Archive: 2008

1
Sureties Are Not Necessary Parties under FRCP
2
Court Grants Surety Summary Judgment on Issue of Indemnification Where Defendant Provided “Not a Shred of Evidence” to Contravene Surety’s Showing of Good Faith
3
Finding Two Year Statute of Limitations Applied, Court Rejects Claim for Professional Negligence
4
Court Finds Lien did not Attach Absent Parties’ Meeting of the Minds
5
Damages Awards for Delay in Construction of Home and Alternate Living Arrangements Were Not Impermissibly Duplicative
6
International Arbitration: A Tool to Manage Risk When Dealing in High Growth/High Risk Markets
7
Consequential Damages in Today’s Construction Industry
8
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
9
Surety Found Not Liable for Attorneys Fees without Express Provision in Bond
10
Court Holds Claims Arising from Zoning Violations Subject to Professional Liability Exclusion, Insurer Not Obligated to Defend or Indemnify

Sureties Are Not Necessary Parties under FRCP

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.

Court Grants Surety Summary Judgment on Issue of Indemnification Where Defendant Provided “Not a Shred of Evidence” to Contravene Surety’s Showing of Good Faith

Great American Ins. Co. v. Gen. Contractors & Constr. Management, Inc., 2008 WL 2245986 (S.D. Fla. May 29, 2008)

In this case, a surety company sought indemnification from a contractor under a payment bond.  The surety had paid claimants under the bond and argued that it was contractually entitled to reimbursement.  The contractor argued that the surety failed to bear its alleged initial burden of proving that the surety paid the claims in good faith.  The Court held that the surety’s initial burden was satisfied by evidence that the surety had indeed paid claims under the bond.  Thereafter, it was then the contractor’s burden to provide contradictory evidence or evidence that the surety paid the claims in “bad faith.”

It is well settled in Florida that a surety’s bad faith is the only defense to a surety’s indemnity claim.  Therefore, Florida courts will uphold a surety’s contractual right to indemnification so long as the surety acted on a good faith belief that it was required to act or pay, regardless of whether any liability existed.  To establish a surety’s bad faith, the contractor must demonstrate that the surety acted “with deliberate malfeasance”—meaning that that surety intentionally and wrongfully acted without legal right.  A lack of due diligence or negligence is not the equivalent of bad faith and even “gross negligence” is not the same as bad faith.

Finding Two Year Statute of Limitations Applied, Court Rejects Claim for Professional Negligence

Baker County Med. Svcs., Inc. v. Summit Smith, 2008 WL 2245587, Case 3:05-cv-541-J-33HTS (M.D. Fla. May 29, 2008)

In this case, an owner sued a contractor under a design-build contract, alleging that the contractor breached the contract by failing to fulfill its implied duty to perform according to established industry and professional standards.  While Florida law permits such “professional negligence” actions to be pled as a breach of contract or a tort, such an action must be brought under the more specific two year professional malpractice statute of limitation, not the general four year limitation for actions based on “design, planning, or construction of an improvement to real property.”

Court Finds Lien did not Attach Absent Parties’ Meeting of the Minds

Niehaus v. Big Ben’s Tree Svc., Inc., 982 So. 2d 1253 (Fla. Dist. Ct. App. 2008)

In this case, the court held that a contractor’s lien under Section 713.05 never attached because the parties never had a meeting of the minds as to a material term of their contract.  The owner had contacted a contractor to cut down and “remove” a tree.  The owner believed that “remove” meant that the tree would be taken from her property, but the contractor intended for remove to have its technical meaning in the tree industry, which is to simply move the tree.  The owner refused to pay the contractor when he would not take the tree from her property, resulting in the contractor recording a mechanic’s lien under Section 713.05.

A mechanic’s lien can only attach when a valid contract exists, and parties’ must agree as to material terms for there to be a valid contract.  The court found that “removal” was a material term of the parties’ contract in this case, and that they had different understandings as to the term’s meaning.  Therefore, the contractor’s lien never attached, and the owner was entitled to attorney’s fees under Section 713.29 for her successful defense against the lien.

Damages Awards for Delay in Construction of Home and Alternate Living Arrangements Were Not Impermissibly Duplicative

Fisher Island Holdings, LLC v. Cohen, 983 So. 2d 1203 (Fla. Dist. Ct. App. 2008)

In this residential construction case, an owner entered into a short-term lease because of substantial delays in the completion of his single family home.  The owner sued the contractor for delay, and the jury awarded the owner both delay damages and damages for alternative living arrangements.  The appellate court held that this was not a double recovery.  The jury permissibly awarded delay damages (measured by the rental value of the building under construction during the delay period) for the period of the contractor’s delay up to the commencement date of the owner’s nine month lease.  The jury then awarded alternative living damages for the duration of the lease.

International Arbitration: A Tool to Manage Risk When Dealing in High Growth/High Risk Markets

By K&L Gates partner, Ian Meredith, and published in The Metropolitan Corporate Counsel.

As many businesses experience declining growth in their domestic and traditional markets, they are looking increasingly towards the "BRIC" countries (Brazil, Russia, India and China) and other high growth economies outside their traditional trading areas.  The report of the International Monetary Fund entitled the "World Economic Outlook" which was released on 9 April 9, 2008 downgraded projections for growth in 2008 and 2009 across the major Advanced Economies including those of the US, Canada and Western Europe whilst continuing to project relatively higher rates of growth across certain Emerging and Developing Economies including China and India.  It seems likely that the move by many US businesses to target Emerging and Developing Economies will gather pace.

This article will assess the extent to which international arbitration can play a role in assisting US businesses in managing commercial risk when seeking to invest and/or trade in higher risk overseas markets and it will provide a number of suggestions on ways to limit risk[1].

Read the full article here.

Consequential Damages in Today’s Construction Industry

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

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

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.

Court Holds Claims Arising from Zoning Violations Subject to Professional Liability Exclusion, Insurer Not Obligated to Defend or Indemnify

W. World Ins. Co. v. Azoff, Civ. No. 07-00494-BLS2, 2008 WL 4107481 (Mass. Super. Ct. May 15, 2008)

In this case, the Superior Court granted an insurer’s motion for summary judgment and denied the insured contractor’s cross-motion for summary judgment, holding that the insurer was not obligated to defend or indemnify the contractor for a claim brought against it in a separate action, because the claim fell under a professional liability exclusion in the relevant policies.

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