Womble Carlyle Construction Industry Blog

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

Wednesday, November 14, 2007

Too much celebrating?

Alleging serious design and construction defects in its Stata Center, The Massachusetts Institute of Technology just sued two heavyweights: Frank Gehry's firm, Gehry Partners, based in L.A., and Skanska. The Stata Center opened to much acclaim in 2004, when Mr. Gehry observed that "it looks like a party of drunken robots got together to celebrate." Three years later, there's a lot of finger pointing going on. Not surprisingly, Gehry claims that "the issues are fairly minor" and that MIT's value engineering is to blame, while Skanska alleges that Gehry rejected recommendations that would have mitigated against poor drainage. Meanwhile, apparently keeping his head well below the skirmish, one robotics professor who works in the building commented that it "is a joy to work" there. He went on, "We asked Frank to give us a building that fostered communication, and he delivered." Everybody's talking now. See the New York Times for the complete story. (This entry published by Laura Luger, a member of Womble Carlyle's real estate and construction law practice group.)

The Ray and Maria Stata Center. Photo by bypnyc.

Monday, November 12, 2007

SOL Countdown

Statute of Limitations ("SOL") cases can be complicated, and my mission in this space is to keep this simple. The case is Baum v. John R. Poore Builder, Inc., 643 S.E.2d 607 (N.C. App. 2007). Climb aboard and I’ll share the story. North Carolina Homeowners sued a Builder, Tile Subcontractor and Engineer for construction problems with their deck. In North Carolina, the SOL for filing suit is three years for contract and negligence actions. That part is easy. The hard part is establishing the date the SOL accrues or starts. Under North Carolina law, for "physical damage to claimant's property, the cause of action ... shall not accrue until ... physical damage to his property becomes apparent or ought reasonably to have become apparent to the claimant, whichever event first occurs."

At T-Minus seven years before suit, a report identified flaws in the deck; however, construction was ongoing and related issues in the report were settled in an agreement six years before suit.
At T-Minus four years before suit, the Homeowners noticed deck tile cracks and complained to the Builder, who instructed the Homeowners to call the Tile Subcontractor, who assured the Homeowner that there were no structural problems that caused the cracked tiles.

The Builder, Tile Subcontractor and Engineer tried to get the case dismissed on summary judgment. At issue was whether there are genuine issues of material fact as to when the Homeowners knew or reasonably should have known about the damage to their deck, and whether that date was more than three years from the date they filed suit. If the SOL accrued due to either of the just-mentioned T-Minus seven year or T-Minus four year events, the Builder, Tile Subcontractor and Engineer would be dismissed from the case. But there is more.

At T-Minus two years before suit, a painter told the Homeowners they should have the tile inspected possible moisture problems behind the tile. Homeowners contacted the Tile Subcontractor who promised but failed to come out. At T-minus one year before suit, a construction inspector advised the Homeowners "that the tile problems were the product of serious structural defects [in the design and construction of the deck]."

The North Carolina Court of Appeals ruled in favor of the Homeowners allowing the case to be decided by a jury, since the Tile Contractor assured the Homeowner that there were no structural problems that caused the cracked tiles at T-Minus four years before suit, which the Court deemed as evidence sufficient to support an inference that the Homeowners did not really know about the structural problems until T-Minus one year before suit.

Lesson one: SOL cases are very fact intensive. Lesson two: When filing a motion for summary judgment based on SOL, if the Statutes of Repose may also serve as grounds for dismissal, don’t forget to raise it in the motion for summary judgment. In this case, the defendants did plead the Statute of Repose as a defense in their answers to the complaint, but failed to mention it in their motions for summary judgment - and the Court failed to consider it even though the deck was completed a little over T-Minus six years from suit. What is the applicable Statute of Repose in North Carolina? Six years. Ouch. (This entry posted by Ken Michael, a member of Womble Carlyle’s real estate development and construction law practice group).

Source: Baum v. John R. Poore Builder, Inc.

Thursday, November 8, 2007

AIA Launches New Contract Documents

On November 7, the AIA formally introduced 40 revised, new or renumbered contract documents and commentaries. The AIA touts its contract documents as the most widely used standard form agreements in the construction industry, a claim that is supported by an article appearing in the November 5 issue of Engineering News-Record entitled "AIA Forms Running Far Ahead of Rivals" (subscription required).

Many of the AIA Owner/Contractor agreement forms incorporate AIA Document A201, the General Conditions of Construction (which is also incorporated by reference into several of the AIA Owner/Architect agreement forms). The 2007 edition of A201 contains several major departures from the previous 1997 edition, including:
  • providing an option for the Owner and Contractor to engage an "Initial Decision Maker" to initially decide claims, instead of initially submitting claims to the Architect
  • making arbitration optional
  • allowing arbitrations to be consolidated
  • deferring to state law to govern the statute of limitations for filing a demand for arbitration
For more information about the changes in the AIA documents, go to http://www.aiacontractdocuments.org/. (This entry posted by Karen Carey, a member of Womble Carlyle's real estate development and construction law practice group.)

Thursday, November 1, 2007

Florida Court of Appeals: A201 Arbitration Requirement Survives Termination of the Contract

I recently noted in the September 2007 edition of the Construction Litigation Reporter an interesting case dealing with the timing of a party's decision to terminate a contract and that party's subsequent ability to invoke the arbitration provisions contained in the AIA A201-1997.

In Auchter Co. v. Zaloul, 949 So.2d 1189 (Fla. App. 2007), the parties entered into an AIA A111-1997 "Standard Form of Agreement Between Owner and Contractor" and A201-1997 "General Conditions of the Contract for Construction" (the "Contract"), for the construction of a home construction project. Two months after the project received its certificate of occupancy, the owner notified the contractor that it was terminating the Contract because of certain construction defects. The owner then sued the contractor for damages. The contractor then moved to dismiss or in the alternative compel mediation/arbitration under Section 4.4 of the A201. The Owner responded by arguing that because the Contract had been terminated, the mediation and arbitration provisions did not survive termination and argued that its claims were properly brought before the court. The trial court agreed with the owner's argument and denied the contractor's motion to compel mediation and/or arbitration.

On appeal, The Auchter Court disagreed. The Auchter Court held that "the dispute resolution provisions of the contract are intended to survive purported termination of the contract by a party." In so finding, the Court reversed the trial court and held that the contractor's motion to compel arbitration should be granted.

Interestingly, the Court went to great lengths to distinguish the results reached in Aberdeen Golf & Country Club v. Bliss Construction, Inc., 932 So.2d 235 (Fla. 4th DCA 2005), which reached the opposite conclusion and held that the arbitration provisions contained in the standard AIA contract do not survive termination because there is no survival provision to keep this provision alive after termination. In rejecting what the Auchter Court found to be "dicta", the Court appeared to focus on the equity or "fairness" of the results in each case. In Aberdeen, the owner terminated the contract and then when the contractor sued for damages, the owner sought to enforce the arbitration provisions of the same contract that he had repudiated by virtue of his termination of the contract. By contrast, in Auchter, the owner terminated and sued for damages and it was the contractor who sought to enforce the arbitration provisions.

The author of the Comment section of the article notes, appropriately, the equity issue presented in the two cases and notes "[i]n Aberdeen, the owner terminated the contract prior to completion, then invoked the contract's arbitration provision when it was sued by the contractor. Thus, the owner improperly sought to pick and choose which contract provisions it wished to ignore and which to enforce."

As anyone who has been involved in the construction industry can attest, the decision to terminate and "move on" or seek to enforce the terms of the Contract is never an easy decision to make. The Court's reasoning in Auchter, should, however, certainly give a party considering whether to terminate or enforce a contract pause to consider whether they prefer arbitration or litigation before any action is taken as the failure to make this early calculation may result in the court imposing a forum for dispute resolution the party may not want. (This entry published by Culley Carson, a member of Womble Carlyle's construction law practice group.)