K&L Gates Construction Law Blog

Dallas Ordinance Promotes Sustainable Development

david.bowerman@klgates.com (K&L Gates) — Mon, 10 Nov 2008 10:15:27 -0800

Dallas partner Paul E. Ridley appears as a guest columnist in this month’s issue of Texas Construction Magazine, a McGraw-Hill Construction publication.

Appearing in the November 2008 issue, this article explores a new green building ordinance in Dallas the first phase of which will require commercial buildings over 50,000 sq ft to achieve 85% of the points required by the U.S. Green Building Council and becomes effective October 1, 2009. The articles also explores the second phase of the ordinance which calls for the development of sustainability rules for all existing buildings and the overall implications of the ordinance for the city, including the eventual economic and environmental benefits.

View the full article here.

Contracts Cancelled Because of Illegal Actions May be Unenforceable

david.bowerman@klgates.com (K&L Gates) — Wed, 30 Jul 2008 17:24:31 -0800

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.

K&L Gates Arbitration World, Summer 2008

david.bowerman@klgates.com (K&L Gates) — Fri, 25 Jul 2008 10:41:39 -0800

By K&L Gates attorneys Ian Meredith, John L. Boos and others.

Arbitration World is an update for clients and contacts on recent development in international arbitration law and practice.

Welcome to the Sixth Edition of Arbitration World, a publication from K&L Gates’ Arbitration Group which aims to highlight significant developments and issues in international arbitration for executives and in-house counsel with responsibility for dispute resolution.

In this edition, our review of key case law includes reports on the keenly awaited U.S. Supreme Court decision in Hall Street v. Mattel, a U.S. appellate decision excluding class actions, and a recent case from the Court of Arbitration for Sport with potentially wide-ranging implications.

We look at investor-state arbitration in the NAFTA context and reasons to arbitrate disputes if enforcement in Russia is in prospect. We look at the growing area of e-disclosure in the arbitration context, and the controversial draft ABA disclosure guidelines for arbitrators on conflicts of interest.

Contributors from our Hong Kong office discuss developments in Chinese arbitration. We report on a worrying decision in the Indian courts on challenges to foreign-seated arbitration awards and a troubling Australian decision on the scope of application of an arbitration clause. Our Berlin colleagues highlight matters to be aware of when providing for arbitration in corporate transactions in Germany.

We also bring news of our latest office opening in Asia and look forward to our International Arbitration Event to be held at the New York Marriott East Side in September 2008.

As always, we also include a round-up of developments from around the world.

View the Summer 2008 edition here.

Washington's Limited Liability Company Act is Applicable Retroactively and Permits Liability for Individual LLC Members or Managers

david.bowerman@klgates.com (K&L Gates) — Tue, 01 Jul 2008 15:10:29 -0800

Emily Lane Homeowners Ass’n v. Colonial Dev., LLC, 139 Wash. App. 315, 160 P.3d 1073 (2007)

In this case, Emily Lane Homeowners Association sought damages against Colonial Development, LLC and its individual company members and managers. Emily Lane alleged that members of Colonial failed to act in a timely manner to address warranty claims. When Emily Lane filed suit on July 19, 2005, Colonial had already dissolved and filed a certificate of cancellation. The trial court granted summary judgment, finding that Emily Lane’s action against Colonial could proceed even though Colonial had already dissolved. However, the trial court also dismissed Emily Lane’s claims against the members and managers of Colonial, presumably finding that they were immune from liability as individuals.

On appeal, there were two main issues. First, whether the 2006 amendment to Washington’s Limited Liability Company Act, RCW 25.15, could be applied retroactively to permit an action against a dissolved limited liability company (LLC). Second, whether members and managers of a company could personally be liable under the Limited Liability Company Act if they did not properly wind up the dissolution of the LLC.The Court of Appeals held that the 2006 amendment, which provided a three-year survival period to initiate actions against a member of a dissolved LLC, applies retroactively and against a dissolved LLC after it has cancelled itself. The court also found that any individual who has not complied with the proper dissolution of a LLC, pursuant to RCW 25.15.060, may be found personally liable. A member or manager may be personally liable for LLC liabilities where such member’s acts cause damages.

The Court of Appeals found that the trial court was correct in allowing Emily Lane’s claims against Colonial to go forward. It also found that the trial court’s summary judgment dismissal of claims against individual members of Colonial was in error.

Finding No Bad Faith, Court Enforces Termination for Convenience and Conversion Provisions Included in Parties' Contract

david.bowerman@klgates.com (K&L Gates) — Mon, 23 Jun 2008 12:30:39 -0800

Stony Brook Constr. Co. v. Coll. of N.J., 2008 WL 2404174 (N.J. Super. Ct. App. Div. June 16, 2008)

This appeal arose out of a lawsuit filed by a contractor, Stony Brook Construction Co. and its surety, Fidelity & Deposit Company of Maryland (F & D), against The College of New Jersey (TCNJ), in connection with the construction of a new three-story building on the TCNJ campus. In August 1998, TCNJ entered into multiple prime contracts for the construction. TCNJ retained Stony Brook to perform the general construction work for its bid price of $3,783,565. The anticipated completion date for the project was August 17, 1999. TCNJ retained a construction management firm, CMM, to coordinate and schedule the project. Two TCNJ employees (Rogers and Bressler) were also designated as project supervisors. Due to numerous delays and disagreements between the parties, the project remained unfinished as of the anticipated completion date.

In October 1999, TCNJ terminated its contract with Stony Brook for nonperformance. On November 5, 1999, TCNJ and F & D executed a takeover agreement, by which F & D agreed to complete the work in exchange for the unpaid balance of the contract price. Problems continued, and in September 2000, F & D ceased performance, claiming that TCNJ breached the takeover agreement. TCNJ hired another contractor to complete the general construction.

In January 2001, Stony Brook and F & D filed an eleven-count complaint against TCNJ, CCM, and Rogers alleging, among other things, that TCNJ wrongfully terminated its contract with Stony Brook and that it breached its takeover agreement with F & D. In responsive pleadings, TCNJ counterclaimed against Stony Brook and F & D for breach of contract. At the time, many of Stony Brook's subcontractors and suppliers had filed complaints against Stony Brook and F & D in courts throughout the state. These were consolidated with the main action.

The matter was submitted to a retired appellate judge, as an umpire, for alternative dispute resolution. The umpire's recommendations were substantially adopted by the Law Division judge, who entered judgment against TCNJ in the amount of $1,371,652, plus prejudgment interest, for a total of $1,880,427.91.

TCNJ appealed, arguing that (1) the court lacked jurisdiction to award prejudgment interest, since the contract fell under the Contractual Liability Act (“CLA”) and at the time the cause of action accrued, the CLA barred awards of prejudgment interest on construction contract claims against public entities; and (2) the court erred in failing to deduct from the amount of the judgment in favor of Stony Brook the sum of $365,000 that TCNJ paid to F & D to perform work required under the contract between TCNJ and Stony Brook. TCNJ argued that its payment of $365,000 to F & D under the takeover agreement was to be applied to the performance of the same work required to be performed by Stony Brook under Stony Brook's contract with TCNJ. F & D failed to complete the work required under the Stony Brook contract, as evidenced by the undisputed fact that $250,000 worth of work remained incomplete after F & D left the job. Therefore, TCNJ argued that because its $365,000 payment to F & D was for the work required under the Stony Brook contract, failure to credit TCNJ with that amount results in a double payment of that sum by TCNJ.

Stony Brook and F & D cross-appealed, arguing that (1) the court erred in finding that TCNJ's wrongful termination for cause should be converted to a termination for convenience, and in refusing to find that TCNJ and its agents acted in bad faith, (2) the court erred in failing to award Stony Brook reimbursable costs and a termination fee, (3) the court improperly rejected the portions of the umpire's award to Stony Brook regarding its claims for extra costs for the revised roof leader detail and for excessive clean-up costs, (4) the court erred in finding that TCNJ was not responsible for submitting a flood insurance claim on behalf of Stony Brook, and (5) the court improperly found that TCNJ was not liable to Stony Brook for its costs incurred in defending subcontractor claims.

The appellate court agreed with the arguments presented by TCNJ. The court remanded the case for entry of an amended judgment that (1) deleted prejudgment interest and (2) reduced the judgment by $365,000.

The appellate court rejected Stony Brook’s points on appeal, including the argument that TCNJ should be prohibited from invoking the termination for convenience and conversion clauses because TCNJ failed to carry out its contractual obligations in good faith. The appellate court gave deference to the umpire’s finding of good faith, which had been accepted by the trial court. It elaborated:

In the case before us, the umpire found that TCNJ's motive for terminating the contract was not to harm Stony Brook, but to protect the interests of the college. This project involved the construction of a three-story classroom building that TCNJ wanted ready for the Fall 1999 semester. After numerous delays caused by both parties, the project remained unfinished as of the August 1999 deadline. TCNJ terminated Stony Brook because it wanted to complete the project in a timely fashion, and it felt it could no longer accomplish that goal with Stony Brook as its general contractor. Although TCNJ was not justified in terminating Stony Brook for nonperformance, it was not motivated by malice or an intent to harm Stony Brook . . . These were the factual findings accepted by the trial court. They are supported by adequate, substantial and credible evidence in the record, and we defer to them.

Thus, in the absence of bad faith, the appellate court found no error in enforcing the clear, express provision by which the parties agreed to apply the doctrine of constructive termination for convenience to their contractual undertaking.

Pay-When-Paid Clause Does Not Shift Risk of Non-Payment to Subcontractor

david.bowerman@klgates.com (K&L Gates) — Fri, 20 Jun 2008 17:33:13 -0800

Otis Elevator Co. v. Hunt Constr. Group, Inc., 859 N.Y.S.2d 850 (N.Y. App. Div. 2008)

In this case, plaintiff subcontractor sought damages resulting from an alleged breach by defendant general contractor for payments due under the subcontract. Both parties moved for summary judgment. Defendant argued that its receipt of payment from the owner was a condition precedent to its obligation to pay plaintiff, and that it was under no obligation to pay because it had not yet received payment from the owner. The court rejected this argument, holding that “the pay-when-paid clause in the subcontract merely regulated the time of payment, and did not shift the risk of owner nonpayment to plaintiff.” Because plaintiff submitted evidence establishing its entitlement to payment, plaintiff’s motion for summary judgment was granted, and defendant’s motion was denied.

Showing that Adequate Safety Devices were Absent is Sufficient to Establish Prima Facie Liability under NY Labor Law §240(1)

david.bowerman@klgates.com (K&L Gates) — Thu, 19 Jun 2008 17:43:07 -0800

McCarthy v. Turner Constr., Inc., 859 N.Y.S.2d 648 (N.Y. App. Div. 2008)

In this case, plaintiff brought claims under Labor Law §240(1) for injuries sustained when the unsecured ladder he was standing on to drill holes in the ceiling tipped over and he fell to the floor. The Supreme Court granted summary judgment to plaintiff on the issue of liability under the Labor Law and the Appellate Division, First Department, affirmed.

The court held that, for purposes of establishing a prima facie case of liability under the statute, the plaintiff need only show that adequate safety devices to prevent the ladder from slipping were absent; plaintiff is not required to show the ladder was defective. Further, the owner and general contractor would still be liable even if the apprentice electrician working with plaintiff disobeyed an instruction to hold the ladder steady, as this is not the type of “safety device” contemplated by the statute.

Self-Performance by General Contractor Forbidden under New Jersey Community College Contracts Law

david.bowerman@klgates.com (K&L Gates) — Tue, 17 Jun 2008 16:40:25 -0800

D.A. Nolt, Inc. v. Camden County Coll., 2008 WL 2277095 (N.J. Super. Ct. App. Div. June 5, 2008) (Unpublished)

In this case, a general contractor sued its client for breach and sought declaratory judgment when the college refused to allow the general contractor to self-perform work that had been assigned to a Small Business Enterprise (SBE) in the construction bid. The trial court granted summary judgment in favor of the college and dismissed the complaint. On appeal, summary judgment was affirmed. The appellate court upheld the trial court’s conclusion that self-performance is equivalent to substitution of another sub-contractor because the result is the same – the subcontractor on the bid does not perform the work. Moreover, both outcomes would thwart the aim of New Jersey County College Contracts Law (“CCCL”) to foster competitive bids by disallowing bid shopping. As substitution of another contractor is not permitted under the CCCL, then similarly, self-performance by the general contractor is likewise not permitted.

Claims Against Architectural Firm Fell Under Professional Services Exclusion Based on Allegations of Underlying Complaints

david.bowerman@klgates.com (K&L Gates) — Sun, 15 Jun 2008 15:28:04 -0800

Wimberly Allison Tong & Goo, Inc. v. Travelers Prop. Cas. Co., 2008 WL 2357863 (D.N.J. June 5, 2008)

In this case, plaintiff architectural firm sued commercial general liability (CGL) and excess liability insurers seeking damages and a declaratory judgment that insurers had a duty to defend it in the underlying suits, which arose from the collapse of a parking garage designed by plaintiff. Both insurers denied coverage under provisions that excluded from coverage injuries arising out of plaintiff's provision of professional services. Both sides moved for summary judgment. The court granted summary judgment for the defendants finding that all the claims filed against plaintiff in the wake of the garage collapse fell within the professional services exceptions of both policies, based on the factual pleadings of each of the complaints.

Court Declines to Strike Defendant's Answer as Sanction for Spoliation of Evidence

david.bowerman@klgates.com (K&L Gates) — Fri, 13 Jun 2008 17:49:00 -0800

Carroway Luxury Homes, LLC v. Integra Supply Corp., 859 N.Y.S.2d 834 (N.Y. App. Div. 2008)

In this case, plaintiff brought suit for construction delays and business expenses that arose after a forklift rented from defendant rolled over while being operated by plaintiff’s subcontractor. Defendant answered asserting affirmative defenses and counterclaims. Plaintiff moved to strike defendant’s answer based on intentional spoliation of evidence, asserting that defendant had sold the forklift at issue before plaintiff had the opportunity to examine it. The court denied plaintiff’s motion, holding that striking a pleading is a drastic sanction and that the record, at that time, was insufficient to determine whether the unavailability of the forklift for examination would deprive the plaintiff of the means to prove its case.

Trial Court Erred in Granting Summary Judgment in Favor of School District on Claims Stemming from Completion Contract

david.bowerman@klgates.com (K&L Gates) — Thu, 12 Jun 2008 17:21:54 -0800

Los Angeles Unified Sch. Dist. v. Great Am. Ins. Co., 163 Cal. App. 4th 944 (2008)

In this case, the District had contracted with a construction company to build a new elementary school for approximately $10.1 million. Unsatisfied with the work, the District adopted a declaration of emergency under Public Contract Code § 20113, allowing the District to enter into a completion contract without inviting bids. Defendant Hayward Construction Company was awarded the contract and Great American Insurance Company issued a performance bond for $4.5 million. In the completion agreement, Hayward guaranteed that the maximum amount payable by the District for the cost of the work plus the contractor’s fee would not exceed $4.5 million. Hayward’s scope of work included items listed on two “pre-punch lists,” identifying the remaining work to be completed or corrected.

Hayward subsequently informed the District that unforeseen circumstances concerning work that was not included in either of the pre-punch lists required an increase of the contract price beyond the contract maximum. Payment was made to Hayward under a separate agreement preserving the District’s right to recover the money from all responsible parties, including Hayward and its surety. When Hayward and its surety refused the District’s demand for return of more than $1 million, the District filed a complaint for breach of contract, breach of performance bond and declaratory relief. Hayward cross-claimed for breach of contract, rescission and declaratory relief.The trial court granted the District’s motion for summary judgment based on both the District’s emergency declaration under § 20113 and the trial court’s determination that the completion agreement was not a separate contract but a continuation of the (competitively-bid) original contract. The court entered judgment in the amount of $1,333,696 against Hayward and Great American, jointly and severally, with prejudgment interest. The court also entered judgment in favor of the District on all causes of action asserted in Hayward’s cross-complaint.

The trial court’s decision was reversed and remanded on appeal. Hayward and Great American contended that the trial court committed reversible error by not considering extrinsic evidence proffered in support of Hayward’s interpretation of the completion agreement based on the parol evidence rule. The court of appeal reasoned that, in deciding whether to admit extrinsic evidence, the trial court must first provisionally receive all credible evidence concerning the parties’ intentions to determine ambiguity. If, in light of the extrinsic evidence, the trial court decides the language is reasonably susceptible to the interpretation urged, the extrinsic evidence is then admitted to aid in the interpretation of the contract. The court of appeal noted that the trial court did not make an express finding that the contract was not reasonably susceptible to Hayward’s interpretation. It also noted that the contract language itself was not so clear and explicit that it was unambiguous on its face. The court of appeal held that the parol evidence rule, therefore, did not exclude the extrinsic evidence from company employees regarding obligations under the completion agreement. The court of appeal thus remanded the matter to the trial court to consider extrinsic evidence relevant to interpretation of the contract and to determine the scope and extent of Hayward's contractual obligations in light of any admissible extrinsic evidence.

Hayward also contended that it was error for the trial court to have granted the District’s motion for judgment on the pleadings as to Hayward’s cross-claims for rescission and declaratory relief. The District had argued that the completion agreement was a public contract which arose initially by competitive bidding subject to § 7105(d)(2) and neither Hayward nor the trial court could rescind the contract to invoke some form of equitable recovery. Hayward argued that the trial court's decision was erroneous because it adjudicated matters beyond those pleaded in the cross-complaint, and because, as a matter of law, the remedy of rescission was available when a public entity's misrepresentation and concealment of material information constitute a breach of contract.

The court of appeal noted that § 7105(d)(2) applies to public contracts “required to be let or awarded on the basis of competitive bids pursuant to any statute,” and found that it was inapplicable to the completion agreement. The court also found that the continuing contract exception, which the District had relied on as the basis for claiming that the completion contract was subject to competitive bidding requirements, was also inapplicable. Thus, it concluded that the trial court had erred when it concluded that § 7105(d)(2) barred Hayward’s rescission causes of action as a matter of law.

The court of appeal also noted a conflict of authority as to whether a contractor must prove intentional concealment by the public agency in order to recover on a claim for nondisclosure of material facts. It held that Hayward could maintain a cross-action for breach of contract based on nondisclosure of material information if it could establish that the District knew material facts concerning the project that would have affected Hayward’s bid or performance and failed to disclose those facts to Hayward.

Sureties Are Not Necessary Parties under FRCP

david.bowerman@klgates.com (K&L Gates) — Thu, 12 Jun 2008 10:56:15 -0800

D&D Assocs., Inc. v. N. Plainfield Bd. of Educ., 2008 WL 2277121 (D.N.J. June 2, 2008)

In this case, the court addressed whether a surety company was a necessary party under Fed. R. Civ. P. 19(a) and whether a motion to amend the pleadings to include the surety was untimely, prejudicial and futile. D&D Associates had sued the Board of Education to recover the contract balances owed in connection with work on a school construction project. Almost five years after commencing the lawsuit, the Board sought to amend their answer to join the surety, American Motorists Insurance Company, to the litigation. The court denied the motion on the grounds that sureties are not necessary parties, and because it was untimely, prejudicial, wasteful and futile to join the party at such a late stage of litigation.

Consequential Damages in Today's Construction Industry

david.bowerman@klgates.com (K&L Gates) — Fri, 30 May 2008 10:03:53 -0800

Pittsburgh partner Jason Richey recently teamed up with associate Bill Wickard to write “Consequential Damages in Today’s Construction Industry,” which appears in the May 5, 2008 issue of Constructioneer.

In the article, Jason and Bill stress the importance of project-specific consequential damages waivers, noting that f ailure to include such a waiver can leave construction managers open to costly lawsuits. Waivers should be both "project-specific" (anticipating the potential types of damages that could arise with a certain project) and mutual (the list of damages should be the same for the owner and contractor).

Jason and Bill point to Perini Corp. v. Greater Bay Hotel & Casino to illustrate the importance of these waivers. In the Perini case, the construction manager responsible for the renovation of the Sands, an Atlantic City, N.J. hotel and casino, produced his façade for the building four months late. The original contract did not include a damages waiver and the Sands argued that their lost profits were due to the lateness of the façade. An arbitration panel awarded the Sands $14.5 million in damages, nearly 24 times the contract fee.

To read the full article, please click here (posted with permission).

Exclusion of Coverage for Claims Arising from Breach of Contract Includes All Claims with Substantial Nexus to Breach or Having "But For" Relationship with Breach

david.bowerman@klgates.com (K&L Gates) — Thu, 22 May 2008 12:56:55 -0800

N. Plainfield Bd. of Educ. v. Zurich Am. Ins. Co., 2008 WL 2074013 (D.N.J. May 15, 2008)

In this case, the Board of Education had been sued by various contractors and subcontractors for breach of contract and various tort claims, and sought specific performance from Zurich American Insurance Co. to defend against the claims under their insurance policy. Zurich denied coverage, citing the policy provision excluding from coverage all claims arising from breach of contract. The court found that that this exclusion covered any action that alleged a breach of duty, neglect, error, misstatement or omission and that grew out of or had substantial nexus with breach of contract, or any injury that would not have occurred but for the contract breach. Thus, Zurich was justified in refusing coverage and indemnity for those claims, and the court granted Zurich’s motion for summary judgment against the Board.

Surety Found Not Liable for Attorneys Fees without Express Provision in Bond

david.bowerman@klgates.com (K&L Gates) — Mon, 19 May 2008 15:19:48 -0800

Titan Stone, Tile & Masonry, Inc. v. Hunt Constr. Group, Inc., 2008 WL 2038857 (D.N.J. May 12, 2008)

In this case, the court ruled on a motion for reconsideration of a finding that a subcontractor who defaulted on performance, but not the surety, was responsible for the attorneys fees of the general contractor, Hunt Construction Group. The court applied the principle that a surety can be held liable only in accordance with the strict terms of its undertaking, and found that the surety bond in this case did not specifically provide for reimbursement of attorneys fees. Hunt argued that the obligations of Titan under the performance bond should be coextensive with those of Titan under the agreement. The court rejected this argument as inconsistent with the purpose of a performance bond, which is to provide the general contractor with the funds to complete the project upon the default of the subcontractor, not to make the general contractor whole.

Under Business and Professions Code § 7031, Contractor Must be Licensed Prior to Preparing Shop Drawings or Ordering Materials for Construction Project

david.bowerman@klgates.com (K&L Gates) — Wed, 07 May 2008 16:32:06 -0800

Great West Contractors, Inc. v. WSS Ind. Constr., Inc., 162 Cal. App. 4th 581 (2008)

WSS Industrial Construction, a steel subcontractor, sued general contractor Great West Contractors, to recover for work performed on a public works project in Riverside, California. At the time that WSS submitted its bid proposal to Great West, WSS had applied for but not yet obtained a corporate contractor’s license. WSS did receive a license after the bid was accepted, but only after it had already ordered multiple sets of shop drawings and some of the material necessary for the project. WSS initiated the lawsuit by suing Great West and its surety, Fidelity and Deposit Company of Maryland, for $91,000 due under the contract and subsequent change orders.

At trial, Great West and Fidelity moved for a nonsuit on the grounds that WSS was statutorily barred, pursuant to Business and Professions Code section 7031, from any recovery because WSS was not duly licensed at all times during performance of the contract. The trial court determined that WSS’s president had held valid individual licenses at all times and that, in any event, WSS was not required to have a license for the work that it performed prior to receiving its license. The court held that “there was substantial compliance with the licensing during the contract and work was performed in good faith.” The jury awarded WSS $220,000 in damages, including statutory penalties and interest. Great West and Fidelity appealed after the court rejected their post-trial motions for a new trial, vacation of judgment and judgment notwithstanding the verdict.On appeal, WSS argued that it was not barred from recovery by section 7031 because the only work it performed prior to receiving its license was work which did not required a license and it should be allowed to segregate acts requiring a license from acts not requiring a license. WSS further argued that it had substantially complied with section 7031 because its RMO, the president, had previously qualified a separate WSS partnership and held various individual contractor’s licenses. The court of appeal rejected both arguments. The court of appeal found that preparing shop drawings and ordering material were acts performed in furtherance of the subcontract, and thus WSS had performed work without a license. Furthermore, the court of appeal found that the “substantial compliance” exception to section 7031 was not applicable to WSS because WSS had never held any California contractor’s license. The contract at issue was between Great West and WSS. The fact that the RMO had held individual licenses, and had also previously qualified a partnership involving WSS, was irrelevant because WSS itself had never held a license. In closing, the court of appeal reaffirmed that section 7031 applies regardless of equitable considerations or the harshness of the result.

Discretionary Right to Adjudicate No Basis for Stay of Arbitration

david.bowerman@klgates.com (K&L Gates) — Sat, 03 May 2008 15:14:09 -0800

Cubitt Bldg. & Interiors Ltd. v. Richardson Roofing (Ind.) Ltd., [2008] EWHC 1020 (Queen’s Bench Div., Tech. & Constr. Ct.)

Cubitt, the contractor on a construction project in London, engaged Richardson as sub-contractor. Under the relevant sub-contract, both parties had a discretion to refer disputes to adjudication. Richardson completed its works, Cubitt alleged delay and indicated that it intended to deduct liquidated damages from the amount payable to Richardson. Richardson started arbitration proceedings against the Cubitt. Cubitt sought a stay of the arbitration so that it could refer the dispute to adjudication.

In a reversal of the recent decision of the same court in DGT Steel & Cladding Ltd. v. Cubitt Bldg. & Interiors Ltd., [2007] EWHC 1854 (Queen’s Bench Div., Tech. & Constr. Ct.), the court found that a discretionary right to adjudicate disputes under the sub-contract did not give a party the right to stay either arbitration or litigation. The DGT Steel decision had given rise to concerns that adjudication would be used as a delaying tactic where the right to adjudicate was no more than discretionary (as under the JCT 2005 suite of contracts).

DGT Steel remains authority for the right to stay arbitration or litigation where adjudication is mandatory. It will remain open to a tribunal or court to amend the timetable for resolution of the dispute if the parties have a discretionary right to refer disputes to adjudication. An applicant is unlikely to find a sympathetic hearing if, as in this case, the request to adjudicate, following commencement of proceedings, comes some three or four years after the dispute arose.

Partial Enforcement of Award Which Has Not Yet Become Final

david.bowerman@klgates.com (K&L Gates) — Thu, 24 Apr 2008 16:37:38 -0800

IPCO (Nigeria) Ltd. v Nigerian Nat’l Petroleum Corp., 2008 WL 1771454, [2008] EWHC 797 (Queen’s Bench Div., Commercial Ct.)

IPCO contracted with NNPC to design and build a petroleum export terminal in Nigeria. A dispute ensued and was arbitrated in Nigeria, subject to the supervision of the Nigerian courts. IPCO obtained an award in October 2004 (in the sum of approximately US$152 million) and sought an order for its enforcement in England. At the same time, NNPC brought an appeal against the award. The English High Court granted an order to IPCO, but adjourned enforcement of the award pending the Nigerian appeal. Subsequent developments in Nigeria had meant that any appeal against the award now lay some five or ten years in the future. IPCO applied for a variation of the order adjourning enforcement of the award.

The Judge granted a variation allowing immediate partial enforcement of the award (in the sum of approximately US$52.5 million). A “significant change in circumstances” was required to reopen the English claim. Developments in the Nigerian challenge proceedings since the English were characterised as “catastrophic.” However, the change in circumstances would not of itself justify a reconsideration of the court's earlier assessment of the strength of the Nigerian challenge proceedings. In this case, the factor which tipped the balance was the fact that the original judge had been, albeit inadvertently, misled as to the strength of the challenge to the award.

The decision provides useful guidance on the extent to which the court is permitted to revisit an interlocutory decision on enforcement of an award. It also appears to be the first in an English court allowing partial enforcement of a New York Convention award (other than in the limited jurisdictional context expressly envisaged by section 103(4) of the Act).

Subcontractor's Contractual Indemnity Obligation to Contractor for EIFS Damage Not Covered by Indemnity Provisions of Texas Product Liability Act

david.bowerman@klgates.com (K&L Gates) — Thu, 24 Apr 2008 10:49:45 -0800

K-2, Inc. v. Fresh Coat, Inc., 253 S.W.3d 386 (Tex. App. 2008)

In this case, the court held that the Texas Product Liability Act did not provide a product seller with the right of indemnity against a product manufacturer for that seller’s independent liability under a contract.

Several homeowners sued their builder, its subcontractor which installed synthetic stucco cladding (EIFS) on their houses and the EIFS manufacturer after experiencing water penetration leading to structural damage. After the claims made by the homeowners and the home builder against the subcontractor were settled, the subcontractor obtained a judgment against the manufacturer for indemnification of the amounts it paid in the settlement. The manufacturer appealed that portion of the judgment finding it liable to indemnify the subcontractor for the amount it paid to settle the home builder’s claims because it was paid under an indemnity clause in the subcontract. It did not dispute that part of the judgment obligating it to indemnify the subcontractor for settlement of the homeowners’ claims. After initially concluding that the material the subcontractor purchased from the manufacturer and applied to the houses was a product within the meaning of the Texas Product Liability Act, the Court of Appeals addressed whether the manufacturer was liable to the subcontractor for the amounts it paid to the home builder under the contractual indemnity clause.

The Court of Appeals reversed the trial court’s award of indemnity for the amounts the subcontractor paid to the home builder on the grounds that the Product Liability Act, Tex. Civ. Pract. & Rem. Code Ch. 82, did not impose a duty on the manufacturer to indemnify the product seller for its independent liability under a contract with the home builder. It reasoned that the settlement with the home builder was attributable solely to a contract to which the manufacturer was not a party and thus the EIFS subcontractor could not recover the amount it had paid the home builder under the statutory indemnification provision.

Insurer's Duty to Defend Construed Broadly in Favor of Insured

david.bowerman@klgates.com (K&L Gates) — Wed, 23 Apr 2008 11:59:20 -0800

WTC Captive Ins. Co. v. Liberty Mut. Fire Ins. Co., 549 F. Supp. 2d 555 (S.D.N.Y. 2008)

After the World Trade Center disaster in September 2001, the City of New York created a captive insurance company, funded by a grant from the Federal Emergency Management Agency, to insure the costs of lawsuits arising from the WTC clean-up efforts. Liberty Mutual was the primary insurer and had agreed to defend and indemnify the city against claims including, but not limited to, bodily and personal injury. A group of secondary insurers agreed to provide the same coverage if the Liberty Mutual policy became exhausted. All of the policies were retroactive to September 11, 2001.Over 10,000 suits have now been filed by clean-up workers alleging that the city was aware that the air around the site was contaminated, failed to provide adequate training or supervision of personal protective equipment, allowed damaged protective equipment to be used, and deliberately concealed air testing results which documented the dangers. The secondary insurers claimed that their policies with the captive insurance company did not provide coverage for these suits.

The Liberty Mutual policy provided $4 million of coverage to defend and indemnify the city and its contractors from claims arising from the clean-up effort. The policy was secured after September 11, 2001 and covered the city retroactively from September 11, 2001 to December 31, 2002. An additional $75 million was secured from the secondary insurers. The policies contained exclusions for injuries resulting from the discharge, dispersal, or escape of pollutants anywhere in the world.

Beginning in 2002, the city notified the secondary insurers, via their broker, of the pending lawsuits. By June 5, 2006, the Liberty Mutual policy had been exhausted. The secondary insurers claimed to have never received notice of the exhaustion. During oral argument, however, the insurers acknowledged receipt of some notice in January 2005. The court held that there were no triable issues of fact on the issue of notice, recognizing that the press coverage of these claims was extensive enough that the insurers should have been on notice even if the notice sent to the insurance broker was inadequate. The court also found that notice to the insurance broker served as notice to the insurers, despite provisions in the policies requiring that notice be provided to both the broker and the insurers’ attorneys.

The secondary insurers further argued that the pollution clause in the insurance policy exempted them from defending the city against these claims. The court disagreed, noting that the duty to defend is broader than the duty to indemnify and is triggered when the allegations in the complaint could potentially give rise to a covered claim. While the duty to defend is construed broadly, policy exclusions are construed strictly and narrowly and ambiguities are resolved in favor of the insured. The court found that the secondary insurers did not meet the heavy burden of showing that all the claims against the city fell within the policy exclusion, noting that the claims against the city stemmed from its concealment of test results and failures to provide adequate training and equipment.

The court ordered the parties to try to settle the dispute by determining a fixed sum which the secondary insurers would pay to the captive insurance company or, in the alternative, determine whether further proceedings should be held.