Bienvenue a Montreal!

 

Forum's Fall Meeting Oct. 4-5, 2018

Mark your calendar, make your reservations, and check those passports - The ABA Forum on Construction Law’s Fall Meeting is traveling to the historic city of Montreal, Canada on October 4-5, 2018. With direct flights from many U.S. cities, Montreal is easy to get to, and offers a wonderful cosmopolitan venue in the largest French-speaking city in North America.

To Register: http://ambar.org/FCLFall18

Program Overview
Our program, It’s Lonely At the Top: Building a Successful Team with the Owner, takes a 360° view of a project and focuses on best practices for building a successful project team and how to address the inevitable challenges that arise. Topics include:

• project delivery: who’s using what, and the implications for your project
• public private partnerships (PPP)
• effectively assessing risk and negotiating contract and subcontract clauses
• construction financing and insurance/bonding
• tips and best practices in proactively addressing delays and disputes as the owner
• effective dispute resolution tactics and technical considerations when facing the owner
• grappling with corruption in procurement and construction – ethics and evolving practices

We are also honored to host a special plenary featuring a conversation with The Right Honourable Beverley McLachlin, who was the 17^th Chief Justice of the Supreme Court of Canada, the first woman to hold this position, the longest serving Chief Justice in Canadian history and a co-author of The Canadian Law of Architecture and Engineering.

Beyond the Program
But there is MORE! Stay right in the heart of the city at the LeCentre Sheraton Montreal Hotel, steps from historic sites, the Underground City, charming Old Town, and the nearby vistas of Mount Royal.  Take advantage of the favorable exchange rate for great shopping on nearby Saint Catherine Street.  Join your colleagues at the celebrated Windsor Station for a Welcome Reception soirée!

Contractor's "Speech" SLAPP-ed in Massachusetts?

http://www.cohassetma.org

Recently, the First Circuit faced an interesting issue concerning contractor "speech."  In fact, the appellate court in Steinmetz v. Coyle & Caron, Inc., 862 F.3d 128 (1st Cir. June 29, 2017), certified the question to the Massachusetts Supreme Judicial Court to clarify the Commonwealth's law prohibiting strategic lawsuits against public participation (more commonly known as "anti-SLAPP" statutes). The result, which is pending, may cause some contractors to pause before selecting certain projects.

Underlying the case was a residential construction project in Cohasset, Massachusetts, a coastal community located near Boston.  Before construction could begin, the plaintiff owner needed permits and approvals from various local sources including the town conservation commission.  A group of neighbors opposed the planned construction and to make their point, hired the defendant design contractor to prepare renderings of the proposed structure for the commission.  According to the plaintiff owner, these renderings were "false, fraudulent, and defamatory" and "depicted a 'hideous behemoth looming over the tree line of the island.'" Also at least one of the renderings had been posted on a Facebook page created by the neighborhood group. The commission ultimately denied the construction project and the plaintiff owner sued the defendant contractor alleging negligence, gross negligence, defamation, and violation of the Massachusetts consumer protection statute, Mass. Gen. Laws ch. 93A.

In turn, the defendant contractor filed a "special motion" to dismiss relying on the Massachusetts anti-SLAPP statute, Mass. Gen. Laws ch. 231, § 59H.  (Note that about 1/2 of the 50 states have adopted similar statutes as well.)  Anti-SLAPP statutes are aimed at preventing lawsuits that serve to chill the valid exercise of free speech.  In other words, prohibiting suits that try to silence or intimidate critics by making them spend time and money to defend claims brought against them. Motions to dismiss these lawsuits are granted unless the lawsuit-filing plaintiff can show the criticism "was devoid of any reasonable factual support or any arguable basis in law" and the criticism caused "actual injury." Mass. Gen. Laws ch. 231, § 59H.  Massachusetts recently adopted a gloss to this shifting standard by allowing non-moving party (lawsuit-filing plaintiff) to demonstrate that the claims were not "primarily brought to chill" the petitioning activities and that there is "'some reasonable possibility’ of a decision in the party's favor."  Blanchard v. Steward Carney Hosp., Inc., 75 N.E.3d 21 (2017).

Here, the defendant contractor claimed that the plaintiff owner's lawsuit was motivated to silence the speech of the neighborhood group -- of which the defendant contractor was hired to assist by preparing the renderings.  The First Circuit confirmed that if the anti-SLAPP regime applied here, the defendant contractor's renderings constituted a petitioning activity, the renderings were not void of factual basis, and the the plaintiff owner's claims were frivolous (it did not need to reach the question whether the claims "primarily brought to chill").  However the Court concluded that "given our uncertainty that the anti-SLAPP statute applies to third-party contractors . . . in the first place, we certify that question to the [Supreme Judicial Court]." Steinmetz, 862 F.3d at 136.  In so doing the Court commented that the Supreme Judicial Court "has warned several times, albeit in dicta, that the statute encompasses only parties who “petition their government as citizens, not as vendors of services" Id. 

Once the Supreme Judicial Court presents its answer to this question we will update this blog.  In the meantime contractors, especially in Massachusetts, are cautioned that the anti-SLAPP defense may not exist in its defense arsenal.
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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.

Pair of Cases Concerning Pay-if-Paid Provisions

Within the last month, two decisions with two outcomes were issued concerning "pay-if-paid" provisions. Observe that a "pay-if-paid" provision is a true condition precedent in that a general contractor is not required to pay its subcontractor unless and until it receives payment from the owner.  A different result flows from a "pay-when-paid" provision which only allows the general contractor a reasonable time to pay the subcontractor after receiving payment from the owner, but the risk of non-payment from the owner is not shifted to the subcontractor.

In Midlantic Fire, LLC v. Ernest Bock & Sons, Inc., No. DC–8529–14, 2016 WL 3093075, at *1 (N.J.Super. Ct. June 3, 2016), the pay-if-paid clause stated:

Payment by Owner to the General Contractor for the work/materials invoiced by the Subcontractor/Supplier shall be a condition precedent to General Contractor's obligation to pay Subcontractor/Supplier. Accordingly Subcontractor/Supplier agrees and understands that it shall bear the risk of non-payment by the Owner and shall be entitled to no compensation from the General Contractor in the event of non-payment by the Owner for its work/materials.

The plaintiff subcontractor installed a fire protection system in accordance with drawings and plans supplied by the defendant general contractor.  Subsequent to installation, the general contractor learned that the sprinklers interfered with structural supports that needed to be installed.  The subcontractor issued a change order, which was approved by the general contractor.  The subcontractor performed the changed work.  When the general contractor submitted the invoice for payment, the owner declined to pay because there was a "lack of communication [and] coordination" between the general contractor and subcontractor. The general contractor, citing the pay-if-paid provision, then refused to pay the subcontractor.   The plaintiff subcontractor prevailed at trial, and the defendant general contractor appealed the application of the pay-if-pay by law.

Applying Pennsylvania law, per the contract, the court affirmed in favor of the subcontractor because "courts are reluctant to enforce a conditional payment provision against an unpaid subcontractor that is not responsible for the condition giving rise to the payment defense" and because "parties to a contract have an implied duty not to frustrate conditions precedent to their performance" (citing Quinn Constr., Inc. v. Skanska USA Bldg., Inc., 730 F.Supp.2d 401, 420 (E.D.Pa.2010)).  Because the subcontractor had relied on the plans and drawings submitted by the general contractor and therefore because all coordination among subcontractors was the general contractor's responsibility, the subcontractor was not responsible for the non-payment. Rather the defendant general contractor's own error spurred the need for the change order and the owners refusal to pay the change order. As such, the pay-if-paid provision was inapplicable and the general was required to pay the subcontractor.

In A. Zahner Company v. McGowan Builders, Inc., No. WD 78063, 2016 WL 2994022, (Mo.App. Ct May 24, 2016), the pay-if-paid stated:

[Subcontractor] agrees that [the general contractor] will not be responsible to make any payment, progress or final, to [subcontractor] for any and all of the goods identified in this Purchase Order unless and until [general contractor] receives payment for such goods from the Owner of the project . . . . If Subcontractor is not paid within 45 days of when a pay application is submitted, Subcontractor may stop the Work of this Subcontract until payment is received . . . .

The trial court had concluded that the above provision was ambiguous because the "unless and until" language was a condition precedent to payment shifting the risk of non-payment to the subcontractor whereas the "stop the Work" sentences "eased the burden" of risk to the subcontractor.  The appellate court disagreed and instead held that the entire provision could be read harmoniously. That court held that altogether the provision simply "distributes financial risk between the parties and provides both [with] a measure of financial protection."  In sum, the general contractor did not need to pay if owner did not pay.  As its recourse, the subcontractor did not need to continue work if it was not paid.  As such, the appellate court concluded that the pay-if-paid provision was applicable and remanded the case for fact-finding -- whether the owner indeed did not pay the general contractor.

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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.

Sub Wins Against Owner -- It Was A Strategic Decision Not To Sue The GC

In South County Post & Beam, Inc. v. Brian T. McMahon, et al. ("McMahon"), the Rhode Island Supreme Court affirmed an "unjust enrichment" claim by a subcontractor against an owner.  The case is a cautionary tale for owners and will likely become a frequently cited case for subcontractors seeking multiple avenues for payment.

To avoid a "surprise" unjust enrichment cause of action by subcontractors, and particularly following this case, some takeaways for owners include:

• Do communicate solely through your general contractor. 
• Don't issue direct payment to subcontractors as a courtesy to the general contractor.  
• Don't negotiate directly with subcontractors regarding billing/commercial terms.  
• **Be careful about direct email communications with subcontractors** 

Contractors, whether a general contractor or a subcontractor, who deal with difficult owners could possibly lay the groundwork for such a quasi contract claim by engaging in these activities and direct owner/subcontractor communications.  The case creates precedent for the proposition that it is not necessarily inequitable for a general contractor and a subcontractor to purposefully collaborate to avoid lawsuits between themselves so that the sub/general business relationship remains strong.  

The Facts: A family buys undeveloped property on Block Island, Rhode Island with the intention to build a house. Family hires general contractor. General contractor hires a roofing subcontractor.  During construction, the family decides to build a "barn" for their children and, later on, a roof deck on the house.  No change order was issued for the roof deck. Subcontractor received three payments -- one of which was a direct payment from the family (at the request of the general contractor).  There was also some email correspondence between subcontractor and the family regarding subcontractor's billings. 

Lawsuit Against the Family: Subcontractor sued family for breach of contract (express and implied) and unjust enrichment.  Subcontractor did not sue general contractor because it did not want to disrupt the existing business relationship.  (The family didn't file a third party indemnification claim against the general contractor.) 

Contract Cause of Action -- Family Wins: Trial Justice found there was no express or implied contract, and therefore, entered judgment for the family.

Unjust Enrichment -- Subcontractor Wins: Despite the absence of a contract and the subcontractor's strategic decision not to sue the general contractor, the Trial Justice found that it was equitable to enter judgment for subcontractor against the family on the unjust enrichment claim. 

On appeal, the Rhode Island Supreme Court first set forth the elements of a claim for unjust enrichment:

It is well settled in our state that, '[t]o recover for unjust enrichment, a claimant must prove: (1) that he or she conferred a benefit upon the party from whom relief is sought; (2) that the recipient appreciated the benefit; and (3) that the recipient accepted the benefit under such circumstances that it would be inequitable for [the recipient] to retain the benefit without paying the value thereof.'

McMahon, at *8, quoting Emond Plumbing & Heating, Inc. v. BankNewport, 105 A.3d 85, 90 (R.I. 2014) (emphasis added).  Next, the Court explained that, under Rhode Island law, the causes of action for unjust enrichment and quantum meriut were essentially the same.  "'While unjust enrichment focuses on the propriety of a payee or beneficiary retaining funds or a benefit, quantum meruit's primary focus is on the value of services rendered.'" McMahon, at *8, citing Process Engineers & Constructors, Inc. v.DiGregorio, 93 A.3d 1047, 1052 (R.I. 2014). (Presumably, the Court engaged in this discussion because the proof of damages related the value of the services rendered rather than the "benefit" conferred on the family by the subcontractor's work.)

The Supreme Court framed the issue as "whether [the family] would be unjustly enriched if they did not have to compensate [subcontractor] for the value of the services rendered, and not whether it would actually be proper for [the family] to retain the benefit of plaintiff's work on their new house and barn." McMahon, at *10.  Despite precedent stating that "'[s]imply conferring a benefit upon a landowner by a subcontractor is not sufficient to establish a claim for unjust enrichment[,]" McMahon, at *11, quoting Emond Plumbing & Heating, Inc. v. BankNewport, 105 A.3d 85, 90 (R.I. 2014), the Court "balanced the equities" to determine whether subcontractor could recover directly from the family.  The following were the facts considered by the Court:

Facts Weighing Against A Claim For Unjust Enrichment

• Existence of a Subcontract and lack of contract (even implied) with the family. This was a "factor that weigh[ed] against [subcontractor] recovering the value of its work from [the family." McMahon, at *11.  
• Not pursuing recovery against General Contractor. This fact should strongly make an unjust enrichment claim against the family unsuccessful.  Here, subcontractor surprisingly admitted to the Trial Justice that the subcontractor "had made a strategic decision not to include [the General Contractor] as a defendant in its civil action because it wanted to continue working with [the General Contractor] in the future." McMahon, at *12, fn. 2.  

Facts Weighing In Favor Of A Claim Of Unjust Enrichment

• Family made one $60,100 payment to subcontractor.  It was undisputed that this was done as a courtesy to the general contractor.  
• Family and subcontractor exchanged emails. The emails dealt with the subcontractor's billings and statements.  

The Court held "the trial justice was not incorrect as a matter of law in her analysis and conclusion that the third element of plaintiff's claim was met."  

The family's counsel argued that this case could "render every property owner a de facto party to subcontracts executed by the general - the general and sub could substitute the homeowner as the obligor at their whim, at any time, without notice." McMahon, at *14. While recognizing this policy argument, the Court discounted it because an "unjust enrichment" claim involves a "fact-specific balancing process." McMahon, at *14. In so holding, the Court has substantially widened the "door" for such direct claims by subcontractors against owners and made it more challenging to dispose of such actions through the summary judgment process.  

The Dispute Resolver editors look forward to hearing from you about this case.  Please post your comments on our blog or LinkedIn Subgroup page.  This case summary was prepared by Tom Dunn, a Partner at Pierce Atwood's Providence, Rhode Island office and Co-Editor of The Dispute Resolver. Tom can be reached at rtdunn@PierceAtwood.com or @rtomdunn.