Cases of the Month
Significant Cases and Decisions Impacting the Construction Industry
By: Ira Genberg and Claiborne Smith
1. 40 Years Later Design Firm May Potentially Be Liable for Contribution and Indemnification on Failed Bridge, Order, In re: Individual 35W Bridge Litigation, No. 27-CV-09-7519 (Minn. 4th Jud. Dist. Aug. 28, 2009).
* What the Court Considered: This third-party action arose from the Interstate 35 bridge collapse into the Mississippi River in August of 2007. Plaintiffs, persons injured and killed in the collapse, brought suit against Defendants URS Corp. (“URS”) and Progressive Contractors Inc. (“PCI”), who were responsible for the inspection and repair of the bridge. URS and PCI brought this action for contribution and indemnity against Jacobs Engineering Group, Inc. (“Jacobs”), the successor to the original bridge design firm. Jacobs filed a motion to dismiss based on the fact that the bridge was designed 40 years ago and any suit is time barred.
* What the Court Said: The Court denied Jacobs’ motion to dismiss URS and PCI’s third-party claim. The Court based its decision on a recent change in Minnesota property law passed in 2007. Prior to the change in Minnesota law, a contribution or indemnity action, relating to improvements to real property, must be brought within two years of the accrual of the cause of action and within ten years of substantial completion of the project. The amended law specifically removed actions for indemnification and contribution from the ten-year statute of repose. Further, the new law was to be applied retroactively. Therefore, the Court found that Jacobs was not protected by any statute of repose and could be liable for contribution and indemnity for a design constructed 40 years previously.
* What the Opinion Means: In Minnesota architects, engineers, and other professionals remain liable for contribution and indemnification years after the statute of repose and statute of limitation have cut off their primary liability.
2. Whether AIA Conditions Precedent to Arbitrate Were Fulfilled Is for the Arbitrator to Decide, Brasfield & Gorrie, L.L.C. v. Soho Partners, L.L.C., No. 1070296, 2009 Ala. Lexis 186 (Ala. Aug. 21, 2009).
* What the Court Considered: The Court looked at an arbitration provision under an AIA A201-1997 contract to determine whether the court or an arbitrator was to decide whether two conditions precedent to arbitrate, submitting the dispute first to the architect and then to mediation, had been met.
* What the Court Said: The Court looked to the United States Supreme Court decision in Howsam v. Dean Witter Reynolds, Inc., to determine whether the AIA conditions precedent were a question of procedural arbitrability to be decided by the arbitrator or one of substantive arbitrability to be concluded by the Court. The Court found that the AIA conditions precedent were indistinguishable from the time limitation issue that the Howsam Court determined was to be decided by the arbitrator.
* What the Opinion Means: It shows that Alabama courts follow the modern policy favoring arbitration. It further shows that Alabama courts will embrace the notion that courts will only interfere with a party’s agreement to arbitrate when there are questions of substantive arbitrability (i.e., whether a valid arbitration agreement exists and whether the specific dispute falls within the scope of said arbitration agreement).
3. Contracts’ Site Inspection Provision Prevents Subcontractor’s Changed Condition Claim, Industrial Window Corp. v. Federal Insurance, Co., 609 F. Supp. 2d 329 (S.D.N.Y 2009).
* What the Court Considered: A subcontractor on a project asserted a claim for additional compensation due to increased costs it faced due to the Metropolitan Transit Authority’s (MTA) denial of its installation protocol. The curtain wall the subcontractor was to install needed MTA approval as it was to be located near a subway station. The contractor, construction manager, and Surety moved for summary judgment based on the fact that the subcontract required the subcontractor to examine the site and to obtain all necessary permits. Further, the subcontract incorporated the prime contract, which specifically required the procurement of all permits from the MTA prior to construction.
* What the Court Said: The Court stated that the contract was clear in requiring the subcontractor to be responsible for and to obtain the necessary permits. Further, even though the subcontractor alleged that it lacked knowledge of the subway station, New York law provides that a party is charged with the knowledge of all its contract provisions and in this instance the contract clearly stated the need for MTA approval. Finally, the Court rejected the subcontractor’s allegation that the existence of the subway station acted as a changed condition, noting that a simple examination of the site would show that “the placement of an 18 wheeler truck, heavy machinery, and curtain wall materials directly above a subway station posed a risk of exceeding the load bearing capacity of the subway structure.”
* What the Opinion Means: That boilerplate language in a contract requiring site inspection can limit a subcontractor’s recovery if it is tailored to the specific site and situation.
4. Construction Manager May Be Liable to Owner for Its Subcontractor’s Negligence, American Stores Properties, Inc. v. Spotts, Stevens & McCoy, Inc, No. 05-1461, 2009 U.S. Dist. LEXIS 71216 (E.D. Pa. August 13, 2009).
* What the Court Considered: A commercial owner essentially hired a construction manager (CM), though not described in the contract as such, to manage the civil design of a project and procure permits on behalf of the owner. The agreement between the owner and CM authorized the CM to engage subcontractors to prepare engineering reports and draft plans and specifications for the work site. The CM entered into subcontracts for a soil report and a separate subcontract for the design of retaining walls. The owner, believing the retaining walls were prematurely failing, proceeded to sue the CM for breaching their agreement. The CM moved for summary judgment arguing that it should not be held vicariously liable for the negligence of its subcontractors.
* What the Court Said: The Court denied the CM’s motion agreeing with the owner that the CM could be liable for its own breach of contract for failing to properly analyze and compile the data related to the retaining walls, even though the initial breach arose from its subcontractor’s negligence.
* What the Opinion Means: A construction manager may be liable for its subcontractors’ negligence if it has an independent contractual obligation to the owner that is related to the subcontractor’s negligence.
5. Statute of Limitations Defense Unavailing when Constructing a “Benefit of the State”, Washington State Major League Baseball Stadium Public Facilities District v. Huber, Hunt & Nichols-Kiewit Construction Co., 202 P.3d 924 (Wash. 2009).
* What the Court Considered: The Washington Public Facilities District (“WPFD”) contracted with Hunt Construction Group and Kiewit Construction (together, “Contractor”) to construct a major league baseball stadium in Seattle. Seven years after substantial completion it came to WPFD’s attention that there had been a complete failure in the fire protection coating system required by the contract. The WPFD promptly filed suit against the Contractor for breach of contract. The Contractor moved for summary judgment which was granted by the trial court based on Washington’s six year statute of limitations.
What the Court Said: The Washington Supreme Court reversed the trial court, finding that the stadium project was a “benefit of the state” and thus exempt from the six year limitations period. The Court found that because the stadium provided a public function - recreation - it qualified as a sovereign function of the state and that the statute of limitations did not bar the claim.
* What the Opinion Means: This case shows that when contracting with a public entity in Washington State the statute of limitations may not act as an ultimate bar to recovery if the project is determined to be a sovereign function of the state.
Ira Genberg is a Partner at Troutman Sanders LLP in Atlanta, Georgia, and is General Counsel for Associated Owners & Developers (AOD) in McLean, Virginia. Claiborne Smith is an Associate at Troutman Sanders LLP. For more information, or if you have any questions, contact us at firstname.lastname@example.org.