Cases of the Month
Significant Cases and Decisions Impacting the Construction Industry
By: Ira Genberg and Ryan Stinnett
1. Punitive Damages Standard Under Wisconsin Law, Wischer v. Mitsubishi Heavy Indus. Amer., Inc., 694 N.W.2d 320 (Wis. 2005).
* What the Court Considered: Three ironworkers engaged in bolting down a section of a retractable roof at Miller Park Stadium were killed as a result of the collapse of a large crane being used to hoist the roof into place. An ensuing lawsuit, which was brought against the company in charge of installing the roof, focused on the actions of the company’s site manager. Although the site manager did not intend to harm the workers, the evidence presented showed that he failed to take into account the wind speed in deciding whether to proceed with the lift. The jury awarded $84 million in punitive damages.
* What the Court Said: The award of punitive damages was upheld.
* What the Opinion Means: Under Wisconsin law, punitive damages may be awarded “if evidence is submitted showing that the defendant acted maliciously toward the plaintiff or in an intentional disregard of the rights of the plaintiff.” Based on this standard, a plaintiff need not prove that the defendant intended to cause harm. Rather, the plaintiff must show only that the defendant was aware that its conduct was substantially certain to result in the plaintiff’s rights being disregarded. Here, since this standard was satisfied, the jury could choose to award punitive damages.
2. Bid Correction Under South Carolina Law, Martin Eng’g, Inc. v. Lexington County Sch. Dist., 615 S.E.2d 110 (S.C. 2005).
* What the Court Considered: The low bidder on a public project to construct an addition to a high school realized, after submitting its bid, that it had inadvertently neglected to include the bid of a roofing subcontractor in its overall bid. The school district allowed the bidder to amend its submission. After the correction, the bidder remained the low bidder. A disappointed bidder filed a bid protest, alleging that the school district should not have allowed the bid correction.
* What the Court Said: The school district properly allowed the upward adjustment.
* What the Opinion Means: South Carolina’s law of competitive sealed bidding provides for correction of bid mistakes where appropriate. The mistake need not be evident on the face of the bid document itself to justify the correction, unless the correction would cause the correcting bidder to become the low bidder. Here, the correcting bidder was the low bidder both before and after the correction.
3. The Meaning of “Improvement to Real Property,” Mammoet USA, Inc. v. Entergy Nuclear Generation, 64 Mass. App. Ct. 37 (2005).
* What the Court Considered: A nuclear power company purchased a transformer to serve as a spare or backup in the event the transformer then in use became inoperable. The power company hired a contractor to transport the transformer to the site and prepare it for use. The contractor hired a subcontractor to transport the transformer to the site and set it on a concrete storage pad. When the contractor subsequently filed for bankruptcy without paying the subcontractor, the subcontractor sought to recover on a mechanic’s lien.
* What the Court Said: The lien was invalid because the subcontractor’s work did not constitute an “improvement to real property.”
* What the Opinion Means: Under Massachusetts law, a party is entitled to a mechanic’s lien when it furnishes labor or materials in connection with an improvement to real property. The word “improvement” denotes the product of some sort of construction-type activity. Merely transporting an already-assembled unitary object that is not to be used at the site does not, therefore, constitute an improvement.
4. Timeliness of Bid Protest, Cummins v. Dept. of Transp., 877 A.2d 550 (Pa. Commw. Ct. 2005).
* What the Court Considered: The Department of Transportation (“DOT”) published its proposal for the award of a contract for street improvements. The proposal listed each work item and its corresponding classification code. According to DOT regulations, a contractor was eligible to bid on such projects only when “the types of work for which he [was] classified constitute[d] at least 50% of the project.” When the apparent low bid was rejected because the bidder failed to satisfy these classification requirements, the bidder filed a written protest claiming that many of the work items had been inaccurately classified.
* What the Court Said: Because it was untimely, the protest was denied.
* What the Opinion Means: Pennsylvania’s procurement code requires a bidder to file its protest “within seven days after the aggrieved bidder or prospective contractor knew or should have known of the facts giving rise to the protest.” Here, although the protesting bidder claimed it did not learn of the facts giving rise to its protest until its bid was rejected, the court found that bidders are obligated to be aware of the classification codes by the time they submit their bids. Therefore, the contractor should have been aware of the salient facts at the time it submitted its bid.
5. Surety’s Authority to Settle Claims, HRH Constr., LLC v. Fidelity and Guaranty Ins. Co., 04 Civ. 1606 (PKC) (S.D.N.Y. July 8, 2005) (Loislaw.com, Fed. Dist. Ct. Opinions).
* What the Court Considered: A general contractor, concerned over the level of staffing of its subcontractor, terminated the subcontract after giving proper notice. The general contractor demanded the surety meet its obligations under the performance bond. After investigating the matter, the surety reached a settlement agreement with the general contractor that included a full release of any claims against the general contractor by the subcontractor. When the surety sued the subcontractor and its shareholders under an indemnification agreement, the subcontractor argued the surety did not have authority to settle the claims against the general contractor without first obtaining its consent.
* What the Court Said: The surety had the authority to settle claims on behalf of the subcontractor without its consent.
* What the Opinion Means: The indemnity agreement provided the surety sweeping rights to settle claims on behalf of the subcontractor. An “attorney-in-fact” clause empowered the surety to “make, execute, endorse and deliver any agreements for the full protection” of the surety. Under New York law, such clauses give sureties the right to settle all claims on behalf of their principals.
6. Contractor Liability for Following DOT Directives, Fraker v. C.W. Matthews Contracting Co., 614 S.E.2d 94 (Ga. Ct. App. 2005).
* What the Court Considered: A motorist was injured while attempting to merge onto an interstate. The motorist alleged that the acceleration lane, which was then under construction, was negligently designed and that the traffic control devices were negligently arranged. The contractor argued it could not be held liable for negligence because it was performing pursuant to the Department of Transportation’s (“DOT”) specifications in a non-negligent manner.
* What the Court Said: Because the DOT controlled the design of the ramp, the contractor could not be liable for construction pursuant to the DOT’s specifications.
* What the Opinion Means: Georgia law dictates that the DOT shall have control and responsibility for all construction and maintenance of the state highway system. Although, in this case, the contractor made suggestions regarding the practical aspects of the design, the evidence did not show that the DOT ever relinquished control of the ramp’s design. Also, the contractor erected and implemented the traffic control devices pursuant to the DOT’s directives.
7. Contractor Liability for Design of Traffic Control Plan, Comanche Constr., Inc. v. Dept. of Transp., 272 Ga. Ct. App. 766 (2005).
* What the Court Considered: A contractor designed and prepared a traffic control plan for a bridge repair project and the plan was approved by the Department of Transportation (“DOT”). The contractor’s work site traffic control supervisor installed detour signs along the detour route and the placement of these signs was also approved by the DOT. A motorist was injured when she failed to see a stop sign that was obscured by a detour sign.
* What the Court Said: The contractor could be held liable for the motorist’s injuries.
* What the Opinion Means: Under Georgia law, where the DOT retains control over a traffic plan, a contractor that merely follows the DOT’s specifications cannot be held liable for injuries to motorists. By contrast, where, as in this case, the contractor handles all aspects of the plan’s design and implementation and uses its own judgment in placing traffic signage, the contractor can be held liable.
8. Engineer’s Lien Rights Under Missouri Law, Killian Constr. Co. v. Frontier-Town Missouri, Inc., 161 S.W.3d 408 (Mo. Ct. App. 2005).
* What the Court Appeals Considered: An engineer who contributed to the design of a 250-acre real estate improvement project asserted a lien against the property. The lower court awarded a lien to the extent of only one acre. The engineer challenged the ruling, arguing the lien law should be liberally construed to allow for a lien on more of the property.
* What the Court Said: The engineer was entitled to only a one-acre lien.
* What the Opinion Means: Missouri law expressly provides that every professional engineer who performs any engineering services connected with an improvement upon land shall have a lien to the extent of one acre. Because lien rights arise from statutes, their application is determined by statutory language. Therefore, the engineer’s lien was limited to one acre only.
9. Abandonment as Contractual Breach, CJS Mech. Contracting, Inc. v. Nat’l Fire Ins. Co. of Hartford, 2005 WL 747627 (E.D. Pa. 2005).
* What the Court Considered: A subcontractor hired to furnish and install a ductwork system sued the surety of its general contractor, claiming it had not been paid in full. However, the evidence showed that the subcontractor was far behind in the schedule, did not perform certain work for which it had been paid, failed to provide twelve sets of shop drawings it was obligated to provide, and abandoned the site without notice.
* What the Court Said: Because the subcontractor materially breached the subcontract, the general contractor’s surety was not liable.
* What the Opinion Means: The subcontractor materially breached the subcontract by abandoning the work site without providing notice to the general contractor. By contrast, the general contractor completed all of its contractual obligations. Therefore, the subcontractor was not entitled to recover from the surety for any alleged deficiency by the general contractor.
10. Contract Definiteness as Prerequisite to Enforcement, Smith Paving & Excavating v. Vermillion Shores Dev. Group, Inc., 2005 WL 1491758 (Ohio Ct. App. 2005).
* What the Court Considered: A subcontractor submitted a bid to perform concrete and roadway work. The general contractor accepted the subcontractor’s bid and the parties executed a subcontract agreement. The agreement required the subcontractor to submit a schedule of values in advance of starting work, which it failed to do. The subcontract scope of work was defined as “per plan and attached Sub-contract quote.” However, neither any additional contract documents, nor work or project description, were ever provided. Finally, the subcontract indicated the commencement date was “to be set.” The general contractor did not provide a commencement date, and when the subcontractor’s foreman traveled to the site, he learned the work had been completed by the third party.
* What the Court Said: The subcontract was sufficiently definite to justify an award of lost profits to the subcontractor.
* What the Opinion Means: Under Ohio law, an “agreement to agree” is enforceable if the parties have manifested an intention to be bound by the terms and if the terms are sufficiently definite. Here, the subject matter of the subcontract was certain and definite, despite certain other ambiguities. For instance, the subcontract agreement contemplated a specific amount of work for a specific price.
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.