2007 – Page 5 – Construction Law

Undermining Competitive Bidding Process through Collusion Violates Massachusetts Consumer Protection Act

Oct 04 2007

Prof’l Servs. Group v. Town of Rockland, 515 F. Supp. 2d 179 (D. Mass. 2007)

In this case, the Federal District Court for the District of Massachusetts issued a decision concerning the subversion of the public procurement process by a bidder. The defendant-contractor colluded with a public official of the plaintiff-town to ensure that it would be the only bidder and would thereby receive the bid at an artificially high price. The court held that this collusion violated the Massachusetts Consumer Protection Act (M.G.L. c. 93A), and that the town was entitled to double damages pursuant to that that statute because the contractor’s violations were knowing and willful. The contractor attempted to escape liability by arguing that the employee who was responsible for the bidding and collusion was a rogue employee. The court rejected this argument and found that the contractor’s employee was acting within the scope of his employment and therefore the contractor was liable by the doctrine of respondeat superior. Read More

Statute of Repose Begins to Run on Negligence and Implied Warranty Claims when Building Occupants are First Issued Certificate of Occupancy

Sep 21 2007

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.

Oregon Federal Court Remands Contractor Garnishment Action to State Court

Sep 19 2007

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.

Unintended Construction Defects May Constitute an “Accident” or “Occurrence” Under Commercial General Liability Policy

Sep 07 2007

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.

Property Owner’s Claims Against Professional Engineer Reinstated Where Contractor Placed Water Line Outside of Utility Easement

Sep 07 2007

Merlini v. Gallitzin Water Auth., 934 A. 2d 100 (Pa. Super. Ct. 2007)

In this case, the Superior Court of Pennsylvania held that a professional engineer can be either “ordinarily negligent” or “professionally negligent” in the performance of his consulting engineering tasks, or both. He can be accountable in damages for mere negligence under common law theories of trespass, even if a plaintiff is not suing him for professional negligence.

This odd outcome is the result of an engineer directing a contractor to install a water line, without right-of-way, easement or permission, in the wrong place on the property owner’s property, that is, in a location outside of the recorded easement. When the property owner filed a complaint in the court, but did not file the technically required certificate of merit of professional negligence required by the Pennsylvania Rules of Court, the property owner’s complaint was dismissed. The property owner appealed, and the Superior Court had to determine whether the property owner’s complaint was asserting ordinary negligence or “professional negligence.”
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Findings of Arbitrator Will Not Be Overturned in Absence of Fraud

Sep 06 2007

Site, Inc. v. Peabody Constr. Co., Inc., 2007 WL 2458482 (Mass. App. Ct. Aug. 30, 2007) (Unpublished)

In this case, the Appeals Court affirmed the Superior Court’s denial of plaintiffs’ motion to vacate an arbitration award. The defendant general contractor, Peabody Construction Company, refused to pay the plaintiff subcontractor, Site, Inc. on a subcontract after terminating the subcontractor prior to completion of the job. The case went to arbitration. After considering extensive evidence and testimony, the arbitrator found that the general contractor’s failure to make timely payment was a material breach of the subcontract. Although the arbitrator found that general contractor’s material breach of the subcontract excused any subsequent failure by the subcontractor to perform its obligations under the subcontract, the arbitrator found that the subcontractor was not entitled to payment for the work it performed because the subcontractor “had not completely [and satisfactorily] performed all of its obligations under the subcontract.” Read More

Subcontractor Agreements Are “Residential Construction Contracts” Under New Jersey Construction Lien Law

Sep 04 2007

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.

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.

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