Case Summaries – Page 21 – Construction Law

Court Upholds City’s Product Specification for Construction Project, but Notes that City Does Not Have Unfettered Discretion In Prohibiting Products

Aug 27 2007

Advanced Drainage Sys., Inc. v. City of Portland, 214 Or. App 534, 166 P.3d 580 (2007)

A pipe manufacturer sought a declaratory judgment that the city had violated its state and federal constitutional rights to equal treatment when it rejected the use of a certain type of pipe for a city contract. The city counterclaimed, asserting that it had complete discretion to choose products for its construction projects. The trial court agreed with the city. The court of appeals affirmed, but with a modification.

The city tried to argue that the manufacturer was not a citizen under the Oregon constitution and therefore lacked standing. The appellate court left that issue for another day, deciding that it would determine standing as an issue of justiciability and not as a matter of constitutional interpretation. The appellate court then determined that the city’s ordinances which prohibited certain types of pipe materials but not others passed any applicable tests of rationality based upon asserted claims regarding safety and maintenance. However, the appellate court also determined that, contrary to the city’s argument, the city did not have unfettered discretion in prohibiting certain types of products and hence manufacturers. Thus, the city could not prohibit products made by “Catholics or Norwegians," for example.

General Contractor Bears Burden of Disproving Claim for Employer Contributions by Labor Union Under Collective Bargaining Agreement

Aug 25 2007

Kane Builders, Inc. v. S. New Jersey Bldg. Laborers Dist. Council, LIUNA, 2007 WL 2416470 (D.N.J. Aug. 21, 2007)

In this case, a labor union brought various claims against a general contractor (“GC”) stemming from a collective bargaining agreement (“CBA”) entered between the Union and the GC. Briefly stated, the union asserted a multi-million dollar claim for unpaid employer contributions that the GC would have been obligated to pay, had it not violated the CBA by not using union laborers on over 100 “covered projects” in New Jersey. Relying on ERISA’s record keeping provision (29 U.S.C. § 1145), the union argued that the GC bore the burden of proving which hours worked were not subject to contribution.

The court, following 11^th Circuit precedent, adopted the burden-shifting approach. It determined that the union had satisfied its initial burden of setting forth sufficient evidence concerning the amount and extent of work performed through an expert auditor’s report. The court ruled that, at that point, the burden of proof shifted to the GC to disprove, or raise an issue of fact, regarding the extent of work performed on covered projects and/or whether covered employees performed the work. Because the GC was unable to produce any records to disprove the union’s claim, the court entered partial summary judgment on the issue of damages.

Courts Apply Heightened Pleading Standards to Fraud Claims in Adversary Proceeding

Aug 20 2007

In re Andrew Velez Constr., Inc., 373 B.R. 262 (Bankr. S.D.N.Y. 2007)

This adversary proceeding was brought by Andrew Velez Construction, Inc. (“Velez”), a general contractor on a major construction project for Con Edison Company of New York, Inc. (“Con Edison”), against Con Edison. After substantial cost overruns, delays and changes in the scope of work, the parties each claimed that the other committed pre-petition defaults under their contract. The parties asserted numerous causes of action, including claims for: fraudulent transfers, turnovers, declaratory relief, fraud, fraudulent inducement, quantum meruit, unjust enrichment, trust fund violations, and defamation. Because the court was presented with Con Edison’s motion to dismiss, this decision examined the pleading standards for each claim.

Court Favors Arbitration in Disputes Between Contractor and Subcontractor

Aug 19 2007

Actus Lend Lease LLC v. Integrated Bldg. Res. Dev. LLC, 2007 WL 2362389 (N.D.N.Y. Aug. 14, 2007)

Here, defendant moved to dismiss the action for breach of its subcontract with plaintiff-contractor on the basis that the action was subject to binding arbitration. According to the subcontract, a dispute between the parties must be resolved by mandatory arbitration when the dispute (1) arises in connection with the subcontract and either party elects, by written notice, to submit the matter to binding arbitration; or (2) involves the correlative rights and duties of the owner. The subcontract also provided that a party must provide written notice to elect binding arbitration.

In support of its motion, defendant submitted a notice of motion and an affirmation with exhibits; however, it did not submit a memorandum of law to set forth its legal arguments. The court held, therefore, that factual disputes existed as to whether the alleged dispute was subject to arbitration under the terms of the agreement. However, the court granted defendant leave to renew its motion to dismiss upon submission of the proper papers, reasoning that there is a strong public policy in favor of arbitration.

Scope of Arbitration Agreement in Home Warranty to be Determined by Arbitrator, Not Court

Aug 16 2007

Mercedes Homes, Inc. v. Colon, 966 So.2d 10 (Fla. Dist. Ct. App. 2007)

In this case, an individual entered into an agreement with a contractor for construction of a new home, which included a provision requiring the contractor to install sod. When the home buyer fell in his yard eleven days after closing, he brought a personal injury claim against the contractor claiming it had installed the sod negligently. The contractor moved to compel arbitration of the personal injury claim, based on the arbitration agreement contained in the home warranty purchased by the home buyer. In response, the buyer argued that he was not required to arbitrate his personal injury claim because negligence claims were expressly excluded from the home warranty.

Contractor Not Required to Provide Pre-Suit Notice, May Plead Both Negligent Construction and Breach of Contract

Aug 10 2007

Centex Homes v. Mr. Stucco, Inc., 2007 WL 2264622 (M.D. Fla. Aug. 6, 2007)

In this case, a general contractor brought suit against several subcontractors for breach of contract and negligent construction of residences in the general contractor’s development. In response, the subcontractors moved to dismiss the action on the grounds that the contractor had failed to provide notice prior to filing the action as required by section 558.004 of the Florida Statutes. The subcontractors also moved to dismiss the negligence claim on the grounds that the contractor had not alleged any tort injury separate from the breach of contract claim in order to survive the economic loss rule.

Insurer Has Duty to Defend General Contractor for Injuries Arising Out of Subcontractor’s Work Where General Contractor is Named as Additional Insured on Subcontractor’s Policy

Aug 06 2007

Parker v. John Moriarty & Assocs., Inc., 2007 WL 2429719 (Mass. Super. Ct. July 29, 2007)

This case arose from personal injuries suffered by the plaintiff while working at a construction site in Brighton, Massachusetts. The general contractor of the construction project subcontracted some aspects of the project; plaintiff was an employee of the subcontractor. The plaintiff filed a complaint, asserting a negligence claim against the general contractor for negligently failing to provide a safe workplace and the general contractor settled. By third-party complaint, the general contractor brought claims against the subcontractor and the subcontractor’s insurer for indemnification, contribution, and breach of contract for failure to provide insurance. The insurer moved for summary judgment on all claims against it, arguing that the insurance policy did not provide coverage on the claims. The insurer argued that it did not owe a duty to defend the claims and did not have a duty to indemnify because the general contractor was not covered for the claims under the additional insured endorsement and such claims were excluded from coverage under the cross-suits provision. The general contractor opposed and filed a cross-motion for summary judgment, asserting that, as a matter of law, the policy provided coverage in that the insurer had a duty to defend and to indemnify for the settlement of the claims. The subcontractor also moved for summary judgment in its favor on the breach of contract claim for failure to provide insurance, arguing that it had named the general contractor as an additional insured on the policy. Read More

Insurer Not Entitled to Summary Judgment on Breach of Performance Bond Claim

Aug 05 2007

Klewin Bldg. Co. v. Heritage Plumbing & Heating, Inc., 840 N.Y.S.2d 144 (N.Y. App. Div. 2007)

In this case, plaintiff was the construction manager for a building project and had entered into a subcontract with defendant Heritage Plumbing & Heating pursuant to which Heritage was required to supply plumbing materials and services for the project. Defendant Hartford Fire Insurance Company provided a performance bond to Heritage for the benefit of Klewin. Hartford’s obligations to Klewin under the bond would only arise upon certain conditions, including, among other things, Klewin’s declaration that Heritage had defaulted and a termination of Heritage’s right to complete the subcontract.

Court of Claims Ruling Upheld – Contractor Entitled to Reimbursement from Government Under Unit Contract

Jul 23 2007

Harrison & Burrowes Bridge Constructors, Inc. v. New York, 839 N.Y.S.2d 854 (N.Y. App. Div. 2007)

The claimant filed suit in the Court of Claims seeking additional compensation for its rehabilitation and resurfacing of eight bridges under a unit-price contract with the State of New York. The state offered several reasons for its refusal to pay the claimant for labor and materials supplied under the contract.

First, the contract required the state to pay the claimant for the total number of markers installed, including any markers damaged by traffic. The state refused to pay for an additional 1,478 replacement markers installed by the claimant, arguing that the bid proposal, upon which the contract was based, only covered the installation of 868 markers. Affirming the Court of Claims, the appellate court found that the state should pay for the additional 1,478 replacement markers. Although the contract (which required the claimant to replace damaged markers) did not specify who would be obligated to pay for those markers, the court reasoned that the contract did not require the claimant to include the cost of replacing markers in its bid.

Economic Loss Rule Remains Alive and Well in Texas

Jul 19 2007

Pugh v. Gen. Terrazzo Supplies, Inc., 243 S.W.3d 84 (Tex. Ct. App. 2007), petition for review filed (Mar. 24, 2008)

In this case, the court affirmed a take-nothing summary judgment in favor of a materials supplier based on the economic loss rule. Pugh arose out of a residential construction project involving an exterior insulated finishing system (“EIFS”). After discovering alleged water damage to their home’s wood frame and interior wood flooring, the homeowners sued the masonry subcontractor and veneer supplier for negligence, “product liability (marketing defect),” and breach of the “implied warranties of good and workmanlike service and habitability.”

In a motion for summary judgment, the material supplier argued that the economic loss rule barred the homeowners’ claims for negligence and strict liability.

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