Contractor’s Lawsuit Against Architect for Tortious Interference Allowed to Proceed

A U.S. District Court Judge for the District of Massachusetts has allowed a lawsuit to proceed brought by a contractor against an architect, alleging the architect falsely certified grounds for termination to the project owner. In a November 18, 2015 written decision in the matter of Barr, Inc. v. Studio One, Inc., C.A. No. 3:15-40056, the Court denied the architect’s motion to dismiss the contractor’s claims against it sounding in tortious interference with contractual relations and tortious interference with advantageous relations. The Court determined that in both instances, the contractor must demonstrate that the architect acted with an “improper motive or means.” The lawsuit alleged that the architect certified to the project owner that the contractor breached its contract with the project owner by “repeatedly refusing or failing to supply enough properly skilled workers or other materials.” Per the terms of the contract with the contractor and owner, this was a specific ground for termination. In the lawsuit, the contractor alleged the architect knew this was not true, and project correspondence and meeting minutes established the project delays were not the fault of the contractor. The contractor also asserted that the architect caused the owner to terminate the contractor for the architect’s own financial gain and to secure benefits with respect to compensation for post-termination services that would otherwise not have been available.

In seeking to dismiss the lawsuit, the architect argued that the contractor did not allege it acted with “actual malice,” which is more stringent than the “improper motive” which was alleged. In rejecting this argument, the Court held that intentional interference torts – such as tortious interference with contractual relations and tortious interference with advantageous relations – do not require a showing of actual malice. The contractor’s allegations in the Complaint, including that that the architect knowingly certified false reasons to induce the owner to terminate its contract with the contractor, met the elements of the intentional interference torts alleged and were sufficient to survive a motion to dismiss.

Under the standard AIA contract used here, the owner could not terminate the contractor for cause without the architect’s certification of the grounds for termination. The Court’s ruling confirms that the contractor’s Complaint sufficiently alleged that the architect was not carrying out its contractual duties objectively and in good faith. Despite being hired by the owner, the architect still has a contractual duty to interpret and decide matters concerning performance under the contract in good faith, and without partiality to either the owner or the contractor, which the contractor alleged it failed to do.

Project Management Firm Not Liable for Subcontractor’s Injuries

The Suffolk (MA) Superior Court, in Rodrigues, et al. v. Tribeca Builders Corp., et al. (Civil Action No. 13-00730-C), recently granted summary judgment to a project management firm retained by a property’s landlord/owner, who was sued after the Plaintiff was injured at a construction site.  The Plaintiff was injured when a handicap chair-lift he was helping to move at the construction site fell on him.  The Plaintiff was employed by a subcontractor hired by the general contractor.  The Plaintiff brought claims against the general contractor, another subcontractor, and the project management firm hired by the landlord to provide project management services on its behalf.

The Court held that the project management firm owed no duty to the Plaintiff, and thus the Plaintiff could not assert a negligence claim against it.  In reviewing the contract between the landlord and project management firm, the Court found that the project management firm was to carry out a variety of logistical, managerial and administrative functions related to the construction, most of which involved monitoring the project’s adherence to its agreed budget and schedule.  The Court described the firm’s role as that of a conventional “Clerk of the Works,” functioning as they eyes and ears of the owner in respect to the administration of the project.  Nothing in the contract between the owner/landlord and the project management firm remotely suggested that the firm’s administrative functions extended in any way to matters of construction safety.  The Court also noted that the firm had no contractual relationship with the Plaintiff, the general contractor, or any subcontractors.

The Court also pointed out that even if the project management firm could somehow be deemed to owe a duty of care to the Plaintiff, the undisputed evidence was clear that the firm had nothing at all to do with the accident that injured Plaintiff.  The firm did not attend or participate in safety meetings, did not direct or instruct anyone regarding how their work should be performed, and had no knowledge of, involvement in, or communications regarding the handicap chair-lift that injured the Plaintiff, or the equipment used to move it. 

In sum, the Court noted that while the project management firm played a significant administrative role in coordinating the scheduling and other logistical aspects of the construction project, there is no evidence that it was in “control” of the job-site, directed the work of any subcontractors, or had any connection whatsoever to the operations or movement of the chair-lift that caused the Plaintiff’s injury.

Equitable Adjustment Not Available to Remedy “Wholly Artificial” Bids

The Massachusetts Appeals Court has declined to award an equitable adjustment to a contractor who bid $0.01 to excavate a cubic yard of rock from a project site. See Celco Construction Corp. v. Town of Avon, 87 Mass. App. Ct. 132 (March 2, 2014).  The contractor constructed its bid based on its belief that the amount of rock on the site would be considerably less than the unverified estimate indicated in the contract bid documents, so that its low unit price would give it a competitive advantage when compared to the other bidders who assigned a unit price to rock removal that more closely approximated the actual cost.  When the amount of rock turned out to be 2524 cubic yards, and not 1000 cubic yards, as estimated, the contractor sought an equitable adjustment.  Initially, the contractor sought to increase the contract from $0.01 per cubic yard to $220 per cubic yard, and eventually dropped the request to $190 per cubic yard.

Massachusetts General Laws, c. 30, § 39N, which governs equitable adjustments in public construction contracts, provides that in all public construction contracts (such as the one at issue here), there must be a provision allowing either party to request an equitable adjustment in the contract price “if, during the progress of the work, the contractor or the awarding authority discovers that the actual subsurface or latent physical conditions encountered at the site differ substantially or materially from those shown on the plans or indicated in the contract documents.”  The contractor argued that the approximately 1500 more cubic yards of rock presented an appropriate occasion for an equitable adjustment to compensate it for the increased costs it incurred to remove the additional rock.

The Court disagreed, noting that there was nothing to suggest that the nature of the rock itself, and the means to remove it, differ in any way from what was anticipated in the contract.  The Court decided that in a contract in which the contract price is comprised of the aggregate of line items for various elements of the work, which in turn are based on unit prices for the quantities involved in each line item, no equitable adjustment is warranted by reason of a variation in the estimated quantities, standing alone, as compared to a deviation in the condition or character of the physical condition.  The Court confirmed that an equitable adjustment is required only when the contractor encounters a material difference in the “actual subsurface or latent physical conditions . . . at the site . . . of such a nature as to cause an increase or decrease in the cost . . . of the work.” 

The Court included in its opinion advice for all contractors in bidding on public construction jobs (and on all jobs in general): “Had [the contractor] in its bid assigned to rock removal a unit price reasonably approximating its estimated cost for such removal, instead of assigning the wholly artificial and unrealistic value of one penny, it would be in no need of adjustment to the contract price.  Put another way, [the equitable adjustment statute] is designed to protect contractors from unknown and unforeseen subsurface conditions, not from the consequences of their decisions to bid a unit price for the performance of work that is wholly unrelated to their anticipated cost to perform the work.  In such circumstances, it defies logic to invoke ‘equity’ as a basis for adjustment to the contract price.”

An Alternative to Bid Protests – California Court Allows Second Low Bidder to Sue Low Bidder Directly

In Roy Allan Slurry Seal, et al. v American Asphalt South, Inc. (2/20/2015), the court held that if a low bidder is only able to secure the bid by paying its workers less than the required prevailing wage, then second low bidder is entitled to bring a direct law suit against the low bidder.

The broader facts are as follows.  From 2009 to 2012, American Asphalt outbid Roy Allan Slurry Seal and Doug Martin Contractor on 23 public works projects valued at more than $14.6 million.  The disappointed contractors, Allan and Martin, later jointly sued American Asphalt, contending that they would have been the low bidders on those projects if American Asphalt’s bid had included labor costs based on the statutorily required prevailing wage.  American moved to dismiss the claims, arguing that that Allan and Martin did not have the required existing relationship and reasonable probability of being awarded the contracts to show intentional interference with prospective economic advantage.  After various conflicting lower court rulings on the issue, the matter was eventually presented to the California Court of Appeals, which denied the motions, stating:

The second-place bidder on a public works contract [may] state a cause of action for intentional interference with prospective economic advantage against the winning bidder if the winner was only able to obtain lowest bidder status by illegally paying its workers less than the prevailing wage... if the plaintiff alleges it was the second lowest bidder and therefore would have otherwise been awarded the contract, because that fact gives rise to a relationship with the public agency that made plaintiff’s award of the contract reasonably probable. 

 

The usual course of action in a case such as this would be for the second low bidder to file a bid-protest with the awarding authority, or to challenge any subsequent bid based upon such conduct.  However, this carries strong implications as the same principle could allow a second low bidder to sue the low bidder directly any time that it can show that that a low bidder knowingly used cut corners to secure the bid.  For example, contractors who commit wage-hour violations may be subject to challenge from the second low bidder, contending that they carried a lower labor number than appropriate in their bid.  If the second low bidder can show that the difference allowed the winning contractor to secure the bid, the contractor may be subject to significant liabilities.

Recent Supreme Court Decisions Strengthen NH Statute of Repose

The New Hampshire Supreme Court has issued two decisions in the past two weeks that bolster the strength of New Hampshire’s 8 year statute of repose.

Statute of Repose not Tolled During Period Where Contractor also Owned Property
In Ingram v. Drouin (February 12, 2015), the Plaintiffs argued that New Hampshire’s 8-year statute of repose did not bar their claims because the defendants not only built the home, but also once owned and possessed it.  Therefore, the Plaintiffs argued, the defendants are not entitled to the protection of the statute of repose.  The New Hampshire Supreme Court disagreed, stating, “We agree with the majority of courts addressing the issue that, when a builder-owner is sued for his construction-related activities, the statute of repose applies. To interpret the statute of repose otherwise would be contrary to the legislature's intent in enacting it— which was to protect the building industry.”

High Court Affirms Constitutionality of Statute of Repose
In Jillian Lennartz v. Oak Point Associates, P.A. & a. (February 20, 2015), the Plaintiff missed the statute of repose deadline by 3 months.  The Plaintiff then argued that New Hampshire’s 8 year statute of repose was unconstitutional.  The Plaintiff raised a variety of arguments, which the New Hampshire Supreme Court soundly rejected.  Ultimately, the Court disagreed, noted that it had previously rejected nearly identical arguments in Winnisquam Reg. Sch. Dist. v. Levine, 152 N.H. 537 (2005).  The Court went on to state, “The plaintiff concedes that the purpose of RSA 508:4-b, I, in preventing potentially infinite liability in the building industry is an important government objective, and we see no reason to modify our prior conclusion...”