Construction Channel Cases of the Month

Cases of the Month

Significant Cases and Decisions Affecting the Construction Industry

By: Joseph H. Bucci, Esquire
Saul Ewing LLP

September 2017

1. On a construction contract dispute for a public contract to build affordable housing in New Orleans, where both the contractor and the public owner filed competing motions for partial summary judgment on issues of: (1) timely compliance with written notice of claim provisions; (2) compliance by the public owner with the Bid Law; (3) who makes the determination that substantial completion has or has not occurred; (4) who makes the determination of the date for substantial completion, where there are issues of material fact on any of these questions, a court cannot grant a motion for partial summary judgment. Parkcrest Builders, LLC v. Housing Authority of New Orleans, 2017 WL 3394033 (U.S. District Court, E.D. Louisiana; August 8, 2017).

* What the Court Considered: The court reviewed both the written General Conditions as well as the project correspondence and the actions of the respective parties.

* What the Court Said: With respect to written notice requirements, the court, after analyzing the facts and project documentation, confirmed that where no prejudice is shown, and where one of the parties had actual notice of the conditions giving rise to the claim, it is not fatal that the party asserting the claim did not strictly comply with the written notice requirements. These provisions are waivable by the conduct of the parties, as was found by the court in this situation. On the issue of the attainment of substantial completion, the court made clear that the determination of the architect is reviewable and whether or not substantial completion has occurred is a factual determination to be made by the trial court. Because both parties presented ample evidence to demonstrate that genuine issues of material fact existed on the competing motions for partial summary judgment, the motions of both parties were denied.

* What the Opinion Means: On a complex construction project, where there are grounds for factual differences on underlying legal issue, it will be difficult to obtain summary judgment. Summary judgment is only appropriate when the pleadings, the discovery and disclosure materials, together with any affidavits, show that there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law.

2. On an appeal from the U.S. District Court in favor of a subcontractor who participated in the costly cleanup of hazardous waste left from the government’s efforts to build the first atomic bomb, the U.S. Court of Appeals reviewed the award on the subcontractor’s requests for equitable adjustments, as well as the awards in favor of the subcontractor for interest and attorneys’ fees under the Tennessee Prompt Pay Act. Eagle Supply & Manufacturing, L.P. v. Bechtel Jacobs Company, LLC, 2017 WL 3526753 (U.S. Court of Appeals, 6th Circuit) August 17, 2017.

* What the Court Considered: The court reviewed the record in detail from the District Court and where the standard of review for the equitable adjustments was clear error, while the standard for conclusions of law was a review de novo by the Appeals Court.

* What the Court Said: With respect to the District Court’s decisions on the subcontractors request for equitable adjustments, the Appeals Court found significant support to confirm that the decision below was not clearly erroneous, therefore it would not be altered on appeal. As to issues of law arising under the Tennessee Prompt Pay Act with regard to the amount of interest awarded to the subcontractor, the Appeals Court found that a statute had been enacted following the filing of the initial litigation that resulted in a downward adjustment of the award of interest to the subcontractor. The award of the District Court as to attorneys’ fees for the subcontractor was left without modification.

* What the Opinion Means: The record at the trial level is critical should you elect to file an appeal. Where issues of fact are involved in your appeal, in order to have the decision below modified or overturned, you will need to show clear error on the part of the trial court. However, as to matters of law, the Appeals Court undertakes its review de novo.

3. On an insurance coverage dispute involving an architect’s professional liability coverage on a claims made policy, where the insured was involved in a construction project that spanned two separate professional liability policies, it is possible that the architect/insured may not have coverage under either of its two consecutive policies where the insured failed to satisfy the notice of claim provision of the first policy and then fell under an exclusion from the second policy due to pre-existing knowledge of a claim. University of Pittsburgh v. Lexington Insurance Co., 2016 WL 7174667 (U.S. District Court, S.D. New York; December 8, 2016).

* What the Court Considered: The court considered two separate but concurrent policies of professional liability insurance, with particular attention to the notice of claim provisions in the first policy, and the exclusions applicable to the second policy.

* What the Court Said: The court concluded that the first insurance carrier was not contractually obligated to provide a defense to its insured on a claims made policy where the initial notice of claim failed to comply with the notice requirements of the professional liability policy. The court then construed the second, consecutively triggered policy of insurance to find that an express exclusion for any pre-existing claim known to the insured at the time the second policy was effective supported a denial of the insured’s claim to the second carrier. Therefore, even though the architect had two professional liability policies that could have afforded coverage, neither policy was triggered under the facts of this case.

* What the Opinion Means: Policies of insurance are contracts that must be complied with in strict accordance with the terms and conditions. Of particular importance are any obligations on the insured to give notice of claim to its carrier. In situations that trigger an insured’s duty to give notice, the actual language of the notice must be clear, concise and fall within the requirements of the applicable policy.

4. Here, a government contractor performing for NASA filed an appeal of the decision of the U.S. Court of Federal Claims denying the contractor’s claim for reimbursement of certain pension withdrawal liability costs incurred when the contractor de-certified the union as the representative of the contractor’s employees, which triggered withdrawal liability under the Multi-Employer Pension Plan Amendment Act (MPPAA). Call Henry, Inc. v. United States, 855 F.3d 1348 (2017); April 28, 2017.

* What the Court Considered: The court reviewed the contractor’s agreement with NASA to determine that NASA had no contractual obligation to the contractor to adjust the contract price to account for contractor’s pension withdrawal liability costs that it incurred under MPPAA after its employees withdrew from the union. The review of U.S. Court of Appeals was pursuant to the Government’s motion to dismiss for failure by the contractor to state a legally recognized claim for relief.

* What the Court Said: In sustaining the motion to dismiss by the Court of Federal Claims below, the appeals court found that the contractor independently chose to provide its employees with pension benefits by negotiating a collective bargaining agreement with the union and joining the union’s pension plan, which NASA did not require the contractor to undertake. Additionally, NASA had no contractual recourse if the contractor failed to satisfy MPPAA withdrawal obligations pursuant to the Employee Retirement Income Security Act of 1974 (ERISA).

* What the Opinion Means: If you, as a contractor or subcontractor, elect to recognize a union as the collective bargaining agent of your employees, and you enter into and participate in the union’s pension plan, a subsequent decertification of the union is effectively a withdrawal from the applicable pension plan, triggering withdrawal liability to the contractor where the union’s pension plan is deemed to be unfunded and/or is on critical status under the Pension Protection Act of 2006.

5. On an appeal of a summary judgment decision by the District Court of Harris County, Texas in favor of a purchaser of a new home suffering from various construction defects, the builder failed to demonstrate to the Court of Appeals that there were any errors of law by the trial court, or that the homeowner should not have been granted specific performance of the parties’ settlement agreement. Carnegie Homes & Construction, LLC v. Funda Sahin, 2017 W.L. 2871795 (Court of Appeals of Texas, Houston (First District); July 6, 2017).

* What the Court Considered: The Court of Appeals considered de novo the trial court’s ruling on the builder’s motion for summary judgment, together with the settlement agreement that the parties eventually entered into following efforts at mediation.

* What the Court Said: Where a party seeks specific performance of a written obligation, here a settlement agreement, this remedy may be available where monetary relief will not adequately compensate the injured party. Because of the uniqueness of real property, a claim for specific performance of a contract for its sale is extrinsically suited to the remedy of specific performance. As such, a plaintiff seeking specific performance of an agreement involving real property need not make any additional showing of an inadequate remedy at law. Finding that the trial court did not err in granting the homeowner’s motion for summary judgment, the Appeals Court affirmed the judgment below in favor of the home buyer.

* What the Opinion Means: In the context of a real estate transaction, because of the uniqueness of real estate and the lack of an adequate substitution, or the lack of an adequate monetary remedy for a breach, specific performance is ideally suited for cases of this type.

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