Gobble Gobble First and Then You Can Put Up the Christmas Tree. Well, Kinda.

Matthew DeVries | Best Practices Construction Law | November 26, 2019

As we enter the holiday season, some people have strict guidelines about when the Christmas tree or other holiday decorations are allowed to takeover our daily lives, offices, and homes.  The red and white ribbons and the colored lights of Christmas cannot be hung until after the orange pumpkins, brown leaves and turkey carcasses are thrown away.  In other words, it is premature to celebrate one holiday before the other holiday has occurred.  In the world of construction claims, according to one court, these same rules apply—it is premature to award damages before the claim has been considered and either approved or rejected.

In VVM Builders, LLC v. Atkins Construction Group, LLC, No. CV195021541S (Oct. 31, 2019), the Superior Court of Connecticut squarely addressed this precise issue in a case involving a change order dispute between a contractor and subcontractor.  The subcontractor filed a demand for arbitration against the contractor, seeking both its contract balance and approximately $40,000 in extra and/or change order work.  The parties’ contract provided that “the subcontractor shall have no claims for additional work or changes in the work without written authorization.”  The subcontractor submitted invoices for the extra work, but, according to the testimony at the hearing, the contractor had neither approved nor rejected the subcontractor’s claim.

Nonetheless, the arbitrator essentially awarded prospective damages based upon “not yet approved” changes or extra work, stating the following:

The [subcontractor] has submitted invoices for this extra work. The [contractor] testified that [it] has not yet approved any of those extra work/change order items and, therefore, the [subcontractor’s] claim cannot be awarded at this time. I find that should the contractor approve said work then the [subcontractor] shall recover same.

The contractor paid the contract balance to the subcontractor, but the subcontractor filed a motion to confirm the award on the change order work.  The court summarily denied the subcontractor’s motion, finding that the contractor’s interpretation of the arbitration award was correct.  While not explicitly stated in the one-page opinion, the court concluded that the arbitrator could not base its award on a change order claim that had not yet been approved (or even considered) by the contractor.

The short opinion makes sense—an arbitrator cannot rule on a claim that has not gone through the process required by the contract.  So what? A more difficult scenario arises when the claim has been submitted and either the contractor or the owner have refused to respond to the claim.  It is not clear from the VVM Builders case how long the subcontractor’s invoices for extra work had been pending, but I suspect it was not an excessive or unreasonable amount of time.  If it had been, the subcontractor could make an argument that the refusal to provide a response to the claim was a “deemed” denial and, therefore, gave the subcontractor the right to proceed with arbitration. Better yet, parties should draft a time limitation period within their contract for review and response to a submitted claim (i.e., “In the event Owner fails to respond to Contractor’s written claim for additional work within ten (10) days, the claim shall be deemed approved.”).

On a more personal note, to you and your family, Happy Thanksgiving!

When Does A Claim for Damages Not Require Notice? When It Is One For Liquidated Damages.

Matthew DeVries | Best Practices Construction Law | November 26, 2019

I just blogged about asking for what you want and the importance of complying with notice provisions in pursuing a construction claim.  A court in Oklahoma just reminded me that not all claims require notice.  Here’s what I mean.

In WinCo Foods, LLC v.  Crossland Construction Co., No. CIV-18-175-HE (Nov. 21, 2019) (PDF), the U.S District Court for the Western District of Oklahoma recognized the distinction between “notice” for purposes of asserting a delay claim by the contractor and “notice” for purposes of assessing liquidated damages by the Owner.  The contractor failed to attain substantial completion of the construction of a new grocery store by the contractually required deadline.  The contractor argued that the owner failed to comply with the notice provision when making its claim for liquidated damages.

The court held that the “notice of claims” provision in the parties’ contract was a separate provision from the liquidated damages provision and, thus, inapplicable to the claim for liquidated damages.  The court reasoned:

As set forth above, the terms of the liquidated damages provision govern the issue of liquidated damages “notwithstanding anything to the contrary in the Contract Documents”. Thus, any additional requirements set forth in the notice of claims provision, that are not included in the liquidated damages provision, would not apply. Because the liquidated damages provision does not require [the owner] to provide notice of any claim for liquidated damages and makes the entitlement to liquidated damages automatic where the circumstances warrant, [the owner] was not required to comply with that notice procedure.

It is important to note that the court’s decision was made at the summary judgment stage—first, finding that the liquidated damages provision was enforceable; and, second, finding that the owner was not bound by any notice provision in assessing liquidated damages.  However, since there were disputed issues of material facts as to the delays on the project and the architect’s bias conduct against the contract, summary judgment was not proper on either the contractor’s claim for additional time or the amount of the owner’s claim for liquidated damages.  Those issues would proceed to trial.

So what?  The primary lesson that comes to mind from WinCo is one of mutuality, or making sure that the contract provisions that apply to one party apply equally to the other party. This is especially true when one party is attempting unfairly to shift risk of attorney fees, indemnification or otherwise to the other party.  In this instance, the contractor could have made sure that notice of any type of claim by any party shall be made within the time proscribed.

He Who Represents Himself has a Fool for a Client

Barry Zalma | Zalma on Insurance | November 8, 2019

Release of all Claims Defeats Bad Faith Suit

First party property insurers seldom use a release of all claims to resolve a fire claim. The only time a release is used is when there is a serious dispute between the insurer and the insured and threats of extra-contractual litigation. For example if an insurer believes the insured committed fraud or attempted an arson for profit but has insufficient evidence to prove the fraud without years of serious litigation, a settlement paying more than indemnity, but less than the cost of the litigation, will be reached with a release. Similarly, if the insured is litigious, threatens a bad faith suit on first contact, a release might be required to protect the insurer from unnecessary litigation.

In Perfection, LLC D/B/A Carl Krueger Construction, Inc., Liberty Mutual Group Inc., v. Edward Cole, A/k/a Carl Cole D/b/a North Shore Station, NNS, LLC D/B/A North Shore Station, Cecole Properties, LLC, Debtor, Appeal No. 2017AP242, State of Wisconsin in Court of Appeals District II (October 23, 2019) Edward Cole appealed, acting pro se (as his own lawyer), from a judgment which held him liable to Perfection, LLC and eliminated his case against his insurer.

FACTS

This case arises out of a fire loss that occurred at Cole’s laundromat business on January 12, 2013. Cole’s business had insurance coverage with Liberty Mutual. In furtherance of his insurance claim, Cole submitted expenses relating to his retention of a restoration contractor (Perfection).

After exchanging multiple emails, Cole and Liberty Mutual reached an agreement as to the final amount of the insurance claim. Liberty Mutual agreed to pay Cole a total of $298,232.99. In return, Cole signed a policy release in which he agreed to release all claims against Liberty Mutual, including any extra contractual claims.

On February 28, 2014, Perfection filed suit against Cole for breach of contract, alleging that he had withheld payment for some of its work. Cole filed counterclaims against Perfection, asserting breach of contract and breach of warranty. He also filed a cross-complaint against Liberty Mutual, alleging that it had acted in bad faith. In order to pursue this latter claim, Cole sought to rescind the policy release executed eight months earlier, claiming that he had signed it under duress.

Liberty Mutual sucessfuly moved for summary judgment, seeking dismissal of Cole’s cross-complaint.  The court refused to allow Cole to rescind the policy release because he did not, as a matter of law, show the elements necessary to establish duress.

As the new trial date approached, Cole’s new attorney also moved to withdraw, citing disagreement with Cole over strategy. Cole asked the court to reject the motion; however, he also began acting pro se, submitting numerous filings. Ultimately, the court denied counsel’s motion, noting that it had “gone through this before” and wanted to keep the case on track. Accordingly, it refused to consider Cole’s pro se filings.

The matter proceeded to trial where a jury found Cole liable to Perfection for breach of contract and punitive damages. The jury rejected Cole’s counterclaims against Perfection.

ANALYSIS

Perfection’s action was fully litigated in state court with the jury. Cole claimed that the circuit court erred when it dismissed his cross-complaint against Liberty Mutual. He accuses the court of failing to consider facts in support of his bad-faith claim.

Summary judgment is appropriate if there are no genuine issues of material fact and one party is entitled to judgment as a matter of law. The Court of Appeals was satisfied that the circuit court properly granted Liberty Mutual’s motion for summary judgment because, regardless of the merits of Cole’s bad-faith claim, the policy release barred him from bringing it.

ZALMA OPINION

Mr. Cole was not a very reasonable insured. He caused Liberty to enter into a negotiated settlement raising enough concern that it required – to effect the settlement for more than it believed it owed – required that Cole sign a release of all claims including extra contractual (bad faith) claims. Liberty was right about Cole. Cole’s lawyers begged to be relieved of the obligation to represent him. Even with the release Liberty was sued for bad faith and needed to make a summary judgment motion and defend that motion on appeal. The release protected Liberty but Cole still cost them a great deal of money defending against his frivolous suit and appeal.

The Broccoli Incident: Making Sure You Ask for What You Want In Construction Claims

Matthew J. DeVries | Best Practices Construction Law | November 22, 2019

You may have met my 22 year old Princess when she was 11. A few years ago, I was teaching her about grace … undeserved merit or favor.

Well, my daughter was stalling and delaying on eating her meal … by almost an hour. So, naturally, I saw this as a teachable moment.

“Honey, do you remember when we were talking about grace this week? Although you should eat all your food, I am going to show you some grace tonight. Even though you don’t deserve it, I am going to eat the rest of your chili for you.” (How nice of me. I proceeded to spoon the rest of her chili into my bowl. Happy tummy!)

Without skipping a beat, my inquisitive daughter asked, Dad . . . You got any grace for my broccoli?  (Nice.)

Every now and then, we joke about the broccoli incident. But I am often reminded that too many times we fail to get something we want because we fail to “ask” for it. And when we ask for it, we sometimes fail to ask for it properly. Having litigated construction disputes for almost 20 years, the issue of entitlement often turns on whether the contractor properly submitted its claims in accordance with the terms of the parties’ contract. Whether the dispute involves a change order, delay damages, or time extension, I have litigated too many claims for additional compensation or time where: (a) the request was never made; (b) the request was not timely made; or (c) the request was not properly made.

As an attorney, I try to teach all my clients that proper documentation primarily serves as a claim preservation method—whether to provide notice of the claim or to document the claim impact. No matter the size of the project, proper documentation will eliminate a number of disputes. For example, consider the following claim provision:

“Any claim for additional time must be given within seven days of the event given rise to the delay.”

Best Practices would teach you to outline and highlight these types of provisions in your contract documents before you start contract performance. Make a spreadsheet with key provisions. And when one of those “events” arise, you should immediately send your letter “asking” for additional time or, at a minimum, “preserving” your right to later seek additional time and money. Don’t wait until the lawsuit or demand for arbitration before giving notice of your claim.

In other words, if you want someone else to eat your broccoli … you have to ask for it!

Eight Ways to Protect a Construction Company Before a Claim Is Filed

Mary Bacon | Construction Executive | September 10, 2019

Claims are inevitable in the construction industry. They can take on a life of their own and come with the burden of legal fees, wasted executive time and a possible judgment. Too often the only winners are the lawyers. 

TIPS FOR PROTECTING MANAGEMENT AND THE BUSINESS BEFORE A CLAIM IS FILED
  1. Respect the business entity’s corporate structure. First and most importantly, respect the business entity’s corporate form. Legal entities have certain formalities like filing an annual list of officers, maintaining separate bank accounts, conducting certain meetings and following bylaws, etc. Respect these formalities. Failure to follow them exposes the owner to personal liability for company debts. And while a business claim has the potential to wipe out a business, owners should not risk having their personal assets on the line as well. 
  2. Get a good contract. In most instances, a contract governs what happens and who is responsible for payment associated when a certain issue or dispute arises. A clear, well-written contract can often avoid a dispute or liability for a dispute. Actively participate in the contract negotiation and drafting process to make sure each party’s role and responsibilities are clearly accounted for. 
  3. Make friends with clients. While it is true that “business is business,” people are often fairer and more willing to work towards a solution for people they are friends with. In most cases, friends will help friends in ways that people would not help mere business associates. When encountering a problem on a job, a friend may be willing to help achieve a more favorable outcome.
  4. Stay calm and think clearly. Remember that settling a potential claim is a business decision. Claims often start small and escalate to the highest levels of the company, often deteriorating an otherwise profitable business relationship and hurting the business’ bottom line. It is also common for claims to get personal and for the parties to get emotional. It is not uncommon for emotional parties to not think clearly and make emotional (read as: expensive) decisions to “hurt” or “punish” the other party. So keep egos in check and always seek to make rational business decisions. 
  5. Stay involved in the project and the pre-claim process. When management is more involved in the project, claims are more likely to be identified early. The earlier claims are spotted, the faster and often more efficiently they can be addressed. Addressing claims can often help minimize the impact of the claim because management can assume greater control the decision-making process and actively participate in how the dispute is playing out. That should help shrink the claim. 
  6. Save and collect information. Establish a system to save all project documents in a uniform and consistent manner. Having access to this information before claim is filed will help internally evaluate the defense to any claim. An early valuation can help resolve the claim before a lawsuit is even filed. 
  7. Stay up to date on current practice or procedure. When evaluating another party’s claim, it will be important to determine whether the party has followed the correct procedures to submit a claim. If they have not, the value of their claim may be less or their whole claim may even be prohibited. Help protect business assets by learning techniques to correctly evaluate the substance and value of another party’s claim. 
  8. Mediate. The act of preparing for and participating in a mediation can provide huge value. It forces each party to either find support for its claim or shore up its defenses before a lawsuit is even initiated. In short, it forces each side to consider if each of its positions are justified. This process usually includes a full accounting of the claim or defense, which ensures it is accurate and supported from the outset of the dispute resolution process. Unfortunately, in litigation, it is not uncommon for parties to prepare the support for their claim years into the process and then realize a portion of their claim is inflated, which made settling their claim more difficult and expensive than it needed to be. So preparing early and thoroughly can help in presenting the most accurate and supported claim from the beginning, which usually encourages a more efficient dispute resolution process.