CCL is developing it’s blog that will become a subscription service through Amazon.com.  The value of our blog will be in presenting current construction case law that have been decided in court within the last 30 – 45 days, as compared to other public e-publications of construction case law findings that can be up to a  year old.  The following is an example of  CCL’s e-blog that will become available during June 2011 as a subscription service through Amazon.com.   Please contact us with your comments and suggestions.

Construction Case Law Summaries 

In this week’s cases:

• Accepted Work Doctrine in Texas trumps contractor duty to public
• The public disclosure bar for the federal False Claims Act
• Subsequent construction contract not signed does not invalidate a prior valid contract
• Construction Liens in Florida
• Public agency’s immunity from change order claims
• Enforcing an agreement to arbitrate in the District of Columbia
• Union not liable for substitution of non-union concrete supplier
• Certificate of merit is required with the first complaint of negligence against a licensed professional in Texas.
• Subrogation between coinsurers
• When property damage occurs
• Attorneys’ fees under the federal False Claims Act

Accepted Work Doctrine
In Allen Keller Co. v. Foreman, 2011 Tex. LEXIS 294, 54 Tex. Sup. Ct. J. 850 (Tex. 2011), the court held that under the “accepted work” doctrine, contractors owed no duty to rectify or warn of dangerous site conditions after the work has been approved by the property owner. A Texas county had hired a contractor to excavate an embankment and erect a concrete pilot channel next to a one lane bridge spanning a river. The contract between the county and contractor contained a provision that the contractor must adhere to the engineering specifications produced by an independent engineer. The engineering plans called for a widening of the gap between the guardrail and the embankment by at least ten feet. The contractor completed the project and the engineer certified that it was completed according to the specifications. After the engineer’s certification, the county accepted the contractor’s work. Seven months after completion of the project, decedent lost control of her vehicle and passed through the gap between the guardrail and the embankment. The vehicle then rolled into the river, where the decedent drowned. The decedent’s estate filed a wrongful death action against the contractor. The trial court granted the contractor’s motion for summary judgment. The Court of Appeals held that the contractor was not entitled to summary judgment because the estate had supported its claim that the contractor created a dangerous condition at the job site. The contractor argued to the Supreme Court that under the “accepted work” doctrine, contractors were immune from liability when the work was accepted by the property owner or where the contractor was not required by the contract to make the premises safe. The estate argued that the decision of Strakos v. Gehring was binding. This case held that a contractor who created any dangerous condition owed a duty of care to the general public, regardless of the circumstances. But the Engineer had certified the contractor’s compliance with the contract specifications and the County accepted and paid the contractor for the work. The contract required absolute compliance with the contract specifications. The contractor could not attempt to rectify the dangerous condition because that act would have altered the terms of the contract. The accepted work doctrine applied because the county was aware of the conditions at the site, and the work was certified by the engineer before the contractor left the project. The case argued by the estate was not binding since the contractor owed no duty to rectify the site conditions or to warn of them. The judgment of the court of appeals was reversed.

 Subsequent construction contract not signed does not invalidate a prior valid contract
In Sam Rodgers Properties v. Chmura, 2011 Fla. App. LEXIS 5943 (Fla. Dist. Ct. App. 2d Dist. Apr. 27, 2011), the court held that a subsequent construction contract that was not signed did not invalidate a prior valid contract. A homeowner had hired a contractor for the construction of a custom home. The homeowner signed a contract to build the house on a specified lot for a specified price. However, a second contract was submitted by the contractor calling for an additional ten thousand dollars. The contractor failed to attain the homeowner’s signature on the second contract or any other document indicating that the price had been changed. The homeowner sent letters to the contractor concerning the price increase but took no measures in stopping the construction of the home. The contractor requested two draw payments that the homeowner failed to pay. The contractor then halted construction and recorded a claim of lien for the work completed. In order to keep the investment safe from the elements and vandals, the contractor completed an additional amount of work on the home. An amended claim of lien was then filed within 90 days and reflected the additional amount of construction costs. Two months after the claim of lien was recorded, the contractor filed a lawsuit to foreclose the lien. The homeowner counterclaimed against the contractor for rescission. The trial court found the claim of lien was void. The homeowner argued on appeal that the contractor began construction of the home without a valid contract, that there was never a meeting of the minds, and no signed contract to prove otherwise. The contractor argued that even if the second contract was unenforceable, the homeowner was still bound by the original, enforceable written contract. A breach of contract required the contractor to prove that there was a “meeting of the minds” and mutual assent to all essential terms of the contract. The parties satisfied the meeting of the minds requirement by assenting to the lot chosen and the price of the lot as well as the initial base price for the construction of the house. The original contract was valid and enforceable. Because there was a binding initial contract, the breach of that contract by the homeowner entitled the contractor to damages. The trial court’s ruling was reversed.

Construction liens in Florida
Sam Rodgers Properties v. Chmura, 2011 Fla. App. LEXIS 5943 (Fla. Dist. Ct. App. 2d Dist. Apr. 27, 2011), a contractor’s construction lien in Florida is timely filed if done 90 days before the final act of labor that benefits both the contractor and owner.  The contractor had asserted that the amended claim was filed under the statutory time restraints and the claim was based on the work performed to protect the partially completed home. Under the applicable Florida statute, a contractor has ninety days after the final act of labor, or service, to record a claim of lien. Based on this statute, the contractors filing of the lien was timely because it was filed before the ninetieth day after the additional construction was completed. The court found that the additional work to protect the unfinished home benefited both the contractor’s investment and the owner. The correct date which should have applied to the claim of lien was the final act of labor done to protect the unfinished home from the elements and vandals. The trial court erred by rejecting the amended claim of lien.

Public agency’s immunity from change order claims
In Kuhn Construction Co. v. Diamond State Port Corp., 2011 U.S. Dist. LEXIS 44635 (D. Del. Apr. 26, 2011), the court held that an agency has no right to Eleventh Amendment state immunity if the State treated the agency as separately incorporated and if the State was not responsible for the payment of judgments against the agency. The Delaware General Assembly had established a port authority with the purpose of owning, operating, and maintaining the Port of Wilmington. The actions and activities of the public agency were governed by a board of directors. The agency received funding from the State for improvement projects. The funding was given to the agency from the General Assembly in the form of bond bill appropriations and borrowings. A contractor entered into a contract with the agency at an agreed upon price of $10.75 million for all items, materials, work descriptions, project duration, and means of payment. During performance the contractor requested a variety of changes including additional work which should have been reflected in the contract. When these changes and additions were not added to the contract and the agency withheld payments, the contractor filed an action against the agency asserting claims for fraud and misrepresentation, civil conspiracy, and breach of contract. The contractor argued that the agency withheld payments for the additional work, which was not included in the original contract. In addition, the contractor also submitted claims to the agency for approximately $14 million for extra work and design changes. The agency argued that it acted as “an arm of the State” through the project funding and board of director’s relationship. The agency argued it was entitled to state immunity from claims by the Eleventh Amendment. The court applied a two factor test to determine whether Eleventh Amendment immunity applied to the owner. State immunity was not applicable to an agency when the State had no responsibility for the payment of a judgment against the agency, and the agency was treated as separately incorporated. The state treasury was not legally responsible for the judgment of any payments the agency might have been liable for due to a statutory disclaimer. The agency’s business was also a separately incorporated entity which had the right to sue, was taxed by the state and had no power to tax or issue bonds. Lastly, the agency exercised many different autonomous practices, such as adopting by-laws to organize and govern its affairs, entering into contracts under its own name, and conducting financial transactions under its own name. The practices and actions of the owner fell short of the state’s control requirements. The owner’s motion to dismiss for lack of subject matter jurisdiction under the Eleventh Amendment was denied.

Sovereign immunity as a defense to change order claims
In Beka Industries v. Worcester County Board of Education, 2011 Md. LEXIS 219 (Md. Apr. 26, 2011), the court held that an owner could not claim sovereign immunity as a defense to change order claims when the legislative waiver requirements were satisfied. A contractor had entered into a written contract to perform the site clearing and excavation work in the construction of a new public school for the Board of Education. The contract was signed by the County Superintendent. Before the written contract was executed, a total of three change orders were approved and agreed upon raising the contract by approximately $106,000. A variety of disputes arose over the subcontractor’s responsibilities under the original contract as well as the monetary consequences of modifications made by the owner. The subcontractor became dissatisfied with the method and amount of payment given by the owner, and filed suit. The owner denied liability and raised twelve affirmative defenses along with recoupment claims for credits, back charges, and/or setoffs. The trial court granted a judgment in favor of the subcontractor and denied the owner’s defense of sovereign immunity. The owner appealed the judgment and successfully obtained a reversal and an order for a new trial. The owner argued that the doctrine of sovereign immunity barred the subcontractor’s claim. The subcontractor argued despite whether or not the owner was entitled to sovereign immunity, the immunity was legislatively waived for its contract claim under Maryland Code § 12-201. The statute provided that the defense of sovereign immunity was not available to the state or its officers when based on a written contract that an official or employee executed for the state while acting within the scope of its authority. The contract between the owner and the subcontractor was reduced to writing, and was executed by the County Superintendent who acted on behalf of the board and also acted within the scope of his authority. The contract satisfied both requirements for the waiver of sovereign immunity and the trial court properly applied the sovereign immunity statute in regard to the subcontractor’s complaint. Sovereign immunity was legislatively waived in the action against the owner due to the written contract for the construction of the public school.

Enforcing an agreement to arbitrate
In Foulger-Pratt Residential Contractor, LLC v. Madrigal Condominiums, LLC, 2011 U.S. Dist. LEXIS 45167 (D.D.C. Apr. 27, 2011), the court held that under the Federal Arbitration Act, private agreements to arbitrate according to a state’s arbitration act should be enforced under the terms of the state’s statute. An owner had entered into a contract to build condominiums. Performance and payment bonds were provided for the project. The contract between the owner and the initial contractor included an arbitration provision. This provision governed claims and disputes which exceeded $100,000 and required submission to a three-member panel of arbitrators. All matters were to be arbitrated under the laws of the District of Columbia. Any judgment from the panel of arbitrators was considered final, binding and conclusive. Before the completion of the project, disputes arose and the initial contractor stopped paying its subcontractors. The surety engaged a replacement contractor to finish the project. The replacement contractor also accepted the existing contract including the arbitration provisions. Months before the completion of the project, disputes arose concerning payments to the replacement contractor. The disputes were submitted to an arbitration panel. During the arbitration proceedings, the owner asserted ten claims against the contractor. The contractor, in turn, brought three cross-claims against the owner. The arbitration panel issued their judgments on the issues based upon the Federal Arbitration Act guidelines. The owner filed a motion to vacate parts of the arbitration award and claimed the incorrect law was used by the arbitration panel in its review. The contractor asserted that based upon the parties’ contract and upon the statute’s preemption of state law, the federal act applied. The owner argued that the D.C. Revised Uniform Arbitration Act governed the consideration of the dispute because both parties expressly agreed to have all matters arbitrated under the law of the District of Columbia. The Federal act was to ensure the enforceability of private agreements to arbitrate according to the terms set forth by the parties. The contract included a specific clause stating that the agreement to arbitrate was enforceable pursuant to and interpreted under the laws of the District of Columbia. The D.C. Act governed all aspects of the arbitration process due to the clause written into the contract and in order to enforce the private agreement.

Union not responsible for substitution of non-union concrete supplier
In Shafer Redi-Mix, Inc. v. Chauffeurs, Teamsters & Helpers Local Union #7, 2011 U.S. App. LEXIS 9207 (6th Cir. Mich. 2011), the court held that to prove a violation of the unfair labor practices statute, the party must show that the union’s offending conduct was a substantial factor of the injury. A concrete subcontractor had solicited and received bids for the concrete from two suppliers. One supplier was a non-union supplier and the other was union. The non-union supplier was selected by the subcontractor because it provided the lowest bid. After the first supplier was selected, a representative from Chauffuers, Teamsters and Helpers Local Union #7 expressed reservations about the subcontractor’s choice to use a non-union supplier and mentioned that the best choice was to choose the union supplier to supply the concrete. The contractor became concerned about the choice to use the non-union supplier. The subcontractor was aware of these concerns. The project was covered by a Project Labor Agreement with a no picketing provision. Despite the contractor’s reservations about the non-union supplier, the subcontractor reviewed designs for the concrete mix from the non-union supplier. One day after the non-union supplier submitted its designs for review, the contractor received a phone call from three union representatives. The union indicated that a labor disruption by its sister union was a possibility if the non-union supplier was selected for the job. The agreement was not binding on the sister union. The contractor did not tell the subcontractor about this conversation. The union then called the subcontractor to confirm that the union supplier’s bid was higher than the non-union supplier. A new, lower price was later submitted by the union supplier to the subcontractor. After the subcontractor received the revised bid and after the subcontractor received a letter from the contractor approving the switch, the contract was given to the union supplier. The non-union supplier then filed suit against the union for engaging in a secondary boycott. The union filed a motion for summary judgment which was granted by the trial court. The non-union supplier argued that the union violated 29 U.S.C. § 158(b)(4) by supporting an illegal secondary boycott with the goal to remove it from the project. The non-union supplier also argued that the suit should have survived the summary judgment motion because all that was required was to establish some causal relationship between the threat to picket and the subcontractor’s decision to switch suppliers. The union argued that it had not provided any boycott threats and that the revised bid pricing and not the actions of the union was the proximate cause of the supplier switch. To satisfy the causation requirement, the non-union supplier was required to prove the unions conduct “materially contributed” or was a “substantial factor” in bringing about the injury. The subcontractor was aware of the contractors concerns about the non-union supplier. In addition, no evidence established that the subcontractor knew of the possible picket or work disruption. The actions of the union were never a factor in the subcontractor’s decision to switch contractors. The trial court’s decision to grant the summary judgment motion was appropriate.

Certificate of merit is required with the first complaint of negligence against a licensed professional in Texas
In Pakal Enterprises v. Lesak Enters. LLC, 2011 Tex. App. LEXIS 3202 (Tex. App. Houston 1st Dist. Apr. 28, 2011), a contractor had hired a surveyor to perform a survey of the property for a construction project. The survey provided by the surveyor was inaccurate. Due to the inaccurate survey, the contractor was required to make corrections to the construction and incur additional expenses. The contractor and owner sued the surveyor. The original petition was filed by the contractor and asserted claims of negligence, negligent misrepresentation, and breach of contract. The petition filed by the contractor failed to include a certificate of merit which was required under section 150.002 of the Texas Civil Practice and Remedies Code. The contractor amended the petition using the correct business title of the surveyor approximately three months after the initial petition. The amended petition was also without a certificate of merit. The contractor argued that the certificate was not required due to an exception under the statute that permitted an extension when the statute of limitation would expire within ten days of the amended petition. The surveyor argued that the statute required the contractor to file a certificate of merit with the first petition. The contractor argued that the statute’s exception was applicable since the amended complaint was filed within ten days of the expiration of the limitation period. However, the language of the statute explicitly stated that the first petition must be accompanied with a certificate. The first petition filed was the original complaint and not the amended version. Since the original petition qualified as the beginning of the lawsuit, the petition was not filed within ten days of the expiration of the statute of limitations. The statute’s exception was not applicable. The contractor’s claim against the surveyor was correctly dismissed by the trial court.    

Reports under the public disclosure bar of the False Claims Act.
In Schindler Elevator Corp. v. United States ex rel. Kirk, 2011 U.S. LEXIS 3542 (U.S. May 16, 2011), the Supreme Court held that an employee’s qui tam suit under the federal False Claims Act to recover a contractor’s fraudulently obtained federal payments could not rely on reports produced by a federal agency. Federal contractors were required by the Veteran Era Veteran’s Readjustment Assistance Act to certify the number of “qualified covered veterans” employed by the contractor. The employee was a Vietnam War veteran and also a former employee of the contractor. The employee believed that the contractor failed to meet the veteran act’s annual information reporting requirements. Copies of the contractor’s veteran act filings were provided by the Department of Labor to the employee. The filings provided by the department revealed that the contractor either filed no reports at all, or filed false information. The contractor’s motion to dismiss was granted by the trial court based on the statute’s public disclosure bar. The appellate court vacated the decision holding that the department’s responses were not an official “report” or an investigation but instead just a response to a request for information and the statute’s public disclosure bar was not applicable. The contractor argued to the Supreme Court that the statute’s public disclosure bar deprived the court of jurisdiction because a broad ordinary meaning of “report” was consistent with the scope of the statute’s public disclosure bar. The employee argued that the responses received from the department failed to constitute a “report” within the meaning of the public disclosure bar. The employee asserted that the adoption of a different or special meaning of the word “report” was applicable. The correct way to determine the meaning of one single word in the public disclosure act, was to look at the entire text as an integrated whole and to make the decision from the “neighboring words.” A “report” was something that gave information or a notification. The appellate court should have held that the department’s written responses to the employee were reports within the meaning of the public disclosure bar. The appellate court’s ruling was reversed. 

Subrogation between coinsurers
In Maryland Casuarly Co. v. Acceptance Indemnity Insurance Co., 2011 U.S. App. LEXIS 8436 (5th Cir. Tex. Apr. 25, 2011), the court held that a coinsurer has an obligation to defend or indemnify a contractor even when the contractor had been fully indemnified by another coinsurer. The owner hired a contractor to build a swimming pool at the owner’s home. Over the span of three years the pool underwent several repairs due to four large cracks which lead to extensive leaking. The owner filed suit against the contractor alleging that the contractor failed to exercise ordinary care in designing and building the pool which led to loss of use of the pool. The contractor tendered the owner’s claim to its two insurers. The contractor had a policy with insurer 1 for one year when the cracks began to form, and three years with insurer 2 when majority of the cracks began to leak. Insurer 1 agreed to defend the contractor against the owner’s claims. Insurer 2 denied any obligation to defend or indemnify the contractor and argued that its obligation was void due to the “ongoing damages” exclusion in its policy. Insurer 1 paid $590,000 to settle the lawsuit then brought suit against insurer 2, requesting a declaration that insurer 2 owed a duty to defend the contractor, and seeking insurer 2’s pro rata share of the costs that insurer 1 incurred to defend and settle the contractor’s claims. The jury found that the damage the owner incurred was an “occurrence” covered by insurer 2’s policy and the court awarded 75% of the $590,000 paid by insurer 1 to settle the owner’s claims. Insurer 2 argued that Texas law barred insurer 1 from recovering from insurer 2 under a theory of subrogation because the contractor had already been fully indemnified. The court found that Texas law did not bar contractual subrogation where an insurer had refused to defend or indemnify an insured. Recovery for insurer 1 on a claim of subrogation was not barred by precedent since insurer 2 refused to defend the contractor. The insurance policy created a right of contractual subrogation and since insurer 1 settled the contractor’s lawsuit it had the right to seek reimbursement. The trial court was correct to award insurer 1 damages in the subrogation claim.

When property damage occurs
In Maryland Casualty Co. v. Acceptance Indemnity Insurance Co., 2011 U.S. App. LEXIS 8436 (5th Cir. Tex. Apr. 25, 2011), the court held than physical damage to property does not first occur at the time of a negligent act, but instead first occurs at the time it becomes detectable. One Insurer had argued that property damage occurred after the contractor’s work had been performed under another insurer’s policy term. Insurer 2 argued that the “ongoing damages” exclusion in its policy modified the coverage agreement and relieved it of all obligations. The exclusion stated that insurer 2’s coverage applied to “property damage” only if the damage was caused by an occurrence and the property damage had to first occur during the policy period. In addition, insurer 2 argued that all the damage which occurred during the time of its policy was entirely caused by the contractor’s improper failure to properly set piers on solid rock. The appropriate process to determine when property damage occurred was to focus on the time of the actual physical damage to the property. The alleged negligent construction by the contractor was not relevant. The actual physical damage occurred during insurer 2’s second policy term after the contractor had left the site. The trial court was correct in awarding damages to insurer 1.

Attorneys’ fees under the federal False Claims Act
In United States ex rel. Miller v. Bill Harbert International Construction, Inc., 2011 U.S. Dist. LEXIS 50788 (D.D.C. May 12, 2011), the court held that a relator could recover attorneys’ fees pursuant to the False Claims Act when the relater was successful in one significant issue. The relator had alleged that the conspirators, which consisted of corporations, corporate entities and contractors, conspired to rig the bidding process for development projects funded by the USAID. The relator’s complaint focused on the bidding process for contract 20A and later included illegal bidding practices in two other contracts 29, and 07. A verdict was returned in favor of the relator. The court found that all of the conspirators conspired to defraud the United States. Subject to 31 U.S.C. § 3730(d), the relator being the prevailing party was awarded supplemental awards for additional attorneys’ fees and costs. The appellate court found that three mistakes were made at the trial court level. As a result, the claims relating to contracts 29 and 07 were reversed and dismissed. The judgment granted against three of the conspirators and related to contract 20A were reversed. Lastly, the judgments granted against two of the conspirators were affirmed related to contract 20A. The second group of two conspirators contested the attorneys’ fee award, arguing that the relator was no longer the prevailing party; and since the claims against it were related to the first group’s unsuccessful claim, the relator could not receive claims from any party. The relator argued that complete vacatur of the attorneys’ fee award was contrary to established law. The relator further asserted that the majority of the case focused on establishing the overall conspiracy which was engulfed in the 20A contract. The established law held that the prevailing party needed to succeed in only one significant issue of litigation. When determining liability for attorneys’ fees the normal practice had been that all defendants are jointly and severally liable. Therefore, the second group’s argument that the relator was no longer the prevailing party was contrary to normal practices. Since the relator was a prevailing party in its claims against the second group, the court should have held that the second group was liable for the entirety of the fee award, less any further reductions.

Attorneys’ fees under the federal False Claims Act
In United States ex rel. Miller v. Bill Harbert International Construction, Inc., 2011 U.S. Dist. LEXIS 50788 (D.D.C. May 12, 2011), the court held that when a plaintiff has prevailed on some but not all of its claims, the attorneys’ fees will be judicially determined by balancing the success achieved and the energy expended. The second group of two conspirators argued that since the relator was only successful in one of three development claims against the conspirators, the reduction of attorney’s fees by two-thirds was proper. The relator argued that the appropriate reduction in attorneys’ fees should parallel the reduction in overall damages resulting from the trial court’s reversal. Both arguments made were rejected by the court. Reducing the fees corresponding to the number of successful claims did not fairly reflect the actual time expended by counsel on each claim. An appropriate attorney fees’ award should account for both the success achieved as well as the energy expended. To determine these two factors the court reviewed the time allocation of certain practices throughout the case. The majority of the relator’s time was not focused on the individual contacts of the conspiracy, but instead on the conspiracy as a whole. The court determined that the relator spent 70% of its time and efforts to support the claims related to the overall conspiracy and contract 20A, and its remaining time on contracts 29 and 07. However, the relator achieved tremendous success in terms of damages by being awarded nearly 88% of the original damage award. Therefore, after balancing the success achieved and the energy expended, the court concluded that the relator was entitled to retain 80% of its original fee award with a 20% reduction which reflected the dismissal of certain claims.