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Legal Updates
VIRGINIA SUPREME COURT RULES PRIME CONTRACTOR’S LAWSUIT IS TOO LATE TO OBTAIN INDEMNITY FROM SUBCONTRACTORS AND THEIR SURETIES. PDF Print
(December 6, 2016) - In the recent decision of Hensel Phelps Construction Company v. Thompson Masonry Contractor, Inc., Record No. 151780 (November 3, 2016), the Virginia Supreme Court affirmed a circuit court’s dismissal of a prime contractor’s lawsuit against its subcontractors and subcontractors’ sureties for indemnity for defects in work completed at least fourteen (14) years prior to the lawsuit.  The litigation resulted from a 1997 contract between Virginia Polytechnic Institute & State University (“Virginia Tech”) and Hensel Phelps Construction Company (“Hensel Phelps”) for the construction of a student health and fitness center on Virginia Tech’s campus.  Construction began in 1997, and the project was substantially completed a year later, with all work, including repair work by one subcontractor, completed by June 2000.  Several years later though, Virginia Tech discovered defective workmanship and removed, replaced, and repaired those defects.  Then, in April 2012, Virginia Tech asserted a claim against Hensel Phelps for the costs of remedying the defective work, which totaled in excess of $7 million.  Hensel Phelps ultimately settled with Virginia Tech for $3 million, and then Hensel Phelps filed its lawsuit against its subcontractors and their sureties for indemnification and breach of contract.  In response, the subcontractors and sureties sought to dismiss the case against them, arguing that Hensel Phelps’ claims were barred by the statute of limitations.  The circuit court agreed, dismissing the suit.  
 
On appeal to the Virginia Supreme Court, Hensel Phelps argued that based on terms in the prime contract which flowed down to its subcontractors, Hensel Phelps’ subcontractors waived the five-year statute of limitations.  The Virginia Supreme Court rejected Hensel Phelps’ argument, stating that a general provision which incorporates the prime contract into subcontracts is insufficient to expressly waive a statute of limitations.  The Court also found that the prime contract itself did not expressly waive the statute of limitations, but rather, because Virginia Tech was an agency of the Commonwealth of Virginia, the university was not subject to any statutory limitations periods.  
 
Having lost its primary argument, Hensel Phelps then raised an alternative argument that its claims against its subcontractors did not accrue until the date of Hensel Phelps’ settlement with Virginia Tech in 2014.  However, the Court also rejected that alternative theory, first ruling that the subcontractors could not be liable under the indemnification terms of their subcontracts because those terms were so broad that the subcontractors were in effect indemnifying Hensel Phelps from claims arising from Hensel Phelps’ own negligence, which violates Virginia’s Anti-Indemnity statute.  The Court then looked at several other subcontract terms which contained some degree of indemnification-like language, but the Court concluded that those terms were not contemplated by the parties as separate independent indemnification provisions which could require the subcontractors to indemnify Hensel Phelps for the recovery it sought.  
 
Finally, the Court rejected Hensel Phelps’ remaining argument that the subcontractors’ obligations to Hensel Phelps were a continuing obligation, finding that the subcontracts were for a finite period which was completed upon performance and expiration of the subcontractors’ guarantee.  Thus, Hensel Phelps’ cause of action was held to have accrued upon the breach of the performance obligations of the subcontracts, which arose at some point between the commencement of construction in 1997, completion in 1998, or the repair work in 2000. Utilizing any of these dates, the five-year statute of limitations had long since run when Hensel Phelps filed its lawsuit against the subcontractors and their sureties in 2014.  Citing to standard surety law, the Court ruled that because the statute of limitations had expired against the subcontractors, it had similarly expired against the subcontractors’ sureties.
 
 
MARYLAND AND DC COURTS HOLD THAT DISPUTE RESOLUTION CLAUSE IN PRIME CONTRACT DOES NOT REQUIRED STAY OF SUBCONTRACTOR’S PAYMENT BOND SUIT. PDF Print

(November 6, 2016) - In two recent cases in the U.S. District Courts for the Districts of Maryland and the District of Columbia, the federal courts both held that dispute resolution clauses contained in the contracts between the owners and general contractors do not require subcontractors to wait indefinitely until the general contractor and owner have resolved their disputes in order to proceed with their Miller Act lawsuits.

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MARYLAND SUBCONTRACTOR'S DELAY DAMAGES WAIVED THROUGH LIEN RELEASES. PDF Print

(July 26, 2016) - In United States v. Hartford Accident & Indem. Co.,a federal court in Maryland recently held that partial lien releases, executed without exceptions, barred a mechanical subcontractor’s claim for delay damages.  Even though the subcontractor’s delay damages arguably had not yet fully ripened at the time the releases were executed, and were furnished in order to receive its progress payments, the Court ruled that nothing in the release language preserved the claim. 

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MARYLAND CASELAW PROVIDES A CAUTIONARY TALE WHEN SEEKING TO RECOVER FOR DESIGN DEFECTS. PDF Print

(May 2, 2016) - Earlier this month, the Court of Special Appeals of Maryland provided construction contractors with a cautionary tale when seeking to recover for design defects.  In Fort Myer Construction Corporation v. Maryland-National Capital Park and Planning Commission, the contractor filed a breach of contract action against the owner alleging a number of breaches, most significantly, the provision of incomplete and defective design documents from the owner’s engineer.  The contractor did not file a negligence cause of action against the owner or engineer although the owner did pursue a third-party complaint against the engineer for indemnification, contribution, and breach of contract.  Extensive discovery ensued, and a year and a half later, the engineer filed a motion to dismiss the contractor’s claim, arguing that the contractor failed to file a Certificate of Qualified Expert at the outset of the case as required by a Maryland statute which applies to negligence claims against architects or engineers.  The contractor noted that it did not have a negligence claim against the engineer, but conceded the engineer’s argument, and consented to the dismissal.  Following the dismissal, all of the parties moved for sanctions, and the Montgomery County Circuit Court awarded sanctions against the contractor in excess of six hundred thousand dollars for the owner’s and engineer’s costs of the litigation due to the contractor’s failure to file the Certificate of Qualified Expert at the outset of the case.

On appeal, common sense prevailed and the Court of Special Appeals of Maryland reversed the sanctions award, ruling that whether to file the Certificate of Qualified Expert was a fairly debatable question of law when the only claims presented against the design professional were for breach of contract, and not for negligence.  However, the Court of Special Appeals held that if it had later turned out that the asserted deficiencies were attributable to a licensed design professional, then the defendants could have been entitled to move for summary judgment based upon the contractor’s failure to file a Certificate of Qualified Expert.  While contractors can agree that the Court of Special Appeals of Maryland made the correct decision in overturning the award of sanctions against the contractor, the circuit court’s ruling certainly should be a reminder for contractors to give extra consideration to the necessity of filing a Certificate of Qualified Expert when filing litigation in Maryland, even where the claim is for breach, if there is any potential that the claim for breach might arise from a design defect.  

 
MARYLAND COURT OF SPECIAL APPEALS HOLDS THAT CONTRACTOR’S “SUBSTANTIAL COMPLIANCE” WITH LICENSING STATUTE SUFFICES. PDF Print

(October 20, 2015) – Although the general rule in many jurisdictions, including Maryland, California, Florida, Virginia, and Arizona, is that an unlicensed contractor cannot sue to enforce a construction contract, our firm has previously written about certain exceptions to that rule for federal contractors (click here).  This month, the Court of Special Appeals of Maryland addressed another exception to the general rule – substantial compliance with the licensure statute.

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AMERICAN ARBITRATION ASSOCIATION REVISES ITS RULES AND PROCEDURES FOR THE CONSTRUCTION INDUSTRY. PDF Print

(July 28, 2015) - Effective July 1, 2015, the American Arbitration Association (AAA) revised its Arbitration Rules and Mediation Procedures for the Construction Industry to directly address the preferences of users for a more streamlined, cost-effective, and tightly managed alternative dispute resolution process that avoids the high costs of litigation. The revisions include a mediation step in all cases with claims that exceed $100,000 (with the ability to opt out), additional time limits and filing requirements to address the efficiency of arbitration, greater controls to limit the exchange of information, and new preliminary hearing rules to help ensure that arbitration is efficient from the beginning of the process. The revisions also include an emergency measure to ensure that the AAA appoints an emergency arbitrator within one day, to rule on requests for emergency relief in contracts that have been entered into on or after July 1, 2015. The revised Rules and Procedures can be found here.

The AAA is a not-for-profit organization, that since its founding in 1926, has offered a broad range of dispute resolution services that generally conclude with an award or other resolution of conflicts outside of traditional court proceedings. The AAA, along with other alternative dispute resolution providers, has come under fire in recent years as the cost of arbitration and complaints about the effectiveness of arbitration proceedings has risen. BrigliaMcLaughlin is encouraged that the AAA's rule revisions will address some of the concerns raised by the construction industry.

 

 
VIRGINIA ENACTS LEGISLATION PROHIBITING ADVANCED MECHANIC’S LIEN AND PAYMENT BOND WAIVERS FOR SUBCONTRACTORS AND SUPPLIERS. PDF Print

(June 22, 2015) - Provisions in Virginia construction contracts which require subcontractors, lower-tier subcontractors, and material suppliers to waive their lien rights, right to assert payment bond claims, or the right to assert claims for additional costs in advance of providing labor or materials are now void and invalid.  This change results from Governor McAuliffe’s recent approval of SB 891, adding Section 11-4.1:1 to the Virginia Code and amending Section 43-3. Although the amendments go into effect July 1, 2015, the General Assembly did not include any provision restricting the amendments to contracts entered into after July 1, 2015, so this new law may invalidate blanket waiver provisions in contracts entered into prior to the effective date of the statute. This amendment does not prohibit or invalidate releases of liens or claims provided after labor or materials are furnished or in provided in exchange for payment.

 
VIRGINIA AMENDS VPPA TO PERMIT CONTRACTORS TO CLAIM EXTRA WORK IN EXCESS OF STATUTORY CAP. PDF Print

(April 11, 2015) - To the benefit of public works contractors throughout the Commonwealth of Virginia, Governor McAuliffe recently approved HB 1628, amending Section 2.2-4309 of the Virginia Public Procurement Act (“VPPA”) effective July 1, 2015.

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FOURTH CIRCUIT HOLDS THAT CONTRACTOR’S GUARANTY TO PAY SUBCONTRACTOR DOES NOT CREATE THIRD-PARTY BENEFICIARY RELATIONSHIP WITH SUPPLIER. PDF Print

(January 1, 2015) - We have previously written about the difficulty faced by subcontractors and suppliers when asserting third-party beneficiary claims against owners or general contractors (click here). A recent decision by the U.S. Court of Appeals for the Fourth Circuit continues that trend and demonstrates how, in the absence of a timely payment bond claim or properly-perfected mechanic's lien, subcontractors and suppliers have few available remedies outside of a standard breach of contract claim.

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VIRGINIA SUPREME COURT RULES THAT PARTIES WITH A PECUNIARY INTEREST ARE NECESSARY TO A SUIT TO ENFORCE A MECHANIC’S LIEN. PDF Print

(November 17, 2014) - Late last month, the Virginia Supreme Court cleared up any ambiguity regarding who must be named in a lawsuit to enforce a mechanic’s lien.  In Sychronized Construction Services, Inc. v. Prav Lodging, LLC, 2014 WL 5490663 (Va. Sup. Ct. Oct. 31, 2014), the Court examined whether a general contractor that had no financial interest in a bond posted to release a mechanic’s lien was a necessary party to the subcontractor’s mechanic’s lien enforcement action.

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News

SHANNON J. BRIGLIA CO-AUTHORS ARTICLE IN TORT TRIAL & INSURANCE PRACTICE LAW JOURNAL.

(May 1, 2017) – Shannon J. Briglia has co-authored an article for the Winter 2017 edition of  the American Bar Association’s Tort Trial & Insurance Practice Journal titled: “Recent Developments ...

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BRIGLIAMCLAUGHLIN OBTAINS COMPLETE RECOVERY ON SUMMARY JUDGMENT FOR SURETY CLIENT.

(March 31, 2017) - On March 7, 2017, BrigliaMcLaughlin obtained summary judgment on behalf of a surety client in the case Developers Surety and Indemnity Company v. Belcher, et al., ...

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SHOSHANA E. ROTHMAN TO SPEAK AT WASHINGTON BUILDING CONGRESS EVENT.

On Thursday, April 13, 2017, Shoshana E. Rothman will present the topic "Avoiding Common Payment Pitfalls for Subcontractors: A Primer on Federal Contracting Payment Remedies" for the Washington Building Congress ...

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