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

Hartford Fire Ins. Co. v. City of Mont Belvieu, Texas, No. 09-40586 (5th Cir. July 13, 2010)

By:  David Coale & Billie Ann Maxwell, K&L Gates, Dallas

This case shows why it is important for governmental entities, their contractors, and performance bond providers to be aware of statements among the parties for limitations purposes, and the application of equitable defenses, in the context of the one-year limitations period under Texas Government Code § 2253.078(a).  The lessons of this case apply fully to similar statutes in other jurisdictions.

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Yassin v. Solis, 184 Cal. App. 4th 524 (Cal. Ct. App. 2010)

By: Carlo L. Rodes and Brett D. Bissett, K&L Gates, Los Angeles

In this case, the court of appeal set forth a definition for retention that applies whenever a contractor seeks an award of penalties for improperly withheld retention under a California prompt payment statute.

The plaintiff-contractor, Diaa Yassin was hired by the defendants-owners, (collectively “Solises”), to improve the Solises’ home.  Under the contract, Yassin was to receive a series of payments throughout various stages of construction and the last payment was to be made upon completion of the work and before occupancy.  Yassin ultimately sued the Solises for money allegedly owed under the contract.  Although the court addressed other matters, a principal issue was the status of the final two payments of $15,000 and whether those amounts qualified as retention payments under California Civil Code § 3260.  Under section 3260, if an owner fails to make retention payments within the time prescribed by that section, a contractor may recover a penalty in the amount of 2 percent per month on the improperly withheld amount plus attorney fees.

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Williams v. Athletic Field, Inc., No. 33607-3-II (Wash. Ct. App. Apr. 7, 2010)

By: Jesse O. Franklin IV and Bradley D. Bowen, K&L Gates, Seattle

This case demonstrates the importance for claimants to substantially comply with Washington’s lien statutes.  The issue in Williams was whether a lien is invalid if a lien filing service employee signs the lien’s attestation clause, rather than a claimant or the claimant’s attorney.  The Court in Williams held that an agent of a claimant can sign a lien’s attestation clause under RCW 60.04.091, addressing the recording of liens, including an employee of a lien filing service.  However, the Court went on to hold that when the claimant’s agent is also a corporation, like a lien filing service, the agent must comply with the corporate acknowledgement requirements under Washington law.  Moreover, the Williams case stands for the more general proposition that a lien claimant in Washington must clearly demonstrate that all statutory lien claim requirements have been met because courts strictly construe the lien statutes.

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Spir Star AG v. Kumich, No. 07-0340 (Tex. Mar. 12, 2010)

By: David Coale & Matthew Sikes, K&L Gates, Dallas

The recent Texas Supreme Court case of Spir Star AG v. Kumich affirmed jurisdiction over a foreign company that had deliberately structured its Texas business to be conducted through a separate intermediary.  No. 07-0340 (Tex. March 12, 2010).  This case illustrates an aspect of personal jurisdiction over foreign entities that can be critical to disputes about projects involving overseas consultants or specialty contractors.

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Addicks Servs., Inc. v. GGP-Bridgeland, LP, 2010 WL 4250054 (5th Cir. Feb. 8, 2010)

This case shows the effectiveness that explicit waivers and progress payments can have on precluding contractors from obtaining further pay for alleged extra work.  A contractor sought damages for extra work and delay costs incurred in performing excavation and grading work for a developer.  The Fifth Circuit, applying Texas law, granted summary judgment in favor of a developer because the interim waivers and accompanying progress payments unambiguously released any outstanding claims for payment of extra work performed before the date of each interim waiver. 

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Wash. State Baseball Stadium Pub. Facilities Dist. v. Huber Hunt & Nichols-Kiewit Constr. Co., 202 P.3d 924 (Wash. 2009)

The Washington Supreme Court recently issued a decision in Wash. State Baseball Stadium Pub. Facilities Dist. v. Huber Hunt & Nichols-Kiewit Constr. Co. that may have far-reaching impact on other public construction projects.  In that case, the Court unanimously held the statute of limitations does not apply to claims regarding the construction of Safeco Field brought by the owner, the Washington State Baseball Stadium Public Facilities District (“PFD”), because the construction was for the common good of the state.

At issue were construction defect claims filed by the PFD against its general contractor. The PFD alleged the general contractor failed to follow the intumescent fire protection specification for structural steel members, causing a catastrophic failure of the fire protection. The PFD discovered the defect in 2005, and filed the lawsuit in 2006. This was more than seven years after substantial completion of Safeco Field; the applicable statute of limitations for contract claims is six years. RCW 4.16.040.

The Supreme Court overturned a summary judgment dismissal of the PFD’s claims granted by the trial court, and held that the statute of limitations does not apply. The Court relied on statutory language providing that limitation periods do not apply “to actions brought in the name or for the benefit of the state.” RCW 4.16.160. The majority of the Court’s opinion grapples with the question of whether the PFD brought the construction defect action “for the benefit of the state.”

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Baugh v. Gale Lim Holdings, Inc., 2009 WL 33149 (D. Idaho Jan 5, 2009)

In this case, Gale Lim Construction contracted with the State of Idaho to repair portions of the Tin Cup Highway.  Lim contacted Silver Star Communications before excavating, as required, and Silver Star then sent its employee, John Baugh, to the jobsite to mark its fiber optic cable.  Baugh was injured and brought a tort action against Lim.

Lim filed a motion for summary judgment claiming that worker's compensation law made it a "statutory employer" of Baugh and therefore immune from tort claims.  Baugh defended the motion by arguing that immunity was not applicable in this case where there was no contract between Lim and Silver Star.  Holding that a question of fact remained as to the existence of a contract, the court denied the motion.

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Greystone Homes, Inc. v. Midtec, Inc. 168 Cal.App.4th 1194 (Cal. Ct. App. 2008)

California’s Right to Repair Act (Civil Code section 895 et. seq. or the “Act”) establishes a set of standards for residential construction and provides tort liability for failing to meet those standards. The Act was enacted in response to the California Supreme Court’s decision in Aas v. Superior Court, 24 Cal.4th 627, 636 (2000), which held that “[i]n actions for negligence, a manufacturer’s liability is limited to damages for physical injuries; no recovery is allowed for economic loss alone.” In other words, under Aas, the “economic loss rule” precluded recovery for damages such as “the difference between price paid and value received, and deviations from standards of quality that have not resulted in property damage or personal injury.” The Act, however, abrogated the Aas decision by permitting a homeowner that established a violation of the Act to recover economic losses from a builder, among others, without having to show that violation caused property damage or personal injury.

In the recent case of Greystone Homes, Inc. v. Midtec, Inc., the California Court of Appeal ruled on the following two issues that had not been previously addressed under the Act: (1) whether a builder may recover for economic loss caused by a product manufacturer’s violation of the Act through a claim for equitable indemnity against that manufacturer; and (2) whether that builder may bring a direct action for negligence against the manufacturer to recover its economic losses. As discussed below, the court concluded that a builder may bring an action for equitable indemnity to recover economic loss as a result of a manufacturer’s violation of the Act, but a direct claim for negligence is not permitted.

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Excell Constr., Inc., v. Idaho Dep’t of Commerce and Labor, 145 Idaho 783, 186 P.3d 639 (2008)

This appeal arises out of an Idaho Industrial Commission finding that certain sheetrock workers hired by Excell Construction were employees rather than independent contractors.  At issue was whether Excell would be required to pay $6,353 in unemployment insurance taxes and penalties.  On appeal, the Idaho Supreme Court held the workers were independent contractors and reversed the Commission’s finding.

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Blaylock Grading Co., LLP v. Smith, 658 S.E.2d 680 (N.C. Ct. App. 2008)

In this case, a grading contractor sued a surveyor (who was also an engineer) for breach of contract and negligence regarding mistakes in surveying work which resulted in the contractor having to incur costs to import fill to raise the elevation of the site.  The contract between the contractor and surveyor contained a provision limiting the surveyor’s liability to $50,000.  The surveyor unsuccessfully moved for partial summary judgment based on the limit of liability.  Following a jury verdict against the surveyor for $574,714, the surveyor moved for judgment notwithstanding the verdict, which the trial court denied, ruling that the limit of liability was void as against public policy.  The North Carolina Court of Appeals reversed the trial court, holding that the limitation of liability was valid and enforceable.

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City of Westfield v. Harris & Assocs. Painting, Inc., 567 F. Supp. 2d 252 (D. Mass. 2008)

In this case, the Federal District Court for the District of Massachusetts allowed a contractor’s motion to compel arbitration and remanded the case to arbitration despite the fact that the contractor failed to register as a foreign corporation with the Massachusetts Secretary of State as required by M.G.L. c. 30, § 39L.

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Politano v. GPA Constr. Group, 2008 WL 515661 (Fla. Dist. Ct. App. Dec. 10, 2008)

In Politano, an owner moved to discharge a contractor's lien for willful exaggeration based on the contractor's inclusion of overhead and profit.  The Third DCA affirmed the trial court's decision to reduce the amount of the lien accordingly, but not discharge the lien based on the finding that the disallowed items included in the lien were a result of mistake not willful exaggeration.  It rejected the owner's argument that a lien is willfully exaggerated if it includes non-lienable items without regard to ignorance or good faith, or that a court's reduction of a lien amount necessarily means the original lien amount was fraudulent.
 

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Brookshire v. GP Constr. of Palm Beach, Inc., 99 So.2d 179 (Fla. Dist. Ct. App. 2008)

In Brookshire, an owner filed a complaint to discharge a contractor’s lien and the clerk issued an order to show cause under Florida Statute Sec. 713.21(4).  Accordingly, the contractor had 20 days to show cause as to why his lien should not be enforced by action or vacated and cancelled of record.  Failure to do so would result in cancellation of the contractor’s lien.  The contractor filed a motion to compel arbitration and set it for hearing within the 20 day period, but did not respond to the show cause order.  The contractor argued that the motion to compel satisfied Section 713.21.  The appellate disagreed and directed the trial court to discharge the lien.

The contractor had argued that the motion to compel arbitration satisfied Section 713.21 because the dispute would ultimately be arbitrated and the contractor wanted to avoid any issue as to whether he was waiving arbitration.  The court held that Section 713.21 does not allow for exceptions, such as extensions of time, nor does it leave the court with any discretion to excuse a failure to comply.  The court also noted that any concern regarding waiving arbitration could have been satisfied by contemporaneously filing a motion to arbitrate those issues that were allegedly subject to arbitration.

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BDI Constr. Co. v. Hartford Fire Ins. Co., 2008 WL 4568075 (Fla. Dist. Ct. App. Oct. 15, 2008)

In BDI Construction Co., a subcontractor filed a third party action on a sub-subcontractor’s performance bond.  The surety moved for summary judgment claiming that the agreed five-year statute of limitations under Florida Statute Section 95.11(2)(b) began to run when the subcontractor accepted the sub-subcontractor’s work as complete and paid for the work in full.  The subcontractor on the other hand argued that the statute of limitations began to run when the entire project was completed and accepted by the owner.  The subcontractor relied on the Florida Supreme Court’s opinion in Fed. Ins. Co. v. Southwest Florida Retirement Ctr., Inc., 707 So. 2d 1119, 1121 (Fla. 1998), which stated that Section 95.11 “as it applies to an action on a performance bond, accrues on the date of acceptance of a project as having been completed according to the terms and conditions set out in the construction contract.”
 

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J.S.L. Constr. Co. v. Levy, 994 So.2d 179 (Fla. Dist. Ct. App. 2008)

In this case, a homeowner sued a contractor to discharge a mechanic's lien and for breach of contract.  The contractor was hired to construct the shell of a residence, with non-shell work performed by change order.  Among other things, this case addresses whether the contract recorded its claim of lien timely.

Florida Statutes Section 713.08(5) provides that a "claim of lien may be recorded at any time during the progress of the work or thereafter but not later than 90 days after the final furnishing of the labor or service or materials by lienor."  The parties had agreed that the contractor would oversee work performed by electrical and other subcontractors.  Moreover, because the subcontractors' permits were tied to the master permit, the contractor could not close out its permit and complete the project until the electrical and other subcontract work was performed.  The contractor also did a final walk through of the project with the building inspector.  Because the contractor filed its claim of lien within 90 days of those activities, the claim of lien was timely.

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Connolly Bros., Inc. v. Nat’l Fire & Marine Ins. Co., Civ. No. 06-11673-NG, 2008 WL 5423198 (D. Mass. Sept. 30, 2008)

In this case, the Federal District Court for the District of Massachusetts granted an insurer’s motion for summary judgment on a general contractor’s claim for indemnification and for unfair and deceptive practices under M.G.L. c. 93A, because the general contractor was not covered for the relevant incident by the insurer’s policy.

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In Nitro Dynamics v. Petruzzi Bros., Inc., 2008 WL 4635884 (Mass. Super. Ct. Sept. 26, 2008)

In this case, a subcontractor sued three defendants - the owner, the general contractor, and a surety - asserting claims for breach of contract, quantum meruit, and for recovery on a mechanic’s lien dissolution bond.  The Superior Court granted the owner’s motion for judicial notice of a stipulation of dismissal in a related action, but denied the owner’s motion for summary judgment.

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Safeco Ins. Co. of America v. Tarragon Corp., 2008 WL 427969 (M.D. Fla. Sept. 16, 2008)

In Safeco, a third-party sued a general contractor and a surety in state court to recover against a Section 713.24 lien transfer bond.  Because the contractor refused to honor its obligations to the surety under their indemnity agreement, the surety then sued the contractor in federal court, asserting a claim quia timet, based on the future monies that the third-party was demanding on the bond.  Quia timet allows a person to seek equitable relief from future probable harm to a specific right.  Under Florida law, quia timet relief is not appropriate without proof that the surety realistically faces loss under the bond and is in jeopardy.

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Douglas Asphalt Co. v. Qore, Inc., 541 F.3d 1269 (11th Cir. Sept. 2, 2008)

In Douglas Asphalt, a highway paving contractor sued State Department of Transportation officials, in their individual capacity, under 42 U.S.C. Section 1983.  The contractor claimed that the Department wrongfully singled out the contractor and treated it differently than other paving contractors in violation of the equal protection clause.  The contractor argued that the officials were not shielded from liability by their qualified immunity defense because the contractor was alleging a “class of one” equal protection claim.

The Eleventh Circuit disagreed and held that the reasoning behind the U.S Supreme Court’s 2008 decision in Engquist v. Oregon, 128 S. Ct. 2146 (2008), a government-employee relationship case, applied in the government contractor context.  Specifically, there is a “crucial difference between the government exercising its power to regulate or license, as lawmaker, and the government acting as proprietor to manage its internal operation.”  Employment decision making, including the hiring of government contractors, is “often subjective and individualized, resting on a wide array of factors that are difficult to articulate and quantify.”  Thus, the class of one theory of equal protection has no application in the public hiring context—otherwise every government hiring decision would become a constitutional matter.

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Trintec Constr., Inc. v. Countryside Village Condo. Assoc., 992 So. 2d 277 (Fla. Dist. Ct. App. 2008)

This case addresses whether the term “owner” for the purpose of applying mechanic’s lien law to a condominium property and improvements to its common elements refers to:  (a) each and every unit owner in the condominium, or (b) the condominium association created by the declaration.  The association argued that lien law’s use of “owner” means each individual condominium owner such that those owners are indispensable parties.  The Court, analyzing the construction lien statute and Florida civil procedure rules as to condominium associations held that the unit owners are not indispensable parties and the roofing contractor could proceed against just the association.

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FCI Group, Inc. v. City of New York, 2008 WL 2796591 (N.Y. App. Div. July 22, 2008)

In this case, plaintiff contractor sued to recover the outstanding balance for work already completed on a construction project after the city cancelled the contract because of plaintiff’s attempted bribery of two city officials.  The Appellate Division, First Department, granted defendants’ motion for summary judgment, holding that:  (i) “plaintiff agreed to conduct itself ethically…and consented to the imposition of penalties for violating the contractual prohibition against dispensing monetary inducements to City workers;” and (ii) the illegal conduct at issue was central to plaintiff’s performance under the contract.

The court rejected defendants’ alternative argument that the contract’s alternative dispute resolution clause required dismissal in favor of arbitration.  The court held that the narrow ADR provision only applied to specified disputes in accordance with the intent of the parties and could not be interpreted so as to render the language limiting its scope mere surplusage.

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Great American Ins. Co. v. Gen. Contractors & Constr. Management, Inc., 2008 WL 2245986 (S.D. Fla. May 29, 2008)

In this case, a surety company sought indemnification from a contractor under a payment bond.  The surety had paid claimants under the bond and argued that it was contractually entitled to reimbursement.  The contractor argued that the surety failed to bear its alleged initial burden of proving that the surety paid the claims in good faith.  The Court held that the surety’s initial burden was satisfied by evidence that the surety had indeed paid claims under the bond.  Thereafter, it was then the contractor’s burden to provide contradictory evidence or evidence that the surety paid the claims in “bad faith.”

It is well settled in Florida that a surety’s bad faith is the only defense to a surety’s indemnity claim.  Therefore, Florida courts will uphold a surety’s contractual right to indemnification so long as the surety acted on a good faith belief that it was required to act or pay, regardless of whether any liability existed.  To establish a surety’s bad faith, the contractor must demonstrate that the surety acted “with deliberate malfeasance”—meaning that that surety intentionally and wrongfully acted without legal right.  A lack of due diligence or negligence is not the equivalent of bad faith and even “gross negligence” is not the same as bad faith.

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Baker County Med. Svcs., Inc. v. Summit Smith, 2008 WL 2245587, Case 3:05-cv-541-J-33HTS (M.D. Fla. May 29, 2008)

In this case, an owner sued a contractor under a design-build contract, alleging that the contractor breached the contract by failing to fulfill its implied duty to perform according to established industry and professional standards.  While Florida law permits such “professional negligence” actions to be pled as a breach of contract or a tort, such an action must be brought under the more specific two year professional malpractice statute of limitation, not the general four year limitation for actions based on “design, planning, or construction of an improvement to real property.”

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Niehaus v. Big Ben’s Tree Svc., Inc., 982 So. 2d 1253 (Fla. Dist. Ct. App. 2008)

In this case, the court held that a contractor’s lien under Section 713.05 never attached because the parties never had a meeting of the minds as to a material term of their contract.  The owner had contacted a contractor to cut down and “remove” a tree.  The owner believed that “remove” meant that the tree would be taken from her property, but the contractor intended for remove to have its technical meaning in the tree industry, which is to simply move the tree.  The owner refused to pay the contractor when he would not take the tree from her property, resulting in the contractor recording a mechanic’s lien under Section 713.05.

A mechanic’s lien can only attach when a valid contract exists, and parties’ must agree as to material terms for there to be a valid contract.  The court found that “removal” was a material term of the parties’ contract in this case, and that they had different understandings as to the term’s meaning.  Therefore, the contractor’s lien never attached, and the owner was entitled to attorney’s fees under Section 713.29 for her successful defense against the lien.

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Fisher Island Holdings, LLC v. Cohen, 983 So. 2d 1203 (Fla. Dist. Ct. App. 2008)

In this residential construction case, an owner entered into a short-term lease because of substantial delays in the completion of his single family home.  The owner sued the contractor for delay, and the jury awarded the owner both delay damages and damages for alternative living arrangements.  The appellate court held that this was not a double recovery.  The jury permissibly awarded delay damages (measured by the rental value of the building under construction during the delay period) for the period of the contractor’s delay up to the commencement date of the owner’s nine month lease.  The jury then awarded alternative living damages for the duration of the lease.

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W. World Ins. Co. v. Azoff, Civ. No. 07-00494-BLS2, 2008 WL 4107481 (Mass. Super. Ct. May 15, 2008)

In this case, the Superior Court granted an insurer’s motion for summary judgment and denied the insured contractor’s cross-motion for summary judgment, holding that the insurer was not obligated to defend or indemnify the contractor for a claim brought against it in a separate action, because the claim fell under a professional liability exclusion in the relevant policies.

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J.C. Gibson Plastering Co. v. XL Specialty Ins. Co., 2008 WL 1931348 (M.D. Fla. May 2, 2008)

In J.C. Gibson Plastering, the U.S. District Court for the Middle District of Florida held that a surety could state a claim for common law indemnity against a subcontractor despite the absence of privity.  The court found that the two elements necessary to state a claim for common law indemnity were satisfied:  (i) the surety may be constructively, vicariously or derivatively liable for the subcontractor’s failure to pay sub-subcontractors, and (ii) the surety was without fault in causing the loss it was required to bear, despite failing to timely respond to the claim.

Also, despite the lack of Florida authority on the question, the court also held that a surety’s failure to respond to the subcontractor’s claim for payment under a payment bond within forty-five days (as required under the bond) barred the surety from challenging the claim or from asserting counterclaims to the extent the surety could have reasonably identified the bases of its affirmative defenses or counterclaims’ during the forty-five day period.  By failing to respond timely, the claim was undisputed and subject to summary judgment.

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Saltponds Condo. Assoc. v. Walbridge Aldinger Co., 979 So. 2d 1240 (Fla. Dist. Ct. App. 2008)

In this case, a condo association sued a contractor in connection with alleged construction defects discovered after the control of the association passed from the developer to the unit owners.  The contractor argued that the claims were barred by the three-year “statute of limitations” set forth in Florida Statute Section 718.203.  That Section, however, merely sets the warranty period for construction improvements and materials, not the statute of limitations.

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Mineo v. Lakeside Village of Davie, LLC, 983 So.  2d 20 (Fla. Dist. Ct. App. 2008)

Where a contract for the purchase of real property and construction of a residence gave the seller the option of retaining deposits and change order payments as liquidated damages in the event of the buyer’s default, or the seller could sue for specific performance at the purchase price plus interest as delay damages, the liquidated damages provision was not an unenforceable penalty because the contract did not provide the seller with the option to sue for actual damages (which would have change the character of the forfeiture as agreed damages).

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Harris v. Suniga, 344 Or. 301, 180 P.3d 12 (Or. 2008)

In this case, the defendant general contractors constructed an apartment building for a California investment company.  The California investment company sold the completed apartment building to the plaintiffs, trustees for the Harris Family Trust.  Following the sale, plaintiffs found the apartment building had problems with leaking water and dry rot and filed a claim for negligent construction against the defendant contractors.  Prior to suit, the plaintiff and defendants were “strangers.”  The plaintiffs did not purchase the apartment building from the defendants, did not contract with the defendants, and did not have any previous contact with the defendants.  Plaintiffs alleged that defendants’ failure to install required flashings in the building caused the dry rot damage, and that the failure constituted negligence.

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CZAR, Inc. v. Heath, 939 A.2d 837 (N.J. Super. Ct. App. Div. 2008)

In this case, a homeowner brought claims against a custom kitchen contractor under New Jersey’s Consumer Fraud Act.  During the construction of a new home, the homeowner had contracted directly with a custom kitchen contractor for the installation of custom kitchen cabinets, interior doors, a front door, and certain moldings.  The trial concluded that the home improvement practice regulations found in N.J.A.C. 13:45A-16.1 to 16.2 were not applicable to plaintiff and, therefore, dismissed the CFA claims.  The trial court reasoned that the kitchen contractor's work was not a “home improvement” within the meaning of the regulation because the construction and installation of the doors, cabinets, and moldings were part of the construction of a new residence and, therefore, excluded from the definition of “home improvement.”

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Murray's Iron Works, Inc. v. Boyce, 158 Cal. App. 4th 1279 (2008)

In this case, the California Court of Appeal addressed whether the prompt payment penalty statute was properly applied against the owner and, in doing so, provided a definition for progress payments under the statute.

California requires that an owner pay its contractor any progress payment due as to which there is no good faith dispute within 30 days following receipt of a demand for payment.  If there is a good faith dispute between the owner and contactor, the owner may withhold no more than 150 percent of the disputed amount.  Any amount wrongfully withheld by the owner is subject to a penalty of 2 percent per month on the improperly withheld amount, in lieu of any interest otherwise due.  The prevailing party is also entitled to attorney’s fees and costs.  (Cal. Civ. Code § 3260.1.)  Other statutes establish similar requirements for progress payments between contractors and subcontractors (Bus. & Prof. Code § 7108.5) and for payment of retention (Cal. Civ. Code § 3260).

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Luby v. Rotterdam Square, L.P., 850 N.Y.S.2d 252 (N.Y. App. Div. 2008)

In this negligence action, plaintiff sustained injuries when he fell over a transition flare of a handicapped ramp.  That ramp had been constructed by defendant Clifford H. Quay & Sons fourteen years earlier pursuant to a contract between Quay and another defendant, Rotterdam Square.  The architectural firm that designed the plans pursuant to which the ramp was constructed was also named as a defendant.  Two issues were at stake.

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Liberty Mutual Ins. Co. v. Aventura Eng’g & Constr. Corp., 534 F. Supp. 2d. 1290 (S.D. Fla. Jan. 8, 2008)

The U.S. District Court for the Southern District of Florida has interpreted Florida law as allowing a surety to settle not only an owner’s claims on a performance bond, but also the principal’s claims against the owner.  In Aventura Eng’g, a surety completed construction of a project pursuant to an owner’s demand against a performance bond.  The principal, a general contractor, had allegedly defaulted on its contract with the owner, and thereafter refused the surety’s demands for indemnification.  The surety eventually executed a settlement agreement with the owner, whereby the surety exercised its power of attorney to execute a release of all claims that the contractor had against the owner growing out of the bonded contract. 

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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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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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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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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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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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Mulcaire v. Buffalo Structural Steel Constr. Corp., 846 N.Y.S.2d 838 (N.Y. App. Div. 2007)

In this case, a construction worker and a family member alleged Labor Law and common law negligence causes of action for injuries plaintiff sustained while installing floor decking in a building undergoing construction.  Plaintiff slipped and fell through an uncovered opening approximately 18 feet to the floor.  The trial court granted in part and denied in part plaintiffs' motion for summary judgment, and denied defendants' motion for summary judgment.  Defendants appealed.

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N.B. Kenney Co., Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, 876 N.E.2d 1175 (Mass. App. Ct. 2007)

In this case, the Massachusetts Appeals Court held that for the purposes of the statute of limitations, a subcontractor’s time to file suit begins to run at the completion of all work on a particular subcontract, including any change orders thereto. 

The defendant insurance company in this case moved for summary judgment on the basis that the plaintiff completed the change order giving rise to the complaint more than one year prior to filing suit and that the suit was therefor time-barred.  The court rejected this argument, holding that the subcontractor's work on other change orders pursuant to the same subcontract tolled the limitations period until all work on the subcontract was complete.  The court noted that continued work for the same owner or on the same location, but under a new and independent subcontract would not have tolled the limitations period.

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Granite Broadway Dev. LLC v. 1711 LLC, 845 N.Y.S.2d 10 (N.Y. App. Div. 2007)

In this case, a contractor sued a property owner for breach of a construction contract.  After a bench trial, the court awarded the owner liquidated damages, certain offset damages, and specific performance.  The contractor appealed.

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Cusolito v. Care Free Homes, Inc., Civ. No. 05-00443, 2007 WL 5578208 (Mass. Super. Ct. Nov. 1, 2007)

On motions for summary judgment, the Superior Court held that the statute of repose barred all negligence-based claims filed by a homeowner against the defendant contractor who installed vinyl siding and the contractor’s president, and also barred the contractor’s third-party claims against a roofing contractor for contribution.  The court allowed the action to go forward on a claim by the homeowners premised on an express ten-year warranty by the vinyl-siding contractor.

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Great N. Ins. Co. v. Architectural Env'ts, Inc., 514 F. Supp. 2d 139 (D. Mass. 2007)

On a motion for summary judgment, the Federal District Court for the District of Massachusetts held that for the purposes of the statute of repose, the limitation period began running when the temporary certificate of occupancy was issued on the building in question. 

In this case, a fire occurred at a commercial property as a result of an electrical malfunction.  The occupant’s insurer sued the mechanical and electrical contractor responsible for design and renovation of the building.  The court held that the statute of repose began to run on the date that the temporary certificate of occupancy was issued on the building, and not at the later date when the permanent certificate was issued.  Thus, the plaintiff’s claims for negligence and implied warranties were time-barred by the six-year statute of repose.  Express warranties, however, were not subject to the statute of repose and those claims survived summary judgment.

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Triad Mech. v. Coatings Unlimited, Inc., 2007 WL 2713842 (D. Or. Sept. 12, 2007)

A general contractor successfully obtained a judgment against a subcontractor for breach of contract and negligence arising from a construction project.  The general contractor then sought a garnishment action against one of the subcontractor’s insurers to collect the judgment, which was filed in Oregon state court.  The general contractor was an additional insured under the subcontractor’s comprehensive general liability insurance.  The insurer removed the action to federal court and the general contractor sought remand to state court.  The district court remanded the action to state court.

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Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1 (Tex. 2007)

In this landmark decision, the Texas Supreme Court ruled that commercial general liability policies provide a duty to defend claims for property damage caused by an insured contractor’s defective construction.  Resolving a split of authority on certified questions from the Fifth Circuit, the court ruled that unintended construction defects may constitute an “accident” or “occurrence” within the meaning of a commercial general liability policy.  It also ruled that the resulting damage to or loss of use of the building may constitute “property damage” sufficient to trigger the insurer’s duty to defend.  The court also held that the CGL policy made no distinction between tort and contract damages, rejecting the insurer’s economic loss rule defense.

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In re Kara Homes, Inc., 374 B.R. 542 (Bankr. D.N.J. 2007)

On an issue never before addressed in a published opinion, a U.S. Bankruptcy Court decided an issue critical to the New Jersey Lien Law.  A major New Jersey based residential home building group (the “Debtors”), owning several large single-family home development projects, entered numerous agreements with various subcontractors who provided goods and services on the projects.  When the Debtors failed to pay, the subcontractors took steps to protect their rights under the New Jersey Construction Lien Law.  However, most of the Debtors initiated Chapter 11 bankruptcy proceedings before the subcontractors could fully complete all of the Lien Law's requirements.  The Debtors then filed adversary proceedings to determine the extent, validity, and priority of any liens.

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Alaska Servs., Inc. v. County of Morris, 2007 WL 2385941 (N.J. Super. Ct. App. Div. Aug. 23, 2007)

In this case, a county solicited bids for laundry services for a county-run nursing care facility pursuant to New Jersey’s Local Public Contracts Law (“LPCL”) (N.J.S.A. 40A:11-1, et seq.).  The county refused to award the contract to the lowest bidder, finding that the bid was “materially non-responsive," and because the services were such that the county could utilize the LPCL’s “competitive contracting” provision (an exception for certain “special” goods and services permitting a public entity to consider additional factors beyond the “lowest responsible bidder” standards set by the LPCL).  The county awarded the contract to another bidder.

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Gale v. New Jersey Iron, Inc., 2007 WL 2385948 (N.J. Super. Ct. App. Div. Aug. 23, 2007)

This case arose after an employee of a sub-subcontractor sued the project owner, the general contractor (“GC”) and the subcontractor for negligence over personal injuries he sustained after falling from a steel beam at the construction site.  All issues settled except for the owner’s cross-claim against the GC alleging that the GC breached its contract when it failed to obtain insurance coverage that protected the owner from its own negligence.

The Appellate Division affirmed the trial court’s dismissal of the claim.  Initially, the court determined that the “insurance” section of the contract did not specifically require such insurance and was more consistent with the industry standard requiring a GC to provide insurance to indemnify an Owner against acts of negligence by the GC or a subcontractor.  Moreover, the "indemnity” section of the contract merely required the GC to indemnify the owner only to the extent caused by the GC, a subcontractor or anyone employed by them.

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Advanced Drainage Sys., Inc. v. City of Portland, 214 Or. App 534, 166 P.3d 580 (2007)

A pipe manufacturer sought a declaratory judgment that the city had violated its state and federal constitutional rights to equal treatment when it rejected the use of a certain type of pipe for a city contract.  The city counterclaimed, asserting that it had complete discretion to choose products for its construction projects.  The trial court agreed with the city.  The court of appeals affirmed, but with a modification.

The city tried to argue that the manufacturer was not a citizen under the Oregon constitution and therefore lacked standing.  The appellate court left that issue for another day, deciding that it would determine standing as an issue of justiciability and not as a matter of constitutional interpretation.  The appellate court then determined that the city’s ordinances which prohibited certain types of pipe materials but not others passed any applicable tests of rationality based upon asserted claims regarding safety and maintenance.  However, the appellate court also determined that, contrary to the city’s argument, the city did not have unfettered discretion in prohibiting certain types of products and hence manufacturers.  Thus, the city could not prohibit products made by “Catholics or Norwegians," for example.

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Kane Builders, Inc. v. S. New Jersey Bldg. Laborers Dist. Council, LIUNA, 2007 WL 2416470 (D.N.J. Aug. 21, 2007)

In this case, a labor union brought various claims against a general contractor (“GC”) stemming from a collective bargaining agreement (“CBA”) entered between the Union and the GC.  Briefly stated, the union asserted a multi-million dollar claim for unpaid employer contributions that the GC would have been obligated to pay, had it not violated the CBA by not using union laborers on over 100 “covered projects” in New Jersey.  Relying on ERISA’s record keeping provision (29 U.S.C. § 1145), the union argued that the GC bore the burden of proving which hours worked were not subject to contribution. 

The court, following 11^th Circuit precedent, adopted the burden-shifting approach.  It determined that the union had satisfied its initial burden of setting forth sufficient evidence concerning the amount and extent of work performed through an expert auditor’s report.  The court ruled that, at that point, the burden of proof shifted to the GC to disprove, or raise an issue of fact, regarding the extent of work performed on covered projects and/or whether covered employees performed the work.  Because the GC was unable to produce any records to disprove the union’s claim, the court entered partial summary judgment on the issue of damages.

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In re Andrew Velez Constr., Inc., 373 B.R. 262 (Bankr. S.D.N.Y. 2007)

This adversary proceeding was brought by Andrew Velez Construction, Inc. (“Velez”), a general contractor on a major construction project for Con Edison Company of New York, Inc. (“Con Edison”), against Con Edison.  After substantial cost overruns, delays and changes in the scope of work, the parties each claimed that the other committed pre-petition defaults under their contract.  The parties asserted numerous causes of action, including claims for: fraudulent transfers, turnovers, declaratory relief, fraud, fraudulent inducement, quantum meruit, unjust enrichment, trust fund violations, and defamation.  Because the court was presented with Con Edison’s motion to dismiss, this decision examined the pleading standards for each claim.

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Actus Lend Lease LLC v. Integrated Bldg. Res. Dev. LLC, 2007 WL 2362389 (N.D.N.Y. Aug. 14, 2007)

Here, defendant moved to dismiss the action for breach of its subcontract with plaintiff-contractor on the basis that the action was subject to binding arbitration.  According to the subcontract, a dispute between the parties must be resolved by mandatory arbitration when the dispute (1) arises in connection with the subcontract and either party elects, by written notice, to submit the matter to binding arbitration; or (2) involves the correlative rights and duties of the owner.  The subcontract also provided that a party must provide written notice to elect binding arbitration.

In support of its motion, defendant submitted a notice of motion and an affirmation with exhibits; however, it did not submit a memorandum of law to set forth its legal arguments.  The court held, therefore, that factual disputes existed as to whether the alleged dispute was subject to arbitration under the terms of the agreement.  However, the court granted defendant leave to renew its motion to dismiss upon submission of the proper papers, reasoning that there is a strong public policy in favor of arbitration.

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Mercedes Homes, Inc. v. Colon, 966 So.2d 10 (Fla. Dist. Ct. App. 2007)

In this case, an individual entered into an agreement with a contractor for construction of a new home, which included a provision requiring the contractor to install sod.  When the home buyer fell in his yard eleven days after closing, he brought a personal injury claim against the contractor claiming it had installed the sod negligently.  The contractor moved to compel arbitration of the personal injury claim, based on the arbitration agreement contained in the home warranty purchased by the home buyer.  In response, the buyer argued that he was not required to arbitrate his personal injury claim because negligence claims were expressly excluded from the home warranty.

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Centex Homes v. Mr. Stucco, Inc., 2007 WL 2264622 (M.D. Fla. Aug. 6, 2007)

In this case, a general contractor brought suit against several subcontractors for breach of contract and negligent construction of residences in the general contractor's development.  In response, the subcontractors moved to dismiss the action on the grounds that the contractor had failed to provide notice prior to filing the action as required by section 558.004 of the Florida Statutes.  The subcontractors also moved to dismiss the negligence claim on the grounds that the contractor had not alleged any tort injury separate from the breach of contract claim in order to survive the economic loss rule.

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Klewin Bldg. Co. v. Heritage Plumbing & Heating, Inc., 840 N.Y.S.2d 144 (N.Y. App. Div. 2007)

In this case, plaintiff was the construction manager for a building project and had entered into a subcontract with defendant Heritage Plumbing & Heating pursuant to which Heritage was required to supply plumbing materials and services for the project.  Defendant Hartford Fire Insurance Company provided a performance bond to Heritage for the benefit of Klewin.   Hartford's obligations to Klewin under the bond would only arise upon certain conditions, including, among other things, Klewin's declaration that Heritage had defaulted and a termination of Heritage's right to complete the subcontract.

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Harrison & Burrowes Bridge Constructors, Inc. v. New York, 839 N.Y.S.2d 854 (N.Y. App. Div. 2007)

The claimant filed suit in the Court of Claims seeking additional compensation for its rehabilitation and resurfacing of eight bridges under a unit-price contract with the State of New York.  The state offered several reasons for its refusal to pay the claimant for labor and materials supplied under the contract.

First, the contract required the state to pay the claimant for the total number of markers installed, including any markers damaged by traffic.  The state refused to pay for an additional 1,478 replacement markers installed by the claimant, arguing that the bid proposal, upon which the contract was based, only covered the installation of 868 markers.  Affirming the Court of Claims, the appellate court found that the state should pay for the additional 1,478 replacement markers.  Although the contract (which required the claimant to replace damaged markers) did not specify who would be obligated to pay for those markers, the court reasoned that the contract did not require the claimant to include the cost of replacing markers in its bid.

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Pugh v. Gen. Terrazzo Supplies, Inc., 243 S.W.3d 84 (Tex. Ct. App. 2007), petition for review filed (Mar. 24, 2008)

In this case, the court affirmed a take-nothing summary judgment in favor of a materials supplier based on the economic loss rule.  Pugh arose out of a residential construction project involving an exterior insulated finishing system (“EIFS”).  After discovering alleged water damage to their home’s wood frame and interior wood flooring, the homeowners sued the masonry subcontractor and veneer supplier for negligence, “product liability (marketing defect),” and breach of the “implied warranties of good and workmanlike service and habitability.” 

In a motion for summary judgment, the material supplier argued that the economic loss rule barred the homeowners’ claims for negligence and strict liability.

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Garcia v. Federics, 2007 WL 2367672 (Mass. Super. Ct. July 9, 2007)

In this case, the Superior Court granted a motion for summary judgment brought by the architect and engineer of a project on claims asserted by a construction worker injured on the job.  As grounds for its ruling, the court found that neither the contract between the owner and the construction company nor the contract for architect’s services assigned responsibility to the architect or engineer for safety issues on the project.  Thus, the court found that the architect and engineer did not have a contractual duty to protect the worker against unsafe working conditions. 

In reaching its decision, the court rejected plaintiff’s argument that the Massachusetts Building Code created a duty for the architect and engineer to control safety conditions.  Specifically, the court noted that the Massachusetts Building Code places the responsibility for the conditions of the building on the owner of the building rather than the architect or engineer.  Plaintiff’s additional claims also failed because he could not demonstrate a reasonable expectation of proving that the architect and the engineer had a duty of care to the worker.  The cross-claims by the owner failed because the architect and the engineer were not directly liable to the worker.

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Floor Express, Inc. v. Daly, 138 Wash. App. 750, 158 P.3d 619 (2007)

In this case, a subcontractor sued a general contractor for failing to make payments on the parties’ contract.  The general contractor asserted a counterclaim against the subcontractor for the cost of removing and replacing the subcontractor’s work.  On the first day of trial, the subcontractor moved to dismiss the counterclaim, arguing that the project owner was a necessary party and that the general contractor had no standing to sue the subcontractor because the alleged defective work injured only the owner.  The trial court granted the motion, but Division Two reversed.

The Court of Appeals noted that, where a subcontractor breaches its agreement with a general contractor by failing to perform the work pursuant to the parties’ agreement, the general contractor has legal exposure to the owner.  The court held that the owner was not a necessary party to the litigation under Civil Rule 19 because the general contractor’s claims were based on the subcontract, to which the owner was not a party.  The court also held it could afford complete relief to the general contractor, and that the owner’s absence did not impede any of the owner’s interests.  Accordingly, the general contractor’s claim against the subcontractor should have been allowed to proceed.

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Bd. of Trustees of Cement Masons & Plasterers Health & Welfare Trust v. GBC Northwest, LLC, 2007 WL 1306545 (W.D. Wash. May 3, 2007), reconsid’n denied, 2007 WL 1521220 (W.D. Wash. May 22, 2007)

A split of authority exists between Washington state courts and federal courts regarding whether an employee benefit trust fund can use state lien laws to recover unpaid employee benefit contribution payments.  In 2000, the Washington Supreme Court held that ERISA preempted the state public works lien law.  Int'l Bd. of Elec. Workers v. Trig Elec. Contr. Co., 142 Wash.2d 431, 13 P.3d 622 (2000).  Two years later, however, Judge Coughenour of the U.S. District Court for the Western District of Washington noted that federal law, as determined by federal courts, governs questions of ERISA preemption, and that ERISA does not preempt Washington’s public works lien laws.  Ironworkers Dist. Council of the Pacific Northwest v. George Sollit Corp., M.A., 2002 WL 31545972 (W.D. Wash. Sept. 4, 2002).

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MacLean Townhomes, LLC v. Am. States Ins. Co., 138 Wash. App. 186, 156 P.3d 278 (2007)

In this case, a homeowners association informed its developer about certain construction defects attributable to the building’s siding subcontractor.  The developer was named as an additional insured on the siding subcontractor’s commercial general liability insurance policy.  However, the developer failed to give the insurer notice of the defects and potential claim.  The developer further agreed (again without notice to the insurer) to enter into binding arbitration with the homeowners association.

Division One affirmed summary judgment in favor of the insurer, holding that the developer’s failure to give notice was a violation of the insurance policy, prejudiced the insurer, and was therefore fatal to the developer's claim.  Acknowledging that prejudice is normally a question of fact, the court held that the developer’s agreement to binding arbitration deprived the insurer of full judicial review of the matter.  This inability to seek review of a decision, for example, in the case of an error of law, necessarily prejudiced the insurer and excused the insurer of its duty to defend the developer. 

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Lord v. Customized Consulting Specialty, Inc., 182 N.C. App. 635, 643 S.E.2d 28 (Ct. App. 2007)

In this case, homeowners sued their contractor regarding defective trusses installed in their home, and also brought a negligence claim directly against the subcontractor which supplied the trusses.  A jury awarded no damages against the contractor, but did award damages against the subcontractor.  The subcontractor argued on appeal that the economic loss rule barred the homeowners’ claim.  The North Carolina Court of Appeals affirmed the jury verdict against the subcontractor, holding that the economic loss rule does not bar a negligence claim in the absence of a contract.

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Haselwood v. Bremerton Ice Arena, Inc., 137 Wn. App. 872, 155 P.3d 952 (2007)

In this case, Division Two of the Washington Court of Appeals considered whether and to what extent a contractor has lien rights on a private building constructed on public property.  The City of Bremerton entered into a concession agreement with Bremerton Ice Arena, Inc. (“BIA”), under which BIA would construct an ice arena on city property and would own and operate the arena for a specified period of time.  After the expiration of that period of time, ownership of the arena improvements would transfer to the city. 

The excavation and drainage subcontractor on the project claimed it was unpaid for a portion of its work, and filed a lien the project.

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Boise Tower Assocs. LLC v. Wash. Capital Joint Master Trust, 2007 WL 1035158 (D. Idaho Apr. 2, 2007)

In this case, the federal court sitting in Boise applied Washington law in delivering a win for a lender who refused to lend to the plaintiff developer.  The lender agreed to provide financing, but only if four conditions precedent were met, including an agreement to use union labor.  The developer agreed, but later took steps to have his contractor use non-union labor.  The lender refused to loan, prompting a lawsuit by the developer.  The court held that the lender was entitled to refuse because the developer had not demonstrated that it was willing and able to perform the conditions precedent.  A party, here the developer, that claims to have been damaged by a repudiation must show that it was ready, willing and able to perform its obligations under the contract before the repudiation, and that it would have rendered the agreed performance if the defendant had not repudiated.  The developer could not do so here, so the court excused the lender from making the loan.

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Fuhriman v. Idaho Dept. of Transp., 143 Idaho 800, 153 P.3d 480 (2007)

Idaho law provides that workers' compensation benefits are the exclusive remedy for workplace injuries.  Idaho Code §72-223, however, contains an exception to that "exclusive remedy."  The exception allows a finding of liability against a third party, even where the injured employee has received worker's compensation benefits, if the third party is legally liable for damages.  This exception to the exclusive remedy rule does not apply, however, to employers described in §72-216, which includes third party that has expressly or impliedly hired or contracted the services of another, including contractors and subcontractors, and the third party is liable to pay workers’ compensation benefits if the direct employer, the contractor or subcontractor, does not.

In a February 2007 opinion, the Idaho Supreme Court held that the Idaho Department of Transportation was not subject to the exception (that is, it was protected by the exclusive remedy rule).  The State was using workers employed by a contractor.  Those workers were killed on the job.  Their families received workers' compensation benefits and sued the State.  The Court rejected the claims, however, because the State would have been liable for the worker's compensation benefits if the contractor/employer failed to pay those benefits.  The exception therefore did not apply.

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Craig Johnson Constr., L.L.C. v. Floyd Town Architects, P.A., 142 Idaho 797, 134 P.3d 648 (2006)

Town entered into a contract with Dean to prepare plans for condominiums in Ketchum.  Once Dean received the plans, Dean contracted with Johnson to build the condominiums according to Town’s plans.  The condominiums were built in two phases.  In Phase one Johnson deviated from the plans, but did not do so in building phase two.  The first winter the condominiums were completed, ice dams formed on the roofs of individual units in both phases of construction.  All three parties then brought actions against each other for breach of contract, negligence and indemnification. 

At trial, the jury found Johnson to be 90 percent at fault and Town only 10 percent at fault.  The court held that “a public or private contractor following plans and specifications prepared by another party is not liable in negligence where defects in the plans and specifications cause injuries, so long as the contractor should not have reasonably known about the defects.”  The court affirmed the jury’s verdict since there was sufficient evidence in the record to show that Johnson was negligent and failed to follow Town’s plans. 

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O & M Indus. v. Smith Eng’g Co., 360 N.C. 263, 624 S.E.2d 345 (2006)

In this case, the subcontractor served a notice of claim of lien on funds owed to it by the contractor.  The owner paid the contractor after the subcontractor served notice, but also retained funds in excess of the subcontractor’s lien.  The subcontractor sued when neither the contractor nor the owner paid it.  The subcontractor moved for summary judgment, alleging that the owner was personally liable because it paid the contractor after the subcontractor served notice.  The owner also moved for summary judgment.  The trial court granted the subcontractor’s motion for summary judgment and denied the owner’s.  The Court of Appeals reversed, but the North Carolina Supreme Court reversed the Court of Appeals, holding, among other things, that the Court of Appeals failed to properly apply the applicable lien statutes, and that the owner’s retention of funds exceeding the lien did not relieve the owner of personal liability.

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Kaleel Builders, Inc. v. Ashby, 161 N.C. App. 34, 587 S.E.2d 470 (2003)

In this case, homeowners hired an architect to design their residence, and also hired Kaleel Builders, Inc., as contractor to construct the residence.  Kaleel in turn hired several subcontractors. In the fall of 1996, the homeowners halted construction, and filed an arbitration demand against Kaleel alleging defective construction, including the work by the subcontractors and the design/supervision of the architect.  While the arbitration was pending, Kaleel filed a complaint seeking indemnification and/or contribution against the subcontractors and architect in July of 2001.  The trial court dismissed the claims against the subcontractors.  The claims for breach of warranty and breach of contract were dismissed on statute of limitations grounds, and the claims for negligence, indemnity, and contribution were dismissed for failure to state a claim.  The trial court also granted summary judgment for the architect.  The North Carolina Court of Appeals affirmed the trial court’s decision on all claims.

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Capital Safety, Inc. v. State, 848 A.2d 863, 369 N.J. Super. 295 (N.J. Super. App. Div. 2004)

In this case, an asbestos removal contractor brought suit against the state for delay damages due to delays cause by the state’s inability to relocate workers to permit asbestos removal.  The court, in this matter, enforced the contract’s no-damages-for-delay clause, finding that such clauses are enforceable even if the delay is the result of the public entity’s “error of judgment, lack of effort, or lack of complete diligence.”
 

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Robinson Helicopter Co., Inc. v. Dana Corp., 34 Cal. 4th 979 (2004)

In this case, helicopter manufacturer Robinson Helicopter Co., Inc. sued parts supplier Dana Corporation after Dana delivered nonconforming parts to Robinson.  Dana had contracted to supply Robinson with clutches for Robinson’s helicopters.  Dana provided the parts according to Robinson’s specifications for roughly twelve years, but then changed its manufacturing process without notifying Robinson.  For the next sixteen months, Dana delivered nonconforming parts which failed at a much higher rate than the conforming parts.  Robinson notified Dana of the higher failure rate and Dana subsequently switched to a conforming manufacturing process.  Although there were no accidents that lead to physical injury or property damage, Robinson was required to recall and replace the defective parts. 

Robinson sued Dana and the trial awarded Robinson $1.5 million in compensatory damages and $6 million in punitive damages, based on Dana’s knowing misrepresentation or concealment of material facts with the intent to defraud.  Dana appealed.  The court of appeals affirmed the award of compensatory damages but reversed the award of punitive damages, finding that Robinson could not recover in tort when it had only suffered economic loss.

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Quality Asphalt Paving, Inc. v. Dept. of Transp. & Public Facilities, 71 P.3d 865 (Alaska 2003)

In this case, a state agency accepted bids on a contract to widen a state highway.  Shortly after the state awarded the contract to a contractor, the state terminated it under a termination-for-convenience clause in the contract.  The contractor sued for costs and damages.  A hearing officer awarded damages to the contractor, but did not award prejudgment interest.  The trial court affirmed, and the parties appealed.

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Craft v. Stevenson Lumber Yard, Inc., 843 A.2d 1076, 179 N.J. 56 (2004)

In this matter, a project owner filed a complaint demanding the dismissal of a construction lien claim filed by a supplier (Stevenson) after the contractor, who was responsible for paying Stevenson, walked off the job.  The contractor owed Stevenson for multiple past unrelated projects. Therefore, when the contractor provided payments to Stevenson from the plaintiff’s payments, without specifying the project, Stevenson automatically credited the payments to the oldest outstanding invoices, not to those associated with the plaintiff's project.  The supplier subsequently filed a construction lien claim against the real property.  

The court found that the supplier could not arbitrarily assign the payments to different accounts, but rather must apply the contractor’s payments to the individual project account from which payments were derived.  Therefore, the supplier was precluded from filing the lien claim due to its failure to allocate the contractor’s payments to the proper accounts.

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Cyktor v. Aspen Manor Condo. Ass’n, 820 A.2d 129, 359 N.J. Super. 459 (N.J. Super. Ct. App. Div. 2003)

In this case, a condominium developer negotiated an agreement releasing it and its principals from all liability connected with the construction of the development at issue.  The agreement was reached in 1986, several years after construction was completed, and transferred control of the development to the condominium association.  Eleven years later, in 1997, the Department of Community Affairs (DCA) cited the development for certain violations regarding the structure of the facility.  In defense of the citation and the condominium association’s attempts to place liability with the developer, the defendants argued that the action was barred by the statute of repose.  The DCA argued that the statute of repose applied only to claims for damages and did not bar enforcement actions.  The court disagreed with the DCA and held that the statute of repose applies broadly to governmental action.

 

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Power Constructors, Inc. v. Taylor & Hintze, 960 P.2d 20 (Alaska 1998)

In this case, a contractor brought a legal malpractice action against its former law firm and several attorneys.  The contractor’s case was a “trial-within-a-trial” approach, which required the contractor to demonstrate the merits of its underlying case (concerning a deficient powerline construction project) as part of its malpractice case.  At trial, the jury returned a verdict for the contractor, and both parties appealed the damages award in the jury’s verdict.

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Geolar, Inc. v. Gilbert/Commw. Inc. of Mich., 874 P.2d 937 (Alaska 1994)

In this case, a contractor sued an electric company for breach of contract against the company’s agent for tortious interference with contract.  The contractor also sued the electric company for breach of contract, and calculated its damages based on direct costs, lost of efficiency costs, and delay costs.  The trial court dismissed the contractor’s claim for intentional interference with contract, but the breach of contract claim went to trial, where a jury based an award of damages to the contractor on the contractor’s calculation.

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M.J. Paquet, Inc. v. N.J. Dep’t of Transportation, 794 A.2d 141, 171 N.J. 378 (2002)

In this case, a contractor submitted an unbalanced bid to the New Jersey Department of Transportation (“DOT”) for the rehabilitation of a bridge with the expense of painting over-estimated and other expenses underestimated.  Following the award of the project, OSHA released new paint safety requirements that the contractor claimed significantly raised the price of the project.  DOT decided that the increased price was too much and decided to excise the bridge painting from the contract.  The contractor then filed suit claiming that DOT was not authorized to delete the painting from the contract and alternatively, that DOT could not subtract the entire amount attributed to painting in the initial unbalanced bid from the contract price.  The Supreme Court concluded that while it was appropriate for the DOT to excise the painting component from the contract it was not proper to simply subtract the value of that item from the initial bid.  Rather, the contractor must have an equitable adjustment to the contract price.
 

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Conom Alaska v. Bell Lavalin, Inc., 842 P.2d 148 (Alaska 1992)

In this case, when a dispute arose regarding the schedule for completing construction, the subcontractor sued the general contractor for professional negligence and breach of contract.  The trial court granted the contractor’s motion to dismiss the professional negligence claim because the subcontractor failed to adequately establish a basis for the jury to determine the amount of damages.  The subcontractor appealed.

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DiMaria Constr., Inc. v. Interarch, 799 A.2d 555, 351 N.J. Super 558 (N.J. Super. Ct. App. Div. 2001)

In this case, the general architect and interior designer on a construction project recommended that the owner terminate the general contractor.  The owner, on this advice, terminated the contractor who subsequently filed suit against the architect and interior designer for tortious interference with contract.  In analyzing the claims, the court looked at the four elements of the tort of interference with a business relation or contract:  (1) a protected interest; (2) malice in the sense that the defendant interfered without justification; (3) a reasonable likelihood that the interference caused the loss of the prospective gain; and (4) resulting damages.  The court found that the architect and interior designer were liable for tortious interference.  The court also addressed whether they were acting as agents of the owner and therefore escaped liability.  The court found that question to be a factual issue that was implicitly answered in the affirmative in the jury’s finding of liability.
 

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Credit Alliance Corp. v. Arthur Andersen & Co., 65 N.Y.2d 536 (1985)

In Credit Alliance, the Court of Appeals held that accountants could be liable to noncontractual parties if the relationship of the parties approached that of privity.  Specifically, the court held that an accountant could be liable, absent privity of contract, to a party who relies to his detriment on a negligently prepared financial report if (i) the accountant was aware that the financial reports were to be used for a particular purpose, (ii) in the furtherance of which a known party was intended to rely, and (iii) there must have been some conduct on the part of the accountant linking him to that party which evinces his understanding of that parties’ reliance.

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Boise Jr. Coll. Dist. v. Mattefs Constr. Co., 92 Idaho 757, 450 P.2d 604 (1969)

Mattefs Construction submitted a bid for the construction of a building for Boise Junior College.  The bid contained a clerical error that omitted one item that constituted 14 percent of the bid.  The court held a contractor is entitled to the equitable relief of rescission if he can establish the following conditions:  “(1) the mistake is material; (2) enforcement of a contract pursuant to the terms on an erroneous bid would be unconscionable; (3) the mistake did not result from violation of a positive legal duty or culpable negligence; (4) the party to whom the bid is submitted will not be prejudiced except by loss of his bargain; and (5) prompt notice of the error is given.”  The court concluded that the clerical error in submitting a bid, which was 14 percent of the total bid, was substantial and material and did not result from culpable negligence.  The court further found that Boise Junior College would not suffer a substantial hardship since Mattefs informed them of the error before they had attempted to accept the offer.  The court did note that not all mistakes entitle a bidder to withdraw his bid, but distinguished this case on the basis that this was a clerical error and not an error in judgment, such as underestimating cost or labor.  Since the court found Mattefs satisfied all five factors, equity required the bid to be withdrawn without forfeiting the bid bond. 

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F. Bender, Inc. v. Jos. L. Muscarelle, Inc., 700 A.2d 374, 304 N.J. Super. 282 (N.J. Super. Ct. App. Div. 1997)

In this case, the plaintiff sub-subcontractor sued the general contractor and property owner seeking to recover in quantum meruit for construction work on a parking facility.  The general contractor hired a sub-contractor to perform all of the concrete work who in turn hired the plaintiff.  The sub-contractor was eventually terminated for failure to adequately perform its subcontract agreement with the general contractor.  Plaintiff had no contract with the general contractor or the property owner but sued them for his losses nonetheless.  The court held that where the plaintiff sub-subcontractor had no contractual agreement with the defendants, recovery based upon quantum meruit was precluded.

In so holding, the court pointed out that the plaintiff was not without protection but that he had “failed to protect his rights by filing an appropriate mechanic’s lien” as provided by the Mechanic’s Lien Law.  The court also noted that the result of this opinion did not render the plaintiff helpless to recover but that recovery would properly come from action against the subcontractor.
 

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Southeast Alaska Constr. Co., Inc. v. Dept. of Transp. & Public Facilities, 791 P.2d 339 (Alaska 1990)

This case concerned a public construction project that suffered from design and material deficiencies.  When the contractor failed to complete the project, the agency sued and won on a claim for liquidated damages.  The contractor appealed, arguing that because the agency was responsible for the delay, it should not be entitled to damages.

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Saxon Constr. & Mgmt. Co. v. Masterclean of N.C., Inc., 641 A.2d 1056, 273 N.J. Super. 231 (N.J. Super. Ct. App. Div. 2004)

In this case, the court found a termination clause void as against public policy.  The plaintiff, Saxon, a general contractor was awarded a contract to renovate a building owned by the Veterans Administration.  Saxon entered a subcontract with defendant, Masterclean, for asbestos abatement and removal.  Masterclean defaulted and Saxon terminated the contract. The termination clause of the contract provided that if the subcontractor defaulted and the unpaid contract value was less than the expense of finishing the project, then the subcontractor was entitled to the difference.  Saxon was able to procure a substitute contractor at a price lower than Masterclean’s initial contract price.  Masterclean, therefore, invoked the clause to claim the difference between its contract price and the amount paid to the new contractor.  The court found that that type of termination clause violated public policy because it permitted a defaulting party to profit by its breach and discouraged the non-breaching party to minimize its losses.
 

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Perini Corp. v. Greate Bay Hotel & Casino, Inc., 610 A.2d 364, 129 N.J. 479 (1992)

In this case, a casino owner sought judicial enforcement of an arbitration award of lost profits against the general contractor hired to manage the casino renovation project.  The project took longer to complete than anticipated and the casino was not fully operational for its peak summer season.  The court held that lost profits may fall under the category of consequential damages and are therefore recoverable as long as they are foreseeable at the time of contract.
 

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Vinen Corp. v. Alan W. Nau Contracting, Inc., 557 A.2d 1056, 232 N.J. Super. 589 (N.J. Super. Ct. App. Div. 1989)

In this case, the court looked at an action by a contractor against the construction manager for breach of contract for withholding monies from payment that were owed on an unrelated project.  The defendant entered into a contract with the property owner to act as construction manager on a shopping center construction job.  Subsequently, the defendant entered into a subcontract with the plaintiff to act as the site contractor for the project.  During the course of construction, the plaintiff discontinued performance because the defendant withheld $11,000.00 from payment to the plaintiff for monies owed by the plaintiff to the defendant on a different project.  The defendant also insisted that the plaintiff sign a release of lien and threatened that failure to do so would result in defendant’s refusal to pay plaintiff any of the money it was owed for work up to that time.  The plaintiff filed suit for breach and defendant filed a counterclaim.  The court found that the withholding of money constituted a material breach and that the plaintiff was entitled to discontinue performance and was not liable for breach.
 

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P.T. & L. Constr. Co. v. N.J. Dep’t of Transportation, 531 A.2d 1330, 108 N.J. 539 (1987)

In this case, P.T. & L. Construction Co. was awarded a contract to perform work on a portion of Route 78.  Due to extremely poor working conditions, the project, which was contracted to end on November 15, 1974, was not completed until June of 1976.  P.T. & L. filed suit to recover damages, attributing the delay to the State’s failure to inform them of the actual conditions of the land.  Specifically, where P.T. & L. expected to work in normal or dry conditions, they instead faced wet conditions, including flooding of the work area.  The court, looking at the issue of whether an owner can be liable for damages where it fails to disclose certain critical information regarding the project to bidders, found that a sufficient factual basis existed to warrant recovery for nondisclosure of material facts.
 

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Puget Sound Nat’l Bank v. C. B. Lauch Constr. Co., 73 Idaho 68, 245 P.2d 800 (1952)

Saxon Painting entered into a contract with Lauch Construction to do all of the painting for a government housing project.  The contract required Saxon to apply two coats of a certain type of paint, which was provided by Lauch.  Saxon followed the specifications in the contract and completed the painting in a timely manner without any objections to the work from Lauch.  Saxon alleged that he was still owed $19,958 from the contract and three months after completing the work, a lawsuit was commenced.

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Earthmovers of Fairbanks, Inc. v. Dept. of Transp. & Public Facilities, 765 P.2d 1360 (Alaska 1989)

In this case, the Supreme Court of Alaska considered as a case of first impression what remedy is appropriate for a contractor who is awarded a public contract that turns out to violate a statute or regulation.  The facts concerned Earthmovers of Fairbanks (EM), the apparent low bidder for a public project.  When a discrepancy was discovered in the second lowest bid and corrected as permitted by the applicable Standard Specification, the state agency awarded the project to the second lowest bidder.  EM sued and won a permanent injunction.  EM also prevailed on appeal, and the contract was awarded to EM on April 27.  However, on April 30, the Supreme Court of Alaska reversed itself and on May 1, it entered a stay.  Subsequently, EM sued the state agency for damages. 

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Edwin J. Dobson, Inc. v. State, 526 A.2d 1150, 218 N.J. Super. 123 (N.J. Super. App. Div. 1987)

In this case, a contractor brought suit against the state for delay damages arising out of the construction of a public project.  The delays were caused by a variety of reasons primarily stemming from the state’s requirement that the contractor use a specific manufacturer for supplies.  The contract included a “no damage for delay” clause which provided an extension of time for completion, but no additional payment, for damages, in the event of any hindrance or delay in the progress of the work, even if caused by the state.  The court found that the clause was legal and that it precludeed recovery by the plaintiff.

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A.J. Tenwood v. Orange Senior Citizens Hous. Co., 491 A.2d 1280, 200 N.J. Super. 515 (N.J. Super. Ct. App. Div. 1985)

In this case, a construction contractor brought a claim for breach of contract against the owner of a housing project.  The contract between the parties included a one-year claims limitation clause.  The court upheld that one-year limitation relying on precedent that the statutory limitation on contract actions could be waived by the express agreement of both parties.  Therefore, as long as the period is reasonable and does not violate public policy, shortened statutes of limitation clauses are valid.
 

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Seal Tite Corp. v. Ehret, Inc., 589 F. Supp. 701 (D.N.J. 1984)

In this case, a subcontractor sued the general contractor for failure to pay in a timely fashion, and moved for summary judgment.  Relying on the “pay when paid” provision of the subcontract, the general contractor claimed that it had not yet been paid in entirety by the owner and therefore the lack of payment to the subcontract was not in breach of the contract.  The court ruled that the “pay when paid” clause was designed to postpone payment by general contractor to subcontractor for a reasonable period after work has been completed to afford the general contractor the opportunity to procure from the owner the funds necessary to pay the subcontractor.  The purpose is not to require the subcontractor to wait to be paid for an indefinite period of time.  Accordingly, the court granted the subcontractor's motion for summary judgment and awarded the amount due under the subcontract.

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Broadway Maint. Corp. v. Rutgers Univ., 447 A.2d 906, 90 N.J. 253 (1982)

In this case, two prime contractors brought suit against the university for damages caused by delays in construction.  In the appeal, the Supreme Court of New Jersey looked at three issues:  (1) whether in an instance of multi-prime contractors each prime contract is liable to the other; (2) whether the owner has a duty to coordinate multi-prime contractors; and (3) whether the exculpatory clause in the prime contracts shielded Rutgers from liability.

The court found that each of the prime contractors, absent privity, had a right of action against the other as long as the contract between the owner and each prime contractor made the remaining contractors third-party beneficiaries.  Second, the court found that an owner entering into multiple prime contracts has the obligation to act in good faith to coordinate the various contractors to avoid unreasonable delay, if the owner has not delegated that responsibility to one of the prime contractors.  Finally, the court found that the exculpatory clause shielded Rutgers from all delays, not just reasonable delays.

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Zulla Steel v. A & M Gregos, Inc., 415 A.2d 1183, 174 N.J. Super. 124 (N.J. Super. Ct. App. Div. 1980)

In this case, a subcontractor brought an action against the prime contractor for breach after contractor failed to make progress payments when due.  The plaintiff did not complete the project. The court found that the contractor’s failure to make timely payments constituted a material breach and that the plaintiff was therefore justified in terminating its performance.  The court held that the measure of damages in a matter where the plaintiff was stopped from completing the contract is “such a proportion of the entire price as the fair cost of that work bears to the fair cost of the whole work and, in respect to the work not performed, such profits as he would have realized as a result of the complete performance.”  Accordingly, the judgment of the trial court was affirmed, with slight modification.
 

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Conforti & Eisele, Inc. v. John C. Morris Assocs., 418 A.2d 1290, 175 N.J. Super. 341 (N.J Super. Ct. Law Div. 1980)

In this case, a general contractor sued the State and its design professionals for economic damage due to the faulty plans prepared by the design professionals and provided by the State.  There was no privity between the general contractor and the design professional defendants.  However, the court found that a design professional can be held responsible for the losses suffered by a contractor regardless of privity.  The decision was based on a line of New Jersey cases that look with disfavor on the privity doctrine especially with regard to design negligence and physical injuries sustained by third-parties.  The court created a test to determine whether liability should be imposed on design professionals when third-parties are injured.  The elements are:  (1) the extent to which the transaction was intended to affect the plaintiff; (2) the foreseeability of harm to him or her; (3) the degree of certainty that the plaintiff suffered injury; (4) the closeness of the connection between the defendant’s conduct and the injuries suffered; (5) the moral blame attached to the defendant’s conduct; and (6) the policy of preventing future harm.
 

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Rolnick v. Gilson & Sons, Inc., 617 A.2d 288, 260 N.J. Super. 564 (N.J. Super. Ct. App. Div. 1992)

This case concerned a property that was severely damaged by a fire allegedly caused by a defective fan component in the air conditioning system.  The trial court applied the statute of limitations that bars claims over ten years after improvement, finding that the installation of an air conditioning system was an "improvement" within the meaning of the statute.  The appellate court reversed, finding that a mass produced and marketed attic ventilation fan was not an “improvement” within the meaning of the statute and thus the action was not barred.
 

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Indus. Indem. Co. v. Wick Constr. Co., 680 P.2d 1100 (Alaska 1984)

In this case, the Alaska State Housing Authority (ASHA) awarded a contract for the construction of a courthouse and office building to a general contractor.  The prime contract featured a liquidated damages clause limiting the contractor’s liability to $400 per day of delay.  The subcontract between the general contractor and subcontractor included a so-called “flow down” or “conduit clause” incorporating the liquidated damages clause from the prime contract.  When the general contractor sued the subcontractor for delays, the trial court awarded the general contractor $765,654.00 in total damages.  The subcontractor appealed, arguing that the liquidated damages clause applied.

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Golomore Assoc. v. N.J. State Highway Auth., 413 A.2d 361, 173 N.J. Super. 55 (N.J. Super. Ct. App. Div. 1980)

In this case, the court evaluated a claim by a contractor and subcontractor against the State for additional costs of construction. Plaintiffs claimed that the increased costs were due to faulty evaluations of ground elevation provided by the State prior to bidding. The bid submitted to the State was calculated using those faulty measurements and therefore did not adequately predict actual expenses. The court ruled in favor of the plaintiffs, finding that the elevations provided by the State constituted positive averments. Therefore, when the elevation data was shown to be incorrect, contractors were entitled to recover for additional costs.
 

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Steltz v. Armory, 15 Idaho 551, 99 P. 98 (1908)

Steltz contracted with Armory for the construction of a building in the city of Genesee.  The building was erected and Armory moved in and continued to use it for six weeks, until a windstorm blew down the front of the building.  Armory then refused to pay Steltz arguing that the building was not constructed in a workmanlike manner and Steltz filed this action to recover payment due under the contract.  During trial, evidence was presented that showed the front wall blew down because it had not been properly tied into the rest of the building.  The court held that the defect of not tying the front wall into the building was not an obvious or patent defect, but was a latent defect.  The Court reasoned that if the defect were obvious or patent, then Armory would have accepted the defect by taking possession without conditionally doing so.  The court affirmed the lower court’s decision to offset the cost to repair the defect from the amount still owed under the contract.

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Buckley & Co. v. State, 356 A.2d 56, 140 N.J. Super. 289 (N.J. Super. Ct. Law Div. 1975)

In this case, the court adjudicated a claim by two construction companies against the State regarding the construction of Route 78.  The project, namely the creation of a section of the road that involved various bridge constructions as well as electrical, drainage and related work, was finished 87 days later than was provided in the contract and various change orders and 564 days later than the original completion date.  Consequently, the contractors filed suit for delay damages which included various overhead expenses and wages for employees.  The contractors also sought the return of monies withheld by the Department of Transportation as “liquidated damages” for the delay.  The State contended that the delays were the contractors’ fault, that the reasons for the delays given by the contractors did not occur, and that claims for costs were barred by no-damages clauses included in the contract.  The court, concluding that some of plaintiff’s losses were the result of breach by the State, allowed recovery for those losses accordingly.  The court declined to allow the State to withhold liquidated damages where the delay could be attributed actions and inaction by both parties as well as circumstances beyond either party’s control.  The court also held that the construction company had standing to assert claims on behalf of subcontractors.
 

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Hartley v. Ballou, 286 N.C. 51, 209 S.E.2d 776 (1974)

The plaintiff purchased a house from the defendants which one of the defendants had built.  Shortly after the purchase, the plaintiff experienced flooding in the basement of the house.  The plaintiff sued the defendants for breach of express and implied warranties.  Following trial, the trial court entered a judgment in favor of the plaintiff against the builder defendant.  On appeal, the North Carolina Supreme Court recognized an implied warranty of habitability and workmanlike construction by the builder-vendor of a residence to the initial vendee.  The Supreme Court ultimately reduced the damages awarded since it found that they exceeded the builder’s liability under the implied warranty.

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Totten v. Gruzen, 245 A.2d 1, 52 N.J. 202 (1968)

In this case, the Supreme Court of New Jersey held that the “completed and accepted” rule does not render defendants immune from liability for injuries sustained from a faulty heating system.  A child resident of a multi-family housing project sustained serious burns from contact with exposed, hot piping that was part of the radiator heating system in the child’s bedroom.  The court found that the lack of privity between the plaintiffs and the defendants was insufficient to excuse the defendants from liability.
 

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Home Owners Const. Co. v. Borough of Glen Rock, 169 A.2d 129, 34 N.J. 305 (1961)

In this case, the court looked at whether a contractor could recover in quantum meruit for services and materials actually provided, even though the work was not authorized in writing.  During the course of construction, the Borough requested the contractor to perform certain extra services and provide additional materials.  Upon the Borough’s refusal to pay these additional expenses, the contractor sought to recover in quantum meruit.  The court found that the lack of writing authorizing these changes did not preclude the contractor from recovery.
 

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525 Main St. Corp. v. Eagle Roofing Co., 168 A.2d 33, 34 N.J. 251 (1961)

In this case, the plaintiff property owner, contracted with the defendant for repairs to his roof and a five-year guarantee against leaks with a promise to repair.  During the five years, the defendant disputed the scope of his responsibility and stopped performing repairs.  The trial court found in favor of the plaintiff, concluding that the defendant had breached, but awarded nominal damages.  The plaintiff appealed on the issue of damages.

The defendant argued that the damages should properly be calculated as the difference in value of the entire structure with the defective roof and the value of the building as if the contract had been fully performed.  The court disagreed and found that in the construction context, the cost of repairs or the cost of replacement is the appropriate measure of damages and not a measurement made with reference to the value of the building as whole.
 

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