Cases of the Month
Significant Cases and Decisions Impacting the Construction Industry
By: Ira Genberg and David L. Hobson
1. Definition of a Public Improvement, City of Cincinnati v. Scheer & Scheer Dev., 2006 WL 663898 (Ohio Ct. App. Mar. 17, 2006).
* What the Court Considered: Pursuant to a housing redevelopment agreement, a city transferred property to a developer for one dollar, taking a mortgage in return. Also, the city provided 100% of the financing for the project’s first phase, approved all subcontractors and plans, provided the construction standards and requirements, and inspected and approved the work. Due to cost overruns, the developer abandoned the project without having paid a subcontractor for its work. When the subcontractor filed a claim against public funds, the city argued that the project was not a public improvement.
* What the Court Said: Because the city retained control over the project, the project was deemed to be a public improvement.
* What the Opinion Means: Under Ohio law, a public improvement is construction by a public authority. The term “public authority” encompasses agents of municipal corporations. Because the city retained complete contractual oversight of the project, the developer was deemed to be the agent of the city.
2. Property Insurance Coverage for Poor Sequencing, Century Theaters, Inc. v. Travelers Prop. Cas. Co. of Am., 2006 WL 708667 (N.D. Cal. Mar. 20, 2006).
* What the Court Considered: Because the contractor installed interior dry-wall before completing the roof waterproofing system, the interior was damaged by rain. The owner sought coverage for the damage under its all-risk property insurance. The insurer denied coverage on the basis of the policy’s Hole in the Roof Provision, which provided that there is no coverage for interior rain damage unless the building first sustains damage by a covered loss to its roof or exterior walls through which the rain enters.
* What the Court Said: Because the rain was not the main cause of the damage, the Hole in the Roof Provision did not apply.
* What the Opinion Means: Under California case law, when rain damage results from a contractor’s failing to cover a hole in the roof, the contractor’s negligence—not the rain—is deemed to be the main cause of the loss. Thus, because the main cause of the damage here was the contractor’s failing to cover the roof, the Hole in the Roof exclusion did not apply.
3. Conformity with Attached Site Plan, Brock v. King, 629 S.E.2d 829 (Ga. Ct. App. 2006).
* What the Court Considered: A landowner sold three acres to an adjacent subdivision developer. As part of the sales contract, the developer agreed to maintain a densely landscaped buffer between the landowner’s home and the new subdivision. An attached site plan depicted the buffer. The landowner eventually sued, claiming the developer had breached the contract by maintaining a significantly smaller buffer than that shown on the site plan.
* What the Court Said: Because the contract did not specify any minimum size requirements for the buffer, rigid conformity with the site plan was not required.
* What the Opinion Means: The Court will not insert a requirement of rigid conformity into the contract where the parties have not included one. The contract here did not include any minimum size requirements nor did it state that the buffer had to conform to the site plan. Thus, nothing in the contract suggested that conformity to the site plan had to be rigid and exact.
4. Duty To Disclose Loan Status, Jones Partners Constr., LLC v. Apopka Plaza Ass’n, LLC, 2006 WL 784892 (N.D. Tex. Mar. 27, 2006).
* What the Court Considered: Shortly after the beginning of construction, the construction manager (“CM”) began experiencing problems receiving payment from the developer. The CM eventually learned that, prior to the CM’s hiring, all of the project’s loan proceeds had been disbursed through false construction draw requests. The bank had previously truthfully represented to the CM that the project loan had been renewed and that interest was “eating [the developer] alive.” The CM sued the bank for fraud, alleging that it had a duty to disclose to the CM the additional information that the remaining loan balance was inadequate.
* What the Court Said: The bank had no duty to disclose to the CM the status of the loan disbursements.
* What the Opinion Means: To give rise to a duty to disclose, the partial disclosures must be sufficiently relevant to the concealed information such that the whole truth must be disclosed. Here, the partial disclosures (i.e., that the loan had been renewed and that interest was “eating [the developer] alive”) were too attenuated and irrelevant to the status of the loan disbursements to give rise to such a duty.
5. Proof of Damages As Element of Misrepresentation Claim, Konover Constr. Corp. v. E. Coast Constr. Servs. Corp., 420 F. Supp. 2d 366 (D.N.J. 2006).
* What the Court Considered: A contractor sued its subcontractor for fraudulent and negligent misrepresentation, alleging the subcontractor misrepresented that two of its sub-subcontractors had been paid and that one of them was a subsidiary of the subcontractor.
* What the Court Said: Because the contractor did not prove that it had sustained damages as a result of the misrepresentation, its claim failed.
* What the Opinion Means: To establish a claim for misrepresentation, the plaintiff must prove that an incorrect statement was made that caused it economic loss. Here, the contractor failed to prove that its damages resulted from the misrepresentation and not from the subcontractor’s breach of contract.
6. Bid as Firm Offer, Fletcher-Harlee Corp. v. Pote Concrete Contractors, Inc., 421 F. Supp. 2d 831 (D.N.J. Mar. 27, 2006).
* What the Court Considered: In the course of preparing its bid for a construction contract, the contractor received a bid from a subcontractor for the concrete portion of the work. The bid stated that “[the subcontractor] will not be responsible or liable in any manner pending execution of a written agreement” and that “[t]he submission of this information should not be regarded as a firm offer.” After the contractor was awarded the project, the subcontractor refused to meet its original quote due to increases in material cost.
* What the Court Said: Because the bid stated that it was not a firm offer, the contractor’s claim failed.
* What the Opinion Means: A contracting party is bound by the apparent intention he outwardly manifests to the other contracting party. Here, the language of the bid clearly indicated the subcontractor’s intention that it not be bound by its bid.
7. Substantial Compliance with Lien Statute, Clinton Elec. & Plumb. Supply, Inc. v. Airline Prof’ls Ass’n, Teamsters Local 1224, 2006 WL 689043 (Ohio Ct. App. Mar. 20, 2006).
* What the Court Considered: The owner filed a notice of commencement, listing as its name a variation of the name appearing on the property deed. Specifically, the notice contained an acronym of the owner’s name. When a supplier attempted to foreclose on its lien, the owner argued that the supplier had failed to provide a notice of furnishing.
* What the Court Said: Because the owner failed to substantially comply with the lien statute’s notice requirement, the supplier had no duty to provide notice of furnishing.
* What the Opinion Means: Under Ohio’s lien law, an owner must substantially comply with the statute’s requirement that notices of commencement contain the real property owner’s name. Here, because the owner used an acronym of its name in the notice of commencement, it did not substantially comply with that requirement. Therefore, the supplier’s duty to provide notice of furnishing was never triggered.
8. Availability of Punitive Damages, Parrott v. Hoosier State Constr., Inc., 3:02CV-499-MO (W.D. Ky. Mar. 28, 2006) (Loislaw.com, Federal District Court Opinions).
* What the Court Considered: The owner sued the contractor for breach of contract, alleging the contractor had misappropriated funds designated as payment for a particular subcontractor and then had wrongfully filed a lien against the property. The owner sought punitive damages for these alleged breaches.
* What the Court Said: Punitive damages were not warranted because the contractor had not acted toward the owner with fraud, oppression, or malice.
* What the Opinion Means: Under Kentucky law, punitive damages are not recoverable for a breach of contract and may only be recovered in tort where the defendant acts with fraud, oppression, or malice toward the plaintiff. Here, the alleged misappropriation of funds and wrongful lien filing did not rise to the level of oppression or malice.
9. Accrual of Statute of Limitations, Epicentre Strategic Corp. v. Perrysburg Village School, 2006 WL 1624561 (N.D. Ohio Mar. 31, 2006).
* What the Court Considered: Due to the construction manager’s (“CM”) alleged failure to provide a master schedule, a masonry contractor was forced to expend an additional 20,000 man hours above what it had bid. The CM and contractor were not in contractual privity with one another. Four months later, the contractor submitted a claim to the project architect, which was denied. The contractor filed suit within four years from the denial of its claim by the architect but more than four years after it allegedly suffered damages.
* What the Court Said: Because suit was not filed until after four years after the contractor suffered damages, it was untimely.
* What the Opinion Means: In Ohio, suits for negligence must be brought within four years from the date the plaintiff incurs damages. Here, the contractor argued that it did not suffer damages until the architect denied its claim. However, because the contractor did not have a contract with the CM, it was not obligated to pursue a claim against the CM through the architect rather than bringing suit.
10. Indemnification for One’s Own Negligence, H & H Painting & Waterproofing Co. v. Mech. Masters, Inc., 923 So. 2d 1227 (Fla. Dist. Ct. App. 2006).
* What the Court Considered: A painting contractor leased a scissor lift from a rental company. The rental agreement contained an indemnification clause, which provided that the contractor would indemnify the company for claims by third parties arising out of the contractor’s possession, use, and maintenance of the lift. An employee of the contractor fell from the lift and sued the rental company for negligence.
* What the Court Said: The indemnification provision did not indemnify the rental company against the rental company’s own negligence.
* What the Opinion Means: An indemnification provision will only be held to indemnify one for one’s own negligent acts where the provision expresses that intention “in clear and unequivocal terms.” Applying Florida case law, the Court here found the language of the present indemnification provision was only in general terms—not the clear and unequivocal expression required.
Ira Genberg is a Senior Partner at the Smith, Gambrell & Russell, LLP law firm in Atlanta, Georgia, and also General Counsel for Associated Owners & Developers (AOD), McLean, Virginia. David L. Hobson is an Associate at Smith, Gambrell, & Russell, LLP. For more information or if you have any questions, contact us at: firstname.lastname@example.org.