General Contractor Prevails: Subcontractor’s Demand for Payment Dismissed

The Massachusetts Appeals Court affirmed summary judgment in favor of a general contractor in the matter Acme Abatement Contractor, Inc. v. S&R Corporation.  The general contractor, S&R Corporation, hired an asbestos abatement subcontractor, Acme, to demolish and remove materials from a water treatment plant and ball field.  The linchpin issue was whether the subcontract required the paint removed from a section of the bleachers at the ball field.

The subcontractor claimed that there was no asbestos in the paint therefore removing the paint was outside the scope of its contract.  It refused to do that work.  As a result, the general contractor was forced to hire another contractor.  When the subcontractor demanded payment for the work it had completed, the general contractor refused and did not pay the subcontractor anything.  The subcontractor sued.

The general contractor proceeded to summary judgment on two bases.  First, it argued that the subcontract had assumed that all paint contained asbestos and therefore the subcontract’s scope necessarily included removing the subject paint. Then the general contractor argued if there were disputes about scope, per the contract terms, the subcontractor was required to do the work and then litigate the scope later: 

"In the event of any dispute, controversy or claim between the Contractor and the Subcontractor, the Subcontractor agrees to proceed with the Work or extra work without delay and without regard to such dispute, controversy, claim or the tendency [sic] of any proceeding in relation to the same. The failure of the Subcontractor to comply with the provisions of this paragraph shall constitute a material breach of this agreement. . . ."

Because the subcontractor refused to perform the disputed work, general contractor asserted that the refusal was a material breach and it was justified in not paying the subcontractor for any work.  The appellate court agreed with this second argument.

The subcontractor attempted to counter that even if it breached by not doing the subject work, under a theory of quantum meruit, it still was entitled to payment for the work it did perform.  The appellate court disagreed holding that because the subcontractor "intentional[ly] depart[ed] from the contract in a material matter without justification or excuse," its claim for recovery under quantum meruit was precluded.

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The author, Katharine Kohm, is a committee member for The Dispute Resolver. Katharine practices construction law and commercial litigation in Rhode Island and Massachusetts.  She is an associate at Pierce Atwood, LLP in Providence, Rhode Island.  She may be contacted at 401-490-3407 or kkohm@PierceAtwood.com.

Federal District Court in California Holds that Subcontract Provision Binding Subcontractor to Result of Dispute Resolution Under Prime Contract Was Not an Effective Waiver of Miller Act Rights

Robert A. Gallagher, Associate, Pepper Hamilton LLP

DVBE Trucking and Construction Co., Inc. v. McCarthy Building Companies, Inc., 2015 U.S. Dist. LEXIS 90052 (N.D. Cal. July 10, 2015)

This payment dispute case arises out of a Veterans Affairs (“VA”) construction project located in Palo Alto, California. McCarthy Building Companies, Inc. (“McCarthy”) was the prime contractor, Federal Insurance Company and Travelers Casualty and Surety provided the performance and payment bonds on behalf of McCarthy mandated by the Miller Act, and DVBE Trucking and Construction Company, Inc. (“DVBE”) was McCarthy’s subcontractor. Section 11.1 of DVBE’s subcontract required that, for any dispute involving the VA, it would follow the dispute resolution procedures agreed to by McCarthy in its contract with the VA, and agreed to be bound by the result of any such dispute resolution procedures to the same degree as McCarthy.

During the project, the VA issued a notice of suspension of the work, preventing McCarthy and DVBE from beginning work as planned. The work was also delayed due to differing site conditions relating to underground utilities. As a result, both McCarthy’s and DVBE’s work was performed behind schedule, during the winter. Once performed, the work was impacted by adverse weather.  McCarthy was also required to perform additional unforeseen work. McCarthy, on behalf of itself and its subcontractors (including DBVE) submitted claims to the VA for additional compensation.

While McCarthy’s claims remained pending with the Civilian Board of Contracting Appeals (“CBOCA”), the DVBE sued McCarthy, Federal Insurance Company and Travelers Casualty & Surety for recovery on the Miller Act Payment bond, breach of contract, account stated and quantum meruit. While the parties initially stipulated to stay the action pending resolution of McCarthy’s action before the CBOCA, they later agreed to lift the stay. Defendants then moved to stay the proceedings pending the outcome of McCarthy’s CBOCA appeal, arguing that Section 11.1 of the subcontract bound DVBE to the result of McCarthy’s proceeding with the VA. Defendants argued that, because the outcome of DVBE’s claim was entirely dependent on the outcome of McCarthy’s pending claim against the VA, the action should be stayed until McCarthy’s claim was resolved. In response, DVBE argued that Section 11.1 of the subcontract was not an effective waiver of its Miller Act claim.

The Court denied Defendants’ motion to stay. It concluded that it was contrary to the intent of the Miller Act to require DVBE to await, and be bound by, the result of a process in which it was not permitted to participate. The Court concluded that Section 11.1 of the subcontract would, if effective, waive DVBE’s Miller Act rights. The Court noted that an effective waiver of the Miller Act must be (1) in writing, (2) signed by the person whose right is waived, and (3) executed after the person whose right is waived has furnished labor or material for use in the performance of the contract. The Court also noted that the waiver must be clear and explicit. The Court found that Section 11.1 was not an effective waiver of DVBE’s Miller Act claim for two reasons. First, the subcontract was signed before the work began. And second, it was not a “clear and explicit” waiver of DVBE’s Miller Act rights. As such, the Court refused to enforce Section 11.1 of the subcontract and denied Defendants’ motion for stay of the proceedings. 

Article originally posted October 22, 2015 on Constructlaw, an update and discussion of recent trends in construction law and construction, maintained and edited by Pepper Hamilton's Construction Law Practice Group.