Baldwin Haspel Burke & Mayer LLC

Construction Law Update – July 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 July 2019 Construction Law Update by clicking here.

AMENDMENTS TO PRIVATE WORKS LIEN LAW

The Louisiana legislature during its 2019 session amended the law on privileges for private works and related statutes and Civil Code articles. The revisions are extensive, and generally apply to all works begun after January 1, 2020, but there are exceptions. Acts 2019, No. 325.

A + B BIDDING

The Louisiana legislature during its 2019 session authorized a pilot program for local governmental political subdivisions to utilize A + B bidding. The program is limited to fifteen projects. The governmental subdivision, if it wishes to use the pilot program, is required to deliver written notification of the proposed project, together with the reason it deems such method to be in the public interest and beneficial to the owner, to the House and Senate transportation, highways and public works committees for review and approval. Upon completion and acceptance of a project, the owner is required to submit in writing to the chairmen of the House and Senate committees a report that includes the final project cost and an evaluation of whether or not the contract times were reduced, costs were acceptable, and quality was maintained by use of the A + B bid method.

A + B bidding means cost plus time bidding that factors time plus cost to determine the low bid. Under the method, a bid submitted has two component parts where “A” is the traditional bid for the contract items and is the dollar amount for all work to be performed under the contract, and “B” is a bid of the total number of calendar days required to complete the project as estimated by the bidder. Bid days are multiplied by a user cost, furnished by the project owner, and added to the “A” component to obtain the total bid. The bid for award to the lowest responsible bidder is based on the combination of the bid for the contract items and the associated cost of time.

The bid documents are required to specify whether the low bid will be determined based on the lowest bid cost, or the lowest combination of bid cost plus construction time. If construction time is utilized as a factor to determine the lowest responsible bidder, then its value and use in the determination of the lowest responsible bidder shall be specified by the owner in the bidding documents. Acts 2019, No. 261.

EXCAVATION AND DEMOLITION

The Louisiana legislature revised the Louisiana Underground Utilities and Facilities Damage Prevention Law during its recent session. The law provides that no person shall excavate or demolish in any street, highway, public place or servitude of any person who owns or operates a public or private underground facility, or near the location of an underground facility or utility, without having first ascertained, in the manner prescribed, the specific location of all underground facilities or utilities in the area which could be affected by the proposed excavation or demolition. A notice of intent to excavate or demolish is to be provided prior to any such activity to the regional notification center at least 48 hours, but not more than 120 hours, excluding weekends and holidays, in advance of commencement of the work. The operator is required to mark the location or provide information as to the location of the utility or facility within the time specified by the notification center. The excavator or demolisher must wait at least 48 hours beginning at 7:00 a.m. on the next working day following notification before commencing work, unless an extension of time is mutually agreed upon and documented by it and the operator, except in the event of an emergency.

The amendments provide that if no agreement for an extension of time can be reached between the excavator and operator, and the excavation or demolition activity could impact a pipeline located on or in water, upon request by the operator, the commissioner of conservation may delay the mark-by time prior to the commencement of work in order to allow for the accurate marking of such pipeline. Additionally, when the utility or facility operator has marked the location of underground facilities or utilities, the marking shall be deemed good as long as visible but not longer than twenty calendar days, including weekends and holidays, from the mark-by time, except the commissioner may extend the time period allowed for completion of the work if the proposed work could impact a pipeline located on or in water. Acts 2019, No. 344.

AMENDMENTS TO THE CONTRACTORS LICENSING LAW

The Louisiana legislature during its 2019 session adopted a number of changes to the state contractors licensing law. Most of the changes are for purposes of clarification and involve procedural and administrative issues.

There is perhaps one substantive change. The term “contractor” was defined to mean any person who undertakes or attempts to undertake or submits a bid or offers to construct a project where the entire cost is $50,000.00 or more and the property is to be used for commercial purposes. The terms “contractor” and “commercial purposes” provided exceptions for residential homes, single residential duplexes, single residential triplexes, and single residential fourplexes. A project consisting of residential homes where the contractor had a single contract for the construction of more than two homes within the same subdivision was deemed to be a commercial undertaking. The exceptions are now included only in the definition of the term “commercial purposes,” which are now stated to be residential structures with no more than four incorporated or attached dwelling units. Acts 2019, No. 371.

UNLIQUIDATED CLAIMS CANNOT BE USED AS AN OFFSET

A subcontractor sued a general contractor for the outstanding amounts due under its subcontract. The general contractor asserted it was due an offset for back charges. The court found set-off, or compensation, takes place by operation of law when two persons owe to each other sums of money and these sums are liquidated and presently due. In such a case, compensation extinguishes both obligations to the extent of the lesser amount. The two debts must be equally liquid. A liquid debt is one whose existence is certain and its quantity determined. A disputed debt is not liquid and cannot be admitted as susceptible of compensation unless the one who asserts compensation proves the existence of the disputed debt.

The court held the general contractor’s claim for an offset was not proven, and, therefore, was not liquid. The subcontractor was able to prove its claim, and was entitled to summary judgment despite the contested and unproven claim of the general contractor. Leigh of All Trades, LLC v. Non-Flood Protection Assets Management Authority, 2019-0042 (La.App. 4 Cir. 5/29/19), So.3d, 2019 WL 2291616.

L.R.S. 9:2772 AND MAINTENANCE AND REPAIR

The Louisiana Second Circuit Court of Appeal held in a personal injury lawsuit for exposure to asbestos that L.R.S. 9:2772, the peremption statute applicable to contractors, applies to maintenance and repair work. In this instance, although the construction of boilers was accepted in 1965, the contractor continued to go to the mill semiannually for maintenance and repair. The trial court was entitled to treat this as work within the ambit of the statute. The lawsuit which was filed in August 2015 was filed within the time limit set forth by the statute for the last work that resulted in exposure to asbestos, and was not perempted. Berry v. ANCO Insulations, 52,671 (La.App. 2 Cir. 5/22/19), So.3d, 2019 WL 2202619.

TIME LIMITATION FOR CLAIMS AGAINST AN ENGINEER

A licensed professional engineer excepted to claims against him by individuals for whom he issued a report representing they were barred by the one-year prescriptive period for torts. The engineer denied he performed professional engineering services. The trial court granted the exception. The plaintiffs appealed.

Plaintiffs argued the claims sounded in contract which would be subject to a ten-year prescriptive period. The Court of Appeal for the First Circuit held the trial court erred in finding the claims were subject to a one-year prescriptive period for torts, and were subject to the five-year prescriptive period of L.R.S. 9:5607 for claims in tort or contract against designers. That statute specifically states its period of limitation is peremptive as opposed to prescriptive. In a concurring opinion, one of the court of appeal judges recognized the Fourth Circuit Court of Appeal has held the one-year prescriptive period was not displaced by the five-year peremptive period of L.R.S. 9:5607, but disagreed with that holding. Pizzolato v. Grier, 2018-0912 (La.App. 1 Cir. 3/14/19), So.3d, 2019 WL 1198636.

DAMAGES FOR INVERSE CONDEMNATION, CUSTODIAL LIABILITY AND COMPARATIVE FAULT

The New Orleans Sewerage and Water Board (SWB) appealed a judgment in favor of several plaintiffs whose homes were damaged during construction of the Southeast Louisiana Urban Drainage Project (SELA Project). The SWB argued the trial court’s finding it was liable to the plaintiffs for inverse condemnation was clearly wrong, and contended the SELA Project was a federal project, not a state project, and the United States Army Corps of Engineers (USACE), and not it, was liable for the inverse condemnation claim. An action for inverse condemnation allows property owners to seek compensation for land already taken or damaged from a government entity or private entity having powers of eminent domain where no expropriation has taken place.

The court of appeal found the SWB was the non-federal SELA Project sponsor. It was part of the SELA Project Coordination Team. As a member of the Team, the SWB participated in monthly meetings concerning the project. While the USACE was responsible for administering the project, the SWB granted USACE the necessary access for the project, and was responsible to pay 35% of the costs. As the owner of the drainage systems, the SWB was tasked with the project design, and responsible for the operation, maintenance, repair and replacement of the drainage system. In addition. The SWB fielded complaints through a hotline and agreed to indemnify USACE from damages arising from the project. The record supported the conclusion the project was a state project, wherein the SWB was acting under its power of eminent domain in carrying out the work. The court of appeal found it could not say the trial court was manifestly erroneous in finding the SWB was liable to the plaintiffs for the inverse condemnation claim.

The trial court found the SWB was strictly liable to the plaintiffs for damages caused by things in its custody. In determining whether a thing is in one’s custody, the courts consider 1) whether the person bears such a relationship as to have the right of direction and control over the thing; and 2) what, if any, kind of benefit the person derives from the thing. The SWB owned and maintained direction and control over the project, owned the drainage systems, and was responsible for their design, operation, maintenance, repair and replacement. The SWB also participated in periodic meetings concerning construction, and received complaints from property owners. The court of appeal found the SWB as the entity responsible for public drainage in New Orleans derived a substantial benefit from the project.

C.C. art. 2317 provides that we are responsible, not only for damages occasioned by our own act, but for that which is caused by the act of persons for whom we are answerable, or of the things which we have in our custody. Under C.C. art. 2317.1, the owner or custodian of a thing is answerable for damage occasioned by its ruin, vice or defect only upon a showing that it knew or, in the exercise of reasonable care, should have known of the ruin, vice or defect which caused the damage, that the damage could have been prevented by the exercise of reasonable care, and that it failed to exercise such reasonable care. A public entity may not, however, be found liable unless it is also shown it had actual or constructive notice of the defect yet failed to correct it within a reasonable period. L.R.S. 9:2800.

The court found the project lasted well over two years. Prior to construction, the SWB was aware of the risk and anticipated damages to surrounding property caused from vibrations throughout construction. During construction, it received reports that vibrations regularly exceeded a peak particle velocity of .25 inches per second, which was a significant factor in causing property damage. The property owners reported the issues directly to the SWB. There was nothing to indicate the SWB took any corrective measures during construction. Since the plaintiffs established the SWB failed to timely correct defects after receiving actual notice pursuant to L.R.S. 9:2800, the trial court did not err in finding the SWB liable under C.C. arts. 2317 and 2317.1.

The court of appeal also found the SWB was strictly liable to the plaintiffs with respect to timber pile driving activities. The court found the SWB was the proprietor of the property under C.C. art. 667, and was answerable for damages upon a showing that it knew, or in the exercise of reasonable care, should have known that the work it performed would cause damage, that the damage could have been prevented by the exercise of reasonable care, and that it failed to exercise such reasonable care. The drainage system which was the subject of the project was owned, constructed, maintained and operated by the SWB. The evidence supported the proposition damages were caused by the timber pile driving, and the trial court was not manifestly erroneous in finding the SWB was strictly liable for the damages caused by it.

The SWB claimed the trial court erred in failing to assign comparative fault against the USACE and its contractors. The court of appeal found the relationship between the SWB, USACE and the contractors was contractual, and in order to apportion comparative fault for negligence, it was incumbent upon the SWB to establish a standard of care and a breach of the standard of care that caused plaintiffs damages. The court of appeal found the evidence did not support the apportionment of fault against the USACE or the contractors for any negligence in performing their obligations as anticipated under the contracts. The SWB was solely responsible for the damages. Sewell v. Sewerage and Water Board of New Orleans, 2018-0996 (La.App. 4 Cir. 5/29/19), So.3d, 2019 WL 2305673.

BREACH OF CONTRACT AND ORAL MODIFICATIONS OF WRITTEN CONTRACTS

In a dispute between a subcontractor and a sub-subcontractor, the United States Fifth Circuit Court of Appeals held that for a party to succeed on its claim for another’s breach of contract when it was in breach itself, it was required to prove that the other’s breach was substantial. A breach is substantial if it is an actual cause of the other party’s failure to comply with its obligations. In this case, the court held that a reasonable jury could conclude that the breaches of the party claiming breach of contract were substantial, and the breaches by the other party were not because the breaches of the party claiming breach of contract caused the other’s refusal to complete the final duties of its contract.

On a claim by the sub-subcontractor for delay damages, the court found there was sufficient evidence for the jury to reasonably conclude that the subcontractor breached the contract in bad faith, and, therefore, the provision of the subcontract barring claims for delay damages by the sub-subcontractor was unenforceable. A bad faith breach of contract amounts to a finding of intentional or gross fault. Louisiana C.C. art. 2004 provides that any clause is null that, in advance, excludes or limits the liability of one party for intentional or gross fault that causes damage to the other party. The term gross fault encompasses not only gross negligence, but also bad faith breach of contract and fraud.

In considering amendments to a contract, the court held that a written construction contract may be modified by oral agreement and by the conduct of the parties, even when the contract provides that change orders must be in writing. The written contract can be modified through silence, inaction, or implication which are questions of fact. Alonso v. Westcoast Corporation, 920 F.3d 878 (5 Cir. 2019).

THE LOUISIANA UNFAIR TRADE PRACTICES ACT AND PRESCRIPTION

Effective August 2018, the Louisiana Unfair Trade Practices Act provides that a private right of action for the recovery of damages is subject to a liberative prescription running from the time of the transaction or act which gave rise to the right of action. The court held this was a clear expression of legislative intent that the limitations period was prescriptive and not peremptive. Because the amendment concerned prescription and was remedial, it applied retroactively. Further, because the time limitation was prescriptive, and not peremptive, it is subject to interruption or suspension, including under the doctrine of contra non valentem. Erika Mann v. Alston Contractors, Inc., 18-9284 (E.D. La. 2/28/19) 2019 WL 969820.

AMENDMENTS TO THE LOUISIANA UNFAIR TRADE PRACTICES ACT ARE RETROACTIVE

The United States District Court for the Western District of Louisiana held that the 2018 amendment to the Louisiana Unfair Trade Practices Act “clarifying” the one-year limitation period for asserting claims for violations of the Act as prescriptive, as opposed to peremptive, is procedural and interpretive giving the change retroactive effect. Jeanes v. McBride, 16-1259 (W.D. La. 6/4/19), 2019 WL 2387863.

CONTRACTOR ENTITLED TO ITS PRICE FOR THE WORK UPON SUBSTANTIAL COMPLETION REDUCED BY COST OF REPAIR

In the finding that a contractor upon substantial completion was entitled to the price for its work minus the cost of repair, the Court relied upon established rules. First, when a contractor has substantially completed a building contract, even though certain defects are present, he is entitled to recover the contract price, and the owner is relegated to having the price reduced by the amount necessary to perfect or complete the work, i.e. damages attributable to the breach. Second, substantial performance means the construction is fit for the purpose intended despite the deficiencies. Williams v. Alexander, 2017-436 (La.App. 3 Cir. 12/6/17), 258 So.3d 30.

PEREMPTION VERSUS PRESCRIPTION

The Louisiana First Circuit Court of Appeal considered the application of L.R.S. 38:2189 which establishes a five-year period of limitation for claims against contractors and their sureties for the construction, alteration or repair of public works let by the State or any of its agencies, boards or subdivisions. The statute states any such action shall prescribe five years from substantial completion or acceptance of the work, whichever occurs first, or notice of default of the contractor. The court, applying Louisiana Supreme Court jurisprudence, held the five-year time limitation is peremptive rather than prescriptive. It is important to note the statute does not require that the five-year period begin to run from recordation of notice of such events in the public records. The lawsuit filed by the public entity against the contractor in this instance was not filed within five years after acceptance of the work or substantial completion and was found to be perempted. Lafourche Parish Water District No. 1 v. Digco Utility Construction, L.P., 2018-1112 (La.App. 1 Cir. 3/13/19), So.3d, 2019 WL 1198552.

NEW CLAIMS PEREMPTED UNDER THE NEW HOME WARRANTY ACT

The Louisiana Third Circuit Court of Appeal held that claims asserted in a supplemental petition beyond the one-year peremptive period of the New Home Warranty Act were perempted. Betancourt v. Trahan, 18-1002 (La.App. 3 Cir. 6/5/19), So.3d, 2019 WL 2366945.

TRIGGER OF COVERAGE FOR AN EXCESS LIABILITY POLICY

The First Circuit Court of Appeal held, relying on what it considered the clear weight of authority, that an excess liability policy which provided that a loss occur during the policy period for coverage to apply was subject to the manifestation theory. Under the manifestation theory, property damage is considered to have occurred when it first becomes manifest, regardless of when the act that caused the damage occurred. The exposure theory provides that coverage is triggered by the mere exposure to harmful conditions during the policy period. It is used often for long-latency occupational disease claims. M&R Drywall, Inc. v. MAPP Construction, LLC, 2017-0186 (La.App. 1 Cir. 4/29/19), So.3d, 2019 WL 1924524.

MASTER SERVICE AGREEMENT

The United States District Court for the Western District of Louisiana found that a Master Service Agreement, standing alone, is not a binding contract. It merely sets forth the agreement of the parties to abide by certain terms should they contract to perform services in the future. The MSA provided only the framework for subsequent contracts resulting from written or verbal purchase orders. Simar v. Tetra Technologies, Inc., 15-01950 (W.D. La. 3/1/19), 2019 WL 1007263.

RIGHTS OF A SURETY UNDER AN INDEMNITY AGREEMENT

The United States District Court for the Eastern District of Louisiana held that under the plain terms of the indemnity agreement at issue, the indemnitors’ delivery of additional collateral demanded by the surety was an absolute condition precedent to their right to challenge the surety’s good faith with respect to the settlement of any claims asserted against the surety. The indemnitors’ failure to deliver collateral security barred them from challenging the surety’s good faith with respect to the settlement of the obligee’s claims against the surety under the performance bond, as well as a settlement of all claims asserted against the surety by the principal’s subcontractors or suppliers. The indemnitors were not, however, precluded from challenging the surety’s good faith with respect to other losses sustained or expenses incurred where a claim had not been asserted against the surety.

The indemnitors were required to post the collateral security demanded by the surety regardless of any alleged lack of good faith on the part of the surety. The court noted that although the indemnitors might not like the result, they are nonetheless bound by the terms of the agreement that they voluntarily executed. U.S. Specialty Insurance Co. v. Strategic Planning Associates, LLC, 18-7741 (E.D. La. 5/22/19), 2019 WL 2210749.

DEMAND OF A SURETY FOR COLLATERAL SECURITY

Fucich Contracting, Inc. contracted with the St. Bernard Parish Government for the construction of the Lake Borgne Basin Levee District Pump Station #1 and #4 Pump Upgrade. Travelers Casualty & Surety Company of America provided a payment and performance bond for Fucich. A dispute arose between the Parish and Fucich. The Parish terminated Fucich’s contract for failure to perform and sued Travelers for the penal sum of the bond. Travelers sought a preliminary injunction to require Fucich and the individual indemnitors to deposit collateral security in accordance with the provisions of the indemnity agreement of $5,036,878.49, representing the penal sum of the bond and Travelers’ costs and attorney’s fees through that date. The court held the movant for a preliminary injunction must establish 1) a substantial likelihood that it will prevail on the merits; 2) a substantial threat it will suffer irreparable injury if the injunction is not granted; 3) the threatened injury to the movant if the injunction is not denied outweighs the potential harm to the non-movant if the injunction is granted; and 4) that granting the injunction will not disserve the public interest.

Addressing the first requirement, the court found that under the indemnity requirement it was clear Travelers could demand payment for an expansive range of debts, including monies it could expend in completing the project or in responding to the Parish’s lawsuit or in enforcing its demand under the bond. The indemnity agreement protects the surety from experiencing post-judgment uncertainty by providing pre-judgment security. There is no requirement in the contract or in the case law that the surety must prove the principal’s actual liability; that would defeat one purpose of the collateral security provision. The indemnity agreement permits demand of an amount as determined by Travelers sufficient to discharge any loss or anticipated loss. A sufficient amount would be one to accommodate the scope of Travelers’ loss and anticipated loss – the monies it expects to expend to complete the project as well as the attorney’s fees and damages it has incurred or may incur in response to the Parish’s claim under the bond. Reasonableness of the amount of collateral does not depend on the principal’s actual liability. There was no evidence of bad faith on the part of Travelers. Travelers demonstrated a substantial likelihood of success on the merits of its collateral demand under the indemnity agreement.

As to the second factor, the indemnity agreement stipulated that Travelers would suffer irreparable harm if its demand for collateral was not met. The court found it was not necessary for it to consider whether the contractual stipulation was enforceable. Without relying on the contractual stipulation, the court held the surety must show that an inability to collect amounts that may become owed by an indemnitor is imminent, including, for example, showing that an indemnitor faces dire financial straits or bankruptcy thereby increasing the likelihood that damages may not be recovered upon a later judgment awarding specific performance. Imminence of harm may be demonstrated by showing the indemnitor is insolvent or secreting assets, it is in dire financial straits, is no longer a traditional source of credit, or has been dishonest or is severely in debt to various creditors. Travelers presented evidence that the indemnitors would be bankrupted if they had to pay the amount demanded by the Parish to complete the project. The court found Travelers established it would suffer irreparable harm because the indemnitors could not respond to a judgment in the amount demanded by the Parish.

The third factor requires that the movant establish its irreparable harm is greater than the hardship that the preliminary injunction would cause the respondent. The court found Travelers demonstrated that the hardship it would face if an injunction does not issue outweighs the threatened harm to the indemnitors posed by the injunction.

As to the fourth element necessary for a preliminary injunction that the injunction will not disserve the public interest, the court found in favor of Travelers. The public has an interest in courts upholding clearly written contracts, and the surety industry has an interest in the enforcement of collateral security provisions. More importantly, the construction project that the indemnity agreement and bond secure provides a vital public service of flood protection. One of the principle purposes of the surety arrangement is to ensure that public works projects are completed as envisioned for the public benefit. The public’s interest in flood protection was undeniable. The public interests would not, therefore, be disserved in granting the injunction.

The application of Travelers for a preliminary injunction was granted. The court ordered Travelers to submit a memorandum to address the amount of the collateral sufficient to discharge its loss or anticipated loss. A hearing would be held subsequently on the issue. Fucich Contracting, Inc. v. Shread-Kuyrkendall and Associates, Inc., 18-2885 (E.D. La. 4/19/19), 2019 WL 1755525.

FEDERAL OFFICER REMOVAL JURISDICTION

Homeowners alleged their property was contaminated and damaged as a result of wrongful acts and/or omissions attributable to the defendants in the construction of pipelines. The pipelines, according to plaintiffs, leaked brine, and potentially other hazardous or toxic substances onto and under plaintiffs’ land. A lawsuit was filed in state court and removed to federal court under the federal officer removal jurisdiction statute, 28 U.S.C. § 1442. Plaintiffs sought removal to state court. The federal court held in order to justify removal under the statute, a party must show that: (1) it is a person under the statute’s meaning; (2) it acted pursuant to a federal officer’s directions; and (3) it can articulate a colorable federal defense.

The court found the first factor was satisfied given the acceptance of corporate entities as private persons. The second factor is satisfied when it is shown a causal connection exists between the charged conduct and the asserted official authority. The defendant removing a matter under the statute must show that it acted pursuant to the government’s direction or control and that these acts caused plaintiffs’ injuries. The defendant must show actual federal supervision/control of its work rather than mere compliance with applicable federal regulations and susceptibility to federal oversight. The court found the evidence supported the inference that the government had actual supervision and control over the work. Further, it found a clear link between the actions taken pursuant to the alleged control and plaintiffs’ specific injuries. The second factor was, thus, satisfied.

As to the third factor requiring a colorable federal defense, the court stated a government contractor is shielded from civil liability when it shows: (1) the United States approved reasonably precise specifications; (2) the contractor’s service confirmed to those specifications; and (3) the contractor warned the United States about any dangers associated with the service known to the contractor but not the United States. The court found, in this instance, the United States government exercised its eminent domain authority to take quasi-ownership of a property for a federal program of particular national interest. The government then allegedly hired a contractor while continuing to exercise control over management of the program. The removing defendant asserted it was supervised by federal officers and all work was done with the knowledge, direction, review and approval of representatives of the government. The court held the removing defendant established a colorable federal defense that is at a minimum plausible. Remand to state court was denied. Boudreaux v. Axiall Corporation, 18-cv-956 (W.D. La. 4/5/29), 2019 WL 2413379.

CRIMINAL CONVICTIONS FOR MISAPPLICATION OF PAYMENTS BY A CONTRACTOR, ENGAGING IN BUSINESS WITHOUT A CONTRACTOR’S LICENSE AND HOME IMPROVEMENT FRAUD

Ernest R. Blackwell was criminally charged with misapplication of payments by a contractor in violation of L.R.S. 14:202 and engaging in business without a home improvement contractor’s license in violation of L.R.S. 37:2160. L.R.S. 14.202 provides criminal penalties for anyone who has received money under a construction contract and fails to apply the money received as necessary to settle claims for material and labor. L.R.S. 37:2160 provides criminal penalties for anyone who engages in the business of contracting or to act as a contractor unless he holds an active license as a contractor. The trial court convicted Blackwell with respect to both charges, and sentenced him to five years imprisonment for the violation of L.R.S. 14:202 and six years imprisonment for the violation of L.R.S. 37:2160. Both sentences were to be served concurrently and included enhancements as a second-felony offender. Further, the court ordered restitution as to the charge for violation of L.R.S. 14:202 of $5,510.11. State of Louisiana v. Blackwell, 18-116 (La.App. 5 Cir. 12/27/18), 263 So.3d 483.

Blackwell was additionally charged with and convicted of a violation of L.R.S. 14:202.1 which prohibits the intentional taking of anything of value which belongs to another by means of fraudulent conduct by anyone who has contracted or subcontracted to perform any home improvement or residential construction, and was sentenced to six months imprisonment. The trial court also ordered restitution in the amount of $38,900.00. State of Louisiana v. Blackwell, 18-118 (La.App. 5 Cir. 12/27/18), 263 So.3d 1234.

SOLIDARY LIABILITY AND CONSPIRACY

The Louisiana First Circuit Court of Appeal ruled that the actionable element in a claim for solidary liability for conspiracy is not the conspiracy itself, but rather the tort which the conspirators agreed to perpetrate and which they actually committed in whole or in part. Under the facts presented, the court held that an architectural firm created the noise and other nuisances, and another party enabled and facilitated its actions. The court of appeal found the trial court was not manifestly erroneous in holding both liable to the claimant in solido for nuisance violations. Since they were solidarily liable, the debt owed was not divided, and each were obligated to the claimant for the whole as if it were alone. There was a dissent which disagreed with the finding of a conspiracy. According to the dissent, the record did not support the conclusion the two parties conspired to create a nuisance. Markerson v. Composite Architectural Design Systems, LLC, 2017-1252 (La.App. 1 Cir. 7/10/18), 255 So.3d 1065.

PAYMENT OF THIRD PARTY EXPENSES UPON TERMINATION OF A PROFESSIONAL SERVICES AGREEMENT FOR CONVENIENCE

The United States District Court for the Eastern District of Louisiana found a party who entered into a professional services agreement with an owner which was terminated by the owner for convenience was entitled, under the agreement, to fees for services performed and reimbursement of third party expenses. But because the agreement required pre-approval of the expenses, the court determined the agreement must have contemplated a budget or, at the very least, some type of negotiation regarding third party expenses before they were presented with thousands of dollars in receipts for such things as dining, legal fees and first class airfare. Since the professional never received approval for the expenses, it could not claim it was entitled to reimbursement. CFP New Orleans, LLC v. Judicial District Court Building Commission Orleans Parish, 16-15474 (E.D. La. 1/7/19), 2019 WL 118009.

INDEMNITY FOR A SETTLEMENT

In considering a claim for contractual indemnity, the United States District Court for the Eastern District of Louisiana found, as a general rule, an indemnitee must establish actual liability and the reasonableness of its settlement to recover from the indemnitor. But an indemnitee need only establish potential liability in certain situations. Actual liability is not required where the indemnitor was tendered the defense and refused it, or where the indemnitee’s claim against the indemnitor is based on a written contract. In such a situation, the indemnitee need only prove potential liability and the reasonableness of any settlement. The written contract at issue contained the indemnity agreement. The court found that it need not consider whether the existence of a written contract alone suffices to trigger the potential liability standard since the indemnitee tendered the defense to the indemnitor, which the indemnitor denied, and continually kept the indemnitor apprised of settlement negotiations. The indemnitor had the opportunity to defend and settle the underlying claim on its own terms, but chose not to. Accordingly, potential liability was found to be the appropriate standard to apply in assessing the indemnitor’s obligation.

To establish potential liability, an indemnitee need only show that the claim was not frivolous, that the settlement was reasonable, and that it was untainted by fraud or collusion, and the indemnitee settled under a reasonable apprehension of liability. While it is necessary for the indemnitee to establish that the underlying claim is covered by the indemnity agreement, the indemnitee, under a potential liability standard, is not required to prove the case against itself. This means the indemnitee must establish that the indemnity agreement was in force as between the indemnitor and the indemnitee, and that the allegations of the original claim exposed the indemnitee to potential liability. The court found that because there was no contention the underlying claim was frivolous or tainted by fraud or collusion, the indemnitee’s potential liability turned on whether it had a reasonable apprehension of liability for the underlying claim. There was sufficient evidence to establish that the indemnitee faced potential liability. The issue of whether the settlement was reasonable was deferred.

The indemnitee also sought attorney’s fees under the agreement. Fees are only recoverable by contract or statute. The court held the plain and unambiguous language of the indemnity agreement provided reasonable attorney’s fees should be awarded in connection with the indemnitee’s defense and settlement of the underlying claim and its pursuit of the lawsuit to enforce indemnity. Chevron Oronite Company LLC v. Jacobs Field Services North America, Inc., 18-2279 (E.D. La 10/10/18), 2018 WL 4909915.

Subsequently, the court considered the issue of reasonableness of the settlement. The court found that once the indemnitee shows it is potentially liable, the burden shifts to the indemnitor to show that the settlement was unreasonable. In the case at hand, the court found the indemnitor did not bear its burden, and was liable to indemnify the indemnitee for the full amount of the settlement. Chevron Oronite Company LLC v. Jacobs Field Services North America, Inc., 18-2279 (E.D. La. 1/23/19), 2019 WL 290642, app. filed (5th Cir. 2/8/19).

INDEMNITY FOR THE FAULT OF ANOTHER AND FOR BREACH OF CONTRACT WITH THIRD PARTIES

The United States District Court for the Eastern District of Louisiana held that a contract of indemnity whereby the indemnitee is indemnified against the consequences of his own negligence is strictly construed, and a contract will not be found to indemnify the indemnitee against such losses unless the intention to do so is expressed in unequivocal terms. Because the indemnity agreement at issue did not include specific language reflecting the required intent of the indemnitor, the agreement could not be construed to require the indemnity. Until the alleged negligence of the parties is established and apportioned, a judgment on the indemnity was premature.

Further, the court held that in cases involving claims for indemnity for one contracting party’s contractual indemnification obligations to a third party, the jurisprudence consistently holds that such a claim is viable only when the applicable contractual language is clear and express and the alleged indemnitor has notice of the obligation and gives his express consent thereto. In the matter before the court, there was no contractual language that suggested the indemnitor intended to indemnify the other for its breach of contract with third parties. DePrado v. City of New Orleans, 18-3302 (E.D. La. 5/13/19), 2019 WL 2088516.

CLAIMS OF A SUBSEQUENT OWNER AGAINST AN ARCHITECT FOR BREACH OF WARRANTY AND BREACH OF CONTRACT

A subsequent owner claimed an architect retained by the prior owner was liable to it for damages for breach of warranty under C.C. art. 2762 and for breach of contract. Article 2762 provides that if a building which an architect or other workman has undertaken to make by the job, should fall to ruin either in whole or in part, on account of the badness of the workmanship, the architect or undertaker shall bear the loss. The United States District Court for the Eastern District of Louisiana found since the subsequent owner never acquired the rights to the architectural contract, the claims for breach of warranty should be dismissed. According to the court, the subsequent owner never acquired the right to enforce the architect’s warranty.

The court held, as to the claim of the subsequent owner against the architect for breach of contract, since the subsequent owner and the architect were not in privity of contract, it could not assert such a claim. This did not, however, preclude the subsequent owner from asserting a claim for damages based on tort law. The court found where the damage sued for is not 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. Cotton Exchange Investment v. Xcel Air Conditioning, 16-17543 (E.D. La. 5/3/19), 2019 WL 1983926.

CONFIRMATION OF AN ARBITRATION AWARD

In refusing to vacate an arbitration award and in confirming the award, the Louisiana First Circuit Court of Appeal stated that even if it was to disagree with the arbitrator’s decision on the merits, there was no evidence that the arbitrator exceeded or imperfectly executed his powers. An award may be vacated only on the grounds provided for by statute. There were no statutory grounds for the district court to vacate or modify the award, and the court was prohibited from reviewing the merits of the decision. The court stated that it had not embraced the additional jurisprudentially-created circumstance of manifest disregard for the law as a legal basis for vacating an arbitration award. Errors of fact or law do not invalidate a fair and honest arbitration award. An arbitrator’s conclusions drawn from conflicting evidence do not equate to misconduct or use of undue means in resolving disputed facts, and, consequently, do not provide a basis for vacating an award. Inland Marine Services, L.L.C. v. Hamp’s Construction, LLC, 2018-1152 (La.App. 1 Cir. 4/12/19), 2019 WL 1577800.

LETTERS OF INTENT, CLAIMS FOR DETRIMENTAL RELIANCE AND UNJUST ENRICHMENT

Matheson Tri-Gas, Inc. contracted with Williamson General Contractors, Inc. for Phase I of a new gas plant. It subsequently issued a letter of intent to Williamson for Phase II of the project. Williamson demanded additional sums to continue its work on Phase I. Matheson directed Williamson not to return to the project until it advised Williamson to do so. Matheson then terminated the business relationship between the parties, and rescinded the letter of intent relating to Phase II. Matheson sued Williamson maintaining it paid Williamson all sums due and owing under the agreements, but Williamson continued to demand additional unreasonable sums to complete the facility, and breached the agreement by abandoning the project before it directed Williamson not to return. Matheson claimed Williamson’s subcontractors filed or threatened to file liens against the facility to recover sums they alleged were owed by Williamson. Matheson sought damages incurred as a result of Williamson’s alleged breaches and subrogation to the rights of any subcontractors it must satisfy based on the liens.

Williamson brought counterclaims against Matheson alleging several theories of recovery. Among other things, Williamson claimed Matheson breached the contract for Phase I and claimed damages for Matheson’s unilateral cancellation of the letter of intent to award the work for Phase II. Matheson moved for summary judgment on Williamson’s claims. The motion was heard by the magistrate judge who made recommendations to the district court.

The letter of intent as to Phase II provided that Matheson assumed no liability in connection with its execution of the letter, confirmed its intent to award the new work to Williamson, and provided it would not be required to compensate Williamson in the event it canceled the letter due to cancellation of the Phase II project for any reason. An attachment to the letter did not provide specifics on key terms including the contract amount, terms and conditions for payment, and delivery date. Instead, it provided those terms would be discussed and decided in contract negotiations. The court noted that agreements in principle or letters of intent referring to subsequent formal agreements to be executed are not binding on the parties even where the instrument thoroughly details the proposed terms and conditions. In addition to leaving key terms open for negotiation, the letter of intent at issue expressly disclaimed any liability of Matheson based on its execution. This was sufficient under Louisiana law to show that the letter of intent did not qualify as a contract, and Williamson could not state a claim for breach of the letter.

Williamson asserted claims for detrimental reliance against Matheson, arguing Matheson misrepresented the sufficiency of the design documents for Phase I. The court noted that detrimental reliance is an equitable doctrine designed to prevent injustice by barring a party from taking a position contrary to its prior acts, admissions, representations or silence. The doctrine is disfavored under Louisiana law, and Louisiana jurisprudence requires that such claims be examined carefully and strictly. Detrimental reliance requires: 1) a representation, 2) justifiable reliance on the representation, and 3) a change in position to the plaintiff’s detriment as a result of the reliance. Detrimental reliance must be premised on a specific promise; a plaintiff may not recover for reliance on an omission. Further, the reliance must be justified.

Williamson claimed Matheson affirmatively misrepresented the completion and sufficiency of design documents for the work to be performed on Phase I, and that it reasonably relied on these representations in submitting its bid by assuming the documents were accurate and complete in their entirety and ready for construction. Matheson argued that nothing in the original agreement for Phase I alluded to the completion of design documents, and Williamson could not claim justifiable reliance on any representation by assuming the documents were accurate and complete. The court found the testimony of Williamson’s representative indicating he regarded the initial designs as “preliminary,” was insufficient to contradict Williamson’s assertion of affirmative misrepresentations on the completeness of the design documents, and the claim for detrimental reliance would survive summary judgment.

The court held a claim for unjust enrichment exists where a plaintiff can show: 1) an enrichment, 2) an impoverishment, 3) a connection between the two, 4) absence of justification for the two, and 5) the absence of any other remedy at law. Unjust enrichment is a subsidiary remedy and is only applicable to fill a gap in the law where no express remedy is provided. When a claim is based on a relationship controlled by an enforceable contract, the plaintiff must seek his remedies on the contract and has no claim for unjust enrichment. Quantum meruit is a similar remedy. It supplies a term to measure damages where a contract is implied from the circumstances, but there is no agreement on compensation. Like unjust enrichment, it is subsidiary to a breach of contract claim.

Both the unjust enrichment and quantum meruit claims of Williamson were based on the original agreement and change orders for Phase I. Those writings formed enforceable contracts and governed the payment terms for that work. The court found Williamson already had a remedy at law for the claims, regardless of their ultimate success or failure. Accordingly, it could not prevail on a claim for unjust enrichment or quantum meruit, and Matheson was entitled to summary judgment on the claims.

The foregoing were recommendations of the magistrate judge to the district court on the motion for summary judgment of Matheson. Matheson Tri-Gas, Inc. v. Williamson General Contractors, Inc., 2:16-cv-1303 (W.D. La. 2/28/19), 2019 WL 1562247, report and recommendation adopted, 2:18-cv-1303 (W.D. La. 4/10/19).

DETERMINATION OF THE VALIDITY OF AN ARBITRATION AGREEMENT

In four separate per curium decisions, apparently involving the same underlying litigation, the Louisiana Supreme Court held that since plaintiff’s allegations regarding the validity of an arbitration agreement were intertwined with its arguments regarding the nullity of the underlying agreement, the issue was properly presented to the arbitrator, and not the court. Berotte v. Bechtel OG&C Construction Services, Inc., 2018-1973 (La. 2/18/19), 266 So.3d 895; Hill v. Bechtel OG&C Construction Services, Inc., 2018-1974 (La. 2/18/19), 263 So.3d 1148; Anderson v. Bechtel OG&C Construction Services, Inc., 2018-1975 (La. 2/18/19), 263 So.3d 883; Acosta-Villarreal v. Bechtel OG&C Construction Services, Inc., 2018-2001 (La. 2/18/19), 263 So.3d 876.

CLAIM FOR PAYMENT AND SETOFF

A subcontractor claimed it was owed a balance under its subcontract. The court of appeal found the general contractor’s claims of contractual default on the part of the subcontractor created genuine issues of material fact as to whether there could be a setoff. Summary judgment in favor of the subcontractor was reversed. Hamp’s Construction, LLC v. 1031 Canal, L.L.C., 2018-0686 (La.App. 4 Cir. 2/27/19), So.3d, 2019 WL 959821.

ARBITABILITY OF A DISPUTE

The Lower Colorado River Authority (LCRA) entered into an agreement with Papalote Creek II, L.L.C. wherein Papalote agreed to build an 87-turbine wind farm in Texas and LCRA agreed to purchase all of the energy. A limitation of damages provision in the agreement provided that Papalote’s liability for a failure to construct and operate the wind farm would be limited in the aggregate to $60,000,000. LCRA’s damages for failure to perform its obligations was also $60,000,000. The agreement contained a two-step arbitration procedure. The first step required that if any dispute arises with respect to either party’s performance, their senior officials would meet in an attempt to resolve the dispute. The second step required that if the dispute was not resolved through the first step within a certain time frame, either party may submit the dispute to binding arbitration.

LCRA sent a letter to Papalote stating that pursuant to the second step in the arbitration process, it was initiating arbitration to resolve a dispute between LCRA and Papalote regarding LCRA’s limitation of liability under the agreement and its impact on its performance obligations. Papalote rejected the request to proceed to arbitration reasoning that an academic question about the damages LCRA might owe for a hypothetical breach simply does not constitute a dispute that is proper for arbitration under the agreement. It argued further that a dispute over LCRA’s potential liability limitation was not covered by the arbitration provisions which were limited to disputes regarding performance obligations.

The United States Court of Appeals for the Fifth Circuit held that if an arbitration clause restricts the arbitrator’s power to an interpretation of the contract, it leaves the arbitrator powerless to decide matters on which the agreement is silent. The opposite is also true: if the arbitration clause limits arbitration to performance related disputes, then the arbitrator cannot decide other matters such as interpretive disputes. The court held the arbitration clause clearly signified the intent of the parties to limit arbitration to performance related disputes only, and the arbitration clause neither requires nor authorizes arbitration of disputes related to the interpretation of the agreement.

The court held LCRA’s dispute was related to interpretation of the agreement, not a performance-related dispute, and did not fall within the scope of the arbitration clause. Interpretive disputes arise when the parties disagree over the meaning of the text. LCRA’s demand letter framed the dispute as an interpretive dispute in stating the dispute is whether LCRA’s liability is limited to $60,000,000 under the agreement. Further, LCRA’s brief on appeal observed the dispute was about the meaning of the liability limitation. The issue could be answered without any reference to factual allegations of failure to perform. LCRA’s dispute was squarely in the realm of interpretation.

The order the district court compelling arbitration was reversed, and the matter remanded for further proceedings. Papalote Creek II, L.L.C. v. Lower Colorado River Authority, 918 F.3d 450 (5 Cir. 2019).

WORKERS’ COMPENSATION STATUTE IMMUNITY AND INDEPENDENT CONTRACTORS

Jorge-Chavelas and Moreno-Abarca were injured while working on a Louisiana sugarcane farm. The farm was operated by Harang Sugars, LLC. Chavelas and Abarca were employees of Lowry Farms, Inc. which contracted to provide short-term workers to Harang. Chavelas and Abarco sued Harang in tort for their injuries. The issue was whether Harang was entitled to statutory immunity from the claims.

The workers’ compensation statute, L.R.S. 23:1021(7), provides that an independent contractor who is engaged primarily in manual labor has a claim for workers’ compensation against his principal. In such a case, the principal is immune from a tort claim by the contractor. The court found Chavelas and Abarca were employees of Lowry, and not Harang, and were not themselves independent contractors as to Harang. As a result, Harang was not entitled to immunity from the tort claims. Jorge-Chavelas v. Louisiana Farm Bureau Casualty Insurance Company, 917 F.3d 847 (5th Cir. 2019).

ARBITABILITY OF THE ISSUE OF WHETHER AN ARBITRATION AGREEMENT APPLIES TO A PARTICULAR DISPUTE

The U.S. Supreme Court held that the question of who decides whether an arbitration agreement applies to a particular dispute, a court or an arbitrator, is a question of contract. The Federal Arbitration Act allows parties to agree by contract that an arbitrator, rather than a court, will resolve threshold arbitability questions as well as the merits of an underlying dispute. Some federal courts have recognized an exception to that rule where the argument the arbitration agreement applies to a particular dispute is “wholly groundless.”

The U.S. Supreme Court concluded that the exception was not consistent with the Federal Arbitration Act, and it was not at liberty to rewrite the statute. In the matter before the court, the parties agreed to arbitration in accordance with the Rules of the American Arbitration Association. Those rules provide that arbitrators have the power to resolve arbitability questions. The judgment of the Court of Appeals which affirmed the decision of the district court relying on the “wholly groundless” exception was vacated. Henry Schein, Inc. v. Archer and White Sales, Inc., 139 S.Ct. 524 (2019).

RESPONSIBILITY FOR MATERIALS UNTIL WORK IS COMPLETED

Command Construction Industries, LLC was the general contractor on a road project for the Louisiana Department of Transportation and Development (DOTD). It subcontracted the signalization and electrical work to Sun Industries, LLC. Disputes developed during the course of the work. Sun walked off of the job, but eventually returned to complete its work. During the time Sun had left the project, damage was caused to a conduit it had installed. Sun claimed it was entitled to recover from Command damages caused to the conduit. The jury awarded tort damages to Sun and against Command.

Section 6 of the subcontract between Command and Sun provided that Sun was solely responsible for all materials until the subcontract work was completed to DOTD’s satisfaction. Sun contended the DOTD paid Command for the portion of work involving the conduit before its damage, and was, therefore, completed to DOTD’s satisfaction. Accordingly, Sun was no longer responsible for the conduit after the approval by DOTD. The court interpreted Section 6 as placing all risk of loss on Sun until the subcontract work was completed. The question was whether the “subcontract work” included Sun’s entire scope of work or each discrete portion for which Command had received payment. The court found the “subcontract work” encompassed the entire scope of the subcontract. Since all risk was placed on Sun until completion of all of the subcontract work, there was insufficient evidence to support an award in favor of Sun. Trafficware Group, Incorporated v. Sun Industries, L.L.C., 749 Fed.Appx. 247 (5th Cir. 2018).

THE LOUISIANA OIL FIELD AND CONSTRUCTION ANTI-INDEMNITY ACTS AND INSURANCE

Employees of an owner and contractor were working on a gas pipeline when an explosion occurred injuring two employees of the contractor. The owner was sued by the employees. The contract between the owner and contractor required the contractor to indemnify the owner against such claims regardless of fault, and to obtain liability insurance naming the owner as an additional insured. The owner sought indemnity from the contractor and coverage under its liability policy.

The court first considered whether the pipeline which was built pursuant to the contract at issue was subject to the La. Oilfield Anti-Indemnity Act, L.R.S. 9:2780. It held that law applied only to wells, and since the contract covered work on a pipeline past the point of comingling the gas it carried, the gas could not be identified with a particular well and was not within the scope of the statute.

The court next considered application of its Louisiana Anti-Indemnity Act, L.R.S. 9:2780.1, which declares null, void and unenforceable any provision in a contract relating to construction that purports to indemnify, defend or hold harmless, or has the effect of indemnifying, defending, or holding harmless, the indemnitee from or against any liability for loss or damage resulting from the negligence or intentional acts or omissions of the indemnitee. The statute also provides that any contract which requires the indemnitor to provide liability insurance covering the acts or omissions or both of the indemnitee is null, void and unenforceable.

The court found L.R.S. 9:2780.1 applies to contracts for the design and construction of oil lines and gas lines. There is an exemption for oil flow lines and gas gathering lines carrying commingled oil or gas. The pipeline at issue transported raw natural gas liquids from a gas gathering facility. Because it did not come from a current production facility, it was not a gas gathering line, and was subject to the law.

There is an exception to the prohibition against insurance if there is evidence the indemnitor recovered the cost of the required insurance in the contract price. The court found in the case presented the indemnitor had not recovered the cost of the insurance in the contract price. The exception did not, therefore, apply. Atlantic Specialty Insurance Co. v. Phillips 66 Co., 17-9318 (E.D. La. 2/5/19), 365 F.Supp.3d 706 (E.D. La. 2019).

IMMUNITY OF A PUBLIC ENTITY FOR DISCRETIONARY ACTS

With some exceptions, L.R.S. 9:2798.1 provides immunity from liability for public entities in the exercise or performance or the failure to exercise or perform their policy making or discretionary acts when such acts are within the course and scope of their lawful powers and duties. There is no statutory exception for the negligent performance of such acts. The New Orleans Sewerage and Water Board moved for summary judgment based on the statute for a claim by a homeowner for damages resulting from flooding associated with the repair of street drainage near his home. The court held the decision to conduct the street repairs was discretionary, and protected by the discretionary immunity statute. The Sewerage and Water Board was not, however, immune from liability for negligent conduct in carrying out the repairs. Spector v. USAA Casualty Insurance Company, 18-8806 (E.D. La. 2/14/19), 2019 WL 629866.

CHALLENGE TO A PUBLIC BID REJECTED

Bids were received for a road project advertised by the Tangipahoa Parish Government from Beverly Construction Co., LLC and Barriere Construction Co., LLC. The total bid of Beverly was $6,381,428.00. Barriere’s total bid was $7,327,207.50. Claiming a clerical error, Beverly revised its bid to a total of $7,157,414.00 which was still below the total bid of Barriere of $7,327,207.50. Barriere sued for a preliminary injunction restraining the parish government from awarding the contract to any bidder other than it. The trial court denied the injunction. Barriere appealed.

Beverly cited L.R.S. 38:2212B(6)(c) as authority for allowing the revision of its bid. The statute provides that if the public works requires unit price bids, which this did, and there is a discrepancy between the base bid total and the sum of the extended unit prices, which Beverly contended there was, the unit price bid shall govern. Barriere contended that L.R.S. 38:2214(C) and (D) provided a recourse which was available to bidders who submitted bids with calculation errors, and argued it conflicted with the statute relied upon by Beverly. L.R.S. 38:2214(C) and (D), provides for the withdrawal of bids for such things as clerical errors. Barriere also argued the Information to Bidders provided by the parish government stated that all blanks must be “appropriately” filled in and that the total amount of the bid shall be the sum of the “correct” extension of the unit prices, and Beverly failed to comply with that requirement which could not be waived.

The court of appeal found that the statute cited by Beverly, L.R.S. 38:2212(B)(6)(c), applied. The decision of the trial court was affirmed. Barriere Construction Co., LLC v. The Parish of  Tangipahoa, 2018-0279 (La.App. 1 Cir. 9/24/18), 259 So.3d 458.

NOTICE OF A SUBCONTRACTOR OF A CLAIM AGAINST A GENERAL CONTRACTOR FOR A PUBLIC WORKS PROJECT

L.R.S. 38:2247 requires for purposes of public contracts that before any claimant having a direct contractual relationship with a subcontractor but no contractual relationship with the contractor shall have a right of action against the contractor or the surety on the bond furnished by the contractor, he shall give written notice to the contractor within 45 days from the recordation of the notice or acceptance by the owner of the work or notice of the owner of the default, stating with substantial accuracy the amount claimed and the name of the party to whom the material was furnished or supplied or for whom the labor or service was done or performed. The notice is required to be served by mailing it by registered or certified mail, postage pre-paid, in an envelope addressed to the contractor at any place he maintains an office in the state of Louisiana. In considering whether a subcontractor had a valid claim against the general contractor and its surety, the United States Court of Appeals for the Fifth Circuit found that notice by email to the contractor’s outside counsel did not satisfy the requirements of the statute. The subcontractor, accordingly, had no right of action under the Public Works Act. 84 Lumber Company v. Continental Casualty Company, 914 F.3d 329 (5th Cir. 2019).

ACTION BY A SURETY TO RECOVER PAYMENTS MADE

A subcontractor on a public works project provided surety bonds to secure the performance of its work and insure payment to its subcontractors and suppliers. A General Indemnity Agreement was executed in favor of the surety and against the subcontractor and several of its representatives pursuant to which the subcontractor and its representatives agreed to indemnify and hold the surety harmless from and against any and all demands, liabilities, losses, costs, damages, attorney’s fees and expenses incurred by the surety as a result of issuing bonds on behalf of the subcontractor, and to reimburse the surety for any disbursements made by it in good faith. In addition, the subcontractor and its representatives, as indemnitors, assigned to the surety their right, title and interest in any causes of action, claims, demands, or actions of whatsoever kind that the subcontractor might have against any party to a contract with the subcontractor. Further, they gave the surety the right, and its sole and absolute discretion, to adjust, settle, prosecute, defend, compromise, litigate, protest, or appeal any claim, demand, suit, award, assessment or judgment on or in connection with any bond, bonded contract or contract, and irrevocably designated the surety as their attorney-in-fact with the right, but not the obligation, to exercise all of the rights assigned, transferred and set over to the surety.

The surety paid claims of the general contractor against the surety and subcontractor, and waived the subcontractor’s rights against the general contractor. The surety also paid claims asserted by sub-subcontractors and suppliers. It incurred expenses, including those related to the retention of a consultant and two law firms to assist in investigating and defending the claims under the bonds. The surety sued the subcontractor and its representatives pursuant to the General Indemnity Agreement to recover the amounts paid and attorney’s fees, costs and expenses incurred. The subcontractor filed a counter claim against the surety asserting causes of action for (1) bad faith breach of the General Indemnity Agreement; (2) bad faith breach of the performance bond; (3) bad faith breach of the payment bond; (4) bad faith breach of fiduciary duty; (5) detrimental reliance; and (6) liability for the subcontractor’s claims against the general contractor. The surety moved to dismiss the claims for bad faith breach of the General Indemnity Agreement, bad faith breach of the performance bond, bad faith breach of the payment bond, and bad faith breach of a fiduciary duty.

The court found the plain terms of the performance and payment bonds did not impose any obligations upon the surety in favor of the subcontractor or its representatives. The bonds did nothing more than enumerate conditions under which the surety’s obligations to pay the general contractor or the subcontractors, and suppliers are triggered. Because the surety owed no obligations to the subcontractor or its representatives under the terms of the bonds, they failed to state a claim for bad faith of such contracts.

The court next considered the claim of the subcontractor and its representatives that the surety breached the General Indemnity Agreement in bad faith. The court found the General Indemnity Agreement imposed no obligations upon the surety in favor of the subcontractor and its representatives such that there could be no affirmative claim for bad faith breach of the Agreement. The surety owed no obligation to the subcontractor and its representatives pursuant to the Agreement.

The court considered the claim that the surety breached its fiduciary duty to the subcontractor in bad faith. The subcontractor and its representatives alleged that the surety owed a fiduciary duty to the subcontractor when utilizing its power of attorney to settle the subcontractor’s claims against the general contractor and that the surety breached that duty when it arbitrarily and capriciously settled the claims. The court considered whether the rights granted to the surety under the General Indemnity Agreement establish a mandate under Louisiana law. It found the power of attorney provision allowed the surety to carry out the rights assigned to it by the subcontractor and its representatives for the surety’s own benefit. Unlike a mandate, this provision does not require the surety to undertake any performance. Moreover, even if the power of attorney did constitute a mandate, the relationship between the parties was governed by the terms of the General Indemnity Agreement in which the subcontractor and its representatives gave the surety the right in its sole and absolute discretion to settle any claim, demand, suit, award, assessment, or judgment in connection with the bonds. The surety owed no fiduciary duty to the subcontractor in carrying out that right. Because the surety owed no fiduciary duty to the subcontractor and its representatives, they failed to state a claim against the surety for bad faith breach of a fiduciary duty.

The motion of the surety to dismiss was granted, and the claims subject to the motion were dismissed. The claims against the surety for detrimental reliance and liability for the subcontractor’s claims against the general contractor remained before the court. U.S. Specialty Insurance Co. v. Strategic Planning Associates, LLC, 18-7741 (E.D. La 1/23/19), 2019 WL 296864.

JUDGMENT ON AN OPEN ACCOUNT NOT FINAL AND WAS NOT APPEALABLE

The trial court issued a judgment on a petition on an open account which provided the petitioner was entitled to recover reasonable attorney’s fees, but did not specify the amount of the fees. The court of appeal held that because the exact amount of attorney’s fees could not be determined from the judgment, there was no final, appealable judgment. The court of appeal, therefore, lacked subject matter jurisdiction, and the appeal was dismissed. Advanced Leveling & Concrete Solutions v. The Lathan Company, Inc., 2017-1250 (La.App. 1 Cir. 12/20/18), 268 So.3d 1044. Presumably, the trial court would have to set the amount of the attorney’s fees, and the amount so set could be reviewable by the court of appeal.

ADEQUACY OF A STATEMENT OF CLAIM OR PRIVILEGE

The Louisiana First Circuit Court of Appeal found that a private works lien which set forth the address of the property as to which work was performed, the amount of the claim and that it was for labor performed and/or materials sold and delivered and actually used in improvements to the property, and the invoices attached to the lien affidavit which specifically listed the rooms in which work was performed and the amount charged for the work, reasonably identified the immovable, and set forth the amount and itemized the elements that comprised the lien as required by L.R.S. 9:4822. Carr Stone, Inc. v. Shad, 2018-0876 (La.App. 1 Cir. 12/21/18), 2018 WL 6716971, writ denied, 2019-0131 (La. 3/18/19), 267 So.3d 94.

ISSUE AS TO WHETHER OR NOT AN ARBITRATION CLAUSE WAS VOID BY REASON OF FRAUD TO BE DECIDED BY THE ARBITRATOR AND NOT THE COURT

The Federal Arbitration Act (FAA) requires that the courts treat an arbitration clause as severable from the contract in which it appears and enforce it according to its terms unless the party resisting arbitration specifically challenges the enforceability of the arbitration clause itself. The U.S. Supreme Court has interpreted the FAA to require, unless the parties stipulate otherwise, that claims of fraud in the inducement of a contract containing an arbitration clause are decided by the arbitrator, not the court. The Louisiana First Circuit Court of Appeal followed that rule in a matter where a party contended the arbitration clause was void because its consent was vitiated by fraud in the inducement of the contract, and held the question must be decided by the arbitrator, and not the court. In this instance, the contract providing for arbitration adopted the Rules of the American Arbitration Association. Rule R-7 provides that the arbitrator shall have the power to rule on his or her own jurisdiction, including the validity of the arbitration agreement. The court found the Rule was clear and unmistakable evidence of the parties’ intent to delegate the issue of whether the clause was enforceable to the arbitrator, and the question of whether the arbitration clause itself was induced by fraud must be decided by the arbitrator. Florida Gas Transmission Company, LLC v. Texas Brine Company, LLC, 2017-0304 (La.App. 1 Cir. 12/6/18), 267 So.3d 633.

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