The Construction Lawyer as Counselor

Christopher G. Hill | Construction Law Musings | April 24, 2019

It’s been a while since I discussed the role that I believe a construction lawyer should serve.  Back in 2013, I discussed how those of us that practice construction law are seen as “necessary evils.”  I was thinking over the weekend about certain clients and matters (as I often do, particularly in the shower) and came to the conclusion that the best role for me as a Virginia construction attorney is that of counselor and sounding board for my clients.  Sure I come from a litigation background, enjoy working with other construction lawyers here in the Commonwealth, and often the first contact that I have with clients is when there is a problem, but I enjoy my practice, and I believe clients are more satisfied with their interactions with me when I try and provide a more cost effective and pragmatic solution than that which litigation or arbitration provides.

The six years of solo construction practice since 2013 (yes, I’m close to the 9 year mark with my practice) has only served to cement the fact that construction professionals need and want the “counselor” portion of “attorney and counselor at law.”  Working as a sort of “in house counsel” to various construction companies, as opposed to simply dealing with the litigation, allows me to better understand their businesses and assist them in avoiding problems through contract review, discussions of situations that come up short of claims, and general risk management.  I also get to know these mostly small business owners on a more personal level (sometimes even resulting in a fishing trip or two).

Finally, and likely most importantly, proactive consulting with an attorney saves my clients money in the long run.  Frankly, I make more money on a per matter basis if I am litigating for a client.  However, that construction client cannot and should not be budgeting for litigation when running its business.  It is my job as a construction attorney to do my best to help them avoid litigation and keep projects running smoothly.  A few hours of my time helping to avoid possibly hundreds of hours in litigation time is the most efficient way to help my clients.  Of course, it helps that I generally like those I work with so helping them is easy.

In short, I take my counseling role (along with my other roles as a lawyer) very seriously.  I firmly believe that I best assist my clients in this role because it helps me give pragmatic, cost effective advice that hopefully assists them in a better run, more profitable, and less risky business.

Illinois Supreme Court Limits Reach of Implied Warranty Claims Against Contractors

Thomas Cronin | Construction Law Blog | February 25, 2019

In a recent decision, the Illinois Supreme Court held that a purchaser of a newly constructed home could not assert a claim for breach of the implied warranty of habitability against a subcontractor where the subcontractor had no contractual relationship with the purchaser. Sienna Court Condo. Ass’n v. Champion Aluminum Corp., 2018 IL 122022, ¶ 1. The decision overruled Minton v. The Richards Group of Chicago, which held that a purchaser who “has no recourse to the builder-vendor and has sustained loss due to the faulty and latent defect in their new home caused by the subcontractor” could assert a claim of a breach of the warranty of habitability against the subcontractor. 116 Ill. App. 3d 852, 855 (1983).

In Sienna Court Condo. Ass’n, the plaintiff alleged that the condo building had several latent defects which made individual units and common areas unfit for habitation. 2008 IL 122022 at ¶ 3. The Court rejected the plaintiff’s argument that privity should not be a factor in determining whether a claim for a breach of the warranty of habitability can be asserted. Id. at ¶ 19. The Court also rejected the plaintiff’s argument that claims for a breach warranty of habitability should not be governed by contract law but should instead be governed by tort law analogous to application of strict liability. Id.

The Court reasoned that the economic loss rule, as articulated in Moorman Manufacturing Co. v. National Tank Co., 91 Ill. 2d 69, 91 (1982), refuted the plaintiff’s argument that the implied warranty of habitability should be covered by tort law. 2008 IL 122022 at ¶ 20. Under the economic loss rule, a plaintiff “cannot recover for solely economic loss under the tort theories of strict liability, negligence, and innocent misrepresentation.” National Tank Co., 91 Ill. 2d at 91. The Court explained that the rule prevented plaintiffs from turning a contractual claim into a tort claim. 2008 IL 122022 at ¶ 21. The Court further noted that contractual privity is required for a claim of economic loss, and an economic loss claim is not limited to strict liability claims. Id. Because the plaintiff’s claim was solely for an economic loss, it was a contractual claim in nature; therefore, the Court concluded that “the implied warranty of habitability cannot be characterized as a tort.” Id. at ¶ 22.

The Court also rejected the plaintiff’s argument that warranty of habitability should be governed by tort law because it involves a duty imposed by the courts. Id. at ¶ 23. It reasoned that “an implied term in a contract is no less contractual in nature simply because it is implied by the courts . . . .” Id. The Court noted that the warranty of habitability can be waived under Illinois law, but individuals are not able to waive duties imposed upon them by the courts. Id. If the warranty of habitability was a tort claim, it would “raise[] significant practical problems, particularly for subcontractors” given that they “depend upon contract law and contracts with the general contractor to protect and define their risks and economic expectations.” Id. at ¶ 24. Because a subcontractor’s fees, costs, and liability are controlled by his contracts, turning an implied warranty of habitability claim into a tort would make those contracts pointless. Id.

The Court’s decision to overrule Minton rested on three primary reasons: (1) Minton failed to discuss why the economic loss rule did not apply; (2) Minton did not address what effect its holding would have on the contractual relationships of subcontractors and general contractors; and (3) there is “no authority for the idea that a tort duty comes into and out of existence depending on whether another entity is bankrupt.” Id. at ¶ 25. In light of the opinion, a home purchaser’s remedy where there is economic loss is now limited to those parties with whom it has a direct contractual relationship.

Update on Certificate of Merit Requirement: Dismissal With or Without Prejudice

Nicholas J. Nieto | Kilpatrick Townsend & Stockton | March 18, 2019

In a lawsuit “for damages arising out of the provision of professional services by licensed or registered professional,” the Texas Civil Practices and Remedies Code requires a plaintiff to file with the complaint an expert affidavit supporting each theory of recovery. Tex. Civ. Prac. & Rem. Code 150.002. The failure to file a certificate of merit requires a court to dismiss the lawsuit. Tex. Civ. Prac. & Rem. Code 150.002(e). The dismissal may be with prejudice. Id.

In 2017, the Texas Supreme Court issued a much-needed opinion clarifying whether a court must or may dismiss with prejudice. Pedernal Energy, LLC v. Bruington Eng’g, Ltd., 536 S.W.3d 487, 492 (Tex. 2017); see Part I of “Certificate of Merit – 2017 in Review” for additional information. The Fourteenth Court of Appeals recently addressed this issue, holding the trial court was within its discretion to dismiss with prejudice Texas Southern University’s professional malpractice claims due to its failure to file a certificate of merit. Texas S. Univ. v. Kirksey Architects, Inc., 14-18-00146-CV, 2019 WL 922296, at *9 (Tex. App.—Houston [14th Dist.] Feb. 26, 2019, no pet. h.). In Kirksey, TSU filed suit against its architect and construction engineers for the allegedly defective design and construction of campus building, but failed to file certificate of merit. Id. at *1. The court recognized that, although courts have the discretion to dismiss such claim with prejudice, they may not do so arbitrarily or unreasonably. Id. at *6. Further, in making this decision, courts must consider various factors given the facts and circumstances of the particular case. Id.

In support of its holding, the Kirksey court highlighted that TSU was aware of the issues with the building at least seven years before filing suit. Id. at *8. TSU even hired several consultants to investigate and report on the issues. Id. No action was taken by TSU in response. Id. In 2014, TSU commissioned new studies and surveys to detail the building’s issues and estimate costs for repair. Id. The court could not understand how, in light of these investigations, TSU failed to obtain the necessary affidavits before filing its original petition in July of 2017. Id. Further, the court took issue with TSU’s failure to supplement its petition with a certificate of merit before the trial court issued its dismissal order. Id. According to the court, this fact alone distinguished TSU’s case from those in which the court dismissed without prejudice. See, e.g., Pedernal, 536 S.W.3d at 490; see also CDI Corp. v. TOTAL Specialties USA, Inc., 528 S.W.3d 802, 807 (Tex. App.—Houston [14th Dist.] 2017, no pet.)( “A certificate of merit was obtained and filed with TOTAL’s notice of nonsuit within four months after CDI’s motion to dismiss notified TOTAL’s counsel of the mistake.”); see also TDIndustries, Inc. v. United Nat’l Ins. Co., No. 07-16-00231-CV, 2017 WL 2334234, at *2 (Tex. App.—Amarillo May 23, 2017, pet. denied) (mem. op.) (“United’s ability to produce an expert’s affidavit at the hearing is a factor the trial court could have considered in its decision whether to dismiss the case with prejudice.”). Moving forward, the Kirksey opinion will ultimately assist in identifying the conduct necessary to warrant dismissal with prejudice under Section 150.002.

Don’t Run Out of Time to Run to the Courthouse: Understand the Statutes of Limitation Applicable to Construction Litigation

Michael L. Meyer | Taft Stettinius & Hollister | March 15, 2019

In a previous article, we discussed the unique nature of professional liability claims in construction matters. That article discussed the proof required in a professional liability claim and insurance considerations exclusive to a professional liability claim. Another important consideration is the period during which a party must file its suit.

Each state has different statutes of limitation—the time periods during which lawsuits must be filed. In nearly every state, different claims are subject to different statutes of limitation. If a suit is not filed within the time allowed by statute, the claim is forever barred. Because state law typically governs construction contracts and the relationship between parties on a project, state laws also govern the limitations period.

In most states, there are separate statutes of limitation for claims based on breach of contract, property damage and general negligence damages. Some states also have specific statutes of limitation that govern claims of professional liability against state-licensed professionals. Examples include doctors, dentists, medical providers and others. Some states also include surveyors, architects and engineers in their professional liability statutes. Unfortunately, some do not, and simply use the generic term “professional.” This can lead to confusion over which claims are subject to the statute. In any event, each statute sets a time during which a plaintiff must file suit. Often the time periods differ from claim to claim.

On a construction project, many “professionals” are engaged to perform various services. Typically there is a contract specifying the scope of those services. Surveyors, architects, engineers and other professionals are usually engaged by contract. Often those contracts require the professional to perform their services in a “workmanlike” manner. Some even require compliance with certain specified professional standards.

When a problem arises with the professional’s performance, the first question a potential plaintiff must ask is “what type of claim do I have?” As a recent federal case in the Southern District of Indiana highlights, this is not always a simple question to answer. In Generali – U.S. Branch v. Lachel & Assoc., Inc., there was a structural collapse on a bridge project. The contractor sued a contracted engineer claiming a flaw in the engineer’s design. The contractor alleged the engineer breached its contract by providing professional services below the applicable standard of care. The engineer moved to dismiss, arguing that the claim was for negligence in the performance of professional services, not a breach of contract. The distinction was important because Indiana has a much shorter statute of limitations for negligence claims than for breach of contract claims. The lawsuit was filed within the longer breach of contract statute but after the expiration of the shorter negligence limitation period. The court looked to the substance of the claim, rather than the title or label the plaintiff used when filing. Finding that the nature and substance of the claim was based on negligence, the court dismissed the complaint.

Generali is just one example of the importance of understanding the nature of a potential claim at an early stage. The case is also a warning against reliance on a mere general understanding of statutes of limitation. A plaintiff relying solely on a basic understanding might mistakenly believe it has much more time than it does to pursue a claim. As a result, the plaintiff may delay consulting outside counsel. This can mean the difference between an opportunity to pursue the case and being shown the courthouse door.

Those engaging “professionals” should understand that it is the nature and substance of the claim that determines the applicable statute of limitations. The mere fact that the work was done under a contract is not determinative. Neither is the fact that the professional’s performance may appear negligent. Recognizing this distinction and involving counsel early may save an otherwise valid claim from the trash heap of legal missteps.

Using the Prevention Doctrine

David Erhart | Gordon Rees Scully Mansukhani | March 18, 2019

The following scenario happens regularly in the construction industry. A contractor on a project reaches out to a subcontractor to perform work. Excited about the prospect of performing the work, the subcontractor signs a contract and puts it nose to the grindstone. After dutifully completing the work the subcontractor turns to the contractor and asks to be paid. But, the contractor refuses saying that there is a provision in the subcontract that says the contractor is only obligated to pay the subcontractor if the contractor receives payment from the owner. So the contractor has completed the work, but has no money to show for it.

One potential remedy for a subcontractor in this situation is the use of the prevention doctrine. “Under the prevention doctrine, ‘if a promisor prevents or hinders fulfillment of a condition to his performance, the condition may be waived or excused.’” Cox v. SNAP, Inc., 859 F.3d 304, 308 (4th Cir. 2017) (quoting Moore Bros. Co. v. Brown & Root, Inc., 207 F.3d 7171, 725 (4th Cir. 2000)). “Put simply, ‘where a party to a contract is the cause of the failure of the performance of the obligation due him or her, that party cannot in any way take advantage of that failure.’” Haddon Hous Assocs v. United States, 711 F.3d 1330, 1338 (Fed. Cir. 2013) (quoting Restatement (Second) of Contracts § 245; Williston, § 39:4).

So let’s add to the scenario above that the contractor failed to request payment from the owner for the subcontractor’s work. The contractor’s failure to request payment could be deemed a violation of the prevention doctrine, which would bar the contractor from being able to raising the contract terms as a defense. Alternatively, let’s say that the contractor had committed significant errors on the project and that as a result, the owner was withholding funds. Here too, the subcontractor could contend that the contractor’s mistakes on the project, which led to the owner withholding payment, should excuse contract terms that would otherwise bar payment. Basically, the contractor should not be allowed to benefit from its mistakes and failures to not pay an innocent party.

While the prevention doctrine is not a sure-fire solution to a problem with a contractor who won’t pay, it is a useful tool that we should be ready to use when the situation warrants.