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

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

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

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Chadwick Farms Owners Assoc. v. FHC, LLC, 139 Wash. App. 300, 160 P.3d 1061 (2007)

This case presents a similar set of facts to Maple Court.  Condominium developer FHC, LLC was administratively dissolved on March 24, 2003.  On August 18, 2004, Chadwick Farms Homeowner’s Association filed suit against FHC, alleging construction defects.  Seven months later, on March 24, 2005, FHC was administratively cancelled because it failed to reinstate during the two-year dissolution period.  Two months after cancellation, FHC filed third party claims against its subcontractors, and in August 2005 moved for summary judgment against Chadwick on the ground that it was no longer a legal entity.

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Maple Court Seattle Condo. Assoc. v. Roosevelt, LLC 139 Wash. App. 257, 160 P.3d 1068 (2007)

In June 2007, Division One of the Court of Appeals rendered its decisions in three cases involving the issue of a dissolved limited liability company's standing to maintain claims.  Maple Court illustrates the adverse impact that administrative dissolution can have on the pending claims of a developer and general contractor.

On September 23, 2002, condominium developer Roosevelt, LLC allowed itself to be administratively dissolved by the Secretary of State.  Fifteen months later, Roosevelt was sued by the condominium homeowners' association.  In response, Roosevelt filed third party complaints against its construction manager and subcontractors.  During the pending litigation, on September 23, 2004, Roosevelt was administratively "cancelled" pursuant to RCW 25.15.270(6) because it did not reinstate itself following the prior administrative dissolution.

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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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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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Moen Co. v. Island Steel, 128 Wash. 2d 745, 912 P.2d 472 (1996)

Here, a general contractor, Moen, who had settled with an employee of the subcontractor, Island, injured in an accident at a construction worksite sought contractual indemnification from the subcontractor pursuant to RCW 4.24.115.  The principle issues in this case were:  (1) whether the contractor could enforce its indemnification agreement in which the subcontractor waived its employer immunity under RCW Title 51 and which purports to shift liability to the extent of the subcontractor’s negligence (despite RCW 4.22.070 which adopts several liability in tort cases), and (2) to what extent the subcontractor was liable to contractor, if at all.

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Absher Constr. Co. v. Kent Sch. Dist., 77 Wash. App. 137, 890 P.2d 1071 (1995)

In this case, a contractor and subcontractors brought action against a school district for breach of public contract for the construction of an elementary school.  Subcontractor Emerald was hired to work on the school’s HVAC system for Chapman, to whom Absher had subcontracted mechanical work on the project.  Absher’s contract with the school district required all claims to be filed in writing with the district within 14 days of events giving rise to these claims.  Absher did not provide notice of Emerald’s claims until months after Emerald had completed all of its work.  The Superior Court, King County, entered summary judgment for the school district.  The contractor and subcontractors appealed.

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Brown v. Prime Constr. Co., 102 Wash. 2d 235, 684 P.2d 73 (1984)

In this negligence suit filed by an injured employee of a subcontractor against the general contractor, the latter filed a third-party indemnification claim against the subcontractor.  The case involved the validity of an indemnity provision in a contract between a general contractor and its subcontractor.  The Superior Court, King County, granted summary judgment, and on appeal, the Washington Supreme Court affirmed, holding, among other things, that the subcontractor’s indemnity clause did not clearly and specifically contain a waiver of immunity of the Workers’ Compensation Act.  Therefore, the indemnity clause was not enforceable to compel subcontractor to indemnify general contractor for damages paid to subcontractor’s employee who was injured on the job and sued general contractor for negligence.

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Boise Cascade Corp. v. Distinctive Homes, Inc., 67 Wash. 2d 289, 407 P.2d 452 (1965)

This case involves actions to foreclose on materialmen’s liens by Boise for materials supplied to Distinctive, a building company owned by the landowners, for the construction of two homes.  Distinctive claimed that Boise agreed to waive its lien rights when it accepted two promissory notes.  Boise, however, claimed that the two notes were merely taken as additional security when it agreed to withhold filing the liens if certain timely payments were made.

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