Construction and Engineering Lawyers & Attorneys : K&L Gates Law Firm : Financing, Development, Dispute Resolution, Government Contracting

Am. Ins. Co. v. Siena Constr. Co., 2007 WL 4711517 (Mass. Super. Ct. Dec. 24, 2007)

In this case, the Superior Court considered two consolidated cases that both arose out of an explosion of a newly constructed building.  In both cases the plaintiffs were insurance companies acting as subrogees.  Defendants (general contractors and subcontractors) moved for summary judgment on the ground that recovery was barred by “Waiver of Subrogation” clauses found in the contracts.  The plaintiffs argued that the waiver of subrogation clause did not extend to damages caused by a defendant's gross negligence or its violation of a statute or regulation.  In addition, they argued that the subcontractors were not protected by the waiver of subrogation clause.

The original judge in the case held that analogous case law concerning exculpatory clauses supported a denial of defendants’ summary judgment motion.  The judge also held that, by its terms, the waiver of subrogation clause did not include subcontractors.  In the consolidated case, the new judge accepted the rulings of prior judge and the motions for summary judgment were allowed in part and denied in part.  Plaintiffs’ claims were allowed to proceed but as to defendants with valid waiver of subrogation clauses (contractors not subcontractors) recovery was limited to damages arising from defendant’s gross negligence, or negligence premised on a violation of statute or regulation.

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Am. Safety Cas. Ins. Co. v. Olympia, 162 Wash.2d 762, 174 P.3d 54 (2007)

The Washington Supreme Court affirmed summary judgment for the City of Olympia against American Safety Casualty Insurance Company where the contractor (whose rights the surety was pursuing) failed to comply with contractual notice procedures.  During construction, the contractor had written letters purporting to reserve its right to bring a claim at a later date.  The contractor defaulted, and the surety completed the job.  After completion, the surety presented Olympia with a Request for Equitable Adjustment.  Though Olympia expressed a willingness to enter into negotiations if the surety provided sufficient supporting documentation, Olympia ultimately rejected the surety’s claim for failing to comply with the contract’s claims provisions.  When the surety filed suit, the Thurston County Superior Court granted Olympia summary judgment, which was then overturned by Division Two. Continue Reading...

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V.L. Rendina, Inc. v. City of Harrisburg, 938 A.2d 988 (Pa. 2007)

In this case, a plurality of the Pennsylvania Supreme Court held that a municipality may apply its business privilege tax to the gross receipts from construction work performed within its borders regardless of whether the contractor maintained a “base of operations” within the municipality.  Reversing a Commonwealth Court decision in favor of the construction company, the majority focused on whether the company’s activities in Harrisburg fell within the definitive of “business” contained in the City’s tax ordinance. Continue Reading...

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Capital Heat, Inc. v. Buchheit, 848 N.Y.S.2d 481 (N.Y. App. Div. 2007)

In this case, the court awarded recovery in quantum meruit to plaintiff for heating and cooling services it had provided at the defendant's residence.  The court explained that:  (i) by issuing invoices, (ii) the plaintiff established an expectation that it would receive payment for its services, (iii) the invoices established the reasonable value of those services, and (iv) the defendant did not dispute that the plaintiff performed the heating and cooling work in good faith or of acceptable quality.

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Madigan v. Trace Constr., Inc., 878 N.E.2d 568 (Mass. App. Ct. 2007)

In this case, the Appeals Court dismissed an action seeking discharge of several mechanics’ liens encumbering plaintiff’s real estate.  The plaintiff, who was the owner of the encumbered property, claimed that because the general contractors entered into contracts with a tenant of the plaintiff, not the plaintiff, it was inappropriate to encumber plaintiff’s real property with a mechanic’s lien.  The Appeals Court affirmed the Superior Court dismissal, holding that summary discharge of a mechanic’s lien by the court was inappropriate and that defendants were entitled to discovery. 

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Grand Crossing, L.P. v. U.S. Underwriters Ins. Co., 2007 WL 4591989 (S.D.N.Y. Dec. 18, 2007)

This case concerned an insurance policy claim made for partial coverage of settlement in a wrongful death action based on a construction site fatality.  The Southern District of New York denied the parties' cross-motions for summary judgment. 

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Marcor Remediation, Inc. v. County of Broome, 847 N.Y.S.2d 702 (N.Y. App. Div. 2007)

In this case, defendant hired the plaintiff contractor to perform lead abatement work.  The contractor sued for breach of contract and quantum meruit, alleging that the county had failed to pay for work performed.  The terms of the contract prohibited plaintiff from bringing any action arising out of the contract unless plaintiff “strictly complied with all requirements relating to the giving of notices and information with respect to such claim . . . .”  The contract further required plaintiff to file a “verified, detailed statement” in order to claim that it performed revised work under the contract, as plaintiff claimed here.  Plaintiff appealed after the action was dismissed by the trial court.

The appellate court affirmed, finding that plaintiff had failed to provide a "verified, detailed statement."  The court explained:   “compliance with notice of claim provisions of a municipal contract constitutes a condition precedent to the commencement of an action for breach of contract which may only be avoided if the municipality acted in a manner that precluded the other party from complying.”

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Baker v. City of Plattsburgh, 847 N.Y.S.2d 300 (N.Y. App. Div. 2007)

In this case, plaintiff sought recovery of property damages due to water runoff caused by a utilities renovation and paving project carried out by defendants on an adjacent property.  The Supreme Court granted defendants’ summary judgment motion, dismissing the causes of action against them alleging that water runoff caused property damage.  However, defendants’ motion papers did not specifically address the remaining causes of action for trespass, due process rights violations and zoning ordinance violations, and thus those claims remained.

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Fabcon East, LLC v. Steiner Bldg. Co. NYC, 848 N.Y.S.2d 267 (N.Y. App. Div. 2007)

In this case, the court upheld an award of damages and contractually-based attorneys’ fees to plaintiff, finding sufficient support for the conclusion that defendant had breached the parties’ construction subcontract and the implied covenant of good faith and fair dealing.  However, the court reduced the attorneys’ fee award in the amount of $19,250.50 -- the amount of fees incurred by plaintiff in a separate action commenced against it by a sub-contractor.  The court explained:  “the subcontract provision dealing with an award of contractual attorney’s fees to the prevailing party in a covered action did not include the New Jersey action, to which [defendant] was not a party.”

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Colin C&M Corp. v. Bacon Constr. Co., 2007 WL 4711503 (Mass. Super. Ct. Dec. 7, 2007)

In this case, the Superior Court considered a subcontractor’s claims against a general contractor and the general contractor’s counterclaims relating to a public high school construction project.  In finding for the general contractor, the court found that the subcontractor was not entitled to damages because it walked off of the project and therefore failed to comply in strict accordance with the subcontract.  Further, the court found that the general contractor was entitled to damages because it had to finish the subcontractor’s work and pay outstanding invoices to the subcontractor’s vendors. Continue Reading...

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Butt v. Bovis Lend Lease LMB, Inc., 2007 WL 4260519 (N.Y. App. Div. 2007 Dec. 6, 2007)

In this case, plaintiff sued for common law negligence and Labor Law violations, seeking to recover for injuries allegedly sustained when he fell from ladder while plastering a ceiling beam of an interior stairwell at a public school.  Defendants included the City of New York which owned the premises, the Board of Education which operated and maintained the premises, the general contractor, and the construction manager.  Defendants moved to dismiss the Labor Law violations on summary judgment, arguing that the work the plaintiff was performing when he was injured was outside the scope of his contract, and thus was not covered by the Labor Law.  The court denied the motion, finding that such a defense only applied to the benefit of parties who did not have authority to supervise or control the work at issue.  The court explained that such a defense would not apply to the owner’s liability because injury to a worker may not be circumscribed by contract.  Further, conflicting evidence had been presented as to whether the work was outside the scope of the contract., and so the issue was not capable of resolution on summary judgment. 

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Urbina v. 26 Court St. Assocs., LLC, 847 N.Y.S.2d 67 (N.Y. App. Div. 2007)

This case involved causes of action for negligence, violations of Labor Law §§ 200, 240(1) and 241(6), and loss of consortium brought by an electrician, Urbina, and his wife.  Plaintiffs sought to recover damages for injuries sustained when a platform upon which Urbina was kneeling collapsed at a construction site.  That platform had been installed by the drywall subcontractor, R&J Construction Corp. for its own use.  Plaintiffs brought claims against the owner of the premises, the lessee of the premises, and R&J.  The issues on appeal involved the reasonableness of the damages awarded to plaintiffs, and contractual indemnification between defendants. 

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Oates v. Larkin, 2007 WL 4442361 (Mass. Super. Ct. Dec. 5, 2007)

In this case, the Superior Court considered motions to dismiss brought by multiple defendants.  The case arose out of a large-scale condominium construction project.  Plaintiff was president of the association of unit owners and the defendants bringing motions to dismiss were the developer, its board of managers, the construction manager and the architect (who sought to join the motion to dismiss filed by the construction manager).  The developers’ and managers’ motions to dismiss were denied, provided that plaintiff complied with an order to amend the complaint.  The motion to dismiss by the construction manager was allowed in part, denied in part and the architect’s motion to join was allowed.
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BMC West Corp.  v. Horkley, 144 Idaho 890, 174 P.3d 399 (2007)

BMC West provided materials to contractor Davies for work on Horkley's commercial structure.  All sales were on an open account.  Davies did not fully pay BMC, so BMC filed liens “on the land on which the buildings were located, and on the buildings themselves.”  BMC then sued Horkley for payment and to foreclose the liens.  Horkley asserted the “open account defense,” which applies when a materialman “relies exclusively on the general credit of the purchaser, and does not look to the land, structure or building as additional security for the materials sold on credit.”  To avoid the defense and make the lien valid, the materials “must be furnished with special reference to their use in a particular building.”

Because BMC had tracked the materials sold to Davis for use on Horkley's building, it was not relying on Davies' general credit alone.  Since BMC was able to track the materials used to a specific project, the court granted summary judgment in favor of BMC.  The Idaho Supreme Court affirmed, including an award of attorney fees.

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Wysocki v. Kel-Tech Constr. Inc., 847 N.Y.S.2d 166 (N.Y. App. Div. 2007)

Here, the court denied the defendants’-contractors’ summary judgment motion to dismiss the breach of contract claims brought against them by plaintiffs-construction workers.  The court reasoned that the plaintiffs’ contractual rights would be independent of a collective bargaining agreement whether or not Labor Law § 220 was incorporated into the public works contracts at issue.  The court explained that Labor Law § 220 applies across the board, making its requirements non-negotiable.  Therefore, the collective bargaining agreement did not have any bearing on the public works contracts at issue in the case.

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Felice v. Am. A.W.S., Corp., 846 N.Y.S.2d 656 (N.Y. App. Div. 2007)

In this action, plaintiffs sought to recover for personal injuries and property damages arising out of defendant's renovation of plaintiffs’ residence.  Plaintiffs alleged that defendant had negligently performed the work, resulting in water leaks and the formation of mold.  Defendant sought leave to interpose an amended answer which included, inter alia, the affirmative defense of statute of limitations.  Defendant contended that the plaintiffs' causes of action sounded in negligence and thus were governed by a three-year statute of limitations. 

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James Corp. v. N. Allegheny Sch. Dist., 2007 WL 4208589 (Pa. Commw. Ct. Nov. 30, 2007)

In this case, the Commonwealth Court of Pennsylvania held that the trial court properly measured acceleration damages sustained by a general contractor under the “measured mile” theory of recovery.  In a multi-phased construction project entered into by the school district and James Corporation, the district delayed James’ performance by failing to obtain permits in a timely manner, by requiring extra work which interfered with the planned sequence of work, by relocating fencing and reconfiguring the erosion and sedimentation pond, and by requiring removal of asbestos (which was not in the contract).  Amidst the delay, the district abandoned the contract schedule, refused to consider the time impact on the contractor’s planned sequence, and then terminated the contractor after substantial completion.  The trial court awarded James damages for acceleration/compression of work, unpaid invoices, prevailing wages withheld, attorneys’ fees and expenses. Continue Reading...

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Am. Envtl. Contractors, Inc. v. Garber Constr. Co., Inc., 2007 WL 4358169 (Mass. Super. Ct. Nov. 26, 2007)

The Superior Court heard a jury-waived trial in which the plaintiff subcontractor sought damages from the defendant general contractor after an unexpected roof collapse created the need for substantial extra work on the project.  The general contractor and the project manager executed several change orders for extra work after the collapse.  The subcontractor claimed that it was not compensated for the full amount of extra work by the general contractor.  The general contractor claimed it was owed the money by the project manager and filed a third-party complaint. Continue Reading...

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United States ex rel. E&H Steel Corp. v. C. Pyramid Enters., Inc., 509 F.3d 184 (3d Cir. 2007)

This litigation arose after a steel supplier on a U.S. government construction project asserted a claim against a payment bond issued by the general contractor (to which it had no contractual privity) pursuant to the Miller Act (40 U.S.C. § 3131).  Because the Miller Act limits the availability of such bond claims to either entities in contractual privity with the bond issuer (the GC) or those entities having contractual privity with a "subcontractor,” the key issue was whether the entity with which the supplier contracted was a “subcontractor.”  The District Court for the District of New Jersey, applying a number of a factors, determined that it was not a subcontractor and dismissed the bond claim.  

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By K&L Gates attorneys Richard F. Paciaroni and Janet M. Serafin

Limitation of liability clauses are frequently relied upon in design and/or construction contracts to manage risk by limiting the damages recoverable from contractors and design professionals.  Historically, these clauses have generally been upheld, particularly when the contracting parties are both sophisticated entities.  However, a growing concern over the trend of design professionals requiring contracting partners to indemnify them, despite the former’s own negligence, caused most states to adopt anti-indemnity statutes.  What remains somewhat uncertain is how these anti-indemnity laws affect the enforceability of limitation of liability clauses.  Two recent cases have invalidated a limitation of liability clause under the relevant anti-indemnity statute.  While these cases still represent the minority view, they beg the question of the prudence of continued reliance on such clauses, particularly in jurisdictions which have not yet ruled on the issue.

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By K&L Gates attorneys John R. Dingess and Kari M. Horner

In December 2006, the Connecticut Department of Transportation (“ConnDOT”) was surprised by the lack of contractor response to its request for proposals for a $400-million plus, seven-year project to build a ten-lane bridge replacement for the Pearl Harbor Memorial Bridge on Interstate 95.  Not a single contractor bid on the project.

Contractors were likely hesitant to build on the Pearl Harbor Memorial Bridge project because of uncertainties and difficulties in predicting labor and material costs for a seven-year project.  One surety commented that the length of the project also contributed to the "risk profile" of the project.  Another deterrent was the fact that the contract terms placed most of the risk on contractors, while also imposing high liquidated damages for failing to meet milestones.  In response to the lack of bids, ConnDOT may break up the project or re-allocate the risk to lessen the risk burden on the contractors.

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By K&L Gates partner Jason L. Richey

Imagine a contractor who has done an outstanding job of building a magnificent skyscraper in the heart of one of the world’s largest cities.  The skyscraper is 65% complete, expected to be finished on time and within budget.  The contractor has not defaulted, and proudly touts that this construction project will be the centerpiece of the company’s accomplishments.  Suddenly, the owner of the project notifies the contractor that it has been terminated from the job for the owner’s convenience.  To complete the skyscraper, the owner replaces the contractor with one of its competitors.  Can the owner unilaterally terminate the contractor even though the contractor was not in default?  If so, what compensation is the contractor entitled to recover?  The answer to these questions lies within the termination for convenience provision which has become increasingly common in private construction contracts.

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By K&L Gates attorneys Jason L. Richey and William D. Wickard

Contractual provisions that mutually waive the rights of the owner and contractor to recover consequential damages have become common-place in today’s construction contracts.  Effective waivers will expressly define the type of consequential damages the provision is intended to bar.  Such a provision will allow courts and arbitration panels to dismiss all or part of a construction case at an early stage if the waiver clearly bars a demand for certain types of consequential damages.  However, a broad consequential damages waiver that is improperly drafted may cause contractors and owners to expend significant time and money defending claims that seek damages for delay, lost profits or other damages commonly thought to only be “consequential.” 

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By K&L Gates attorneys Timothy L. Pierce and R. Michael Viayra, Jr.

Express indemnity clauses are a common component in virtually all construction contracts, yet they are routinely included in such contracts without a full understanding of the risk transfer objectives of the parties or whether the indemnity clause fulfills those objectives.  Indemnity clauses are risk transfer provisions whereby one party seeks to shift the risks of claims on a construction project down the line to the entity closer to the actual work.  Typically such clauses transfer risk from the owner to the general contractor and subsequently to the subcontractors.  This article examines the forms of indemnity clauses, issues often not specifically addressed in such clauses, jurisdictional limitations on indemnity provisions and the influence such clauses may have on additional insured coverage.  Finally guidance is provided on ways to negotiate more effective indemnity clauses.

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By K&L Gates attorneys Joseph L. Luciana, III and Thomas C. Ryan

Proper risk allocation is critical to the ultimate success of a construction project.  And, the cornerstone of proper risk allocation for any construction project is a well-conceived and appropriately tailored insurance program.  Too often, the concept of insurance remains an afterthought because contracting parties blindly rely on standard language in form agreements prepared earlier without fully investigating and understanding the current insurance market conditions.  Moreover, most contractors do not want to consider the possibility of a disaster or another party’s failure to perform that may have project-wide implications.

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