In re Kellogg Brown & Root, Inc., 2014 U.S. App. LEXIS 12115 (D.C. Cir. June 27, 2014)

The United States Court of Appeals for the District of Columbia Circuit held that the attorney-client privilege applies to internal investigations performed at the direction of in-house counsel if “one of the significant purposes” of the investigation was to obtain or provide legal advice.

Kellogg Brown & Root, Inc. (“KBR”) was a defense contractor for the United States government. Harry Barko, a former employee of KBR, filed a False Claims Act complaint against KBR, alleging fraud against the government. During the ensuing litigation, Barko requested documents related to KBR’s prior internal investigation into the alleged fraud. The investigation had been conducted by KBR pursuant to Department of Defense regulations that require defense contractors to maintain compliance programs and conduct internal investigations, and was overseen by the company’s in-house legal department. KBR objected to the document request, arguing that the investigation was protected by the attorney-client privilege. In turn, Barko argued that the documents were discoverable business records not covered by the privilege.

VSI Sales, LLC v. Griffin Sign, Inc., 2014 U.S. Dist. LEXIS 57620 (D. Del. Apr. 25, 2014)

The Delaware Department of Transportation awarded a contract for a highway construction project. Defendant Griffin Sign, Inc. (“Griffin”) was hired as the subcontractor responsible for installation of road signage on the project. Griffin then subcontracted with Plaintiff VSI Sales, LLC (“VSI”) for the supply of overhead highway sign structures, accompanying hardware, and installation materials.

A dispute arose regarding VSI’s right to payment for work performed on the project. Griffin disputed that it owed VSI payment and contended that VSI’s performance was untimely and deficient. In its seven count complaint against Griffin and its payment bond surety, VSI asserted a claim for violation of the Delaware Construction Prompt Payment Act, Del. C. §§ 3501-3509. The defendants sought to dismiss the Payment Act claim on the basis that the work performed by Griffin and VSI—the supply and installation of highway signs—was outside the scope of the Act.

Boone Coleman Construction, Inc. v. Village of Piketon, 2014-Ohio-2377, 2014 Ohio App. LEXIS 2317 (Ohio Ct. App. May 22, 2014)

The Court of Appeals of Ohio held that a liquidated damages provision in a public construction contract constituted an unenforceable penalty because the amount of liquidated damages sought – nearly one-third of the total contract price – was “so manifestly unreasonable and disproportionate” to the contract price that it was unenforceable.

The defendant in that case was the Village of Piketon, Ohio, which solicited bids for a public construction project for roadway improvements. Plaintiff, Boone Coleman Construction, Inc., was the low bidder on the project. The parties entered into a contract under which Boone Coleman agreed to construct the project for $683,300. The contract further provided that if Boone Coleman had not substantially completed its work within 120 days, it would pay the Village $700 per day in liquidated damages until the project was substantially completed. Ultimately, Boone Coleman did not complete its work until 397 days after the agreed project completion date. Upon completion, the Village paid Boone Coleman $535,823 for its work.

BG Group PLC v. Republic of Argentina, 134 S. Ct. 1198 (Mar. 5, 2014) 

This action arose from an investment by British company BG Group PLC (“BG”) in Argentina and under the protection of a treaty between the United Kingdom and Argentina.  The treaty included a provision that required an aggrieved investor to submit their dispute to a local court in the country where the investment was made for a period of eighteen months prior to pursuing arbitration.   BG invoked the treaty for Argentina’s alleged breach of a natural gas distribution contract.  However, prior to exhausting the treaty’s local litigation requirement, BG proceeded to arbitration in Washington D.C.

Argentina argued that the arbitral panel lacked jurisdiction because BG had not complied with the local litigation requirement. The arbitral panel concluded that it had jurisdiction, finding, among other things, that Argentina’s conduct (such as enacting new laws that hindered recourse to its judiciary by investors in BG’s situation) had excused BG’s failure to comply with the local litigation requirement.  The matter proceeded through arbitration where BG was awarded $185 million in damages.

Argentina turned to American courts to overturn the award, again advancing the argument that the arbitral panel lacked jurisdiction.  The district court initially confirmed the award, but on appeal to the Circuit Court it was vacated.  The Circuit Court held that the gateway issue of arbitrability at hand—whether BG was required to commence litigation before the local courts and wait eighteen months before it could commence arbitration—was for a court, and not the arbitral panel, to decide.

Bd. of Comm’rs v. Teton Corp., 3 N.E.3d 556, 2014 Ind. App. LEXIS 43 (Ind. Ct. App. 2014)

This action arose out of a repair and renovation project to the Jefferson County Courthouse in Madison, Indiana (the “Project”). The Jefferson County Board of Commissioners (the “Owner”) contracted with Teton Corporation (the “Contractor”) for the work. The parties’ agreement incorporated a form construction contract prepared by the American Institute of Architects (the “AIA Contract”). The AIA Contract required the Owner to provide builder’s risk insurance for the Project, or to notify the Contractor so that the Contractor could procure the insurance and pass the cost on to the Owner through a change order. The AIA Contract also provided for a mutual waiver of the right to subrogation between and among the Owner, Contractor, and all subcontractors. The Owner did not obtain separate property (or builder’s risk) insurance for the Project, instead relying on its existing property and casualty insurance policy. And, the Owner also did not inform the Contractor that it was not securing separate insurance for the Project.

During the renovations, a fire broke out, causing over $6 million in damage to the property, including damage beyond the scope of the Contractor’s “Work” as defined in the AIA Contract. After the Owner’s insurance company paid under the terms of its policy, the Owner sued the Contractor and its subcontractors for the damages. The Contractor moved for summary judgment. The Contractor argued that the Owner agreed to provide insurance for the Project, and the Owner waived its subrogation rights against the Contractor; therefore, the Owner was not entitled to recover damages from the Contractor that were caused by the fire. The trial court agreed with the Contractor and granted summary judgment. The Owner appealed.

Metcalf Constr. Co. v. United States
742 F.3d 984 (Fed. Cir. 2014)

This action arose out of the design and construction of military housing units at a U.S. Navy facility in Hawaii.  Pre-bid documents for the project supplied by the government provided test information regarding soil conditions on the site.  The government also included a disclaimer that this information was “for preliminary information only” and the resulting contract required that the contractor conduct its own independent soil investigation.

Metcalf Construction Company (the “Contractor”) was awarded the contract.  When the Contractor conducted its independent soil investigation it discovered that the soil was not as represented.  The Contractor notified the government and discussions ensued.  In those discussions, the Contractor recommended a different design and construction approach to account for the newly uncovered conditions, while the government generally insisted on following construction requirements set out in the original contract.  After a year’s delay, the Contractor decided that the cost of waiting for the government to approve the design changes had become too high, and it began to implement those changes without a contract modification.  As a result, the Contractor spent approximately $26 million over the original contract amount to remedy the soil conditions and finish the project.

Window Specialists, Inc. v. Forney Enterprises, Inc.,
2014 U.S. Dist. LEXIS 2014 U.S. Dist. LEXIS 34702 (D.D.C. March 18, 2014)

This dispute arises out of a construction contract to repair property at Fort McNair in Washington, D.C.  The Army contracted with a general contractor, IIU Consulting Institute, who in turn contracted with defendant subcontractor, Forney Enterprises.  Forney entered into a sub-subcontract with plaintiff Window Specialists, Inc. for the labor and materials to supply and install over 680 windows and over 60 doors on the project.  During the course of the project, the Army issued a 10-day cure notice identifying numerous issues with the general contractor’s demolition of existing windows and Window Specialists’ installation of new windows.  Ultimately, Forney terminated the contract with Window Specialists and the general contractor had to demolish, re-order, and re-install all of Window Specialists’ work on the project.
Window Specialists filed suit against Forney, the general contractor, the general contractor’s payment bond surety, and the Secretary of the Army, bringing claims for breach of contract, unjust enrichment, a payment bond claim, and for injunctive relief.  Forney filed two counterclaims against Window Specialists, one for breach of contract and one seeking indemnification related to the costs the general contractor incurred replacing Window Specialists’ work.

Oakland-Macomb Interceptor Drain Drainage Dist. v. Ric-Man Constr., Inc.,
2014 Mich. App. LEXIS 204 (Mich. Ct. App. Jan. 30, 2014)

The Michigan Court of Appeals, applying the Federal Arbitration Act, 9 U.S.C. § 1, et seq., ruled that while a court generally will not entertain a suit to address pre-award objections to the impartiality or expertise of an arbitrator, pre-award relief is available where a third-party arbitration administrator appoints an arbitrator who fails to meet specific qualifications spelled out in the parties’ arbitration agreement.

The case involved a multi-million dollar dispute between a public sector drainage district and a construction company (the “parties”) arising out of a construction contract. The parties, by amendment to the construction contract added a detailed arbitration agreement. The new arbitration agreement submitted the parties’ dispute to the American Arbitration Association (AAA). The provision outlined arbitrator selection criteria to be followed by the AAA in the event that it had to appoint one of the three arbitrators contemplated by the arbitration agreement. Among other things, the agreement required that the attorney member of the panel be a member of the AAA’s Large Complex Construction Dispute panel with at least 20 years of experience in construction law with an emphasis in heavy construction.

Liberty Mut. Fire Ins. Co. v. Kay & Kay Contr.
2013 U.S. App. LEXIS 23587 (6th Cir. Nov. 19, 2013)

This action arose out of a commercial general liability (“CGL”) policy issued by Liberty Mutual Fire Insurance Co. (“Liberty Mutual”) to MW Builders, Inc. (“MW Builders”) and Kay and Kay Contracting, LLC (“Kay & Kay”) for the construction of a Wal-Mart store in Morehead, Kentucky. Wal-Mart Stores, Inc. (“Wal-Mart”) contracted with MW Builders as general contractor for the construction of the building. MW Builders then entered into a subcontract with Kay & Kay to perform site preparation work and construct the building pad beneath the structure. Liberty Mutual issued the CGL policy to Kay & Kay, with MW Builders as an additional insured (the “Policy”). The Policy was the standard ISO (Insurance Services Office, Inc.) policy containing the standard coverage language. Specifically, the Policy provided: “This insurance applies to ‘bodily injury’ and ‘property damage’ only if… [t]he ‘bodily injury’ or ‘property damage’ is caused by an ‘occurrence’ that takes place in the ‘coverage territory’…” The Policy defined “occurrence” to mean “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The term “accident” was not defined in the Policy.

Gulf Group Gen. Enters. Co. W.L.L. v. United States
2013 U.S. Claims LEXIS 899 (Fed. Cl. July 2, 2013)

This action arose from a contractor’s claim that the U.S. Army (the “Army” or the “Government”) abused its discretion in terminating contracts for its convenience. In September 2004, Gulf Group General Enterprises Co. W.L.L. (“Gulf Group”) entered into four contracts worth approximately $15.8 million with the Army to provide cleanup and sanitation services in Kuwait. Three of the contracts—the camp package master blanket purchase agreement for provisions (the “BPA contract”), the latrine contract, and the dumpster contract—were terminated by the Army for its convenience within a month after they were awarded. The fourth contract, for bottled water distribution (the “bottled water contract”), was not terminated and instead extended into 2005.