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Articles Posted in Construction Contracts

Florida’s Second District Court of Appeal recently issued an important opinion in the case of Snell v. Mott’s Contracting Services, Inc., over the issue of lien rights and the differences between arbitration and litigation.

The case involves a construction contract between homeowners and a contractor that included a provision calling for disputes to be resolved through arbitration. When a dispute arose, the contractor recorded its claim of lien, and the homeowners filed a lawsuit asking the court to determine that the lien was invalid. The contractor responded by asking the court to stay the litigation and compel the parties to arbitration, as stipulated under the contract, and the court agreed.

After the arbitration proceeding, the arbitrator found in favor of the contractor and determined that it was entitled to recover its attorney’s fees in accordance with the Florida Construction Lien Law.

2dca.jpgHowever, the appellate court found that the contractor did not bring an action “in a court of competent jurisdiction” within one year of recording its lien as required under the lien law because it had requested to have the dispute resolved through arbitration. The appellate panel found that the contractor’s rights under the construction lien law had expired, and it now had no legal basis for recovering its attorney’s fees.

Arbitration has become a popular and effective alternative to litigation in the construction field, and this recent decision now calls into question how contractors and other lienors in the industry can protect themselves if they turn to arbitration to resolve a dispute as stipulated by their contracts. Given this ruling, lienholders would now be well advised to first file an action in a court of competent jurisdiction within a year and promptly request that the court stay the proceedings so that the parties can turn to arbitration to resolve the dispute. Otherwise, they may risk losing their right to recover fees or even enforce a lien.

The Insurance Services Office (ISO), which issues forms widely used in the construction industry, released a new additional insured endorsement form on April 1, 2013 to be appended to Commercial General Liability (CGL) policies. The new form includes a number of provisions of which members of the construction industry should be aware.

Coverage Limited by Contract

The new form provides that both the scope and amount of coverage will be limited to that required by the underlying contract. Therefore, if the policy provides $10 million of liability coverage, but the contract, for example, between owner and contractor requires contractor to provide owner with coverage as an additional insured in an amount of $1 million, the owner is only insured for $1 million irrespective of the limits of the policy. Additionally, if the contract specifically prescribes the scope of coverage which the contractor is to provide that is narrower than the coverage afforded under the policy, the contract scope governs.

Finally, under the new endorsement, coverage is limited to the “extent permitted by law.” Consequently, if the indemnity required by the contract is limited or otherwise extinguished for a failure to comply with Fla. Stat. 725.06, insurance coverage may be jeopardized as well.

Insurance related issues are common on construction projects. When issues or doubts exist as to the coverage your firm enjoys, it is best to contact a qualified attorney to review the policies at issue and advise you of the rights you do and do not enjoy.

A 5-2 majority decision by the Florida Supreme Court in the case of Tiara Condominium Association v. Marsh & McLennan limits the legal principle known as the “economic loss rule” only to product liability cases, thereby allowing many claims for breach of contract in the state to be accompanied by tort claims of negligence. The ruling allows the association to proceed with its lawsuit seeking to recover approximately $50 million in damages from its insurance broker, which it claims knew the 42-story oceanfront tower on Singer Island in Palm Beach County was underinsured and failed to tell the association.

The lawsuit stems from the more than $100 million in damages that the luxury condominium tower sustained as a result of two hurricanes in 2004. After settling with the insurance company for $89 million, the association then sued the broker for the remaining balance of the approximately $140 million in repairs, claiming breach of contract, negligent misrepresentation, breach of the implied covenant of good faith and fair dealing, negligence, and breach of fiduciary duty. The trial court in 2009 dismissed the lawsuit, and the association assessed each owner between $110,000 and $150,000 for the repairs and filed an appeal. The Eleventh Circuit Court of Appeals concluded that judgment in favor of the broker was proper as to the breach of contract, negligent misrepresentation and breach of implied covenant of good faith and fair dealing claims. However, as to the negligence and breach of fiduciary duty claims, a matter of state law, the Eleventh Circuit Court of Appeals directed a certified question to the Florida Supreme Court which restated the certified question as follows:

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Does the economic loss rule bar an insured’s suit against an insurance broker where the parties are in contractual privity with one another and the damages sought are solely for economic losses?

The majority opinion found that the economic loss rule did not bar the community association’s lawsuit, and held that the economic loss rule only applies in the products liability context.

The legal principle of the economic loss rule originated as a means of limiting potentially unbounded losses based on a customer’s expected profits from the use of a product that turned out to be defective. The most oft-cited case originating the rule involves a delivery company that sued a truck manufacturer for its lost profits resulting from a truck’s defects that caused it to cease functioning. The court ruled that damages for lost profits and for money paid on the purchase price were appropriate under breach of warranty. However, the delivery company could not pursue the same claim in tort since it suffered only economic loss. The court reasoned that contract law was best to resolve economic losses as the parties are able to negotiate remedies for nonperformance. Tort law was more appropriate to address personal injury and damage to other property. Each state addresses the economic loss rule differently and Florida, while initially expanding the economic loss rule, began limiting the economic loss rule to its principled origins. With this decision, the Florida Supreme Court has now returned the economic loss rule to its original application and has limited it to products liability cases.

The dissenting opinion asserts that the majority expanded the use of “tort law at a cost to Florida’s contract law.” The number of tort claims will likely increase as a party may bring tort claims along with its breach of contract claim and recover remedies that may not otherwise be available under the contract. Our construction law attorneys write regularly in this blog about important business and legal matters for the construction industry in Florida, and we encourage industry followers to submit their email address in the subscription box at the top right of the blog in order to automatically receive all of our future articles.

The Florida Supreme Court recently issued a decision that has significant implications for contractors, subcontractors and property owners in Florida. On January 24, 2013, the court ruled in the case of Earth Trades, Inc., et al., v. T&G Corporation that Florida law precludes an unlicensed subcontractor from employing the common law defense of in pari delicto – referring to equal wrongdoers – by arguing that the general contractor knew or should have known that the subcontractor did not hold the required state licenses for the work to be performed.

As the general contractor, T&G Corp. subcontracted with Earth Trades to perform site work on a parking garage construction project. When T&G stopped making payments, Earth Trades sued T&G for breach of contract for nonpayment. T&G counterclaimed claiming that Earth Trades breached the contract and was unlicensed, therefore its breach of contract claim against T&G was barred under Florida Statute 489.128 which provides that: “As a matter of public policy, contracts entered into on or after October 1, 1990, by an unlicensed contractor shall be unenforceable in law or in equity by the unlicensed contractor.”

Earth Trades responded by arguing that T&G should be barred from enforcing the construction contract because it knew or should have learned during the performance of the work that Earth Trades did not hold the required state license. As a result, the subcontractor claimed that T&G was equally at fault and could not recover against Earth Trades because both parties stand in pari delicto.

The trial court in Orange County, Fla., rejected Earth Trades’ arguments and granted the motion for summary judgment by T&G, and the Fifth District Court of Appeal affirmed the decision. Because this decision expressly and directly conflicted with the opinion by the Third District Court of Appeal in the case of Austin Building Co. v. Rago, Ltd. in 2011, the Supreme Court of Florida had jurisdiction to review the case.

Fla supreme court 1.jpgThe Supreme Court upheld the Fifth DCA’s opinion, noting that Section 489.128, Florida Statutes plainly places the onus for unlicensed contracting on the unlicensed contractor. The court concluded that the state legislature amended the statute in 2003 and stated that its intent was to “clarify that the prohibition on enforcement of construction contracts extends only to enforcement by the unlicensed contractor.” The defense of in pari delicto requires that the parties be wrongdoers of relatively equal fault. Under Section 489.128, Florida Statutes, the fault of the person or entity engaging in unlicensed contracting is not substantially equal to that of the party who merely hires a contractor with knowledge of the contractor’s unlicensed status. Accordingly, even if it was proven that T&G knew Earth Trades was unlicensed, such knowledge, as a matter of law, would be insufficient to place the parties in pari delicto. The Supreme Court disapproved of the Third DCA’s decision in the Austin Building case to the extent that it held that under section 489.128, a party’s knowledge that a contractor is unlicensed places the parties in pari delicto.

This decision is yet another reminder of the perils of working without the required state licenses for contractors and subcontractors in Florida. Our construction law attorneys and I will continue to monitor and write about important court rulings for the construction industry in Florida, and we encourage industry followers to submit their email address in the subscription box at the top right of the blog in order to receive all of our future articles.

Sobel Melendi Photo.JPGStuart Sobel’s work in securing a $58.5 million settlement for the builder of the new PortMiami tunnel was the subject of a front-page article in today’s Daily Business Review titled “Dispute Resolution Board Reaches Rapid Settlement with PortMiami Tunnel Builder.” The article written by the newspaper’s Steve Plunkett reads:

“Imagine securing a $58.5 million settlement from a dispute panel that bans lawyers from the room.

That’s the scenario Coral Gables attorney Stuart Sobel faced while representing Bouygues Civil Works Florida Inc., which is constructing the $1 billion tunnel that will connect PortMiami to I-395.

It didn’t surprise Sobel — he helped set up the tunnel’s Technical Dispute Resolution Board when his client won the project.”

The report chronicles how Stuart devoted many hours to preparing for the hearings on liability before the Technical Dispute Resolution Board outside of normal schedules.

“My work was at night, trying to anticipate the issues that were going to be discussed the next day,” he says in the article.

The article reads:

“For the board presentation, Sobel put together PowerPoint presentations for his witnesses to use and coached them on how to answer the panel’s anticipated questions. The board heard evidence for 13 days before making its decision largely in favor of Bouygues.”

The article also notes that Stuart “used an early variation of a dispute resolution board for the Adrienne Arsht Center for the Performing Arts, which opened in 2006.” He was involved in the negotiation of that contract on behalf of the contractor.

The article explains that the tunnel dispute was over extra work for grouting the limestone as the company dug. “We determined there was a changed condition. The geologic conditions were different than what we’d been led to expect,” Stuart notes.

Stuart is also quoted discussing the merits of using Technical Dispute Resolution Boards for major construction projects. “The concept is you have construction people dealing with construction problems,” he says:

“Sobel said having the dispute panel of construction laymen is much quicker than going to arbitration because the discovery process in arbitration could take eight to 10 months. Along with the added time would be added attorney fees.

“That’s why you have tunnelers as judges,” he said.

Sobel said he urges his clients planning malls, apartment houses, courthouses and other large construction projects to consider establishing similar boards. The tunnel panel meets quarterly whether or not there are disagreements.

“Dispute resolution boards for complex projects, in my view, are absolutely the way to go,” Sobel said. “At the first whiff of a problem you bring it to the dispute panel.”

Stuart’s work was geared toward obtaining a favorable ruling on his client’s entitlement to compensation. Thereafter, the client negotiated the financial resolution directly with the Florida Department of Transportation.

On behalf of all of the attorneys and professionals at our firm, we congratulate Stuart on achieving this fantastic result for the PortMiami tunnel builder that caught the attention of the Daily Business Review.

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The recent decision by the Second District Court of Appeal in the case of Vila & Son Landscaping Corporation v. Posen Construction, Inc. addressed the issue of whether a contractor can use the termination for convenience clause in its contract with a subcontractor to terminate the subcontract and enter into another subcontract with a different subcontractor at a lower price.

In this case, Posen, the contractor, terminated its subcontract with Vila, the subcontractor, after it obtained a lower price for the same work from another subcontractor. Vila sued, arguing that Posen was obligated to exercise its right to terminate for convenience in good faith, and terminating the contract solely because it found a lower bidder for the work constituted bad faith and, therefore, a breach of contract. Without the imposition of good faith limitations, Vila argued, the termination for convenience provision reduces the contract to an illusory promise, lacking consideration.

The appellate court rejected these arguments. It noted in its decision that it found Vila’s reliance on case law discussing a termination of convenience clause in a federal contract of limited value when interpreting a contract between private parties. Instead, the court looked to common law contract principles as articulated by Florida’s courts. 2nd DCA.jpg As to Vila’s argument that the promise made by the party with the right of termination is illusory in nature, the court held that because the termination for convenience provision requires written notice, valid consideration exists and the promise is not illusory. It found that Posen invoked the termination for convenience provision of its subcontract with Vila and followed the agreed upon procedures by supplying written notice. While the consideration may be thin, it is sufficient if a party is required to do something that it is not legally bound to perform.

The appellate court also found that Vila failed to recognize the standard that is required to determine whether the implied covenant of good faith and fair dealing has been breached, namely that a party to a contract has acted contrary to the reasonable expectations of the parties in performing the contract. Given the plain language of the subcontract and its termination for convenience clause, the court was unable to find how Posen’s decision to use the termination for convenience provision to obtain the services for a better price is contrary to “the reasonable expectations of the contracting parties.”

The court concluded that because Vila did not establish that Posen wrongfully terminated the subcontract, the trial court erred when it failed to enter a judgment in Posen’s favor on Vila’s claim for breach of contract.

This decision has further clarified how contractors can terminate subcontracts by exercising their rights under a termination for convenience clause. Our South Florida construction law attorneys will continue to monitor and write about important decisions such as this for the construction industry in Florida, and we encourage industry followers to enter their email address in the subscription box at the top right of the blog in order to receive all of our future articles.

A recent ruling by the Florida Fourth District Court of Appeal concludes that contractors are allowed to use bids from subcontractors in their final master proposals without it constituting an agreement to retain the subcontractor if the work is ultimately awarded. The appellate court’s ruling in the case of West Construction, Inc. v. Florida Blacktop, Inc. reversed the trial court decision, which would have infringed upon the “equities of the bidding process.”

The jury, at the trial court level, found that the contractor and subcontractor entered into an oral agreement whereby the contractor would use the subcontractor if the contractor was awarded the project. Since the contractor retained a different subcontractor, the jury found that the contractor breached the oral contract and awarded damages to the subcontractor.

The appellate court held that the parties’ dealings did not give rise to an enforceable contract. For there to be an enforceable contract, there must be an offer, an acceptance, consideration, and sufficient specification of terms so that the obligations involved can be ascertained. Since a subcontractor’s bid is nothing more than an offer to perform the subcontract under specified terms, the appellate court was left to determine whether the general contractor had accepted the bid. 4th DCA photo.jpg While there was no express oral or written acceptance of the subcontractor’s bid in this case, the appellate court reviewed whether the contractor had accepted the bid through his actions and the circumstances surrounding the subcontractor’s bid. Relying on the “settled common law contract principle that utilizing a subcontractor’s bid in submitting the prime or general contract bid does not, without more, constitute an acceptance of the subcontractor’s offer,” the appellate court determined that the contractor did not accept the subcontractor’s offer and there was no enforceable contract.

In support of its holding, the appellate court considered the fact that general contractors must review and select from a number of bids from subcontractors in preparing their master proposals for projects, and they cannot be required to accept the bids of the subcontractors whose figures are used in the master proposal if the job is awarded. Reliability, quality of work, and capability to handle the job are all considerations weighed by the general contractor in choosing subcontractors. Imposing a strict requirement to contract with a subcontractor because a particular bid was used would remove a considerable amount of needed flexibility for general contractors.

Our construction law attorneys regularly write about important issues affecting the construction industry in this blog, and we encourage industry followers to submit their email address in the subscription box at the top right of the blog in order to receive all of our future articles.

Michael Clark Gort photo.jpgOur South Florida construction law attorneys regularly conduct seminars and presentations on the latest legal and business issues affecting the construction industry. One of the most recent presentations was prepared and conducted by the firm’s Michael Clark, and it features an overview of the various types of Limitations of Liability Clauses in construction contracts, and how those clauses are interpreted under Florida law. The clauses addressed in the presentation include: 1) waivers of consequential damages, 2) liquidated damages, 3) no damages for delays, 4) exculpatory provisions expressly limiting liability, and 5) indemnification provisions.

Click here to read this presentation, and feel free to contact Michael at our Coral Gables office with any questions that you may have about the information that he covers or to inquire about the possibility of scheduling this presentation for your organization.

Thumbnail image for Nicholas Siegfried Gort photo.jpgOur construction law attorneys regularly conduct seminars and presentations on the latest legal and business issues affecting the construction industry. One of the most recent presentations was prepared and conducted by the firm’s Nicholas D. Siegfried, and it features highly detailed information on several cases that have significant implications for contracts used by subcontractors, general contractors and developers. The court decisions analyzed in the presentation affect the use of limitation of liability clauses such as: 1) waivers of consequential damages, 2) liquidated damages, 3) no damages for delays, 4) exculpatory provisions expressly limiting liability, and 5) indemnification provisions.

Click here to read this presentation, and feel free to contact Nicholas at our Coral Gables office with any questions that you may have about the information that he covers or to inquire about the possibility of scheduling this presentation for your organization.

A recent ruling by the Second District Court of Appeal in a lawsuit against Raymond James Financial Services for securities violations has major implications for the use of arbitration to resolve construction disputes. The court ruled that Florida’s statute of limitations does not apply to arbitration unless the contract between the parties expressly provides for its application. This decision has far-reaching implications for those construction contracts which call for arbitration to resolve disputes. Until the decision is reviewed by the Florida Supreme Court or another district court, parties to a construction contract could potentially be liable for construction defects indefinitely if their contract calls for arbitration and does not specifically state that Florida’s statute of limitations is applicable.

The Raymond James case hinges on the language in the contract, which fails to expressly state that Florida’s statute of limitations is applicable. The contract stated that it will not “limit or waive the application of any relevant state or federal statute of limitation.” Therefore, it essentially left it to the courts to determine whether Florida’s statute of limitations is relevant to arbitration.

The appellate panel upheld the circuit court’s ruling that Florida’s statute of limitations was not applicable to the Raymond James account holders’ arbitration claims. The lower court applied the Florida Supreme Court’s decision in Miele v. Prudential-Bache Securities which determined that arbitrations are not considered “actions” or “proceedings.”

iStock_000004904224Medium.jpgThe appellate court agreed with the circuit court’s decision, noting that if the legislature intended for the word “proceeding” to include arbitrations, it could have expressly defined it to include arbitrations or specifically included a reference to arbitrations in the corresponding statutes. Absent this, the court determined that it was a stretch to determine that the legislators’ intent was to extend the state’s limitations periods to arbitrations. The appellate court also noted that most jurisdictions which have considered this question have not read into their statute of limitations any implicit extension to arbitrations as they are not generally regarded as “proceedings.”

The problem for Raymond James is that it used a standard clause in the contract that it believed was suitable for use nationwide. It did not expressly include in its contract that Florida’s statute of limitations would apply to any claims, and thus, the court determined that Florida’s statute of limitations was inapplicable.

The appellate court determined that the applicability of the limitations periods to arbitration was an issue of first impression in Florida, and it certified the following question to the Florida Supreme Court as a question of great public importance:

DOES SECTION 95.011, FLORIDA STATUTES, APPLY TO ARBITRATION WHEN THE PARTIES HAVE NOT EXPRESSLY INCLUDED A PROVISION IN THEIR ARBITRATION AGREEMENT STATING THAT IT IS APPLICABLE?

Our construction law attorneys will continue to monitor whether the Supreme Court or another appellate court addresses this issue, which we will cover in this blog as it unfolds. In the meantime, all construction firms in the state should work with qualified legal counsel to ensure that their contracts expressly include Florida’s statute of limitations in the arbitration agreement. Otherwise, they will remain potentially liable for construction defect claims in perpetuity.

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