Washington Construction Law Blog

In Matia Contractors v. City of Bellingham, Division 1 held yesterday that RCW 4.96 -- which requires a written claim to be submitted before suit is brought against a city -- does not apply to a contractor's breach of contract action.

So you wrap up a lawsuit and enter into a settlement agreement in which one side agrees to pay money to the other side in exchange for mutual releases and other typical settlement clauses.

But then the party required to make the payment, well, doesn't pay.  What happens to the claims that were released?  Do they come back to life?  Or does the failure to pay merely give the wronged party to right to sue to enforce the payment obligation in the settlement agreement?

Division 1 holds in this case that, unless clearly stated otherwise, a settlement agreement is merely an "executory" contract rather than a "substituted" contract -- and therefore the wronged party can revive its released claim and go back to court. 

Copy of decision also available here Download file

This new case from Division 1 arose out of a condo project.  After settling its claims with the developer, the GC sued several subcontractors for breach of contract and indemnity.  All but one of the subs settled with the GC.  The remaining sub went to trial and lost.  On the sub's appeal, the Court of Appeals held:

1. The GC's breach of contract claim vs. the sub accrued (and thus began to run, for purposes of the 6 year statute of limitation) at the earlier point when the sub itself performed the defective work, not at the later time of substantial completion of the overall project.
2. On the GC's indemnity claim, the Court of Appeals refused to give the sub an offset based on the settlements the GC had achieved with the other subcontractors, because the sub failed to prove that the other settlements paid the GC for damages caused by its work.
3. The Court held that the way the trial court apportioned responsibility for the GC's legal fees -- apportioning 1/13 of the total to the sub because there were a total of 13 subs on the project -- was arbitrary and without basis.

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In two recent decisions, the U.S. Court of Federal Claims engaged in some heavy duty contract interpretation -- focusing primarily on what constitutes a patent ambiguity in plans which bidders are required to bring to the owner's attention before submitting bids.

In this case, the contractor was disallowed any extra costs because the Court concluded that the specifications were clear.  Just to give you some indication of how closely the Court parsed the language, a key part of the ruling was based on the absence of a comma in a particular sentence (which the Court took to mean that the final clause "as indicated in the drawings" modified only the noun immediately prior to this subordinate clause not the entire sentence).

This case ended more happily for the contractor when the Court ruled that the distortion of the standing seam metal roof (which the contractor was to provide under a performance specification) was actually caused by flaws in the owner-furnished design specification for the building structure. 

Describing UCC Article 2-207 as a "defiant lurking demon" condemning its interpreters to "depths of despair," Division 2 nonetheless wrestled with the demon long enough to conclude that the terms listed in a stream of invoices from a merchant seller to a merchant buyer -- a venue provision, disclaimers of liability, etc -- were not enforceable.  Must read for your next battle of the forms case.

Copy of opinion also available here Download file

The City of Olympia has won its Mike Johnson appeal to the Washington Supreme Court.   You can get quick background on the case here and you can read the new opinion here.  Essentially, the Court clamped down on the "implied waiver" exception to the general rule mandating compliance with contractual notice and suit deadlines.

Copy of opinion also available here Download file

This procedurally tangled case between Fluor and the structural steel subcontractor Walter on the DOC project in Aberdeen will be of virtually no interest to anyone but the parties themselves, except for the following two kernels:

1. The Court of Appeals recognizes -- and presumably adopts in Washington -- the federal Severin doctrine (a GC who has been fully released of liability from its sub cannot pass-through the sub's claim to the owner); and
2. The Court also applies the old Balfour case (OK, maybe not that old -- decided in 1980) in which the Supreme Court said as a general matter that courts lack the authority to order consolidation of two separate arbitration proceedings.

Copy of opinion also available here Download file

The venerable Spearin doctrine receives a thorough vetting in this new Court of Federal Claims case.  In decidedly pro-owner fashion, the Court denied a structural steel fabricator's Spearin claim against the VA.

Copy of opinion also available here Download file

A rare sighting of the Severin doctrine is on display in this Division 2 case released yesterday in the Natkin-Scott v. M+W Zander litigation.

As Severin encourages, a GC and sub entered into a pass-through agreement whereby the GC assigned its rights against the owner to the sub & the sub agreed to look solely to the owner for recovery in alleged impact claims.

There was one major but unknown problem -- the GC was unregistered & thus lacked the authority to bring claims against the owner.  The assignment of claims was, therefore, hollow.  After the owner defeated the pass-through claim on this ground, the sub turned back against the GC claiming the GC had breached an implied warranty that the assigned cause of action actually existed (relying on Section 333 of the Restatement (Second) of Contracts).

Division 2 held in favor of the GC and dismissed all of the sub's claims.  The basis of the holding was language in the Severin Agreement that both parties assume the risk of any mistake of fact or law.  The Court held that the GC's lack of registration -- and consequent lack of authority to bring claim -- was a mistake shared by both GC and that the risk of that mistake was transferred to the sub under the terms of the Severin Agreement.

Copy of opinion also available here Download file

With the rise of condo defect cases came the phenomenon of claims based on technical violations of plans or applicable codes without much in the way of resulting damage to the structure.  This case sheds some light on whether a plaintiff can still maintain a breach of contract action for money recovery under these circumstances.  The answer seems to be that a breach by itself is not enough.  Damage must be shown.

The case also has some pearls of wisdom on the following issues:

1. Who decides -- judge or jury -- the amount of legal fees to be awarded when the fees are sought as an element of "damages" under an indemnity clause rather than under a prevailing party fee clause?  Answer:  the jury.
2. What are the elements of an enforceable contract where -- as often seems to happen -- the deal arises out of informal communications without final mutual signatures?  Check out the discussion.
3. Does an indemnity clause covering "any and all claims" cover both tort and contract claims?  Answer: yep.

A copy of the opinion also available here Download file

On April 5, we covered an issue that seems to be gaining momentum -- counterclaims by the public owner under the False Claims Act for damages caused by falsely submitted claims for extra compensation.

This new case from the U.S. Court of Federal Claims is another example of this trend.  The decision contains useful guidance on two key issues -- (1) what constitutes a "false" claim and (2) what conduct by the contractor rises to the level of prosecuting the claim with "reckless disregard" of its falsity.

Copy of decision also available here Download file

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.

Legislation to overturn the Mike Johnson decision, sponsored by the AGC, was officially withdrawn yesterday.  Third time not a charm after all...

Substantially revamped bill to overturn the Mike Johnson case easily passes in the House and moves on to the Senate.  Summary of recent changes described here.

When is a crane operator hired by a GC to run a crane mounted on a derrick barge for a project to rehabilitate a cruise line terminal actually a "seaman" protected by the federal Jones Act? 

Traylor Brothers found out in this 9th Circuit case that the answer is "it depends."  The Court reversed summary judgment for Traylor & remanded for a trial on the merits, holding the crane operator was entitled to have the jury decide the issue.  Under the Jones Act, a "seaman" is permitted to sue in tort for damages and is not limited to recovery of workers comp benefits.

The venerable completion & acceptance doctrine -- which holds that a builder is immune from personal injury suit filed by injured third parties once the owner has accepted the completed work -- is now officially dead in Washington, according to this new 6-3 ruling frorm the Supreme Court. 

The facts of the case were that Baugh completed its work on a processing facility in 1997.  In 2000, the owner suspected a leak in one of the pipes installed by Baugh and sent in a crew to excavate the area to find the leak.  A crew member died when the excavation hole collapsed.  The suit by the deceased worker's estate against Baugh was thrown out by the lower court based on the completion & acceptance doctrine.

Reinstating the suit, the Supreme Court adopted the rule that a negligent builder can be sued by an injured third party, subject to the 6 year statute of repose.

This dispute between Strand Hunt (SH) and Lake Washington School District arose from a $37 million school renovation project.  SH filed an impact claim of approximately $4.5 million based on alleged delays and "cumulative impacts" to the work.  The trial court granted summary judgment to the owner and Division 1 affirmed, leaving SH with no recovery.

The notable holdings are as follows:

1. Relying on the Mike Johnson case, Division 1 held SH waived its right to claim for "cumulative impacts" because it failed to submit pricing for such indirect impacts when submitting its pricing for direct cost of the changed work.  The Court rejected SH's argument that it was "impossible" for it have ascertained these indirect costs at the time.  The Court also held that the "event" giving rise to the claim for cumulative impact was the changed work itself, not SH's subsequent "realization" that changes had a cumulative effect.
2. SH was not allowed to make a claim for quantum meruit as the contract provided a specific mechanism for pricing of changed work.
3. The contract's terms for pricing of changed work did not violate RCW 4.24.360 (the statute which voids as against public policy any terms which purport to "waive release or extinguish" the right to seek delay costs).
4. Describing the Eichleay remedy as "severely limited," the Court adopted recent federal case law which makes Eichleay applicable only when a true suspension occurs.

Well, that settles that...or does it?  Today the Supreme Court issued its decision in the long-running dispute dispute between Scoccolo Construction and the City of Renton - a complete victory for the contractor.  Justice Madsen's concurring opinion, however, raises legitimate questions on just how precedential today's decision is.

This site previewed the Scoccolo case back in May.  The basic issue in the case is the meaning of the acting for" clause in the RCW 4.24.360, which makes it void against public policy for a construction contract to purport to waive the right of the contractor to sue for damages for delay caused by the contractee/owner or persons "acting for" the contractor/owner.

Scoccolo claimed its road widening project was impacted by the failure of certain utilities (Puget Power, US West, TCI Cable) to relocate their utilities to facilitate the progress of the work within Scoccolo's contract.  The trial court ruled as a matter of law the utilities did "act for" the City and, on the basis of that ruling, the jury awarded roughly $400,000 in damages.

The Supreme Court upheld the damage award, finding that the City's power to compel the utilities to relocate their utilities under franchise agreement meant the utilities "act for" the City for purposes of the delay statute.  Unfortunately, the Court does not appear to have separately decided the statutory meaning of the "acting for" clause apart of the way it was interpreted in the jury instruction in this case (which was not challenged on appeal), and for that reason the book may not be fully written on this issue as noted in Justice Madsen's concurrence.

A subcontractor was operating a crane when it rolled over and damaged two conveyor belts being used to transport coal at the Centralia energy plant.  This in turn caused a plant shutdown, which caused the customer to purchase energy on the open market to fulfill its requirements to third parties during the shutdown.  This case involved the customer's suit against the subcontractor to recover the extra energy costs.

The trial court had entered summary judgment in favor of the subcontractor, based on its argument that the customer failed to mitigate its damages.  The subcontractor's mitigation theory was that the customer need not have purchased energy on the open market to fill current requirements to third parties because its obligations to those third parties were discharged by a Force Majeure Clause that allowed the customer to suspend its performance if its inability to perform was due to factors outside its control.

Reversing on appeal, Division 2 held that the effect of the Force Majeure Clause on the customer's duty to mitigate was a question of fact for the jury - specifically, whether the customer acted "reasonably" by not invoking the Force Majeure Clause to suspend energy deliveries to third parties.

Where is the line of distinction between a defective specifications claim and a differing site conditions (DSC) claim?  For an example of why this matters, check out this new decision from the Court of Federal Claims arising out of a Washington road improvement project.

The contractor complained that the aggregate specified for use in the design documetnts for re-surfacing the road was unsuitable.  In its complaint, the contractor alleged various theories, among them defective specifications and DSC.   The government moved for summary judgment on the grounds that the DSC and specifications claims were redundant.  The Court denied the motion, allowing the contractor to proceed on both theories.

In this latest installation in the Mike Johnson saga, Division 2 held this week that the City of Olympia must go to trial on a contractor's $768,000 impact claim arising out of a sewer line project.

The case was before Division 2 on the contractor's appeal from a grant of summary judgment in favor of the City.  The contract was governed by the WSDOT Standard Specifications, which in Section 1-09.11(3) provide that any suit must be filed within 180 days of final acceptance.  Because the suit was not brought within that time, the City moved for summary judgment and prevailed.

On appeal, Division 2 concluded that a triable issue of fact existed on whether the City had waived enforcement of the 180 day suit limitation when it engaged in claim negotiations with the contractor after expiration of the applicable suit period.  The Court distinguished Mike Johnson as a case where the owner  (who also engaged in claim negotiations) had "continuously asserted" that it did not intend any waiver of defense during the negotiations. 

Like a lot of differing site conditions (DSC) cases, this new case only makes sense if you spend the time to read the whole decision and absorb the details concerning what the contract "indicated" the builder would encounter. When all is said and done, Universal Construction, Inc. dodged the summary judgment bullet in a claim arising from a $500,000 road project in Idaho.

At the end of its recent decision involving discovery sanctions against the maker of an EIFS product, the Supreme Court announced a significant damages ruling: in a defect case, where the damage to property is "permanent" in nature, the plaintiff will be entitled to both the cost of repair and dimunition in property value. Said the Court by a 9-0 vote:

(5) Damages for Diminished Value. Sto argued that the trial court erred in awarding the Mayers "stigma damages," damages for the home's diminished value. However, where the damage to real property is permanent, a plaintiff is entitled to recover, not only for the costs of restoration and repair, but also for the property's diminished value. See Pugel v. Monheimer, 83 Wn. App. 688, 692, 922 P.2d 1377 (1996) (determining that withdrawal of building's lateral support permanently damaged marketability); see also Grant v. Leith, 67 Wn.2d 234, 237, 407 P.2d 157 (1965) (sustaining an award for restoration and permanent depreciation). The Court of Appeals noted that "{t}he Mayers presented unrebutted expert testimony that in addition to the repairs, they had suffered a permanent loss because they will have to disclose that the home is sided with EIFS, a known defective product." 123 Wn. App. at 464. We affirm the Court of Appeals on the trial court's award of stigma damages.

The first in this term's Supreme Court roster of cases pertinent to the construction industry is out: the Lakemont Ridge case. By a 9-0 vote, the Supreme Court held that a homeowner need not file its 45 day pre-suit notice to cure in a situation where the "construction professional" has failed to file its own notice advising the homeowner of the existence of the homeowner's pre-suit notice requirement. The takeaway quote:

The statute unambiguously establishes two distinct notice requirements. These provisions of chapter 64.50 RCW operate together to achieve the legislature's dual goals of reducing potentially burdensome and expensive construction defect litigation and preserving rights and remedies for property owners. We construe the statute to give effect to both notice provisions. At the beginning of the parties' relationship, the construction professional must notify the homeowner of the construction professional's right to notice and the opportunity to cure any defects. RCW 64.50.050(1). If the construction professional fails to provide the notice required by this section, the Act ensures that the homeowner's failure to give prelitigation notice "shall not preclude or bar any action." RCW 64.50.050(3). However, if the construction professional
provides notice of the prelitigation notice requirement, the homeowner must give prelitigation notice of the alleged defects and follow the statutory procedures designed to avoid litigation. RCW 64.50.020(1). This interpretation gives effect to each notice provision of chapter 64.50 RCW.

A backed-up city sewer system overflowed into a home and caused floor damage, among other things. The occupants sued the city for negligence, claiming $15,900 in repair and cleanup expenses. Division 3 affirmed summary judgment in favor of the City.

The Court rejected the theory the City was strictly liable without proof of actual fault -- and likewise rejected the res ipsa loquitur claim. In a nutshell, plaintiff in this context cannot prevail on the theory that the City maintains exclusive control over the sewer system and is thereby guilty for whatever happens.

This new ASBCA case stemming from a Bremerton project is pretty dense to read (so what's new about ASBCA decisions?), but it contains a valuable legal nugget toward the end: merely proving that a bid specification is ambiguous is not enough to obtain compensation from the government - the claimant must in addition demonstrate "reliance" on the poor specification (i.e., that the bidder in fact based its bid price on its interpretation of the ambiguous specification). Otherwise, the claim is rejected as in this case.

The U.S. Supreme Court's decision in the 1918 case of Spearin v. U.S. remains one of the landmark construction law cases. In rough terms, it stands for the rule that an owner, by sponsoring a set of plans, makes an implied warranty to the builder that the plans are adequate for their intended purpose.

The exact reach of Spearin in a particular case is the subject of 100s of cases across the country. One of the latest and most interesting is this Ohio opinion which finds in favor of the owner and denies the builder's monetary claim for impacts and delays allegedly attributable to bad plans.
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The accepted wisdom is that a liquidated damage clause in a construction agreement is the exclusive remedy for time-related damages. Here's a new case that seems to follow the accepted wisdom and perhaps go a bit beyond, holding the LD clause to preclude any type of additional "actual damages."

Given the preclusive effect of LD clauses, sometimes an effort is made to carve out exceptions or to make the clause alternative at the option of the owner -- that is, to permit the owner to collect either the LD amount or actual damages, whichever is greater. But the "optional" may not be enforceable if this case were to be adopted in Washington.

While there is nothing especially groundbreaking about this new case, it does illustrate the legal grounds why owners most often avoid liability for injuries sustained by workers hired by independent contractors doing work on the construction site.

Abbott Labs wanted to build a new basement for its manufacturing facility. To do so, it had to pump out a lot of groundwater. But this pumping depleted groundwater in neighboring property as well, where pecan farmers had maintained trees whose roots depended on a water level of about 16 feet. After the pumping, the water table was permanently suppressed to 32 feet. The trees died.

Relying in significant part on a 1935 Washington case, the Ninth Circuit recently held that the owner owed no duty of care to neighboring landowners.

It's rare for a construction case to reach the Supreme Court, and rarer still when the issue presented is the infrequently explored "completion and acceptance" doctrine.

On November 9, 2005, the Supreme Court will hear argument on the validity of "completion and acceptance" doctrine, which generally provides that a contractor's liability to third parties is extinguished when the contractor's work is complete and accepted by the owner. The case is
Davis v. Baugh Indus. Contractors, Inc.

The "economic waste" doctrine is an equitable doctrine that must give way to whatever remedy is provided for in the contract between the parties. So sayeth Division I in a recent case involving a Costco store in Bellingham.

A recent case out of Division II highlights the rather precarious position occupied by the Owner in a turnkey project delivery -- whether commercial or residential: you can't sue remote contractors or trades because you are generally not considered to be a "third party beneficiary" of your seller's contracts with the firms that actually built your home or facility. That leaves the Owner's remedies limited to whatever the purchase and sale agreement may provide, not what the underlying construction contracts may provide.