Archive: 2008

1
Contracts Cancelled Because of Illegal Actions May be Unenforceable
2
K&L Gates Arbitration World, Summer 2008
3
Washington’s Limited Liability Company Act is Applicable Retroactively and Permits Liability for Individual LLC Members or Managers
4
Finding No Bad Faith, Court Enforces Termination for Convenience and Conversion Provisions Included in Parties’ Contract
5
Pay-When-Paid Clause Does Not Shift Risk of Non-Payment to Subcontractor
6
Showing that Adequate Safety Devices were Absent is Sufficient to Establish Prima Facie Liability under NY Labor Law §240(1)
7
Self-Performance by General Contractor Forbidden under New Jersey Community College Contracts Law
8
Claims Against Architectural Firm Fell Under Professional Services Exclusion Based on Allegations of Underlying Complaints
9
Court Declines to Strike Defendant’s Answer as Sanction for Spoliation of Evidence
10
Trial Court Erred in Granting Summary Judgment in Favor of School District on Claims Stemming from Completion Contract

Contracts Cancelled Because of Illegal Actions May be Unenforceable

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

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.

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

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. Read More

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

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. Read More

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

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)

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

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

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

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

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. Read More

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