Cases of the Month
Significant Cases and Decisions Impacting the Construction Industry
By: Ira Genberg and Cory Menees
1. Sub’s Unjust Enrichment Claim Frustrated by Owner’s Full Payment to GC, EBC, Inc. v. Clark Bldg. Sys., 2008 U.S. Dist. Lexis 92205 (W.D. Pa. 2008).
* What the Court Considered: After paying its GC the full contract balance, an owner refused to pay an invoice later received from a supplier for materials supplied to the GC. After the owner refused to pay the invoice and the GC filed bankruptcy, the supplier sued the owner on an unjust enrichment theory.
* What the Court Said: As the owner paid the GC the full contract balance, recovery by the supplier would effectively result in the owner paying for the same materials twice. That being the case, the supplier’s unjust enrichment claim was denied.
* What the Opinion Means: In Pennsylvania, payment to the GC of the full contract balance has the potential to shield owners from unjust enrichment claims brought against them by subs for materials supplied to the GC.
2. Statute of Limitations on Claims Against Sub-Sub Begins to Run upon Acceptance of Sub-Sub’s Work, Not Completion of Project, BDI Constr. Co. v. Hartford Fire Ins. Co., 995 So. 2d 576 (Fla. Ct. App. 2008).
* What the Court Considered: A sub-sub was hired to perform stucco work on a Miami high school. The sub-sub’s work was accepted by the subcontractor and paid for in full in 2001. In 2006, the subcontractor filed a third-party complaint against the sub-sub and its surety, claiming that the stucco work was defective. The sub-sub defended against the suit, claiming that the applicable five-year statute of limitations had run. The sub-sub claimed that the limitations period began to run when its work was accepted, not when the project was completed, as argued by the subcontractor.
* What the Court Said: Agreeing with the sub-sub, the court held that the limitations period began to run when the subcontractor accepted the sub-sub’s work.
* What the Opinion Means: In Florida, parties must be particularly mindful of when limitations periods applicable to the work of their various subs begin to run. Claims on bonds must be made within five years of acceptance of a sub’s work.
3. Policy Exclusion Frees Insurer from Obligation to Defend and Indemnify Contractor in Suit Arising from Sub’s Activities, Atl. Cas. Ins. Co. v. W. Park Assocs., 2008 U.S. Dist. LEXIS 90386 (E.D.N.Y. 2008).
* What the Court Considered: A contractor’s insurance policy contained an exclusion providing that the insurer did not have to defend or indemnify the contractor in lawsuits arising from the activities of subcontractors. A sub’s supplier was injured while on the jobsite and sued both the sub and GC. The insurer sought a declaratory judgment holding that it had no duty to defend or indemnify the contractor in the suit, as it arose from the activities of a subcontractor.
* What the Court Said: The insurer had no defense or indemnity duty, as the suit did arise from the activities of a sub. The injured worker would not have been on the jobsite if the sub had not ordered supplies from the worker’s employer.
* What the Opinion Means: In New York, insurance policy endorsements limiting coverage for suits resulting from subs’ activities may be successfully invoked where circumstances are such that the suit would not have arisen “but for” the activity of a sub.
4. Defendant’s Right to Arbitrate Not Waived by Inability to Locate Copy of Contract Containing Arbitration Clause, Yamasaki Korea Architects Inc. v. Yamasaki Assocs., 2008 U.S. Dist. LEXIS 95261 (E.D. Mich. 2008).
* What the Court Considered: After being sued by an architect, an owner claimed not to have a copy of a project contract it believed contained an arbitration clause. The owner answered the complaint, counterclaimed, and engaged in discovery. When a copy of the contract was produced during discovery, the owner filed a motion to compel arbitration upon confirming that the dispute was arbitrable. The architect argued against the motion, claiming the owner had waived its right to arbitrate by filing a counterclaim and participating in discovery.
* What the Court Said: The owner’s motion was granted, as it had raised the possibility that the case was arbitrable early in the proceedings and continued to reiterate the possibility as the case progressed. Furthermore, the architect could not show that it was prejudiced by the late filing of the motion to compel arbitration.
* What the Opinion Means: In Michigan, the failure or inability of a party to show that it was prejudiced by the late filing of a motion to compel arbitration will do serious harm to any effort to fight the motion.
5. Architect Unexpectedly Finds Itself Exposed to Potentially Unlimited Indemnity Liability, Atl. City Assoc. LLC v. Carter & Burgess Consultants, Inc., 2008 U.S. Dist. LEXIS 93684 (D.N.J. 2008).
* What the Court Considered: An architect’s proposal to a contractor provided that the architect would not be liable to any party for damages above and beyond the amount paid by the contractor to the architect for the architect’s work on the project. A later-signed contract between the contractor and architect incorporated the terms of the proposal by reference but provided that, in the event of a conflict between the proposal and contract, the terms of the contract would prevail. The contract contained a clause obligating the architect to indemnify the contractor against all claims resulting from the acts and omissions of the architect, without limitation. After significant delays on the project for which the parties blamed one another, the parties requested that the court determine the extent of the architect’s liability.
* What the Court Said: As the language of the contact provided that the contract terms controlled, the architect’s liability was found to be unlimited.
* What the Opinion Means: Most interestingly, the architect argued that the indemnity provision in the contract only required the architect to indemnify the contractor against claims brought by third parties. The court dismissed the argument, as the indemnity provision contained no limiting language to suggest the indemnity obligation extended only to actions filed by strangers to the contract. In New Jersey, an indemnity clause may give the indemnitee the right to recover damages from the indemnitor unless the clause explicitly limits the indemnity obligation to third-party claims.
Ira Genberg is a Partner at Troutman Sanders LLP in Atlanta, Georgia, and is General Counsel for Associated Owners & Developers (AOD) in McLean, Virginia. Cory Menees is an Associate at Troutman Sanders LLP. For more information, or if you have any questions, contact us at email@example.com.