construction law | recent developments in construction law
TRANSCRIPT
Recent Developments in Construction Law
Moheeb Murray
Bush Seyferth PLLC
100 West Big Beaver Road, Ste. 400
Troy, Michigan 48084
(248) 822-7809
Joshua W. Mermis
West Mermis, PLLC
1301 McKinney St., Suite 3120
Houston, Texas 77010
(713) 255-3550
Melissa Lin
Righi Fitch Law Group
2999 N. 44th St. Ste 215
Phoenix, Arizona 85018
(602) 385-6785
Robert N. Johnson
Quintairos, Prieto, Wood & Boyer, P.A.
255 South Orange Ave. Ste 900
Orlando, Florida 32801
(407) 766-8356
Alexandra A. Sued Fullerton Beck, LLP
One West Red Oak Lane
White Plains, New York 10604 (914) 305-8660
Moheeb Murray represents clients in complex commercial disputes and leads
Bush Seyferth PLLC’s insurance coverage practice group. In commercial litigation
matters, his experience includes complex breach of contract and breach of
warranty claims, shareholder actions, and cases involving misappropriation of trade
secrets and covenants not to compete. In his insurance coverage practice, he
represents leading insurers in life, health, disability, ERISA, long-term care, annuity,
P&C, commercial general liability, and auto-insurance no-fault matters.
Joshua W. Mermis is a founding partner of West Mermis, PLLC. He has broad
experience in litigation, construction, energy, and business matters. He also has
extensive trial experience having conducted jury and bench trials, as well as
arbitrations involving significant multi-million-dollar commercial projects
throughout Texas. He represents operators, general contractors, subcontractors,
developers, suppliers, product manufacturers, businesses, and individuals in a variety
of disputes.
Melissa Lin is a partner at Right Fitch Law Group. Her practice includes insurance
coverage and the representation of individuals, businesses, contractors, and
municipalities in tort and contract litigation, primarily in the areas of general liability,
personal injury, employment, construction defect, and product liability litigation.
Robert N. Johnson is a partner at Quintairos, Prieto, Wood & Boyer, P.A.
practicing in the areas of construction defect litigation, sinkhole claims, property
damage claims, first party insurance claims, and insurance coverage disputes. His
practice also includes handling PIP/no-fault defense and investigations, bodily
injury, subrogation claims, foreclosure representation for mortgage loan servicers
and lending institutions, creditors’ rights, bankruptcy, and defense of Florida
Consumer Collection Practices Act (FCCPA), Fair Debt Collection Practices Act
(FDCPA), and Florida Deceptive and Unfair Trade Practices Act (FDUTPA)
claims.
Alexandra A. Sued is an Associate with Fullerton Beck, LLP. She focuses her
practice in the area of general liability, with an emphasis on high-exposure New
York Labor Law cases, involving construction- related catastrophic accidents,
wrongful death, and complicated medical issues. She is also a member of the firm’s
commercial litigation group, representing clients in breach of contract matters of all
kinds.
This paper examines recent case law from Michigan, Ohio, Illinois, Indiana,
Wisconsin, Minnesota, Texas, Oklahoma, Louisiana, Arizona, Florida, Tennessee,
Georgia, and New York. It is designed as a quick reference to show general
trends in construction law for practitioners and insurance adjusters by
summarizing key case decisions that have interpreted the law in significant ways.
The following cases are chosen to highlight and summarize present relevant issues
seen in the preceding 12-24 months. The cases are listed according to jurisdiction.
Michigan recently ruled on what constitutes a covered “occurrence” under
the CGL policy. In Skanska USA Building Inc., v. M.A.P. Mechanical Contractors,
Inc., 505 Mich. 368 (2020), the Court examines whether an accident cannot include
damage limited to insured’s own work product and whether faulty subcontractor
work unintended by the insured can constitute an “accident” under a CGL policy.
In Ohio, courts recently examine the subcontractor’s right to file a lien even
if that lien arose from a contractual claim subject to alternative dispute resolution
in Contract Supply, Inc. v. T.H. Marsh Construction Co., No. CA 2019-11-195,
2020 WL 4436346 (Ohio Ct. App. August 3, 2020).
In Illinois, the Court of Appeals examine the duty to defend. In West Bend
Mut. Ins. Co. v. Trapani Construction Co., Inc., No. 1-19-1772, 2020 WL 6151392
(Ill. App. Ct. 1st Dist. Oct. 19, 2020) the Court examine the duty to defend for
damages that were not to actual property being worked on but to something other
than the project itself.
Indiana courts examine whether professional errors are covered under
Indiana Law in Sentinel Ins. Co., Ltd. v. Durham Engineering, Inc., 431 F. Supp.
3d 1023 (S.D. Ind. 2020).
In Wisconsin, courts examine contractor’s duties and remedies from its
contractual bargain and independent torts’ duty in Mechanical, Inc. v. Venture
Electrical Contractors, Inc., 392 Wis.2d 319 (Wis. 2020).
Arizona courts recently ruled on a diverse set of construction law cases.
Standard Constr. Co. Inc. v. State examines whether a contractor's notice of claim
was timely under the tolling provision of A.R.S. §12-821.01. Safeway Ins. Co. v.
Guerrero, and Field v. Artizan Excavation Inc., discuss the general principles of
indemnity law and whether those principles apply to resolve purely commercial
indemnification disputes. In Shea Connelly Dev. LLC v. Arizona Registrar of
Contractors the court considers whether accord and satisfaction can be applied to
alter a subcontractor’s or material supplier’s right to receive pay under the Prompt
Pay Act. 1st Choice Surfaces LLC v. White, found that neither claim nor issue
preclusion applied to bar a homeowner from recovering in an administrative law
proceeding after the homeowner lost in a civil suit. Fid. Nat'l Title Ins. Co. v.
Osborn III Partners LLC, discusses whether the principles of United Services
Automobile Ass'n v. Morris apply to title insurance.
Florida law experienced significant changes to the Statute of Repose. The
new amendment under this statute clarified the definition of completion of contract,
extended the time within which defendants subject to a suit filed close to the end of
the 10-year period can file claims, and established a Chapter 558 Notice of Claim
stops the clock.
The Tennessee Legislature recently passed Tennessee Senate Bill 2681,
which included changes to Tenn. Code Annotated § 28-3-202 and § 28-3-203
(“Statute of Repose”) by broadening the statute to include arbitration and other
dispute resolution proceedings.
Georgia Governor Brian Kemp signed bipartisan Senate Bill 315 changing
Georgia’s Lien Law Statute, O.C.G.A. 44-14-366. The amendment to the lien law
clarified that a lien waiver will only waive lien or bond rights against the property
and does not otherwise waive the right to file a lawsuit for non-payment
(substantive rights). The amendment also changes the title of the waiver form to
reflect that they only relate to lien and payment bond rights. The amendment also
increases the time to file an affidavit to 90 days. Finally, the amendment provides
that the filing of a claim of a lien does not serve to suspend a waiver and release
any longer, and only the filing of an affidavit of nonpayment can suspend a waiver
and release.
In New York, courts largely continue to interpret the Labor Law Statute as
broadly as possible to provide recovery for the injured worker. In Kehoe v 61
Broadway Owner LLC, the court added another standard to determine whether an
activity constitutes repair and not routine maintenance and therefore, covered under
the Labor Laws. In Morales v 2400 Ryer Ave. Realty, LLC, 2021 NY Slip Op 00498,
the legal question was resolved in the plaintiff's favor even though it was undisputed
that the plaintiff misused a safety device. However, this past year a decision in favor
of the defendant was issued on Lemus v. New York B Realty Corp, 2020 NY Slip
Op 04933, where the court ruled that Section 240 of the Labor Law does not
necessarily apply to an accident involving large objects.
I. Michigan Case Law Updates
A. Skanska USA Building Inc., v. M.A.P. Mechanical Contractors, Inc., 505
Mich. 368 (2020)
Plaintiff construction manager, Skanska, subcontracted heating, and
cooling to Defendant MAP on a renovation project for Mid-Michigan Medical
Center. MAP obtained a CGL insurance policy from Amerisure that named
Plaintiff Skanska as an insured. MAP installed a steam boiler, but some of the
expansion joints had been installed backwards, subsequently causing significant
damage. The owner sent a demand letter for payment of all costs or repairs and
replacements to Skanska, which performed the work totaling $1.4 million.
Skanska submitted a claim to Amerisure, which denied coverage. In response,
Skanska sued MAP and Amerisure seeking payment.
After completing discovery, Amerisure moved for summary disposition. It
argued that MAP’s defective construction was not a covered “occurrence” under
the CGL policy, which defined an “occurrence” as an “accident.” The trial court
denied the motion on the grounds that an occurrence may have happened under the
definition of “accident” adopted in the earlier Michigan Court of Appeals case of
Hawkeye-Security Ins. Co. v. Vector Constr. Co. Amerisure filed a renewed motion
for summary disposition and Skanska filed a dispositive motion related to
Amerisure’s liability. The trial court denied both, citing Hawkeye’s holding that
“defective workmanship, standing alone, is not an occurrence within the meaning
of a general liability insurance contract.”
Both parties appealed. The appellate court reversed and ordered summary
disposition in Amerisure’s favor. The court held there was no occurrence under the
policy based on Hawkeye’s definition of “accident,” because the only damages
were to insured’s own work product. Skanska then appealed to the Michigan
Supreme Court.
The Supreme Court reviewed the contract-interpretation issue de novo,
agreeing that the parties were rightly focused on whether the error was an
“accident” constituting an “occurrence” covered by the policy. Amerisure argued
that an accident must involve a fortuity. But the Court responded that a fortuity is
only one way to show an incident is an accident, not the only way. The Court held
that faulty work falls within the plain meaning of “accident,” and the contract’s
exclusions and exceptions did not indicate faulty work was not covered. The Court
distinguished Hawkeye because it interpreted a 1973 policy. The Court then
expressly limited its holding to cases involving pre-1986 CGL policy language.
The Court therefore reversed the Court of Appeals’ conclusion that an accident
cannot include damage limited to insured’s own work product. It held that faulty
subcontractor work unintended by the insured can constitute an “accident” under a
CGL policy.
B. Ric-Man Const. Inc., v. Pioneer Special Risk Ins. Services, Inc., No. 19-
13374, 2021 WL 778912 (E.D. Mich. 2021)
Plaintiff Ric-Man Construction moved for summary judgment in this
insurance-coverage dispute to declare Defendant Pioneer had breached its duty to
defend and indemnify Ric-Man under a “claims made” policy. The court examined
whether the claims for which Ric-Man sought defense and indemnity fell within
the Pioneer policy’s coverage period. Ric-Man moved for summary judgment
before the close of discovery, arguing that the court could decide the issue solely
on the policy language and the allegations in its amended complaint. The court
denied the motion, concluding that certain fact issues remained that precluded a
coverage determination.
The Pioneer policy was in effect from December 2018 through June 2020
and covered any “professional claims” made against Ric-Man and reported to
insurer during the policy period. Before the policy’s effective date, the project’s
engineering-services company sued Ric-Man and the Oakland County Water
Resource Commission (OCWRC) in state court regarding a project all three parties
were involved with in 2014-2015. In April 2019, after the policy commenced,
OCWRC filed a crossclaim against Ric-Man in the litigation regarding the 2014-
2015 project. In November 2019, Ric-Man filed a complaint for declaratory relief
on that claim in Michigan federal court. Pioneer argued that it was not obligated to
defend and indemnify Ric-Man, because the original complaint and crossclaim are
a single claim and one claim arose outside the coverage period.
Under Michigan law there is no duty to defend if the policy does not apply.
Ric-Man argued that the engineer’s grievances were confined to defects in Ric-
Man’s physical work, not professional services, but OCWRC’s claims filed in 2019
were for “professional services” as defined in Pioneer’s policy. The court
disagreed, holding that the engineer’s complaint alleged defective performance in
both “project management” and “design delegated responsibility or design assist.”
The policy expressly defined “professional claim” to contemplate that various
claims for relief would be considered a single claim when they arose out of the
same transaction, and all claims would be considered first made when the earliest
claim was made. The court therefore denied Ric-Man’s motion, because proving
whether the state-court litigation allegations could be read as a single claim that
was first presented before coverage had commenced required a more fully
developed record.
II. Ohio Case Law Updates
A. Contract Supply, Inc. v. T.H. Marsh Construction Co., No. CA 2019-11-
195, 2020 WL 4436346 (Ohio Ct. App. August 3, 2020)
Contract Supply was a subcontractor to T.H. Marsh Construction (“Marsh”)
on the construction of senior living center. The living center developer had a prime
contract with Marsh. The subcontracts incorporated the prime contract by reference
and generally provided that all claims arising out of the subcontracts would be
handled according to the prime contract, including the submission of claims. The
prime contract required claims to first be mediated, then arbitrated or litigated, at
the owner’s discretion.
The developer terminated the prime contract and assumed the prime
contractor’s rights and responsibilities. Contract Supply filed a complaint against
the developer, the former prime contractor, and others to foreclose a mechanic’s
lien and for breach of contract, among other claims. The defendants moved to
dismiss for lack of subject-matter jurisdiction, arguing that Contract Supply failed
to satisfy the condition precedent to pursue alternative dispute resolution. Contract
Supply argued that the proper remedy was to stay the case rather than dismiss and
that its foreclosure claim was not arbitrable under Ohio law because it involved title
to real estate.
The trial court granted the motions to dismiss. Contract Supply appealed,
and the appellate court reversed on two issues. First, the appellate court held that
the trial court had subject-matter jurisdiction because the amount in controversy
exceeded the jurisdictional threshold under Ohio’s statutes. It observed that in Ohio,
“a court of common pleas has subject matter jurisdiction over a dispute, even if that
dispute is subject to an arbitration agreement.” Therefore, if a court determines that
the issues in an action are subject to arbitration and one of the parties requests a
stay (as Contract Supply did), then the court must stay the proceedings pending
arbitration, unless the party seeking the stay is in default in proceeding arbitration.
Second, the court held that Contract Supply was not in default of arbitration because
the subcontract specifically stated that Contract Supply “may without prejudice to
any other available remedies, file a mechanic’s or construction lien, but may not
stop the Work of this Subcontract.” The court concluded that this specifically
reserved Contract Supply’s right to file a lien even if that lien arose from a
contractual claim subject to alternative dispute resolution. But the court noted that
Contract Supply’s filing of the lien did not prevent the developer from exercising
its right to choose arbitration or litigation.
III. Illinois Case Law Updates
A. West Bend Mut. Ins. Co. v. Trapani Construction Co., Inc., No. 1-19-
1772, 2020 WL 6151392 (Ill. App. Ct. 1st Dist. Oct. 19, 2020)
Trapani Construction was the general contractor of a nine-story residential
condo complex. Village Green developed and sold the condos. It had a CGL policy
from National Fire. ALL Masonry and ATMI Dynacore were subcontractors,
covered under a CGL policy from West Bend that includes an “Additional Insured
– Contractor’s Blanket” endorsement. After noticing problems with water
infiltration that damaged common areas, individual units, and personal property in
the units, the condo complex’s board filed a complaint against all of the above,
alleging construction defects and a breach of implied warranty of habitability. The
parties settled for $500,000 of which Trapani and National Fire paid $145,000.
Trapani and Village Green sought defense and indemnity from West Bend
as additional insureds on the CGL policy issued to ALL Masonry. National Fire
intervened. West Bend asserted there was no coverage for construction defects
because allegations in the board’s complaint did not allege property damage caused
by an “occurrence” as covered by the CGL policy. The trial court ruled that West
Bend had a duty to defend Trapani and Village Green, because the complaint had
alleged property damage in the form of damage to unit owners’ personal property.
West Bend also had a duty to indemnify because the settlement payments were for
a covered loss made in reasonable anticipation of liability. West Bend appealed.
The Illinois Court of Appeals affirmed, holding that because damages were
not to actual property being worked on but to something other than the project itself,
West Bend had duty to defend against claims as “property damage caused by an
occurrence.” The Court of Appeals also affirmed that West Bend had a duty to
indemnify for a “covered loss made in reasonable anticipation of litigation.”
B. Cretext Companies, Inc. v. Precast Engineering Co., Inc., No. 1:20-
CV- 00321, 2020 WL 7078380 (N.D. Ill 2020)
In 2007, Cretext Companies’ wholly owned subsidiary, J.W. Peters Inc.,
entered into a subcontractor agreement with Bentley Construction to design and
construct the precast portion of a parking structure in Chicago. J.W. Peters obtained
a subcontractor performance bond from Continental Casualty Co. and retained
Precast Engineering as a subcontractor to work specifically on the structure’s
design. In 2018, Bentley sued Continental in Illinois state court alleging J.W. Peters
had improperly designed the precast part of the structure, resulting in damages.
Bentley had no problem with actual construction and did not allege any wrongdoing
other than faulty design for which Precast was responsible. The case settled, and
Continental paid Bentley $75,000. Continental assigned any rights/claims related
to a lawsuit against Precast to Cretext (J.W. Peters had dissolved in the meantime).
Cretext brought an indemnity action against Precast to recover the
settlement amount, which it alleged involved solely Precast’s work. Precast filed a
motion to dismiss for failure to state a claim. The court denied the motion, holding
that Cretex alleged sufficient facts to state a claim for implied indemnity.
Under Illinois case law, to state a claim for implied indemnity, a plaintiff
must plausibly allege (1) that there was a pre-tort relationship between the
indemnitor and indemnitee, and (2) that the indemnitee was held derivatively liable
for the acts of the indemnitor. The court held that complaint adequately alleged a
pre-tort relationship: J.W. Peters retained Precast as a subcontractor and the
project’s nature necessarily implied an “ongoing, time-consuming, and
collaborative business relationship.” It was also reasonable to infer that Cretex
stood in Peters’ legal shoes, because Cretext was the corporate parent and remained
responsible for Peters’ obligations upon its dissolution. The court also held that
complaint adequately alleged derivative liability: Precast was responsible for
designing precast portion of parking structure and it was solely the faulty design
that gave rise to Cretext’s liability to Bentley. The court held that the allegations
were sufficient to support both elements plead for an implied indemnity claim.
C. Village of Onarga v. Atlas Excavation, Inc., No. 3-18-0716, 2020 WL
996471 (Ill. App. Ct. 3rd Dist. Feb. 28, 2020)
Plaintiff Village of Onarga brought this claim seeking damages allegedly
sustained as a result of Atlas Excavation’s deficient work on a sewer project. In
2000, Plaintiff entered into a contract with Atlas to build a sewer system to service
its residents. Hanover was Atlas’s surety. Per the contract, Atlas was supposed to
complete the work by July 5, 2010. Atlas substantially completed its work in July
2010, but did not assert final completion until August 2010. In November 2010,
Atlas received a letter from Plaintiff about deficiencies in the sewer system.
Plaintiff and Atlas engaged in discussions and investigations about those
deficiencies from 2011 through 2016.
Plaintiff filed a complaint in 2018 against Atlas and Hanover alleging
breach of contract, breach of express and implied warranties, and negligence.
Plaintiff also alleged a breach of performance bond against Hanover alone. The
complaint alleged 15 deficiencies that arose after Atlas began building. Defendants
both filed a motion to dismiss on statute-of-limitations grounds. When the trial
court denied the motion, Defendants both moved to certify a question for
interlocutory appeal: “In regards to an owner[']s claim for damages stemming from
allegedly defective construction, does the four-year statute of limitations provided
under 735 ILCS 5/13-214(a) begin to run from (A) the time that the owner, or its
privity, knew or should reasonably have known of such act or omission giving rise
to its claims, or (B) the time of final completion of the construction project?”
Defendants argued that, under Illinois’ applicable statute of limitations, 735
ILCS 5/13-214, the statute of limitations on construction negligence claims began
to run when Plaintiff knew or should have known of the negligent construction act
or omission. Plaintiff argued that section 13-214 was broad enough to include the
single-endeavor doctrine, which would toll the statute of limitations until project
completion. The single-endeavor rule provides a general exception to the general
rule that a statute of limitations begins to run on the date payment is due under the
contract. Under this rule, “a construction project is a single endeavor and the statute
of limitations does not begin to run until the endeavor is completed rather than when
payment is due under the construction contract.” Therefore, Plaintiff argued that
because discoveries of defects occurred as late as 2014, the project was never
completed and the statute of limitations never started. Defendants replied that the
single-endeavor rule applied only to claims for nonpayment for construction
services. The court sided with the defendants, relying on the statute’s plain
language. Section 13-214(a) states that actions must be brought within four years
from the time Plaintiff or its privy knew or should have known of a negligent
construction act. The statute does not include any mention of final completion or
the single-endeavor rule as triggering the limitations period. The court remanded
the case to determine when Plaintiff knew or should have known of negligent
construction.
IV. Indiana Case Law Updates
A. Sentinel Ins. Co., Ltd. v. Durham Engineering, Inc., 431 F. Supp. 3d 1023
(S.D. Ind. 2020)
Plaintiff Sentinel Insurance Company insured Durham under a CGL policy.
Sentinel sued, seeking a declaration that it did not owe a defense or indemnity to
Durham Engineering in connection with a lawsuit filed against it by Paul Buck after
his wife and children died in a multiple-vehicle accident. The accident occurred at
the highway-lane construction site where Durham was contracted to perform
construction-inspection services. Buck’s wife’s vehicle had come to a stop behind
traffic and was rear-ended by a tractor-trailer. Buck alleged that Durham and others
had “carelessly and negligently breach the duties [t]hey owed to the traveling
public.” The Buck lawsuit alleged that Durham and others failed their duty (1) “to
exercise reasonable care in the selection, supervision, inspection, retention, and
oversight of those person or entities which [they] selected to repair, maintain,
construct, and/or reconstruct” the highway lanes and (2) “to conduct the planning,
design, maintenance, construction, reconstruction and repair activities in a safe and
reasonable manner and to control the flow of traffic in and around the construction
zones in a safe an reasonable manner.”
Sentinel argued that a lawsuit alleging negligent performance of
professional services is not an “occurrence” covered under its policy with Durham.
In response to Sentinel’s motion, Buck argued that because Durham had a
nondelegable duty of safety under its Subconsultant Contract, Durham could be
held vicariously liable for its subcontractors’ negligence that was not based on
performing professional engineering services. The court observed that although
Buck’s response brief argued Durham had a nondelegable duty of safety that could
subject it to vicarious liability for acts and conduct of non-professional
subcontractors, the allegations in the complaint were not so broad. They were
limited to alleged failures to adequately perform construction inspection services.
The court then interpreted the insurance policy’s coverage of bodily injury caused
by an “occurrence.” The court ruled that it is well-established under Indiana law
that “occurrence” in such policies does not cover professional error. Accordingly,
the court granted Sentinel’s motion for summary disposition.
V. Wisconsin Case Law Updates
A. Mechanical, Inc. v. Venture Electrical Contractors, Inc., 392 Wis.2d 319
(Wis. 2020)
Plaintiff Mechanical and Defendant Venture were both subcontractors of JP
Cullen & Sons for a prime contract between Cullen and the state of Wisconsin to
build a research lab addition to an existing research facility at University of
Wisconsin-Milwaukee. Cullen’s contracts with Mechanical and Venture were
separate, but similar. Both contracts used identical language regarding specified
duties and obligations associated with timely performance. And each contract
expressly stated that there would not be any entitlement to a claim for damages or
compensation based on delay. Venture sought to recover damages from Cullen for
costs incurred because of delays and untimely performance. But Cullen denied the
claim in part because the subcontract precluded recovery for delay. Venture did
not pursue the claim further.
Unrelated to Mechanical’s work for Cullen, Venture asked Mechanical to
install concrete embeds. Mechanical billed Venture $11,961.31 for its work, but
allegedly, Venture did not pay. Mechanical sued to recover that amount. Venture
counterclaimed in negligence, seeking $1.1 million for delay-related damages.
Venture alleged that Mechanical owed Venture a duty to comply with Mechanical's
schedules under its subcontract and to timely perform its project work. Venture
contended that Mechanical's performance was untimely and out of sequence,
breaching its duties and causing Venture to incur delay-related losses from overtime
hours and cost overruns. Mechanical moved for summary judgment, arguing that
the economic loss doctrine barred the negligence claim. The trial court granted the
motion. The Court of Appeals of Wisconsin reviewed de novo and affirmed.
Venture argued that it was not applicable because there was not a contract
between Venture and Mechanical. Under Wisconsin law, the economic loss
doctrine applies when a claimant seeks economic loss arising from duties under
interrelated contracts, even where there was no direct two-party contractual
relationship. Here, the construction project involved multiple interrelated contracts
and each subcontractor allocated its risks, duties, and remedies in their contracts for
the project as a part of a single comprehensive scheme. The court found that all of
the policies underlying economic loss doctrine in nonprivity cases applied to
Venture’s claim against Mechanical: maintaining a distinction between contract
and tort, protecting commercial parties’ freedom to allocate economic risk, and
encouraging parties best situated to assess risk of losses and insure against it.
The court found there was no reason to free Venture from its contractual
bargain and allow it to pursue a tort claim to recover what are effectively contract
damages. Venture’s claim was based on duties Mechanical owed to Cullen and the
state under the prime contract, and that prime contract was incorporated into each
subcontract. Venture was a commercially sophisticated party and knew it would be
bound to the duties and remedies in its subcontract with Cullen. The court
concluded that Mechanical owed no independent tort duty to Venture, and finding
otherwise would eliminate the contract/tort distinction.
B. Loren Imhoff Homebuilder, Inc. v. Taylor, 395 Wis.2d 178 (Wis. 2020)
Defendant homeowners entered into a construction contract with Plaintiff
homebuilders for a remodeling project. The contract included a binding arbitration
agreement. After various disputes bogged down the project, the homebuilder
brought an action against homeowners and petitioned to compel arbitration. After
two unsuccessful mediation attempts in Fall 2017, there was a five-day arbitration
hearing. The arbitrator issued a decision in September 2018 with a net award in
favor of the builder.
The homeowners moved the circuit court to vacate the arbitration award on
multiple grounds. The court rejected all but one claim: that the arbitrator was on
multiple occasions drowsy and asleep during the hearing, and as a result, he
imperfectly executed his powers. The circuit court vacated the award. The
homebuilder appealed the circuit court decision. The appellate court reversed the
circuit court’s order and directed circuit court to confirm the award.
The appellate court stated that the details of the arbitration were not relevant
to deciding the case. It analyzed Wisconsin law regarding arbitration and forfeiture
of bases to contest arbitration awards. The homeowners had asked arbitrator to
recuse himself on allegations of bias, but did not assert that arbitrator had exhibited
drowsiness or sleeping during the hearing in their request. The court held that that
the homeowners forfeited the arbitrator’s drowsiness/sleeping as a basis to vacate
the award because they failed to raise the issue during the arbitration hearing.
C. Skyrise Const. Group, LLC v. Annex Const., LLC, 956 F.3d 950 (7th Cir.
2020)
On July 19, 2017, Plaintiff Skyrise submitted a bid for carpentry labor for a
housing project near a university. Defendant Annex’s president replied via email
with a letter of intent to “work on getting [Skyrise] contracts in the near future.”
Skyrise immediately blocked out the project on its calendar and declined to pursue
or accept other work during that period. Annex emailed a proposed contract to
Skyrise on August 2 and again on September 6 after Skyrise delayed signing and
returning. Skyrise asked Annex to sign the bid, which it did on September 22.
Skyrise’s project manager signed and return the agreement with handwritten edits
throughout. The two discussed a potentially broader scope of work throughout
October. On October 31, Skyrise emailed an expanded proposal, and Annex replied
that it would decline the proposal. Annex’s attorney emailed and overnighted a
letter formally rejecting the October 31 proposal. The letter stated that Annex
would not be accepting the marked-up proposed contract, which Annex contended
was null and void.
Skyrise sued, seeking damages for breach of contract, promissory estoppel,
negligent misrepresentation, and violations of a Wisconsin and Illinois deceptive
business practice statutes. Annex filed a motion for summary judgment on all
claims, which the district court granted. The Seventh Circuit reviewed de novo,
applying Wisconsin law, and affirmed.
Skyrise argued a contract was formed when Annex signed the July 19 bid
or alternatively when Skyline signed and returned the proposed contract. The court
said neither were a valid contract under Wisconsin law. The court held that the
signed bid was a preliminary writing to be followed by a formal contract. It was
signed to indicate that it would be part of a final agreement, not a contract in and
of itself. The court held that the marked-up version of the proposed contract did not
constitute acceptance. Rather, it created a counteroffer as a result of the
handwritten edits being material revisions. Without a valid contract, Skyrise did not
have a valid breach of contract claim.
The court held that Skyrise also did not have a valid promissory estoppel
claim because Skyrise knew or should have known that negotiations could fall apart
before parties entered into a binding agreement. The court also stated Skyrise did
not act reasonably when it immediately blocked out its schedule and declined to
pursue other bids on the basis of the letter of intent that placed significant conditions
on its interest in Skyrise’s bid. The Court also held that Skyrise’s other three claims
were not valid because Skyrise failed to demonstrate any false statement of fact or
deceptive conduct by Annex.
VI. Minnesota Case Law Updates
A. Village Homes of Grandview Square II Association v. R.E.C., Inc., No.
A19-1681, 2020 WL 4432818 (Minn. 2020)
Plaintiff Village Homes was the homeowners association of a condominium
complex. It obtained a jury verdict on claims arising from construction defects in
the stucco system of the condo building. Plaintiff and Defendant R.E.C. settled.
Third-party Defendant Fox Valley went to trial and lost. On appeal, it argued that
the district court erred for not dismissing the claims as untimely, and for denying
its post-trial motions. The Court of Appeals affirmed.
Defendant R.E.C. managed construction of the complex between 2002-
2005. It subcontracted Fox Valley to perform exterior stucco work. In 2014,
Plaintiff learned about moisture problems in associated properties and hired a
company to investigate its building. The inspection found construction defects with
three components of the stucco system that Fox Valley installed. Plaintiff sued
R.E.C. in February 2016. In June 2016, R.E.C. filed third-party actions against 11
subcontractors, including Fox Valley. Plaintiff amended its complaint to assert all
claims against the subcontractors, including Fox Valley. The record shows that
Plaintiff sent the amended complaint to Fox Valley’s president via certified mail in
June 2016, but it did not send the summons. Fox Valley did not answer the
amended complaint until May 2017, raising a service-of-process/jurisdictional
defense. In August 2017, Fox Valley moved for summary judgment, but did not
raise its jurisdictional defense, thus waiving it. In March 2019, a jury found Fox
Valley had negligently performed and breached its contract with R.E.C. The jury
awarded Village Home damages totaling over $800,000.
Minnesota law has a two-year statute of limitations for construction-related
claims, which begins running upon discovery of injury. The date that litigation
commences determines whether the claim is time barred. Here, the discovery of
injury was at earliest July 2014. Plaintiff commenced litigation in February 2016,
and the third-party action was initiated in June 2016. But Fox Valley argued that
R.E.C.’s service was defective and therefore did not start Plaintiff’s action against
Fox Valley. Fox Valley contended that the limitations period did not start until it
waived its jurisdictional defense in August 2017. The court rejected that argument.
It held that a third-party plaintiff’s failure to effectively serve a third-party
defendant does not affect the plaintiff’s timely and properly served amended
complaint. Accordingly, there was no time bar on Plaintiff Village Home’s claims
against Fox Valley.
Fox Valley filed post-trial motions for judgment as a matter of law on the
basis that it had no legal duty to Village Homes in tort or in contract. The appellate
court found that the district court did not abuse its discretion regarding the alleged
evidentiary issues. It also found legal duties to Village Homes in both tort and
contract. Minnesota law holds that a contractor has a duty, independent of a
contract, to erect a building “in a reasonably good and workmanlike manner,” and
that duty applies to third-party beneficiaries. The court therefore held that Fox
Valley had a duty to Village Home as an intended third-party beneficiary of the
contract between R.E.C. and Fox Valley. As a third-party beneficiary, Plaintiff
Village Homes had a valid negligence and breach of contract claim against Fox
Valley.
VII. Texas Case Law Updates
A. Liquidated damages provisions
In the case of Atrium Medical Ctr., LP v. Houston Red C LLC, 595 S.W.3d
188 (Tex. 2020) the Texas Supreme Court considered whether a liquidated damages
provision is enforceable when the contract at issue is a requirements contract.
Atrium Medical, the owner and operator of a hospital, entered into a five-
year contract with ImageFirst Healthcare for specialty laundry services and to
provide health-care quality linens. After only one year of the five-year contract,
Atrium cancelled the contract and ImageFirst sued to collect liquidated damages
for the time remaining on the contract. The contract between the parties contained
a liquidated damages provision which required Atrium to pay a cancellation fee
equal to 40% of the greater of either the initial “agreement value” or the current
invoice amount, multiplied by the number of weeks remaining on the terms of the
agreement. The terms stated in part that:
“The length of this agreement is for sixty (60) months from the
date of the first delivery and therefore8 for the same time period
unless cancelled by either party, in writing, at least ninety (90)
days prior to any termination date. The terms of this contract shall
apply to all subsequent increases or additions to such service.
There will be a minimum weekly billing of 60% of this
agreement value or 60% of the current invoice amount whichever
is greater. Customer may discontinue service at any time
provided customer pays Company a cancellation charge of 40%
of the agreement value or the current invoice amount, whichever
is greater, multiplied by the number of weeks remaining under
this agreement. The customer agrees that this cancellation charge
is not punitive, but a reimbursement to Company for related
investments to service the customer. Customer agrees to pay
attorneys fees and cost[s] necessary to collect monies due.”
At the time on the contract’s inception, the contract defined “agreement
valuer” as $2616.66 per week. Over the course of the next several months, the price
of the weekly invoices increased to $8,066.79. After experiencing some financial
issues, Atrium canceled the contract with Imagefirst and entered a different
arrangement with a new vendor. At this time, the original contract between
Atrium and ImageFirst had close to four years remaining.
Upon Atrium’s cancelation, ImageFirst filed a suit against Atrium for
breach of contract and specifically sought to enforce the liquidated damages
provision within the agreement. The trial court upheld the enforceability of the
liquidated damages provision, finding that the fees were not a penalty because the
provision reasonably estimated the harm a breach would cause, and that actual
damages were hard to predict at the time the contract was formed. The trial court
found that Atrium was liable for 40% of the last weekly invoice ($8,066.79)
multiplied by the 222 weeks left remaining on the contract. Atrium argued that the
cancelation fee upwards of $700,000, was unreasonable because it far outweighed
the damages ImageFirst actually incurred by relying on the contract. The 14th Court
of Appeals affirmed, holding that at the time of contracting, actual damages “were
very difficult, if not impossible to determine,” due to the fluctuating nature of a
requirements contract, and that there was enough evidence to suggest that the fee
was not a penalty.
The Texas Supreme Court affirmed the lower courts holding and established
that the liquidated damages provision was enforceable. The Texas Supreme Court
cites to FPL Energy, LLC v. TXU Portfolio Mgmt. Co., where it found that the
“unacceptable disparity” between damages addressed under the contract and actual
damages caused the liquidated damages provision to be unenforceable. The court
made clear that in order to prevail on this defense the breaching party must show
an “unbridgeable discrepancy” between liquidated and actual damages. In the case
at hand, Atrium focused its evidence of ImageFirst’s reliance damages, rather than
expectation damages. Because of this, Atrium failed to meet its burden of showing
that there was an “unbridgeable discrepancy” between the damages.
The holding in Atrium Medical provides some reassurance of the
enforceability and use of liquidated damages in Texas courts. However, this case
does not relax the requirements for a liquidated damages provision to not be a
penalty. The “unbridgeable discrepancy” test is just one brick in the liquidated
damages wall. Just because a liquidated damages provision has the correct language
and is properly designed, does not mean that whatever amount agreed to is not a
penalty. A court is going to have to inquire deeper in the parties’ conduct, time left
on the project, and actual damages even if the provision is valid on its face.
In deciding this case, the Texas Supreme Court established that it was the
breaching party’s burden; rather than the seeking parties, to put forward evidence
of the non-breaching party’s actual damages to demonstrate an “unbridgeable
discrepancy” between the liquidated damages provision and actual damages
sustained.
B. Economic Loss Rule
In the case of Rio Grande City Consolidated Independent School District v.
Puentes, No. 13-19-00033-CV, 2020 WL 6878736 (Tex. App.- Corpus Christi Nov.
24, 2020, no pet. h.)(mem. Op.), the Corpus Christi Court of Appeals evaluated
whether an engineering consulting firms alleged negligence was excluded under
the economic loss rule, and consequently whether the trial court erred in its granting
of summary judgment on such reasoning.
On August 3, 2011, Rio Grande City Consolidated Independent School
District (“RGCCISD”) entered into a contract with Delfino Garza, Jr. d/b/a Design
Group International (DGI). The contract provided that Garza and DGI were to
provide architectural and engineering services necessary for the design and
construction of the Rio Grande City High School (the project). In late October of
2011, DGI, the project’s architect, entered into “a secondary agreement with
DBR to which RGCCISD was not a party to. On February 1, 2016, RGCCISD
filed its first petition asserting claims against Skanska USA Building, Inc., R.A.S.
Masonry, LLC, and RGV Alliance Construction, LLC, on claims of negligence,
breach of contract, and breach of implied warranty of good and workmanlike
manner for their involvement in the construction of the project. On November 2 of
the following year, RGCCISD filed its seventh amended petition which added DBR
as a party to the suit. The claims against DBR stated:
[DBR] committed design errors, acts and/or omissions which
constitute negligence, breach of contract, breach of warranty
and/or a failure to construct and/or design the school in a good
workman like manner, these acts, errors and/or omissions are set
forth in the attached affidavit(Certificate of Merit, Exhibit “D”)
authored by Edgar Stacey, which is incorporated herein by
reference in its entirety. DB[R]’s acts, errors and/or omissions,
negligence, breach of contract, breach of express warranty, and
breach of the implied warranty to perform work in a good and
workmanlike manner were and are a cause of the plaintiffs damages
which are ongoing and continuous to this date.
This eventually brought about DBR’s filing of a traditional motion for
summary judgement on August 1, 2018. The summary judgement asserted (1)
RGCCISD is a contractual stranger to DBR; (2) RGCCISD’s tort claims are
barred by the economic loss rule; and (3) RGCCISD has settled all claims
against Garza and DGI, and in the parties’ settlement agreement, all claims have
been released against DBR, consultants for Garza and DGI. The trial court granted
the motion but did not specify the grounds upon which summary judgment was
granted. RGCCISD filed a motion for new trial, arguing DBR did not meet its
summary-judgment burden, and that the economic-loss rule was inapplicable
because DBR owed RGCCISD an independent duty and its negligence caused
harm.
The Corpus Christie Court of Appeals held that DBR supplied evidence that
showed that RGCCISD was unable to meet its prima facie case on the damages
element. Since it could name make out its prima facie case, its claims were
foreclosed as a matter of law. The reasoning the court used was that RGCCISD’s
complaints were all based in the contract between DBR and DGI, of which it was
not a party to. Since the source of DBR’s duty was based in contract and the injuries
sustained also came from contract, RGCCISD’s claims before the trial court were
absorbed by the contract chain where the risk of faulty performance was addressed.
With this information, the court of appeals concluded that the economic loss rule
applied and affirmed the trial court’s judgment.
C. Expert testimony and opinions based on a mixture of methods.
In In re Payne, 605 S.W.3d 240 (Tex. App. – San Antonio 2020, orig.
proceeding), the San Antonio Court of Appeals grappled with whether the trial
court abused its discretion in its exclusion of expert witness testimony that was
based on a mixture of different methods.
Paynes’ contracted with general contractor, CK Creations, L.P. (“CKC”),
to construct a house in Medina County. CKC then subcontracted with R.D. Buie
Enterprises Inc. d/b/a Buie Lumber Company (“Buie”) for construction materials
to be installed by CKC as improvements on the property. Upon CKC’s failure to
pay, Buie filed a mechanic's lien and sued CKC and the Paynes. CKC filed a cross-
claim against the Paynes for their alleged failure in making draw payments under
the contract. The Paynes filed a cross-claim against CKC and Buie.
The Paynes designated Robert Powers as both a fact and expert witness.
Subsequently, CKC filed a motion to exclude Powers' expert testimony, stating that
(1) he was not qualified and (2) his testimony was not relevant or reliable. The trial
court conducted a hearing on the motion and concluded that Powers (1) was
qualified to render an opinion, and (2) “the methodology exists to allow an expert
to render an opinion on whether work has been done in a good and workmanlike
manner and whether work has been done in accordance with the plans and
specifications that are used by the expert in rendering his opinion,” but that Powers
did not use said methodology in the case at hand. The trial court reasoned that:
“I think his opinion is based on a mixture of methodologies. One
being a conceptual estimate, another being owner satisfaction. I
think he has mixed in his opinion both good and workmanlike
manner and what the owner desired. I think that interrelated in his
opinion are cost estimates that would be needed to complete portions
of the project. And I further find that his cost estimates are a
guarantee not to exceed, which is not the methodology called for in
rendering the opinion. So I grant the motion to exclude.”
The trial court then signed an order excluding Powers' testimony and other
evidence “with regard to damages.” On appeal, the San Antonio Appeals Court
determined that the concerns about Powers’ opinion was an issue for the jury to
consider when determining the weight of the evidence/testimony that Powers
presented. The appeals court’s reasoning was that the jury was the correct entity to
choose the weight of the testimony, rather than the admissibility. In holding that
the trial court abused its discretion in determining the admissibility of the
testimony, the appeals court established that although there is one method for an
expert to rely on does not mean that their opinion is confined to being based on that
single method.
D. Implied Warranties
In Northland Indus., Inc. v. Kouba, 19-0835, 2020 WL 6255405 (Tex.
Oct. 23, 2020) the Supreme Court of Texas considered whether a business entity
who purchased a manufacturer’s assets assumed an implied warranty of
merchantability that had attached when the manufacturer previously sold its
product.
Northland Industries, Inc. manufactured and sold treadmills. Northland
dissolved and had its assets assumed by JHTNA Manufacturing, LLC
(“JHTNA”) through an asset purchase agreement. This agreement stated that
JHTNA assumed certain liabilities and obligations of Northland, and
“specifically identified” such responsibilities.
This case arose from a fatal treadmill accident. Audrey Kouba (“Kouba”)
suffered fatal injuries when she fell while using a Northland treadmill. Her estate
claimed that the treadmill was defective and changed speeds unexpectedly which
caused her damages and eventual passing.
The Kouba estate filed suit against JHTNA for negligence, strict liability,
and breach of implied warranty of merchantability under Texas Business and
Commerce Code section 2.314. JHTNA moved for summary judgment making
the assertion that it had no liability other than expressly assumed liability due to
it being an asset purchaser, and that under the controlling asset-purchase
transaction, it assumed liability only for express repair-or-replacement
warranties and expressly disclaimed any liability for bodily injury claims. The
trial court granted summary judgment in JHTNA’s favor as to all claims.
On appeal, Kouba challenged summary judgment solely on the issue of
the implied warranty of merchantability. The appeals court reversed, holding that
(1) under the asset purchase agreement’s terms, the buyer assumed liability for
implied warranties, and (2) the asset-purchase agreement excludes liability for
bodily injury claims only when those claims are accompanied by claims for
property damage.
The Supreme Court of Texas on the other hand, held that the purchaser of
the treadmill’s manufacturer did not assume implied product warranties via the
asset purchase agreement. The Court’s analysis followed the rule of successor
liability, providing that the asset purchaser does not assume the seller’s liabilities
for harm caused by defective products the predecessor sold commercially, unless
expressly assumed. The Court looked to the agreement to determine whether the
buyer expressly agreed to assume liability for the implied warranty terms. Based
solely on the language of the contract it appeared that JHTNA agreed to assume
only “specifically identified” liabilities and obligations, such as certain product
warranty claims. The parties agreed that the product warranty claims included
were “solely” those arising from the seller’s written warranties as specifically
identified and attached to the asset purchase agreement. The Commercial
Treadmill Warranty that was attached to the agreement included language that
only covered the repair/replacement of the product. There was nothing within the
written warranty providing for additional coverage for consequential damages
arising from the use of the treadmill.
With this, the Court concluded that JHTNA did not assume the seller’s
implied warranty obligations and thus had no liability for breach of the implied
warranty of merchantability as a matter of law. The Supreme Court held that the
trial court properly granted summary judgment.
VIII. Oklahoma Case Law Updates
A. Enforceability of assignment
In the case of Johnson v. CSAA General insurance co. the Supreme Court
of Oklahoma determines the assignability of a chose of action as well as the
enforceability of restrictive assignment provisions in a contract. Johnson v. CSAA
General Insurance Co., 2020 OK 110, 478 P.3d 422.
Tokiko Johnson's real property was damaged in a storm severe storm.
Johnson filed a claim with her insurance company to have the damage repaired.
Johnson executed an assignment of her insurance claim for the repair of the
property with the execution in favor of Triple Diamond Construction LLC; the
construction company. An appraiser retained by Triple Diamond, determined that
the storm damage to the property was the equivalent of $36,346.06 while the insurer
determined the amount of damage due to the storm was $21,725.36.
Johnson and Triple Diamond brought an action against Johnson's insurer
and alleged related entities which are "part of a reciprocal inter-insurance exchange
which pools its business among insureds and 'exchange policies' within the
AAA/CSAA Insurance Group of companies sharing premiums, expenses and
losses" (insurer). The petition alleges that the insurance company did not timely
and adequately investigate the insurance claim or timely name an appraiser to
determine the storm damage.
The insurer filed a motion to dismiss or an alternative motion for summary
judgment for the purpose of dismissing the construction company as a party. Insurer
raised one argument: Johnson's policy and 36 O.S. § 3624 prohibit an assignment
of the policy. The District Court sustained insurer's motion causing Johnson to
dismiss her claims without prejudice so as to re-file.
The parties argued in the trial court a single question: May an insured assign
a property insurance policy benefit to a third party without the consent of the insurer
when (1) the policy requires insurer's consent for assignment of the policy, (2) a
statute allows a policy to state it is or is not assignable, and (3) the insured's
assignment relates to a previous covered loss to the insured's property?
The Supreme Court of Oklahoma stated that, while generally, when an
insurance policy is deemed to be a personal contract between insured and insurer,
a policy provision requiring insurer's consent for an assignment will be enforced,
there are some noted exceptions to the general rule. The Court reflects on American
Alliance Ins. Co. where an exception occurs when the subject of the assignment is
not the policy and its coverage, but a right to receive funds for a policy-covered
loss and the assignment occurs after the loss. American Alliance Ins. Co. of N. Y. v.
McCallie, 1957 OK 312, 319 P.2d 295.
The Oklahoma Supreme Court determined an insured's post-loss
assignment of a property insurance claim was an assignment of a chose in action
and not an assignment of the insured's policy. Therefore, the insured's assignment
was not prohibited by either the insurance policy or 36 O.S. section 3624. Judgment
was reversed and the matter remanded for further proceedings. The insurer's motion
to dismiss the appeal was thus denied.
B. Cause of action and SoL
In the case of Claude C. Arnold Non-Operated Royalty Interest Properties
v. Cabot Oil & Gas Corp. the Supreme Court of Oklahoma determines whether
subsequently recorded deeds constitute notice for the purpose of starting the statute
of limitations. Claude C. Arnold Non-Operated Royalty Interest Properties v.
Cabot Oil & Gas Corp., 2021 OK 4, -- P.3d --, 2021 WL 248252.
Two oil-and-gas-producing formations known as the Chester and the
Marmaton, located in Beaver County, Oklahoma. In 1973, Arnold Petroleum, Inc.,
included six oil-and-gas leases covering land in Beaver County. Over the course of
1973 and 1974, Arnold Petroleum assigned its leases to Dyco Petroleum
Corporation, expressly reserving an overriding royalty interest in any oil and gas
produced under the leases. Dyco assigned the leases to Harold Courson, the
predecessor in interest of defendant Cabot Oil & Gas Corporation. Two wells
drilled in the Chester formation produced "mostly gas with some oil" continuously
since the mid-1970s, and at no point since then did Arnold ever stop receiving
payments on its overriding royalty interest in those producing wells. In 1984,
Courson obtained several new leases from the mineral owners who had granted the
1973 leases. The 1984 leases purported to cover the same rights as the original 1973
leases, but were silent as to any particular geologic formation or zone.
Arnold did not become aware of the 1984 leases until 1999 when it and
other royalty holders received a letter from Courson explaining he had recompleted
a well in the Chester formation that had originally been drilled into the separate
Lower Chester formation by Natural Gas Anadarko, Inc. (NGA). A Courson
employee told the Arnold landman the 1984 leases covered only "deep rights" or
"lower depths" that had expired under the 1973 leases which would exclude the
Marmaton. Thirteen years later Courson assigned his leases to Cabot, who drilled
and completed several horizontal wells in the Marmaton. Cabot rejected Arnold's
request for payment, and Arnold sued in October 2012, seeking damages for
nonpayment of royalties.
In his arguments Cabot claimed that Arnold's accusations were barred
because the applicable statute of limitations began to run with the filing of the 1984
leases. His argument was that this event should have put Arnold on notice of an
adverse claim to the Marmaton. The Oklahoma Supreme Court was faced with
was whether the plaintiffs waited too long in asserting their right to payment of the
overriding royalty interest; i.e. when the statute of limitations began to ran. The
Court of Civil Appeals reversed the trial court's judgment in favor of the plaintiff.
Upon review, the Supreme Court determined that this case/claim could not
have arisen until the defendant first developed the disputed formation in 2012. The
defendant would then have to have refused the plaintiffs' request for payment of
royalties from that production. The Court stated that "Nothing preceding that
sequence of events could reasonably have foreclosed plaintiffs' ability to press their
claim for the payments to which they were entitled under valid mineral leases." The
Court stated that “words matter, and so does conduct. The words of the original
lease were controlling along with the conduct of the parties and their predecessors
in interest. With this, the Court vacated the Curt of civil appeals opinion and
reaffirmed the Trial Court’s judgment.
IX. Louisiana Case Law Updates
A. Enforceability of Compromise Agreements
In the case of Joseph v. Huntington Ingalls Inc. et al. the Louisiana Supreme
Court granted certiorari to determine the preclusive effect of a written compromise
agreement in a survival action. Joseph v. Huntington Inc. et al., 280 So. 3d 596 (La.
2019).
In 1982, Gistarve Joseph, Sr. filed suit against Avondale Industries, Inc., its
executive officers, and their insurers seeking damages for occupational exposure
dangerous materials and irritants, including asbestos, during the course and scope
of his employment with Avondale. His contact with these materials resulted in his
contraction of pneumoconiosis. In November 1985, Mr. Joseph settled his claims
against Avondale and its executive officers, executing a “Restrictive Release and
Discharge with Indemnification Agreement” (hereinafter “Release”),which
released Avondale, its executive officers, and their insurers:
“from any and all liability, claims, demands, liens,
remedies, debts, rights, actions and causes of action
of whatever kind or nature which he now has or may
hereafter acquire for any damages whatsoever,
...directly or indirectly sustained or suffered by
Claimant on account of, or in any way growing out
of occupational lung diseases of any and every kind
and description, ... and any and all other personal
injury claims arising out of Claimant’s employment
at Avondale ....”
Decades later in June of 2016, Mr. Joseph filed another lawsuit against
Huntington Ingalls Inc. (formerly Avondale) and its executive officers, alleging he
contracted mesothelioma because of occupational exposure to “dangerously high
levels of toxic substances, including asbestos, and asbestos-containing products”
between 1970 and 1982. On July 27, 2016, Mr. Joseph died. Thereafter, his adult
children filed a supplemental and amending petition, substituting themselves as
plaintiffs and asserting wrongful death and survival actions. In response,
Huntington and its insurer filed an exception of res judicata, arguing that the 1985
Release barred Mr. Joseph’s survival action. The district court denied the exception,
and the court of appeals denied Huntington’s application for supervisory writs. On
Huntington’s application, the court granted writs to examine the preclusive effect
of the 1985 Release.
The Court reflects on the fact that Louisiana has a strong public policy
favoring, and long-standing interest in favoring compromise. The Court noted that
in the immediate case, Mr. Joseph filed suit against Avondale, its executive officers,
and their insurers seeking damages for his exposure to toxic materials while
employed at Avondale and that the parties ultimately agreed to resolve the issue
and entered into a written compromise agreement. The Court found it persuasive
that in the Release Mr. Joseph clearly and unambiguously released Avondale and
its successors from liability for all present and future occupational lung disease and
personal injury claims arising out of his employment at Avondale, for a monetary
settlement. In the Court’s eyes the survival action asserted by plaintiffs in this case,
sought damages that fall squarely within the scope of the Release. Thus, the Release
is entitled to preclusive effect. The Court ruled that the judgment of the district
court is to be reversed, and the exception of res judicata is sustained with respect
to plaintiffs’ survival action. The case was ultimately remanded to the district court
for further proceedings.
B. Enforceability of arbitration clauses
In the case of Donelon v. Shilling, the Louisiana Supreme Court granted
review to determine whether the Louisiana Commissioner of Insurance was bound
by an arbitration clause in an agreement between a health insurance cooperative
and a third-party contractor. Donelon v. Shilling, -- So. 3d --, 2020 WL 2079362
(La. 2020). The Louisiana Health Cooperative, Inc. (“LAHC”), was a health
insurance cooperative created in 2011 pursuant to the Patient Protection and
Affordable Care Act. The LAHC entered into an agreement with Milliman, Inc. for
actuarial services. By July 2015, the LAHC was out of business and allegedly
insolvent. The Insurance Commissioner sought a permanent order of rehabilitation
relative to LAHC. The district court entered an order confirming the Commissioner
as rehabilitator and vesting him with authority to enforce contract performance by
any party who had contracted with the LAHC.
As rehabilitator the Commissioner sued multiple defendants in district
court, asserting claims against Milliman for professional negligence, breach of
contract, and negligent misrepresentation. According to that suit, the acts or
omissions of Milliman caused or contributed to the LAHC’s insolvency. Milliman
responded by filing a declinatory exception of lack of subject matter jurisdiction,
arguing the Commissioner must arbitrate his claims pursuant to an arbitration
clause in the agreement between the LAHC and Milliman.
The Court recognized that Louisiana has adopted a comprehensive scheme
to regulate insolvent insurers. Using this scheme to guide their judgement, the Court
concluded that the Commissioner was not bound by the arbitration agreement and
accordingly could not be compelled to arbitrate its claims against Millman. Part of
the Court’s reasoning was the compelling arbitration would force the alleged
insolvent insurer to expend even more monies. The Court reversed the appellate
court's judgment holding to the contrary and remanded the case for further
proceedings.
X. Arizona Case Law Updates
A. Tolling under A.R.S. § 12-821.01 applies to unilateral contract
options to mediate between contractors and public entities.
In Standard Constr. Co. Inc. v. State the Arizona Court of Appeals held that
a contractor's notice of claim was timely under the tolling provision of A.R.S. §12-
821.01. The case involved a contractor's breach of contract claim from a payment
dispute against a public entity. After exhausting the administrative remedies
required by the contract, the contractor timely exercised its unilateral option under
the contract to require the parties to participate in nonbinding mediation. When the
mediation failed, the contractor filed a notice of claim and a complaint that only
complied with the deadlines prescribed by A.R.S. §§ 12-821 and -821.01 if the
deadlines were measured from the date of the mediation's failure and not from the
date of the final administrative decision. A.R.S. § 12-821 requires a person with a
claim against a public entity or public employee to file a notice of claim with the
public entity within one hundred eighty days after the cause of action accrues.
A.R.S. § 12-821.01(c) states that
any claim that must be submitted to a binding or nonbinding dispute
resolution process or an administrative claims process or review
process pursuant to a statute, ordinance, resolution, administrative or
governmental rule or regulation, or contractual term shall not accrue
for the purposes of this section until all such procedures, processes or
remedies have been exhausted.
ARIZ.REV.STAT. § 12-821.01 (2021). The Arizona Court of Appeals held that the
notice of claim and the complaint were timely because the contractor's decision to
require mediation triggered the tolling provision set forth in § 12-821.01(C). See
Standard Constr. Co. Inc. v. State, 249 Ariz. 559, 561, 473 P.3d 344, 346 (Ct. App.
2020).
B. A stipulated judgment and assignment with a covenant to not
execute is unenforceable without appropriate notice to the
indemnitor.
In an unpublished opinion, Division 1 of the Arizona Court of Appeals
found that a settlement agreement between a homeowner and general contractor
with a stipulated judgment and assignment of claims against a subcontractor was
not enforceable because no notice was provided to the subcontractor before the
parties entered into the agreement. A “Morris agreement” generally refers to “a
settlement agreement in which an insured defendant admits to liability and assigns
to a plaintiff his or her rights against the liability insurer ... in exchange for a
promise by the plaintiff not to execute the judgment against the insured.” Safeway
Ins. Co. v. Guerrero, 210 Ariz. 5, 7, ¶ 1 n.1 (2005) (citing United Servs. Auto Ass'n
v. Morris, 154 Ariz. 113 (1987)). In Field v. Artizan Excavation Inc., No. 1 CA-
CV 19-0818, 2020 WL 6281445, at *2 (Ariz. Ct. App. Oct. 27, 2020), the Arizona
Court of Appeals held that the “general principles of indemnity law,” which govern
the validity of Morris settlement agreements and assignments, apply equally
outside the insurance context to resolve purely commercial indemnification
disputes. Id. In that case a subsequent homeowner purchased a home “as-is” and
“with all faults” from a seller who acquired the home through a foreclosure. After
two years of ownership, the subsequent homeowner filed suit against the general
contractor for breach of the implied warranty of workmanship and habitability due
to construction defects, and the general contractor filed a third-party complaint
against four subcontractors. The subsequent homeowner and the general contractor
entered into a settlement agreement with a stipulated judgment of two million and
an assignment of claims against the subcontractors. Two of the subcontractors filed
motions for summary judgment, asserting among other arguments that the
stipulated judgment was unenforceable because neither the subsequent purchaser
or the general contractor provided notice to the subcontractors with notice of their
intent to settle and an opportunity to defend. After the subsequent homeowner
settled with one of the subcontractors, the superior court found that the settlement
agreement was unenforceable against the other subcontractor because no notice and
opportunity to defend was provided to the subcontractor. The subsequent
homeowner appealed. The Arizona Court of Appeals affirmed the superior court’s
ruling, finding that the entire settlement agreement was unenforceable. The Court
of Appeals reasoned that the principle that a non-conforming Morris agreement is
unenforceable has been extended more broadly to agreements that are contrary to
the “public policy underlying Morris.” See id. at 3.
C. Accord and Satisfaction, offset, and recoupment do not apply in
Prompt Pay Act proceedings before the Arizona Registrar of
Contractors.
In an unpublished opinion, the Arizona Court of Appeals found that accord
and satisfaction could not be applied to alter a subcontractor’s or material supplier’s
statutory right to receive prompt pay under the Prompt Pay Act. In Shea Connelly
Dev. LLC v. Arizona Registrar of Contractors Division 1 of the Arizona Court of
Appels affirmed the Arizona Registrar of Contractor’s (“ROC”) suspension of a
contractor’s license for violations of the Arizona Prompt Pay Act. See Shea
Connelly Dev. LLC v. Arizona Registrar of Contractors, No. 1 CA-CV 19-0718,
2020 WL 6503616, at *2 (Ariz. Ct. App. Nov. 3, 2020). The Prompt Pay Act
requires a contractor to pay the full amount of an invoice for work done and material
supplied within seven days of the invoice being certified and approved. “An invoice
is deemed certified and approved 14 days after the contractor receives the invoice
if the contractor does not prepare and issue a written statement detailing the reasons
for withholding payment.” Id. Shea Connelly Development, LLC (“SCD”) asserted
that the administrative law judge (“ALJ”) abused her discretion when she rejected
its claim that it had accord and satisfaction with the subcontractor. “[U]nder the
Prompt Pay Act, a construction contract “shall not alter the rights of any contractor,
subcontractor or material supplier to receive prompt and timely payments as
provided under this article.” Id. at 3. The Court of Appeals found that by definition
accord and satisfaction would alter the statutory right to receive prompt payment,
and ruled that that the ALJ did not abuse her discretion.
SCD also argued that the ALJ abused her discretion by not considering
evidence of an offsetting counterclaim or the equitable defense of recoupment. “An
offset is an action or counterclaim a defendant might have brought in a separate
action against the plaintiff and recovered a judgment.” Id. A “recoupment is a
reduction by the defendant of part of the plaintiff's claim because of a right in the
defendant arising out of the same transaction.” Id. The Court of Appeals found that
the proceedings before the ALJ are meant to adjudicate whether payments have
been timely made or withheld for valid statutory objections, and not as venues for
comprehensive litigation over contract rights and obligations. SCD asserted that
denying it to litigate offset and recoupment violated due process, but the Court of
Appeals found that it did not violate due process because SCD still retained full
rights to bring its claims in court. From a practical perspective, this means that
contractors must first pay subcontractors to comply with the Prompt Pay Act, and
then bring any claims for accord and satisfaction, offset, and recoupment in a civil
suit.
D. A judgement from a civil suit in favor of a contractor does not
automatically preclude a homeowner from recovering damages
from the ROC Recovery Fund through an administrative law
proceeding.
In an unpublished opinion, Division 1 of the Arizona Court of Appeals
found that neither claim nor issue preclusion applied to bar a homeowner from
recovering in an administrative law proceeding after losing her civil suit. See 1st
Choice Surfaces LLC v. White, No. 1 CA-CV 20-0063, 2020 WL 6286729, at *3
(Ariz. Ct. App. Oct. 27, 2020). In 1st Choice Surfaces LLC v. White, a homeowner
who was dissatisfied by a contractor’s tile work filed suit against the contractor,
alleging breach of contract, false advertising, or consumer fraud pursuant to
A.R.S.§ 44-1522, fraud, negligent misrepresentation, breach of the covenant of
good faith and fair dealing, negligence, and unjust enrichment. Three days later,
the homeowner also filed an administrative complaint with the ROC, alleging
“poor workmanship” and contracting without a license. See id. at 1. The
homeowner’s civil suit proceeded to trial and a jury found in favor of the
contractor on all counts. While the civil litigation was proceeding, the ROC
issued a directive to the contractor to make certain repairs and to pay to have
other work completed by a contractor licensed to perform the work. When the
contractor did not perform the repairs, the ROC issued a citation, charging failure
to satisfy minimum construction standards and failure to take appropriate
corrective action. An ALJ determined that a preponderance of the evidence
showed the contractor committed the alleged violations. The ROC accepted
the ALJ's recommended order to suspend contractor’s license for one day and
impose a $250 civil penalty. Contractor did not appeal. The homeowner
subsequently filed a claim with the ROC Recovery Fund for actual damages in
the amount of $25,043.75. After a hearing was set on the award and payment,
the contractor filed a motion for summary disposition, asserting preclusion
based upon the defense verdict. The ALJ issued a ruling finding the
homeowner eligible to make a claim from the Fund and that the amount of the
award was supported by evidence. The contractor appealed to the superior court,
and the superior court reversed the administrative order. The homeowner
appealed and the Court of Appeals reversed the ruling from the superior court. The
Court of Appeals found that “the administrative proceedings and the civil suit raised
and litigated separate issues.” Id. at 2. The Court of Appeals determined that after
the ROC issued its final order suspending the contractor’s license for failing to
perform repairs, the homeowner became eligible to submit a claim for damages
from the Fund. The outcome of the civil litigation which was based on whether the
contractor was licensed to perform the work did not affect the homeowner’s
eligibility to recover from the Fund. The Court of Appels noted that the outcome
of the civil suit only would affect the amount of the award if she had won. If the
homeowner had won the judgment would have offset the award from the Fund. The
Court of Appels held that the doctrines of issue and claim preclusion should not
rigidly be applied to contravene an overriding public policy or to result in manifest
injustice.
E. An insured under a title insurance policy may independently
settle with a claimant without violating the duty of cooperation
in the policy.
In Fid. Nat'l Title Ins. Co. v. Osborn III Partners LLC, Division 1 of the
Arizona Court of Appeals held that the principles of United Services Automobile
Ass'n v. Morris, 154 Ariz. 113, 741 P.2d 246 (1987) apply to title insurance. See
Fid. Nat'l Title Ins. Co. v. Osborn III Partners LLC, No. 1 CA-CV 18-0040, 2021
WL 868913, at *1 (Ariz. Ct. App. Mar. 9, 2021). In that case, a company that lent
money to a developer to fund construction of a condominium complex (“the
Property”) failed to disburse all money for the construction of the condominium
complex, and subsequently filed bankruptcy. The bankruptcy court transferred title
of the property to a successor company. After the developer stopped payment, the
general contractor and subcontractors recorded mechanics’ liens against the
Property, seeking payment for completed but unpaid work. The general contractor
and several subcontractors filed a lien foreclosure action, asserting the mechanics
liens had priority over the deed of trust filed by the loan company. The manager of
the bankruptcy restructuring held a trustee’s sale of the Property, and entered into
a Morris agreement on the lien priority litigation with the general contractor. The
title insurer intervened and objected to the Morris agreement. The parties moved
for summary judgment. The superior court ruled that: (1) Morris applies to title
insurance; (2) the agreement fell within Morris even though it lacked certain terms
(i.e., a stipulated judgment, covenant not to execute, and assignment of insurance
claims) that generally appear in typical Morris agreements; (3) the sale of the
Property did not terminate coverage for the successor’s claim which related to a
lien that arose before the sale; (4) the successors stood in the shoes of the loan
company for coverage issues; and (5) the loan company had not created the
mechanics liens for purpose of the exclusion. See id. at 2. The title insurer
successfully moved for reconsideration of the exclusion. However, the superior
court entered judgment in favor of the successor for $1,750,000, and the title insurer
appealed.
The Court of Appeals held that the principles of Morris apply to title
insurance and that a settlement agreement’s form need not mirror the elements of
the settlement in Morris such as a stipulated judgment with a covenant not to
execute accompanied by an assignment. The Court of Appels found that the title
insurer could assert the same defenses used against the loan company against the
successor. The Court of Appeals found that the superior court improperly grafted
a misconduct requirement on to the exclusion when only intent to cause the act was
required. Citing the Seventh Circuit, the Court of Appeals explained that
“insufficient construction funding isn't the type of risk that title insurance is built
to bear” and that the risk associated with a funding shortfall should be allocated to
the party with knowledge and control over the funding issue. Id at 10.
XI. Florida Case Law Update
A. Statutory changes to statute of repose trigger and length.
Over the last 3 years, the Florida Legislature has slowly passed legislation
bolstering the Statute of Repose, Section 95.11(3)(c), Fla. Stat. in response to
judicial rulings. The biggest issue under attack being (1) the definition of
“completion of contract” for purposes of triggering the running of the statute of
repose; and (2) the act required to initiate an action within the statute of repose
period.
(1) Definition of “Completion of Contract”
In June 2017, the Florida Legislature amended the 10-year Statute of Repose
via House Bill HB377, to address a “gap” in the Florida statute. Specifically, the
Florida Legislature added language to clarifying when the Statute of Repose begins.
This Amendment became necessary after the state’s Fifth District Court of
Appeals issued its ruling in Cypress Fairway Condo. v. Bergeron Construction Co.,
Inc., 164 So. 3d 706 (Fla. 5th 2015.
At the time, Section 95.11(3)(c), Fla. Stat., provided an action founded on the
design, planning or construction of real property must be commenced within ten
years after the latest of four specific events, (1) after the date of actual possession
by the owner, (2) the date of the issuance of a certificate of occupancy, (3) the date
of abandonment of construction if not completed, or (4) the date of completion or
termination of the contract between the professional engineer, registered architect,
or licensed contractor and his or her employer, whichever date is latest.
The issue before the Fifth DCA in Cypress was the meaning of the fourth
option—the date of “completion... of the contract.”
The Cypress case involved a construction defect dispute whereby a
subcontractor sought to dismiss claims brought by the Association via an
assignment of claims from the general contractor on the basis the claim was brought
outside the 10-year statue of repose.
Up until then, many argued that the date of “contract completion” was the
date on which the construction project was finished or the date when the final
payment for the project was due. The subcontractor (Appellee) argued the statute
began to run on January 31, 2001, the date on which the final application for
payment was made. However, the Association (Appellant) argued that the date of
completion, for purposes of the statute of repose, was actually the date that the last
payment was made. Thus, the contract was not completed and that the statute began
on February 2, 2001, when final payment was made. Therefore, the lawsuit was
filed on time. The trial court granted the subcontractor’s motion to dismiss, finding
that the Legislature intended “completion of contract” under the statute to mean the
date of completion of construction.
On appeal, the Fifth DCA agreed with the Association’s legal argument
stating that, considering the manner in which the Florida statute was written, there
was no express language to indicate that a contract is complete when the contractor
has performed their side of the deal. As such, the Association was correct and their
claim was not time barred. As a result, the Fifth DCA, reversed the dismissal,
finding that completion of the contract “means completion of performance by both
sides of the contract, not merely performance by the contractor.”
This created a detrimental impact on construction defect cases in Florida.
Given that construction projects often include payment disputes after the
conclusion of work, this ruling had the potential effect of extending a contractor’s
susceptibility to litigation simply because the General Contractor/Developer other
party delayed a portion of the payments. As such, in June 2017, the Florida
Legislature amended the statute of repose to define “completion of construction”
as the “date that final payment for such services becomes due without regard to the
date final payment is made.”
Based on the decision of the appeals court, a contractor’s susceptibility to
litigation could be extended simply because the other party delayed a portion of the
payments. This was not what state representatives had in mind. The Florida
Legislature moved to fix this loophole in the Statute which was being exploited.
Under the new amendment, a contract is deemed to be completed on the date of
final performance of contracted services or the date the final payment is due,
whichever occurs later. Thus, when the final bill is actually paid is no longer a
factor and the owner no longer could control when the work was deemed completed
in an attempt to prolong the time frame under the Statute of Repose.
(2) In 2018 amendments to Statute of Repose to clarify “Completion
of Contract” and extend time for third-party claims.
In 2018, the Florida Legislature subsequently made two amendments to the
statute of Repose.
Firstly, the Florida Legislature, eliminated an unresolved issue following
the 2017 amendment by clarifying that in relation to the “completion of contract”,
it did not include warranty or post-certificate of occupancy repair work that would
extend the time to bring a claim by tolling the limitations period; and
Secondly, the Florida Legislature extended the time within which
defendants subject to a suit filed close to the end of the 10-year period can file
claims. Essentially, defendants could bring third parties into the action after the
expiration of the 10-year statute of repose period. This brought relief as under the
current statute, a defendant had to file claims against other potentially responsible
third parties before the expiration of the statute of repose. Under the revised statute,
defendants could bring counterclaims, cross-claims and third-party claims that arise
out of the conduct, transaction or occurrence set out or attempted to be set out in a
pleading may be commenced up to 1 year after the pleading to which such claims
relate is served, even if such claims would otherwise be time barred. The amended
applied to actions commenced on or after July 1, 2018, except that any action that
would not have been barred under the Statute of Repose prior to the amendment
may be commenced before July 1, 2019.
(3) A Chapter 558 Notice of Claim stops the clock on the Statute of
Repose.
The latest issue that is now the subject of new legislation is the act required to
initiate an action before the expiration of the statute of repose.
In September 2018, the Fourth DCA for Florida clarified the timing to
commence an action under the statute of repose in the case. In Gindel v. Centex
Homes, 267 So. 3d 403 (Fla. DCA 2018), the Fourth District Court of Appeals
extended the statute of repose beyond the 10-year statute of repose when it comes
to construction defect claims in that receipt of a Chapter 558 Notice of Claim stops
the clock on the statute of repose.
In Gindel, the plaintiff homeowners took possession of their townhomes on
March 31, 2004 and filed suit on May 2, 2014. Centex Homes argued that the
statute of repose began to run on March 31, 2004 and had run prior to the filing of
the plaintiffs’ lawsuit. However, the plaintiffs argued that their Chapter 558 notice
of claim served on February 6, 2014, was within the 10-year repose period and
constituted an action for purposes of the statute of repose. The trial court granted
summary judgment in favor of Centex, and the homeowners appealed.
On appeal, the Fourth DCA was faced with determining whether a Chapter
558 pre-suit notice qualified as an “action,” as the defined in the statute of repose.
The homeowners argued that the trial court had erred when it used the definition of
“action” provided in Chapter 558, ignoring the definition of “action” in the statute
of repose. Section 95.011, Florida Statues, defines an “action” as “a civil action or
proceeding.” The homeowners went on to argue the mandatory Chapter 558 pre-
suit notice was a “proceeding” under Section 95.011 and therefore met the
definition of an “action.” They also argued they would have filed suit in February
2014 if Chapter 558 had not required them to serve the pre-suit notice first.
The Fourth DCA agreed with the homeowners, noting that Chapter 558 lays
out a series of mandatory steps that must be complied with before judicial action is
to be taken. Thus, the pre-suit notice does constitute an “action” for the purposes of
the statute of repose and the homeowners' claim against Centex was not barred by
the statute of repose. In support of this position, the court cited Musculoskeletal
Institute Chartered v. Parham, 745 So. 2d 946 (Fla. 1999), where the Florida
Supreme Court held, in a medical malpractice matter, that compliance with the
statutory pre-suit notice and investigation requirements constituted commencement
of an “action” for the purposes of the statue of repose. The court found the ruling
in Musculoskeletal Institute applicable to construction defect cases as well and
noted that the pre-suit notice requirement in Chapter 558 was not intended as a
stalling device in order to bar claims.
However, the decision in Gindel appeared contrary to the purpose of the
statute of repose, which was intended to provide a substantive right to be free from
liability after a specified time period elapses. The decision in Gindel had the
potential of extending a contractor’s potential liability for construction defects for
a much longer period of time than the Legislature envisioned As such, based on the
Fourth DCA’s decision in Gindel, the Florida Legislature acted quickly in
amending Section 558.004(1) of the Florida Statutes to expressly state that,
effective July 1, 2019, a Chapter 558 notice of claim did not toll the statute of
repose.
While the Amendment clarifies this dispute after the July 1, 2019 date the
amendment took effect, it leaves an unresolved question as to whether it applies to
Chapter 558 notices of claims served prior to July 1, 2019. This issue has not been
tested in any published opinion, but the new statute does not specifically state it is
retroactive in nature, which raises the likelihood, that it will not be applied
retroactively. In addition, a statute impacting whether a party has a right to bring a
lawsuit is arguably substantive in nature, which also raises the likelihood this statute
will not be applied retroactively.
XII. Tennessee Case Law Update
A. Tennessee Broadens Statute of Repose Statute to Include Arbitration
and Dispute Resolution Proceedings.
The Tennessee Legislature recently passed Tennessee Senate Bill 2681,
substituting House Bill 2706, which included changes to Tenn. Code Annotated §
28-3-202 and § 28-3-203 (“Statute of Repose”) thereby broadening the 4-year
Statute of Repose to cover all “actions,” which now specifically includes
“arbitrations” and “other binding dispute resolution proceedings” that seek to
recover damages (effective date July 1, 2020).
Prior to these changes, Tennessee’s Statute of Repose for claims relating to
real or personal property stated:
All actions to recover damages for any deficiency in the design,
planning, supervision, observation of construction, or construction
of an improvement to real property, for injury to property, real or
personal, arising out of any such deficiency, or for injury to the
person or for wrongful death arising out of any such deficiency, shall
be brought against any person performing or furnishing the design,
planning, supervision, observation of construction, or construction
of such an improvement within four (4) years after substantial
completion of such an improvement. (See Tenn. Code Ann. § 28-3-
202.)
Notwithstanding § 28-3-202, in the case of such an injury to property or
person or such injury causing wrongful death, which injury occurred during the
fourth year after such Substantial Completion, an action in court to recover damages
for such injury or wrongful death could be brought within one (1) year after the
date on which such injury occurred, without respect to the date of death of such
injured person. Such action shall, in all events, be brought within five (5) years after
the substantial completion of such an improvement. Tenn. Code Ann. § 28-3-203.
Pursuant to Tenn. Code Ann. § 28-1-101, an “Action” was defined to include
motions, garnishments, petitions, and other legal proceedings in judicial tribunals
for the redress of civil injuries.
The recent change in the law resulted from an unpublished Arbitration
dispute,
wherein the Owner brought a claim for construction defects in Arbitration against
the General Contractor over ten years after Substantial Completion of the Project
at issue. The General Contractor filed a motion to dismiss based upon Tennessee’s
four-year Statute of Repose. The Owner, relying upon non-Tennessee cases in its
response, argued that the word “action” as defined in Tenn. Code Ann. § 28-1-101
was only intended by the Tennessee Legislature to apply only to legal proceedings
filed in court, and not to claims wherein the parties agreed to participate in a binding
arbitration. The Arbitration Panel agreed with the Owner’s argument and ruled that
the Statute of Repose did not apply to the Arbitration, even though it was
undisputed that the Arbitration was commenced 10 years after Substantial
Completion of the Project.
Based on the Arbitration ruling, the Tennessee Legislature revised the
Statute of Repose Statute to unambiguously include arbitrations or other binding
dispute resolution proceedings as follows:
Tenn. Code Ann. § 28-3-202
All actions, arbitrations, or other binding dispute resolution
proceedings to recover damages for any deficiency in the design,
planning, supervision, observation of construction, or construction
of an improvement to real property, for injury to property, real or
personal, arising out of any such deficiency, or for injury to the
person or for wrongful death arising out of any such deficiency,
must be brought against any person performing or furnishing the
design, planning, supervision, observation of construction, or
construction of the improvement within four (4) years after
substantial completion of an improvement.
Tenn. Code Ann. § 28-3-203
(a) Notwithstanding § 28-3-202, in the case of an injury to property
or person or injury causing wrongful death, which injury occurred
during the fourth year after substantial completion, an action,
arbitration, or other binding dispute resolution proceeding to recover
damages for the injury or wrongful death must be brought within
one (1) year after the date on which the injury occurred, without
respect to the date of death of the injured person.
(b) The action, arbitration, or other binding dispute resolution
proceeding must, in all events, be brought within five (5) years after
the substantial completion of the improvement.
Of note, despite the Legislature’s Amendments to the Tennessee Statute of
Repose, these changes did not amend Tennessee’s Existing Statute of Limitations
(Tenn Code Ann. § 28-3-105), which still only applies “Actions” as defined under
Tenn. Code Ann. § 28-1-101.
XIII. Georgia Case Law Update
A. Statutory changes to Georgia’s Lien Law
On August 5, 2020, Georgia Governor Brian Kemp signed bipartisan Senate
Bill 315 changing Georgia’s Lien Law Statute, O.C.G.A. 44-14-366. Effective
January 1, 2021, the amendment to the lien law clarified that a lien waiver will only
waive lien or bond rights against the property and does not otherwise waive the
right to file a lawsuit for non-payment (substantive rights).
The change in the law was the Legislatures response to the 2019 decision
by the Georgia Court of Appeals in in ALA Construction Services, LLC v.
Controlled Access, Inc., 351 Ga. App. 841, 833 S.E.2d 570 (Ga. Ct. App. 2019)
which held that statutory lien and bond waivers were effective for “all purposes”
and were deemed to release lien rights and any other rights or remedies available
to a claimant.
In ALA Construction Services, LLC, Controlled Access, ALA Construction
hired Controlled Access, LLC pursuant to a written contract to provide controlled
access equipment and related services for the Sugar Hill Overlook Townhomes
Project. Controlled Access signed two Interim Lien Waiver and Release Upon
Payment forms and submitted them to the General Contractor along with their
invoice for payment. Although ALA Construction failed to pay the agreed upon
amount, Controlled Access failed to file an affidavit of nonpayment or a claim of
lien within the prescribed 60 day period in accordance with OCGA § 44-14-366.
Controlled Access later filed suit for breach of contract against ALA Construction
and argued in the trial court that its failure to file the affidavit of nonpayment merely
precluded it from filing a lien. The trial court awarded Controlled Access the money
owed to it, but the Georgia Court of Appeals reversed and found that failure to
follow the requirements of the Georgia Lien Statute not only eliminated Controlled
Access’ lien rights, but also eliminated all rights to payment through the dates of
those lien waivers. The Georgia Court of Appeals reasoned that the waiver was
designed to be “binding against the parties for ‘all purposes,’ not just for the
purposes of preserving the right to file a lien on the property.” In support of its
decision, the Georgia Court of Appeals cited the plain language of the Georgia Lien
Statute, reasoning that that a lien waiver was designed to be “binding against the
parties for ‘all purposes,’ not just for the purposes of preserving the right to file a
lien on the property.”
The recent Lien Amendment, effective January 1, 2021, made several
changes to the statutory waivers and releases, so as to clarify that a waiver and
release of lien and bond rights shall not affect any other rights or remedies available
under the law. The Lien Amendment also revised language and appearance
requirements of statutory forms, revised procedures; to provide for related matters;
to repeal conflicting laws; and for other purposes.
First, the Amendment revises the language of O.C.G.A. § 44-14-366 so as
to expressly limit the application of statutory waivers and releases to lien and labor
or material bond rights only, but not to any other rights or remedies of the lien
claimant.
Next, the Amendment changes the title of the interim and final waivers form
to reflect they only relate to lien and payment bond rights.
Next, the Amendment increased the time for a claimant to file an affidavit
of nonpayment from 60 days to 90 days.
Lastly, the Amendment provides that the filing of a claim of a lien no longer
serves to suspend a waiver and release. Only the filing of an affidavit of
nonpayment can suspend a waiver and release until payment in full has been
received.
XIV. New York Case Law Update
A. Improper use of ladders
In Morales v 2400 Ryer Ave. Realty, LLC, 2021 NY Slip Op 00498, a
worker’s decision to use an A-frame ladder in the closed position was not a reason
to declare him the sole proximate cause of an accident. The court found that since
the plaintiff gave a specific reason why he used the ladder in the closed position,
i.e. a pipe in the work area prevented him from opening the ladder to perform his
work, his actions were not the sole proximate cause of his accident. Specifically,
the Court found that the plaintiff had a valid reason to utilize an A-frame ladder in
the closed position, despite the fact that an A-frame ladder is intended to be used in
the open position.
New York, as a leader in the realm of construction, has one of the strictest
laws in the nation regarding the safety of construction workers. New York Labor
Law § 240, commonly referred to as the “Scaffold Law” is a strict liability statute
that addresses gravity related accidents and places the responsibility for a worker’s
safety squarely on a premises’ owner and contractor rather than on the worker. As
such, any comparative negligence of the plaintiff is not a defense to liability under
§240.
There are only two recognized defenses to liability under Section 240, both
of which are difficult burdens to satisfy for a defendant. First, there is the defense
that a plaintiff’s actions were the sole proximate cause of the injury rather than the
violation of the statute; and second, that the plaintiff was a “recalcitrant worker,”
in that the plaintiff ignored or failed to follow specific and immediate instructions
that resulted in his injuries. In the case at bar the defendants argued that the
plaintiff’s failure to use the ladder as intended, i.e. with the legs open and in a
locked position, was the sole proximate cause of his injuries; however, since the
plaintiff was prevented from using the ladder as intended due to the pipe, the court
found that the plaintiff’s actions were not unreasonable and did not rise to the level
of sole proximate cause so as to defeat the plaintiff’s §240(1) claims.
When evaluating liability under the Labor Laws, the court is charged with
reading the statute as broadly as possible to provide recovery for the injured worker.
As such, all legal questions are typically resolved in the plaintiff's favor even in
situations such as Morales where the plaintiff’s misuse of the safety device was
reasonable or foreseeable to an Owner/Contractor.
B. Large objects
In Lemus v. New York B Realty Corp, 2020 NY Slip Op 04933, the plaintiff
was directed to maneuver large steel beams of approximately 20 feet long and
weighing approximately 600 to 1,000 pounds. He was to use a makeshift
prybar/pipe tool to grab and rotate the beams so that the holt holes were aligned.
While attempting to lift the end of the beam with the prybar device above him, the
plaintiff applied his weight into the device in an effort to lift the beam. The accident
occurred when the plaintiff could no longer sustain the weight applied to the prybar,
and the prybar shot back into his face causing him to fall.
As explained above, New York Labor Law § 240 is a strict liability statute
that addresses gravity related accidents, and any comparative negligence of the
plaintiff is not a defense to liability. The statute also requires protection from
injuries due to falling objects which are being hoisted or need to be secured.
Here, the trial court found that the work the plaintiff was engaged in did not
constitute the type of elevation-related risk that the statute contemplates, regardless
of the size and height of the steel beams. As stated in Narducci v. Manhasset Bay
Assocs., 96 N.Y.2d 259, 267 (N.Y. 2001), “[N]ot every worker who falls at a
construction site, and not every object that falls on a worker, gives rise to the
extraordinary protections of Labor Law §240(1)”.
The Lemus decision is significant for the defense bar due to the ample
caselaw in which courts have found the applicability of §240 in situations in which
workers are injured by heavy objects despite the absence of a significant elevation
differential between the object and the worker. See Runner v. New York Stock
Exchange, Inc., 13 N.Y. 3d 599 (2009).
C. Valve replacement is not always routine maintenance
A threshold issue when analyzing liability under the Labor Law is whether
the injured worker is engaged in an enumerated, covered activity. In order to
distinguish between repair and routine maintenance, the courts have generally
considered whether the work involves replacing components due to normal wear
and tear and/or whether the work involves a significant physical change to the
configuration or composition of a building or structure.
In Gaston v. Trustees of Columbia Univ. in the City of N.Y., 2021 NY Slip
Op 00254, the plaintiff was replacing a boiler steam valve, an activity that some
courts have ruled constitutes routine maintenance, and therefore not a covered
activity under the statute. The plaintiff stood on top of a boiler and completed
replacing the safety valves, and in attempting to ascend from the top of the boiler
onto a nearby catwalk, he slipped as a result of the boiler top’s round shape.
The trial court granted the defendants’ summary judgment dismissing the
§240 claim. On appeal, the Appellate Division, First Department reversed and
reinstated the claim, finding that the valve replacement was part of a larger project
that included removing portions of the boilers via blowtorches and the installation
of new components by welding. Therefore, the plaintiff raised an issue of fact as to
whether the activity in which he was engaged at the time of the accident was within
the purview of §240.
Gaston shows that, in looking at the totality of the project, if the work
requires a significant physical change to the configuration or composition of a
building or structure, rather than replacement due to normal wear and tear, then it
can constitute an alteration or repair within the meaning of §240.
D. Adding time to determination of routine maintenance
In Kehoe v 61 Broadway Owner LLC, 2020 NY Slip Op 01391, the plaintiff,
an elevator mechanic, was injured when he was ascending a permanently affixed
ladder in an elevator shaft. Plaintiff alleged the ladder vibrated and caused him to
fall 20 feet to the floor of the shaft. The elevator at issue was not operable at the
time of the accident and the defendants argued, among other things, that the
plaintiff’s work constituted routine maintenance, as opposed to repair work, and as
plaintiff’s work was not a covered activity within the scope of the Labor Law. The
trial court granted the defendants’ motion and dismissed the complaint.
On appeal, the Appellate Division, First Department reversed the trial
court’s finding, holding that the work being performed was indeed repair as
opposed to routine maintenance. The determination was based largely upon the fact
that the work took place over a period of weeks, if not longer, and its purpose was
to correct the unguarded condition of traveling cables that caused the cables to
strike other objects within the elevator shafts, which made noise that startled
passengers and caused damage to the cables. The court ignored the fact that the
work took this long due to the size of the building, and the number of elevators
involved.
As explained above, a threshold issue when analyzing liability under the
Labor Law is whether the worker is engaged in an enumerated, covered activity.
The Kehoe decision significantly expands the meaning of repair by adding into the
analysis the amount of time that it took the plaintiff to complete the task, despite
the fact that he was not changing any components to elevators, but merely providing
padding to reduce noise.