California Supreme Court Holds Public Entity May Be Liable to Contractor for Nondisclosure of Material Information Under Superior Knowledge Doctrine – Proof of Affirmative Concealment or Intentional Misrepresentation Not Required

Los Angeles Unified School District v. Great American Insurance Company
49 Cal. 4th 739 (July 12, 2010)

On July 12, 2010, the California Supreme Court filed a ruling significant to public entities entering into contracts for public works projects. In Los Angeles Unified School District v. Great American Insurance Company, the Court held that a public entity “may be required to provide extra compensation if it knew, but failed to disclose, material facts that would affect the contractor’s bid or performance,” even when the failure to disclose information was not fraudulent. Articulating a test modeled after the federal courts’ superior knowledge doctrine, the high court articulated four conditions that must be met for such liability to attach. Continue reading “California Supreme Court Holds Public Entity May Be Liable to Contractor for Nondisclosure of Material Information Under Superior Knowledge Doctrine – Proof of Affirmative Concealment or Intentional Misrepresentation Not Required”

Pennsylvania Superior Court Holds Unpaid Supplier’s Right to Contract Funds is Superior to Rights of Failed Contractor’s Secured Bank Creditor and Bankruptcy Estate – Owner’s Recovery of Attorneys’ Fees in Interpleader Disallowed

Trevdan Building Supply v. Toll Brothers, Inc.
2010 PA Super. 100, 996 A.2d 520 (May 28, 2010)

On May 28, 2010 the Pennsylvania Superior Court filed a ruling that is significant to project owners as well as subcontractors and suppliers. In Trevdan Building Supply v. Toll Brothers, Inc., the Court held that an unpaid supplier had an “equitable lien” on contract funds that the owner had interpleaded into Court; and that the contractor, its bankruptcy estate and its secured bank creditor did not have a cognizable interest in the contract funds because, under the terms of the construction contract, the contractor did not earn the funds until it had both performed the work and paid its suppliers. The Court considered the unpaid supplier’s rights to be so clear that the Court denied the owner’s statutory claim to be reimbursed its attorneys’ fees for filing the interpleader action, stating that the owner was guilty of “delay” and acted “unreasonably” by “ignoring” the supplier’s equitable claim and refusing “to exercise its undisputed contractual right to pay” the supplier (this despite two judges in the same case – the trial judge and a dissenting Superior Court judge – having decided the case differently). Continue reading “Pennsylvania Superior Court Holds Unpaid Supplier’s Right to Contract Funds is Superior to Rights of Failed Contractor’s Secured Bank Creditor and Bankruptcy Estate – Owner’s Recovery of Attorneys’ Fees in Interpleader Disallowed”

U.S. Court of Appeals for the Fifth Circuit Holds Performance Bond Claim Time Barred – Estoppel Excuse Not Available to City

Hartford Fire Insurance Co. v. City of Mont Belvieu
2010 U.S. App. Lexis 14277 (5th Cir. July 13, 2010)

The Court of Appeals for the Fifth Circuit recently held that a Texas City’s bond claim was time barred under the statute of limitations and equitable remedies based on estoppel were unavailable to revive claims on the bond.

Hartford Fire Insurance Company issued a performance bond for a contractor constructing a public recreational facility for the City of Mont Belvieu, Texas. The bond was a requirement under Texas public work contracts. By statute, the bond was subject to a one-year limitations period commencing from project final completion. The project progressed with numerous delays and changes. However, the City issued a certificate of occupancy in mid-2001, taking possession and operating the facility by July 2002. At that time, numerous punch list items remained and several subcontractors owed payment by contractor filed claims on a payment bond. Hartford advised the City to be cautious when releasing further payment to contractor. Thereafter, in July 2002, City paid contractor almost $675,000 as an equitable adjustment via a change order. Critically, the change order stated that the project’s completion date was July 19, 2001. Continue reading “U.S. Court of Appeals for the Fifth Circuit Holds Performance Bond Claim Time Barred – Estoppel Excuse Not Available to City”