Womble Carlyle Construction Industry Blog

Following the construction industry and related legal topics in the United States.

Monday, September 17, 2007

Substantial Similarity Test: Altered by Reality?

In a recent case in the United States Court of Appeals for the Sixth Circuit, two architectural firms sought the Court's guidance with respect to whether one of the firms had infringed the copyright of the other firms design and site plans. In Tiseo Architects, Inc. v. B&B Pools Service and Supply Co., ---F.3d ---, 2007 WL 2141375 (6th Cir. 2007), the Plaintiff, Tiseo Architects, were engaged by B&B Pools to design a site plan for an expansion project. Prior to Tiseo being hired, however, Gary Olson, another architect, was consulted and received a sketch of the proposed building plane. Mr. Olson indicated that due to time constraints in his schedule, he would be unable to work on the project.

Thereafter, Tiseo also used the sketch and other input from B&B's President to design the site plan which was used by B&B to gain approval from the city zoning board. After it completed the site plan design, B&B paid Tiseo in full, but did not use Tiseo to prepare the construction documents. Instead, B&B retained the original architect, Gary Olson. After the building addition was completed, Tiseo promptly filed its drawings with the Copyright Office and brought suit against B&B, its CEO and its architect, Mr. Olson.

The Sixth Circuit recently heard Tiseo's appeal of the lower court's rejection of its argument that B&B, through its architect, infringed its copyrighted drawings. The Court upheld the lower court's ruling relying finding that while the drawings were in fact similar, due to the reality of the zoning restrictions under which B&B had to operate in the construction of its new addition and the construction reality mandated by the presence of a "load-bearing wall", the Court found that there really weren't many other ways to design the addition. In so holding, the Court overlooked Olson's admitted access to Tiseo's drawings and the "substantial similarity" between the two drawings in upholding the lower court's finding that B&B's floor plans, as designed by Olson, did not infringe Tiseo's copyright.

What is significant about this case is the fact that the Court found against a copyright holder even in the face of the alleged infringer's 1) admitted access to the copyrighted drawings, and 2) the admitted (by the lower court) substantial similarity between the drawings. The reason this is significant is because, in most copyright cases, the two-pronged access and substantial similarity test is used to determine whether a work has infringed the copyright of another work. As a result, architects (especially those located in the jurisdiction of the 6th Circuit) whose designs are dictated in part by the circumstances of the project may not be able to completely rely on copyright protection as a complete solution to the protection of their work. (This blog posted by Culley Carson, a member of Womble Carlyle's construction and real estate development practice group.)

Friday, September 7, 2007

Even without contractually-required change order, contractor recovers additional HVAC costs against owner on summary judgment

The North Carolina Court of Appeals recently upheld a summary judgment decision in favor of Inland Construction Company, a general commercial contractor, for additional HVAC costs on a job where no change order was issued or executed. The Court agreed with the trial judge, Hon. Howard E. Manning, Jr., that despite an e-mail from Inland’s project manager to the defendant/property owner stating that “[t]he cost for these revisions will be resolved between [Inland/plaintiff] and [the architect.] The owner will have no cost associated with this change in the mechanical system,” the contractor’s claim was enforceable as a matter of law. Inland Construction Company v. Cameron Park II, Ltd, LLC., 640 S.E. 2d 415, 417 (N. C. App. 2007.)

The defendant/owner had refused to pay based upon the e-mail, alleging equitable estoppel, among other affirmative defenses. The Court rejected the owner’s assertion that the e-mail created an obligation not to charge for the additional work on the part of Inland Construction because there was no consideration. Furthermore, both parties had tendered evidence by way of affidavit, indicating that the owner had actually initiated the additional HVAC work. There was no dispute that the “project was organized in a traditional method of project delivery wherein Defendant contracted separately with an architect for design services and with Plaintiff for construction services.” Id. at 419. Finally, the owner had “failed to demonstrate any prejudicial change in position as a result” of the e-mail,” and was ordered to pay the additional cost to general contractor. Id. The full opinion may be accessed here. (This blog entry was published by Liz Riley, a member of Womble Carlyle's construction and real estate development practice group.)

Tuesday, September 4, 2007

Did Georgia Unintentionally Codify its Broad Form Indemnification Loophole?

On May 18, Georgia Governor Sonny Perdue signed H.B. 136, a bill that was intended to expand the state's prohibition against broad form indemnification to include those situations in which the indemnitor was required to obtain liability insurance, effectively closing a loophole created by the Georgia Court of Appeals decision in McAbee Const. Co. v. Georgia Kraft Co., 178 Ga. App. 496, 343 S.E.2d 513 (1986). Instead, it appears that Georgia codified the loophole.

Under the previous iteration of Georgia Code Section 13-8-2(b), broad form indemnity agreements were void as against public policy. A broad form indemnity agreement is one that requires complete indemnification of the indemnitee for all obligations of the indemnitee, and generally covers joint negligence and the sole negligence of the indemnitee. However, in McAbee Construction, the Georgia Court of Appeals created an exception to the general prohibition if the indemnity provision was coupled with a corresponding obligation of the imdemnitor to obtain insurance coverage. The court reasoned that Ga. Code. 13 -8-2(b) was inapplicable because the insurance requirement shifted the risk of loss from the indemnitor (fix typo in previous word) to the insurance company regardless of who was at fault.

The new law, effective July 1, 2007, was intended to close this loophole. It reads, in pertinent part:

A covenant, promise, agreement, or understanding in or in connection with or collateral to a contract or agreement relative to the construction, alteration, repair, or maintenance of a building structure, appurtenances, and appliances, including moving, demolition, and excavating connected therewith, purporting to require that one party to such contract or agreement shall indemnify, hold harmless, insure, or defend the other party to the contract or other named indemnitee, including its, his, or her officers, agents, or employees, against liability or claims for damages, losses, or expenses, including attorney fees, arising out of bodily injury to persons, death, or damage to property caused by or resulting from the sole negligence of the indemnitee, or its, his, or her officers, agents, or employees, is against public policy and void and unenforceable. This subsection shall not affect any obligation under workers' compensation or coverage or insurance specifically relating to workers' compensation, nor shall this subsection apply to any requirement that one party to the contract purchase a project specific insurance policy, including an owner's or contractor's protective insurance, builder's risk insurance, installation coverage, project management protective liability insurance, an owner controlled insurance policy, or a contractor controlled insurance policy.

However, it appears that the italicized language has the unintended effect of codifying the holding of McAbee Construction. During final negotiation of the bill between the House and Senate, the following language--which was inserted before the italicized text above--was deleted: "Any provision in an insurance contract issued pursuant to any such covenant, promise, agreement, or understanding to insure against any such liability or claims is, to that extent, against public policy and void and unenforceable." This language would have made it clear that a party can no longer avoid the prohibition against blanket indemnification by requiring liability insurance from the indemnitor. By removing that language from the enacted bill, the section appears to have the opposite effect: it permits an indemnitee to side step the prohibition against broad form indemnification by requiring insurance coverage from its indemnitor.