Cases of the Month
Significant Cases and Decisions Impacting the Construction Industry
By: Ira Genberg and Troy Kiber
1. Force Majeure Clauses, Hutton Contracting Co., v. City of Coffeyville, 487 F.3d 772 (10 Cir. 2007).
* What the Court Considered: A contractor agreed to install power lines and fiber-optic lines under a contract containing a force majeure clause. That clause extended the time for completion "for the period of reasonable delay which is due exclusively to causes beyond the control and without the fault of [the contractor] including Acts of God, fires, floods [etc]...." The contractor suffered delays when its supplier was late providing the utility poles required to commence work. When the city withheld retainage for delays, the contractor sued, asserting that its delays were excused by the force majeure clause.
* What the Court Said: The contractor was responsible for the delays of its subcontractors and suppliers, thus the force majeure clause did not apply.
* What the Opinion Means: A delay of a subcontractor or a supplier is not itself force majeure: the contractor had some control over these delays in selecting subcontractors and suppliers. Additionally, the contractor could seek redress for the delays attributable to the supplier by suing that supplier. The court noted that there was no suggestion here that the supplier’s failure was due to some natural catastrophe --- a fact which might have changed the analysis.
2. Recovering for Work Performed Beyond a Contract, Rambo Associates, Inc. v. South Tampa County Cmty. Sch., 487 F.3d 1178 (8th Cir. 2007).
* What the Court Considered: A consultant agreed with a school district to perform a feasibility study related to construction of a new school. The parties agreed to a short contract where the consultant agreed to provide enumerated initial services and further services "at the request of" the school district. The project moved past the initial stages, and the consultant argued it performed work beyond the enumerated initial services. When the district replaced the consultant with a construction manager, the consultant sued, arguing that it was entitled to additional compensation.
* What the Court Said: The consultant’s recovery for work enumerated in the contract was limited to the contractual fee; however, the consultant could recover under quantum meruit for additional work.
* What the Opinion Means: While the contract contemplated additional work, it neither obligated the district to award this work to this particular consultant nor outlined any compensation for that work. However, because the district requested work beyond the scope of the contract, the consultant could recover the reasonable value of this work under quantum meruit because no express contract addressed it.
3. Implying a Relationship for Miller Act Recovery, United States ex rel. Vulcan Materials Co. v. McLea Developers, Inc., 2007 WL 1321951 (N. D. Miss. May 3, 2007).
* What the Court Considered: A supplier of crushed stone brought a claim for payment under the Miller Act. The supplier contracted with a individual person acting as a sub-sub-contractor ("officer"). This person was an officer of the subcontractor, and married to that subcontractor’s owner. The defendant did not dispute that the supplier actually provided stone, but asserted that because it provided the stone to a subcontractor of a subcontractor it was precluded from making a claim.
* What the Court Said: The supplier had an implied direct contractual relationship with the subcontractor and could make a Miller Act claim.
* What the Opinion Means: The court was convinced that the distinction between the subcontractor and its corporate officer acting as a sub-sub-contractor was negligible enough to imply a relationship with the subcontractor even though the supplier actually contracted with the officer. Evidence convincing the court included the fact that the subcontractor paid invoices from the supplier, and the fact that the officer paid the supplier from the subcontractor’s account.
4. Determining Who is a Subcontractor under the Miller Act, United States ex rel. Maryland Minerals v. United States Fidelity & Guaranty Co., 2007 WL 1687572 (N. D. W.Va. June 8, 2007).
* What the Court Considered: A concrete company entered into a purchase order with a contractor to supply concrete mix on a penitentiary project. Two change orders were agreed to, one of which referred to the concrete company as a "subcontractor." The concrete was produced from a plant the concrete company set up adjacent to the project, then delivered to and discharged on the site of the project. The prime contractor exercised considerable oversight, including testing the concrete mix and directing the locations and rate of the pours. After the concrete company declared bankruptcy, a supplier brought suit on the bond --- claiming that as a supplier to a subcontractor it had rights under the bond.
* What the Court Said: The concrete fabricator was a materialman; its materialman had no rights against the bond.
* What the Opinion Means: The court applied the numerous factors listed in United States ex rel. Conveyor Rental & Sales Co. v. Aetna Cas. & Surety Co., 981 F.2d 448 (9th Cir. 1992). While it is pure speculation to guess which facts were determinative --- the lack of any mention of the subcontract/purchase order’s percentage of the overall construction cost shows that that factor is not determinative.
5. Preemption of State Laws Favoring Litigation over Arbitration, Part I, Shepard v. Edward Mackay Enters., Inc., 148 Cal. App. 4th 1092 (Cal. App. 3 Dist. 2007).
* What the Court Considered: California law permits home purchasers to sue developers for construction defects even when the agreement conveying the property contains an arbitration provision. A homeowner sued a developer for water damage and personal injury associated with the developer’s installation of an underground plumbing system. The developer sought to compel arbitration, pointing to the provision in the sale agreement requiring the same. When the homeowner opposed arbitration under the California law, the developer asserted that California law was preempted by the Federal Arbitration Act (FAA). While both parties and the home were located in California, the developer offered proof that construction involved the receipt and use of material produced outside of California.
* What the Court Said: Because this transaction substantially affected interstate commerce, the FAA preempted the contrary California law: arbitration was mandatory.
* What the Opinion Means: Congress has wide power to regulate interstate commerce. It is difficult to conceive of any construction project that would not involve interstate commerce. Hence, the FAA will almost always mandate the enforcement of arbitration provisions.
6. Preemption of State Laws Favoring Litigation over Arbitration, Part II, Satomi Owners Ass’n v. Satomi, LLC., 159 P.3d 460 (Wash. Ct. App. 2007).
* What the Court Considered: A condominium owners association (the "Association") brought suit against the developer for numerous construction defects and breaches of warranty. The developer, pointing to a provision in the sales contracts, demanded arbitration. The association contended that judicial enforcement was required by the Washington Condominium Act and that this law was not preempted by the FAA.
* What the Court Said: The solitary fact that construction materials came from out-of-state was insufficient to cast these transactions as affecting interstate commerce, thus the FAA did not prempt state law.
* What the Opinion Means: These sales were "garden variety Washington real estate deal[s]" involving only Washington parties. The court noted the similar California law, and the predecessor to Shepard, but distinguished that predecessor case by pointing out that it considered more interstate aspects than merely the presence of interstate materials. Apparently unaware of Shepard, the court noted that "no court has held that the use of materials from other states is, by itself, sufficient to render a private transaction as one ‘involving interstate commerce.’"
7. Damages Recoverable Against a Homebuilder, Andrews v. Picard, 2007 WL 1839886 (Colo. Ct. App. June 28, 2007).
* What the Court Considered: A homeowner brought breach of contract and tort claims against the entity it had hired to build a home. The trial court dismissed the tort claims, citing the economic loss rule. Under that rule a party suffering only an economic loss from a breach of contract may not assert tort claims associated with the breach of contract unless there is a duty of care independent from the contract itself.
* What the Court Said: Because Colorado recognizes an independent duty of a homebuilder to act without negligence in the construction of a home, the owner could assert tort claims against the builder.
* What the Opinion Means: In Colorado, a homeowner that receives a defective home can sue the builder for "annoyance, inconvenience, and frustration" beyond the purely economic losses she may have suffered.
8. The Duty to Defend a Construction Defect Suit, Lamar Homes, Inc. v. Mid-Continent Cas. Co., 2007 WL 2459193 (Tex. August 31, 2007).
* What the Court Considered: After receiving a lawsuit alleging construction defects from a homeowner, the builder sought defense and indemnity from its insurer under its commercial general liability policy ("CGL"). The policy was a standard form used throughout the United States that obligated the insurer to "pay those sums that the insured becomes legally obligated to pay as damages" where bodily injury or property damage is caused by an occurrence. The district court ruled that the insurer had no duty to defend the builder because the policy did not cover the replacement or repair of the builder’s own work.
* What the Court Said: An owner suing a builder for damage to the home itself resulting from the builder’s own negligence triggered the duty of the insurer to defend under the CGL policy.
* What the Opinion Means: Occurrence was defined as little more than an accident, which ruled out coverage for intentional acts. However, deliberate acts performed negligently are accidents when the effect --- here, a defective building --- is not the intended result. The insurer argued that the CGL was intended to cover only tort liabilities, and that damage to the builder’s own work was not "property damage" but a contractual economic loss. Finding no basis for this theory, the Court ruled that the policy covered both contractual and tort liabilities and that property damage included damage to the subject of the underlying contract.
9. Time Limitations for Commencing an Action on a Lien, Cent. Atlanta Tractor Sales, Inc. v. Athena Dev., LLC, FCDR A07A1699 (Ga. Ct. App. Jan 29, 2008).
* What the Court Considered: An equipment supplier filed a claim of lien on a project, and later followed with a suit on the bond that discharged that lien. In Georgia, such actions must be commenced "within 12 months of when the claim became due"; this suit was brought exactly one year from the date the equipment was returned. Pointing to this fact, the contractor argued that the suit was untimely. The supplier argued that, because it could not determine any claim due until it had inspected the rental equipment, the 12 months should run from the time of inspection.
* What the Court Said: Actions to enforce a lien must be brought within 12 months of the last day equipment was provided: the time of inspection was irrelevant.
* What the Opinion Means: A lien must be filed within three months after materials or machinery is furnished. The 12 month period for commencing an action on the lien runs from the same date. A suit brought exactly one year after the last day that equipment or materials are furnished is not within 12 months and is thus untimely.
10. Qualifications of an Expert Witness, Trustees of Chicago Painters Pension, Health, Welfare, and Deferred Savings Plan Trust Funds v. Royal Int’l. Drywall and Decorating, Inc., 493 F.3d 782 (7th Cir. 2007).
* What the Court Considered: The trustees of a fund benefiting union members sued a contractor employing union members for failing to compensate the fund for the hours the members worked. The district court found the timesheets compiled by the contractor to be insufficient, and relied upon expert testimony to establish the amount of hours worked by the union members. The experts offered their opinion on the rate of drywall taping, based upon experience in the industry, which was used to calculate the total number of hours worked.
* What the Court Said: Because the testimony was based upon specialized knowledge, it was admissible under the Federal Rules.
* What the Opinion Means: Expert testimony is not limited to scientific testimony, but can be based upon either technical or other specialized knowledge. Here, two individuals were qualified as experts as to drywall taping where one had a ten-year record of training drywall tapers and another estimated the costs of drywall taping for many years.
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. Troy Kiber is an Associate at Smith, Gambrell, & Russell, LLP. For more information or if you have any questions, contact us at: firstname.lastname@example.org.