People who are covered by the Americans with Disabilities Act (ADA) have an obligation to comply with its myriad requirements. The question becomes can that obligation be delegated to someone else? That is, let’s say you are a major hotel and you are building out/renovating the hotel in a big way. You hire a firm with the idea in mind that the buildout/renovations will be done in compliance with the Americans with Disabilities Act. That firm goes about its business in a way below the standard of reasonable due care. That is, the buildout is not done in such a way as to comply with the Americans with Disabilities Act architectural guidelines. This causes you to suffer a tremendous amount of damages in fending off lawsuits from private plaintiff as well as the Department of Justice. Fortunately, you had a clause in your contract with the firm that did the buildout that they would agree to indemnify you for any damages arising from any act, omission, or willful misconduct in the performance of its obligations. Relying on that clause you seek indemnification from the company that did the buildout. Will that indemnification lawsuit succeed?
This was exactly the facts in Rolf Jensen and Associates, Inc. v. Eighth Judicial District Court of the State of Nevada, 282 P.3d 743 (Nev. 2012). The facts of this case were that in 2002, Mandalay Corporation entered into a contract with Rolf Jensen and Associates Inc. to provide consulting services regarding construction of an expansion to the Mandalay Bay Resort and Casino in Las Vegas in compliance with the ADA. Id. at 745. The contract contained a provision providing that Rolf Jensen would indemnify Mandalay for damages arising from any act, omission, or willful misconduct by Rolf Jensen in its performance of its obligations. Id. Once the expansion was constructed, the Department of Justice began an investigation of numerous violations of the ADA arising from the buildout not being done in accordance with the Americans with Disabilities Act architectural guidelines. Id. That led to Mandalay entering into a comprehensive settlement agreement with the Department of Justice requiring them to bring the resort into compliance with the Americans with Disabilities Act. Id. To fix the problems, will Mandalay estimated that the retrofit of it would cost of more than $20 million. Id. Mandalay, per the clause in its contract, brought suit seeking indemnification. Id. Rolf Jensen maintained that the District Court was required to grant its motion for summary judgment because Mandalay’s claims were preempted by the ADA and sought a writ of mandamus from the Nevada Supreme Court to effectuate that. Id.
The Supreme Court of Nevada agreed with Rolf Jensen and reasoned as follows. First, the Nevada Supreme Court said that this was a situation involving conflict preemption. That is, there are two ways a federal law can impliedly preempt a state law. State laws can either be preempted by field preemption, where congressional enactments so thoroughly occupy a legislative field or touch on a field in which the federal interest is so dominant that Congress effectively leaves no room for the state to regulate conduct in that field. Id. at 746.See also the blog entry discussing the Air Carrier Access Act for a discussion of field preemption. Alternatively, you could have conflict preemption. Conflict preemption concerns whether in view of the federal law’s purpose and effects, the state law claims contained in the suit (in this suit indemnification, breach of contract, breach of express warranty, and negligent misrepresentation), pose an obstacle to the accomplishment of congress’s objectives in enacting the federal law. Id.
Second, since this is a case of conflict preemption, the Nevada Supreme Court turned to what it saw as the goals of the Americans with Disabilities Act. They said that the goal of the ADA is to not only to remedy discrimination against disabled individuals but to prevent it. Id. at 747. To ensure that, the ADA comprehensively covers discriminatory practices that persons with disabilities face in major areas of public life, including access to public accommodations. Id. The ADA also focuses on prevention as well. That is, the ADA provides that where a facility is not constructed to be readily accessible to individuals with disabilities, the owner, regardless of intent, is liable for unlawful discrimination. Id.
Third, with the exception of landlord-tenant relationships, no provisions exist within the ADA or its accompanying regulations permitting indemnification to reallocate liability between various entities subject to ADA. Id.
Fourth, the Nevada Supreme Court agreed with Rolf Jensen that such claims of indemnification and the like are preempted because they diminish the owners incentive to comply with the ADA and thereby frustrate Congress’s goal of preventing disability discrimination. Id. at 748. In reaching this conclusion they relied heavily on a Fourth Circuit case, Equal Rights Center v. Niles Bolton Associates, which held that permitting an owner through an indemnification claim to recover its losses lessons the owner’s incentive to ensure compliance with the ADA and the Fair Housing Act. Equal Rights Center v. Niles Bolton Associates, 602 F.3d 597, 602 (4th Cir. 2010). In other words, each entity subject to the Americans with Disabilities Act has a nondelegable duty to comply with that law. Id. To allow it to switch the obligation to comply on someone else means that that individual who has the obligation to comply will not be accountable for discriminatory practices. Rolf Jensen and Associates, 282 P.3d at 748. Or to put it another way, to allow such claims would allow owners to contractually maneuver themselves into a situation where they could ignore the nondelegable responsibilities under the ADA. Id.
Fifth, the remedial scheme set forth in the ADA does not provide for a right to indemnification. Id.
Sixth, Mandalay argued that permitting indemnification claims would have the overall effect of promoting ADA compliance by encouraging owners to seek advice from ADA consultants and therefore should be permitted. Id. at 749. The Nevada Supreme Court disagreed for several reasons. First, they said that owners are motivated to seek advice on ADA compliance in order to aid in their duty to construct facilities in compliance with the law. Id. To say that they only contract with the consultants in order to obtain indemnification should something go wrong, simply diminishes to the extreme the role qualified consultant play in an owner’s effort to meet ADA requirements. Id. Second, allowing such behavior, has a debilitating effect on ADA compliance. Id. Therefore, the Nevada Supreme Court believed that the surest way to maximize ADA compliance would be to hold the owner’s risk of noncompliance firmly in place, i.e. be a nondelegable duty. Id. Third, the owner of Mandalay, a highly sophisticated entity with ultimate authority over all construction decision, is in the best position to prevent violations of the ADA. Id. Lastly, Rolf Jensen still did have liability for their actions, but the liability extended to the individual with disabilities rather than to Mandalay. Id.
Seventh, Mandalay claimed that their claims were not really indemnification claims at all, but rather it was seeking separate and distinct relief for Rolf Jensen’s breach of its contractual and professional obligations. Id. at 750. The Nevada Supreme Court disagreed and said simply that such claims would be a subterfuge for indemnification and for all the reasons discussed here are preempted by the ADA. Id. Accordingly, they held that the lower court had no choice, quite literally, to grant Rolf Jensen’s motion for summary judgment and issue the writ of mandamus (a writ that compels the performance of a governmental act). Id. at 751.
Preventive tips: Basic preventive law before this decision would say that any time you hire someone to do a build out that will be in compliance with the Americans with Disabilities Act or to engage in ADA compliance efforts, that you would put in the contract an indemnification clause, much like the clause that Mandalay had in its contract. However, this decision calls into question as to whether such a clause would either be held to be preempted by the Americans with Disabilities Act or be held to be void against public policy. If you are in Illinois, you might try and rely on two cases involving attorneys suing for wrongful discharge and claim that if indemnification was not allowed then there would be no reason to hire such people to ensure ADA compliance. In those cases, the Illinois Supreme Court said that to allow an attorney to sue for wrongful discharge would jeopardize the attorney-client relationship. See Balla v. Gambro, Inc. 145 Ill. 2d 492 (1991); See also Jacobsen v. Knepper and Moga P.C. 185 Ill. 2d 372 (1998). That is, why hire such a person at all if it would just come back to bite you. That said, the states that have considered whether an attorney can sue for wrongful discharge, have uniformly disagreed with the reasoning of the Illinois Supreme Court in both of those cases. Sheppardize Balla v. Gambro and General Dynamics Corporation v. Superior Court 7 Cal. 4th 1164 (1994), to see that the California view is prevailing and that the Illinois view is restricted to Illinois. In short, if you are in Illinois, the indemnification language may be worth a shot. If you are in another state, the indemnification language may run into the trouble that it ran into in Nevada. Assuming such an indemnification clause will fail, what is the company to do? A couple of possibilities include: hiring a person to independently double check the work of the contractor; or having your in-house counsel or other in-house personnel work with the contractor and any other consultants to ensure that the work/advice is done/given in the way that is supposed to be done/given. True, such a process increases the costs to the company. However, by doing so, it helps ensure that the company’s nondelegable duty is satisfied and also increases the probability that the Americans with Disabilities Act will be fully complied with.