Articles Posted in Construction Law

by
The State of Michigan contracted with E.L. Bailey to construct a prison kitchen. After delays, the parties sued each other for breach of contract. Bailey had obtained surety bonds from Great American Insurance Company (GAIC) and had agreed to assign GAIC the right to settle claims related to the project if Bailey allegedly breached the contract. Exercising that right, GAIC negotiated with the state without Bailey’s knowledge, then obtained a declaratory judgment recognizing its right to settle. The Sixth Circuit affirmed, rejecting, for insufficient evidence, a claim that GAIC settled Bailey’s claims against the state in bad faith. Although “there can be bad faith without actual dishonesty or fraud,” when “the insurer is motivated by selfish purpose or by a desire to protect its own interests at the expense of its insured’s interest,” “offers of compromise” or “honest errors of judgment are not sufficient to establish bad faith.” There was no evidence that GAIC’s settlement of Bailey’s claims was undertaken with selfish purpose at Bailey’s expense. GAIC and Bailey shared an interest in securing the highest settlement possible from the state. Even if GAIC misunderstood Michigan law, leading it to miscalculate its liability and accept a lower settlement, “honest errors of judgment are not sufficient to establish bad faith.” View "Great American Insurance Co. v. E.L. Bailey & Co." on Justia Law

by
The Tennessee Department of Transportation engaged Mountain States to build two bridges over the Cumberland River at its intersection with Highway 109 in Gallatin. On May 21, 2013, the boom cable of a Terex HC 165 crane snapped while the crane operator was excavating material from under water, causing the boom—the extendable overhead arm of the crane controlled by the load-bearing wire boom cable—to collapse onto the adjacent highway. As the cable broke under tension, it whipped back to shatter the windows of the crane operator’s cab and the boom hit a passing vehicle. Though no person was injured, the subsequent OSHA investigation determined that at least four people were exposed to risk as a result of the accident. An Administrative Law Judge determined that Mountain States had committed a willful violation of the wire rope inspection standard of the Occupational Safety and Health Administration Act because, before the accident, Mountain States had knowledge that the boom cable had “visible broken wires” within the meaning of the provision requiring repair or replacement before further use. The Sixth Circuit affirmed the citation and penalty, finding substantial evidence to support findings of constructive and actual knowledge. View "Mountain States Contractors, LLC v. Perez" on Justia Law

by
Baker, an Ohio concrete construction business, subcontracts its work to smaller firms. In 2000, Baker signed a multi-employer collective bargaining agreement (CBA) between the Reinforced Concrete Contractors Association and the Union, covering current employees and employees not yet hired. A prehire CBA is allowed only in the construction industry, 29 U.S.C. 158(f). The CBA renewed automatically. On January 25, 2013, Baker sent the Union a letter, asserting: “Baker’s notice of its intent to terminate the Agreement, including any subsequent successor agreements.” The Union responded: "notice of withdrawal should be made not more than 60 days prior to the termination of the Agreement. The Agreement is in effect … until May 31, 2015, therefore your request was untimely." Baker reiterated that none of its employees perform work covered by the Agreement and that none had performed bargaining unit work covered by the Agreement for at least seven years. The Union filed a grievance. Baker stated that it did not recognize the arbitrator’s authority, but would appear to preserve its position. The arbitrator found Baker in violation of the CBA. The district court vacated the award. The Sixth Circuit affirmed, adopting the single-employee-unit rule; an employer may repudiate statutory and contractual obligations when the employer does not employ anyone within the relevant bargaining unit. View "Baker Concrete Constr., Inc. v. Reinforced Concrete Contractors Ass'n" on Justia Law

by
Over the course of seven years, Circle C, a contractor that built 42 warehouses at Fort Campbell Army base, paid some electricians about $9,900 less than the Davis-Bacon (40 U.S.C. 3142) wages specified in its contract with the Army. The government obtained a damages award of $763,000 under the False Claims Act, 31 U.S.C. 3729, arguing that all of the electrical work was “tainted” by the $9,900 underpayment and, therefore, worthless. The Sixth Circuit, reversed the damage award and remanded for entry of an award of $14,748. Actual damages are the difference in value between what the government bargained for and what the government received. The government bargained for the buildings and payment of Davis-Bacon wages. It got the buildings but not quite all of the wages. The shortfall was $9,916--the government’s actual damages. That amount tripled is $29,748 (31 U.S.C. 3729(a)(1)(G)). Minus a $15,000 settlement payment, Circle C is liable for a total of $14,748. View "Wall v. Circle C Constr., LLC" on Justia Law

by
Churn, the owner of a Tennessee construction company, was convicted of seven counts of bank fraud stemming from two schemes in which he received bank loans ostensibly to construct houses, but performed little to no work. The district court sentenced him to 33 months in prison and ordered restitution of $237,950.50. The Sixth Circuit affirmed, rejecting arguments that the district court made evidentiary errors concerning admission of an email statement, admission of testimony concerning a permit, and admission of evidence about another transaction, and that the amount of restitution exceeded a statutory maximum under the Victims Restitution Act, 18 U.S.C. 3663A. View "United States v. Churn" on Justia Law

by
After losing millions of dollars because of delays and coordination failures in building a hospital, W.J. O’Neil Company sued its construction manager in state court. In subsequent arbitration, the architect and a design subcontractor (defendants) were added to the arbitration on indemnity claims. In the arbitration, O’Neil did not formally assert claims against those defendants, but O’Neil’s claims against its construction manager arose from the defendants’ defective and inadequate design of the hospital. O’Neil won the arbitration against its construction manager, but the construction manager did not establish its indemnity claims, so the defendants were not held liable. No party sought judicial confirmation or review of the arbitration award. O’Neil then sued the defendants in federal court. The district court dismissed, finding the claims barred by Michigan’s doctrine of res judicata. The Sixth Circuit reversed. An arbitration award cannot bar a claim that the arbitrator lacked authority to decide, and an arbitrator lacks authority to decide a claim that the parties did not agree to arbitrate. O’Neil did not agree to arbitrate the claims at issue. View "W.J. O'Neil Co. v. Shepley, Bulfinch, Richardson & Abbott, Inc." on Justia Law

by
Various Community Groups and the Detroit International Bridge Company sued the Federal Highway Administration (FHWA), challenging the Record of Decision (ROD) issued in 2009, selecting the Delray neighborhood of Detroit as the preferred location alternative for a new international bridge crossing between the U.S. and Canada. The Bridge Company owns and operates the existing Ambassador Bridge, about two miles from the proposed new crossing. The Bridge Company also owns property in the Delray neighborhood. The complaint alleged that selecting the Delray neighborhood as the preferred alternative violated the National Environmental Policy Act (NEPA); Section 4(f) of the Department of Transportation Act; Section 106 of the National Historic Preservation Act (NHPA); and “applicable legal authorities” on environmental justice, essentially because the decision was arbitrary and capricious.” The district court held that the Bridge Company had prudential standing to challenge the ROD and affirmed the ROD. The Sixth Circuit affirmed, noting extensive study of the project. View "Latin Ams. for Social & Econ. Dev. v. Adm'r of Fed. Highway Admin." on Justia Law

by
Consumers Energy entered into a Purchase Order, under which DynaSteel, operating in Tennessee and Mississippi, would fabricate ductwork for shipment to an Essexville, Michigan power plant for installation by a third party. The PO contained a Michigan choice-of-law provision. Consumers was to pay $10,634,755. PCI, with locations in Kansas and Tennessee, was to supply the insulation requested by Consumers for $1,842,890. The contract between DynaSteel and PCI contained a Tennessee choice-of-law provision. As the project progressed, Consumers paid DynaSteel $2.9 million, but DynaSteel did not pay PCI $1,542,890 it owed. DynaSteel also owed PCI more than $3.2 million for other projects. DynaSteel allegedly comingled Consumer’s payments with funds from other projects. Under a “Payment Plan Proposal,” DynaSteel was to make payments, which would apply to the unpaid orders in chronological order (the Consumers project came last in this order). The PPP did not contain a choice-of-law provision. DynaSteel paid PCI $2.1 million, which satisfied its obligations concerning the other projects, but did not fulfill its obligation as to the Consumers project. PCI sued in Michigan, alleging that DynaSteel violated the Michigan Builders Trust Fund Act. The district court entered summary judgment for Dynasteel, reasoning that the PO between PCI and DynaSteel was controlling, that the Tennessee choice-of-law provision was binding, and that the Trust Fund Act did not apply extraterritorially by its own force. The Sixth Circuit affirmed. View "Performance Contracting Inc. v. Dynasteel Corp." on Justia Law

by
The Fillers planned to demolish an unused Chattanooga factory. They knew the site contained asbestos, a hazardous pollutant under the Clean Air Act. Environmental Protection Agency regulations require removal of all asbestos before any demolition. Asbestos materials must be wetted, lowered to the ground, not dropped, labeled, and disposed of at an authorized site. Fillers hired AA, a certified asbestos surveying company, which estimated that it would cost $214,650 to remove the material safely. Fillers hired Mathis to demolish the factory in exchange for salvageable materials. Mathis was required to use a certified asbestos contractor. Mathis applied for an EPA demolition permit, showing an estimated amount of asbestos far less than in the AA survey. The agency’s asbestos coordinator contacted Fillers to verify the amount of asbestos. Fillers did not send the survey, but provided a revised estimate, far less than the survey’s estimate. After the permit issued, the asbestos contractor removed “[m]aybe, like, 1/100th” of the asbestos listed in the AA survey. Temporary laborers were hired, not equipped with protective gear or trained to remove asbestos. Fillers supervised. The work dispersed dust throughout the neighborhood. An employee of a daycare facility testified that the children were unable to play outside. Eventually, the EPA sent out an emergency response coordinator and declared the site an imminent threat. Mathis and Fillers were convicted of conspiracy, 18 U.S.C. 371, and violations of the Clean Air Act, 42 U.S.C. 7413(c). Fillers was also convicted of making a false statement, 18 U.S.C. 1001(a)(2), and obstruction of justice, 18 U.S.C.1519. The district court sentenced Mathis to 18 months’ imprisonment and Fillers to 44 months. The Seventh Circuit affirmed. View "United States v. Mathis" on Justia Law

by
Project labor agreements (PLAs) are used in the construction industry to set common conditions of employment for large projects involving multiple subcontractors and unions. On a public construction project, a PLA can be entered into by the governmental unit paying for the project or by its general contractor; the other party is a labor organization. If the governmental unit enters into a PLA, all contractors bidding on the project must agree to abide by it. Opponents argue that PLAs discourage nonunion contractors from bidding on government contracts and increase construction costs. Proponents, such as the trades councils, claim that PLAs enhance job-site cooperation and reduce labor disputes. The federal government has gone back and forth on allowing PLAs. Michigan passed the first version of the Fair and Open Competition in Governmental Construction Act in 2011, restricting the use of PLAs on publicly funded projects. Following entry of an injunction, that version was superseded by an amended act, passed in 2012. The district court enjoined the current version as preempted by the National Labor Relations Act. The Sixth Circuit reversed, finding that the act furthers Michigan’s proprietary goal of improving efficiency in public construction projects, and is no broader than necessary to meet those goals. View "MI Bldg. & Constr. Trades Council v. Snyder" on Justia Law