Construction disputes frequently require companies to engage third-party consultants to analyze and opine on such issues as delays, defects in workmanship or materials, and deficiencies in payment— even before they anticipate litigation. Construction companies should keep in mind that materials they provide consultants, and materials that consultants generate, can in certain circumstances be discoverable in
Published in The Construction Lawyer, Volume 39, Number 1 Winter 2019. © 2019 American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent…
Aquatherm, LLC v. CentiMark Corp, 2019 BL 13240 (D. Utah Apr. 12, 2019)
Stag II Lindon LLC and Stag Industrial Inc. (collectively “Stag”) owned a building in Lindon, Utah. Stag contracted with CentiMark Corp. (“CentiMark”) to perform work on the building’s roof. CentiMark’s work required it to manipulate, move, and reinstall existing heating cables on the roof. Shortly after completion of the work, in March of 2014, a fire occurred on the roof which was traced to the location of heat tape, which CentiMark had removed and replaced.
Continue Reading District Court in Utah Grants Summary Judgment for Contractor Against Insurance Subrogation Claim Based on Contractual Waiver Provision and Statute of Limitations
G4S Tech. LLC v. Mass. Tech. Park Corp., 2018 Mass. Lexis 357 (June 13, 2018)
A state development agency (the “Agency”), received state and federal funding to build a 1,200-mile fiber optic network. It contracted with G4S Technology LLC (“G4S”) for the project under a $45.5 million design-build agreement. As a result of project delays – the cause of which the parties disputed – G4S achieved final completion of the work more than one year after the contractual deadline. Shortly after completion, the Agency issued a notice of withholding, claiming a right to withhold $4 million from G4S to compensate the Agency for delays and expenses incurred as a result of G4S’s alleged failures to perform.
G4S sued the Agency in Massachusetts Superior Court, asserting claims for breach of contract and quantum meruit. It sought release of the contract balance plus an equitable adjustment of the contract price and deadlines. In discovery, the Agency learned that G4S had repeatedly submitted inaccurate progress payment applications during the project, which falsely represented that G4S had timely paid its subcontractors. The Agency cited this evidence in support of a motion for summary judgment, arguing that G4S’s conduct barred its right to recover money owed to it under the contract and under a theory of quantum meruit. The Superior Court granted the motion, and G4S appealed.…
Continue Reading A Contractor That Intentionally and Materially Breaches Its Contract Is Not Precluded From Recovery Under Quantum Meruit; Massachusetts Supreme Court Overrules Century-Old Precedent Strictly Barring Such Relief
Manley Architecture Grp., LLC, v. Santanello, 2018 Ohio App. LEXIS 2372 (June 7, 2018)
Dr. Steven A. Santanello (“Santanello”) contracted with Manley Architecture Group, LLC (“MAG”) to design and manage the construction of a large home, riding barn, pond, tennis court and outdoor pool. Santanello acted as his own general contractor.
During construction, problems arose with the barn roof, and Santanello stopped paying MAG’s and his subcontractors’ invoices. MAG advanced $55,557.68 to Santanello’s subcontractors to induce them to complete the project. MAG later filed a breach of contract action against Santanello seeking to recover these advances.
Santanello filed a counterclaim for breach of contract, alleging that MAG breached its obligation to properly manage the construction of the barn, ultimately necessitating the replacement of the roof. After a bench trial, the trial court found that both parties had breached the contract. The parties cross-appealed.
Continue Reading Ohio Court of Appeals Rules That Architect’s Authority Does Not Extend to Advancing Payments to Subcontractors, and Architect’s Liability Does Not Extend to Guaranteeing Subcontractors’ Work
United States Home Corp. v. Ballesteros Trust, 2018 Nev. LEXIS 28 (Nev. Apr. 12, 2018)
United States Home Corporation (“U.S.H.”) built homes in a Nevada common-interest community, subject to a Covenant, Conditions, and Restrictions agreement (“CC&R”), which provided that any dispute would be resolved by arbitration.
Between August 2013 and February 2015, twelve home purchasers filed pre-litigation notices against U.S.H. for alleged construction defects. Three of the purchasers had direct purchase and sales agreements with U.S.H. that contained arbitration clauses; the remaining homeowners did not sign such agreements, but took title subject to the CC&R. U.S.H. demanded arbitration, but the homeowners brought claims in a Nevada district court seeking damages for breach of contract and other claims. U.S.H. moved to compel arbitration. The court held that the transaction did not involve interstate commerce, so the Federal Arbitration Act (“FAA”) did not apply, and invalidated the arbitration agreements as unconscionable.
WTE-S&S AG Enters., LLC v. GHD, Inc., 2017 Bankr. LEXIS 2343 (Bankr. N. D. Ill. August 18, 2017)
This breach of contract dispute arises out of a contract to design and build a cow-manure digester on a farm in Wisconsin. The digester vessel designed and constructed by Defendant, DVO, Inc. (formerly known as GHD, Inc.), consisted of a 300-foot long tank with two side-by-side chambers which were each 35 feet wide. A thick concrete cover sat atop the vessel to prevent “free oxygen” from entering the digester. A center wall ran the length of the vessel, separating the two chambers and also serving as the interior load-bearing wall.
The Debtor/owner commenced this action against DVO, contending, among other things, that the interior center wall footing of the vessel was defectively designed in that it was undersized and not compliant with the applicable code for waste-storage facilities. Debtor’s expert testified that the undersized and overstressed wall footings could lead to settlement of the vessel and cracks in the foundation, which would compromise its structural integrity. Debtor’s expert further testified that to properly support the vessel weight, the currently constructed three-foot wall footing needed to be three-and-a-half to four foot wide.
The court agreed that DVO’s design was defective and constituted a breach of the contract because it failed to comply with the applicable code. However, applying the “economic waste” doctrine, the court denied Debtor’s request for damages of $988,475 to replace the entire vessel or, in the alternative, $655,000 to shut down and clean out the vessel to check for cracks or settlement issues.
Continue Reading Bankruptcy Court Holds That “Economic Waste” Doctrine, as Adopted in Wisconsin, Prevented Owner From Recovering Costs to Repair Defectively Designed Digester and Awards No Damages, Even Though the Digester Was Not Designed to the Applicable Code
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.
Aspic Eng’g & Constr. Co. v. ECC Centcom Constructors, LLC, No. 17-cv-00224-YGR, 2017 U.S. Dist. LEXIS 111767, at *10-12 (N.D. Cal. July 18, 2017)
This matter came before the Court on a motion to vacate a final arbitration award (the “Arbitration Award”) entered in favor of Aspic Engineering and Construction Company “Aspic”) and against ECC International, LLC and ECC CENTCOM Constructors, LLC (collectively, “ECC”). ECC entered into two prime contracts with the U.S. Army Corp of Engineers (“USACE”) in connection with two reconstruction projects for police training facilities in Afghanistan (the “Projects”). These prime contracts incorporated, among other things, Federal Acquisition Regulations (“FAR”) Sections 49.206 and 52.249-2, which allowed USACE to terminate the Projects for convenience. ECC subcontracted portions of the work on the Projects to Aspic. The subcontracts between ECC and Aspic likewise incorporated several FAR sections. Although Aspic is an Afghan engineering and contracting firm, it had experience in contracting with the U.S. government and a familiarity with the U.S. Government contract requirements, including FAR clauses. After ECC and Aspic had partially performed work on the Projects, USACE issued a notice of termination for convenience, which ended the Projects in their entirety.
Aspic filed a demand for arbitration, seeking to recover its lost profits on the Projects.
Continue Reading Arbitration Award Ruling That, Because of Cultural Differences, a Local Afghan Subcontractor Is Not Bound by the F.A.R. Provisions Incorporated Into the Subcontracts Is Vacated as Contrary to the Subcontract Terms
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.
Continue Reading When Surety Bond Incorporates the Subcontract by Reference, Is the Subcontract’s Arbitration Clause Also Incorporated? Federal Court in South Carolina Says Yes; Federal Court in Kansas Says No — In Two Matters Involving the Same Parties