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Pennsylvania Court Rules Successful Bidder Is Indispensable Party in Action to Enjoin Award of a Public Contract
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Polydyne, Inc. v. City of Philadelphia
No. 2454 C.D. 2001 (Pa. Commw. Ct. April 4, 2002)
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| The City of Philadelphia solicited bids for the provision of polymers for use by the City Water Department. Cytec Industries, Inc. ("Cytec") was the successful bidder. Polydyne, Inc. ("Polydyne"), a disappointed bidder, filed a claim against the City of Philadelphia, seeking to enjoin the award to Cytec. After review of the merits, the trial court rejected the request for equitable relief.
On appeal, the Commonwealth Court vacated the decision based on a jurisdictional defect. According to the Commonwealth Court, Cytec was an indispensable party to the action. It had an interest in the claim as the successful bidder, and there was no indication that Cytec’s rights would have been protected in its absence. Despite this status, however, Cytec was not joined as a party to the action. The Commonwealth Court noted that this failure to join an indispensable party deprived the trial court of subject matter jurisdiction over the action. Consequently, it vacated the decree, and remanded the case for further proceedings.
For full text of decision, click here. |
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New Jersey Court Rules That Invalidity of Architect’s Certification Does Not Preclude Owner From Terminating Contract for Material Breach
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Ingrassia Constr. Co., Inc. v. Vernon Township Bd. of Educ.
No. A-3954-00T2F, 2001 N.J. Super. LEXIS 411 (N.J. Super. App. Div. Nov. 8, 2001)
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| Ingrassia Construction Co., Inc. ("Ingrassia") entered into a contract with the Vernon Township Board of Education ("Board") pursuant to which Ingrassia agreed to perform renovations of and additions to the Vernon Township High School. Ingrassia’s performance of its work scope was subject to several milestone dates. Despite this obligation, Ingrassia consistently failed to perform in accordance with the project schedule.
The contract provided that the Board could terminate Ingrassia for cause upon certification by the Architect that sufficient cause did, in fact, exist. The Board’s Architect, who was not licensed in the United States, provided a certificate stating only that Ingrassia missed the project’s milestone dates. Relying on this certification, the Board terminated Ingrassia for cause.
Ingrassia responded by filing a claim and asserting that the Board improperly based its termination decision on a defective architect’s certificate. The trial court agreed, concluding as a matter of law that the certification by an unlicensed architect failed to meet the requirements of the contract. The Court granted Ingrassia’s motion for summary judgment, awarded Ingrassia its requested damages, and dismissed the Board’s counterclaims.
On appeal, the Appellate Division agreed that the Architect’s certification failed to meet the requirements of the parties’ contract. It disagreed, however, as to the effect of the invalid certification. According to the Court, a proper certification was not a condition precedent to the Board’s right to terminate the contract. A proper certification served only to provide the owner with a conclusive presumption (subject to only limited review) that its decision to terminate was correct. Even without such a certification, however, the Board still maintained its common law right to demonstrate that Ingrassia committed a material breach of the parties' agreement. Accordingly, the appellate court reversed the trial court’s award of summary judgment, and remanded the matter so that the Board could attempt to prove a material breach at trial.
For full text of decision, click here. |
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West Virginia Court Holds That Absence of Privity Does Not Bar Suit Against Engineer for Negligence or for Breach of Implied Warranty of Plans and Specifications
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Eastern Steel Constructors, Inc. v. The City of Salem
209 W.Va. 392, 549 S.E.2d 266 (2001)
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| The City of Salem entered into a contract with Kanakanui Associates ("Kanakanui") pursuant to which Kanakanui agreed to provide engineering and architectural services for improvements to Salem’s existing sewer system. Kanakanui prepared the plans and specifications for the Project. Relying on these plans and specifications, Eastern Constructors, Inc. ("Eastern") submitted a bid to construct one of the sewer lines planned as part of the improvements. Eastern’s bid was accepted, and it was awarded the contract.
Soon after it commenced performance, Eastern encountered substantial delays caused by subsurface conditions that had not been disclosed in the documents prepared by Kanakanui. It subsequently filed actions in tort against both Salem and Kanakanui for economic losses incurred as a result of the delays. Eastern claimed (1) that Kanakanui had been negligent in its provision of services; and (2) that both Salem and Kanakanui breached an implied warranty of plans and specifications. Eastern also claimed that it was entitled to damages as a third-party beneficiary to the contract between Salem and Kanakanui. The trial court granted summary judgment in favor of Kanakanui on all three claims.
Upon review, the Supreme Court of Appeals reversed the trial court’s conclusion that, as a matter of law, Eastern could not maintain a negligence action for purely economic losses. Relying on the Court’s decision in Aikens v. Debow, 208 W. Va. 486, 541 S.E.2d 576 (2000) and authority from other jurisdictions, the Court concluded that a "design professional owes a duty of care to a contractor, who has been employed by the same project owner as the design professional and who has relied upon the design professional’s work product in carrying out his or her obligations to the owner, notwithstanding the absence of privity" between the design professional and the contractor. The Court reached such a conclusion because of the special relationship that it deemed existed between the two parties. Accordingly, Eastern could maintain its tort action against Kanakanui for purely economic losses.
The Supreme Court of Appeals also reversed the trial court’s conclusion that Eastern, as a matter of law, could not maintain an action for breach of an implied warranty of plans and specifications. The Court noted that earlier West Virginia precedent abolished the requirement of privity of contract in an action for breach of an express or implied warranty in the context of products liability actions. In light of the special relationship which the Court deemed existed between the design professional and the contractor, the Court had little difficulty extending its previous holding to the present case. Accordingly, Eastern could maintain an action for breach of implied warranty of plans and specifications against Kanakanui.
Finally, the Supreme Court of Appeals agreed that Eastern failed to demonstrate it was a third-party beneficiary to the contract between Salem and Kanakanui. Eastern presented no evidence of an express declaration that Salem and Kanakanui intended Eastern to be a beneficiary to their agreement. Nor did it present any evidence tantamount to such a declaration. Consequently, the appellate court affirmed the trial court’s award of summary judgment on Eastern’s third-party beneficiary claim.
For full text of decision, click here. |
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Delaware Court Holds Completing Surety’s Right of Equitable Subrogation Arises Before Completion of Contract
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Travelers Cas. and Sur. Co. of Am. v. Colonial Sch. Dist. et. al.
No. 18167, 2001 Del. Ch. LEXIS 31 (Del. Ch. Mar. 16, 2001)
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| Travelers Casualty and Surety Company of America ("Travelers") served as surety of contractor Healy Management Services, Inc. ("Healy") on a project for the Colonial School District ("Colonial"). Traveler’s also served as surety of Healy on a project for Electra Arms Senior Associates, L.P. ("Electra Arms"). Casey Electric, Inc. ("Casey") and I.D. Griffith, Inc. ("Griffith") were subcontractors of Healy on separate unbonded projects, unrelated to the projects which were bonded by Travelers.
After Healy failed to make payments to both Casey and Griffith, both parties filed praecipes for attachment against Colonial, garnishing payments allegedly due Healy.
Healy subsequently defaulted on its obligations under its contracts with Colonial and Electra Arms. As required by the payment and performance bonds, Travelers undertook to perform Healy’s obligation to complete the contracts and to pay the subcontractors and materialmen on both projects.
After receiving notice of the writs of attachment in favor of Casey and Griffith, Travelers filed an action in equity seeking a declaratory judgment that, as a performing surety, it had the primary right to the money held by Colonial for Healy.
The Delaware Chancery Court agreed. The Court first declared that Travelers had a right to the funds pursuant to Travelers’ right to equitable subrogation. This right arose on the date the suretyship agreement was executed. Accordingly, Travelers’ claim to the withheld funds obtained priority over the defendants’ subsequent claims to those funds. The fact that the Project had not yet been completed had no bearing on its holding. As noted by the Court, a surety’s right to subrogation requires completion of the project as a condition precedent to exercising this right only when (1) it is "necessary to prevent the surety from competing with the owner’s rights against the contractor-principal" or (2) the subcontractors obtained their lien claims with the knowledge and the consent of the surety and where such liens were contemplated by the surety bond. Here, neither exception applied. Thus, Traveler’s claim was superior.
The Court also supported its position based on the specific language of the bonds and construction contract at issue. Finally, the Court determined that it would be inequitable to strip Travelers of its priority position. Accordingly, it granted summary judgment in Travelers’ favor, and issued a judgment establishing Travelers’ priority to the funds.
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Pennsylvania Court Holds Payment Bond Claim Is Barred By Prompt Payment Act Defense
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Trumbull Corp. v. Boss Constr., Inc. et al.
768 A.2d 369 (Pa. Commw. Ct. 2001)
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| The Pennsylvania Department of Transportation ("PennDot") entered into a contract with A&L, Inc. ("A&L") pursuant to which A&L agreed to serve as general contractor for a road resurfacing project. A&L obtained a labor and material payment bond from Safeco Insurance Company of America ("Safeco"). A&L also retained Boss Construction, Inc. ("Boss") to serve as subcontractor for a portion of the work.
Boss purchased materials for its work from Trumbull Corporation ("Trumbull"). After Boss failed to make payments on the invoices submitted by Trumbull, Trumbull turned to the payment bond for relief.
At trial, Trumbull claimed that, as a claimant supplying materials, Safeco was obligated to compensate Trumbull under the bond based on the plain language of the Public Works Contractors Bond Law of 1967 (the "Bond Law"). A&L and Safeco did not dispute this assertion. Nevertheless, they claimed that recovery was not warranted in light of the recent 1994 amendment to the Prompt Payment Act. Pursuant to the Prompt Payment Act, parties owed payment by a subcontractor cannot recover payment from the contractor or the contractor’s surety where the contractor has already made payment to the subcontractor. Here, A&L had made payment to Boss during the time Trumble supplied materials to Boss. Therefore, according to A&L and Safeco, the Payment Act precluded Trumble’s current claim.
Both the trial court and the Commonwealth Court agreed that the Prompt Payment Act’s provisions controlled. Pennsylvania rules of statutory construction require that when the provisions of two statutes are irreconcilable, the statute latest in date of final enactment shall prevail. Here, the amendment to the Prompt Payment Act was enacted subsequent to the Bond Law. Accordingly, its provisions controlled the outcome of the current dispute, and Trumble was not entitled to payment under the bond.
Despite affirming the trial court’s holding which barred Trumble’s claim under the bond, the Commonwealth Court disagreed with the trial court’s decision to exclude evidence of an alleged oral agreement pursuant to which A&L promised Trumble it would pay Boss’s debt in full. Accordingly, the Commonwealth Court remanded the matter for a new trial limited to determining whether Trumble could establish an exception to the Statute of Frauds, and thus pursue a claim against A&L based on the alleged oral agreement.
For full text of decision, click here. |
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Eleventh Circuit Strictly Construes Notice and Final Payment Provisions of Subcontract
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Associated Mechanical Contractors, Inc. v. Martin K. Eby Constr. Co., Inc.
No. 00-10784, 2001 U.S. App. LEXIS 24235 (11th Cir. Nov. 9, 2001)
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| Martin K. Eby Construction Company, Inc. ("Eby") was the prime contractor on a Georgia prison construction project. Eby entered into subcontract with Associated Mechanical Contractors, Inc. ("Associated") pursuant to which Associated agreed to perform the mechanical, heating, ventilation, air-conditioning, and plumbing work for the project.
Associated was to commence performance on or before May 2, 1990. From the beginning, the Project was plagued with delays. In November of 1992, Associated presented Eby with a claim for equitable adjustment to its contract price and schedule seeking compensation in the amount of $737,343.96 and a 462-day time extension.
Eby denied the request and Associated initiated an action before the District Court. The District Court awarded summary judgment against Associated, holding that Associated failed to preserve its delay claim as required by the subcontract. The Court also awarded summary judgment against Associated’s claim for withheld retainage, holding that all conditions precedent to receiving the retainage had yet to occur.
On appeal, the Eleventh Circuit Court of Appeals affirmed in part and reversed in part the decision of the District Court. The appellate court agreed that, pursuant to the subcontract, Associated had to preserve any claim for damages by providing written notice within ten days from the commencement of the alleged damage. Here, Associate incurred damage from the very start of the project. However, it did not provide notice of delay at that time. Rather, it provided notice of all project delays and resultant damages in August of 1990. The appellate court agreed with the District Court that such notice was insufficient to preserve the delay claims that occurred between May and July of 1990. However, it reversed the District Court’s decision as to delays which occurred after July 1990, because the August 1990 notice could have preserved these claims. Accordingly, the Court remanded the matter to determine which of its claims Associated had, in fact, preserved.
With respect to Associated’s claim for retainage, the appellate court affirmed the District Court’s holding. Before Associated could receive this final payment, all causes of action and/or lawsuits related in any way to the subcontract must be resolved. As demonstrated by the pendency of Associated’s appeal before the Eleventh Circuit, this condition had not been met. Therefore, the appellate court concluded that summary judgment in Eby’s favor on the retainage claim was proper.
For full text of decision, click here. |
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Florida Bankruptcy Court Holds Completing Surety Has No Claim on Funds Contractor Earned Before Default
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In re: Steve A. Clapper & Assoc. of Fla.,
265 B.R. 460 (Bankr. M.D. Fla. 2001)
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| Capital Indemnity Corporation ("Capital") was the surety of Steve A. Clapper & Associates of Florida ("Clapper") on a project for Manatee County. Clapper submitted a payment application to Manatee County on September 30, 1999, seeking payment of $95,702.04 for work performed, which Manatee County accepted. On October 21, 1999, Manatee County terminated Clapper for default, and Capital assumed performance of the Project in accordance with the surety bonds.
Capital also served as surety of Clapper on a project for Charlotte County. Clapper submitted a payment application to Charlotte County on September 24, 1999, seeking payment in the amount of $78,990.53 for work performed, which Charlotte County accepted. On October 8, 1999, Charlotte County terminated Clapper’s contract for default. Again, Capital, as required by the surety bonds, assumed performance of the Project.
Prior to these events, Clapper filed a voluntary petition for relief under the Bankruptcy Code. On November 17, 1999, this matter was converted into a liquidation case under Chapter 7 of the Code.
On March 31, 2000 Manatee County paid to the Bankruptcy trustee the $95,702.04 previously requested by Clapper on September 30, 1999. On January 24, 2000, Charlotte County paid to the Bankruptcy trustee the $78,990.53 previously requested by Clapper on September 24, 1999.
In an effort to recover the amounts paid to the Bankruptcy trustee by Manatee and Charlotte Counties, Capital initiated a cause of action against the trustee, claiming that the funds were not properties of the estate, and thus not subject to turnover pursuant to Section 542 of the Bankruptcy Code. Both parties filed motions for summary judgment. After denying both motions, the Bankruptcy Court agreed to reconsider its decision.
The Bankruptcy Court concluded that Capital had no right to the funds. While relevant precedent did suggest that the surety is "entitled to the unpaid monies of the contract proceeds where the surety completes the construction job of the debtor after the debtor defaults," the court was not faced with such circumstances. Here, the monies paid by Manatee County and Charlotte County were fully earned by Clapper before it was declared to be in default. Thus, the payments were property of the estate – not the performing surety. The doctrine of equitable subrogation did not alter the Court’s conclusion. Assuming without conceding that the doctrine was applicable, the Court noted that "one who seeks subrogation must first establish that the right matured only after the contractor defaulted and the surety made payments thereafter on a performance bond." Because it was not faced with such facts, the Court determined that the case formed no basis for application of the doctrine. Consequently, it awarded the Trustee summary judgment.
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