Cases of the Month
Significant Cases and Decisions Impacting the Construction Industry
By: Ira Genberg and Troy Kiber
1. Contractual Waiver of Remedies, The Weitz Co., LLC v. MacKenzie House, LLC, 2007 WL 4205813 (W.D. Mo. Nov. 26, 2007).
* What the Court Considered: After a contractor sued its subcontractors, the subcontractors counterclaimed for breach of contract, breach of the Prompt Payment Act, and quantum meruit. The contractor moved to dismiss some of these claims, citing language in the subcontract whereby the subcontractor "waives, any claims in quantum meruit, interest on late payments, or any other measure of damages other than as specifically provided [elsewhere in the contract]."
* What the Court Said: The contract provision was enforceable and the subcontractors could not pursue either the quantum meruit or the Prompt Payment Act claim.
* What the Opinion Means: Missouri law, like many jurisdictions, recognizes the ability to waive negligence and other tort claims. Sophisticated parties may also contractually limit their future remedies.
2. Substantial Completion and Liquidated Damages, Quality Design and Constr., Inc. v. City of Gonzales, 977 So.2d 87 (La. Ct. App. 1st Cir. 2007).
* What the Court Considered: A contractor presented its application for final payment and clear lien certificate to the city. Two days later, the city presented a punch list containing some 66 items and withheld final payment. Subsequently, the city recorded a certificate of substantial completion setting a date prior to the application for final payment as the date of substantial completion. The contractor sued, citing a Louisiana law requiring payment of retainage within 45 days of substantial completion. The city counterclaimed for liquidated damages and further costs of completion.
* What the Court Said: Because the date of substantial completion was fixed by the certificate signed by the city, the contractor was entitled to all retainage, and interest and attorney’s fees on this amount.
* What the Opinion Means: Recording of the certificate of substantial completion set the date of formal final acceptance. By law, the city was required to pay all retainage within 45 days of that date, and liable for attorney’s fees if it did not. Even though the project was late, and the city was entitled to some liquidated damages, it was still required to pay the retainage.
3. Damages Under an Implied Contract, Williams v. Coffey, 2008 WL _____ (Tenn. Ct. App. April 21, 2008).
* What the Court Considered: The two parties owned adjacent pieces of land. Plaintiff alleged that the defendant promised to sell a tract of his adjoining land to the Plaintiff for a certain price, and in reliance upon this promise, the Plaintiff cleared the property of trees and brush. When the Defendant refused to sell the property, the Plaintiff brought suit. The Court found an implied contract to sell the land, and awarded the Plaintiff the difference in value between the cleared land and the implied contract price.
* What the Court Said: The proper measure of damages is not the increase in value, but the reasonable value of the plaintiff’s services in clearing the land.
* What the Opinion Means: The trial court found an implied contract - which, when lacking mutual assent, establishes a implied contract in law or quasi contract. Recovery on such a theory is via quantum meruit, or reasonable value of the material and labor furnished. While damages to real estate are usually measured in diminuition of value, here, the property was not damaged but improved. Thus, the proper measure of damages was the value of services performed by the plaintiff.
4. Scope of Miller Act Coverage, Acro-Tek Commuications v. Comnet, LLC, 2007 WL 4162873 (E.D. La. Nov. 20, 2007).
* What the Court Considered: A lower-tiered subcontractor sought to make a claim on a payment bond through the higher-tiered entity with which it contracted. The prime contract was for debris removal and demolition for the United States Army Corp of Engineers.
* What the Court Said: The Miller Act is inapplicable to contracts for demolition of government buildings.
* What the Opinion Means: The prime contract did not mention the Miller Act, and the bond covering the project was a discretionary, voluntary, and common-law - rather than statutory - bond. Additionally, this lower tiered subcontractor could not assert a claim because there was no contract between the principal on the bond and the entity whose rights the lower tiered subcontractor was attempting to assert.
5. Recovering for Specially Fabricated Materials under the Miller Act, Aquatic Plant Mgmt., Inc. v. Paramount Eng’g, Inc., 977 So.2d 600 (Fla. 4th D.C.A. 2007).
* What the Court Considered: As part of a public wetlands project, a subcontractor was engaged to install a drainage system and provide certain plants. When those plants were not installed, the subcontractor brought suit, seeking in part relief against the payment bond. It alleged that the plants were "specially fabricated" materials within an exception to the Little Miller Act’s requirement that materials be incorporated. While Florida’s Little Miller Act was not explicit on this point, the Mechanic’s Lien Law, citied within the Miller Act, did provide lien rights for subcontractors that specially fabricated materials.
* What the Court Said: The Miller Act provided rights against the bond to subcontractors that specially fabricated materials for a job.
* What the Opinion Means: The Miller Act cites to "all persons defined in [the Mechanic’s Lien Law]" which defines furnish materials as supplying materials that are incorporated or supplying "specially fabricated materials." Thus, the Miller Act incorporated this definition and allowed the subcontractor’s action.
6. Admissibility of Evidence of Immigration Status, Salas v. Hi-Tech Erectors, 177 P.3d 769 (Wash. Ct. App. 2008).
* What the Court Considered: A construction worker was injured when he fell from scaffolding on a job site. He brought claims against the scaffolding supplier, alleging it violated state safety standards. The worker was in the United States on an expired visa. When he sought to exclude any evidence of his immigration status, the Court ruled that his status as a non-legal resident would be pertinent to any claim for future wages. At trial, the worker did seek lost future earnings, so evidence of his immigration status was allowed. The jury returned a verdict for the supplier, and the worker appealed, citing the order allowing in evidence of immigrant status.
* What the Court Said: The Court’s ruling was proper: evidence of a party’s immigration status should generally be allowed when that party seeks future lost earnings.
* What the Opinion Means: Evidence of immigration status may be highly prejudicial. However, where such evidence shows that it is unlikely for a party to remain in the country through the period of claimed lost future income, the evidence is relevant and admissible.
7. Piercing the Veil of a Homebuilder in Bankruptcy, In Re Storer, 380 B.R. 223 (Bkrtcy. D. Mont. 2007).
* What the Court Considered: A homebuilder, operating as an Limited Liability Company ("LLC") agreed to construct a residence for the owners for a fixed price. The builder was paid a majority of this price over the course of several draws, but abruptly left the job and filed for bankruptcy. The owners paid another contractor to finish the home, and sought a determination that the amounts they paid this third party were nondischargeable debts in bankruptcy. Key to this inquiry was whether or not the corporate veil of the LLC could be pierced.
* What the Court Said: Because the builder’s actions did not belie any intention to harm the owners, the corporate veil could not be pierced.
* What the Opinion Means: Generally, members of an LLC are not personally liable for corporate debts. However, where a plaintiff can show that the corporation was a mere alter ego of a person used to perpetrate fraud or justify a wrong, then the individual members may be held personally liable. Here, the court accepted the contention that the LLC was a mere alter ego, but found no evidence that it was used to perpetrate a fraud. Rather, the loss stemmed from an inaccurate, but innocent, initial bid.
8. Incorporating an Arbitration Clause by Reference, Kaye v. Macari Building & Design, Inc., 967 So.2d 1112 (Fla. 4th D.C.A. 2007).
* What the Court Considered: A construction contract contained a clause incorporating the plans and specifications by reference. Those plans and specifications contained general notes, which purported to make A-201 "a part of these specifications and this contract," and listed the AIA document under "Contract Documents." A-201 contained an arbitration clause, which one party argued was properly incorporated and binding on the parties.
* What the Court Said: Because the plans and specifications unambiguously indicate an intention to be bound by the AIA document, the arbitration provision contained within A-201 was binding.
* What the Opinion Means: Incorporation must be accomplished by more than mere reference. Here, the explicit language purporting to make A-201 a part of the contract indicated an intention to incorporate that document and bind the parties to the language it contained.
9. Defining "Occurrence" for the Duty to Defend, Liberty Mut. Ins. Co. v. Zurich Am. Ins. Co., 2007 WL 3487651 (E.D. La. Nov. 13, 2007).
* What the Court Considered: An owner sued numerous parties that performed work on an elder care facility, alleging construction defects. It alleged that one particular subcontractor negligently installed an Exterior Installation and Finishing System ("EIFS"), or installed a defective EIFS system. That subcontractor had two insurance policies in place: on insurer (Liberty) defended the case and another (Zurich) refused to contribute. Later, Liberty sued Zurich for contribution. Zurich claimed that there was no accident, and thus no "occurrence" covered by its policy.
* What the Court Said: An intentional act, negligently carried out, is not an accident for the purposes of Insurance coverage, thus there was no occurrence, and no coverage.
* What the Opinion Means: Even when the consequences of an intentional act are unintended, there is no accident and thus no coverage. The subcontractor consciously and deliberately installed the EIFS system. Thus, it could have anticipated the likely results of that action, meaning there was no "accident."
10. Attorney’s Fees on Open Accounts, Frey Plumbing Co. v. Foster, 2008 WL 500943 (La. Feb. 26, 2008).
* What the Court Considered: A plumber repaired a pipe for a homeowner and issued an invoice for some $4,600. When the homeowner did not pay this invoice for more than six months, the plumber brought suit, alleging that it was entitled to attorney’s fees under a Louisiana law allowing such a recovery for failure to pay an "open account." The homeowner opposed the open account claim, citing the facts that this was the first and only transaction between the parties and no line of credit was extended. The applicable law defined open account as "any account for which [payment] is past due, whether or not the account reflects one or more transactions and whether or not at the time of contracting the parties expected future transactions."
* What the Court Said: According to the language of the statute, the suit was on an open account and the plumber could seek attorney’s fees.
* What the Opinion Means: The open account statute does not apply to construction contracts, but does encompass contracts for professional services. The lower courts seemingly bent over backwards to avoid labeling this invoice an "open account," but the language of the statute was clear and unavoidable.
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: email@example.com.