claim is merelyduplicative of a breach of contract claim because the relationship between an ownerand a construction manager is contractually defined. Nevertheless, the U.S. DistrictCourt for the Eastern District of New York recently questioned this principle inUnited States v. Tishman Construction Corporation and suggested that constructionmanagers may be headed for fiduciary status and potential tort liability.On many construction projects today, both public and private, the owner of the subjectproperty retains a construction management firm whose primary responsibility is toensure that the contractors complete the work timely and in accordance with thearchitect’s and engineer’s drawings, specifications, and all local building codes. Inaddition, construction managers are often responsible for hiring and/or firing certaintradesmen, laborers and foremen.Under New York law, a fiduciary relationship is always fact-specific. It is groundedin a higher level of trust than normally present in the marketplace between personsinvolved in arms-length business transactions. As such, where parties haveentered into a contract, courts look to their agreement to determine the scopeof the parties’ relationship according to the contractual provisions establishingthe parties’ interdependency. If the parties do not expressly and unequivocallycreate their own relationship of higher trust, courts in New York traditionallyrefuse to elevate them to a higher realm of relationship or impose a stricterduty upon them.Continued on Page 3 IN THIS ISSUE24567What’s NewThe Small BusinessAdministration CouldBring About SubstantialChanges to Mentor-ProtégéPrograms in the Coming YearEnforcement of NewConstruction WorkerSafety Codes Beginsin PhiladelphiaWhen Creating a Trust, Timingis Everything: Measures toConsider As You Preserve YourAssets for the Next GenerationI’ve Been Terminated ona Construction Project –What Does This Mean?Contributors:Evan A. Blaker, Esq.Wayne C. Buckwalter, Esq.Jonathan A. Cass, Esq.Edward T. DeLisle, Esq.Matthew L. Erlanger, Esq.Shawn R. Farrell, Esq.Kerstin Isaacs, Marketing DirectorJames P. McGraw, Esq.Maria L. Panichelli, Esq.Carol A. Sigmond, Esq.Gary J. Repke, Jr., Esq.Jacqueline J. Ryan, Esq.Co-Editor-in-Chief:Ashling A. Ehrhardt, Esq.Co-Editor-in-Chief:Jennifer R. Budd, Esq.Associate Editor:Allie J. Hallmark, Esq.

What’s NewBrief Note:Greetings f om the Editorial Team at Const ctionIn Brief! We are excited about the Fir ’s officeex ansion in Kent cky and our new ManagingPar er in the Pit sburgh office! Have you given anythought to creating a t st to preser e assets for thenex generation? You will get a valuable over iewof options in this issue. We are also covering recentchanges in const ction worker safet codes inPhiladelphia and impor ant developments to keepin mind for const ction managers in New York.Happy itor-in-ChiefAssociate EditorBy Kerstin IsaacsPittsburgh Managing PartnerLisa Wampler has been named ManagingPartner of the Pittsburgh Office. Lisa is thefirst female managing partner in the Firm’shistory. She joined Cohen Seglias in 2003and has since developed an active anddiverse construction litigation practice.Lisa also serves as the Chair of the Firm’sWomen’s Initiative.Cohen Seglias’ Construction and Labor and EmploymentGroups Recognized by Chambers USANew FacePlease join us in welcoming Matthew Skaroff,who joins the Construction Group as an Associate in the Philadelphia office. Matt has gainedlitigation experience in both state and federalcourt since graduating from Villanova UniversitySchool of Law last year. While in law school,Matt worked as an extern in the United StatesDistrict Court for the District of Delaware forthe Honorable Mary Pat Thynge and served asArticles Editor for the Villanova Law Review.New Office LocationWe are pleased to announce the opening of our office in Louisville!This new location will help us better serve our clients in this area. Wewill keep you updated on events and developmentsin Kentucky in coming issues.ykcutneKinRoy CohenEd SegliasMarc FurmanThe Firm was once again recognized by Chambers USA as a leader inConstruction Law and Labor and Employment Law, highlighting in particular Roy Cohen, Ed Seglias and Marc Furman. We’d like to senda special thank you to our clients, as Chambers’ researchers rely heavilyon your feedback. We couldn’t have done it without you!New Practice and BlogPaul Thaler and Chris Carusone are heading up our new InternalInvestigations Practice, representing institutions and individualsfocusing on workplace investigations,scientific and researchmisconduct, andTitle IX investigations.Look out for theInternal Investigationsblog launching soon!Kerstin is the Firm’s Marketing Director. She can be reached at(215) 564-1700 or kisaacs@cohenseglias.com.2cohenseglias.com

A Construction Manager as a Fiduciary in New York?Continued from Page 1 By Carol A. Sigmond and Gary J. Repke, Jr.Enter Tishman. On December 10, 2015, theU.S. Attorney’s Office for the Eastern Districtof New York filed criminal fraud charges infederal court against Tishman ConstructionCorporation, one of the largest constructioncompanies in New York City. Over a tenyear period, Tishman provided constructionmanagement services on several significantprojects throughout New York. Tishmanwas largely responsible for supervising thework done by the subcontractors or tradecontractors, in addition to supplying workersfrom the Mason Tenders’ District Council ofGreater New York.The U.S. Attorney’s Office alleged thatTishman engaged in a fraudulent schemeby overbilling clients, including governmentcontracting and funding agencies, for hoursthat were not worked by the labor foremenon each project. Specifically, Tishman draftedand submitted time sheets to its clients, hours of overtime per daywhether worked or not, for certain senior labor foremen; and allowingother labor foremen to take paid sick time, major holidays, and oneor two weeks of vacation per year in violation of their collectivebargaining agreements. Tishman entered into a deferred prosecutionagreement with the U.S. Attorney’s Office, agreeing to pay morethan 20 million in restitution and penalties to its clients and thefederal government.The significance of the Tishman case is best recognized in conjunction with the current trend in New York to root out fraud in theconstruction industry. In fact, Tishman marks the third instanceof construction management fraud in the last several years. InMay 2015, another large construction company entered into anon-prosecution agreement and agreed to pay more than 7 millionin restitution and penalties for engaging in an eight-year fraudulentoverbilling scheme. Similarly, an experienced construction management firm that was charged in April 2012 with defrauding its clientsentered into a deferred prosecution agreement, and paid 56 millionin restitution and penalties for engaging in a ten-year overbillingscheme. In 2010, a Manhattan construction company was indictedin State court on charges connected to an alleged scheme to inflateconstruction costs for interior building projects across the Tri-Statearea by submitting false invoices from subcontractors to developersof various building projects, and collecting the extra money throughkickbacks from those subcontractors. The construction managementcompany and three of its officers pleaded guilty to grand larcenycharges and agreed to pay over 2 million in restitution. These criminalcases are notable because, as previously stated, New York law clearlyprovides that such business transactions should give rise to no moreduties than that required by the contract. Although these cases involvecriminal fraud, the jump by owners to civil fraud—a tort—is not long.Given this recent trend, construction management firms may be heldto a standard above and beyond mere contractual obligations. Otherjurisdictions grappling with this issue have traditionally swayed infavor of non-recognition with respect to fiduciary relationshipsbetween owners and construction managers. In Avon Bros., Inc. v.Tom Martin Construction Company, Inc., the New Jersey AppellateDivision found that a fiduciary relationship did not exist irrespectiveof an express provision in the contract stating that “the contractoraccepts the relationship of trust and confidence” with the owner.Similarly, in Construction Systems, Inc. v. Garlikov & Associates, Inc.,the Ohio Court of Appeals found that absent affirmative decisionmaking power or authority binding on an owner, the very essence ofa principal-agent relationship, a construction manager does not owethe owner a fiduciary obligation.To be clear, Tishman’s responsibility as a construction managerwas to contract certain labor foremen and to supervise the workperformed by subcontractors onsite. Indeed, the terms of theconstruction management contract between Tishman and itsclients specifically required that Tishman bill clients for work actuallyperformed. In theory, Tishman’s overbilling scheme gives rise to abreach of contract claim, nothing more. Tishman was not vested withthe authority to approve additional subcontract work or otherwisechange the project’s design such that its actions would bind theowner to those decisions. Nevertheless, New York courts arecarving out exceptions to this rule by indicting constructionmanagers for criminal fraud.As suggested above, the million-dollar question remains: when isa breach of fiduciary claim not duplicative of a breach of contract?The answer appears to be when a construction manager engages infraudulent practices. While the attractiveness of a breach of fiduciaryclaim to a disgruntled owner is readily apparent given the availabilityof punitive damages, a remedy not available in a breach of contractcase, courts have historically and consistently denied owners suchrelief. If New York’s trend continues, however, the transition fromcriminal fraud to civil liability, and consequently breach of fiduciary duty,is inevitable. For now, construction managers should be wary ofTishman and its implications on the construction industry in New York.Carol is a Partner with the Firm and Gary is an Associate, both practicingin the Construction Group. Carol can be reached at (212) 981-2927or csigmond@cohenseglias.com and Gary can be reached at(215) 564 -1700 or grepke@cohenseglias.com.cohenseglias.com3