Subcontractor Prevails in "Scoop Count" Dispute with Obayashi
If you write payment terms for purchase orders or subcontracts, this case will make you sit up and take notice.
Obayashi hired a sub to haul material from its worksite at the Sound Transit Beacon Hill project. Payment was to be made on an hourly rate. The purchase order, after stating the hourly rate, stated that the sub was to use a truck "with the ability to haul 9 full scoops of semi wet material" at all times.
Obayashi took that language to mean that the sub actually had to haul 9 scoops per load. Based on evidence the sub failed to do so, Obayashi refused to pay the final $22,000 billed by the sub.
But the Court of Appeals rejected this contract interpretation, holding instead that the hourly rate did not depend on actual hauling of 9 scoops per load -- only (at most) that the sub furnish a truck with the "ability" to do so. The sub apparently complied with that condition, based on evidence that some hauls did indeed contain 9 scoops.
The fact the Obayashi signed a stream of truck tickets acknowledging the quantities removed did help either.
Copy of decision also available here Download file
Court Rejects Opinion Testimony Offered by Prof. Nash
Characterizing his expert report as "legal argument dressed as expert testimony", the U.S. Court of Federal Claims held that Prof. Ralph Nash of Georgetown University, a leading government contracts expert and prolific author, won't be permitted to testify as to his legal opinions in a patent infringement case. The opinion contains an excellent summary of the case law on when expert testimony crosses the line into forbidden legal conclusions.
Copy of decision also available here Download file
Court Orders Roof Removal
Based on a deed restriction allowing only a "one story" home, the Court of Appeals held that the owner in this case would be required to "abate" -- tear out and modify -- the roof of a home that blocked westerly views from an upland parcel in West Seattle.
Our previous coverage of this case can be viewed here.
Copy of Court of Appeals decision also available here Download file
Late Notice Bars Coverage for Condo Defect Damages
Division 1 not only barred coverage due to late notice in this case -- a hard enough feat under Washington's relatively liberal test for deciding whether a failure to comply with an insurance policy's notice clause will forfeit the insured's rights -- but it did so on summary judgment.
So what was the prejudice to the carrier caused by the late notice? It happened when the insured (without notice to the carrier) agreed to submit to arbitration of defect claims made by a homeowner's association. This waiver of judicial remedies, the Court said, was "significant" enough to constitute prejudice as a matter of law. Coverage denied.
Copy of decision also available here Download file
Court Rejects Arbitration in Tacoma Narrows Bridge Dispute
Samsung entered into a purchase order with Nippon Steel to provide the bridge deck for the new Tacoma Narrows Bridge, a design-build project awarded by the WSDOT to a Bechtel-Kiewit joint venture known as Tacoma Narrows Constructors (TNC). Nippon Steel was a first-tier subcontractor to TNC.
Delays and changes related to the bridge deck resulted in disputes, which in turn spawned two lawsuits in Thurston County Superior Court -- (1) a suit by TNC vs. Nippon Steel and (2) a suit by Nippon Steel vs. Samsung and TNC.
Samsung sought to invoke the Singapore arbitration clause in the purchase order and thereby stay the Superior Court action against it. In a decision favoring joinder of interrelated disputes, Division 2 held that Samsung may not compel arbitration because of an exception contained in the arbitration clause. Under that exception, the duty to arbitrate did not extend to any dispute which arises "in connection with the TNC Contract" if Nippon Steel is "of the opinion that such dispute touches or concerns" the work of Samsung.
The Court concluded the arbitration clause did not apply because there was a "high degree of connection" factually between the claims made in the TNC suit against Nippon Steel and Nippon Steel's suit against Samsung.
The decision is also notable for the Court's strong statement that the issue of arbitrability itself -- that is, whether the court has jurisdiction or not -- is for the Court to decide not the arbitrator, absent a clear delegation to the contrary in the arbitration clause.
Copy of decision also available here Download file
Leasehold Lien Upheld in Bremerton Ice Arena Case
Division 2 holds in this case that a subcontractor has the right to lien site improvements under RCW 60.04.010 even though the underlying real property is nonlienable public property.
The case arose from a failed effort to build an ice arena in Bremerton. The City owned the land and hired a developer to build the facility on a leasehold basis. The developer in turn hired a GC who in turn hired the site work subcontractor who didn't get paid for its work.
The subcontractor liened the project as a whole, including the real estate. The Court first threw out the lien against the real estate, based on the bedrock rule that public property in Washington is not subject to liens. But the Court allowed the subcontractor to lien the leasehold improvements even though improvements are normally considered to be fixtures to the real estate itself.
The Court also held the sub's lien related back and took priority over the financing deed of trust, rejecting the lender's argument that relation-back under RCW 60.04.061 only applies to liens "upon any lot or parcel of land" as the statute seems to read. The Court disagreed & said the lender had taken an "overly literal" reading of the relation-back statute.
A copy of the decision is also available here Download file
Why Contractors Fail
ENR is out with a new article summarizing research by FMI on why contractors fail. The research focuses in particular on the "psychology of contractor failure" and identifies certain red flags of potential failure. One red flag, according to the study: a contractor executive who proclaims "we're right and we'll prove it in court."
Government Allowed to Prosecute Fraud Counterclaim
Taking the offensive against a claim it believed to be knowingly false, the USDOT in this case arising from a roadway project in Eastern Washington filed a counterclaim against the contractor under three federal statutes -- the False Claims Act, the the anti-fraud provisions of the Contract Disputes Act and the Forfeiture of Fraudulent Claims Act.
The gist of the fraud claim is that the contractor overbilled for work, such as billing for testing costs which had already been paid & billing for work which should have been included in the base contract.
The contractor moved to dismiss the counterclaim for lack of evidence to establish either that the claim was false or that the contractor submitted the claim with knowing intent to defraud. The Court of Federal Claims denied the motion, holding the Government had shown enough facts to establish a "reasonable possibility" of success on the fraud counterclaim.
Registration Bond Not Liable for Unpaid Premiums
Is a contractor's registration bond liable for the premiums the contractor is supposed to pay to maintain its workers compensation insurance? The Alaska Supreme Court said no in a case that contains an interesting overview of of what's covered and not covered by such bonds.