Case Summaries – Page 23 – Construction Law

Lenders Can Pull Financing if Borrower Cannot Show It Is Ready, Willing and Able to Perform All Conditions Required for Loan

Apr 10 2007

Boise Tower Assocs. LLC v. Wash. Capital Joint Master Trust, 2007 WL 1035158 (D. Idaho Apr. 2, 2007)

In this case, the federal court sitting in Boise applied Washington law in delivering a win for a lender who refused to lend to the plaintiff developer. The lender agreed to provide financing, but only if four conditions precedent were met, including an agreement to use union labor. The developer agreed, but later took steps to have his contractor use non-union labor. The lender refused to loan, prompting a lawsuit by the developer. The court held that the lender was entitled to refuse because the developer had not demonstrated that it was willing and able to perform the conditions precedent. A party, here the developer, that claims to have been damaged by a repudiation must show that it was ready, willing and able to perform its obligations under the contract before the repudiation, and that it would have rendered the agreed performance if the defendant had not repudiated. The developer could not do so here, so the court excused the lender from making the loan.

State Not Liable to Workers Who Also Recovered Under Workers’ Compensation System

Feb 10 2007

Fuhriman v. Idaho Dept. of Transp., 143 Idaho 800, 153 P.3d 480 (2007)

Idaho law provides that workers’ compensation benefits are the exclusive remedy for workplace injuries. Idaho Code §72-223, however, contains an exception to that "exclusive remedy." The exception allows a finding of liability against a third party, even where the injured employee has received worker’s compensation benefits, if the third party is legally liable for damages. This exception to the exclusive remedy rule does not apply, however, to employers described in §72-216, which includes third party that has expressly or impliedly hired or contracted the services of another, including contractors and subcontractors, and the third party is liable to pay workers’ compensation benefits if the direct employer, the contractor or subcontractor, does not.

In a February 2007 opinion, the Idaho Supreme Court held that the Idaho Department of Transportation was not subject to the exception (that is, it was protected by the exclusive remedy rule). The State was using workers employed by a contractor. Those workers were killed on the job. Their families received workers’ compensation benefits and sued the State. The Court rejected the claims, however, because the State would have been liable for the worker’s compensation benefits if the contractor/employer failed to pay those benefits. The exception therefore did not apply.

Be Very Careful When Entering into Settlement Agreements

Feb 08 2007

Ragnar Benson, Inc. v. Hempfield Township Mun. Auth., 916 A.2d 1183 (Pa. Super. Ct. 2007)

The Pennsylvania Superior Court untied the knottiest of two settlement agreements in this case. Under separate written agreements, Kirby Electric contracted with the Municipal Authority to do its electrical construction, while Ragnar Benson contracted to perform general construction on the Authority’s water pollution control plant. Each filed a lawsuit against the Municipal Authority, asserting breach of contract, and the Municipal Authority counterclaimed, and cross-claimed accordingly. Kirby and the Municipal Authority agreed to settle their claims and counterclaims, with the provision that Kirby and Ragnar would continue in litigation and that settlement payments would be calculated based upon the outcome of the two contractors’ litigated dispute.
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Contract Specifications Defense Applies to Both Private and Public Contractors

Jan 01 2007

Craig Johnson Constr., L.L.C. v. Floyd Town Architects, P.A., 142 Idaho 797, 134 P.3d 648 (2006)

Town entered into a contract with Dean to prepare plans for condominiums in Ketchum. Once Dean received the plans, Dean contracted with Johnson to build the condominiums according to Town’s plans. The condominiums were built in two phases. In Phase one Johnson deviated from the plans, but did not do so in building phase two. The first winter the condominiums were completed, ice dams formed on the roofs of individual units in both phases of construction. All three parties then brought actions against each other for breach of contract, negligence and indemnification.

At trial, the jury found Johnson to be 90 percent at fault and Town only 10 percent at fault. The court held that “a public or private contractor following plans and specifications prepared by another party is not liable in negligence where defects in the plans and specifications cause injuries, so long as the contractor should not have reasonably known about the defects.” The court affirmed the jury’s verdict since there was sufficient evidence in the record to show that Johnson was negligent and failed to follow Town’s plans.

Owner Who Pays Contractor After Receiving Subcontractor’s Lien Notice Becomes Personally Liable to Subcontractor, Even Though Owner Retains More than Lien Amount

Jan 01 2007

O & M Indus. v. Smith Eng’g Co., 360 N.C. 263, 624 S.E.2d 345 (2006)

In this case, the subcontractor served a notice of claim of lien on funds owed to it by the contractor. The owner paid the contractor after the subcontractor served notice, but also retained funds in excess of the subcontractor’s lien. The subcontractor sued when neither the contractor nor the owner paid it. The subcontractor moved for summary judgment, alleging that the owner was personally liable because it paid the contractor after the subcontractor served notice. The owner also moved for summary judgment. The trial court granted the subcontractor’s motion for summary judgment and denied the owner’s. The Court of Appeals reversed, but the North Carolina Supreme Court reversed the Court of Appeals, holding, among other things, that the Court of Appeals failed to properly apply the applicable lien statutes, and that the owner’s retention of funds exceeding the lien did not relieve the owner of personal liability.

New York Public Policy Against Pay-If-Paid Provision Does Not Apply to Contracts Governed by Jurisdictions That Do Not Share That Policy

Jan 01 2007

Welsbach Elec. Corp. v. MasTec N. Am., Inc., 7 N.Y.3d 624 (2006)

Welsbach involved a general contractor engaged to construct a telecommunications network in New York. The agreement between the general contractor and sub-contractor included a pay-if-paid clause and a Florida choice of law provision. The New York Court of Appeals decided that New York’s public policy against pay-if-paid contract provisions was not so fundamental that it would override the parties’ choice of law.

The significance of this ruling is that it is now possible for a subcontractor to find that its lien rights are imported if it does business under the law of a non-West-Fair state.

California Business and Professions Code § 7031(a) Bars Recovery for Unlicensed Contract Work Even if Contractor Receives a License Prior to Completion; Contractor Must Have License Before Starting Work

Jan 01 2007

MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co., Inc., 36 Cal. 4th 412 (2005)

In this case, the California Supreme Court expanded on the body of licensing law set forth in Hydrotech Sys. Ltd. v. Oasis Water Park, 52 Cal. 3d 998 (1991).

In MW Erectors, subcontractor Niederhauser Ornamental & Metal Works Company was hired to perform specialized metal work on a project. Niederhauser awarded two contracts to MW Erectors, one for “structural” steel work and one for “ornamental” steel work. MW Erectors began work on the structural contract on December 3, 1999, but did not receive a steel contractor’s license until December 21, 1999. MW Erectors began work on the ornamental contract in early January. MW Erectors subsequently sued Niederhauser and its payment bond surety for amounts due on both contracts. The trial court granted summary judgment in favor of Niederhauser. The court of appeals reversed, and held that MW Erectors was entitled to prove amounts due for its work on the structural contract after the license was issued.
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Court Finds Contractor Has No Claim for Implied Indemnity or for Contribution Against Subcontractors

Jan 01 2007

Kaleel Builders, Inc. v. Ashby, 161 N.C. App. 34, 587 S.E.2d 470 (2003)

In this case, homeowners hired an architect to design their residence, and also hired Kaleel Builders, Inc., as contractor to construct the residence. Kaleel in turn hired several subcontractors. In the fall of 1996, the homeowners halted construction, and filed an arbitration demand against Kaleel alleging defective construction, including the work by the subcontractors and the design/supervision of the architect. While the arbitration was pending, Kaleel filed a complaint seeking indemnification and/or contribution against the subcontractors and architect in July of 2001. The trial court dismissed the claims against the subcontractors. The claims for breach of warranty and breach of contract were dismissed on statute of limitations grounds, and the claims for negligence, indemnity, and contribution were dismissed for failure to state a claim. The trial court also granted summary judgment for the architect. The North Carolina Court of Appeals affirmed the trial court’s decision on all claims.

Statute Adopting Several Liability in Tort Actions Does Not Apply to Contractual Indemnification Actions

Jan 01 2007

Moen Co. v. Island Steel, 128 Wash. 2d 745, 912 P.2d 472 (1996)

Here, a general contractor, Moen, who had settled with an employee of the subcontractor, Island, injured in an accident at a construction worksite sought contractual indemnification from the subcontractor pursuant to RCW 4.24.115. The principle issues in this case were: (1) whether the contractor could enforce its indemnification agreement in which the subcontractor waived its employer immunity under RCW Title 51 and which purports to shift liability to the extent of the subcontractor’s negligence (despite RCW 4.22.070 which adopts several liability in tort cases), and (2) to what extent the subcontractor was liable to contractor, if at all. Read More

Existence of “Good Faith Dispute” Allows Contractor to Withhold Payments and Avoid Prompt Payment Penalties

Jan 01 2007

Alpha Mech., Heating & Air Conditioning, Inc. v. Travelers Cas. & Sur. Co. of Am., 133 Cal. App. 4th 1319 (2005)

In this case, subcontractor Alpha Mechanical, Heating & Air Conditioning sued general contractor RAS Builders and payment bond issuer Travelers after RAS withheld a final payment on the grounds that Alpha Mechanical had damaged other trades’ work. At trial, Alpha Mechanical argued that RAS failed to comply with California prompt payment statutes because RAS failed to give timely notice of any good faith dispute. Travelers countered that the existence of a good faith dispute precluded the award of prompt payment penalties, and that RAS offered evidence that Alpha Mechanical had been notified of every backcharge. The trial court awarded Alpha Mechanical the principal amount owed, penalty interest, prejudgment interest and attorneys fees and costs.
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