August 2007 – Construction Law

Improperly Awarded Public Contract Can Survive Where Bid Process Was Fair and Re-Bid Would Be Inequitable to Public Entity and Taxpayers

Aug 28 2007

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.

General Contractor Not Required to Provide Insurance Covering Project Owner’s Own Negligence Absent Clear Contract Language Requiring Such Coverage

Aug 27 2007

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.

Court Upholds City’s Product Specification for Construction Project, but Notes that City Does Not Have Unfettered Discretion In Prohibiting Products

Aug 27 2007

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.

General Contractor Bears Burden of Disproving Claim for Employer Contributions by Labor Union Under Collective Bargaining Agreement

Aug 25 2007

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.

Courts Apply Heightened Pleading Standards to Fraud Claims in Adversary Proceeding

Aug 20 2007

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.

Court Favors Arbitration in Disputes Between Contractor and Subcontractor

Aug 19 2007

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.

Scope of Arbitration Agreement in Home Warranty to be Determined by Arbitrator, Not Court

Aug 16 2007

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.

Contractor Not Required to Provide Pre-Suit Notice, May Plead Both Negligent Construction and Breach of Contract

Aug 10 2007

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.

Considerations in Exercise of Court’s Power to Grant Anti-Suit Injunction

Aug 08 2007

(1) Starlight Shipping Co. (2) Overseas Marine Enters. Inc. v. (1) Tai Ping Ins. Co. (2) Int’l Econ. & Trading Corp., Wugang Group, 2007 WL 2186944, [2007] EWHC 1893 (Queen’s Bench Div., Commercial Ct.)

In this case, the owner (Starlight) and the manager of a ship (Overseas) applied for an injunction restraining proceedings brought by the respondent insurer (Tai Ping) in the Maritime Court of Wuhan in China. Starlight had chartered its vessel subject to an arbitration agreement which was incorporated into a bill of lading to which a sub-charterer (Wugang) had then become a party. The ship and cargo were lost en route from Brazil to China. Tai Ping commenced proceedings for recovery of sums paid in indemnification of Wugang. Starlight and Overseas disputed jurisdiction of the Chinese court on grounds of breach of the arbitration agreement, and sought an injunction in the English Commercial Court in restraint of those proceedings. Tai Ping and Wugang argued that they were not bound by the arbitration agreement as a matter of Chinese law. Read More

Existence of Dispute for Purposes of Obtaining Stay of Judicial Proceedings

Aug 07 2007

Loon Energy, Inc. v. Integra Mining, 2007 WL 2139992, [2007] EWHC 1876 (Queen’s Bench Div., Commercial Ct.)

In this case, the court considered the application of s.9 of the Arbitration Act 1996 which requires it to stay its proceedings if the dispute before it is one falling within the scope of an arbitration clause. Loon sought and obtained specific declarations in relation to oil exploration rights under English law contracts. In the meantime, Integra launched arbitration in accordance with the terms of a Texas law confidentiality agreement into which the parties had entered prior to concluding the English law contracts. Loon amended its own claim for relief to include a declaration that the confidentiality agreement had been superseded. Integra sought to stay Loon’s application under s.9. Loon countered that at the time it issued its own claims there was no dispute in existence in relation to the confidentiality agreement and that therefore there was no obligation on the court under s.9. Read More

Archive:August 2007