Each month, Brickerconstructionlaw.com summarizes recent decisions of state and federal courts that may affect construction projects and those involved with them in Ohio, Indiana, Kentucky and Michigan. From time to time, we may even include cases from other states, if they seem particularly relevant. We highlight what the courts have said in these cases to keep you informed about decisions that may affect your business and your interests, but the summaries themselves are neither legal advice nor legal opinion. If we overlook a case that you think is significant, e-mail us with your suggestions. We can always use feedback, and we would enjoy hearing from you!

We begin this month with a look at a Federal Court case from the Sixth Circuit. The issue before the court was whether the City of Cleveland could require the employment of a certain percentage of city residents on a project where the project was funded, in part, by federal dollars. Our second case, from the Court of Appeals for Trumbull County, Ohio, looks at whether a county had a prescriptive easement over a landowner’s property. Landowners sought compensation for property taken by a county when the county constructed a ditch on the property to alleviate a flood hazard.

Local Hiring Preference Results in Withdrawal Of Federal Funds on City Project

Can a city mandate a certain percentage of city residents as workers on a road improvement project that is partially funded by federal money? This was the issue that was before the Federal Court of Appeals for the Sixth Circuit in Cleveland v. Ohio Department of Transportation, (Nov. 21, 2007), 2007 U.S. App. LEXIS 26868. This case will help shed light on how local hiring preferences are viewed by federal agencies when federal funds are involved.

The City of Cleveland applied for federal funding for a construction project aimed at improving the streetscape of Kinsman Road. The federal funds for the project were provided through the Federal-Aid Highway Program, which is administered by the Federal Highway Administration (“FHWA”). Under the Highway Program, states have the right to determine which projects are federally financed, a determination that is made by the State’s Department of Transportation; in this case, the Ohio Department of Transportation (“ODOT”). ODOT also has responsibility to ensure that all projects under its purview are completed in accordance with federal and state law. As between FHWA and ODOT, however, FHWA retains the ultimate right to ensure “that the Federal- Aid Highway Program is delivered consistent with established requirements.”

As part of the bid requirements for the project, the City included its Lewis Law, which is a City ordinance that requires 20 percent of the work on the project to be performed by City residents. The law further provides that contractors who violate the requirement must post a substantial bond as a condition of receiving subsequent contracts with the City. The City then submitted its bid package to ODOT as part of the application for federal funds.

After reviewing the bid package, ODOT notified the City that failure to remove the language referencing the Lewis Law would lead to the withdrawal of federal funds due to the fact that the City’s local hiring preference requirement frustrated 23 U.S.C. § 112’s goal of limiting anti-competitive bidding provisions and procedures, and violated 23 C.F.R. § 635.117(b) by authorizing geographically-based discrimination. In response, the City altered the bid specifications by crossing out the references to the Lewis Law. The bids were then received, and the Perk Company, Inc. (“Perk”) was approved as the lowest responsible bidder.

Although the bid specifications made no reference to the Lewis Law, the contract subsequently executed between the City and Perk incorporated the Lewis Law requirements. When the FHWA learned of this development, it sent a letter to ODOT, informing it that the inclusion of the Lewis Law requirements was in contravention of “federal regulations that prohibit the use of local hiring preferences” and that federal funds were being withdrawn as a result. ODOT relayed the message to the City, and the federal funds were thereafter withdrawn.

The City then filed suit seeking a declaration that the application of the Lewis Law to the Kinsman Road project does not violate federal law or regulations. The City also requested the reinstitution of federal funds for the project. The Court of Appeals ultimately agreed with the City that the substance of the Lewis Law itself did not violate federal law.

The Court, however, ultimately denied the City’s request, because it determined that the withdrawal of the federal funds was authorized under the discretion conferred on the FHWA and by 23 U.S.C. § 112(b), which prohibits contract requirements or obligations that are not expressly set forth in the advertised bid specifications. The Court also found that the FHWA acted reasonably in determining that the Lewis Law’s bond penalty provision violated 23 C.F.R. § 635.110(b). As a result, the Court permitted the FHWA to withdraw the federal funds for the project.

This case demonstrates that when federal funds are involved on any local project, the local municipality should be very cautious when attempting to institute local hiring preferences. Even if the local requirement does not facially violate federal law, the governing federal agency may see it differently, and the courts are most likely going to side with the decision made by the federal agency as long as that decision is not arbitrary or capricious.

County Stops Flooding of Roadway; Landowners Entitled to Compensation

Government agencies often have the right to enter private property to perform construction that will alleviate the potential of public exposure to dangerous conditions. In this case, we find landowners and a County Engineer at odds over work performed to stop the flooding of a roadway.

The County Engineer claimed there was a prescriptive easement where the improvements were constructed. The landowners claimed there was no prescriptive easement and the actions resulted in an unconstitutional taking of private property. These were the issues before the Court of Appeals of Ohio in Simmons v. Trumbull Co. Engineer, 2007-Ohio-6735.

In February 2004, the Trumbull County Engineer entered the property of multiple landowners to construct a ditch that would channel excess water away from a nearby road. The road had recently flooded, and the County Engineer developed a plan to resolve the flooding and protect the public. The plan involved constructing a ditch and installing a catch basin that would direct the flow of water towards an existing pond.

The County Engineer, however, did not prepare formal design plans for construction of the ditch. The Engineer simply directed the contractor to follow the natural topography as indicated by a contour map. The contractor used a great deal of latitude in constructing the ditch. The ditch varied in width from three to 12 feet and in depth from three to 11 inches.

The landowners were upset with the County Engineer’s entry upon the land and the construction of the ditch. A complaint was filed by the landowners seeking to stop the County Engineer from constructing the improvement or, in the alternative, to require the County Engineer to file appropriation proceedings for taking the landowners private property rights. The landowners wanted compensation for the property that was “taken” as a result of the construction of the ditch.

The Court determined that state code permitted the County Engineer to enter the property to construct ditches and drains necessary to alleviate a potentially dangerous condition. However, the code requires the County Engineer to negotiate monetary damages with affected property owners upon entry. If the County Engineer and the property owners cannot reach an agreement, the court will decide the amount of restitution the property owners will receive.

The County Engineer believed that the area where the ditch was constructed was a waterway and the County had a prescriptive easement over the area of the ditch. To meet the definition of a prescriptive easement, the County Engineer was required to show that the County’s use of the ditch was continuous over the statutory 21-year period.

Evidence presented by the landowners and witnesses showed that the area was not a ditch and that water did not travel along a defined pathway. Even though the County had contour mapping of the area and an existing 15-inch culvert under the roadway directing water onto the property, the Court ruled that there was not enough evidence to show that the usage was continuous.

Even if the County Engineer proved that the property continuously drained water from the culvert, the construction of a man-made ditch would destroy the continuous usage of the property. For a prescriptive easement to exist, the continuous usage of the property must substantially remain the same during the prescriptive period.

In this case, the man-made ditch allowed more water to flow across the property, it created erosion, consistently held water, and made crossing the property difficult. The substantial change in the use of the property resulted in the Court declaring that the usage was not continuous and there was no prescriptive easement. According to the Court, the County Engineer’s entry upon the land was a “taking”, and the landowners were entitled to compensation.