Fid. & Deposit Co. of Md. v. T

ravelers Cas. & Sur. Co. of Am., 2018 U.S. Dist. LEXIS 162265 (D. Nev., September 21, 2018)
Clark County School District (“CCSD”) hired Big Town Mechanical (“Big Town”) as general contractor to perform HVAC upgrades at five schools.  Big Town in turn hired F.A.S.T. Systems (“FAST”) to complete low-voltage work at the schools.  Big Town obtained performance bonds from Travelers Casualty and Surety Company of America (“Travelers”) and FAST obtained performance bonds from Fidelity & Deposit Company of Maryland (“F&D”).

Following FAST’s default on its subcontracts, F&D opted to complete FAST’s work and hired a substitute subcontractor, Perini.  In May 2012, Perini notified Big Town that it had “substantially completed” all of FAST’s work.  After Big Town refused payment, F&D filed suit against Big Town and Travelers in early 2013.  In May of 2013, CCSD rejected Big Town’s final payment application, stating that the project was incomplete and claiming there were significant defects in the work.  CCSD then sued Travelers seeking specific performance and liquidated damages for delay.  Travelers eventually settled CCSD’s suit but through its counterclaim sought reimbursement from F&D for its settlement plus costs expended to complete the project.

Gindel v. Centex Homes, 2018 Fla. App. LEXIS 13019 (Fla. 4th DCA Sept. 12, 2018)

 A group of townhome owners (the “Homeowners”) sued the contractor and a subcontractor (collectively, “Contractor”) who built their townhomes, alleging that Contractor performed defective work.  Contractor had completed construction and conveyed the townhomes to the Homeowners on March 31, 2004.  The Homeowners did not discover the alleged defect until years later.  On February 6, 2014, nearly ten years after Contractor completed the work, the Homeowners notified Contractor of the claimed construction defect.  The Homeowners provided that notice in accordance with Florida’s construction defect statute (Fla. Stat. §§ 558.003; 558.004) that requires pre-suit notice of construction defect claims.  The Homeowners completed the statutory pre-suit procedure and filed their lawsuit on May 2, 2014, more than ten years after taking possession of the townhomes.

Contractor argued that Florida’s ten-year statute of repose barred the lawsuit.  While acknowledging that they filed their lawsuit beyond the ten-year period, the Homeowners stressed that the claims were timely because the action truly had commenced within the ten year period when they submitted the pre-suit notice of claim.  The trial court agreed with Contractor and entered summary judgment in its favor.  The Homeowners appealed.

Outokumpu Stainless USA, LLC v. Converteam SAS, 2018 U.S. App. LEXIS 24671 (11th Cir. Aug. 30, 2018)

On August 30, 2018, the Eleventh Circuit Court of Appeals reversed a lower court decision to compel arbitration between an Alabama steel plant owner and a French division of General Electric Co.  The case is noteworthy because the Court settled two questions of law within the Eleventh Circuit about the interpretation of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention”) and the Federal Arbitration Act (“FAA”). The first question concerned the interpretation the FAA’s grant of removal jurisdiction to the federal courts.  The second concerned whether an entity could compel arbitration under the Convention despite the lack of a signed arbitration agreement.

Outokumpu Stainless, LLC (“OS”) operates a steel plant in Calver, Alabama that contains three cold rolling mills.  In 2007, OS entered into three separate agreements with an entity known as Fives for the purchase of the mills.  The Agreements each contained an arbitration clause which required all disputes be resolved via arbitration in Germany under the Rules of Arbitration of the ICC.  The Agreements also provided that Fives, and all of its subcontractors, would be treated as one and the same under the contracts.

Fives subcontracted with GE Energy (“GE”) to produce motors for the mills.  The motors were installed between 2011 and 2012.  By June 2014 they began to fail.

Bridgwood v A.J. Wood Constr., Inc., 2018 Mass. Lexis 561 (Sup. Ct., Aug. 29, 2018)

On October 30, 2000, the city of Newburyport, through its housing rehabilitation program, awarded A.J. Wood a contract for the rehabilitation of Ms. Terry Bridgwood’s home in Newburyport.  Under the city’s contractor agreement for the housing program, Wood was required to comply with certain standards, including that all rehabilitation, alterations, repairs, or extensions be in compliance with all applicable Federal, State, and local codes.  The agreement also required that all contractors and subcontractors must obtain and maintain all necessary permits, and must certify that the work complied with all Federal, State, and local regulations of the Massachusetts home improvement law, among other things.  The work on the Bridgwood home was completed by Wood in 2001.

In 2012, Bridgwood’s home suffered a substantial fire.  She filed suit in the state superior court in 2016, under the Consumer Protection Statute, claiming that Wood and its electrical subcontractor failed to obtain a permit to replace or repair certain ceiling light fixtures on the premises.  Additionally, she alleged that none of the defendants gave proper notice to local inspectors, nor did they perform their work in compliance with the applicable Federal, State, or local codes, as required by the contractor agreement.
Wood moved to dismiss Bridgwood’s lawsuit as untimely under the statute of repose.  The Superior Court agreed and dismissed the suit.  Bridgwood appealed and the appeal was transferred to the Supreme Court.  A divided Supreme Court affirmed in a 4-3 decision.

Charlotte Student Hous. DST v. Choate Constr. Co., 2018 NCBC LEXIS 88 (N.C. Super. Ct. Aug. 24, 2018).

This case arose from the construction of a student apartment complex known as Arcadia.  The plaintiffs, Arcadia’s current owner and landlord, asserted breach of warranty, negligence, and fraud claims against Arcadia’s original owner, the architect, the general contractor, and two subcontractors, alleging that defects in Arcadia’s design and construction caused millions of dollars in repairs and lost rent.

The general contractor, Choate Construction Company, and its geotechnical engineering subcontractor, Geoscience Group, moved to dismiss all claims asserted against them on the ground that they were subject to arbitration.  Choate and Geoscience pointed to arbitration clauses in their contracts with the original owner, both of which required all claims “arising out of or related to” those contracts to be arbitrated before the AAA in accordance with its Construction Industry Arbitration Rules.

The plaintiffs argued that the arbitration clauses were not binding on them because the contracts that contained them were not assigned to plaintiffs when they purchased Arcadia. They also argued that their tort claims were not subject to the arbitration clauses.

AWI Sec. & Investigations, Inc. v. Whitestone Constr. Corp., 2018 N.Y. App. Div. LEXIS 5867 (August 23, 2018)

A subcontractor, AWI Security and Investigations, Inc. (“AWI”), sued a general contractor, Whitestone Construction Corp. (“Whitestone”), for unpaid contract payments for providing security services on four separate construction projects.  A separate prevailing wage action (“Wage Action”) was also filed by AWI employees who worked on the projects, against both AWI and Whitestone.  Whitestone notified AWI that it was invoking the subcontract indemnity provision to withhold funds from AWI pending the outcome of the Wage Action.

Whitestone moved to dismiss AWI’s suit for payment based on a contractual limitations period requiring the suit to be brought within 6 months of: the cause of action accruing; the termination or conclusion of the contract; or the last day AWI performed work at the site, which Whitestone alleged had all occurred.  The court granted Whitestone’s motion to dismiss, finding that AWI had completed its work more than six months prior to filing its lawsuit and that AWI’s suit was barred by the contractual limitations period.  AWI appealed.

Randy Kinder Excavating, Inc. v. JA Manning Constr. Co. 2018 U.S. App. LEXIS 21878 (8th Cir. Aug. 7, 2018)

This article was published in the February 2019 issue of ConsensusDocs Construction Law Newsletter (Vol. 5, Issue 1).

This dispute arose from a contract to build a pumping station in Arkansas (the “Project”).  In June of 2010, the U.S. Army Corps of Engineers (“COE”) awarded a contract to Randy Kinder Excavating, Inc. (“Kinder”) to serve as the general contractor on the Project.  Kinder entered into a subcontract with J.A. Manning Construction Co. (“Manning”) to engineer, furnish and install a mechanically stabilized earth (“MSE”) wall at the Project.

The Project experienced significant delays which affected the Manning’s initial start date.  By the time Manning could begin constructing the MSE wall, only six days remained until the original completion date of the entire Project.  Unknown to Manning, however, Kinder was telling the COE that weather and other issues were delaying the Project and Kinder represented to the COE that its projected completion date for MSE wall was in the summer of 2012.  At the same time, Kinder was telling Manning that the MSE wall needed to be completed by November of 2011 and repeatedly threatened to assess delay damages against Manning if this did not occur.  In addition, during the construction of the MSE wall, Kinder and/or the COE demanded that Manning install the wall panels 0.75 inches apart with absolutely no variance, despite industry standard allowing a 0.25 inch variance.  On March 7, 2012, Kinder terminated Manning, at which point Manning had constructed 27.5 feet of the 40-foot MSE wall.  The MSE wall was later completed by a replacement contractor, although the wall as-accepted by the COE contained a number of defects that Kinder and the COE told Manning were unacceptable. 

Satterfield & Pontikes Constr., Inc. v. United States Fire Ins. Co., 2018 U.S. App. LEXIS 21488 (5th Cir. Aug. 2, 2018)

This case arises out of an excess insurance provider’s refusal to cover damages incurred by the insured general contractor after it was terminated from a construction project.  Satterfield & Pontikes Construction, Inc. (“S&P”) served as general contractor for the Zapata County courthouse project and purchased two layers of insurance to cover potential liabilities: commercial general liability insurance and excess insurance.  Excess insurance, provided by United States Fire Insurance Company (“Excess Carrier”), would apply when the first layer was exhausted.  S&P also required its subcontractors to purchase insurance and execute indemnity agreements to cover damages they caused to the project.
During the project, Zapata County terminated S&P and filed suit to recover the damages it incurred to complete and correct S&P’s work.  At arbitration, Zapata County was awarded over $8 million in damages, fees, and costs.  S&P covered over $4 million of the award through settlement agreements it executed with its subcontractors—which did not specifically allocate the proceeds to the damages or liabilities they covered—and nearly $3 million from its commercial general liability insurance providers.  S&P sought to obtain coverage for the balance of the award from its Excess Carrier, but the Excess Carrier refused to pay any amount, arguing that the first layer of insurance had not been completely exhausted.  S&P filed suit for breach of the policy, arguing that its Excess Carrier was obligated to make up the shortfall of the arbitration award.  The Excess Carrier argued that not all of the damages awarded at arbitration were covered under its policy (such as mold, attorney’s fees, and prejudgment interest) and that those that may have been covered were likely satisfied by the subcontractor settlements.

Eugene Water & Elec. Bd. v. MWH Americas, Inc., 2018 Ore. App. LEXIS 879 (July 25, 2018)

On July 25, 2018, an Oregon appellate court concluded that a pair of subcontractors could not compel an owner to arbitrate its claims against them by virtue of a “flow-down” provision in a prime construction contract which also contained an arbitration clause.  The case is a reminder that principles of contract interpretation govern the enforcement of arbitration agreements and that courts will not compel arbitration where both parties have not expressly consented to arbitrate their disputes.

As part of an improvement project for the Leaburg Dam near Eugene, Oregon, the Eugene Water and Electric Board (“EWEB”) entered into a prime contract with Advanced American Construction (“AAC”) as the general contractor for the project.  AAC subsequently entered into subcontracts with MacTaggart, Scott & Company Limited (“MacTaggart”) and Olsson Industrial Electric, Inc. (“Olsson”).  When the improvements to the Leaburg Dam failed, EWEB filed a complaint in Oregon state court against AAC and, shortly thereafter, asserted claims against the two subcontractors in an amended complaint.

During the proceedings, AAC sought to compel arbitration of EWEB’s claims against AAC because the prime contract contained an arbitration clause.  As litigation proceeded, both MacTaggart and Olsson also sought to compel arbitration of EWEB’s claims against them.  Problematically, however, because MacTaggart and Olson, as subcontractors, were only in direct privity with AAC, and not EWEB, no express agreement to arbitrate existed between EWEB and the two subcontractors. 

Connelly Constr. Corp. v. Travelers Cas. & Surety Co. of Am., 2018 U.S. Dist. LEXIS 123009 (E.D. Pa. July 24, 2018).

This post was published in the October 4, 2018 issue of eNews published by National Association of Credit Management (NACM).

The Commonwealth of Pennsylvania Department of General Services undertook a project for the construction of a new maximum security prison facility in Montgomery County, Pennsylvania.  Walsh Heery Joint Venture (“WHJV”) was the prime contractor and it retained Connelly Construction Corporation as its masonry subcontractor.

The prime contract permitted the Commonwealth to withhold retainage from WHJV until completion of the project.  Similarly, the subcontract permitted WHJV to withhold retainage from Connelly in proportion to the retainage held by the Commonwealth.  The subcontract also included a pay-if-paid clause under which Connelly agreed that it was not entitled to payment unless, as an express condition precedent, WHJV was paid by the Commonwealth.

Completion of the project was delayed for more than two years.  As a result, the Commonwealth continued to withhold retainage from WHJV, and WHJV thus withheld more than $200,000 in retainage from Connelly, long after Connelly completed its scope of work.