Cases of the Month

Significant Cases and Decisions Affecting the Construction Industry

By: Joseph H. Bucci, Esquire
Saul Ewing LLP

May 2017

1.  In an unpublished opinion of the Court of Appeals of Kentucky, it was held that an architectural firm owed a duty to a subcontractor independent of the duty owed to the construction project owner, thereby allowing the subcontractor to maintain a negligent misrepresentation claim against the architectural firm’s alleged negligence in preparation of the architectural drawings for the owner, a school district. This case survived summary judgment and will proceed to trial. D.W. Wilburn, Inc. v. K. Norman Berry Associates, 2016 WL 7405774; (Court of Appeals of Kentucky, December 22, 2016).

*  What the Court Considered: On an appeal of a motion for summary judgment granted by the trial court in favor of the architectural firm, the appeals court reversed and stated that the standard of review is whether the trial court correctly found that there were no genuine issues as to any material fact and that the moving party was entitled to judgment as a matter of law.

*  What the Court Said: In overturning the trial court, the appeals court concluded that the architectural firm owed a duty to the subcontractor independent of the duty owed to the owner and therefore the subcontractor could proceed with its negligent misrepresentation claim against the architect who was alleged to be negligent in the preparation of the architectural drawings for the owner. The appeals court also stated that the economic loss rule did not apply to bar a negligent misrepresentation claim brought by a subcontractor against the architect after the subcontractor relied on the architect’s plans, which the subcontractor alleged were negligently prepared.

*  What the Opinion Means: If you are an architectural or engineering firm preparing drawings and specifications for a construction project, you need to be aware that intended users of your work product may assert a claim against you for negligent misrepresentation grounded on Restatement (Second) of Torts, §552. Make sure your insurance coverage extends to these claims. This case is proceeding to trial, and it remains to be seen whether or not the subcontractor can fully establish its burden of proof in its claims against the architect.

2. In a breach of contract action brought by a water treatment facility against its design builder, the Court of Appeals in Texas found that the trial court properly dismissed the design builder’s motion to dismiss predicated on the allegation that the Owner failed to include a Certificate of Merit that complied with the statutes of Texas in an action against an architect or engineer. Melden & Hunt, Inc. v. East Rio Hondo Water Supply Corporation, 511 S.W. 3d 743 (December 17, 2015: Court of Appeals of Texas).

*  What the Court Considered: The appellate court reviewed whether or not the trial court’s decision to grant or deny a defendant’s motion to dismiss under a statute requiring a certificate of merit in an action for damages arising out of the provision of professional services constituted an abuse of discretion by the trial court.

*  What the Court Said: In construing the applicable state statute, the Court of Appeals found that the owner’s expert’s certificate of merit demonstrated that the engineer who completed the certificate was knowledgeable and competent to testify regarding the merits of the water authority’s action against the design builder for breach of contract and negligence in connection with the design and construction of the water treatment plant.

*  What the Opinion Means: In an action against an architect or engineer alleging damages arising out of the provision of professional services, compliance with the State’s statute calling for a certificate of merit must simply provide a factual basis for the allegations of professional errors or omissions and need not recite how exactly the alleged violation occurred.

3. Under New York law, a determination that a contract was unconscionable generally requires a showing that the contract was both procedurally and substantively “unconscionable” when it was made. In other words, there must be a showing of an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party. Romig v. Pella Corp., 210 F.Supp.3d 826 (September 26, 2016; U.S. District Court, South Carolina).

*  What the Court Considered: This was a claim by a purchaser of residential windows alleging defective manufacturing followed by a claim under the manufacturer’s warranty, combined with a written release of claims related to the consumer’s warranty claim.

*  What the Court Said: Although a written release of claims may be set aside under New York law if induced by fraud, here, the consumer failed to establish the elements necessary for fraud. The court found that the consumer did not lack meaningful choice or bargaining power when he entered into a release of claims regarding defective windows with the window manufacturer.

*  What the Opinion Means: Where your claim arises out of a written warranty, unless you can demonstrate fraud or unconscionability, your claims will be governed by the terms of the written warranty, as well as any subsequent written release you enter into following the filing of a warranty claim. Unless a longer or extended warranty is negotiated at the time the release is entered into, you will be bound by the terms of the original warranty and your subsequent release.

4. In a case challenging the assessment of liquidated damages by the City of Baltimore against Balfour Beatty Infrastructure arising from waste water treatment system construction contracts, the issue arose regarding whether or not Balfour Beatty was required to exhaust its administrative remedies against the City before suing in federal court. Balfour Beatty Infrastructure, Inc. v. Mayor and City Council of Baltimore, 2017 WL 1476147 (April 25, 2017: U.S. Court of Appeals, Fourth Circuit).

*  What the Court Considered: The Court construed the provisions of the parties’ construction contract regarding the resolution of claims and disputes, which here required Balfour Beatty to seek administrative review of any dispute related to its contracts with the City before suing in court.

*  What the Court Said: Balfour Beatty bypassed the administrative process incorporated into its contracts with the City and went directly to federal court rather than proceeding through the administrative dispute resolution process which would have afforded Balfour Beatty an administrative hearing. Here, the Court of Appeals upheld a decision of the District Court which dismissed Balfour Beatty’s action against the City for lack of subject matter jurisdiction because the administrative dispute resolution process was not undertaken or exhausted before filing suit.

*  What the Opinion Means: If you are proceeding under a construction contract with a public entity and there is an administrative dispute resolution/claims resolution procedure set forth that would afford you a hearing and an opportunity to be heard, you must exhaust that administrative remedy prior to filing in court.

5. The executive exemption from the Fair Labor Standards Act (FLSA) and the District of Columbia Minimum Wage Act (DCMWA) does not apply in an action by an employee against the general contractor alleging that he was not paid time and one-half for overtime hours worked in violation of the FLSA and DCMWA, even if the employee supervised two or more subcontractors since the exemption only applied if the employee supervised two or more fellow employees, not subcontractors. Hernandez v. Stringer, 210 F.Supp.3d 54 (September 29, 2016: U.S. District Court, District of Columbia).

*  What the Court Considered: Here, the court considered the provisions of the FLSA and the DCMWA and stated that exemptions from these Acts are to be narrowly construed against the employers seeking to assert them.

*  What the Court Said: An employee has the burden of proving that he performed work for which he has the burden of proving that he was not properly compensated in violation of the FLSA or the DCMWA. The court also found that exemptions from the FLSA are to be narrowly construed against the employers who seek to assert them. Here, the executive exemption from the FLSA and the DCMWA did not apply.

*  What the Opinion Means: If you are an employer bound by the FLSA, or the DCWPCL which mirrors the FLSA, you can only claim the executive exemption if the employee actually supervises two or more fellow employees, not two or more subcontractors.

Joseph H. Bucci is a Partner in the Construction Litigation Group at Saul Ewing LLP, and resides in the Pittsburgh office. Joseph represents contractors, subcontractors, owners, real estate developers, wind farm developers, public utilities, architects, engineers, energy and pipe liners, construction managers, design builders, sureties and government agencies related to construction and/or real estate development projects.