Sachse Constr. & Dev. Corp. v. Affirmed Drywall, Corp., 2018 Fla App. Lexis 9998 (July 18, 2018)

Sachse Construction, a Michigan-based general contractor, entered into a subcontract (the “Subcontract”) with Affirmed Drywall Corp. (“Affirmed”), a Florida drywall subcontractor, to perform work on a property in Florida.  The Subcontract provided that all disputes be resolved by mediation and/or arbitration in Southfield, Michigan, or within 20 miles thereof, pursuant to the Construction Industry Rules of the American Arbitration Association and in accordance with Michigan laws.  However, under Section 47.025 of the Florida Statutes, a venue provision in a contract involving a Florida-based contractor or subcontractor, etc., for the improvement of real property located in Florida is considered void as a matter of public policy if it requires that legal action be brought outside of Florida.

Affirmed filed an action in Florida state court alleging claims for breach of contract against Sachse and to recover against a bond naming Sachse and the surety on the bond.  Sachse moved to dismiss or to compel arbitration in Michigan in accordance with the dispute resolution provision in the Subcontract.  Sachse argued that the Subcontract involved interstate commerce, so the Federal Arbitration Act (the “FAA”) governed the Subcontract and preempted inconsistent state law.  Sachse claimed that Section 47.025 did not void the provision in the Subcontract mandating that disputes be resolved by arbitration in Michigan because of the FAA’s liberal policy favoring arbitration agreements.  The trial court disagreed, denied Sachse’s motion and ordered Sachse to answer the complaint.  Sachse appealed.

Fisk Elec. Co. v. DQSI, L.L.C., 2018 U.S. App. LEXIS 17914 (5th Cir., June 29, 2018)

 DQSI, L.L.C., (“DQSI”) a general contractor, was hired by the Army Corps of Engineers (“Corps”) for a pump station construction project.  Western Surety Company (“Western”) issued a Miller Act payment bond on DQSI’s behalf.  DQSI hired Fisk Electric Company (“Fisk”) as subcontractor to perform electrical work on the project.

The project was delayed 464 days due, in part, to adverse weather conditions.  Fisk asserted expenses due to the delay of over $400,000 against DQSI and submitted a Request for Equitable Adjustment (“REA”) to DQSI for the 464 days of delay.

Fisk sued DQSI and Western pursuant to the Miller Act.  The parties then entered into a settlement agreement wherein Fisk would release DQSI for payment of approximately $55,000 and for DQSI’s agreement that it would submit the REA to the Corps and pursue it. 

Peoples Gas Sys. v. Posen Constr., Inc., 2018 U.S. Dist. LEXIS 106427 (M.D. Fla. June 26, 2018)

In 2009 Posen Construction, Inc. (“Posen”), a road construction contractor, entered into a general contractor agreement with the Lee County Board of County Commissioners for a lane expansion and drainage system project in east Fort Myers, Florida (the “Project”).  Peoples Gas System (“PGS”), an owner of natural gas distribution facilities throughout Florida, maintained gas pipelines underneath the Project site, which required caution when Posen worked around it.  To that end, PGS marked the pipeline with flags, paint, and installed testing stations.

However, during the course of the Project, Posen learned that at certain locations construction would be impossible unless PGS removed portions of the pipeline.  Therefore, in October 2010, Posen submitted a request to Sunshine One, a notification system whereby excavators obtain the location of underground utilities before excavation.  In November 2010, a Posen employee, Mark Santos (“Santos”) was directed to excavate at a location that PGS maintained was not properly marked for the location of the gas pipeline.  Santos struck and ruptured the pipeline and was severely injured as a result.

Ambac Assur. Corp v. Knox Hills LLC, 2018 Ky. App. Lexis 188 (June 15, 2018)

This case involves a February 1, 2007 design/build agreement governing the rights of the several parties involved with a military housing construction and renovation project at Fort Knox, Kentucky.  Knox Hills, LLC (the owner) filed a breach of contract action against Ambac Assurance Corporation (the senior lender of the project) relating to what it characterized as Ambac’s wrongful withholding of consent to a change order that would have substantially reduced the scope of the project.  Knox Hills then sought an order staying the proceedings and compelling Ambac to arbitrate.  The circuit court granted the motion and, following an arbitration, entered an order confirming the arbitrator’s award in favor of Knox Hills.  Ambac then appealed the court’s order.

On appeal, the Kentucky Court of Appeals focused on two questions:  (1) whether the court or the arbitrator should have determined whether arbitration was required between Knox Hills and Ambac, and (2) whether arbitration was actually required.

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.

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.

United Riggers & Erectors, Inc. v. Coast Iron & Steel Co., 2018 Cal. Lexis 3510 (May 14, 2018)

This post was published in the August 16, 2018 issue of eNews published by National Association of Credit Management (NACM).

In 2010, Universal City (“Universal”) hired Coast Iron & Steel Co. (“Coast Iron”) to build a new ride at the Universal Studios Hollywood.  Coast Iron subcontracted the installation of the metalwork to United Riggers & Erectors, Inc. (“United Riggers”).  The initial subcontract between Coast Iron and United Riggers was for $722,742 but was increased by change orders to approximately $1.5 million.  United Riggers completed its work to Coast Iron’s satisfaction.  In August 2012, Universal made its final retention payment to Coast Iron.  However, Coast Iron refused to pay any retention to United Riggers due to disputes over change order requests from United Riggers to increase the subcontract price by approximately $350,000.  United Riggers then filed suit to collect these sums, including prompt payment penalties under California Civil Code Section 8814 for failure to timely pay retention.  Coast Iron ultimately paid all of the $149,602.52 in retention owed to United Riggers during the litigation.  After a bench trial, the trial court entered judgment in favor of Coast Iron.  The Court of Appeal reversed the trial court’s ruling on the statutory claim for failure to make timely retention payments.  The California Supreme Court affirmed.

Great N. Ins. Co. v. Honeywell Int’l, Inc., No. A16-0997, 2018 Minn. LEXIS 236 (May 9, 2018)

This case arises out of a residential construction project and the installation of ventilators into a home’s HVAC system.  Sixteen years after completion of the work, a fire occurred in one of the ventilators, causing property damage.  After paying the homeowners’ insurance claim, Great Northern Insurance (“Great Northern”), as subrogee, filed suit against McMillan Electric Company (“McMillan”), the manufacturer of the motors in the ventilators, asserting claims for product liability, breach of warranty, and negligence, including a claim for breach of a post-sale duty to warn consumers of the risk of fires in ventilator motors.

The trial court granted McMillan summary judgment concluding that Minnesota’s 10-year statute of repose barred all of Great Northern’s claims except for the post-sale duty to warn claim, which also failed because McMillan owed no such duty. The Court of Appeals reversed both holdings.  On appeal, the Supreme Court affirmed the Court of Appeals’ decision that McMillan’s motor was “machinery,” to which the statute of repose does not apply.

A.L. Prime Energy Consultant, Inc. v. Mass. Bay Transport Auth., 479 Mass. 419 (May 2, 2018)

In a case of first impression, the Massachusetts Supreme Court held that general contract principles, and not federal case law, govern the treatment of termination for convenience clauses in state procurement contracts.

In January 2015, the Massachusetts Bay Transportation Authority (“MBTA”) issued an invitation for bids for the supply of ultra-low sulfur diesel fuel for a two year term.  Following bidding, the MBTA awarded the contract to A.L. Prime Energy Consultant, Inc. (“Prime”) in July 2015.  The contract included a termination for convenience clause that provided:

The [MBTA] may, in its sole discretion, terminate all or any portion of this Agreement . . . at any time for its convenience and/or for any reason by giving written notice to the Contractor thirty (30) calendar days prior to the effective date of termination. . . . (emphasis added).

Approximately a year later, the MBTA determined that it could acquire its fuel supply from a different supplier at a lower price.  Accordingly, the MBTA notified Prime of its intent to terminate the contract for convenience.

Rai Indus. Fabricators, LLC v. Fed. Ins. Co., 2018 U.S. Dist. LEXIS 74612 (N.D. Cal., May 2, 2018)

Sauer Incorporated (“Sauer”) contracted with the U.S. Army to design and construct the Operational Readiness Training Complex at Fort Hunter, California.  Sauer subcontracted with Agate Steel, Inc. (“Agate”) for the erection of steel for the project.  Agate’s subcontract with Sauer contained a no-damage-for-delay clause, which generally provided that extensions of time were Agate’s sole remedy for delay.
According to Agate, the project suffered from substantial delays because of the acts and omissions of Sauer.  In particular, Agate alleged that Sauer failed to properly coordinate the work of its subcontractors, failed to follow the project’s schedules, failed to follow the subcontract’s change order procedures, and made unanticipated changes to the project’s scope and work flow sequence. Agate argued that these delays constituted a cardinal change and/or abandonment of the subcontract, which rendered the no-damage-for-delay clause unenforceable.  Agate sued Sauer for damages from the delays and disruptions to its work.