Baldwin Haspel Burke & Mayer LLC

Construction Law Update – January 2019

John Stewart, Jr. - 

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 2019 Construction Law Update by clicking here.

OSHA CITATION TO A GENERAL CONTRACTOR, WHICH CONTROLS A HAZARDOUS CONDITION EVEN IF THE CONDITION DOES NOT AFFECT ITS EMPLOYEES, UPHELD

The United States Fifth Circuit Court of Appeals reexamined its longstanding precedent that OSHA regulations protect only an employer’s own employees. The court held the Secretary of Labor has the authority to issue a citation for a safety violation to a general contractor at a multi-employer construction work site which controls a hazardous condition at that site, even if the condition affects another employer’s employees. Acosta v. Hensel Phelps Construction Company, 909 F.3d 723, (5 Cir. 2018).

L.R.S. 9:2772 APPLIES TO REPAIR WORK

In affirming the district court, the United States Court of Appeals, Fifth Circuit, held that work performed to repair defective construction was part of the project for the original work, and the claims as to the repair work, as well as the original work, were perempted. If they were not considered one project, then the repairs would not have been perempted. Koerner v. CMR Construction & Roofing, LLC, 910 F.3d 221, (5th Cir. 2018).

STATUTE OF LIMITATIONS FOR UNFAIR TRADE PRACTICES CLAIMS

The Louisiana Unfair Trade Practices Act provided for a one-year statute of limitation for private actions brought under the Act. That period of limitation was considered peremptive even though the statute said it was prescriptive. The Louisiana legislature during its 2018 session amended the statute to provide that such actions shall be subject to a “liberative prescription” of one year.

The Louisiana Third Circuit Court of Appeal concluded the change in the law resulted in the statute of limitation being prescriptive rather than preemptive, and was interpretive rather than establishing new rights, and could, therefore, be applied to facts occurring prior to its promulgation. Interpretive legislation does not create new rules, but merely establishes the meaning that the statute had from the time of its enactment. In the matter before the court, the statute was held to be prescriptive rather than preemptive, despite the fact the lawsuit was filed before the revised statute was enacted. The Congregation of the Immaculate Conception Roman Catholic Church of the Parish of Calcasieu v. Sam Istre Construction, Inc., 2017-1186, (La.App. 3 Cir. 8/8/18), 253 So.3d 196.

PUBLIC BODY LACKED AUTHORITY TO RE-BID A CONTRACT AND ATTORNEY FEES

The Louisiana Fourth Circuit Court of Appeal found a public body under the Public Bid Law lacked authority to re-bid a contract after the court had already invalidated the proposal of the apparent low bidder. The contract, which was entered into by the public body with that bidder, was an absolute nullity, and had no legal effect. The public body had a ministerial duty to award the contract to the party deemed to be the actual lowest, responsible and responsive bidder, and lacked discretion to do otherwise. The district court did not abuse its discretion in issuing a writ of mandamus compelling the award of the contract to that party.

The Public Bid Law, L.R.S. 38:2220.4(B)(1) mandates an award of reasonable attorney fees to a plaintiff who successfully proves a violation of that law. The public body contested the award of attorney fees, arguing the second low bidder did not comply with the procedural requirements of the law because it initiated its lawsuit prior to the lapse of thirty days from the date of its notice to the Attorney General. The court of appeal held that was not dispositive as to whether the second low bidder provided the proper notice. Instead, it went to the issue of whether the lawsuit was prematurely filed. Here, the public body did not raise any objection to the prematurity of the lawsuit in the district court or at any time before the district court awarded attorney fees. Consequently, it waived any right to challenge the validity of the attorney fee award on the grounds of prematurity. Ryan Gootee General Contractors, LLC v. Plaquemines Parish School Board, 2018-0276 (La.App. 4 Cir. 11/7/18), ____ So.3d _____, 2018 WL 5830407.

AUTHORITY OF PERSON SIGNING A PUBLIC BID

A contractor submitting a public bid is required to provide at the time of bidding written evidence of the authority of the person signing the bid. L.R.S. 38:2212(B)(5) provides three alternative methods for satisfying the requirement. In the matter before the court, the instructions to bidders provided only two alternatives, which the court found were more restrictive than those provided for in the statute, and the governing authority was bound by the more restrictive means set forth in the instructions. All contractors were required to comply with the instructions to bidders.

The court found a bidder did not comply with the alternatives stated in the instructions to bidders, and any contract awarded to it by the public authority was an absolute nullity. LeBlanc Marine, L.L.C. v. State of Louisiana, Division of Administration, Office of Facility Planning and Control, 2018-0434 (La.App. 1 Cir. 10/17/18), 2018 WL 5023574.

CLAIM BY A MATERIAL SUPPLIER TO A SUBCONTRACTOR ON A PUBLIC WORKS PROJECT

A material supplier to a subcontractor on a public works project sought to recover payments due to the supplier from the general contractor and surety. A significant issue was whether proper notice had been given to the general contractor. The Louisiana First Circuit Court of Appeal discussed at length somewhat conflicting provisions of L.R.S. 38:2242 and 38:2247. It concluded the material supplier did not comply with the notice requirements of L.R.S. 38:2242F. The statute requires that a claimant who has a direct contractual relationship with a subcontractor, but no contractual relationship with the general contractor, must provide written notice of nonpayment to the general contractor by certified mail on or before 75 days from the last day of the month in which the material was delivered, otherwise, it loses its right to file a privilege or lien. It was undisputed the material supplier did not comply with that requirement. The court concluded the material supplier, although it lost its right to file a claim for the unexpended funds in the possession of the public body, did not lose its right of action against the general contractor and the surety. Woodrow Wilson Construction, LLC v. Amtek of Louisiana, Inc., 2017-1156 (La.App. 1 Cir. 8/6/18), 256 So.3d 305.

CLAIM FOR BREACH OF WARRANTIES AND LIABILITY FOR PLANS AND SPECIFICATIONS

The City of Baton Rouge/Parish of East Baton Rouge contracted with S.J. Louis Construction of Texas, Ltd. for two sewer projects built for the Sanitary Sewer Outfall Program, which was mandated as a result of a Consent Decree among the United States Department of Environmental Protection, the State of Louisiana and the City of Baton Rouge. Louis sued the City/Parish contending it caused delays, interferences, disruptions and other events beyond Louis’ control and prevented Louis from meeting either of the baseline scheduled completion dates for the projects. The City/Parish asserted counterclaims against Louis contending Louis caused the majority of the delays, disruptions and interferences, and materially changed its work in contradiction to the City/Parish’s design plans, specifications and/or drawings without notifying the City/Parish. The City/Parish moved for partial summary judgment on Louis’ breach of warranties claims and the City/Parish’s affirmative defenses that it made no such warranties.

With respect to Louis’ breach of warranties claims, the court relied upon the Spearin doctrine established by the United States Supreme Court in 1918 in U.S. v. Spearin. The doctrine was adopted by the Louisiana Supreme Court in 1924 in Louisiana Shipbuilding Co. v. Bing Dampskibsaktieselskab. The court held that under the Spearin doctrine, if the contractor is bound to build according to plans and specifications prepared by the owner, the contractor will not be responsible for the consequences of defects in the plans and specifications. This responsibility of the owner is not overcome by the usual clauses requiring builders to visit the site, to check the plans and to inform themselves of the requirements of the work. Considering the nature of Louis’ claim for warranties, which concerned the accuracy of the City/Parish’s plans and specifications by which Louis was bound, the court held the claims fell within the purview of the Spearin doctrine, as opposed to a general rule established by the Louisiana Supreme Court in 1949 in Brasher v. City of Alexandria. The Brasher rule holds that if destruction of the work during the course of construction is caused by defective, inadequate or insufficient plans and specifications furnished by the owner, the contractor is nevertheless liable. There is an exception to the Brasher rule, where the owner expressly or impliedly warrants the sufficiency of the plans furnished to the contractor.

Interestingly, there was no discussion of L.R.S. 9:2771, which provides that a contractor shall not be liable for destruction or deterioration of or defects in any work constructed, or under construction, by him if he constructed or is constructing the work according to plans or specifications furnished to him which he did not make or cause to be made, and if the destruction, deterioration or defect was due to any fault or insufficiency of the plans or specifications.

Louis claimed it was entitled to recover for additional and extra work attributed to owner-directed changes, delay and disruption and changed conditions. The court held Louisiana law allows for the recovery of such damages if they can be proven. The court held that if Louis successfully proves that the City/Parish failed to provide definite and accurate plans and specifications it would be liable to Louis for additional costs as a result of that failure. To the extent Louis can establish that it incurred any damages due to any delays in performing its work, and the delays were caused in whole or in part by the City/Parish, then Louis was entitled to recover those damages. S.J. Louis Construction of Texas, Ltd. v. City of Baton Rouge and Parish of East Baton Rouge, 14-00566 (M.D. La. 6/26/18), 2018 WL 3132608.

EXPERT TESTIMONY NOT REQUIRED FOR PURPOSES OF STANDARD OF CARE

In considering whether expert testimony was required to prove the standard of care of an engineer, the Louisiana Court of Appeal for the Fourth Circuit relied upon the rule that expert testimony is not required when the negligence complained of is so obvious that a layperson can infer it without the guidance of expert testimony; it is not required for common sense infractions. In relying upon that rule, the Fourth Circuit held that alleged negligence of an engineer in communications with two contractors concerning a bid proposal did not require expert testimony. Alfred Conhagen, Inc. of Louisiana v. Ruhrpumpen, Inc., 2018-0414 (La.App. 4 Cir. 12/19/18), 2018 WL 6683229.

FAILURE TO COMPLY WITH CONTRACT DISPUTE RESOLUTION PROCEDURE

A surety took over a project, and claimed that its principal had validly requested time extensions, which, if granted, would have entitled the surety to a reduction in liquidated damages under the principal’s contract. The surety sued the owner for recovery of the amount it claimed was improperly withheld. The owner contended the surety failed to institute the dispute resolution procedures set forth in the contract which required that a claim for payment be first sent to the initial decision maker, the architect. The surety argued its demand for mediation sent to the owner satisfied the requirement.

The court disagreed with the surety, and held it failed to comply with the dispute resolution process. It stayed the court proceeding pending completion of the contractual dispute resolution proceedings. Fidelity and Deposit Co. of Maryland v. Audubon Commission, 17-964 (E.D. La. 2/8/18), 2018 WL 3146726.

PEREMPTION

The Louisiana First Circuit Court of Appeal held that a warranty obligation of a contractor set forth in its contract was not enforceable as an extension of the peremptive period of L.R.S. 9:2772. The extension equated to a limited renunciation of the peremptive period. Further, the allegations in the petition against the contractor were insufficient to establish the commencement date of the peremptive period, and without evidence to otherwise establish the date for commencement, the contractor failed to carry his burden of proof in arguing the claims against it were perempted. KB Home/Shaw Louisiana, LLC and KB Home New Orleans, Inc. v. Vinson Enterprises, LLC of Florida, 2017-1321 (La.App. 1 Cir. 12/6/18), 2018 WL 6381910.

THE LOUISIANA CONSTRUCTION ANTI-INDEMNITY ACT, ADDITIONAL INSURED COVERAGE AND OTHER CONSIDERATIONS

Steven Moore was electrocuted by a power line owned by Entergy Louisiana, LLC. The injury occurred while Moore was delivering and unloading supplies for a Home Depot project in Baton Rouge. Home Depot USA, Inc. contracted with Commercial Coolants, Inc. to perform the work. Home Depot and Commercial Coolants entered into a Master Services Agreement (MSA) in August 2010. A work order was issued in 2015. Depositors Insurance Company was the commercial general liability insurer for Commercial Coolants. Moore sued Home Depot and others for his injuries.

The MSA required that Commercial Coolants indemnify, defend and hold harmless Home Depot, and that Commercial Coolants obtain insurance naming Home Depot as an additional insured under its commercial general liability insurance policy. Home Depot contended it was entitled to coverage and defense under the Depositors policy. Depositors argued otherwise. Both parties filed cross motions for summary judgment.

The court first considered whether the claims against Depositors were prohibited by the Louisiana Construction Anti-Indemnity Act, L.R.S. 9:2780.1. The Louisiana Construction Anti-Indemnity Act does not apply to prohibited clauses in construction contracts confected before January 1, 2011. The MSA was entered into in August 2010. The court distinguished between the date of the MSA and the date of the work order for the project which was issued in 2015. Although the MSA does not provide for specific work or services to be performed, and the 2015 work order, not the 2010 MSA, created Commercial Coolants’ obligation to perform the work, that did not mean that the date of the work order controlled.

The court held that if the Louisiana Legislature wanted work orders issued after a master service agreement to dictate whether indemnity and insurance procurement obligations created by a master service agreement are subject to the Construction Anti-Indemnity Act, it would have included that language in the Act as it did in the Oilfield Anti-Indemnity Act, L.R.S. 9:2780. It did not, and as a result, the court held the MSA contracting date, 2010, controlled, and the 2015 work order was incorporated in and subject to the MSA. Because the parties confected the MSA in 2010, and the Construction Anti-Indemnity Act did not apply to prohibited clauses in construction contracts confected before January 1, 2011, the Act did not apply to the indemnity and insurance procurement provisions in the MSA. The court, therefore, rejected the argument of Depositors and its motion for summary judgment to the extent they sought dismissal of the Home Depot claims under the Construction Anti-Indemnity Act.

Next, the court considered whether the additional insured endorsement limited coverage to Home Depot’s vicarious liability for the fault of Commercial Coolants. Depositors argued that its coverage under the endorsement was only for vicarious liability. Depositors contended that because Home Depot could not be vicariously liable for the fault of Commercial Coolants, its additional insured endorsement did not cover the claims against Home Depot.

The endorsement stated that a person or organization is an additional insured only with respect to liability for bodily injury or property damage caused, in whole or in part, by Commercial Coolants’ work for the additional insured, i.e., Home Depot. The court held that nothing in the text of the additional insured endorsement limits coverage to Home Depot’s vicarious liability for the fault of Commercial Coolants, and if Depositors intended to limit coverage to vicarious liability, it could have used language reflecting that intent. Further, the argument of Depositors clashed with the language of the endorsement which stated the coverage was for bodily injury or property damage caused “in whole or in part” by the work of Commercial Coolants for Home Depot. Vicarious liability, the court held, was an all or nothing proposition. Home Depot could not have partial vicarious liability for the work of Commercial Coolants. According to the court, the better reading of the additional insured endorsement was that it extended additional insured coverage to Home Depot for Home Depot’s alleged liability for bodily injury or property damage caused, in part, by Commercial Coolant’s work for Home Depot under the MSA. The court, accordingly, rejected the insurer’s interpretation of the endorsement, and denied its motion for summary judgment in that respect. Home Depot was an additional insured under the policy.

Finally, the court considered whether Depositors was required to defend Home Depot under the endorsement. It found since the claims asserted against Home Depot did not, at the time Home Depot was sued, allege that Home Depot was liable for injury caused in whole or in part by Commercial Coolants’ fault, as was required to trigger additional insured coverage, Home Depot was not entitled to a defense at the time it requested the defense in December 2016. The duty to defend Home Depot did not arise until about three months later, when Entergy filed an amended third party demand alleging that the negligence of Commercial Coolants caused Moore’s injuries. Until that time, no party had filed a pleading alleging that Home Depot was liable for bodily injury or property damage caused in part by Commercial Coolants under the MSA. Home Depot was not entitled to defense costs until the date of the demand asserting a covered claim against Home Depot. Moore v. Home Depot USA, Inc., _____ F.Supp.3d _____ (M.D. La. 2018), 2018 WL 4976811.

ENFORCEMENT OF JUDGMENT AGAINST A PUBLIC ENTITY

The federal district court for the Eastern District of Louisiana in a contract dispute issued a judgment in the favor of a takeover surety against an owner awarding $437,851.00, plus costs and reasonable attorney fees. The owner, HANO, filed a motion to stay the proceedings without posting a supersedeas bond pending resolution of its appeal of the attorney fees award. The court denied the motion because HANO had not satisfied its burden of demonstrating that the surety’s award for damages and fees was adequately secured. The court noted that it could grant a stay without bond if HANO could demonstrate it would be willing and able to satisfy the judgment upon resolution of the appeal. The surety then filed a petition for a writ of execution seeking an order commanding the United States Marshal to seize the non-exempt portion of the property of HANO sufficient to satisfy the amount of the judgment. HANO opposed the petition.

HANO argued a writ of execution could not be issued since the Louisiana Constitution provides that funds are to be appropriated by the state legislature or by the subdivision of the state that is the judgment debtor, and explicitly prohibits seizure of public property. Neither HANO nor the state legislature appropriated funds. The court held there was an exception to the general rule against seizure of public property when there is a federal interest in the remedy. If there is a federal interest, the federal courts may trump a state’s anti-seizure provision and enforce a money judgment against a public entity. Since this was a diversity action, no federal interest was immediately apparent. Nevertheless, a federal interest may develop if a subdivision of the state proves sufficiently resistant to paying a judgment. A sufficient federal interest in the remedy has been found when the governmental entity’s behavior indicates an obstinance to ever satisfying the judgment. The court held execution may not proceed until HANO has demonstrated behavior that reaches the level of recalcitrance.

The underlying judgment was on appeal. The court found the best option was to preserve the status quo by directing HANO to purchase a supersedeas bond, in state law called a suspensive appeal bond. The court found this action was appropriate given the particular facts of the case. HANO is unlike most state entities in that it is not funded by the State of Louisiana, but by the federal government. This extension of control by the federal government through exclusive funding is significant because it potentially gives rise to a federal interest independent to the court’s interest in enforcing its judgment. Also, the court’s decision to direct payment by HANO to secure a judgment regarding a building contract for public works is directly in line with the intentions of the Louisiana legislature. According to Louisiana law, all public entities shall promptly pay all obligations arising under public contracts when the obligations become due and payable under the contract. Additionally, HANO agreed that the contract balance had been dedicated to Liberty for use in completion of the project, without offset for any claim by HANO arising from the contractor’s work.

By ordering HANO to secure a supersedeas bond, the court fulfilled the federal interest in having the court’s judgment enforced, and also the state legislature’s interest in having HANO take a step toward satisfying its contract debts. Parkcrest Builders, LLC v. Housing Authority of New Orleans, 15-1533 (E.D. La. 11/30/18), 2018 WL 6267285.

LIABILITY FOR FUTURE DAMAGES AND NUISANCE

In a lawsuit involving claims for damages caused to property resulting from the elevation of adjacent property, the Louisiana Fourth Circuit Court of Appeal, disagreeing with the contention that a former property owner cannot be held liable for continuing damages, found a person legally liable for a nuisance is the person actually responsible for the existence of the condition, including the person who creates the nuisance and the person who participates in the active continuance thereof. The court rejected a distinction between a nuisance claim and a tort claim. Wattigny v. Hoskin Homes, L.L.C., 2018-0297 (La.App. 4 Cir. 11/14/18), _____ So.3d ____, 2018 WL 5985478.

AWARD OF ATTORNEY FEES

In considering the award of attorney fees with respect to a Miller Act claim, the United States Fifth Circuit Court of Appeals recognized that attorney fees cannot be awarded in Miller Act claims absent an enforceable contract provision or evidence of bad faith. Although under Louisiana law, attorney fee awards are allowed when authorized by statute or contract, a court in its sound discretion may decline to award fees authorized by a contractual provision when it believes that such an award would be inequitable and unreasonable. Fisk Electric Company v. DQSI, LLC, 740 Fed.Appx. 399 (5th Cir. 2018).

OVERHEAD POWER LINE SAFETY ACT

The United District Court for the Middle District of Louisiana held the Overhead Power Line Safety Act, L.R.S. 45:144, did not create a cause of action for indemnity in favor of a construction project management company and a contractor against a personal injury plaintiff. The Act only grants owners or operators of high voltage overhead lines the right to sue. Since neither the project management company nor the contractor was the owner or operator of the high voltage line at issue, they could not claim statutory indemnity under the Act. Steven Moore v. Home Depot USA, Inc., 16-00810 (M.D. La. 11/9/18), 2018 WL 5904494.

ENFORCEMENT OF ARBITRATION PROVISION

An architect was sued for design deficiencies and filed a third party demand against an engineer with whom it had contracted. Despite the argument that the enforcement of an arbitration provision in the contract with the engineer would result in prejudice to the architect in requiring the architect to litigate claims with others while arbitrating its claim for indemnity against the engineer, the United States District Court for the Eastern District of Louisiana held the purpose of the Federal Arbitration Act was to enforce private arbitration agreements even if the result is piecemeal litigation, absent a countervailing policy manifested in another federal statute. Permitting a claim for indemnity to go forward in arbitration which would produce duplication of effort, redundant testimony and a possibility of inconsistent findings are risks the parties to an arbitration clause must be considered to have contemplated at the time they struck their bargain. The court found no legal constraints external to the parties’ agreement which would foreclose arbitration of the claims. The court did, however, stay litigation of the third party demand against the engineer in the lawsuit pending the outcome of the arbitration. Cotton Exchange Investment v. Xcel Air Conditioning Services, Inc., 16-17543 (E.D. La. 11/8/18), 2018 WL 5849736.

FORUM SELECTION CLAUSE UPHELD

Cajun Constructors, Inc. sued Gar-Tex Construction Co. in the 19th Judicial District Court for the Parish of East Baton Rouge, State of Louisiana. Gar-Tex removed the lawsuit to the United States District Court for the Middle District of Louisiana based on diversity of citizenship. Cajun is incorporated in Louisiana, and Gar-Tex in Texas. Gar-Tex was hired by Cajun as a subcontractor for a public project in Texas.

Cajun filed a motion to remand the matter to state court on the ground the parties contractually agreed in a forum selection clause in the subcontract to resolve all disputes relative to the subcontract in the 19th Judicial District Court. The clause provided that all terms and provisions of the agreement would be governed by and interpreted in accordance with the laws of the State of Louisiana, and any action arising out of the contract must be brought in the 19th Judicial District Court. Further, Gar-Tex waived all jurisdiction and venue objections to litigation in Louisiana. Gar-Tex opposed the motion to remand and moved that the matter be transferred to the United States District Court for the Northern District of Texas contending the forum selection clause in question was unenforceable because it violated Louisiana public policy and Texas law regarding the appropriate venue for disputes over contracts involving governmental projects, or alternatively, even if the clause is unenforceable, it was not mandatory and did not foreclose removal of the case to federal court or litigation in another court besides the 19th Judicial District Court. A magistrate judge for the federal district court considered the arguments.

The magistrate judge found that whether or not the forum selection clause at issue violated Texas law was irrelevant as the court was only required to examine whether the clause’s enforcement would contravene a strong public policy of the state in which a suit is brought, here Louisiana, when determining whether a forum selection clause was enforceable. Thus, the proper inquiry for the court was whether Louisiana public policy, not Texas law or policy, was violated by the forum selection clause.

L.R.S. 9:2779 declares null and void and unenforceable as against public policy any contractual provision which requires suit to be brought in a forum or jurisdiction outside of Louisiana where the work is performed in Louisiana and one of the parties is domiciled in that state. The court found the statute does not, however, make a general policy statement covering situations like the present case where the work occurred in another state. Louisiana does not have a public policy about what state’s law should apply in that instance. The court stated that it would not infer from L.R.S. 9:2779 that the legislature considered null and void any forum selection clause requiring application of Louisiana law in litigation in Louisiana where the work was performed in another state and one of the parties is domiciled in another state.

Gar-Tex contended that even if the forum selection clause at issue did not contravene the law or public policy of the forum state, the clause was only permissive, rather than mandatory. The court held the clause was mandatory, and Gar-Tex’s interpretation of the forum selection clause at issue as permissive would render the clause meaningless and should be rejected. Had the parties intended the clause to be only permissive, they easily could have used appropriate language.

The court next considered Gar-Tex’s motion to transfer venue to another federal forum. It held that considering the forum selection clause was mandatory, and required that the matter be litigated in a particular state court, Gar-Tex’s motion to transfer venue lacked merit. The magistrate judge recommended to the district court that the matter be remanded to the 19th Judicial District Court. The recommendation was approved by the district judge. Cajun Constructors, Inc. v. Gar-Tex Construction Co., 07-171 (M.D. La. 6/26/07), 2007 WL 9706650.

REDHIBITION CLAIMS AND THE NEW HOME WARRANTY ACT AND LIABILITY FOR DEFECTIVE DESIGN

Kelly and Michael Wood constructed a residential double which was designed by Mr. Wood, a naval architect and marine engineer. The Woods rented the property before selling it to Roger Williams. Williams noticed vibrations and other signs of structural problems, and sued the Woods for redhibition, breach of contract, breach of duty and negligence. Specifically, the petition alleged a claim against the Woods in redhibition and individually against Mr. Wood for professional negligence as the engineer responsible for the design. The Woods filed an exception of no cause of action contending Williams’ exclusive remedy was under the New Home Warranty Act, and not in redhibition. They also filed an exception of no cause of action arguing the petition failed to state a cause of action against Mr. Wood for professional negligence. The trial court granted the exceptions and dismissed the action with prejudice. Williams appealed.

Williams argued the New Home Warranty Act only applied to new homes, and the home he purchased was not new since it was occupied as a rental before it was purchased. The court of appeal found the property was purchased while some of the periods of the New Home Warranty Act were still in effect, and the Act applied and precluded the redhibition claim.

Mr. Wood did not have a contract with Williams for the design and construction of the house. Absent privity of contract, a cause of action could not be asserted for a breach of contract claim, but this did not preclude asserting a claim for damages based in tort. Relying upon an earlier decision, which held where the damage sued for was not for the defective work, but is instead damage caused by the defective work, a tort action is proper when the elements for delictual recovery are present. Here, the court of appeal found the petition stated at least one discernable element of damage that was caused by the defective design, which could be reasonably interpreted to state a cause of action for professional negligence as it related to damage caused by that design. The court of appeal held the petition, thus, stated a cause of action for professional negligence against Mr. Wood. Williams v. Wood, 2017-1049 (La.App. 4 Cir. 10/31/18), _____ So.3d _____, 2018 WL 5659766.

ENFORCEMENT OF AN ARBITRATION CLAUSE

An architect was sued by an owner for design deficiencies and demanded arbitration according to the terms of its contract. One of the issues was whether the contract was valid. The owner contended the contract was not valid since it did not specify a certain object. An obligatory relationship of a contract is not formed when the object of the obligation is not determined. The contract, the court held, sufficiently identified the object of the contract in question. The nature of the object was not indefinite. The owner knew, based upon the contract, precisely what type of thing it could demand from the architect, and there was nothing indefinite as to the quantity of the object and the scope and size of the project. Although the contract stated the development was to be located in Baton Rouge, the precise location of the development at issue was not stated in the contract. A specific physical address for the property likely was not known at the time the contract was drafted.

The owner contended the individual who executed the contract on its behalf had no actual or apparent authority to bind the owner. The court found the owner through its conduct and negotiations in both the present and prior projects involving the architect manifested to the architect that the individual who signed it had the authority to act on its behalf, and the architect reasonably relied upon that manifested authority in connection with the project. Evidence presented by the architect indicated that all contracts and communications regarding the project were carried out by the individual who signed it, and not the owner. The individual who signed the contract brought the project to the architect’s attention, asked if he was interested in rendering architectural services, negotiated the terms and fees for the project and was present as the construction manager. The court found it was reasonable for the architect to believe the individual who signed the contract was acting as the agent for the owner.

The individual who signed the contract for the owner argued he did not actually sign it. The court found that the architect sufficiently carried his burden of proving the individual did sign the contract. A handwriting analysis showed there was a strong probability that it was virtually certain the individual signed the document in question. The owner did not provide any contrary expert testimony.

Accordingly, the court concluded the individual who signed the contract was the apparent agent of the owner, and the contract was therefore binding upon the owner requiring arbitration. The magistrate judge who considered the issues recommended to the district judge that the owner be directed to arbitrate the claims against the architect. The recommendation was approved. Executive Affiliates, Inc. v. Pucciano & English, Inc., 07-186 (M.D. La. 3/10/08), 2008 WL 11411552.

FEDERAL PROMPT PAY ACT

The United States District Court for the Eastern District of Louisiana ruled the federal Prompt Pay Act, 31 U.S.C. §§ 3901, et seq., does not encompass claims between contractors. A subcontractor could not, accordingly, bring a claim against its prime contractor under the Act. The subcontractor could, however, bring claims for breach of contract and violation of a state prompt pay law. Max Foote Construction Company, L.L.C. v. MWH Constructors, Inc., 18-2584 (E.D. La. 10/25/18), 2018 WL 5297744.

PRESCRIPTION NOT INTERRUPTED

A personal injury claimant in two amended petitions for damages sued two contractors. The original defendants were granted summary judgment finding no liability existed on their part. The two contractors, the only remaining defendants, filed a joint exception of prescription. The trial court sustained the exception and dismissed the claims against the contractors. The plaintiff appealed.

Because no liability existed on the part of the timely sued defendants who were granted summary judgment finding they were not liable, there could be no joint or solidary obligation existing between them and the two contractors, and prescription was not interrupted. The plaintiff contended prescription was interrupted under the doctrine of contra non valentem arguing the discovery rule of the doctrine applied. The rule prevents the running of prescription where the cause of action is not known or reasonably knowable by the plaintiff. Prescription begins to run when a plaintiff obtains actual or constructive knowledge of facts indicating to a reasonable person that he is the victim of a tort. Constructive knowledge is whatever notice is enough to excite attention and put the injured party on guard and call for inquiry.

The plaintiff claimed she attempted to obtain the identities of the contractors from the public authority which contracted for the work, but the public authority prevented her from timely discovering the information. The court of appeal held plaintiff failed to produce details or evidence in support of her argument. She failed to include any discovery that was sent to the public authority or other defendants, and did not document when she requested the information. She also failed to produce any discovery responses or communication from the public authority to evidence the fact that they could and would not produce the names of the contractors. The court found the plaintiff failed to show that she exercised reasonable diligence in naming the proper party defendants. Prescription was not suspended by the doctrine of contra non valentem. The judgment of the trial court was affirmed. Blanchard v. Gerry’s Place, Inc., 18-106 (La.App. 5 Cir. 10/17/18), 2018 WL 5020747.

AUTHORITY OF AN ARBITRATOR TO DISMISS CLAIMS BASED ON SETTLEMENT

A general contractor brought an arbitration proceeding against a subcontractor and the subcontractor’s surety. The general contractor reached a settlement with the subcontractor’s surety. The arbitrator dismissed the arbitration proceeding, finding the settlement agreement disposed of all claims between the parties, including those of the subcontractor, which were made in a separate proceeding in state court. The general contractor moved in state court to confirm the arbitration award and to dismiss the subcontractor’s claims pending there. The state court granted the motion of the general contractor.

The Louisiana Fourth Circuit Court of Appeal found the arbitration agreement between the parties was sufficiently broad to encompass consideration of the settlement, and the indemnity agreement clearly gave the surety the right to enter into settlement agreements related to the contract. The decision of the district court confirming the arbitration award and dismissing the lawsuit by the subcontractor was affirmed. Strategic Planning Associates, LLC v. Core Construction Services, LLC, 2018-0176 (La.App. 4 Cir. 9/19/18), 256 So.3d 330.

CONVICTION FOR RESIDENTIAL CONTRACTOR FRAUD

A contractor was convicted of residential contractor fraud pursuant to L.R.S. 14:202.1 and sentenced to five years imprisonment at hard labor and ordered to pay $4,000.00 in restitution within six months of his release, or in default thereof, to serve an additional two years in prison at hard labor. The total amount of the contract was $5,500.00. The statute defines residential contractor fraud as the misappropriation or intentional taking of anything of value which belongs to another, either without the consent of the other to the misappropriation or taking, or by means of fraudulent conduct, practices, or representation by a person who has contracted to perform any home improvement or residential construction, or who has subcontracted for the performance of any home improvement or residential construction. A misrepresentation or intentional taking may be inferred when, among other things, the contractor fails to perform any work during a 45-day period of time or longer after receiving payment, unless a longer period is specified in the contract. L.R.S. 14:202.1A(1). When the misappropriation or intentional taking amounts to a value of $5,000.00 or more, but less than $25,000.00, the offender shall be imprisoned, with or without hard labor, for not more than ten years, or may be fined not more than $10,000.00, or both. L.R.S. 14:202.1C(3).

The contractor contended the statute requires that no work had been performed under the contract in order to establish a violation. The court of appeal found it provided a 45-day duration in regard to the lack of performance of any work, as opposed to requiring a total absence of work under the full term of the contractual obligation. The conviction and sentence were affirmed. State v. Folse, 2018-0153 (La.App. 1 Cir. 9/21/18), 2018 WL 4520504.

The same contractor was faced with a similar charge with respect to another contract for a different victim. In that instance, the total contract price was $9,000.00. The contractor was found guilty and sentenced to five years imprisonment at hard labor and ordered to pay $8,000.00 of restitution within six months of his release, or in default thereof, to serve an additional two years in prison and at hard labor. The contractor made the same argument which was urged in the other matter and rejected. The conviction was affirmed. State v. Folse, 2018-0154 (La.App. 1 Cir. 9/21/18), 2018 WL 4520466. Both sentences were ordered to be served consecutively.

PRESCRIPTION OF ACTIONS AGAINST CONTRACTORS AND ARCHITECTS

Civil Code art. 3500 provides that an action against a contractor or an architect on account of defects of construction, renovation, or repair of buildings and other works is subject to a liberative prescription of ten years. A Magistrate Judge for the United States District Court for the Western District of Louisiana held the statute requires a contractual relationship between a claimant and a defendant. In this instance, the plaintiff was an owner and the defendant a subcontractor. The court held even if a subcontractor has a contract for work on an immovable with a contractor, his lack of any contract with the plaintiff/owner of the immovable will render the owner’s action for damages ex delicto rather than ex contractu, and mandate application of the one-year prescriptive period under C.C. art. 3493. Green v. Lowe’s Home Centers, LLC, 2:16-00698 (W.D. La. 8/16/18), 2018 WL 4307216. The recommendation was adopted by the district judge. 2:16-00698, 2018 WL 4291989.

CLAIM BY A SUBCONTRACTOR FOR DELAY DAMAGES UNTIMELY

A subcontractor claimed it was entitled to delay damages. There was no evidence the subcontractor advised the general contractor of its intention to assert a claim for damages until after substantial completion of the project.

The court of appeal, in concluding the claim was untimely, found the dispute was governed by Section 5 of the subcontract and Article 4.3.2 of the supplemental conditions of the plans and specifications. Section 5 of the subcontract required that if the subcontract work is delayed or disrupted by the owner, general contractor or other subcontractors, the subcontractor’s sole and exclusive remedy was to make written request to the general contractor to obtain a time extension and an increase in the subcontract price, but only to the extent of any amounts and time extensions the general contractor, on behalf of the subcontractor, actually received from the owner or from other responsible subcontractors. Further, timely written notice of delay or disruption to the subcontract work was a condition precedent to a claim. Timing of the notice was not specified in Section 5.

Section 11 of the subcontract provided that the work the subcontractor contracted to perform was to be in accordance with the conditions of the contract between the general contractor and the owner. Article 4.3.2 of the supplemental conditions of the plans and specifications required that claims by the general contractor must be made within 21 calendar days after the occurrence of the event giving rise to such claims.

The court of appeal held since the subcontractor did not advise the general contractor of its claim for delay damages within the 21-day limitation of Article 4.3.2 of the supplementary conditions, the general contractor was precluded from submitting the claim to the owner, and the claim was not timely submitted by the subcontractor to the general contractor under Section 5 of the subcontract. St. Tammany Parish School Board v. Hartford Casualty Insurance Company, 2017-1254 (La.App. 1 Cir. 8/20/18), 2018 WL 3979466.

DISPUTED ISSUE OF MATERIAL FACT AS TO WHETHER A GENERAL CONTRACTOR REASONABLY RELIED ON A SUBCONTRACTOR’S BID

A subcontractor submitted a bid to a general contractor. The subcontractor avoided its proposed price for the work upon which the general contractor contended it relied on in submitting its bid to the owner. The general contractor contracted with another subcontractor to perform the work at a higher price, sued the subcontractor for damages, and moved for summary judgment.

The court found instructive an earlier decision where the general contractor did not call the subcontractor to verify its bid. The general contractor incorporated the subcontractor’s bid into its own proposal three hours after receipt of the bid and waited until after submitting its bid to the owner to reach out to the subcontractor. The court there found there was a disputed material fact as to whether the general contractor’s reliance was reasonable when it incorporated the subcontractor’s bid in its bid without verifying it prior to submission. The court found a jury could determine that the general contractor’s reliance was reasonable based on industry practice and the expectation that a subcontractor submits its bid with the intention to be bound. On the other hand, the facts could support a finding the general contractor’s failure to verify the subcontractor’s bid rendered the reliance unreasonable.

Here, the district court found there was a material issue of fact as to whether the general contractor reasonably relied on the price submitted by the subcontractor. The court found the facts did not provide evidence that the general contractor attempted to verify the subcontractor’s bid before incorporating that bid into its own bid. Rather, the parties continued to negotiate differences in costs, materials and price savings after the general contractor submitted its bid to the owner. The court stated its decision was a “close call.” Although the court stated the subcontractor had a “long road ahead of it,” it did not find summary judgment was warranted. The outcome of the case hinged on whether the general contractor’s reliance was reasonable, which is a highly fact-intensive inquiry. The motion for summary judgment was denied. DonahueFavret Contractors, Inc. v. US Framing International, LLC, 17-12019 (E.D. La. 8/15/18), 2018 WL 3869497.

INDEMNITY AND INSURANCE COVERAGE

An indemnity obligation in a contract between an owner and a contractor required the contractor to indemnify and hold harmless the owner from and against claims for damages, including, but not limited to, attorney fees, arising out of or resulting from the performance of the work, but only to the extent caused by the negligent acts or omissions of the contractor or a subcontractor regardless of whether or not such a claim, damage, loss or expense is caused in part by the party indemnified. The United States District Court for the Eastern District of Louisiana held the indemnity agreement did not apply to a claimant who was not the owner, but was related to the owner.

The contract also required the contractor to name the owner as an additional insured for claims caused in whole or in part by the contractor’s negligent acts or omissions. The court found it did not, however, create an obligation on the part of the contractor to provide insurance for the entity related to the owner.

Additionally, certificates of liability insurance presented by the related entity did not provide coverage since the entity identified as the certificate holder was yet another entity. Further, the certificates of liability insurance presented by the related entity did not grant additional insured status under the policy. Sonier v. Winn-Dixie Montgomery, 16-17289 (USDC, E.D. La. 8/6/18), 2018 WL 3727767.

FORUM SELECTION CLAUSE IN A CONSTRUCTION CONTRACT NOT BINDING UPON A SURETY

A surety provided payment and performance bonds for two public works projects. The general contractor, the principal under the bonds for both projects, was terminated by the owner. The surety for both projects entered into a Takeover Agreement with the owner to complete the work. The surety sued the owner in federal court to collect payments due under the Takeover Agreement. The owner moved to dismiss the claims contending the surety was bound by the forum selection clause contained in the General Conditions for the original contract, which provided that the 18th Judicial District Court for the Parish of Iberville was the sole and exclusive venue for any dispute arising out of the contract. The forum selection clause also provided that for purposes of federal court diversity jurisdiction or any other cause of action that may allow for federal court jurisdiction or venue, the contractor and its surety waived any right or cause of action to be filed in federal court.

The court found forum selection clauses, under federal law, are presumed enforceable, and the party resisting enforcement bears a heavy burden of proof. The clauses should be upheld unless the party opposing its enforcement can show that the clause is unreasonable. The bonds issued by the surety explicitly reserved to it the right to bring suit on the bonds in any court of competent jurisdiction in the location in which the work is located, and did not restrict the right of the surety to bring an action on the respective bonds in any court. The court held that while the General Conditions did require that the contractor and surety are bound by the forum selection clause, the contractor did not have the authority to bind the surety to the terms of a contract to which it was not a party and never agreed.

The Takeover Agreement stated the surety was willing to undertake the completion of the contract in accordance with the terms of the bond, the contract, and the Agreement. Based on that language, it was clear the Takeover Agreement was subject to the terms of the bond which were in direct conflict with the forum selection clause of the original contract. At the very least, there was an ambiguity as to the application of the forum selection clause to the surety, which must be resolved in favor of the surety. The fact that the Takeover Agreement also stated it was subject to the terms set forth in the bond showed the surety did not intend to waive its rights to litigation in federal court. The owner’s motion to dismiss was denied. Employers Mutual Casualty Company v. Iberville Parish School Board, 12-437 (M.D. La. 3/11/13), 2013 WL 943759.

SANCTIONS NOT ALLOWED FOR ENFORCEMENT OF A SETTLEMENT AGREEMENT

In considering a motion for enforcement of a settlement agreement between an owner and a general contractor, a magistrate judge of the United States District Court for the Eastern District of Louisiana declined to assess sanctions against the owner, the defaulting party. Sanctions, which could include the assessment of attorney fees, can be assessed as within the federal court’s inherent authority to manage its own affairs so as to achieve the orderly and expeditious disposition of cases when a party has acted in bad faith, vexatiously, wantonly, or for oppressive reasons. The court found, based on the record, the owner’s actions could not be characterized as vexatious, wanton, oppressive or an abuse of the judicial process rather than simply a garden-variety breach of contract. Vira v. S&R Development, Inc., 17-5858 (E.D. La. 6/22/18), 2018 WL 3545161. The recommendation of the magistrate was adopted by the district judge. 17-5858, 2018 WL 3533555.

PEREMPTION

Rejecting the contention the peremptive requirements of L.R.S. 9:5607, which applies to designers, superseded L.R.S. 9:2772, which applies to contractors and formerly to designers, to the extent that it eliminated the peremptive period for actions against contractors, the Louisiana Fifth Circuit Court of Appeal found claims against a general contractor and subcontractor were perempted under L.R.S. 9:2772 five years after the date of registry in the mortgage office of acceptance of the work by the owner. Lopinto v. Professional Construction Services, Inc., 18-361 (La.App. 5 Cir. 7/13/18), _____ So.3d _____, 2018 WL 3524670, writ denied, 2018-1339 (La. 11/5/18), 255 So.3d 1048.

CLOSED SPECIFICATIONS

Closed specifications for public works projects are prohibited except in limited instances. If a particular brand, make of material, device or equipment is shown or specified, it is to be regarded merely as a standard. In reviewing a proposed specification for a particular product as an alternate, the Louisiana Attorney General opined that if the product is included in the specifications as a standard for the design for the base bid, the specifications should be drafted such that the acceptance of the particular product is not mandated in preference to others of similar quality. If no other product of equal quality and utility exists, then including the product as the design standard would violate the closed specification law. The question of whether other products of equal quality and utility exist is a factual determination to be made by the awarding authority and the professional employed, and is subject to judicial review. La. Atty. Gen. Op. No. 18-0054 (7/9/18).

SUBCONTRACTOR DENIED THE RIGHT TO INTERVENE IN A CLAIM BROUGHT BY A GENERAL CONTRACTOR AGAINST AN OWNER

225 Baronne Complex, LLC contracted with Roy Anderson Corporation (RAC) for the renovation and reconstruction of property located at 225 Baronne Street in New Orleans, Louisiana. Anderson, in connection with its contract with 225 Baronne, provided a payment bond for the work performed. Anderson subcontracted part of the work to Ronald Franks Construction Company, LLC.

Anderson filed a petition to enforce a lien against 225 Baronne alleging it failed to pay the total amount for the work performed. Franks filed a petition for intervention alleging it was entitled to intervene against both Anderson and 225 Baronne to enforce its rights as a third person with an interest in the petition to enforce the lien. Franks represented it was entitled to recover damages for delays, scheduling, and other management problems. In its intervention, Franks joined with Anderson to seek relief for any pass-through claims RAC might recover against 225 Baronne. Franks previously filed a demand for arbitration against Anderson to recover its damages. 225 Baronne filed a peremptory exception of no right of action representing Anderson could not assert a claim against it as the owner.

L.R.S. 9:4802C provides that the owner is relieved of the claims against it and the privileges securing them when the claims arise from the performance of a contract by a general contractor for whom a bond is given and maintained as required by L.R.S. 9:4812 and the notice of the contract with the bond attached is properly and timely filed as required by L.R.S. 9:4811. The court found although Franks might have met the criteria to intervene in a proceeding, the statute expressly created an escape hatch that relieves the owner of liability when it complies with its provisions. Here, 225 Baronne complied with the statute, and any right Franks might have had to assert an action against it was extinguished. Franks did not have a right of action to intervene in the petition to enforce the lien. Roy Anderson Corporation v. 225 Baronne Complex, L.L.C., 2017-1005 (La.App. 4 Cir. 7/11/18), 251 So.3d 493, writ denied, 2018-1334 (La. 11/5/18), 255 So.3d 1049.

PROOF OF AN ORAL CONTRACT

The Louisiana First Circuit Court of Appeal held recently that when claiming the existence of an oral contract for the payment of money above $500.00 in value, the party must prove the existence and terms of the contract by at least one credible witness and other corroborating circumstances. To meet the burden of proof, the party may serve as its own witness. The corroborating circumstances that are required must come from a source other than the party. The other corroborating circumstances may be general and need not prove every detail of the party’s claim. Steve Owens Construction, Inc. v. Bordelon, 2017-1320 (La.App. 1 Cir. 2/27/18), 243 So.3d 601.

ERROR IN THE FORMATION OF CONTRACT, EQUITABLE ESTOPPEL, DETRIMENTAL RELIANCE, IMPOSSIBILITY OF PERFORMANCE AND NOVATION

The United States District Court for the Western District of Louisiana recently considered the requirements for the formation of a valid and enforceable contract under Louisiana law. The court held the requirements are: 1) the parties must possess the capacity to contract; 2) the parties’ mutual consent must be freely given; 3) there must be a certain object for the contract; and 4) the contract must have a lawful purpose. A party’s contractual consent may be vitiated by error, fraud or duress. Error vitiates consent only when it concerns a cause without which the obligation would not have been incurred, and that cause was known or should have been known by the other party. Cause is the reason why a party obligates himself, and is the functional equivalent of consideration at common law. Unlike consideration, cause only requires a valid reason for the promise, and the promissor need not get anything in return.

If error vitiates a party’s consent, the contract may be rescinded. A party asserting error as a defense to enforcement of a contract must prove: 1) an objective cause, or reason, why it entered into the contract; and 2) an error as to that cause, which may entitle the party to rescission or reformation of the contract. Error, in Louisiana, can vitiate consent in two ways, bilaterally, where both parties are mistaken, or unilaterally, where only one party is mistaken. When both parties are individually mistaken, they are clearly aware the matter in error was the cause of their mutual obligations, thus vitiating the consent of both parties. When one party is mistaken, that mistake will vitiate consent if the other party knows or should have known.

The court also discussed the doctrine of equitable estoppel. It held the elements for equitable estoppel and detrimental reliance are the same. Equitable estoppel has been defined as the effect of voluntary conduct of a party whereby he is precluded from asserting rights against another who has justifiably relied upon such conduct and changed his position so that he will suffer injury if the former is allowed to repudiate the conduct. For purposes of detrimental reliance, a party is permitted to recover economic harm whenever the defendant made a representation by word or conduct upon which the plaintiff justifiably relied and because of which the plaintiff changed his position to his detriment. The elements of both equitable estoppel and detrimental reliance are: 1) representation by conduct or word; 2) justifiable reliance in representation; and 3) change in position to detriment because of reliance.

The defense of impossibility of performance was discussed. The court held an obligor is not liable for his failure to perform when it is caused by a fortuitous event that makes performance impossible. An obligor is, however, liable for his failure to perform when he has assumed the risk of such a fortuitous event. A fortuitous event is one that, at the time the contract was made, could not have been reasonably foreseen. A contract can be dissolved if the entire performance owed by one party has become impossible because of a fortuitous event.

Louisiana courts have discussed fortuitous events as an irresistible force or that which happens by a cause which cannot be resisted. The terms “fortuitous event” and “force majeure” have been used interchangeably. Force majeure is defined as an event or effect that can be neither anticipated nor controlled.

Finally, the court discussed novation. Novation is the extinguishment of an existing obligation by the substitution of a new one. The intention to extinguish the original obligation must be clear and unequivocal; novation may not be presumed. The burden of proof for establishing novation is on the person who asserts it. The intent of the parties is the paramount factor in proving a novation.

There are two types of novation, objective and subjective. An objective novation occurs when the parties agree that a new performance or cause is substituted for the previous one. A subjective novation occurs when a new obligor is substituted for a prior obligor who is discharged by the obligee. This can be accomplished without the consent of the prior obligor unless the prior obligor still has an interest in performing the obligation. An essential requisite to confect a subjective novation is the express discharge of the debtor from his obligation. Yor-Wic Construction Co., Inc. v. Engineering Design Technologies, Inc., 17-0224 (W.D. La. 7/11/18), 329 F.Supp.3d 320.

CONTRACT INDEMNIFICATION FOR THE NEGLIGENCE OF AN INDEMNITEE

A contract provision required that to the fullest extent permitted by law, a subcontractor would unconditionally indemnify, defend and hold harmless the general contractor and others from and against all claims, including attorney fees for defense, arising out of or resulting from the indemnitor’s work even though such damages were caused in part by the sole, joint or concurrent negligence or strict liability or other legal fault of the indemnitee. The contract also required the subcontractor to pay the general contractor’s attorney fees for enforcing any provisions of the contract. One of the issues was whether a determination of the fault of the general contractor was required. L.R.S. 9:2780.1 prohibits in the context of construction contracts indemnification in favor of a party for that party’s own fault.

Here, the workers’ compensation insurer of an injured employee sued the general contractor to recover the benefits it paid to an employee of the subcontractor. The general contractor filed a third party demand against the injured worker’s employer for indemnification and recovery of attorney fees. The demand against the general contractor was barred by the immunity requirements of the Louisiana workers’ compensation law and dismissed. The federal district court found it was not appropriate to determine the general contractor’s fault after only the claims of negligence against it were dismissed because of that legal bar, leaving only the claim of the general contractor for costs of defense and attorney fees. The court followed the reasoning of the Federal Fifth Circuit Court of Appeals in interpreting L.R.S. 9:2780, which applied to oilfield indemnity agreements and was similar to L.R.S. 9:2780.1, which addresses such agreements in the context of construction contracts. The court recognized jurisprudence of Louisiana appellate courts which could provide for a different result, but declined to apply it. Attorney fees were allowed for both defense and those incurred to enforce the indemnity obligation.

The general contractor was also sued by another entity and filed a third party demand against the employer of the injured employee for indemnity with respect to that claim. The claim by the other entity against the general contractor was settled by the general contractor through the employer without a determination of fault. That resolution was not the result of a legal bar to the claim such as that provided by the Louisiana workers’ compensation law. The court held the general contractor in this instance was precluded by L.R.S. 9:2780.1 from seeking indemnity from the injured worker’s employer for costs of defense, including attorney fees. Louisiana United Business Association Casualty Insurance Co. v. J&J Maintenance, Inc., 15-1769 (W.D. La. 7/11/18), 328 F.Supp.3d 563.

JUSTIFIABLE RELIANCE UNDER FEDERAL LAW

A subcontractor sued a general contractor and the surety alleging a general contractor fraudulently through false material representations induced it to enter into a settlement agreement that released the general contractor from any claims for liability under the Miller Act. The Miller Act provides security for payment to subcontractors for federal construction projects. The subcontractor sought to rescind the release of liability in the settlement agreement on the basis of fraud and recover damages. The district court, on a motion for summary judgment of the general contractor, concluded the subcontractor could not demonstrate justifiable reliance on the representations, a necessary element of a fraudulent-inducement claim, and granted summary judgment.

The court of appeals held the Miller Act gives subcontractors and suppliers the right to sue a prime contractor and the surety, and since the rights and liabilities of the parties derived from federal law, i.e. the Miller Act, federal law applied. Federal law requires justifiable reliance on representations to support a claim for fraudulent inducement, not reasonable reliance. Under the less demanding standard of justifiable reliance, a person is justified in relying on a representation of fact although he might have ascertained the falsity of the representation had he made an investigation.

Based on the record before the court, it found there was a genuine issue of material fact as to whether the subcontractor justifiably relied on the general contractor’s representation at settlement. The judgment of the district court was reversed and the matter remanded for further proceedings. Fisk Electric Company v. DQSI, LLC, 894 F.3d 645, (5th Cir. 2018).

REJECTION OF BID AND MANDAMUS

The Recreation & Park Commission for the Parish of East Baton Rouge advertised for bids for the Wards Creek Multi-Use Pathway Bridge Project. Block Construction, LLC was the only bidder for the project. The Commission rejected the bid as being significantly over budget. Block filed a petition for declaratory and injunctive relief, and alternatively, for a writ of mandamus, to be awarded a contract for the project. The trial court issued a judgment in favor of Block granting the writ of mandamus and directing the Commission to award a contract to Block.

The Commission appealed the trial court judgment on the basis Block improperly sought a writ of mandamus. The Commission argued a writ of mandamus under C.C. P. art. 3863 could only be directed to a public officer, and Block did not name a public officer, only the Commission, as a defendant. The court of appeal agreed, reversed the trial court judgment and remanded the matter to the trial court with instructions to allow Block to amend its pleadings to add a public officer as a party defendant, or alternatively, for the trial court to consider the Commission’s remaining causes of action. On remand, Block filed a supplemental and amended petition naming the superintendent of the Commission as a party defendant. The superintendent filed exceptions urging objections of res judicata, no cause of action and lack of subject matter jurisdiction for mootness. The trial court denied the exceptions and again issued a writ of mandamus, this time directed to the superintendent. The superintendent was ordered to award Block a contract for the project. The superintendent appealed.

The court of appeal noted that Block sought injunctive and declaratory relief as the principal relief, and mandamus was sought only in the alternative. It held the prohibition against granting mandamus when other relief is available is a legislative directive established by C.C.P. art. 3862. Art. 3862 states a writ of mandamus may be issued in all cases where the law provides no relief by ordinary means or where the delay involved in obtaining ordinary relief may cause injustice. The court of appeal found the trial court erred in granting the writ of mandamus without first finding that relief was not available through ordinary process or that the delays involved would cause an injustice. The judgment of the trial court was reversed and the matter remanded to the trial court. Block Construction, LLC v. Recreation & Park Commission for the Parish of East Baton Rouge, 2017-0110 (La.App. 1 Cir. 1/19/18), 241 So.3d 1019, writ denied, 2018-0301 (La. 4/6/18), 240 So.3d 185.


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