Federal Court in Pennsylvania Holds Pay-If-Paid Clause Unenforceable Where Prime Contractor’s Inadvertent Delays Contribute to the Owner’s Withholding of Payment

Connelly Constr. Corp. v. Travelers Cas. & Surety Co. of Am., 2018 U.S. Dist. LEXIS 123009 (E.D. Pa. July 24, 2018).

The Commonwealth of Pennsylvania Department of General Services undertook a project for the construction of a new maximum security prison facility in Montgomery County, Pennsylvania.  Walsh Heery Joint Venture (“WHJV”) was the prime contractor and it retained Connelly Construction Corporation as its masonry subcontractor.

The prime contract permitted the Commonwealth to withhold retainage from WHJV until completion of the project.  Similarly, the subcontract permitted WHJV to withhold retainage from Connelly in proportion to the retainage held by the Commonwealth.  The subcontract also included a pay-if-paid clause under which Connelly agreed that it was not entitled to payment unless, as an express condition precedent, WHJV was paid by the Commonwealth.

Completion of the project was delayed for more than two years.  As a result, the Commonwealth continued to withhold retainage from WHJV, and WHJV thus withheld more than $200,000 in retainage from Connelly, long after Connelly completed its scope of work. Continue reading

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Federal Arbitration Act Preempts Florida State Statute Which Prohibits Out-of-State Resolution of Construction Claims Involving Florida Real Property

Sachse Constr. & Dev. Corp. v. Affirmed Drywall, Corp., 2018 Fla App. Lexis 9998 (July 18, 2018)

Sachse Construction, a Michigan-based general contractor, entered into a subcontract (the “Subcontract”) with Affirmed Drywall Corp. (“Affirmed”), a Florida drywall subcontractor, to perform work on a property in Florida.  The Subcontract provided that all disputes be resolved by mediation and/or arbitration in Southfield, Michigan, or within 20 miles thereof, pursuant to the Construction Industry Rules of the American Arbitration Association and in accordance with Michigan laws.  However, under Section 47.025 of the Florida Statutes, a venue provision in a contract involving a Florida-based contractor or subcontractor, etc., for the improvement of real property located in Florida is considered void as a matter of public policy if it requires that legal action be brought outside of Florida.

Affirmed filed an action in Florida state court alleging claims for breach of contract against Sachse and to recover against a bond naming Sachse and the surety on the bond.  Sachse moved to dismiss or to compel arbitration in Michigan in accordance with the dispute resolution provision in the Subcontract.  Sachse argued that the Subcontract involved interstate commerce, so the Federal Arbitration Act (the “FAA”) governed the Subcontract and preempted inconsistent state law.  Sachse claimed that Section 47.025 did not void the provision in the Subcontract mandating that disputes be resolved by arbitration in Michigan because of the FAA’s liberal policy favoring arbitration agreements.  The trial court disagreed, denied Sachse’s motion and ordered Sachse to answer the complaint.  Sachse appealed. Continue reading

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Claimant Is Not Required to Conduct an Investigation Into the Veracity of the Representation to Prove Justifiable Reliance When Asserting a Fraudulent Inducement Claim Under the Miller Act

Fisk Elec. Co. v. DQSI, L.L.C., 2018 U.S. App. LEXIS 17914 (5th Cir., June 29, 2018)

 DQSI, L.L.C., (“DQSI”) a general contractor, was hired by the Army Corps of Engineers (“Corps”) for a pump station construction project.  Western Surety Company (“Western”) issued a Miller Act payment bond on DQSI’s behalf.  DQSI hired Fisk Electric Company (“Fisk”) as subcontractor to perform electrical work on the project.

The project was delayed 464 days due, in part, to adverse weather conditions.  Fisk asserted expenses due to the delay of over $400,000 against DQSI and submitted a Request for Equitable Adjustment (“REA”) to DQSI for the 464 days of delay.

Fisk sued DQSI and Western pursuant to the Miller Act.  The parties then entered into a settlement agreement wherein Fisk would release DQSI for payment of approximately $55,000 and for DQSI’s agreement that it would submit the REA to the Corps and pursue it.  Continue reading

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Contractor Has No Duty to Indemnify Gas Company for Settlement Paid to Injured Employee Under Florida’s Underground Facility and Safety Act

Peoples Gas Sys. v. Posen Constr., Inc., 2018 U.S. Dist. LEXIS 106427 (M.D. Fla. June 26, 2018)

In 2009 Posen Construction, Inc. (“Posen”), a road construction contractor, entered into a general contractor agreement with the Lee County Board of County Commissioners for a lane expansion and drainage system project in east Fort Myers, Florida (the “Project”).  Peoples Gas System (“PGS”), an owner of natural gas distribution facilities throughout Florida, maintained gas pipelines underneath the Project site, which required caution when Posen worked around it.  To that end, PGS marked the pipeline with flags, paint, and installed testing stations.

However, during the course of the Project, Posen learned that at certain locations construction would be impossible unless PGS removed portions of the pipeline.  Therefore, in October 2010, Posen submitted a request to Sunshine One, a notification system whereby excavators obtain the location of underground utilities before excavation.  In November 2010, a Posen employee, Mark Santos (“Santos”) was directed to excavate at a location that PGS maintained was not properly marked for the location of the gas pipeline.  Santos struck and ruptured the pipeline and was severely injured as a result. Continue reading

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Kentucky Court of Appeals Draws a Distinction Between Substantive and Procedural Questions of Arbitrability, and Explains the Proper Role for the Courts

Ambac Assur. Corp v. Knox Hills LLC, 2018 Ky. App. Lexis 188 (June 15, 2018)

This case involves a February 1, 2007 design/build agreement governing the rights of the several parties involved with a military housing construction and renovation project at Fort Knox, Kentucky.  Knox Hills, LLC (the owner) filed a breach of contract action against Ambac Assurance Corporation (the senior lender of the project) relating to what it characterized as Ambac’s wrongful withholding of consent to a change order that would have substantially reduced the scope of the project.  Knox Hills then sought an order staying the proceedings and compelling Ambac to arbitrate.  The circuit court granted the motion and, following an arbitration, entered an order confirming the arbitrator’s award in favor of Knox Hills.  Ambac then appealed the court’s order.

On appeal, the Kentucky Court of Appeals focused on two questions:  (1) whether the court or the arbitrator should have determined whether arbitration was required between Knox Hills and Ambac, and (2) whether arbitration was actually required. Continue reading

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