Federal Court Holds That Under Louisiana Law, Actual Notice of Cause of Delay Satisfies Contractual Notice Requirement Despite Failure to Strictly Comply With the Notice Provision

Parkcrest Builders, LLC v. Hous. Auth. of New Orleans, 2017 U.S. Dist. LEXIS 125012 (E.D. La. August 8, 2017)

The Housing Authority of New Orleans (“the Authority”) contracted with Parkcrest Builders, LLC (“Parkcrest”) to construct a public housing project.  The Project was delayed and the Authority terminated Parkcrest prior to completion, and entered into a Takeover Agreement with Parkcrest’s Surety.  The Surety retained Parkcrest to complete the work, and later notified the Authority that it had achieved substantial completion.  The Authority asserted deficient and incomplete items remained on the project, which the Surety refused to complete.  The Authority then solicited bids for the remaining work, and awarded the work to a replacement contractor.

Parkcrest sued the Authority for breach of contract and also asserted that any delays on the Project were excusable and, therefore, not subject to liquidated damages.  The Authority counterclaimed against Parkcrest for added costs to complete the project.  The Surety intervened, also seeking a ruling that all delays were excusable.  The Authority then counterclaimed against the Surety for completion costs. Continue reading

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U.S. Court of Claims Denies Contractor’s “Superior Knowledge” Claim Against Owner Despite Owner’s Withholding of Reports That Would Have Revealed to Contractor Extent of Subsurface Deterioration of the Wharf to be Reconstructed

RDA Constr. Corp. v. United States, No. 11-555 C, 2017 U.S. Claims LEXIS 875 (Fed. Cl. July 27, 2017)

This case arises out of a public construction project at the Newport Naval Station.  The Naval Facilities Engineering Command (“NAVFAC”) contracted with RDA Construction (“RDA”) for the demolition, removal and reconstruction of a fifty-year-old deteriorating wharf and bulkhead.  The wharf was supported by 248 steel H-pile beams, encased in concrete and driven into the sea floor.  In 2005, NAVFAC commissioned the Appledore Report which found that these structures exhibited advanced deterioration, much of which could only be observed during underwater inspection and could not support any vehicular loads.  A second report, commissioned in 2008, recommended that the structure not be used during its reconstruction.

In May 2009, NAVFAC issued its project solicitation but did not disclose these reports or their findings.  Instead, NAVFAC invited bidders to the site and encouraged them to investigate it carefully.  Hazardous site conditions were marked with sawhorses, barriers and fencing.  After visiting the site, RDA submitted its bid and was identified as the apparent low bidder.  Two days later, NAVFAC notified RDA that its bid was “substantially lower” than NAVFAC’s estimate and requested that it review and confirm its bid and the scope of work.  RDA assured NAVFAC that it had made no mistakes and would honor its bid.  RDA then provided its technical and management plans to NAVFAC, noting that it planned to perform demolition work from the wharf using land-based equipment.  After receipt of these plans, NAVFAC awarded the contract to RDA; RDA signed the contract on October 13, 2009 and received its Notice to Proceed two days later.  In November, at a pre-construction meeting, RDA again explained its plan to use the wharf during construction as a staging area for its excavators and demolition equipment.  NAVFAC personnel were “shocked” by this plan because the wharf was “condemned”  and subsequently provided RDA with the Appledore report.  Continue reading

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Appellate Court Holds That the New Mexico Unfair Practices Act Applies to a “Services” Contract for the Construction of a Home, But Does Not Apply to a “Sales” Contract for the Sale of a Completed Home

Fogelson v. Bozzone, 2017 N.M. App. LEXIS 58 (July 26, 2017)

In May of 2008, Wallen Development, LLC (“Wallen”) entered into a written agreement to construct and sell a new home to David and Corinne Fogelson (“Fogelson”).  But, after Fogelson paid Wallen in excess of $165,111 under the agreement, Wallen went out of business as a result of financial difficulties.

Fogelson filed an arbitration action against Wallen and ultimately obtained a default judgment after Wallen failed to appear.  Thereafter, Fogelson filed a complaint in court against various individuals affiliated with Wallen.  As relevant here, Fogelson asserted a claim under New Mexico’s Unfair Practices Act, NMSA 1978 §§ 57-12-1 to -26 against one of Wallen’s owners, Mark Bozzone (“Bozzone”).  Bozzone filed a motion to dismiss on the basis that “construction services”, such as those provided by Wallen, do not fall within the scope of the Unfair Practices Act.  The trial court granted Bozzone’s motion.

The major issue on appeal was whether the doctrine of res judicata applied to an arbitration proceeding.  After a very lengthy discussion covering over half of the opinion, the Court of Appeals ruled the res judicata did apply to the arbitration result against Wallen.  Continue reading

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Arbitration Award Ruling That, Because of Cultural Differences, a Local Afghan Subcontractor Is Not Bound by the F.A.R. Provisions Incorporated Into the Subcontracts Is Vacated as Contrary to the Subcontract Terms

Aspic Eng’g & Constr. Co. v. ECC Centcom Constructors, LLC, No. 17-cv-00224-YGR, 2017 U.S. Dist. LEXIS 111767, at *10-12 (N.D. Cal. July 18, 2017)

This matter came before the Court on a motion to vacate a final arbitration award (the “Arbitration Award”) entered in favor of Aspic Engineering and Construction Company “Aspic”) and against ECC International, LLC and ECC CENTCOM Constructors, LLC (collectively, “ECC”).  ECC entered into two prime contracts with the U.S. Army Corp of Engineers (“USACE”) in connection with two reconstruction projects for police training facilities in Afghanistan (the “Projects”).  These prime contracts incorporated, among other things, Federal Acquisition Regulations (“FAR”) Sections 49.206 and 52.249-2, which allowed USACE to terminate the Projects for convenience.  ECC subcontracted portions of the work on the Projects to Aspic.  The subcontracts between ECC and Aspic likewise incorporated several FAR sections.  Although Aspic is an Afghan engineering and contracting firm, it had experience in contracting with the U.S. government and a familiarity with the U.S. Government contract requirements, including FAR clauses.  After ECC and Aspic had partially performed work on the Projects, USACE issued a notice of termination for convenience, which ended the Projects in their entirety.

Aspic filed a demand for arbitration, seeking to recover its lost profits on the Projects.  Continue reading

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When Surety Bond Incorporates the Subcontract by Reference, Is the Subcontract’s Arbitration Clause Also Incorporated? Federal Court in South Carolina Says Yes; Federal Court in Kansas Says No — In Two Matters Involving the Same Parties

Developers Sur. & Indem. Co. v. Carothers Constr., Inc., 2017 U.S. Dist. LEXIS 111021 (D.S.C. July 18, 2017); Developers Sur. & Indem. Co. v. Carothers Constr., Inc., 2017 U.S. Dist. LEXIS 135948 (D. Kan. Aug. 24, 2017)

Two recent decisions from United States District Courts for the District of South Carolina and the District of Kansas, respectively, reached opposite conclusions when presented with the same issue:  Is a surety bound to arbitrate claims against it when the surety’s bond incorporates its principal’s contract by reference, and the principal’s contract contains an agreement to arbitrate disputes.  The District of South Carolina, applying South Carolina law, held that a surety is bound by the arbitration agreement in the incorporated contract, while the District of Kansas held that a surety is not so bound.

These cases both arise from an arbitration demand filed by the general contractor, Carothers Construction, Inc. (“Carothers”) against the surety, Developers Surety and Indemnity Company (“DSI”).  DSI issued performance and payment bonds on behalf of subcontractors Liberty Enterprises Specialty Contractor (“Liberty”) and Seven Hills Construction, LLC (“Seven Hills”) in favor of Carothers for their work on Projects located in South Carolina and Kansas, respectively.  Each subcontractor defaulted on its contractual obligations.  Carothers initiated arbitration against DSI regarding both Projects.  According to Carothers, the bonds incorporated by reference the subcontracts’ mandatory arbitration clauses and thus, DSI was subject to binding arbitration.  In declaratory judgment actions before Federal District Courts in South Carolina and Kansas, DSI asked the courts to declare that the arbitration clause did not bind it to arbitrate Carothers’ claims.  Each court reached the directly opposite conclusion.  This article discusses the decision reached by each court in turn. Continue reading

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