Federal Court in Louisiana Upholds Suspensive Condition Not Subject Solely to Owner’s Whim

Team Contractors, LLC v. Waypoint Nola, LLC, No. 16-1131, 2019 BL 96133 (E.D. La. Mar. 20, 2019)

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Emily D. Anderson

The Eastern District of Louisiana recently denied the motion of a prime contractor (the “Contractor”) for summary judgment on its breach of contract claim against the owner (the “Owner”) of a construction project in New Orleans (the “Project”) where the primary issue involved whether a suspensive condition was enforceable.

For context, the Contractor’s motion for summary judgment was filed after the Court vacated a jury verdict in favor of the Owner following a trial on the Contractor’s breach of contract claim against the Owner and claims by the Contractor for negligence against the architect on the Project and the architect’s mechanical, electrical and plumbing (“MEP”) subcontractor.  The jury found that the architect and MEP subcontractor violated their duties of care and caused damage to the Contractor by providing plans and specifications containing errors.  The jury also found that the Owner had not breached the Contract, but still assigned a portion of the liability for damages to the Owner.  The Court vacated the jury verdict as against the Owner and ordered a new trial because a finding of liability for damages was irreconcilably inconsistent with a finding that the Owner had not breached the Contract.  The verdict against the architect and MEP subcontractor was not disturbed.

In its motion for summary judgment, the Contractor argued that a provision in the prime contract (“Contract”) requiring the Contractor to provide a release of liens and claims from the Contractor and its subcontractors “in form reasonably acceptable to the Owner” was null and void because the fulfillment of the condition was subject solely to the Owner’s whim.

The Court acknowledged that a suspensive condition (i.e., a conditional obligation that may not be enforced until an uncertain event occurs) is unenforceable where it depends solely on the whim of the obligor.  However, in the instance at hand, the suspensive condition was valid because the requirement that the release be “reasonably acceptable” imposed a duty on the Owner of making a “good-faith judgment on a reasonable basis whether the release [was] acceptable” and was thus not subject solely to the Owner’s whim.

The Court further held that there was an issue of fact as to whether it was improper for the Owner to reject the three lien waivers and releases that the Contractor submitted in its requisition for final payment, which, had the lien waivers been accepted, would trigger the Owner’s final payment obligations to the Contractor.  The Owner ultimately made its final payment to the Contractor a year later, twelve days after the Contractor submitted a fourth lien waiver and release that the Owner found to be acceptable.  In so ordering, the Court noted that it was a contested fact as to whether the three initial lien waivers were accurate and the Contractor did not attach evidentiary support or cite evidence in the record from which the Court could conclude that the lien waivers satisfied the Contract requirements.

To view the full text of the court’s decision, courtesy of Bloomberg Law, click here.

To view the full text of the court’s decision, courtesy of Bloomberg Law, click here.

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