Baldwin Haspel Burke & Mayer LLC

Construction Law Update – January 2021

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 2021 Construction Law Update by clicking here.

BREACH OF A CONTRACT BY ONE PARTY EXCUSES THE OTHER FROM PERFORMANCE

The United States District Court for the Eastern District of Louisiana in a dispute concerning termination of a contract held breach of the contract by the owner excused the contractor from adhering to certain procedures for presenting a claim. The court followed Louisiana state court jurisprudence which holds that where one party substantially breaches a contract, the other party has a defense and an excuse for non-performance. Parkcrest Builders, LLC v. Housing Authority of New Orleans, 15-1533 (E.D. La. 12/2/20), 2020 WL 7060148.

MEDIATION, LIENS AND OWNERSHIP OF DRAWINGS AND SPECIFICATIONS

An architect sued the owners of a project for payments for work it contended was outside the scope of the original contract. The architect listed several causes of action in its lawsuit including intentional interference with contract and a claim to enforce its lien rights. The defendant owners filed an exception of no cause of action asserting that the work performed by the architect was within the scope of work outlined in the contract, and the architect was paid for all such work. Additionally, they contended the architect had no cause of action for intentional interference with contract. The defendant owners, simultaneously, filed an exception of prematurity alleging that based on the mediation provisions of the contract, the lawsuit should be dismissed and the parties ordered to mediate their disputes. The trial court granted the exception of prematurity. It also granted the exception of no cause of action, but only with respect to the architect’s claim for intentional interference of contract. Although not demanded in the exceptions filed by defendants, the trial court ordered that the architect’s lien be cancelled and that its plans and specifications be returned to the defendants.

On an application for writs to the court of appeal, that court found the trial court erred in granting the defendants’ partial exception of no cause of action resulting in the dismissal of Billes’ intentional interference with contract claim. The mediation requirement provided that if matters were related to or were the subject of a lien arising out of the architect’s services, the architect may proceed in accordance with applicable law to comply with the lien notice or filing deadlines prior to resolution of the matter by mediation or by binding dispute resolution. The court found the architect, by virtue of the mediation requirement, was not precluded from seeking a lien, and was not required to wait until completion of mediation proceedings to file a lien. The trial court erred in dismissing the lien as premature.

The architect’s contract provided that the architect, rather than the defendant owners, was the owner of its instruments of service, including drawings and specifications. It was clear the architectural plans created by the architect belonged to him. The trial court’s order that the architect be forced to turn over its plans to defendants was contrary to the provisions of the contract, and was reversed. Billes Partners, LLC v. The New Orleans African-American Museum of Art, 2020-0471 (La.App. 4 Cir. 11/12/20), ___ So.3d ___, 2020 WL 6689570.

WAIVER OF SUBROGATION AND THE ANTI-SUBROGATION RULE

A general contractor purchased builders risk insurance policies from two insurers for a project. Its mechanical contractor purchased commercial general liability insurance from a single insurer. During a test of the water supply by the mechanical subcontractor, water escaped and leaked into several floors causing water damage. The builders risk insurers, under the policies provided by the general contractor, paid the owner for the damages. They then sued the mechanical subcontractor and its insurer representing they were assigned the owner’s rights pursuant to the payment and were legally and conventionally subrogated to the owner’s rights to recover damages from responsible persons. They also claimed the commercial general liability policy provided by the subcontractor was primary and should have covered the damages sustained as a result of the incident. The mechanical subcontractor and its insurer both moved for summary judgment. The trial court denied the motions. The mechanical subcontractor and its insurer applied to the court of appeal for a supervisory writ.

The general conditions for the project, which were applicable to the owner, general contractor, and subcontractors, contained a waiver of subrogation clause which applied to damages caused by losses to the extent covered by insurance applicable to the work. The court of appeal found the clause precluded the general contractor’s insurers from bringing claims against the mechanical subcontractor and its insurer caused by a risk of loss covered by the builders risk policies provided by the general contractor’s insurers.

The court also considered the question of whether the mechanical subcontractor, which was found to be an additional insured under the builders risk policies, could be sued. The builders risk policies prohibited subrogation against an additional insured. The court held the policies were consistent with the anti-subrogation rule, which provides that no right of subrogation can arise in favor of an insurer against its own insured. The policies, thus, prohibited the general contractor’s builders risk insurers from recovering against the mechanical subcontractor and its insurer. The judgment of the trial court was vacated and summary judgment rendered. Starr Surplus Lines Insurance Company v. Bernhard MCC, L.L.C., 20-78 (La.App. 5 Cir. 12/2/20), ___ So.3d ___, 2020 WL 7051977.

CLAIMS AGAINST A SURVEYOR PEREMPTED

The Louisiana First Circuit Court of Appeal found, since a surveyor did not design, build, or construct a subdivision or any lots or homes within the subdivision, and did not perform inspections of any construction work, that the right to bring any claim against it related to the surveying activities perempted five years after it completed the surveys under L.R.S. 9:5607. The statute establishes a five-year peremptive period for designers and surveyors.

The court also found the claimant did not establish fraud on the part of the surveyor. Fraud is an exception to the statute. While factual disputes existed as to whether the surveyor’s measurements were erroneous, the plaintiff offered no factual support sufficient to establish the existence of a genuine issue of material fact as to whether the surveyor was aware of any discrepancy or alleged error at the time it completed the surveys at issue, or as to whether the surveyor knowingly misrepresented the elevations. Other than the claimant’s argument that when faced with differing elevation measurements by another surveyor, the surveyor defended the accuracy of his surveys and failed to acknowledge that his measurements – upon which he continued to rely on in conducting other surveys – were incorrect, plaintiff did not point to any evidence, direct or circumstantial, to establish the existence of a genuine issue of material fact as to any alleged fraudulent misrepresentation. While fraud may be established by circumstantial evidence, including highly suspicious facts and circumstances, the court found the summary judgment evidence submitted by plaintiffs was devoid of any suspicious circumstances or facts to establish a genuine issue of material fact as to whether fraud could be inferred.

The court of appeal found no error in the trial court’s grant of summary judgment finding the claims against the surveyor were perempted. The trial court judgment was affirmed, and the claims against the surveyor dismissed. Markiewicz v. Sun Construction, L.L.C., 2019-1590 (La.App. 1 Cir. 9/18/20), 2020 WL 5587265.

CHALLENGES TO A PUBLIC BID

The State of Louisiana, Division of Administration, Office of Facility Planning and Control solicited bids for work at the LSU Health Sciences Center in New Orleans. Bids were submitted by CORE Construction Services, LLC, J. Caldarera & Company, Inc., Woodward Design+Build, LLC, the McDonald Group and Citadel Builders. Caldarera submitted the apparent lowest bid. Woodward was the second lowest bidder and CORE the third lowest bidder.

The State set the quantity of one as the number of units for each system. The State advised Caldarera its bid was rejected as non-responsive because of its failure to state the amounts for the fire detection and alarm systems in figures as instructed on the unit price form. CORE sued to have the project awarded to it, contending Woodward’s bid was non-responsive because it incorrectly identified the name of the entity submitting the bid as “Woodward Design+Build, LLC, a Louisiana Limited Liability Company,” and there was no company registered with the Louisiana Secretary of State by that name. CORE sued as well to have the project awarded to it. Woodward intervened in both lawsuits. The trial court denied the relief sought by CORE and Caldarera. CORE and Caldarera appealed.

Caldarera contended it was not required to provide a unit price for the fire detection and alarm systems because it was not a true “unit price” within the meaning of the Public Bid Law, and the bid at issue was a lump sum bid. The court of appeal found the bid documents clearly stated that bidders were required to submit a unit price for the systems, and Caldarera failed to state an amount in figures on the unit price form. There was no error on the part of the trial court in finding Caldarera’s bid was non-responsive and denying Caldarera’s request for relief.

Woodward’s contractor’s license was issued in the name of “Woodward Design+Build, LLC,” but the name on the bid form for the project was “Woodward Design+Build, LLC, a Limited Liability Company.” CORE contended the bid violated the Louisiana Administrative Code requirements since the project was bid in a name other than that found in official records of the licensing board for contractors. The court of appeal found Woodward did not submit its bid under a completely different name, and simply added “a Louisiana Limited Liability Company” following the name in which it was licensed. There was no difference between “Limited Liability Company” and “LLC;” both are permissible names for limited liability companies. There was no merit to CORE’s argument that Woodward violated the rule by submitting a bid in a name other than that found in the official records of the Licensing Board for Contractors.

The court of appeal found it was insignificant that Woodward submitted its bid under “Woodward Design+Build, LLC, a Limited Liability Company,” and signed the bid bond under Woodward Design+Build, LLC. Furthermore, there is no requirement in the public bid law or the bidding documents that mandates how a project must be identified on a bid bond. In this instance, the bidding documents used different levels of specificity in describing the project, and the project description on the bid bond was almost identical to that found on the bid form. Objections to Woodward’s bid based on these issues were without merit.

The judgment of the trial court was affirmed. CORE Construction Services, LLC v. State of Louisiana, Division of Administration, Department of Facility Planning and Control, 2019-0857 (La.App. 1 Cir. 8/5/20), ___So.3d___, 2020 WL 4498870, writ denied, 2020-01088 (La. 11/24/20), 305 So.3d 103.

REQUEST FOR PRELIMINARY INJUNCTION BY LOW BIDDER TO ENJOIN THE AWARD OF A PUBLIC WORKS CONTRACT TO ANOTHER CONTRACTOR DENIED AS MOOT

K Construction, Inc. alleged it was the low bidder on a public works project for the City of Slidell. The city advised K Construction it was disqualified as a non-responsible bidder because it sued the city in another matter, and those claims were dismissed. K Construction filed a petition for preliminary injunction, affirmative injunction, declaratory judgment and damages. The trial court denied the request for a preliminary injunction to prevent the award of the contract to another contractor finding the City had not abused its discretion in determining K Construction was a non-responsible bidder. K Construction appealed. After the appeal was taken and while it was pending, the city executed a contract for the project with another contractor. In view of the signed contract, the City moved to dismiss the appeal on the basis it was moot. An issue is moot when a judgment or decree on the issue has been deprived of practical significance or made abstract or purely academic. A matter is moot when a rendered judgment or decree can serve no useful purpose and give no practical relief or effect.

The court of appeal found that in the context of a preliminary injunction, courts will not review a case in which only injunctive relief is sought and where the need for the injunctive relief has ceased to be a justifiable issue. An injunction may be used to prevent, but not correct a wrong; it cannot be employed to redress an alleged consummated wrong or undo what has already been done. The request for a preliminary injunction to enjoin the City from awarding the contract was the sole matter adjudicated by the trial court. Since a contract for the project was executed, the appeal did not raise a present and actual dispute upon which a judgment of the court could effectively operate through a decree, and was dismissed as moot. This would not affect K Construction’s claim for damages. K Construction, Inc. v. City of Slidell, 2020-0198 (La.App. 1 Cir. 11/6/20), ___ So.3d ___, 2020 WL 6536428.

REVERSAL OF DENIAL OF MOTION TO STAY PENDING ARBITRATION

In reversing the trial court’s judgment denying a party’s motion to stay pending arbitration, the court of appeal stated that the issue of whether a party to an arbitration agreement has waived arbitration is for the arbitrator to decide. Additionally, the parties incorporated in their agreement the Construction Industry Arbitration Rules of the American Arbitration Association, which provide that the arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement. Livingston Parish Library System v. Brunt Construction, Inc., 2020-0370 (La.App. 1 Cir. 7/6/20), 2020 WL 3639857.

WAIVER OF ARBITRATION

The Louisiana First Circuit Court of Appeal held the jurisprudence requires that the issue of whether a party to an arbitration agreement has waived arbitration is for the arbitrator to decide. Additionally, the parties adopted the American Arbitration Association’s Construction Industry Arbitration Rules which provide that the arbitrator shall have the power to rule on his or own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement. The defendant’s exception of prematurity and motion to stay pending arbitration was granted. Covenant General Contractors, Inc. v. S.J. Louis Construction of Texas, Ltd., 2020-0939 (La.App. 1 Cir. 12/8/20), 2020 WL 7226074.

LOUISIANA DIRECT ACTION STATUTE AND COVERAGE FOR DAMAGES TO PROPERTY

Property owners contended their contractor performed faulty work in the elevation of their home. They sued the contractor for damages resulting from the faulty work, and also sued the contractor’s liability insurer pursuant to the Louisiana Direct Action Statute for the damages. The insurer moved to dismiss the claims contending the Direct Action Statute, L.R.S. 22:1269, does not allow use of the statute to sue for breach of contract claims, and the damages were not covered by the policy since they did not occur during its policy term.

The court found that all of the claims of the owner against the contractor arose from the contractor’s express or implicit obligations under its contract. The negligence claims were derivative of and implicit in the contractor’s obligations under the contract to perform the work in a good, workmanlike manner. Because the claims against the contractor were based in contract and not tort, the owners had no procedural right to sue the insurer under the Direct Action Statute. Louisiana state and federal courts have consistently held that the Louisiana Direct Action Statute applies only to torts and not to contract disputes.

The insurance policy provided that it applied to claims for bodily injury and property damage only if such damage occurred during the policy period. Louisiana courts apply the “manifestation theory” to determine when damage occurs for purposes of triggering coverage under insurance policies. Under that theory, insurance coverage applies if the property damage manifests during the policy period, regardless of when the act from which it resulted occurred. The owners asserted in their pleadings that the alleged damages from the elevation contract did not manifest until after the policy period expired. Because there was no occurrence of property damage during the policy period, coverage under the insurer’s insurance policy was not triggered. The claims against the insurer were dismissed. Rosalind C. Pate v. Tim Clark Construction, LLC, ___ F.Supp.3d ___ (E.D. La. 2020), 2020 WL 5577851.

CLAIM FOR FAILURE TO MITIGATE DAMAGES AND ALTER-EGO THEORY

An architect sued the owner of a project – a limited liability company – for payments under its contract, and also sued the members of the LLC for the payments under the alter-ego theory of liability. Judgment was rendered by the district court in favor of the architect and against the LLC and its members. The LLC and its members appealed.

One of the issues was the claim by the LLC and the owners that the architect failed to mitigate its damages in allowing amounts owed under the contract to unreasonably accrue. The court of appeal rejected the claim that the architect had a duty to mitigate its breach of contract claim in this respect.

The LLC and its owners also contended the trial court erred in finding the members of the LLC liable under an alter-ego theory. They argued any claim against the members was controlled by L.R.S. 12:1320(D) which provides for instances when the members of an LLC can be responsible for the LLC’s debts, but does not include the alter-ego theory. The court of appeal held the jurisprudence relied upon by the LLC and its members neither addressed the veil-piercing doctrine, nor held that it was inapplicable in the limited liability company context. The architect did not rely upon the statute. The court of appeal found the trial court’s reliance on the veil-piercing doctrine was not legal error, and was appropriate. Mathes Brierre Architects, A Professional Corporation v. Karlton/ISG Enterprises, LLC, 2019-0357 (La.App. 4 Cir. 12/3/20), ___ So.3d ___, 2020 WL 7066428.

NO INSURANCE COVERAGE FOR DEFECTIVE WORK

In considering a claim that a contractor’s liability insurance policy covered damages for a flooded home it built, the United States Fifth Circuit Court of Appeals held the exclusion for “Damage to Your Product” precluded coverage. The exclusion stated that property damage to “your product” arising out of it or any part of it was not covered. The court held the exclusion reflects the intent of the insurance industry to avoid the possibility that coverage under a CGL policy will be used to repair and replace the insured’s defective products and faulty workmanship. The court concluded the entire residence at issue was the contractor’s product, and, therefore, damages to the building were excluded from coverage. Both the contractor and owner argued the exclusion did not apply to costs to repair damaged, non-defective components of the residence. The court held Louisiana jurisprudence did not support the argument.

It was also contended that there was coverage for the failure of the contractor to (1) provide positive storm water drainage for the lot, (2) prepare a drainage plan for the house and lot, and (3) comply with the International Building Code regarding drainage and slope adjacent to the house. The court found these damages were excluded because they either resulted in injury to the contractor’s work product or arose out of its deficient work performance. The underlying judgment led to the conclusion that almost everything discovered wrong with the residential property was caused by, or arose out of, the incompetent work of subcontractors that must be attributed to the general contractor that hired them. Atain Specialty Insurance Company v. Siegen 7 Developments, LLC, 820 Fed.Appx. 270, (5th Cir. 2020)

PEREMPTION

The Louisiana Fifth Circuit Court of Appeal held that L.R.S. 9:5607, the statute providing the peremptive period for designers, does not supersede L.R.S. 9:2772, the peremptive period applicable to contractors, to the extent it removed the peremptive period for actions against contractors. L.R.S. 9:5607 does not apply to contractors. Lopinto v. Professional Construction Services, Inc., 18-361 (La.App. 5 Cir. 7/13/18), 2018 WL 3524670, writ denied, 18-1339 (La. 11/5/18), 255 So.3d 1048.

DAMAGES ALLOWED AS A RESULT OF SELA DRAINAGE WORK

Residents and property owners along Jefferson Avenue, Prytania Street and Napoleon Avenue in New Orleans sued the Sewerage & Water Board for damages to their property as a result of construction of the Southeast Louisiana Urban Drainage Project. The United States Corps of Engineers entered into a project partnership agreement with the Louisiana Coastal Protection and Restoration Authority to construct drainage canals. The Authority entered into a cooperative endeavor agreement with the Sewerage & Water Board which assumed the Authority’s contractual responsibilities and obligations in relation to the Project. The Sewerage & Water Board was sued for damages as a result of inverse condemnation. Inverse condemnation occurs when property is taken or damaged by the state or a political subdivision for public purposes without just compensation. The theory also applies to property damaged by a private entity authorized by law to expropriate property.

The court held, following earlier jurisprudence that is now hornbook law in Louisiana, that any substantial interference with the free use and enjoyment of property may constitute a taking of property within the meaning of federal and state constitutions. To establish inverse condemnation, a claimant must show (1) a recognized species of property right has been affected, (2) the property at issue has been taken or damaged in a constitutional sense, and (3) the taking has been for a public purpose. The court of appeal found all elements were present, and the plaintiffs were entitled to damages pursuant to inverse condemnation.

In order to establish a right to damages, claimants are required to show that (1) the owner or custodian of a defective thing has knowledge of a defect, (2) the damage could have been prevented by the exercise of reasonable care, and (3) there was a failure to exercise reasonable care. C.C. art. 2317.1. Further, as to a public entity, a claimant must prove (1) the thing which caused the damage was owned or in the custody of the public entity, (2) the thing was defective due to a condition creating an unreasonable risk of harm, (3) the entity had actual or constructive notice of the defective condition, yet failed to take corrective action within a reasonable period of time, and (4) the defect was the cause of the plaintiff’s harm. L.R.S. 9:2800. The court found the construction activities which caused the damages were controlled by the Sewerage & Water Board, a public entity, the Board was aware of the risks which caused the harm, and, thus, had actual or constructive notice of the defective condition, yet failed to take corrective action, and the defects caused the harm. All of the requirements for liability were satisfied.

The court found the claimants were entitled to recovery for damaged property, the loss of use of enjoyment of their property, mental anguish, irritation, anxiety, discomfort and embarrassment. Damages awarded by the trial court were affirmed by the court of appeal. Lowenburg v. Sewerage & Water Board of New Orleans, 2019-0524 (La.App. 4 Cir. 7/29/20), ___ So.3d ___, 2020 WL 4364345.

DAMAGES CLAIMED FOR INCONVENIENCE TO A NEIGHBOR AS A RESULT OF CONSTRUCTION ACTIVITIES

A florist sued the owner of a neighboring condominium project and its contractors for damages related to construction of the project. The florist contended that the fencing, a construction trailer, and other vehicles and equipment occupied parking spaces and sidewalks around the construction site and the florist shop. The florist argued that vehicles surrounding the florist shop made it appear the shop was no longer open. It conceded it was never forced to close due to the construction. The florist also conceded that customer access was never blocked, but contended customer access was substantially hindered. The florist argued its customers were forced to park further away or to walk on the other side of the street, allegedly obstructing access and causing lost sales. The florist also argued that material deliveries to the construction site occasionally blocked traffic. The defendants moved for partial summary judgment to dismiss the claims for economic loss damages. The trial court granted the motion concluding the construction activity was a mere inconvenience that was not compensable. The florist appealed.

The court of appeal considered Civil Code Articles 667 and 668, the vicinage articles, which provide that although a proprietor may do with his estate whatever he wants, he cannot make any work on it which may deprive his neighbor of the liberty of enjoying his own, or which may be the cause of any damage to him. Neighboring property owners must, nevertheless, accept some inconvenience in the enjoyment of their property from their neighbor’s activities. The court cited prior jurisprudence which required either (1) proof of personal injury or physical damage to property, or (2) proof of the presence of some type of excessive or abusive conduct for liability under the civil code articles. The occasion of some inconvenience does not give rise to a finding of liability for damages under the civil code articles. A court is required to determine the reasonableness of the conduct in light of the circumstances.

In summarizing the jurisprudence, the court of appeal held that typical construction-related activities do not rise to the level of mere inconvenience. During construction of a multi-story building, like the condominium project at issue, it is necessary that construction equipment and materials, at times, be placed on the city’s streets and sidewalks. Although this may result in hindered access to a neighboring property owner’s business, the jurisprudence, according to the court, has classified this type of hindered access as a mere inconvenience, which is not compensable under the vicinage articles. The court found there was no violation of the articles.

The court also considered the claims of the florist that it had a cause of action in negligence. The court of appeal held that when, as here, a neighboring property owner’s lawful conduct results in a mere inconvenience under Civil Code Articles 667 and 668, the property owner’s conduct, by definition, did not breach any duty to its neighbor under a negligence theory. Harmonia, LLC v. Felicity Property Co., LLC, 2020-0253 (La.App. 4 Cir. 11/25/20), ___ So.3d ___, 2020 WL 6937836.

DAMAGES FOR DELAY

A general contractor sued a subcontractor for damages for delay of a project consisting of liquidated damages assessed by the owner and the general contractor’s overhead damages. The court found the project was delayed by the subcontractor and awarded the general contractor the liquidated damages assessed by the owner. Further, the court awarded the general contractor damages for its increased overhead costs as a result of the delays. PCL Civil Constructors, Inc. v. FJ Burnell, Inc., 19-00195 (W.D. La. 7/14/20), 2020 WL 3977943.

VALIDITY OF A CONTRACTUAL REQUIREMENT TO INSURE A PUBLIC OWNER FOR ITS OWN NEGLIGENCE

Fleming Construction Company, LLC contracted with the Consolidated Sewerage District No. 1 of the Parish of Jefferson for the replacement or restoration of existing sewer mains. The contract required Fleming to indemnify Jefferson Parish for claims for its own negligence. The contract also required Fleming to provide liability insurance naming Jefferson Parish as an additional insured, and contractual liability insurance covering the indemnity obligations. Jefferson Parish and its insurer, along with Fleming’s insurers, were sued by Shane Salathe for personal injuries.

The Fleming insurers moved for summary judgment arguing the indemnity and insurance provisions were null and unenforceable, and Jefferson Parish was not, therefore, an additional insured. The trial court granted summary judgment in favor of the Fleming insurers, holding to the extent the contractual indemnity provisions between the Parish of Jefferson and Fleming could be interpreted as requiring Fleming to indemnify Jefferson Parish for its own fault, those provisions were null, void and unenforceable. Further, to the extent that the contractual indemnity provisions could be interpreted as requiring Fleming to name Jefferson Parish as an additional insured for the purpose of providing coverage to it for its own fault, those provisions were null, void and unenforceable.

On appeal, the issue of whether the indemnity provisions of the contract between Jefferson Parish and Fleming were null, void and unenforceable was not raised. Rather, the issue on appeal was whether the contractual obligation to defend and indemnify a named insured as required by the public contract between Fleming and Jefferson Parish was null, void and unenforceable to the extent it required the insurers to provide coverage for Jefferson Parish’s negligence.

Two statutes were at issue. The first was L.R.S. 38:2216(G), which prohibits any provision in a public contract, other than a contract of insurance, providing for a hold harmless or indemnity agreement, or both, for damage caused by the negligence of the public body. The second statute, L.R.S. 9:2780.1, prohibits provisions in construction and motor carrier transportation contracts which purport to indemnify, defend or hold harmless the indemnitee from or against any liability for loss or damage resulting from the negligence or intentional acts or omissions of the indemnitee, but permits provisions in such contracts which purport to require an indemnitor to procure liability insurance covering the acts or omissions or both of the indemnitee if there is evidence the indemnitor recovered the cost of the required insurance in the contract price. Thus, L.R.S. 38:2216(G) permits contracts for insurance, and L.R.S. 9:2780.1 allows contracts of insurance if there is evidence the indemnitor recovered the cost of the required insurance in the contract price. L.R.S. 9:2780.1 does not exclude public contracts, and was enacted after L.R.S. 38:2216(G) was last amended. The question was whether L.R.S. 9:2780.1 could be read to prohibit the insurance requirements set forth in Fleming’s contract. The parties agreed that Jefferson Parish did not pay for the cost of the additional insured coverage. There was no exception which allowed the additional insured coverage.

The court of appeal found that L.R.S. 9:2780.1 applied, and there was no insurance coverage provided by the Fleming policies. The judgment of the trial court dismissing the claims against the Fleming insurers to the extent the policies could be interpreted as providing coverage for Jefferson Parish’s own negligence was affirmed. Salathe v. The Parish of Jefferson through the Department of Sewerage, 19-427 (La.App. 5 Cir. 7/15/20), 300 So.3d 460, writ denied, 2020-01027 (La. 11/4/20), 303 So.3d 642.

STAY OF LAWSUIT PENDING ARBITRATION GRANTED

The contract between an owner and a contractor provided in accordance with AIA Document A201-2007 that claims, disputes, or other matters in controversy arising out of or related to the contract, except those waived, shall be subject to mediation as a condition precedent to binding dispute resolution. The document also provided that any claim subject to, but not resolved by, mediation shall be subject to arbitration which, unless the parties mutually agree otherwise, shall be administered by the American Arbitration Association. The court of appeal, reversing the district court decision, sustained the exception of the owner, finding the dispute at issue was referable to arbitration under the terms of the agreement. Wieland v. Shreveport Aquarium, LLC, 53,302 (La.App. 2 Cir. 11/6/19), 291 So.3d 1107.

ARBITRATOR TO DECIDE HIS OR HER OWN JURISDICTION

In a dispute as to whether an arbitration agreement applied, the Louisiana First Circuit Court of Appeal held that Rule R-9 of the American Arbitration Association’s Construction Industry Rules provides that the arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement. In applying this rule, the court held that the trial court erred in addressing the plaintiff’s objections to the existence, scope or validity of the arbitration clause. The defendants’ exception of prematurity was granted, and the plaintiff’s claims against the defendants were dismissed without prejudice. Allco, LLC v. Aptim Environmental & Infrastructure, LLC, 2020-0396 (La.App. 1 Cir. 8/3/20), 2020 WL 4435525, writ denied, 2020-01077 (La. 11/18/20), 304 So.3d 423.

ENFORCEMENT OF A FORUM SELECTION CLAUSE IN FEDERAL COURT

PCL Civil Constructors, Inc. alleged its subcontractor, Command Construction Industries, LLC, defaulted under the subcontract. PCL sued Arch Insurance Company, the surety for Command. The bond provided by Arch incorporated the subcontract in its entirety, which incorporated the prime contract in its entirety. The prime contract contained a forum selection clause which required that any litigation arising under or related to the contract or the bidding or award thereof shall be instituted in the 19th Judicial District Court for the Parish of East Baton Rouge, State of Louisiana.

PCL sued Arch in the United States District Court for the Western District of Louisiana. Arch filed a motion to dismiss on the ground of forum non conveniens, arguing that any dispute must be brought in the 19th Judicial District Court. The district court granted Arch’s motion. PCL appealed.

The court of appeals held forum non conveniens is the appropriate method to enforce a forum selection clause. The court of appeals considered whether the forum selection clause was mandatory or permissive. It found the clause was mandatory and proceeded to determine whether the clause was enforceable. In making that determination, the court found the clause should be upheld unless the party opposing its enforcement can show it is unreasonable. PCL did not present any argument that supported a finding the forum selection clause was unreasonable, and did not challenge on appeal the district court’s finding the clause was enforceable. PCL, thus, waived the argument on appeal.

PCL contended the forum selection clause simply did not govern the instant suit. PCL asserted the bond did not incorporate the portion of the prime contract that contained the forum selection clause, but the court held it was incorporated by reference. PCL next relied on a provision of the contract other than the forum selection clause itself, but the court of appeals held that provision specifically stated it would not apply if the parties agreed in writing to a different location, which they did in adopting the forum selection clause. The judgment of the federal district court dismissing the matter without prejudice on the ground of forum non conveniens was affirmed. PCL Civil Constructors, Incorporated v. Arch Insurance Company, 979 F.3d 2070, (5th Cir. 2020).

CLAIMS BY AN UNLICENSED CONTRACTOR

The Louisiana First Circuit Court of Appeal considered claims by a contractor for payments to renovate and add a substantial addition to a home. Although the contractor subsequently was licensed, there was no dispute that during the entire time it undertook the project it did not possess the required residential building contractor’s license. As a result, the contract was null and void.

There was an issue as to whether the New Home Warranty Act applied to an addition to an existing residence. The court held the Act did not apply because the contract was null and void ab initio.

The contractor claimed damages as a result of a breach of its contract by the owner, but since it is illegal for a contractor to enter into a contract without being properly licensed, the court would not enforce an illegal contract by allowing the contractor to recover damages for breach of that contract. Alternatively, the contractor sought payment for its work under a theory of unjust enrichment which would limit the contractor to damages for actual costs of materials, services and labor with no allowance for profit or overhead. The court found, however, applying prior jurisprudence, that if the contractor’s work is substandard, it is not entitled to recovery of the actual cost of materials, services, and labor under the theory of unjust enrichment. In this case, the contractor’s work was found to be substandard and the contractor was not entitled to claim payment under the theory of unjust enrichment, and the owner could invoke the contractor’s licensing law to prohibit recovery under that theory. Quaternary Resource Investigations, LLC v. Phillips, 2018-1543 (La.App. 1 Cir. 11/19/20), ___ So.3d ___, 2020 WL 6797271.

NULLITY OF A CONTRACT AND DAMAGES

The Louisiana Fifth Circuit Court of Appeals considered a contract between a property owner and an unlicensed contractor. The court held the contractor, who was required to be licensed, was not licensed, and the contract, therefore, was null.

The contractor – a limited liability company – and its sole member were sued, among other things, for fraud in leading the owner to believe the project was permitted, which it was not. A member of a limited liability company can be liable for fraud. The court of appeal affirmed the judgment of the trial court that the member of the LLC on behalf of the LLC intentionally and purposely misled the plaintiff to believe the job was properly permitted.

The contractor claimed it was entitled to recovery in quantum meruit for the work it performed. If a building contract has not been substantially performed, the contractor’s recovery is limited in quantum meruit, but if the construction has to be removed and replaced due to defects, the owner may require the contractor to remove the object from his land and restore the premises to their prior condition, and, in addition, is entitled to damages. The court held the contractor was not entitled, under the circumstances, to the recover in quantum meruit for the work it performed. Korrapati v. Augustino Brothers Construction, LLC, 19-426 (La.App. 5 Cir. 7/31/20), 302 So.3d 147.

SUIT ON AN OPEN ACCOUNT

A subcontractor sued a general contractor for payments due pursuant to a subcontract, although no written subcontract was executed. The subcontractor claimed it was entitled to attorney fees under the open account statute, L.R.S. 9:2781. The general contractor contended an open account did not exist.

The court of appeal held there was no requirement in the statute that there must be one or more transactions between the parties. The statute does not exclude construction accounts. An open account is any account for which a part or all of the balance is past due, whether or not the account reflects one or more transactions and whether or not at the time of contracting the parties expected future transactions. The contract at issue was held to be an open account. Advanced Leveling & Concrete Solutions v. The Lathan Company, Inc., 2020-0040 (La.App. 1 Cir. 12/10/20), ___So.3d ___, 2020 WL 7258118.

NO RIGHT OF ACTION OF AN OWNER AGAINST A CONTRACTOR FOR DAMAGES

Hamp’s Construction, LLC sued 1031 Canal, LLC for breach of contract claiming it was owed $117,040. 1031 Canal reconvened against Hamp’s for damages for alleged negligence in causing the collapse of a common wall and related damages to the adjacent building. Hamp’s filed a motion for summary judgment contending that under the undisputed facts, it was entitled to the funds due under the contract. 1031 Canal claimed it was entitled to a set-off for the damages it incurred. The district court granted Hamp’s motion for summary judgment. The court of appeal reversed and remanded finding that a question of fact remained as to whether Hamp’s had defaulted on the contract, and if so, whether the default triggered 1031 Canal’s right to a set-off. Hamp’s then filed an exception of no right of action to 1031 Canal’s claims contending discovery responses received from 1031 Canal demonstrated it had no right of action to recover its damages for repairs. The district court granted the exception and dismissed 1031 Canal’s reconventional demand. 1031 Canal appealed.

The court of appeal held the damages sought by 1031 Canal were actually paid by other entities affiliated with 1031 Canal, with the exception of the payment to Abry Brothers, and not 1031 Canal. The court found 1031 Canal had not shown it had an actual interest in recovering the payments made by the affiliated entities.

1031 Canal paid for repairs under a contract entered into between an affiliated entity and Abry Brothers. The court of appeal held there was no privity of contract between 1031 Canal and Abry that created a legal obligation for it to pay Abry for work performed pursuant to its contract with the affiliated entity.

1031 Canal argued it should be entitled to recover damages for future costs to repair the adjacent building. That building, however, was not owned by 1031 Canal, and any right to recover those repair costs rests with the owner of the building, not 1031 Canal. 1031 Canal lacked a legal interest to maintain a right of action in this respect against Hamp’s.

The matter was remanded to the district court to allow 1031 Canal the opportunity to amend or supplement its reconventional demand to remove the grounds for sustaining the exception within the delays set by the district court. Hamp’s Construction, LLC v. 1031 Canal, LLC, 2020-0182 (La.App. 4 Cir. 12/9/20), ____ So.3d ____, 2020 WL 7240295.

DUTY TO MITIGATE DAMAGES

An obligee must make reasonable efforts to mitigate the damage caused by an obligor’s failure to perform. When an obligee fails to make these efforts, the obligor may demand that the damages be reduced accordingly. The scope of the duty to mitigate depends on the facts of the individual case, and a party is not required to take actions which would likely prove unduly costly or futile. The duty is what a reasonable prudent man would do in similar circumstances.

In the matter before the court, the court of appeal stated that faced with incomplete and defective work with no end date in sight, and the continued unexpected interruption of the owner’s business, the owner had no other real option than to seek other competent workers to remedy and complete the construction project at issue. The judgment of the trial court in favor of the owner for the recovery of damages as a result of substantial and widespread substandard work was affirmed. Redstone v. Sipes, 53,416 (La.App. 2 Cir. 4/22/20), 294 So.3d 1113.


About Baldwin Haspel Burke & Mayer, LLC: Baldwin Haspel Burke & Mayer is a full-service law firm that prides itself on personal service for each of its clients. Since 1914, the firm has successfully met its clients’ changing needs as part of its commitment to providing quality legal services in a timely, cost-efficient manner. Our clients become our family and they stay with us for generations.

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