Cases of the Month
Significant Cases and Decisions Impacting the Construction Industry
By: Ira Genberg and Ryan Stinnett
1. Application of the “Borrowed Servant” Doctrine in Georgia, Tim’s Crane & Rigging, Inc. v. Gibson, 604 S.E.2d 763 (Ga. 2004).
* What the Court Considered: A general contractor leased a crane from a leasing company. An employee of the leasing company delivered and operated the crane. Pursuant to the express terms of the leasing agreement, the crane operator became the “borrowed servant” of the contractor. An employee of the contractor was injured when the crane passed too close to a power line. The injured employee sued the leasing company.
* What the Court Said: Because the leasing agreement explicitly provided that the crane operator was a “borrowed servant” of the contractor, the leasing company was not liable for the employee’s injury.
* What the Opinion Means: Although a leasing company typically is liable for the actions of its employee, it cannot be held liable if the employee becomes the “borrowed servant” of the lessee. Under Georgia law, “in order for an employee to be a borrowed employee, the evidence must show that ‘(1) the special master had complete control and direction of the servant for the occasion; (2) the general master had no such control[;] and (3) the special master had the exclusive right to discharge the servant.’” Whether the contractor (i.e., the special master) actually exerted such control over the crane operator was irrelevant because the contractor had authority to do so under the express terms of the leasing agreement.
2. Subcontractor’s Obligation to Comply with Notice Requirements of Prime Contract, American Nat’l Elec. Corp. v. Poythress Commercial Contractors, Inc., 604 S.E.2d 315 (N.C. Ct. App. 2004).
* What the Court Considered: As part of its subcontract, an electrical subcontractor expressly agreed to “assume toward the Contractor all of the obligations and responsibilities that the Contractor by [the prime contract] assumes toward the Owner.” Upon completion of the project, the subcontractor sued the contractor for delay damages allegedly resulting from the contractor’s modifications to the scheduling and sequencing of electrical work.
* What the Court Said: Because the subcontractor failed to comply with the notice requirements of the prime contract, the contractor could not be held liable on the subcontractor’s delay claim.
* What the Opinion Means: “The plain language of the contract in this case provide[d] that the Subcontractor [was] bound to the Contractor under the same obligations as the Contractor [was] bound to the Owner.” The prime contract required that claims for delay be made in writing within 21 days of the occurrence of any event giving rise to the claim. The subcontractor failed to comply with this notice provision before asserting its delay claim; thus, its claim was not valid.
3. Application of Promissory Estoppel to Bid Preparation by Contractor, Hinson v. N & W Constr. Co., 2004 WL 1445102 (Miss. Ct. App. 2004).
* What the Court Considered: In preparing its bid to construct a culinary arts building, a contractor used the quote provided by a plumbing subcontractor. The subcontractor’s quote was $46,900 less than the next lowest quote. After the contractor was awarded the contract, the subcontractor failed to execute a subcontract or start work. As a result, the contractor was forced to hire another plumber with the next lowest quote. The contractor sued the subcontractor to recover the difference in its quote and the next lowest quote.
* What the Court Said: Based on the doctrine of promissory estoppel, the subcontractor was obligated to pay the difference in its quote and the next lowest quote.
* What the Opinion Means: Under Mississippi law, “an estoppel may arise from the making of a promise, even though without consideration, if it was intended that the promise should be relied upon and in fact it was relied upon, and if a refusal to enforce it would be virtually to sanction the perpetuation of fraud or would result in other injustice.” Here, promissory estoppel applied because the subcontractor provided a verbal quote for the plumbing work, knowing the contractor likely would used the quote in the contractor’s bid. Furthermore, the subcontractor intended to execute a subcontract for the plumbing work upon the contractor being awarded the contract.
4. Construction Manager’s Duty of Care to Construction Workers, Brennan v. 42nd St. Dev. Project, Inc., 10 A.D.3d 302 (N.Y. App. Div. 2004).
* What the Court Considered: A worker that was injured on a construction project sued the project construction manager for negligence. The construction manager filed a motion for summary judgment, arguing that it owed no duty of care to the worker.
* What the Court Said: Because the construction manager supervised the construction site, it had a duty of care to the worker and could be liable for negligence related to the worker’s injury.
* What the Opinion Means: Section 200 of the New York Labor Law imposes a duty of care upon construction managers that maintain a certain level of supervision and control over a construction site. Numerous facts demonstrated that the construction manager in this case had a sufficient level of supervision and control at the site to incur such duty: (1) the construction manager had a safety representative on site; (2) the representative held weekly safety meetings, which the job foremen were required to attend; (3) the construction manager could withhold a contractor’s monthly payments for failure to observe safety regulations; and (4) the construction manager had authority to stop unsafe work practices.
5. Duty to Protect from Obvious and Inherent Dangers, Bombero v. NAB Constr. Corp., 780 N.Y.S.2d 333 (N.Y. App. Div. 2004).
* What the Court Considered: A construction engineer working for a subcontractor was injured while attempting to inspect the installation of steel reinforcement bars. As part of the engineer’s inspection duties, he was sometimes required to traverse exposed rebar. On the day the engineer was injured, he attempted to cross exposed rebar even though wooden planking was available. He sued the general contractor for failing to provide a safe workplace.
* What the Court Said: Because the alleged hazard was an inherent part of the engineer’s employment, the contractor owed him no duty.
* What the Opinion Means: Section 200 of the New York Labor Law is the codification of the common-law duty imposed upon owners and contractors to provide workers with a safe workplace. However, “this duty does not extend to hazards which are ‘part of or inherent in’ the very work being performed or to those hazards that may be readily observed by reasonable use of the senses in light of the worker’s age, intelligence and experience.” Here, the plaintiff, as a concrete inspector, was regularly required to walk on exposed rebar. Also, the plaintiff testified that he recognized the danger in walking across the rebar. Therefore, the general contractor was entitled to summary judgment.
6. Right to Compel Arbitration After Months of Pretrial Litigation Activities, Patten Grading & Paving, Inc. v. Skanska USA Bldg., Inc., 380 F.3d 200 (4th Cir. 2004).
* What the Court Considered: A subcontractor brought suit in state court against the successor-in-interest of its original general contractor. The successor removed the case to federal court, answered the subcontractor’s complaint, and participated in written discovery and court-ordered mediation. Then, eight months after the suit was originally filed, the successor filed a motion to compel arbitration based upon an arbitration clause in the subcontract. The subcontractor argued the successor had waived its right to arbitrate by participating in the litigation.
* What the Court Said: Because the subcontractor could not prove it would be prejudiced by enforcement of the arbitration clause, it was compelled to arbitrate its claims.
* What the Opinion Means: Under federal law, a party waives its right to arbitrate when it “so substantially utiliz[es] the litigation machinery that to subsequently permit arbitration would prejudice the party opposing” arbitration. Here, the subcontractor could not demonstrate such prejudice. Although eight months had elapsed since the suit began, the successor learned of the arbitration clause only four months into the litigation. Additionally, though the parties had engaged in some discovery, it was no more than would be available through arbitration. Finally, most of the money spent by the subcontractor in pursuing litigation would have been spent irrespective of the timing of the successor’s motion to compel arbitration.
7. Admissibility of Evidence of Superseding Acts Related to Construction Accident, Tensar Earth Techs., Inc. v. City of Atlanta, 598 S.E.2d 815 (Ga. Ct. App. 2004).
* What the Court Considered: A civil engineering firm hired to design a hotel observed that a sewer crossed below the portion of the site on which a parking lot was to be constructed. A geotechnical engineer was then hired to design a reinforcing steel safety net, which was installed in the soil above the sewer and below the lot. The safety net was designed to support the parking lot for four days in the event the sewer collapsed. After completion of the hotel, cracks began to form in the parking lot and retaining wall and a depression was observed in the parking lot. City inspectors determined that the condition of the sewer might lead to an immediate collapse of the parking lot. Nevertheless, the inspectors waited several days to begin repairs. Before the repairs had begun, the parking lot collapsed, killing a hotel employee.
* What the Court Said: The geotechnical engineer could introduce evidence that the City’s failures to cordon the parking lot and begin repairs immediately were intervening superseding causes of the collapse.
* What the Opinion Means: Although the geotechnical engineer clearly foresaw the possibility of a collapse of the parking lot, “the mere installation of the [safety net] did not, in and of itself, render irrelevant subsequent acts and omissions by the City . . ..” The safety net was not designed to support the parking lot indefinitely, and “evidence [of the City’s negligence] was relevant on pertinent issues regarding whether the City . . . knew that [it was] facing an emergency situation and failed to appropriate action.”
8. Requirement of Actual Construction for Mechanic’s Liens, D’Orsay Int’l Partners v. Superior Court, 20 Cal. Rptr. 3d 399 (Cal. Ct. App. 2004).
* What the Court Considered: A contractor was hired to design and build a hotel/retail development. Over a period of two years, the contractor provided approximately $850,000 in design related services, both by performing design and planning services and by hiring design professionals. Because the owner could not secure adequate financing, construction of the project never commenced. No building permit was issued and no building materials were ever delivered to the site. When it was not paid in full for its work, the contractor filed a mechanic’s lien against the real property.
* What the Court Said: Because no actual construction had taken place on the property, a mechanic’s lien could not attach to the property.
* What the Opinion Means: Under California law, “[t]he ‘general rule is that [a mechanic’s lien] does not attach unless and until construction has been undertaken by the doing of actual visible work on the land or the delivery of construction materials thereto.’” In contrast, a design professional’s lien (which the contractor did not file) does not require actual construction to have begun for such a lien to attach to the property.
9. Architect’s Duty to Exercise Reasonable Care in Preparing Design Documents, Clark v. Transcon. Ins. Co., 2004 WL 2475685 (Ark. 2004).
* What the Court Considered: A construction worker was injured when the structural steel he was holding either touched or neared an energized electrical power line. The worker sued the project architect for negligence, alleging that, although the drawings “showed a portion of the overhead power line, the distance was not scaled out, and there were no notations on the plan . . . of the distance between the proposed east elevation and the power line.” The trial court granted summary judgment in favor of the architect.
* What the Court Said: Because there was a material issue of fact as to whether the architect was responsible for the worker’s injuries, summary judgment was not proper.
* What the Opinion Means: Under Arkansas law, an architect has a duty to exercise the level of skill and diligence in preparing designs as is ordinarily required of architects. Unless there is no issue of material fact, the degree of skill and care required of an architect is a question for determination by the jury. Here, an issue of material fact was created by the expert testimony of a licensed professional architect, who testified that the defendant architect had not exercised reasonable care because, among other things, it had failed “to note on the plans or drawings or in construction notes that the overhead line was seven feet from part of the east elevation of the building addition.” Therefore, the architect could be liable for the worker’s injuries.
10. Proof of Damages for a Delay Claim, Suitt Constr. Co. v. Ripley’s Aquarium, LLC, 2004 WL 1859349 (6th Cir. 2004).
* What the Court Considered: As part of a settlement of claims arising from delays in the construction of an aquarium, a general contractor settled with all parties except its concrete subcontractor. As part of the settlement, the contractor agreed to pay $400,000 in liquidated damages to the project owner. The contractor then sued the concrete subcontractor to recover the entire amount of liquidated damages it had paid to the owner. When the jury decided in favor of the contractor, the concrete subcontractor sought to overturn the jury’s verdict on the basis that it held the subcontractor liable for the entire amount of the liquidated damages the contractor had paid to the owner. According to the subcontractor, the contractor should have been required to present proof allocating the liquidated damages settlement between all responsible parties.
* What the Court Said: The jury reasonably determined that the concrete subcontractor was responsible for all liquidated damages paid by the general contractor to the owner.
* What the Opinion Means: “Tennessee law permits the recovery of all damages that are the normal and foreseeable result of a breach of contract.” Here, the concrete subcontractor admitted it was responsible for at least 79 days of delay. Under the terms of the concrete subcontract, this delay would have resulted in liquidated damages exceeding $400,000. Accordingly, the jury could have reasonably determined that the subcontractor was responsible for the entire $400,000 liquidated damages amount.
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. Ryan Stinnett is an Associate at Smith, Gambrell, & Russell, LLP. For more information or if you have any questions, contact us at: firstname.lastname@example.org.