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Archive for the ‘Construction & Design Professional’ Category

The Statute of Repose Defense is Expanded

Posted on: September 23rd, 2019

By: Jeff Alitz

In John C. Rankin v. South Street Downtown Holdings, Inc v. Truexcullins and Partners Architects, decided August 6, 2019, The New Hampshire Supreme court extended the application of that state’s Statute of Repose to bar not only direct claims filed by plaintiff’s, but also to claims for indemnification and contribution that are filed by third-party plaintiffs after that state’s 8 year statute of repose period has run. In so ruling the Court clarifies – at least in New Hampshire – confusion over the reach and application of the Statute.

Unlike a statute of limitation, a statute of repose period typically starts to run on the completion of an improvement to real property and the period ends on a date established by state law. A substantial majority of states have enacted such time bar statutes of repose though there are state by state variations in them that should be considered by parties and their counsel. The statutory period is set by state law and it can vary from as short a period as 4 years (Tennessee) to up to 15 years (Iowa). Unlike the statute of limitations, there is no “discovery” component to the statute of repose or any “tolling” of the running of the statutory time period, rather, the period described in that statute starts to run when a real estate improvement is complete and ends with finality when the statutory time period concludes. No exceptions are typically available. At least one state’s highest court has called the application of the statute of repose “draconian”.

Consistent with that comment, after considering if third-party claims (brought by parties who were timely joined to the Rankin lawsuit), could be filed after the New Hampshire Statue of Repose period had run the New Hampshire Supreme Court implicitly ruled that the third party claims did not relate back to the successfully pled initial complaint, nor was there any exception that could save and preserve the third party claims. Accordingly, in broadly interpreting the preclusive language in the New Hampshire statute, that state’s highest court found that the statute does in fact means what it says and it does bar indemnification and contribution based claims that are not filed within the 8 year period established by the statute. While the Rankin decision is of course only binding in New Hampshire lawsuits the straightforward issue the case presents and the near universal presence of statutes of repose in other states suggests the case decision will be instructive to other state courts that consider this issue.

If you have any questions or would like more information, please contact Jeff Alitz at [email protected]

Georgia Federal Judge Enforces Contractual Liability Limitation, Cuts Jury Verdict in Half

Posted on: September 19th, 2019

By: Jake Carroll

A federal judge in Georgia enforced a limitation of liability clause in a construction contract for engineering services—reducing the jury’s award from $5.7 million to just over $2 million. See U.S. Nitrogen LLC v. Weatherly, Inc., No. 1:16-CV-462-MLB, (N.D.Ga. Sept. 16, 2019).

The case arose from the design and construction of an ammonium nitrate solution plant in Midway, Tennessee. The project owner, US Nitrogen (“USN”), hired Weatherly to provide engineering services related to the construction, and entered into a written contract.

Constructing the plant cost more money and took longer than the parties initially anticipated—to the tune of $200 Million. USN attributed more than $30 million of cost overruns and delays to Weatherly’s design, and brought suit against Weatherly for breach of contract, breach of warranty, professional negligence, negligent misrepresentation, and bad faith.

Following discovery, Weatherly moved for partial summary judgment, arguing that the contract contained an enforceable limitation of liability provision which capped the damages USN could seek to fifteen percent (15%) of Weatherly’s contract price. Weatherly also argued that the terms of the contract prevented USN from recovering consequential damages.

The court agreed with Weatherly—finding that USN could only recover up to $2,203,800 of the more than $30 million it was seeking—and the case proceeded to trial for the jury to determine the amount of damages incurred by USN as a result of Weatherly’s breach. Although the jury ultimately awarded $5,755,000 in damages, the court reduced the award to $2,203,800, pursuant to its earlier findings, and consistent with the terms of the contract. However, the judgment is not final: either party may still appeal the decision to the Eleventh Circuit Court of Appeals.

While Georgia courts have long recognized limitation of liability clauses as valid and enforceable, this case is another example of how carefully drafted contract language can mitigate future risk. Typically, a party’s exposure can be limited to the amount of compensation under the contract, or even less in Weatherly’s case. Such clauses are most frequently seen in contracts for services such as agreements with design professionals and testing laboratories. Nonetheless, there is no reason that they could not be included in general contracts and subcontracts.

If you have questions regarding this decision, or any other contract drafting questions, Jake Carroll practices construction and commercial law as a member of Freeman Mathis & Gary’s Construction Law, Commercial Litigation, and Tort and Catastrophic Loss practice groups. Mr. Carroll represents business and commercial entities in a wide range of disputes and corporate matters involving breach of contract and warranty, business torts, and products liability claims.

California Prompt Payment Act: A Tool In The Tool Belt To Secure Payment

Posted on: September 13th, 2019

By: David Molinari

In the construction industry, payments come slowly.  Prompt payment laws exist in some form nationwide and can vary from state to state.  These laws serve to create timelines for when payments must be made and institute interest penalties for late payments.  In California, the contractors are armed with Civil Code 8800 et al. California’s Prompt Payment Act.  The Prompt Payment Act covers private projects; while the Public Contract Code 10260 and 20104, et al. governs public works.

With respect to private projects, such relationship as an owner and direct contractor, the owner must pay a direct contractor within 30 days of that contractor’s request.  There are exceptions to the 30-day time limit:  First, if the parties agree to another timeframe in their contract; or if there is a “good faith dispute.”  A good faith dispute cannot be used as a license to withhold payment to the contractor.  An owner may withhold up to 150% of the amount in dispute.  If retainages are being withheld, the owner must pay retentions within 45 days after competition of the improvement.  If the contractor corrects or completes the disputed work and sends a notice of the correction, the owner must then accept or reject the work within 10 days.

For the director contractor and subcontractor relationship, the general contractor must pay subcontractors within seven days of receiving each progress payment related to that subcontractor’s work.  These timeframes may be changed by the contract between the general and the subcontractor.  The good faith dispute also applies to payments in this relationship.  As for retainage, the general contractor must pay retention to the subcontractor within 10 days of receiving retention payment from the owner.  If a general contractor withholds retainage from the subcontractor for correction or completion of their work, the general contractor must accept or reject the subcontractor’s work within 10 days of the correction.  When payments are being improperly withheld, a 2% per month interest penalty begins to apply.

California’s Prompt Payment protection also applies to public projects.  With respect to the public entity direct contractor relationships, the timeframes vary depending on the public entity that is a party to the construction contract.  State and local agencies must pay progress payments within 30 days after receiving requests.  Any requests that are rejected must be returned to the direct contractor with a written explanation within seven days.  Retentions must be released within 60 days of completion of the work of improvement.

Direct contractors on public works and their subcontractors also must follow set timelines; with the rules generally the same as private projects.  The general contractor must pay subcontractors within seven days of receiving a progress payment relating to that subcontractor’s work.  Timeframes can be changed by the written contract and the good faith dispute for withholding payment also applies.

When a general contractor withholds retentions from a subcontractor, those retentions must be paid within seven days after receiving all or a portion of the retention.  Progress payments improperly withheld begin to accrue 2% monthly interest.

Making a claim under the Prompt Payment Acts is the contractor’s best leverage to secure receiving compensation for work provided.

If you have any questions or would like more information, please contact David Molinari at [email protected].

Speak Now or Forever Hold Your Peace: Construction Claim Arbitration and Res Judicata

Posted on: August 20th, 2019

By: Catherine Bednar

The Supreme Court of Connecticut recently affirmed the Appellate Court’s determination that when a property owner and a general contractor enter into binding, unrestricted arbitration to resolve disputes, the subcontractors are presumptively in privity with the general contractor for purposes of precluding subsequent litigation against them. In Girolametti v. Michael Horton Assocs., 332 Conn. 67 (June 25, 2019), Connecticut’s Supreme Court joined other jurisdictions in adopting a rebuttable presumption of privity between general contractors and subcontractors on a construction project in applying the doctrine of res judicata.

The Plaintiffs in Girolametti owned a retail store and hired the general contractor, Rizzo Corporation, to construct an expansion. After completion of the project, Plaintiffs and Rizzo entered arbitration to resolve various disputes concerning the Project, including Plaintiffs’ claims for alleged construction defects and delay and Rizzo’s claims for additional payments owed. Perhaps believing they would fare better in separate litigation, Plaintiffs abandoned the proceedings on the thirty-third day of the arbitration, which concluded two days later, and failed to present their damages claim contrary to the arbitrator’s recommendations.  The arbitrator ultimately entered an award in Rizzo’s favor.

Plaintiffs then pursued two lawsuits against Rizzo and five subcontractors collectively, which focused on the design and construction of the building.  All defendants moved for summary judgment on the grounds that Plaintiffs’ claims had or could have been raised and resolved during the arbitration and were therefore barred. The trial judge granted Rizzo’s motion for summary judgment, but denied the subcontractors’ motions, holding the subs were not parties to the arbitration and not in privity with Rizzo. The Appellate Court reversed and granted summary judgment to the defendants.

In affirming the Appellate Court’s decision, the Supreme Court of Connecticut explained that “[w]hen applying the law to complex endeavors such as large-scale commercial construction, it often is desirable to adopt default rules, whether in the form of legal presumptions or standardized contracts.” The court reasoned the new default rule was an efficient and fair tool for resolving construction disputes.  A presumption of privity makes sense because not only is the general contractor in privity of contract with its subcontractors, but the general contractor is also responsible for the work of the subcontractors.  The court noted that absent a default rule, a property owner could relitigate its failed claims against the general contractor by bringing piecemeal, fact-intensive claims against subcontractors. The court also recognized that the default rule (which parties may contract around if they choose) is beneficial to both property owners and contractors by, resolving all outstanding disputes involving work on a project in the context of an owner-general contractor arbitration.

Having adopted the rebuttal presumption of privity between general contractors and subcontractors for the purposes of res judicata, the court found the facts and circumstances in the Girolametti case did not support an exception to the default rule. The court found the Plaintiffs reasonably should have understood the arbitration with Rizzo was the proper forum for addressing any claims against the subcontractors which were foreseeable at the time. In particular, the court pointed to the parties’ use of a standard form owner-contractor construction contract for their prime contract as evidence of their intent to abide by industry norms, making the general contractor responsible for all subcontractor work not separately contracted by the owner. The contract also contained a broad, unrestricted arbitration provision.

The Connecticut Supreme Court’s decision in Girolametti serves as a reminder to parties engaged in complex construction disputes to carefully consider the scope of their arbitration provisions and evaluate the potential need to add claims and join third parties.

If you have any questions or would like more information, please contact Catherine Bednar at [email protected].

Resilient Design: A Future Requirement?

Posted on: June 17th, 2019

By: Catherine Bednar

Today’s headlines reflect an increasing awareness of climate change and its impacts – rising sea levels, heightened flood risks, and potential wildfires, to name a few. Scientific research and political debate over the causes/effects of and policy responses to climate change will undoubtedly remain at the forefront of our news. Related to these issues, the construction field is seeing new developments in the area of resilient design.

Resilient design is the design of buildings and infrastructure to withstand events such as weather extremes, economic disruption and resource depletion.  Resilient design encompasses the anticipation of various hazards, including but not limited to those related to climate change.  Essentially, resilient design is about expecting the not-so-unexpected.

In December 2018, the U.S. Green Building Council, Inc. (“USGBC”) released its RELi™  2.0 Rating System to “help identify and reduce the risk of damage to a project in the event of a natural disaster or other crisis.” The new rating system includes many credits drawn from USGBC’s LEED certification program. RELi includes 15 mandatory requirements falling into eight separate categories: panoramic approach; hazard preparedness; hazard mitigation and adaptation; community cohesion, social and economic vitality; productivity, health and diversity; energy, water and on-site food production; materials and artifacts; and applied creativity. RELi 2.0 is currently being piloted and is available to LEED-registered projects.

In recent years, design professionals and insurance carriers have questioned whether “green” design and “sustainable” design concepts have impacted the standard of care. Going forward, we can expect to see a greater focus on “resilient” design in projects, whether through voluntary certification programs like RELi, state and local regulations and guidelines, or even professional liability claims.

For more information, please contact Catherine Bednar at [email protected].