A Contractor That Intentionally and Materially Breaches Its Contract Is Not Precluded From Recovery Under Quantum Meruit; Massachusetts Supreme Court Overrules Century-Old Precedent Strictly Barring Such Relief

G4S Tech. LLC v. Mass. Tech. Park Corp., 2018 Mass. Lexis 357 (June 13, 2018)

A state development agency (the “Agency”), received state and federal funding to build a 1,200-mile fiber optic network.  It contracted with G4S Technology LLC (“G4S”) for the project under a $45.5 million design-build agreement.  As a result of project delays – the cause of which the parties disputed – G4S achieved final completion of the work more than one year after the contractual deadline.  Shortly after completion, the Agency issued a notice of withholding, claiming a right to withhold $4 million from G4S to compensate the Agency for delays and expenses incurred as a result of G4S’s alleged failures to perform.

G4S sued the Agency in Massachusetts Superior Court, asserting claims for breach of contract and quantum meruit.  It sought release of the contract balance plus an equitable adjustment of the contract price and deadlines.  In discovery, the Agency learned that G4S had repeatedly submitted inaccurate progress payment applications during the project, which falsely represented that G4S had timely paid its subcontractors.  The Agency cited this evidence in support of a motion for summary judgment, arguing that G4S’s conduct barred its right to recover money owed to it under the contract and under a theory of quantum meruit.  The Superior Court granted the motion, and G4S appealed. Continue reading

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Ohio Court of Appeals Rules That Architect’s Authority Does Not Extend to Advancing Payments to Subcontractors, and Architect’s Liability Does Not Extend to Guaranteeing Subcontractors’ Work

Manley Architecture Grp., LLC, v. Santanello, 2018 Ohio App. LEXIS 2372 (June 7, 2018)

Dr. Steven A. Santanello (“Santanello”) contracted with Manley Architecture Group, LLC (“MAG”) to design and manage the construction of a large home, riding barn, pond, tennis court and outdoor pool.  Santanello acted as his own general contractor.

During construction, problems arose with the barn roof, and Santanello stopped paying MAG’s and his subcontractors’ invoices.   MAG advanced $55,557.68 to Santanello’s subcontractors to induce them to complete the project.  MAG later filed a breach of contract action against Santanello seeking to recover these advances.

Santanello filed a counterclaim for breach of contract, alleging that MAG breached its obligation to properly manage the construction of the barn, ultimately necessitating the replacement of the roof.  After a bench trial, the trial court found that both parties had breached the contract.  The parties cross-appealed. Continue reading

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Under California’s Prompt Payment Statute, a Direct Contractor May Not Withhold Retention From a Subcontractor Simply Because a Dispute Exists Between the Parties. To Allow Withholding, the Dispute Must Relate Directly to the Specific Retention Amount Due.

United Riggers & Erectors, Inc. v. Coast Iron & Steel Co., 2018 Cal. Lexis 3510 (May 14, 2018)

In 2010, Universal City (“Universal”) hired Coast Iron & Steel Co. (“Coast Iron”) to build a new ride at the Universal Studios Hollywood.  Coast Iron subcontracted the installation of the metalwork to United Riggers & Erectors, Inc. (“United Riggers”).  The initial subcontract between Coast Iron and United Riggers was for $722,742 but was increased by change orders to approximately $1.5 million.  United Riggers completed its work to Coast Iron’s satisfaction.  In August 2012, Universal made its final retention payment to Coast Iron.  However, Coast Iron refused to pay any retention to United Riggers due to disputes over change order requests from United Riggers to increase the subcontract price by approximately $350,000.  United Riggers then filed suit to collect these sums, including prompt payment penalties under California Civil Code Section 8814 for failure to timely pay retention.  Coast Iron ultimately paid all of the $149,602.52 in retention owed to United Riggers during the litigation.  After a bench trial, the trial court entered judgment in favor of Coast Iron.  The Court of Appeal reversed the trial court’s ruling on the statutory claim for failure to make timely retention payments.  The California Supreme Court affirmed. Continue reading

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Supreme Court of Minnesota Holds Ventilator Motor Incorporated Into a Home’s HVAC System Qualifies as “Machinery” Excepted From the State’s Ten-Year Statute of Repose

Great N. Ins. Co. v. Honeywell Int’l, Inc., No. A16-0997, 2018 Minn. LEXIS 236 (May 9, 2018)

This case arises out of a residential construction project and the installation of ventilators into a home’s HVAC system.  Sixteen years after completion of the work, a fire occurred in one of the ventilators, causing property damage.  After paying the homeowners’ insurance claim, Great Northern Insurance (“Great Northern”), as subrogee, filed suit against McMillan Electric Company (“McMillan”), the manufacturer of the motors in the ventilators, asserting claims for product liability, breach of warranty, and negligence, including a claim for breach of a post-sale duty to warn consumers of the risk of fires in ventilator motors.

The trial court granted McMillan summary judgment concluding that Minnesota’s 10-year statute of repose barred all of Great Northern’s claims except for the post-sale duty to warn claim, which also failed because McMillan owed no such duty. The Court of Appeals reversed both holdings.  On appeal, the Supreme Court affirmed the Court of Appeals’ decision that McMillan’s motor was “machinery,” to which the statute of repose does not apply. Continue reading

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Massachusetts Supreme Court Declares That State Contract Principles, Not Federal Precedent, Govern the Interpretation of Termination for Convenience Clauses

A.L. Prime Energy Consultant, Inc. v. Mass. Bay Transport Auth., 479 Mass. 419 (May 2, 2018)

In a case of first impression, the Massachusetts Supreme Court held that general contract principles, and not federal case law, govern the treatment of termination for convenience clauses in state procurement contracts.

In January 2015, the Massachusetts Bay Transportation Authority (“MBTA”) issued an invitation for bids for the supply of ultra-low sulfur diesel fuel for a two year term.  Following bidding, the MBTA awarded the contract to A.L. Prime Energy Consultant, Inc. (“Prime”) in July 2015.  The contract included a termination for convenience clause that provided:

The [MBTA] may, in its sole discretion, terminate all or any portion of this Agreement . . . at any time for its convenience and/or for any reason by giving written notice to the Contractor thirty (30) calendar days prior to the effective date of termination. . . . (emphasis added).

Approximately a year later, the MBTA determined that it could acquire its fuel supply from a different supplier at a lower price.  Accordingly, the MBTA notified Prime of its intent to terminate the contract for convenience. Continue reading

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