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Archive for the ‘Construction Law’ Category

John T. Jones Construction Co. v. Hoot General Construction Co., Inc., No. 09-1493.

Facts

The Des Moines Metropolitan Wastewater Reclamation Authority (“WRA”) solicited bids for restoration of one of its wastewater treatment facilities. The project specifications required that liners be installed in the wastewater holding tanks to prevent erosion of the concrete interiors of those tanks. The project specifications named a specific liner system by Linabond, followed by the words “or equal.” WRA had authority to determine whether another liner system was equal to Linabond.

John T. Jones Construction Co. (“Jones”), a general contractor, contacted Hoot General Construction Co., Inc. (“Hoot”), a subcontractor specializing in installation of protective lining in wastewater storage tanks by Linabond’s main competitor, Ameron, to request a subcontractor bid for the project. Hoot noted the “single source” specification for Linabond and informed Jones that it would be proceeding under the “or equal” basis if it bid for the project. After receiving assurances from Hoot that Ameron was considered equal to Linabond in the industry and has never been rejected as “or equal” on a project, Jones used Hoot and submitted the main bid for the project. Jones was awarded the project.

Jones then forwarded Hoot its standard subcontract form, which incorporated the main contract as an exhibit. Hoot altered the subcontract to add language basing compensation on actual square footage installed instead of Hoot’s estimates in the bid. Hoot sent the signed contract, with alteration, to Jones. Under its company policy, Hoot also intended to incorporate its original bid into the subcontract, but did not do so before the subcontract was mailed. A few days later, the error was discovered. Hoot faxed its bid to Jones and asked that it be attached as an exhibit to the subcontract. Hoot also contacted Jones by telephone to ask that the additional exhibit be attached. Jones signed and returned the subcontract to Hoot, but the subcontract was never attached as an exhibit. Hoot did not pursue the matter further and continued to fulfill the other requirements of the subcontract.

Once WRA learned that Jones and Hoot intended to install Ameron liner system, it rejected that system as not meeting the specifications. Both Jones and Hoot attempted to convince WRA that the Ameron system was an acceptable equivalent, but WRA would not accept it.

Because of this impasse, Jones wrote to Hoot about an upcoming milestone date that would trigger liquidated damages for Jones under the general contract if the liner system was not installed by that time. Jones informed Hoot that Hoot would be responsible for those damages. Hoot argued that its bid had been incorporated into the subcontract and WRA’s wrongful rejection of the Ameron liner system prevented Hoot’s performance. Jones responded that Hoot was responsible for installing a liner in accordance with the main contract and that Hoot would be responsible for the costs Jones incurred for installation.

Soon after, Jones entered into another subcontract for installation of a Linabond system. Jones then filed suit against Hoot for breach of contract. After a bench trial, the trial court awarded compensatory damages, attorney fees, and court costs to Jones. Hoot appealed, arguing that its bid had been incorporated into the subcontract.

Appeal

The Eighth Circuit Court of Appeals noted that several offers and counteroffers were made in this case. The court found that no contract existed when Jones returned the executed subcontract to Hoot with Hoot’s modified language included but not its bid as an exhibit. Instead, Jones had rejected inclusion of the bid as an exhibit and had issued a counteroffer to Hoot to proceed without the exhibit. Hoot accepted Jones’s counteroffer by continuing to perform the other requirements of the subcontract.

Further, because Hoot had never had another Ameron liner system rejected as equal to Linabond during its twenty-five years of work, the court stated that Hoot intended to be bound to the subcontract, believing that the risk of rejection was negligible.

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Here’s the link. What a great resource! So glad to be included.

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Carlson v. Kelso Drafting & Design, Inc., No. CA08-1327.

Bill and Jane Carlson hired Kelso Drafting & Design, Inc. (“Kelso”) to design and construct a custom-built home, including a concrete-tile roof. Kelso hired a roofing company to install the roof. Construction was completed in 2002. After the Carlsons moved into the home, they noticed leaking after the first rain. Kelso informed them that the defect could be repaired. From the time of occupancy in 2002 until March 2006, Kelso and the roofing company made repeated attempts to repair the roof. At that time, the Carlsons believed the roof had been repaired, but in November 2006, they discovered additional leakage and demanded the roof be repaired. Kelso notified them in January 2007 that the leaks were caused by product defect instead of faulty design or installation. In August 2007, the Carlsons hired another roofing company to replace the roof. At that time, they learned of various construction and installation defects.

The Carlsons brought suit on February 29, 2008, and Kelso moved to dismiss their complaint based on the statute of limitations contained in Ark. Code Ann. § 16-56-112(a). The trial court agreed and dismissed the lawsuit.

On appeal, the Arkansas Court of Appeals noted that Ark. Code Ann. § 16-56-112 contained one exception to the five-year statute of limitations for construction defects, fraudulent concealment, which requires proof of the following:

some positive act of fraud, something so furtively planned and secretly executed as to keep the plaintiff’s cause of action concealed, or perpetrated in a way that it conceals itself.

The Carlsons alleged that because Kelso maintained that the roof could be repaired—and continued to make repairs—the statute of limitations should be tolled during that time period. Although the repair doctrine is recognized in several other jurisdictions, the court refused to ignore the General Assembly’s intent to provide those in the construction industry with protection from lawsuits based on work performed many years prior to the filing of the complaint.

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Elder Construction Co. v. Ivey Lane, LLC, No. CA09-63.

In 2003, Elder Construction Company (“Elder”) and Ivey Lane, LLC (“Ivey Lane”), entered into a contract for Elder to purchase sixteen unimproved residential lots in the Enclave Subdivision of Springdale from Ivey Lane for a total purchase price of $1,282,400. Each of the lots available in the subdivision were listed in the contract with its individual price, ranging from $77,500 to $84,900 depending on the lot’s size, location, and topography. Elder determined which of the sixteen lots its would purchase from this list.

Under the contract, Elder was to purchase the sixteen lots in four separate closings that were scheduled to occur every six months until all of the sixteen  lots had been purchased. Elder purchased twelve lots during the first three closings, but did not appear for the fourth closing for Lots 2 ($77,500), 9 ($84,900), 12 ($84,900), and 46 ($77,500). Ivey Lane was able to sell Lot 46 to a third-party for $77,500. Ivey Lane then filed suit against Elder requesting specific performance for Elder’s breach of contract related to Lots 2, 9, and 12.

At trial, the primary dispute between the parties was whether the contract was severable into sixteen different contracts. Ivey Lane contended that the lots (1) were not physically or topographically identical (2) were independently priced based on their desirability. Elder admitted that each of the lots were different and individually priced, but argued that the contract was not severable based on the total purchase price for the lots. The trial court found that (1) Elder breached the contract with Ivey Lane, (2) the contract was severable, (3) Ivey Lane did not have an adequate remedy at law, and (4) Ivey Lane was entitled to specific performance. The trial court ordered Elder to purchase Lots 2, 9, and 12 at the prices listed in the contract within sixty days. The trial court also dismissed Elder’s counterclaim.

On appeal, Elder argued that the trial court incorrectly found that the contract was severable. The Arkansas Court of Appeals quoted previous precedent as follows:

Where the price to be paid is clearly and distinctly apportioned to different parts of what is to be performed, although the whole is in its nature single and entire, the contract is severable.

The court noted that, even though the contract contained a total price for the sixteen lots, both parties agreed that each of the lots was different and individually priced. Accordingly, the court held that there was sufficient evidence to support the trial court’s finding that the contract was severable.

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Spirtas Co. v. Ins. Co. of the State of Penn., No. 07-1547.

Contracts

A contractor entered into a $2.8 million agreement with a property owner to remove asbestos from the property.  The remediation contract contained an arbitration clause.  The property owner required the contractor to obtain a $2.8 million surety bond for the work.  The contractor contacted Insurance Company of the State of Pennsylvania (“ICSP”) for the bond.  ICSP required the contractor to indemnify it for any expenses and fees related to “executing” the bond, which the contractor did.  The indemnity agreement incorporated the remediation contract by reference.

Work

Once the contractor had finished all of the work required under the remediation contractor, it demanded final payment under the contract of $150,000.  The property owner refused, claiming that the contractor had not properly performed the remediation and had spread asbestos to other, previously uncontaminated areas of the property.  The property owner also submitted a claim against the bond to ICSP for additional work needed at the property to clean up the contamination caused by the contractor.

Arbitration

The contractor initiated arbitration to receive the remaining $150,000 payment.  The property owner counterclaimed for $4 million for expenses related to the clean up and loss of rental income.  The property owner also brought ICSP into the arbitration (after threatening a court order to participate), claiming it owed the property owner $4 million dollars in compensatory damages, as well as $4 million for punitive damages based on bad faith in failing to pay the property owner’s earlier bond claim.

Because the property owner’s claims were well outside the surety bond amount, ICSP retained its own counsel and experts to defend against the property owner’s claims.  The contractor and ICSP were eventually successful in the arbitration.

Lawsuit

Afterwards, ICSP submitted a claim under the indemnity agreement to the contractor for its attorney’s fees and expert witness fees in the arbitration of $800,000.  The contractor refused to pay and initiated a declaratory judgment action.  The trial court held that the contractor had to pay these fees under the indemnity agreement.

Appeal

On appeal, the contractor argued that ICSP did not have to execute on the bond and that its participation in the arbitration had been voluntary.  The Eighth Circuit Court of Appeals disagreed, noting that the contract language requiring reimbursement for “executing” on the bond was unambiguous and required but-for causation only.  The Court explained that ICSP executed the bond because the property owner (1) made a claim against the bond, (2) asserted claims for compensatory and punitive damages against ICSP, and (3) threatened to seek a court order compelling arbitration.  Because of these actions, the court reasoned, ICSP became involved in the arbitration and incurred fees and expenses.  Accordingly, the court ruled that ICSP was entitled to reimbursement.

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