Baldwin Haspel Burke & Mayer LLC

Construction Law Update – January 2017


The Construction Law Update is published by Baldwin Haspel Burke & Mayer, LLC for the benefit of its clients and others having an interest in the construction industry. It includes discussions of Louisiana state and federal court decisions, legislative developments and tax issues concerning construction-related matters. To subscribe to BHBM’s electronic Construction Law Update, please click here. For further information on the decisions and legislative developments, contact John Stewart, Jr. at (504) 585-7846 – jstewart@bhbmlaw.com.

Download a PDF of the January 2017 Construction Law Update by clicking here.

GOVERNMENT CONTRACTOR IMMUNITY

Two contractors, B&K Construction Company, LLC and Boh Bros. Construction Company, LLC, contracted to perform work for the Southeast Louisiana Drainage Project in New Orleans. The Project was sponsored by the Sewerage & Water Board of New Orleans and the United States Army Corps of Engineers. Several homeowners and businesses in Uptown New Orleans near the Project alleged property damage arising from the work. They filed a lawsuit against the Sewerage & Water Board which, in turn, asserted cross claims and third party claims against the contractors. The court previously dismissed the Sewerage & Water Board’s claims against the contractors for inverse condemnation, breach of contract, negligence and legal indemnification premised on non-strict liability principles. The contractors moved for summary judgment on the remaining claims based on the doctrine of government contractor immunity.

For the government contractor defense to apply: (1) the government must have approved reasonably precise specifications; (2) the equipment or work must have conformed to those specifications; and (3) the contractor must have warned of any dangers that were known to the contractor but not to the government. The court analyzed each test.

In examining the first test, reasonably precise specifications and government approval, the court held it was intended to assure that the design feature in question was considered by a government officer, and not merely by the contractor itself. The test must be satisfied for each feature of the project brought to issue by a claim. Reasonable precision requires that the discretion over significant details and all critical design choices be exercised by the government. Specifications are reasonably precise as long as they address, in reasonable detail, the product design feature alleged to be defective. The focus of the inquiry is not on who designed the offending features of the project, but rather the detail of the specifications before the government for approval. The government need not prepare the specifications to be considered to have approved them. Government approval simply requires meaningful, substantive review of the specifications.

The court found the contractors had shown the plans and specifications, which were uniformly detailed across the Project, to be reasonably precise for each feature, or activity, of construction implicated by the claims. The evidence revealed that the Corps of Engineers considered each offending feature and had in place specifications that effectively removed all critical design choices from the contractors’ discretion. Additionally, the Corps of Engineers meaningfully reviewed and approved the specifications prior to construction.

The second test requires a government contractor to have performed the work in accordance with the approved specifications. Particularly in the absence of conflicting evidence, the government’s written acceptance of a contractor’s work constitutes compelling proof of conformity. A breach of some general admonition against an unwanted condition does not negate a showing of a contractor’s conformity with precise specifications.

The court held that the contractors showed the Corps of Engineers’ oversight to have been extensive and steady. In addition to performing interim performance evaluations and holding monthly meetings with the contractors, the Corps of Engineers maintained a daily presence on-site, staffing each phase with Quality Assurance representatives tasked with inspecting the work each day to ensure conformity with plans and specifications. The Corps of Engineers also required the contractors to have their own Quality Control officers, who regularly reported to the Corps of Engineers on compliance. By keeping such a close eye on the construction, the court found that the Corps of Engineers’ monitoring efforts helped prevent any concern that the contractors may have substituted their discretion in place of the reasonably precise specifications. The court found the contractors performed the work as ordered, in the manner contemplated by the government.

The third test requires a contractor to have been unaware of reasons not known to the government that would make the implementation of specifications unsafe or unreasonable. The court found the government knew of the risks associated with vibration-causing construction activities and water table manipulation, such as cracking in nearby structures and subsidence of the surface. Not only are these obvious risks inherent in the installation of underground box culverts in an urban area, the Corps of Engineers admitted the agency expected the surrounding areas to experience vibratory and noise impacts, as well as inconveniences stemming from dust, noise, restricted access and traffic. The Corps of Engineers contemplated a “zone of impact” within which it was considered damage could, more likely than not, occur, regardless of whether the contractors performed their work in accordance with the plans and specifications provided to them. Further, the Corps of Engineers was found, as a result of prior similar projects, to have general knowledge that the construction, as planned, had the potential to cause damage from vibrations and surface movements.

The court granted the motions for summary judgment and dismissed the claims against the contractors. Sewell v. Sewerage & Water Board of New Orleans, (E.D. La. 12/20/16), 2016 WL 7385701.

REJECTION OF A PUBLIC BID

The City of New Orleans, on behalf of the New Orleans Aviation Board, issued an invitation to bid to provide landscaping maintenance services. The bid documents mandated a 40% participation in the contract by a certified state/local disadvantaged business enterprise. Construction Diva, LLC’s bid was rejected on the basis that it was not certified as a disadvantaged business in the field of landscaping. It was certified in the categories of building construction, residential remodeling and new single family housing construction. Construction Diva protested the rejection of its bid, and filed suit against the City to enjoin it from awarding the contract to any entity other than it, or issue a writ of mandamus compelling the City to award the contract to it. The trial court denied the requests for an injunction and writ of mandamus. Construction Diva appealed.

As to the request for a preliminary injunction, the court of appeal held the party requesting it must show irreparable injury, loss or damage if it is not granted. The moving party must show that money damages could not adequately compensate for the injuries suffered and the injuries cannot be measured by pecuniary standards. Mere inconvenience is not sufficient to show irreparable injury. Construction Diva did not offer proof of irreparable harm, but instead sought to take advantage of a jurisprudential exception to the requirement that allows the issuance of a preliminary injunction if the conduct sought to be enjoined is a direct violation of a prohibitory law and/or violation of a constitutional right. Construction Diva failed to establish that, in rejecting its bid, the City deviated from the requirements set forth in the bid documents, which, according to the Public Bid Law, could not be waived, and, therefore, failed to prove the City’s actions violated a prohibitory law.

A writ of mandamus may be issued in instances where the law provides no relief by ordinary means or where the delay involved in obtaining ordinary relief may cause injustice. A writ of mandamus may be directed to a public officer to compel the performance of a ministerial duty required by law. A ministerial duty is one in which no element of discretion is left to the public officer, in other words, a simple, definite duty, arising under conditions admitted or proved to exist and imposed by law. In the realm of public bid law, however, mandamus has been an appropriate remedy to award public bid contracts when required by law. Because the court of appeal concluded the trial court did not abuse its discretion when it denied the request for a preliminary injunction, it held it must affirm the denial of the request for a writ of mandamus.

The judgment of the district court was affirmed. Construction Diva, LLC v. New Orleans Aviation Board, 2016-0566 (La.App. 4 Cir. 12/14/16), 2016 WL 7235731.

TIMELINESS OF A PUBLIC WORKS ACT LIEN

The Louisiana Fourth Circuit Court of Appeal previously held that a public works act lien recorded in the mortgage records before, and not within, forty-five days after recordation of acceptance of the work, or notice of default of the contractor, was premature. Gootee Construction, Inc. v. Atkins, 15-0376 (La.App. 4 Cir. 11/4/15), 178 So.3d 629. The Louisiana Supreme Court, on application for a writ of certiorari, remanded the matter to the court of appeal to reconsider its decision in light of the Supreme Court decision in Pierce Foundation, Inc. v. Jaroy Construction, Inc., 15-0785 (La. 5/3/16), 190 So.3d 298. The Pierce decision held a subcontractor does not lose his rights to proceed against the surety even if he had not previously perfected a privilege.

In reconsidering its decision, as directed by the Supreme Court, the court of appeal held that the Pierce decision did not touch upon the rights of a claimant to file a statement of claim in the mortgage records when, as in this case, there had been no acceptance of the work by the public authority, nor default by the general contractor. In its previous decision, the claimant’s rights against the surety were not at issue. The court of appeal concluded the Pierce decision did not alter its first decision. Gootee Construction, Inc. v. Atkins, 2015-0376 (La.App. 4 Cir. 12/21/16), _____ So.3d _____, 2016 WL 7385566.

LIABILITY FOR AN UNREASONABLE RISK OF HARM AND COMPLIANCE WITH BUILDING CODE REQUIREMENTS

The Louisiana Second Circuit Court of Appeal recognized that structures pre-existing changes to building codes do not have to be modified to conform to building code requirements, unless they undergo a “major renovation”, i.e., costing more than 50% of the value of the building. The court held, however, compliance with codes at the time of construction or later is only one factor to consider in assessing whether a structure presents an unreasonable risk of harm, which could result in a finding a structure did present an unreasonable risk of harm even though it complied with the building code at the time it was built.

In this particular case, the jury found a 7½” drop-off at a door did not constitute an unreasonably dangerous condition. The district court granted a new trial in favor of the plaintiff. The court of appeal reversed the district court and reinstated the jury verdict, finding that a rational juror viewing the evidence presented could find that the drop-off did not pose an unreasonable risk of harm. Nugent v. Car Town of Monroe, Inc., 50,910 (La.App. 2 Cir. 9/28/16), ___ So.3d _____, 2016 WL 5400437.

SUCCESSOR LIABILITY, PRESCRIPTION AND INTEREST

A subcontractor sought penalties from a general contractor under the Louisiana Prompt Pay Statute, L.R.S. 9:2784. The statute provides that if a contractor or subcontractor without reasonable cause fails to make any payment to his/her subcontractors and suppliers within 14 consecutive days of the receipt of payment from the owner for improvements to an immovable, the contractor or subcontractor shall pay to the subcontractors and suppliers, in addition to the payment, a penalty in the amount of ½ of 1% of the amount due, per day, from the expiration of the period allowed for payment after receipt of payment from the owner. The total penalty shall not exceed 15% of the outstanding balance due. In addition, the contractor or subcontractor shall be liable for reasonable attorney fees, but any claim which the court finds to be without merit shall subject the claimant to all reasonable costs and attorney fees for the defense against such claim.

The subcontractor claimed other entities were liable for the debt under a theory of successor liability. The court held the threshold requirement of an asset transfer was lacking, and as a result, the doctrine of successor liability was not applicable. Nevertheless, it found the single business enterprise doctrine applied and dictated the same legal result. The court applied a non-exclusive 18-factor test to determine whether a group of affiliated entities constitutes a single business enterprise. The tests include:

The single business enterprise doctrine is grounded on the same policies and doctrinal underpinnings as traditional veil piercing theories under the alter ego doctrine. In analyzing the factors, the court held the entities were a single business enterprise.

The court also considered the prescriptive period for a claim under the statute. It held the claims under the statute were subject to a ten-year prescriptive period for personal actions under C.C. art. 3499. In this case, the claim for penalties was not prescribed.

The interest paid to the subcontractor was considered as well. The general rule in breach of contract cases is that judicial interest runs from the date of the breach. The court of appeal recognized that the Louisiana Supreme Court has adopted an exception to the rule for highly complicated cases. In such cases, interest runs from the date of judicial demand. The Fourth Circuit found that the matter at hand fell into the “highly complicated” category, requiring that interest run from the date of judicial demand. Boes Iron Works, Inc. v. Gee Cee Group, Inc., 2016-0207 (La.App. 4 Cir. 11/16/16), _____ So.3d _____, 2016 WL 6780029.

CLAIMS AGAINST AN ARCHITECT

Plaintiffs sued an architect for damages to their property as a result of the construction of houses on neighboring property. The houses on the neighboring property were designed by the architect. There was no contract between the plaintiffs and the architect. The court of appeal recognized the jurisprudence, which holds that a party without a contractual relationship with an architect does not have a contractual claim, but can sue an architect in tort provided he/she is able to establish a duty owed by the architect to him/her, and that the duty was breached. In this instance, the plaintiffs did not sue the architect in tort for a breach of duty, but only for alleged defective design, a contractual claim. The court held there was no duty owed by the architect to plaintiffs concerning the design of the neighboring property. As a result, the petition failed to state a cause of action against the architect, and the plaintiffs had no right of action against the architect. The trial court’s judgment granting the architect’s exception of no right of action was affirmed. Clark v. Chisesi, 2016-0599 (La.App. 4 Cir. 12/7/16), ______ So.3d ______, 2016 WL 7132164.

CONTRACTOR ENTITLED TO PAYMENT UNDER PUBLIC WORKS CONTRACT

Wallace Drennan, Inc. contracted with St. Charles Parish to replace existing metal culverts on Canal #10. Drennan contended it was not paid its ninth application for payment in the amount of $100,000.00, and filed a petition for writ of mandamus for the payment. St. Charles Parish argued a writ of mandamus was not an appropriate remedy, and claimed the application for payment was wholly offset by overpayments for prior applications. The trial court ordered payment to Drennan in the amount of $100,000.00, and awarded attorney fees to Drennan of $2,000.00. St. Charles Parish appealed, and Drennan sought an increase in the attorney fees award.

Generally, a writ of mandamus may be directed to a public officer to compel the performance of a ministerial duty required by law. A ministerial duty is a simple, definite duty arising under conditions admitted or proved to exist, and imposed by law. The critical element necessary for the issuance of a writ of mandamus is that the public official to whom the writ is directed may exercise no element of discretion when complying. If a public officer is vested with any element of discretion, mandamus will not lie.

These general rules are, however, modified by L.R.S. 38:2191 with respect to payments for public contracts. The statute provides that public entities failing to make any progressive stage payments within forty-five days following receipt of a certified request for payment by a public entity without reasonable cause shall be liable for reasonable attorney fees. Further, any public entity failing to make any final payments after formal final acceptance and within forty-five days following receipt of a clear lien certificate shall be liable for reasonable attorney fees. A public entity that fails to make progressive stage payments arbitrarily or without reasonable cause, or any final payment when due as provided, shall be subject to mandamus to compel the payment of the sums due under the contract up to the amount of the appropriation made for the award and execution of the contract, including any authorized change orders. The court of appeal found, in this case, reasonable cause for nonpayment did not exist, and no discretion was left to the Parish as to whether the full payment of the application was due and payable.

Payments in dispute did not relate to any charges within Drennan’s ninth application; rather, St. Charles Parish contested the billing of items in prior applications which were recommended for payment by the project engineer. According to the contract, absent written notice of a party’s intent to appeal from an engineer’s recommendation within ten days, the engineer’s written recommendations for payment included in payment applications became final and binding. The record was devoid of any timely written notice of the Parish’s dispute with line items charged by Drennan in its prior applications. Accordingly, the engineer’s recommendations as to payment for prior applications were final and binding on St. Charles Parish. Additionally, the engineer presented to the Parish a written recommendation of full payment for the ninth application, and there was no evidence in the record of a timely written objection from St. Charles Parish, rendering the engineer’s recommendation final and binding on all parties.

While the contract permitted the engineer to nullify payments previously recommended, the grounds for nullification relate to defective work within the application being nullified or to defective performance by the contractor of the work charged under the nullified obligation. Here, St. Charles Parish voiced no qualms with respect to the work invoiced by Drennan in its ninth application, and the engineer could not identify any defect in that work. The engineer was not, therefore, authorized to nullify his previous recommendation for full payment of the application. Further, there was no evidence in the record that St. Charles Parish gave Drennan or the engineer written notice of its entitlement to set-off claims resulting from erroneously paid items in prior payment applications as required by the contract. The court found, under the statute, the Parish had a ministerial duty to promptly pay the full amount of Drennan’s ninth payment application, and mandamus was an appropriate form of relief.

The court of appeal stated it did not opine by way of its decision on the merits of St. Charles Parish’s potential claims for set-off resulting from the allegedly erroneous payments to Drennan, which could encompass an entirely separate proceeding. The court of appeal stated that its decision with respect to the statute did not preclude a public entity from asserting potential set-off claims as reasonable cause for withholding payment on a public contract in every instance.

The court next addressed Drennan’s request for additional attorney fees incurred in answering and defending the appeal. The court of appeal found the appeal necessitated additional work for Drennan’s attorney, entitling Drennan to an increase in the award of reasonable attorney fees. An additional award of $2,500.00 was made. Wallace C. Drennan, Inc. v. St. Charles Parish, 16-177 (La.App. 5 Cir. 9/22/16), 202 So.3d 535.

PRIVATE WORKS ACT LIEN

225 Baronne Complex, LLC contracted with Roy Anderson Corp. to serve as the design-builder for the construction of apartments, a hotel and a parking garage. On October 23, 2015, 225 Baronne filed a notice of termination of the work, an acceptance, in the mortgage office in Orleans Parish. The acceptance stated the work was substantially complete. On December 18, 2015, Anderson signed a document entitled Confirmation of No Default by which, in consideration of and in exchange for a payment of $2,941,725.27 by 225 Baronne, it rescinded its prior notices and assertions of payment default against 225 Baronne for previously billed payment obligations. The payment was accepted with the express reservation of the parties’ rights and defenses regarding Anderson’s unsubmitted extra work claims, unbilled amounts and liquidated damages.

Anderson, on December 22, 2015 filed an affidavit of lien for material, labor, equipment and services in the amount of $15,401,300.00. The lien included an attached Out of Scope PCO Status Summary, which itemized the elements comprising the amounts allegedly owed. On December 28, 2015, 225 Baronne demanded that Anderson remove its lien. Anderson refused, and on January 12, 2016, 225 Baronne filed a petition to remove the lien in accordance with L.R.S. 9:4833. The trial court granted the petition of 225 Baronne, and ordered the Recorder of Mortgages to cancel the lien. Anderson appealed.

225 Baronne did not contest the timeliness of the lien, or its sufficiency, except the requirement of L.R.S. 9:4822(G)(4) that it set forth the amount and nature of the obligation giving rise to the claim or privilege and reasonably itemize the elements comprising it, including the person for whom or to whom the contract was performed, materials supplied or services rendered. The statute does not require that a claimant attach copies of unpaid invoices, unless a statement of claim or privilege specifically states they are attached. The court of appeal found the lien adequately placed the owner and third persons on notice, sufficiently specified the work and services rendered, and itemized the amounts owed that comprised the lien, and the lien met all of the procedural requirements to constitute a valid lien pursuant to the statute. It found 225 Baronne in objecting to various components thereof apparently accepted the adequacy of the lien and itemization.

The court of appeal next addressed the issue of whether 225 Baronne presented sufficient evidence to justify cancellation of the lien based on the proposition it lacked substantive validity. 225 Baronne contended the lien was unsupported since it contained unbilled and duplicate claims. The court of appeal found the Confirmation of No Default document conclusively rebutted the argument all sums claimed in the lien were not owed. Although it stated 225 Baronne was not in default of any previously billed statements, it also expressly reserved to Anderson rights and defenses regarding its unsubmitted extra work claims, unbilled amounts and liquidated damages.

Responding to 225 Baronne’s contention the lien was improper because it was recorded before certain expenditures had been billed or proven, the court of appeal found the Private Works Act did not require the sums encompassing the lien be invoiced or submitted beforehand in order to perfect a valid lien, and there was no legal support for the argument the validity of a lien results from whether the lien amounts have been billed or invoiced. The Confirmation of No Default placed 225 Baronne on notice that Anderson might make a claim for expenditures not already billed or submitted. In seeking a cancellation of a lien, the owner is required to prove it was filed without reasonable cause. Here, the dispute as to payments owed was merely an argument, and not supported by sworn testimony or evidence.

The judgment of the district court was reversed, and the lien reinstated. 225 Baronne Complex, LLC v. Roy Anderson Corp., 2016-0492 (La.App. 4 Cir. 12/14/16), 2016 WL 7238975.

TIMELINESS OF A CLAIM AND ARBITRATION

An issue can arise as to whether a claim subject to a contractual requirement for arbitration is time barred under principles of peremption or prescription. Who decides the issue, the court or the arbitrator? Two recent decisions hold that where the contract requiring arbitration does not contain a clear and unmistakable agreement to submit the issue of peremption to the arbitrator, the decision is made by the court. The Lemoine Company, LLC v. Durr Heavy Construction, LLC, 2015-1997 (La.App. 1 Cir. 10/31/16), 2016 WL 6426447; Boh Bros. Construction Co., LLC v. Cypress Bend Real Estate Development Company, LLC, 2015-1996 (La.App. 1 Cir. 10/31/16), 2016 WL 6426619.

“WORK” AS COVERED BY THE LOUISIANA PRIVATE WORKS ACT

The United States District Court for the Eastern District of Louisiana recently considered whether the temporary rental of removable grandstands for an event was a “work” which would allow application of the Louisiana Private Works Act (PWA). A “work” is defined as a single continuous project for the improvement, construction, erection, reconstruction, modification, repair, demolition or other physical change of an immovable or its component parts. L.R.S. 9:4808A. The court held that there was no evidence to suggest the temporary leasing of the grandstands constituted a “work” by itself, or was a part of a “work” as required by the PWA. Extending the reach of the PWA to include the temporary rental of removable grandstands for an event merely because the seating was subject to general permitting requirements and standards would be contrary to the plain language of the PWA. NUSSLI US, LLC v. NOLA Motorsports Host Committee, Inc., 15-2372 (E.D. La. 11/3/16), 2016 WL 6520139. See also NUSSLI US, LLC v. NOLA Motorsports Host Committee, Inc., 15-2167 (E.D. La. 12/27/16), 2016 WL 7441145.

 

ACCEPTANCE OF PORTIONS OF AN ENTIRE PROJECT CAN COMMENCE THE PEREMPTIVE PERIOD UNDER L.R.S. 9:2772

The Louisiana Fourth Circuit Court of Appeal held that under L.R.S. 9:2772 the acceptance of portions of an entire contract can commence the five-year peremptive period for filing lawsuits against contractors for defective construction work for the portions which are accepted. Thrasher Construction, Inc. v. Gibbs Residential, LLC, 2015-0607 (La.App. 4 Cir. 6/29/16), 197 So.3d 283, writ denied, 2016-1453 (La. 11/15/16), 2016 WL 6892891.

THIRD PARTY BENEFICIARY STATUS

DRC Emergency Services, LLC entered into a contract with the City of New Orleans to demolish several structures. During the work, a townhouse owned by Cora Williams which was not slated for demolition was demolished. The contract stated DRC would take necessary precautions to avoid damage to adjacent properties, and would repair any damage. Further, DRC would not be able to seek reimbursement from the City for property repairs. Williams claimed she was a third party beneficiary to the contract between the City and DRC. The court of appeal agreed and found Williams was a third party beneficiary to the contract. Williams v. City of New Orleans, 2015-0769 (La.App. 4 Cir. 4/20/16), 193 So.3d 259, writ denied, 2016-00953 (La. 9/6/16), 2016 WL 4991888.

ATTORNEY FEES NOT ALLOWED TO THE DEFENDANT UNDER LOUISIANA PROMPT PAY STATUTE

The United States Fifth Circuit Court of Appeals previously ruled that a general contractor had reasonable cause to withhold payment to a subcontractor, and the subcontractor was not, therefore, entitled to attorney fees under the Louisiana Prompt Pay Statute, L.R.S. 9:2784. Fisk Electric Company v. Woodrow Wilson Construction Company, Incorporated., 816 F.3d 311 (5th Cir. 2016). In considering whether the general contractor was entitled to attorney fees in defending the claim, the United States Magistrate Judge found, since the subcontractor prevailed in its claim before the District Judge, it could not be said that its claim under the statute was clearly without merit or was frivolous, and the general contractor was not, therefore, entitled to the payment of attorney fees. Fisk Electric Company v. Woodrow Wilson, 13-086 (E.D. La. 4/28/16), 2016 WL 4147639; report and recommendation adopted, 13-086 (E.D. La. 4/28/16), 2016 WL 4147639.

ENFORCEMENT OF A GUARANTEE AGREEMENT

A general contractor entered into a joint check agreement with a subcontractor and its material supplier. The agreement provided that the general contractor would make payments to the subcontractor and material supplier by joint check for the materials supplied for the project. It also provided that if the subcontractor’s account with the material supplier became past due to the extent that the material supplier could no longer extend credit to the subcontractor, the general contractor would make payments directly to the material supplier for all outstanding and unpaid invoices. When the president of the general contractor signed the agreement, he hand-wrote “NOT TO EXCEED $92,291″ at the bottom of the document. The document as signed on behalf of the general contractor was sent to the subcontractor and material supplier.

The subcontractor failed to pay the material supplier $129,770.83. The material supplier sued the general contractor for the balance due. The general contractor and the material supplier filed cross-motions for summary judgment. The district court held the general contractor limited its guarantee to $92,291. It granted judgment in favor of the material supplier in the amount of $71,939.00, which was the difference between $92,291 and $20,352, which was previously paid by the general contractor to the material supplier. The court of appeals affirmed the judgment of the trail court, limiting the general contractor’s total liability to $92,291.

The general contractor argued on appeal, that based on the language in the joint check agreement, it was only obligated to pay the material supplier if the subcontractor was past due to the extent it could no longer extend credit to the subcontractor, and there was no evidence in the record to establish that. The court of appeals held the general contractor did not raise that argument before the district court, and as a result, it was forfeited. It further held, however, the argument was unpersuasive as there appeared to be no genuine dispute that the subcontractor consistently failed to pay its debts, such that the material supplier could no longer extend credit on its behalf. Shelter Products, Incorporated v. American Construction Hotel Corporation, 655 Fed.Appx. 1012 (5th Cir. 2016).

INSURER’S DUTY TO DEFEND IN LONG LATENCY DISEASE CASES

The Louisiana Supreme Court recently held in considering the duty to defend in long latency disease cases that defense costs among various insurers are to be prorated on the basis of the time each insurer is on the risk. The time during which no policy is in effect would be allocated to the insured. Arceneaux v. Amstar Corp., 2015-0588 (La. 9/7/16), 200 So.3d 277.

CLAIM FOR BREACH OF CONTRACT VERSUS UNJUST ENRICHMENT

SPE, a general contractor, claimed it was entitled to recovery of payments from an owner under the Louisiana Private Works Act (LPWA) for breach of contract as an alternative to a claim for unjust enrichment. The court held the remedy of unjust enrichment is not available if the law provides another remedy. The issue was whether the claim could be one in contract.

A general contractor under the LPWA must have a contractual relationship with the property owner to recover under that law; an oral contract is sufficient. There was, apparently, no written contract, and the court found it could not determine, based on the evidence submitted, whether an oral agreement existed between the contractor and the owner. It could not, at that time, determine whether SPE had an available remedy under the LPWA, and did not dismiss the unjust enrichment claim on the basis a contract did not exist. Perez v. Utility Contractors, Inc., 15-4675 (E.D. La. 10/12/16), 2016 WL 5930877.

STIPULATED DAMAGES

The United States District Court for the Eastern District of Louisiana recently considered the issue of stipulated damages. It noted they replace the need for damages to be determined by the court. There is a presumption that a stipulated damages clause agreed to by the parties is reasonable. Parties may not avail themselves of a stipulated damages clause as a subterfuge to allow either one or both of them the recovery of damages that are punitive rather than compensatory. Courts may modify stipulated damages if they are so manifestly unreasonable as to be contrary to public policy. The court should inquire as to whether the parties attempted to approximate the actual damages in confecting the agreement. A stipulated damages provision may be enforceable even if no actual damages are proved. What matters is that the stipulated damages were a reasonable approximation of the foreseeable damages that a failure to perform by one party would cause to the other party. While selecting a liquidated damages amount that a party believes will act as a deterrent is permissible, parties may never use a liquidated damages provision as a vehicle to recover punitive, as opposed to compensatory, damages.

The court denied a motion for summary judgment to enforce liquidated damages, finding it was uncertain at that stage of the proceedings whether the stipulated liquidated damages were adequately tied to the amount of compensatory damages that were reasonably anticipated in the event of a breach. The court also held that if the provision of the agreement which was alleged to have been violated triggering stipulated damages, but stipulated liquidated damages were unenforceable as contrary to public policy, the alleged injured party may still recover actual damages incurred as a result of a breach of the provision. Utility Constructors, Inc. v. Lynn Perkins Perez, 15-4675 (E.D. La. 10/5/16), 2016 WL 5801363.

SUBCONTRACTOR’S BOND FOR A PUBLIC WORKS PROJECT FOUND TO BE A CONVENTIONAL BOND

Casey Civil, LLC subcontracted with MAPP Construction, LLC to perform certain work in connection with a public works contract between the Law Enforcement District of Jefferson Parish and MAPP. Casey provided a surety bond issued by Travelers Casualty and Surety Company. The issue was whether the surety bond was a statutory bond subject to a five-year peremptive period, or a conventional bond subject to a one-year prescriptive period as provided by the bond. Disagreeing with the Louisiana Fourth Circuit Court of Appeal, and agreeing with the Federal Fifth Circuit Court of Appeals, the Louisiana Fifth Circuit Court of Appeal held the requirement for a statutory bond of the Public Works Act applies only to contracts between the public agency and the party with whom it contracts, i.e., the general contractor, and not contracts between the general contractor and a subcontractor. Accordingly, the bond at issue was found to be a conventional bond subject to the prescriptive period set forth in the bond itself, and not the five-year peremptive period. Law Enforcement District of Jefferson Parish v. MAPP Construction, LLC, 16-220 (La.App. 5 Cir. 6/30/16), 196 So.3d 896.

WAIVER OF RIGHT TO ARBITRATION

Citing a significant history of defendants’ participation in a lawsuit without mentioning arbitration, thus evincing an intent to litigate the dispute, and the prejudice the plaintiff would have suffered as a result of incurring substantial legal fees, costs and delay if arbitration was later required, the United States Court of Appeals for the Fifth Circuit held that the defendants, even assuming they could properly assert any right to arbitration earlier, waived their right to do so. The court reviewed the law concerning waiver of a right to arbitration, stating that a party seeking arbitration may waive it by substantially invoking the judicial process to the detriment or prejudice of the other party. A party substantially invokes the judicial process by engaging in some overt act in court that evinces a desire to resolve the dispute through litigation rather than arbitration. Prejudice in the context of arbitration waiver refers to delay, expense, and damage to a party’s legal position. Failing to demand arbitration and instead engaging in pre-trial activity inconsistent with an intent to arbitrate allows the party opposing arbitration to more easily show prejudice. Precision Builders, Incorporated v. Olympic Group, LLC, 642 Fed.Appx. 395 (5th Cir. 2016).

PRIVATE WORKS ACT LIEN AGAINST A SUBSEQUENT OWNER DENIED

A subcontractor filed a lien against an owner and a general contractor with respect to a residential construction project claiming it had not been fully paid for its work. Prior to filing the lien, the property was sold. The new owners were not named in the lien. The subcontractor filed a petition to enforce the lien against the prior owner, the general contractor and the new owners. The new owners filed a peremptory exception of no cause of action. The subcontractor filed a motion for summary judgment against the new owners. The trial court granted partial summary judgment in favor of the subcontractor. The new owners appealed.

The lien was filed pursuant to L.R.S. 9:4802, which grants to subcontractors and certain others a claim against an owner and a claim against a contractor to secure payment of obligations. Claims against the owner are secured by a privilege on the immovable on which the work is performed. Under L.R.S. 9:4806(B), claims against an owner, for present purposes, are limited to an owner or owners who have contracted with the contractor. The court of appeal held there was no evidence tending to prove the new owners contracted with the contractor, and there was, therefore, no legal basis to assess liability against the new owners under the Private Works Act. It was error for the lower court to grant summary judgment against the new owners. Solid Rock Tecnologies, LLC v. Joseph, 2015-1290 (La.App. 1 Cir. 2/24/16), 190 So.3d 337.

THIRD PARTY BENEFICIARY STATUS

In considering whether a third party beneficiary relationship existed, the United States District Court for the Eastern District of Louisiana found that even though a property owner might have an interest in a contract between a contractor and subcontractor, the property owner does not have a right of action arising from the subcontract agreement as a third party beneficiary. Kostmayer Construction, LLC v. California First National Bank, 16-2549 (E.D. La. 10/5/16), 2016 WL 5803061.


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