For WSBA Construction Section Mid-Year Meeting June …. v. Ondeo Degremont, Inc. (12/28/06) . ***...

For WSBA Construction Section Mid-Year MeetingJune 15, 2007

John P. Ahlers(206) 515-2226

Ahlers & Cressman PLLC (206) 287-9900 3

American Safety Casualty Ins. Co. v. City of Olympia

(06/27/06)

Contract for sanitary sewer lines between Olympia and Katspan.American Safety Casualty was Katspan’s surety. Contract contained Standard Specifications including:


§ 1-04.5, notice and protest, immediate notice with supplemental information within 15 days§ 1-09.1(1) and (2), claim requirements§ 1-09.11(3), suit must be brought within 180 days of final acceptance


Issue: Did Olympia Waive The Contract’s Lawsuit And Protest

Time Limits?

Katspan asserted it was impacted and delayed by Olympia in construction of Sewer project.


Negotiation

Olympia and Katspan’s bonding company had a series of information and document exchanges and settlement discussions.


2/26/01 Katspan sent another letter to City seeking to preserve its right to request time and money and stating that it would prepare additional documentation.Katspan did not provide the documentation


Court of Appeals Decision

Court distinguished Mike M. Johnson. City did not continuously express its intent to abide by contractual provisions.If City had no intention of allowing litigation, it should have informed American Safety.


City could also have halted all communication.City's continued requests for information, reference to future litigation, and deadlines for production well beyond the contract limitations created inferences that the City waived the contract terms.


Court further found that issues of fact remained as to whether the totality of the circumstances resulted in an implicit waiver of the contract provisions for timeliness of claim and suit.


Strand Hunt Construction Company v. Lake Washington School District

(09/05/06)

$37 million high school project


Key Contract Document Provisions:Could be changes up to 10% of the contract amount.Compensation for changes based on direct cost plus a fee calculated as percentage of direct costs.Fee to be an “allowance for all combined overhead, profit, and other costs, including all office, home office, and site overhead, and includes delay and impact costs of any kind.”Claims to be submitted within 14 days of the event giving rise to them.


Provisions (cont.)

Claims to include “ a clear description of the claim, the proposed change in the Contract Sum and/or time of the Claim and provide data supporting the Claim.”Claims not so made are waived.


Events6/29/03 Letter from Strand Hunt to District requesting compensation for inordinate number of RFIs caused by defective drawings.

Over 1,500 RFIs. 400 were directly related to change orders.Strand Hunt preliminary figures of $752,053 in direct cost impacts and $426,045 for indirect costs for labor inefficiencies.


District stated 6/29 letter did not constitute a claim and did not comply with contract requirements.7/23/03 Strand Hunt sent District a letter entitled "Claim for Multiplicity Impacts." Requested $2,434,813 for an inordinate number of RFIs and other defects in contract documents.

Claim for

Multiplicity Impacts


District denied claim.7/31/03 Strand Hunt filed suit.11/04 Strand Hunt submitted "Consolidated Request for Equitable Adjustment" for $4,538,366


District moved for partial summary judgment seeking dismissal of Strand Hunt's claims for cumulative impact damages, field overhead delay damages, and home office overhead damages because Strand Hunt failed to comply with contract requirements for claims.


District further contended that claims for overhead were barred because they were indirect delay damages which could only be asserted in connection with direct damage claims.3/7/05 trial court granted District's motion.


8/18/05 trial court entered order clarifying that its earlier order dismissed Strand Hunt's quantum meruit claims.Court of Appeals affirmed.


Strand Hunt failed to comply with the requirements for submitting a claim.Court rejected Strand Hunt's contention that it would have been impossible for it to submit claims in the manner and time frame specified in the contract.


Court did not understand how Strand Hunt could fail to notice $4,538,366 in expenses.Court rejected Strand Hunt's contention that the “event” giving rise to cumulative impact claim was dispute with the District. Such an interpretation would render the contractual claim requirements meaningless.


Court rejected quantum meruit claim as contract anticipated changes and contained provisions regarding degree and nature of changes.Court rejected Strand Hunt's contention that RCW 4.24.360 overturned the contract provision regarding delay damages. Strand Hunt agreed to such terms and should have complied with them.


Court rejected Strand Hunt's recovery of home office overhead per Eichleayformula as Strand Hunt worked continuously, and was never suspended, even though they worked allegedly inefficiently.


Woodburn Construction v. Encon Pacific

W.D. Wash January 17, 2007

Cowlitz County Jail Annex Project.Woodburn was General Contractor.EnCon was Subcontractor to supply and erect precast concrete panels.EnCon claimed additional compensation.


Subcontract ProvisionsContractor can change work.Subcontractor not entitled to extra compensation for changes unless change order issued by Contractor.No claim for additional compensation unless written notice is given by Subcontractor prior to performing work, and amount of claim provided within 30 days of claim notice

EnCon did not comply with claim requirements.Court dismissed EnCon’s claims.


Westview

Inv., Ltd. v. U.S. National Bank Association

(07/03/06)

Construction Associates (“CA”) contracted with 2 owners.CA failed to pay subcontractors who liened the projects.Owners paid subcontractors.


Owners sued CA’s bank, which held deposits of sums received from owners, and applied such deposits to indebtedness CA owed the bank.


AIA A201, Sections 9.6.2 and 9.6.7 applied.

§ 9.6.2 − CA to promptly pay each subcontractor out of the amount paid by owner to CA.§ 9.6.7 − Payments made by owners to CA are trust funds.


Evidence existed that U.S. Bank knew CA was a general contractor and that most of its accounts receivable were payments by owners for subcontractor’s work.Evidence existed showing the bank requested and received a great deal of financial information from CA and exercised control over CA’s finances.


Finding

Court found evidence was enough to survive summary judgment on issue whether bank had knowledge sufficient to require inquiry as to whether funds deposited by CA were trust funds.


Pacific Survey & Engineering Services, Inc. v. Denbigh Development, Inc.

(07/31/06)

Pacific Survey contracted to perform surveying and engineering services to subdivide a parcel of unimproved property.On 3/27/96, Pacific recorded a Notice Providing Professional Services.


In 6/97, Denbigh Development purchased two of the three subdivided lots.Pacific continued to work on the property through 4/98.On 6/30/98, Pacific recorded a claim of Lien.


Trial court ruled on Summary Judgment that Pacific’s Lien was valid and ordered foreclosure against the entire parcel, including Denbigh’s two lots.


AppealDenbigh contended that the lien should have been allocated between the properties. Denbigh did not order the work.The court held that property is subject to a lien only to the extent of the interest of the owner requesting the work. RCW 60.04.05.Court reversed the trial court finding that the entire lien amount against Denbigh’s property was either improper, or involved questions of fact for trial.


Key Point

A mechanic’s Lien is valid only if the owner of the property at the time the work is performed requests the work.


Williams v. Athletic Field, Inc (08/01/06)

Issue No. 1: Must Claim of Lien be signed by claimant or attorney?Answer: No. RCW 60.04.010 allows an agent of claimant to sign a Claim of Lien.


Issue No. 2: Are all invalid liens frivolous?Answer: No. Although frivolous liens are invalid, not all invalid liens are frivolous.A lien is frivolous “only when it is apparent beyond legitimate dispute that the lien was invalid when filed.” If the claim presents a debatable question of law, it is not frivolous.Where the only dispute is over the amount owed or the amount of work performed, resolution requires a trial


Henifin

Construction v. Keystone Construction

(10/23/06)

Keystone contracted with McDonald’s to build a restaurant. Henifin subcontracted with Keystone to perform the earthwork.Henifin did not understand that a soils report required the export of all native soils and import of fill.


To accommodate Henifin, Keystone signed several change orders that increased Henifin’s contract price.Henifin was not paid, recorded a lien, and sued for foreclosure.


Trial Court

Court denied Henifin’s Lien Claim, contending that obligations owed by Keystone were not the obligations of McDonald’s to pay.Court awarded McDonald’s its attorneys’ fees.


Court of Appeals

Trial court was reversed.RCW 60.04.021 provides a lien to any person performing work for the improvement of property if such work was furnished at the instance of the “construction agent of the Owner.”“Construction agent” includes a registered contractor. RCW 60.04.011(1)


Because Keystone was McDonald’s construction agent, the improvements Keystone directed Henifin to make entitled Henifin to lien rights.Henifin awarded its attorneys’ fees as the prevailing party.


Keystone Masonry, Inc. v. Garco Construction, Inc.

(11/07/06)

Garco was the general contractor for construction of the Bonney Lake High School.Keystone was the masonry subcontractor.Keystone claimed against Garco’spayment bond and retained percentage.


The Garco/Keystone subcontract called for venue of any suit in Spokane County.Keystone filed suit in Pierce County.Garco filed a motion a change venue to Spokane County.Garco’s motion was granted by the trial court.


Keystone appealed.Court of Appeals dismissed Keystone’s argument that the doctrine of forum non convenience required the action to be brought where the project was located.The court found that Spokane county was not so seriously inconvenient as deprive Keystone of a meaningful day in court.


The court also found that the venue provision in the retainage statute, RCW 60.28.030, could be waived.Garco was awarded its attorneys’ fees in the trial court and on appeal.


Cosmopolitan Engineering Group, Inc. v. Ondeo

Degremont, Inc.

(12/28/06)

Ondeo was Miller Brewing’s engineering contractor for a potential waste water treatment plant.


Cosmopolitan was Ondeo’s subcontractor for the plant, and responsible for engineering design and local permitting.Cosmopolitan was not paid, and brought suit against Ondeo, and against Ondeo’s contractor’s registration bond.


Cosmopolitan was awarded judgment against Ondeo by the trial court, but its award of attorneys’ fees pursuant to RCW 18.27.040(6) was limited to the amount of the contractor’s bond.

FEES


RCW 18.27.040(6)

The prevailing party in an action filed under this section against the contractor and contractor’s bond . . . is entitled to: reasonable attorneys’ fees.


Court of Appeals Opinion

Court held that a prevailing party under RCW 18.27.040(6) is entitled to attorneys’ fees against both the opposing contractor and its bond, and that the trial court erred in ruling that RCW 18.27.040(6) limits the prevailing party’s attorneys’ fees to the amount of the bond.


Supreme Court

Court reversed, holding that RCW 18.27.040(6), as amended in 2001, was intended to authorize attorneys’ fees only in actions against a contractor’s registration bond. It does not provide for recovery of attorneys’ fees against the contractor.


Haselwood

v. Bremerton Ice Arena, Inc.

(04/10/07)

Bremerton contracted with Bremerton Ice Arena (“BIA”) to construct and operate an indoor Ice Arena.Land was deeded to Bremerton by Federal Government.Deed prohibited city from leasing the land.


City/BIA contract provided that BIA would not have fee ownership or any leasehold interest in real property, but would own improvements during the agreement term.Haselwoods provided financing to BIA for the project. Loan was secured by deed of trust.RV contracted with BIA’s General Contractor for clearing, excavating, grading, and backfilling, as well as drainage, water and sewer lines, and storm system.


RV delivered equipment to the site prior to the date Haselwood’s deed of trust was recorded.RV claimed $101,905 as a result of changes and recorded a mechanic’s lien.


BIA defaulted on Haselwoods’ note, and Haselwoods sued for foreclosure naming RV as a creditor claiming an interest in the Ice Arena.RV counterclaimed for foreclosure and priority pursuant to RCW 60.04.061, because it delivered equipment to the site prior to the recording of Hasselwood’s deed of trust.


RV moved for Summary Judgment seeking the declaration that it’s lien was senior to Hasselwoods’ deed of trust.Trial court ruled that RV’s lien did not attach to the Real Property, but might attach to improvements.RV also moved for an order allowing it to remove its improvements.


Hasselwoods sought Summary Judgment on the removal issue.Trial Court granted Hasselwoods’ motion, determining that removal was only available to a senior lien claimant, and that RV’s lien was junior to Hasselwoods’ deed of trust.


Court of Appeals held that RV’s lien could only attach the improvements, not underlying real property.Court also found that the trial court erred in interpreting RCW 60.04.061 to allow relation back for a lien claim and only when the lien attaches to real property.Case remanded to the trial court for appropriate remedy, if any.

?


Scoccolo

Construction, Inc. v. City of Renton

(10/26/06)

Renton contracted with Scoccolo to widen a street.Utilities (Puget Power, TCI, US West) had to be relocated so Scoccolo could complete its work.The contract specified that Scoccolo was responsible for coordination of the utilities and arranging for their movement.


Contract also provided that Scoccolowould receive no compensation for “reasons of delay caused by the actions of any utility company.”Renton had franchise agreements with the utilities that required the utilities to relocate their lines when directed to do so.Scoccolo’s work was delayed by the utilities’ failure to timely relocate their lines.


Scoccolo sued the city.City raised the contract clause as its defense.Scoccolo contended that the exculpatory clause was unenforceable by RCW 4.24.360.RCW 4.24.360 invalidates “no pay for delay” clauses where the delay is caused by Renton or “persons acting for” Renton.


At trial Scoccolo was awarded over $1 million by a jury.

City appealed, and prevailed, and Scoccolo’s jury verdict was taken away.


Supreme court reversed, holding that the utilities acted pursuant to the city’s commands, and were “acting for” the city for purposes of RCW 4.24.360Scoccolo’s significant jury verdict was reinstated.


Majestik

Trucking, Inc. v. Obayashi Corp.

(04/30/07)

Sound Transit contracted with Obayashi to build the Beacon Hill Tunnel.Obayashi subcontracted with Majestik by the hour to haul material from the site.Contract drafted by Obayashi stated that Majestik would provide three truck and trailers with the ability to haul nine full scoops of semi-wet material.


Contract further stated:Variables to be considered on all loads include the following:

***2) Percentage of water and material being loaded in current load.

***Contractor is responsible for item # 2.

Majestik sued for unpaid sums.


Obayashi contended that Majestik only hauled an average of 7.5 scoops of material per load, and that was why Obayashi did not pay entire sum billed.

Majestik moved for Summary Judgment and submitted President’s declaration attaching supporting truck tickets signed by Obayashi representative.


Majestik’s President testified that according to standard business, custom, and procedure in the industry, the signature of an authorized Obayashi representative on each truck ticket indicated that Obayashi agreed that the hours and activities were correct.Although Obayashi contended that its business manager’s declaration to the effect that Majestik only hauled an average of 7.5 scoops of material per load created an issue of fact.Both the trial court and the Court of Appeals disagreed.


The Court of Appeal stated that the contract unambiguously provided that Obayashi was to pay Majestik by the hour. Although two variables were to be considered, nothing in the contract suggests whether or how those variables would impact the hourly rates.Court of Appeals found that Obayashi failed to present any evidence to rebut Majestik’s evidence of signed truck tickets.


Frank Coluccio

Construction Company Inc. v. King County

(01/22/07)

Coluccio was general contractor for small utility tunnel under Duwamish Waterway.Donald B. Murphy (DBM) – subcontractor responsible for constructing access shaft at one end of the tunnel.Problem setting the final pile in access shaft. Later a “blow-in” of access shaft occurred.Coluccio and DBM submitted claims for repair costs and delays.


King County was contractually obligated to purchase builder’s risk insurance.King County failed to do so and rejected insurance claims submitted by Coluccio/DBM.Coluccio sued King County and was awarded $1.5 million in damages and $300,000 in attorney’s fees.


King County appealed principally on the basis that the builder’s risk policy wouldn’t have covered the losses incurred.Court of Appeals Legal Standard

Party who fails to provide insurance assumes all risk of loss and is liable for full amount of damages that would have been recoverable.


King County ArgumentsBlow-in of access not a “fortuitous event” (not an accident). Damages would have been excluded by “faulty workmanship” exclusion.


Court of Appeals Rejects:No evidence of precise cause of pile failure.Party who fails to purchase insurance can only rely on exclusion if every builder’s risk policy available would have contained the exclusion and every such exclusion would have barred coverage.King County could not meet burden Verdict upheld


The Bedford, LLC v. Safeco Insurance Company of America

(12/11/06)

Insurance coverage dispute between property damage insurer (Safeco) and condominium developer (The Bedford)Bedford settled with all other parties and insurersUndisputed cause of damages – water intrusion caused by defective construction


Bedford argued coverage under policy due to “rain water intrusion” and “collapse”Safeco prevailed in jury trial


Bedford argued on appeal that damages were “ensuing loss” caused by “rainwater intrusion.”Court rejects. True cause of damages is “faulty design, construction, and maintenance” which are excluded from coverage in policy.Ensuing loss provision only operates where original cause would have been covered.


Experts disagree over definition of “collapse”

Experts had agreed/stipulated that collapse means “the inability of a building, any part of a building, or any structural member to sustain the design load specified in the Uniform Building Code (UBC)”Expert disagreed over what was meant by “sustain the design load”


Bedford’s expert claimed definition required 1.0 D/C ratio (Design/Capacity)Safeco’s expert claimed less stringent 1.5 D/C ratio could “sustain” the design loadCourt held that even though the experts had agreed on the definition of collapse, Safeco’s expert was not barred from presenting opinion that the less stringent D/C ratio met the definition


Woo v. Fireman’s Fund Ins. Co. (07/26/07)

Insurance Company’s duty to defend is broader than its duty to indemnify.Duty to defend arises at the time an action is first brought and is based upon the potential for liability.An insurer has a duty to defend when a complaint, construed liberally, alleges facts which could, if proved, impose liability upon the insured within the policy’s coverage.


An insurer is not relieved of its duty to defend unless the claim alleged in the complaint is clearly not covered by the policy.If a complaint is ambiguous, it will be construed liberally in favor of triggering an insurer’s duty to defend.The duty to indemnify hinges on the insurer’s actual liability to the claimant, and actual coverage under the policy.


A duty to defend is triggered if the insurance policy conceivably covers the allegations in the complaint, whereas the duty to indemnify exists only if the policy actually covers the insurer’s liabilities.


Two exceptions to the rule that duty to defend must be determined only from the complaint.

If it is not clear on the face of the complaint that the policy provides coverage, but coverage could exist, the insurer must investigate and give the insured the benefit of the doubt that the insurer has a duty to defend. Notice pleading imposes a significant burden on the insurer if there are any facts in the pleadings which could conceivably give rise to a duty to defend.


If the allegations in the complaint conflict with the facts known to or readily ascertainable by the insurer, or if the allegations are ambiguous or inadequate, facts outside the complaint may be considered. An insurer, however, may not rely on facts extrinsic to the complaint to deny the duty defend. It may only do so to trigger the duty.


Davis v. Baugh Industrial Contractors, Inc.

(01/18/07)

Case arises from Baugh’s installation of a network of subterranean pipes for a Glacier Northwest processing facility.Project was completed in 1997, Glacier accepted the work and began utilizing the facility.


In December, 2000, Glacier suspected that one of the pipes was leaking and ordered one of its employees to excavate in the area.During excavation, a nearby wall nearly collapsed and cement blocks fell into the excavated area seriously injuring the Glacier employee. Failure of a polyethylene pipe installed by one of Baugh’s subcontractors has determined to be the cause of the wall collapse.The employee eventually died from his injuries.


The family of the employee sued Baugh and other parties involved in construction of the facility.Baugh defended on the basis of the “completion and acceptance doctrine”This doctrine holds that once an independent contractor completes work and the work has been accepted, the contractor is no longer liable for injuries to third partiesTrial Court granted summary judgment for Baugh


The family petitioned Washington Supreme Court for direct appeal and the Court accepted review.Washington Supreme Court had not ruled on the doctrine in 40 years and since that time, 37 other states had rejected it.The Court rejected the completion and acceptance doctrine and adopted the more modern negligence/forseeabilitystandard.


The court noted that construction is increasingly complex and that landowners are not in a position to detect substandard work at substantial completion.The completion and acceptance doctrine weakens the deterrent effect of tort law on negligent builders.The statute of repose protects contractors from an indefinite period of uncertainty on tort liability.


Wright v. Colville Tribal Enterprise Corp., et al.

(12/07/06)A non-Indian pipe layer and equipment operator employed by the Colville Tribal Services Corporation, sued its employer and parent corporation for race discrimination and harassment.Tribal Corporations defended on the basis of sovereign immunity.The employee worked off reservation on a US Navy housing project.


Washington Court of Appeals held that sovereign immunity did not protect the tribal corporation in this instance.The Washington Supreme Court accepted review and reversed.


The Supreme Court held that tribal corporations organized under tribal law are protected by sovereign immunity, even if they are operating off the reservation.Sovereign immunity can be waived only by express waiver, act of Congress or by the corporation incorporating under State, rather than tribal law.


Silverstreak, Inc. v. Department of Labor and Industries

(3/29/07)

Dispute over wages paid to end dump drivers who supplied fill for the Sea-Tac Airport third runway project in 1998.In preparing their bids, the fill suppliers relied upon a 1992 Department of Labor and Industries policy memorandum which provided that:

delivery of materials using a method in which the truck does not roll while the material is placed, or rolls only enough distance to allow the materials to exit the truck, does not include incorporation of materials into the job site


In performing the work, the drivers delivered fill directly onto the runway embankment at various locations selected by the general contractor.The drivers dumped the fill in the location, without rolling, did not exit the vehicle and left the site after 5-15 minutes.


One year after completion, the Department issued notices of violation to the suppliers claiming prevailing wages were owed to the end dump drivers.Wage differential amounted to $500,000.The case proceeded first through the Department’s administrative process and then through the courts.


The Court of Appeals determined that under WAC 296-127-018, incorporation of materials into the project (the standard which triggers prevailing wage) was limited to drivers who participated in “spreading, leveling, or rolling” the material.The Department petitioned the Washington Supreme Court for review.


The Washington Supreme Court reversed in part but ultimately held that the suppliers were not liable to pay the wage differential.The court adopted a broader interpretation of WAC 296-127-018 and held that truck drivers can “otherwise participate in the incorporation of materials” by means other than “spreading, leveling, or rolling.”


The court reasoned that a broader interpretation was consistent with the Legislature’s intent in enacting the Prevailing Wage Act. Narrow interpretation would encourage contractors to look for “loopholes” to get around paying prevailing wagesDespite this, the court held that it would be inequitable to enforce the broader interpretation against the suppliers who reasonably relied upon the 1992 policy memorandum in formulating their bids.


The court relied on the doctrine of equitable estoppel to prevent the Department from changing its position after the fact to the detriment of the suppliers who relied on their memorandum.

1992 Department

Policy


Mayer v. Sto

Industries, Inc. 156 Wn.2d 677, 132

P.3d 115 (April

6, 2006)

Homeowners remodeled waterfront vacation home.Contractors applied EIFS manufactured by Sto.The home suffered water damage and dry rot.


Homeowners sued Sto pursuant to Washington’s Product Liability Act.Jury returned a verdict for homeowners for damages for both the cost of restoration and diminution in value of the home.


The Supreme Court affirmed award of “stigma damages.”

Where damage to real property is permanent, plaintiff is entitled to recover not only costs of repair, but also for diminished value.Homeowners presented unrebuttedexpert testimony that in addition to repairs, they suffered a permanent loss because they would have to disclose that the home was sided with EIFS, a known defective product.


MacLean Townhomes, LLC v. P.J. Interprize, Inc.

(07/03/06)

Condominium HOA sued general contractor, MacLean.MacLean defended and settled HOA’sclaim alleging construction defects.MacLean sought indemnity from its subcontractor, P.J. Interprize.


Subcontract’s Indemnification provision:Subcontractor shall defend, indemnify, and hold Contractor harmless from any and all claims…to or by third parties arising from…services performed…under the Subcontract… to the fullest extent permitted by law, and subject to the limitations provided below.


“Limitations provided below” applied to tort claims.Trial court held that the indemnification provision only applied to third-party tort claims, that MacLean’s claims were contract based, and dismissed MacLean’s suit.Court of Appeals reversed. Indemnification provision applied to contract claims as well as tort claims.


Ballard Square Condominium Owners Association v. Dynasty

Construction (11/09/06)

Project - 20 unit condominium developed and constructed by Dynasty Construction.Project completed December 1992.Dynasty administratively dissolved in October 1995.


Post dissolution- Condo owner’s association noticed leaks.Association sues Dynasty in October 2002.Dynasty moves for summary judgment.

Issue: whether RCW 23B.14, Washington’s corporate dissolution statute, bars the suit.


Court of Appeals Holding

Post dissolution suits are not addressed by RCW.Common law applies.Common law = suit against dissolved corporation terminated once corporation winds up affairs.


Washington Supreme Court

RCW 23B.14.050(1)(e) allows a post-dissolution suit against a dissolved corporation.However, Association’s suit is barred by 2006 amendment to RCW 23B.14, which bars any action against a corporation dissolved prior to June 7, 2006 which is not commenced within 2 years of the dissolution.


Association argues that 2006 legislation should not be applied to negatively impact suit filed in 2002.Court rejects argument. Legislature may amend a statute in a manner which modifies an existing statutory right.


1000 Virginia Limited Partnership v. Vertecs

Corporation

(11/09/06)

Project – apartment complex.1000 Virginia was developer and general contractor.Vertecs is stucco subcontractor.Substantial completion – December 1992.


First water leaks observed – early 1994.End of 1998 – 1000 Virginia knows substantial repairs are needed.1000 Virginia files suit – September 2002.


Issues: Whether “discovery rule” applies to determine when breach of contract action accrues.Whether RCW 4.16.326(1)(g), enacted in 2003, applies retroactively to bar 1000 Virginia’s 2002 suit.

Statute establishes 6 year statute of limitations regardless of discovery.


Washington Supreme Court Ruling

Discovery rule applies to breach of construction actions involving latent defects.RCW 4.16.326(1)(g) does not apply retroactively.Statutes presumed to run prospectively only.Outcome of Court Decision – Potentially delays positive impact of 2003 legislation.


Villas at Harbour

Pointe Owners Association v. Mutual of Enumclaw

Insurance Co. (04/02/07)

Condominium defect action involving water intrusion.Damages - $7.3 millionHomeowner’s association settles with all parties except siding subcontractor, T&G.T&G insured by Mutual of Enumclaw.


T&G settles with HOA without MOE’sconsent.Stipulated judgment against T&G for $3.3 million, covenant not to execute against T&G, assignment of T&G’scoverage and bad faith claims against MOE.


Trial court conducts “reasonableness hearing” on the settlement.MOE invited to participate since outcome of settlement is binding on MOE.Trial court determines $3.3 million stipulated judgment is reasonable.


MOE argues on appeal1.) Court lacks jurisdiction to conduct

reasonableness hearing.2.) The court’s reasonableness

determination was incorrect.MOE loses on both arguments


Court of Appeal holds that a court may conduct a reasonableness hearing in a condominium defect case.Substantial evidence of T&G’s defective work supported $3.3 million judgment amount.


Baddeley

v. Gregory Seek, d/b/a Creative Rock Landscaping

(05/01/07)

Baddeley hired CRL to build a retaining wall.After the wall was completed (and before it collapsed) CRL hired STI, an engineering firm, to aid CRL in obtaining an overlooked building permit.STI’s engineers provided a written report to the effect that the retaining wall was adequately designed and constructed.


Based upon the report, a building permit was issued. When the wall failed, it was determined that a number of STI’s conclusions were unfounded.Geogrid was inadequately placed.Baddeley sued STI based on negligence, breach of contract, intentional misrepresentation, and negligent misrepresentation.


Trial court dismissed all of Baddeley’sclaims.Court of Appeals affirmed.There was no contract base claim because Baddeley did not contract with STI.Baddelely failed to establish the elements of intentional misrepresentation and negligent misrepresentation.


STI did not intend for Baddeley to act on any fact. STI’s opinion was provided to CRL as a result, the fraud claim failed.Negligent Misrepresentation claim failed because STI did not make any representations to Baddeley, Baddeleydid not know about the SRL/STI contract, and Baddeley did not justifiably rely on STI’s information.


RCSH Bellevue, LLC v. Sellen Construction

(03/05/07)

Renovation of Ruth Chris Steak House in Bellevue Square Mall.Sellen Construction is general contractor.$1.8 million guaranteed maximum price contract.


Sellen discovers that its project manager shifted costs for extras to other Sellen customers to stay within budget.Project manager convicted of 11 counts of felony theft.Sellen compensated its overcharged customers and paid subcontractors.


Sellen sought to recoup extra incurred costs on the Ruth Chris project from the proper owner.Sellen filed for arbitration.RCSH filed suit challenging arbitrabilityon the basis that project manager forged president’s signature on the contract.Court holds that Sellen ratified the contract by performance and dispute are arbitratable. Arbitrator issues $630,111 award against RCSH.


Arbitrator holds that both parties did not follow change order procedures and RCSH should pay fair price for value received.RCSH attempts to vacate award.RCSH arguments:

Arbitrator exceeded authority by awarding more than guaranteed maximum contract price.Award should be vacated due to project manager’s fraud.Arbitrator refused to compel Sellen to respond to discovery requests pertaining to the project manager’s fraud.


Court of Appeals rejects all 3 argumentsArbitrator has authority to decide all disputes.Fraud must be in arbitration proceeding itself.Refusal to compel discovery is not a refusal to hear evidence.


Belfor

USA Group, Inc. v. Thiel (06/14/07)

Contract provision provided: If for any reason the amount due under this Work Authorization is not paid when due, the Contractor shall be entitled to his expenses and attorneys fees incurred in the collection of this agreement.

Supreme Court found that while Contractor prevailed in compelling arbitration, it had not yet prevailed in collecting under the contract, and was not entitled to an award of attorneys’ fees at that juncture.

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For WSBA Construction Section Mid-Year Meeting June …. v. Ondeo Degremont, Inc. (12/28/06) . ***...

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