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Tomlinson v. Douglas Knight Constr., Inc., 2017 Utah Lexis 132 (August 29, 2017)

This case arises out of the construction of a residential property.  Lot 84 Deer Crossing (“Lot 84”) purchased the property and contracted with Douglas Knight Construction, Inc. (“DKC”) to build a house on it.  The parties’ contract included a one-year construction warranty.  Lot 84 then assigned to Outpost Development, Inc. (“Outpost”) all of its rights in the property and the construction agreement.  As the home neared completion, Outpost noticed defects in its construction and, pursuant to the warranty, directed DKC to fix the deficiencies.  Despite DKC’s efforts, the defects remained.  Outpost then sold the home to Joseph Tomlinson, but did not assign to Tomlinson its interests in the DKC construction agreement.  Tomlinson subsequently noticed defects in the home and filed suit against Outpost and DKC.
Shortly thereafter, Outpost declared bankruptcy and was dismissed from the case.  During the bankruptcy proceedings, Tomlinson was assigned an interest in any claims that Outpost had asserted or may assert against DKC.  Tomlinson maintained that this assignment encompassed claims for breach of the DKC construction agreement and amended his complaint to include claims for breach of express and implied warranties.  Tomlinson sought to assert these claims as an assignee of rights of parties in privity with DKC: first, through the assignment made when Outpost purchased the property from Lot 84, and second, through the assignment in Outpost’s bankruptcy proceedings.  The district court rejected these theories and dismissed Tomlinson’s claims, holding that they were barred because Tomlinson had never acquired a direct interest in the DKC construction agreement.

Abhe & Svboda, Inc. v. State of Michigan Department of Transportation, 2017 Mich. App. Lexis 1387 (August 29, 2017)

Contractor Abhe & Svboda, Inc. (“A&B”) entered into a contract with the Michigan Department of Transportation (“MDOT”) to clean and paint a portion of the Mackinac Bridge, with a contract completion date of October 30, 2009.  A&B missed the completion date by 644 days.  MDOT, therefore, imposed liquidated damages in the amount of $3,000 per day for each day by which completion was delayed.
In the trial court, A&B argued that MDOT’s assessment of liquidated damages was improper because a portion of the delay was caused by MDOT’s failure to approve a prerequisite to the work (scaffolding) and because site conditions were substantially worse than reasonably anticipated.

Parkcrest Builders, LLC v. Hous. Auth. of New Orleans, 2017 U.S. Dist. LEXIS 125012 (E.D. La. August 8, 2017)

The Housing Authority of New Orleans (“the Authority”) contracted with Parkcrest Builders, LLC (“Parkcrest”) to construct a public housing project.  The Project was delayed and the Authority terminated Parkcrest prior to completion, and entered into a Takeover Agreement with Parkcrest’s Surety.  The Surety retained Parkcrest to complete the work, and later notified the Authority that it had achieved substantial completion.  The Authority asserted deficient and incomplete items remained on the project, which the Surety refused to complete.  The Authority then solicited bids for the remaining work, and awarded the work to a replacement contractor.

Parkcrest sued the Authority for breach of contract and also asserted that any delays on the Project were excusable and, therefore, not subject to liquidated damages.  The Authority counterclaimed against Parkcrest for added costs to complete the project.  The Surety intervened, also seeking a ruling that all delays were excusable.  The Authority then counterclaimed against the Surety for completion costs.

Fogelson v. Bozzone, 2017 N.M. App. LEXIS 58 (July 26, 2017)

In May of 2008, Wallen Development, LLC (“Wallen”) entered into a written agreement to construct and sell a new home to David and Corinne Fogelson (“Fogelson”).  But, after Fogelson paid Wallen in excess of $165,111 under the agreement, Wallen went out of business as a result of financial difficulties.
Fogelson filed an arbitration action against Wallen and ultimately obtained a default judgment after Wallen failed to appear.  Thereafter, Fogelson filed a complaint in court against various individuals affiliated with Wallen.  As relevant here, Fogelson asserted a claim under New Mexico’s Unfair Practices Act, NMSA 1978 §§ 57-12-1 to -26 against one of Wallen’s owners, Mark Bozzone (“Bozzone”).  Bozzone filed a motion to dismiss on the basis that “construction services”, such as those provided by Wallen, do not fall within the scope of the Unfair Practices Act.  The trial court granted Bozzone’s motion.

The major issue on appeal was whether the doctrine of res judicata applied to an arbitration proceeding.  After a very lengthy discussion covering over half of the opinion, the Court of Appeals ruled the res judicata did apply to the arbitration result against Wallen.

Developers Sur. & Indem. Co. v. Carothers Constr., Inc., 2017 U.S. Dist. LEXIS 111021 (D.S.C. July 18, 2017); Developers Sur. & Indem. Co. v. Carothers Constr., Inc., 2017 U.S. Dist. LEXIS 135948 (D. Kan. Aug. 24, 2017)

Two recent decisions from United States District Courts for the District of South Carolina and the District of Kansas, respectively, reached opposite conclusions when presented with the same issue:  Is a surety bound to arbitrate claims against it when the surety’s bond incorporates its principal’s contract by reference, and the principal’s contract contains an agreement to arbitrate disputes.  The District of South Carolina, applying South Carolina law, held that a surety is bound by the arbitration agreement in the incorporated contract, while the District of Kansas held that a surety is not so bound.

These cases both arise from an arbitration demand filed by the general contractor, Carothers Construction, Inc. (“Carothers”) against the surety, Developers Surety and Indemnity Company (“DSI”).  DSI issued performance and payment bonds on behalf of subcontractors Liberty Enterprises Specialty Contractor (“Liberty”) and Seven Hills Construction, LLC (“Seven Hills”) in favor of Carothers for their work on Projects located in South Carolina and Kansas, respectively.  Each subcontractor defaulted on its contractual obligations.  Carothers initiated arbitration against DSI regarding both Projects.  According to Carothers, the bonds incorporated by reference the subcontracts’ mandatory arbitration clauses and thus, DSI was subject to binding arbitration.  In declaratory judgment actions before Federal District Courts in South Carolina and Kansas, DSI asked the courts to declare that the arbitration clause did not bind it to arbitrate Carothers’ claims.  Each court reached the directly opposite conclusion.  This article discusses the decision reached by each court in turn.

King Cnty. v. Vinci Constr. Grands Projets/Parsons RCI/ Frontier-Kemper, JV, No. 92744-8, 2017 Wash. LEXIS 743 (July 6, 2017)

King County contracted with three construction firms (collectively, “VPFK”) to construct a tunnel.  The contract required substantial completion by November 14, 2010 (the “contract time”).  It also required VPFK to secure a performance bond from five surety companies, under which the sureties were to remedy any default in VPFK’s performance.

VPFK experienced difficulties with its tunnel-boring equipment and was unable to dig nearly as fast as estimated.  When it became clear that VPFK would not achieve substantial completion by the contract time, King County declared VPFK in default.  The sureties refused King County’s request for a cure, arguing that because the contract time had not passed, no default had yet occurred.

King County filed a breach of contract action against VPFK and the sureties, who denied coverage and adopted all of VPFK’s defenses.  A jury found in favor of King County and awarded nearly $130 million in damages.

Universal Acad. v. Berkshire Dev., 2017 Mich. App. LEXIS 975 (Ct. App. June 20, 2017)

The dispute arose out of an agreement between Universal Academy (“Universal”) and Berkshire Development (“Berkshire”), under which Berkshire agreed to provide demolition services to Universal and Hamadeh Education Services (“HES”).  The agreement also contained an arbitration provision which provided in part:

In the event of a dispute between Contractor and the Owner that cannot be resolved, the parties agree to binding arbitration with the American Arbitration Association in accordance with the Construction Industry’s Rules of the American Arbitration Association in effect as of the date of this Agreement.

The agreement was terminated by Universal, alleging material breaches by Berkshire.  Following termination, subcontractors for the project filed a complaint against Berkshire, Universal, and HES, requesting foreclosure of construction liens and payment for services.  In response, Berkshire filed a cross-complaint against Universal and HES, requesting foreclosure of its lien and asserting claims of promissory estoppel and fraudulent inducement.  Five months after it filed the cross-complaint, Berkshire filed a motion to enforce the arbitration agreement between it and Universal.

City of Dardenne Prairie v. Adams Concrete & Masonry, LLC, No. ED104982, 2017 Mo. App. LEXIS 533 (Mo. Ct. App. May 30, 2017)

This case arises out of a construction project in which the City of Dardenne Prairie (the “City”) purchased bricks for its construction of two buildings—a new city hall and a parks maintenance building—from Adams Concrete & Masonry, LLC (“ACM”).  In October 2008, the City enacted two ordinances authorizing the construction of the new city hall, but did not enact any ordinances authorizing the construction of the parks maintenance building.  Such authorization—and approval—by the City’s Board of Aldermen (“Board”) is required by law for public projects in Missouri.  Nevertheless, the City executed an agreement with ACM for the purchase of bricks and provision of masonry work for both projects.  In November 2009, the City paid ACM in full for all of the bricks.  But in December 2010, the City decided not to construct its parks maintenance building and thus, the bricks for it were never delivered.

In 2014, the City contacted ACM regarding the location of the undelivered bricks.  Upon learning that ACM’s fabricator had already resold the bricks, the City sued ACM for breach of contract to recover the cost of the undelivered bricks, averring that ACM had breached its purchase agreement by failing to deliver the materials.  ACM counterclaimed for breach of contract, claiming that the City was in breach by cancelling the construction of the parks maintenance building, thereby preventing ACM from completing its masonry work.  The City raised an affirmative defense, asserting that its agreement with ACM had not been approved by the City’s Board as required and thus was not enforceable.  ACM seized on the City’s assertion and moved for judgment on the pleadings arguing that, through this affirmative defense, the City admitted that its Board had not approved the agreement, and thus, the agreement was void and the City, too, was barred from recovering for breach of a contract that never existed.  The trial court sustained ACM’s motion and dismissed the claim and counterclaim.

Wood Elec., Inc. v. Ohio Facilities Constr. Comm’n, 10th Dist. Franklin No. 16AP-643, 2017-Ohio-2743, 2017 Ohio App. Lexis 1745 (May 9, 2017)

The Ohio Facilities Construction Commission (“OFCC”), together with a school district, an architect, and a construction manager, issued an invitation for bids to build a school. Three prime contractors were chosen: a general contractor, a mechanical contractor, and an electrical contractor, Wood Electric (“Wood”).

The general contractor failed to meet the contractual milestones for either temporary enclosure or full building enclosure, significantly delaying Wood’s work. Wood notified the OFCC of the likely impact on its work soon after the general contractor failed to meet the first milestone, and requested an extension of its own deadlines. The OFCC denied Wood’s request. Wood then requested an extension of time in which to prepare, substantiate, and certify a formal claim, which the OFCC also denied.  Wood hastened to submit a timely claim, projecting an impact of $207,467.57, and reserving its right to supplement the claim when the full impact on its work became known.

When OFCC denied Wood’s claim, Wood sued OFCC in the Court of Claims.  At trial, OFCC acknowledged that Wood had a proper claim, but disputed the $254,027 amount, which included $35,006 for home office overhead.  Wood’s expert testified that he had calculated the home office overhead using the “HOOP” formula adopted by the Ohio Department of Transportation.  The trial court ultimately entered judgment in favor of Wood for the full amount of its claim.

Allied World Specialty Ins. Co. v. Abat Lerew Constr., 2017 U.S. Dist. LEXIS 61794 (D. Neb. Apr. 24, 2017)

 Abat Lerew Construction (“ALC”) entered into multiple construction projects which required it to obtain surety bonds guaranteeing its performance. ALC obtained the bonds from Allied World Specialty Insurance Company (“Allied”) and also entered into an indemnity agreement with Allied.  In that agreement ALC agreed to indemnify and hold Allied harmless from and against all liability and to deposit with Allied collateral in an amount determined by Allied to be sufficient to cover liability for any claims under the bonds.

During ALC’s performance of the bonded contracts, Allied received claims on the bonds in excess of $300,000. Invoking the terms of its indemnity agreement with ALC, Allied demanded that ALC post collateral security in the amount of $400,000 to cover liability for the claims.  ALC refused and Allied commenced an action seeking equitable relief requiring ALC to deposit the demanded collateral security.  Upon commencement of the litigation, Allied asked the court to issue a preliminary injunction requiring ALC to post the $400,000 security and restraining ALC from transferring assets.