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Winter 1997-1998 Issue


LePatner & Associates' Commitment to Client Excellence
By Barry B. LePatner, Esq.

Developing and maintaining a high standard for providing services that count with clients should be a paramount goal of every professional service firm. At Barry B. LePatner & Associates, we devote a considerable amount of time to this important subject. The following is from a memo sent to all members of the LePatner & Associates team regarding the firm's philosophy of meeting and exceeding client service expectations:

As we are blessed with great clients who look to us for and get great service, it is absolutely essential for us to guard against complacency, i.e. take any of our good fortune for granted.

To ensure that we stay on top of the things that count (in addition to continuing to do well by our clients in the substantive handling of their matters), during a recent vacation I took a poll of some of the most successful law firms of fifteen years ago which have since gone out of business. I discovered that 71.247% went out of business because of the following factors:

1. They often disregarded client phone calls or failed to return them immediately. Nothing is as clear a sign to clients and the people we do business with that you do not care deeply about them as failing to return a call as quickly as possible. One secret of our success to date is that over the past seventeen years we have been together, Ron Feingold and I have never failed to return a client's call the same day, or if we were in Timbuktu, within 24 hours.

2. Their receptionists and staff sounded as if they didn't care whenever answering the phones and took longer than three rings to pick up the phone. If we are not warm and courteous to everyone who calls our office and we all can't pick up our phones within three rings, we are either plain out of our minds or not paying attention. Everyone who answers the phone in our office is delivering a message about us each time they speak on the phone. If that initial contact between our office and each person who calls is anything less than enthusiastic I would like to know about it immediately.

3. When attorneys and staff left their offices they failed to tell the receptionist where they were going and how they could be reached.We are in a personal services business and that means our clients have the right to reach out for us during the business day wherever we may be. Since we are all expected to be available for our clients each day (and when emergencies dictate, even on our vacations) anyone who leaves the office during the business day and does not leave a location and phone number to be reached should see me for an explanation of this rule.

4. During their best years they did little to control expenses. This included failing to avoid waste in the use of supplies or even re-using such seemingly trivial items such as paper clips, file folders, etc. Every dollar saved on expenses goes right to the bottom line and, for those who are not astute about such things, means there is more for management to distribute at year end. A famous person once said: "The time to stop wastefulness and be tough on costs is when times are good. Any schlemiel* and most schlimazels** try to cut costs when times are bad."

5. They failed to work as a highly skilled team that enjoys challenges and the opportunity to be a part of a dynamic organization.We may be small, but in our world, we are considered by some who count, to be doing a lot of the right things that help us attract top flight talented individuals who soak up responsibility and enjoy working in a challenging and exciting environment. We must continue to communicate with each other, discuss problems big and small, and work to build an even better mousetrap that attracts the high caliber of client we currently enjoy and the talent that will ensure all of our futures.

If we keep these concepts in mind I am certain that we will not be out of business fifteen years from now. Rather, we will all be happier and a little bit older but wiser for keeping our commitment to service excellence on top of our mind each and every day during that time.

*For those who do not speak Greek, a schlemiel is the one who regularly spills his or her soup.** A schlimazel is generally the one on whom it gets spilled.




Absolute Liability for Owners And Contractors for Injuries Sustained by a Worker at a Building Site
By Victoria R. Drogin, Esq.

Owners should be aware that, under New York State's Labor Law, they share absolute liability for accidents on a project with a general contractor, construction manager, contractor and/or the architect. It is therefore, critical to have the contract documents recognize that the primary obligation for safety on a project must be placed with the project team and that insurance is procured to protect the owner in the event of a personal injury or property damage claim.

In the case of Felker v. Corning Incorporated, the New York Court of Appeals, New York's highest court, recently interpreted Labor Law 240(1), which is commonly known as the "scaffold law". This section of New York's Labor Law provides that:

"All contractors and owners and their agents ... who contract for but do not direct or control the work, in the erection, demolition, repairing, altering, painting, cleaning or pointing of a building or structure shall furnish or erect, or cause to furnished or erected for the performance of such labor, scaffolding, hoists, stays, ladders, slings, hangers, blocks, pulleys, braces, irons, ropes, and other devices which shall be so constructed, placed and operated as to give proper protection to a person so employed."

Section 240(1) of the Labor Law has long been interpreted to impose absolute liability for injuries sustained by a worker, upon any owner or contractor who fails to provide safety devices for workers at a building site, where the absence or deficiency of such devices is the proximate cause of injury to the worker. Liability is mandated under the statute without regard to external considerations such as rules and regulations, contracts or custom and usage.

The Court of Appeals, in Felker v. Corning Incorporated, recently revisited 240(1) and confirmed its earlier reliance upon the legislative history of the Labor Law, reiterating that 240(1) was designed to place ultimate responsibility for safety practices at building construction jobs squarely upon the owner and general contractor, where the Legislature felt it belonged -- rather than on injured workers. Furthermore, under the statute, the Court found that the duty imposed by the statute is nondelegable, i.e. an owner is liable for a violation of the section even though the job may have been performed by an independent contractor over which it exercised no supervision or control.

The situation the Court of Appeals considered in Felker v. Corning Incorporated is typical of the scenario in which the Labor Law provisions are commonly applied. Generally, there is a construction project where the owner has contracted with a general contractor ("GC") or construction manager ("CM"), and an employee of the GC or CM is injured at the project as a result of some negligence on the part of the employer. Because of the Workers' Compensation system in New York and most states, however, the employee is prohibited from bringing a direct suit against his or her employer.

Until September 10, 1996, when Governor Pataki signed the Omnibus Workers' Compensation Reform Act of 1996 into law, the employee, therefore, would sue the owner of the project under the absolute liability standard of a Labor Law provision such as 240(1). The owner would, thereafter, bring a third-party claim against the employer GC or CM for contribution. In essence, the employee could circumvent the prohibition of the Workers' Compensation law against bringing a direct claim against the employer.

As of September 10, 1996, however, the State Legislature brought New York in line with the majority of other states on this issue. The Reform Act , in essence limits the ability of the owner to bring a third party action against an employer by virtue of a provision protecting employers from such third party contribution claims in all cases except for those which involve a "grave injury" as defined by the statute.( "Grave injury" is defined to include: death; permanent total loss of use or amputation of arm, leg, hand or foot; loss of multiple fingers, toes or index fingers; paraplegia or quadriplegia; total permanent blindness or deafness; loss of nose or ear; permanent and severe facial disfigurement; brain injury caused by external force resulting in permanent total disability.)

Therefore, unless the injury is "grave", as defined by the Reform Act, the owner will not be permitted to bring the employer of the injured worker into the litigation for contribution.

How, then, can an owner protect itself in light of these reforms?

We anticipate that as the standard set by the Reform Act is challenged and tested, the courts will continue to refine and clarify which situations fall within the categories delineated by the Reform Act. As this process proceeds and the law continues to evolve, we are strongly recommending to our corporate and institutional clients that one of the most effective strategies is to include in the owner's contract with the GC or CM provisions requiring the GC or CM: (i) to indemnify and hold the owner harmless from any claims arising out of the activities of the GC or CM in connection with the project; and (ii) to procure insurance specifically covering the owner for this type of claim. Additionally, the contract documents should reflect that the primary obligation for safety on a project is placed with project team members.

With carefully drafted contracts which seamlessly integrate the obligations, duties and rights of the owner and the architect, contractor, engineer or other entities forming the design and construction team, an owner will have recourse and protection in the event of suit by an injured employee of the general contractor or construction manager on its projects.

Renewed Growth in Commercial Construction Triggers Lowest Vacancy Rates in Years and Spurs New Activity in Housing Starts By: The Fishbein Portfolio Management Group, of Smith Barney, Inc.

Lower interest rates are expected to drive the growth in homebuilding and construction in the next 12 to 18 months. The fixed income markets also appear to be continuing their march towards lower interest rates. Fueled by continuing evidence of falling, not increasing, price inflation measures, modest increases in wage costs, acceptable levels of capacity utilization, and a stronger U.S. dollar with foreign capital inflows, the stage is set for a productive construction year.




Renewed Growth In Commercial Construction

According to analyst David Dwyer, the U.S. commercial markets are currently in the midst of a strong recovery. The chart below illustrates the most recent quarterly forecast by Rosen Consulting Group for commercial office vacancy rates in downtown and suburban areas. The trend continues to be toward tighter vacancy rates, reflecting continued strong employment growth. From a near-high 23% in 1986, suburban vacancy rates have consistently declined, reaching 10% as of March this year. In addition, the number of metropolitan areas below the 10% vacancy rate, considered to be a critical threshold for new construction, has increased from 3 to 31 (out of a total of 54) as of March 1997. Moreover, RCG's forecasts indicate that it expects vacancy rates in suburban areas to continue to decline, falling from 12% at the end of 1996 to just 8.5% by 1999. This projection is more aggressive than their previous forecasts. While commercial markets have benefited mostly from replacement construction over the past year, new construction should begin to further drive this market recovery. In light of this, we anticipate that the current recovery will continue for four to five years.

Home Sweet, House Sales

According to Business Week, buoyant mortgage applications have flooded the market. Spurred by a drop in 30-year mortgage rates, from 8.4% a year ago to about 7.5% in July, applications from house hunters are at their highest level since the Mortgage Bankers Association began keeping tabs in 1990. Given the average two-month lag between applications and closings, that suggests that the strong housing market will continue into the fall. Althought "experts" expected the market to cool following 1996 sales, but after a breather this past Spring, June saw a 6.1% spurt in new-home sales, to 819,000 units. "Housing markets are very strong right now---and that's driven by the economy," says David A. Lereah, chief economist at the Mortgage Banker30-year mortgage rates, from 8.4% a year ago to about 7.5% in July, applications from house hunters are at their highest level since the Mortgage Bankers Association began keeping tabs in 1990. Given the average two-month lag between applications and closings, that suggests that the strong housing market will continue into the fall. Althought "experts" expected the market to cool following 1996 sales, but after a breather this past Spring, June saw a 6.1% spurt in new-home sales, to 819,000

Smith Barney Homebuilding Group

The swings in interest rates and homebuilding orders have moderated over the past four years, leading to a relative level of stability. In fact, orders are once again on an uptrend with this latest move down in interest rates. Furthermore, order comparisons for the foreseeable future remain easy, particularly if the prevailing view is for flat to declining rates. Meanwhile, inventories have declined for 12 consecutive months and are approaching levels seen during the past 3 recessionary troughs. We believe low profitability and housing cycle concerns have been the two overriding factors keeping homebuilding valuations down throughout this latest cycle. Based upon increasing evidence that the current cycle could last for many more years, we believe the market is now poised for a dramatic revaluation. Industry profitability has also been an area of concern among investors, as increasing competition among the large public builders has squeezed margins. Because of the generally low margins, builders have become cautions of building housing inventory; as a result, inventories have fallen to levels approaching the past two cyclical troughs. Strikingly, each of the past three major moves in homebuilding stocks has coincided with a downswing in housing inventories. This latest downturn could suggest that the recent rally in homebuilding stock is the start of the next major move and that this decline suggests profit margins are not likely to have significant downside.

Moreover, the current level of housing activity appears to be sustainable, especially given the fundamental strength of the economy, low inflation and historical trends for single-family housing starts. One area for potential upside in the group is inflation in home prices. For most builders, there is a two-year lag between the time that raw land is purchased and the time construction starts on homes at a given site, hence, builders benefit from inflation. Increased competition on margins is twofold. First, it impacts finished-lot costs, which have risen as new entrants bid up land prices. Second, competition has kept home prices from rising enough to offset the increase in land costs. As a result, builder's profit margins have been squeezed and new home prices are at extremely affordable levels. While this housing cycle has been long versus those in the 1970s, single-family housing starts have been relatively stable throughout this decade.

Comments Provided By: The Fishbein Portfolio Management Group
of Smith Barney, Inc.
767 5th Avenue - 7th Floor
New York, NY 10153
Tel: 212-230-3472

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