MSBA Construction Law Section Case Law Summary 2011

MSBA Construction Law Section Case Law Summary 2011 BEKA Indus., Inc. v. Worcester County Bd. of Educ., 18 A.3d 890, 419 Md. 194 (2011) This case arose out of the construction of Ocean City Elementary School in Worcester County, for which BEKA Industries, Inc. ( BEKA ) performed the site work and related earthwork services pursuant to a contract with the Board of Education of Worcester County (the County Board ). The lump sum contract was $1,856,000, and the total contract amount after change orders was $1,961,913. BEKA received only $1,421,852 from the County Board. As a result, BEKA filed a complaint for money damages and other relief in the Circuit Court for Worcester County, seeking its contract balance of $361,991.47, plus an additional $795,062.28 for alterations made to the scope of BEKA s work under the contract, which were comprised of delay and impact damages. The County Board denied liability and asserted a counterclaim in recoupment seeking $531,979.52. Following a four day bench trial during which, inter alia, the County Board was precluded from introducing any evidence as to its recoupment defense as untimely and unfairly prejudicial, the Circuit Court for Worcester County compromised the claim between BEKA's final claim for $1,215,035,80 and the County Board's claim for $505,487, and entered a judgment in favor of BEKA for $1,100,000. However, no factual findings were made as to whether BEKA s claims (other than the undisputed contract balance) constituted unallowable delay damages or allowed impact damages, or whether there was sufficient intentional interference, gross negligence, misrepresentation and/or fraud to constitute an exception to the enforceability of a nodamage-for-delay clause. The Court of Special Appeals (the CSA ) remanded the case, finding that the trial court s exclusion of the County Board s evidence on its recoupment claim was an abuse of discretion, and that the issues of delay damages and the exceptions to the nodamage-for-delay clause required factual findings from the trial court under Md. Rule 2-522(a). Further, the CSA analyzed the issue of sovereign immunity, holding that to obtain any future judgment, BEKA had the burden of demonstrating adequate funding existed for the County Board to actually pay the judgment. While the Court of Appeals affirmed, for the most part, the findings of the CSA, it reversed the CSA s ruling that absent BEKA bringing forward proof of the County Board s ability to pay any judgment against it, sovereign immunity would attach to the judgment. The Court of Appeals confirmed that while county boards of education are not units of State government under the General Procurement Law, when the issue is one of school construction, they are units of the State insofar as sovereign immunity is concerned. The legislative waiver of sovereign immunity in contract cases, therefore, applied to the County Board. Moreover, as a unit of State government, the Governor is required by statute to include in the budget bill funds adequate to pay a final judgment against a county board of education. As such, a funding mechanism now exists to pay a judgment against a county board of education, and the waiver of sovereign immunity when a written contract is in dispute remains effective. COPYRIGHTED MATERIAL 2012

C & M Builders, LLC v. Strub, 22 A.3d 867, 420 Md. 268 (2011) This case concerns a tragic accident which occurred when an employee of a residential HVAC subcontractor fell three stories through an unguarded staircase opening, sustaining fatal injuries. The plaintiff, on behalf of the decedent s son, brought suit against C & M Builders, LLC ( C&M ), the framing subcontractor responsible for having created the unguarded staircase openings. At trial, the judge granted C&M s motion in limine precluding the plaintiff from presenting evidence that C&M violated provisions of the Maryland Occupational Safety and Health Act ( MOSHA ) or equivalent OSHA standards. The court explained that C&M was not the decedent s employer, nor did it have any control or presence at the site during the fatal accident, having already completed its work and left the site (the evidence established that C&M left the staircase openings uncovered at the request of the general contractor, who wanted the area free from obstruction so that its staircase contractor could begin its work immediately). The judge allowed evidence only that by leaving the openings unguarded, C&M may have violated industry standards. At trial and again at the Court of Special Appeals (the CSA ), the plaintiff advanced the theory that evidence of MOSHA and OSHA violations should be admissible because under the multi-employer worksite doctrine C&M would be liable for MOSHA and OSHA citations due to the unsafe condition it created. By precluding the evidence of MOSHA/OSHA violations, however, the trial court expressly dismissed the claim that as a creating employer C&M owed a duty of care to the employees of other subcontractors at the site. The plaintiff appealed the trial court s exclusion of MOSHA/OSHA violations after the jury determined that C&M was not negligent. The CSA agreed with the plaintiff that the trial court erred in precluding expert testimony regarding MOSHA/OSHA violations because as a creating employer, C&M owed a duty of care both general and specific - to the decedent to comply with MOSHA. The Court of Appeals reversed the CSA and reinstated the trial court judgment for C&M. It recognized that under both MOSHA and OSHA, only a direct employer is liable for general duties to its employees (i.e., the duty to maintain a safe workplace), and C&M therefore did not owe any general duties to the decedent, the employee of another subcontractor. As to specific duties (i.e., the duty to cover and/or secure floor openings), the Court of Appeals recognized that a majority of federal circuits have expressed approval of the multi-employer doctrine only when the creating employee was responsible for maintenance of the area containing the hazard, or it was the only party exercising control over the area and as such, the only party who could remedy the hazard. Here, C&M was not responsible for maintenance of the area surrounding the openings and did not exercise any control over it at the time of the fatal accident. Accordingly, the Court of Appeals held that the creating employer exception of the multi-employer doctrine was not applicable. As such, C&M did not owe any duties under MOSHA or OSHA to the decedent employee, and evidence of any such violations was not admissible. COPYRIGHTED MATERIAL 2012 2

Hovnanian Land Investment Group, LLC v. Annapolis Towne Centre at Parole, LLC, 421 Md. 94, 25 A.3d 967 (2011) The Court of Appeals considered the issue of whether a contractual condition precedent could be waived where the contract contained an express non-waiver clause. As explained below, the Court of Appeals ruled affirmatively on this issue. This case involved a dispute under a contract to purchase real property between a developer (buyer) and property owner (seller). The contract required the seller to establish predetermined common area maintenance (CAM) fees for buyer s parcel and to provide CAM funding for certain other parcels. Under the contract, the buyer s obligation to go to closing was conditioned upon seller s completion of these conditions precedent. Upon a failure of these conditions, the buyer had the option to terminate the contract and have its deposit returned. Relying on the contractual conditions precedent, the buyer refused to go to closing and alleged that the seller failed to satisfy the conditions concerning the CAM fees and funding. The seller sought a declaratory judgment that the buyer breached the purchase contract by refusing to go to closing. The seller argued that it had satisfied the condition precedent, or alternatively that the buyer had, by its actions, waived the conditions. The buyer argued that because the parties never signed any written waiver agreement, no enforceable waiver of the conditions could possibly exist. The buyer relied on the following non-waiver clause: No change or modification of this Agreement shall be valid unless the same is in writing and signed by Purchaser and Seller. No purported or alleged waiver of any of the provisions of this Agreement shall be binding or effective unless in writing and signed by the party against whom it is sought to be enforced. The Court of Appeals disagreed with the buyer s argument, finding that the freedom to contract includes the freedom to alter that contract, even if there is a nonwaiver provision. The Court held that the existence of the non-waiver clause is not dispositive, and that the law focuses on the actions of the party. The Court found that where a contract contains a non-waiver clause, the party alleging waiver of a contract provision must demonstrate a clear intent to waive both (a) the contract provision at issue, and (b) the non-waiver clause. However, the waiver of the non-waiver clause in a contract need not be explicit and independent from the underlying waiver of a condition precedent; rather, waiver of the non-waiver clause may be implied from the very same actions which imply waiver of the condition precedent. COPYRIGHTED MATERIAL 2012 3

Stalker Bros., Inc. v. Alcoa Concrete Masonry, Inc., 422 Md. 410, 30 A.3d 885 (2011) This case involves the enforceability of a subcontract between an unlicensed subcontractor and a home improvement general contractor. The Court of Appeals held that the subcontract was enforceable. Alcoa Concrete and Masonry ( Alcoa ) was a subcontractor to Stalker Brothers for various residential home construction work. Alcoa was not licensed under Maryland Home Improvement Law at the time it entered into subcontracts or when it performed the work for Stalker Brothers during the period of 2004 through 2007. Certain payment issues arose and Stalker Brothers made various representations to Alcoa that the past due invoices would be paid in full. Stalker Brothers did not fulfill its promises and instead began winding down its business operations. In March 2008, Alcoa finally obtained a home improvement license and, six months later, filed suit against Stalker Brothers for nonpayment. Stalker Brothers primary defense was that the Alcoa subcontracts were illegal and unenforceable because Alcoa was not properly licensed. Accordingly, Stalker Brother argued that no payment was due and Alcoa could not state a claim for nonpayment under the subcontracts. The trial court granted Stalker Brothers summary judgment, and Alcoa appealed. The Court of Special Appeals reversed the trial court. The purpose of the Home Improvement Act is to protect the public from unlicensed professionals and therefore an unlicensed contractor cannot enforce a contract against its customer. This case is factually distinguishable because it involves two commercial parties. The Court of Special Appeals found no indication that the Home Improvement Act was intended to protect general contractors from unlicensed subcontractors. The Court of Appeals affirmed and adopted the analysis of the Court of Special Appeals holding that an unlicensed subcontractor can pursue a payment claim against the general contractor. COPYRIGHTED MATERIAL 2012 4

Baltimore County, Maryland v. AECOM Services, Inc., 200 Md. App. 380, 28 A.3d 11 (2011) The Court of Special Appeals considered the issue of whether Baltimore County was obligated to pay its Architect for additional services performed absent a written contract amendment approved by the County Council. As explained below, the Court of Special Appeals ruled negatively on this issue. This case involved a dispute under a contract between Baltimore County and its Architect to perform architectural/engineering services in connection with the expansion of the Baltimore County Detention Center. The original contract amount was $4,516,779.16. Subsequently, the parties entered into an Amendment to Contract increasing the contract amount to $4,785,752.36. This Amendment was signed by the Architect s president, the Administrative Officer of the County and the Baltimore County Council Chairman. At trial, the Architect argued that the contract amount should be further increased by $1,471,498.95 for additional services performed by the Architect. The jury awarded the Architect a total of $1,653,600.88, including $687,579.00 for unpaid base contract services and $966,022.00 for additional services. On appeal, the County contested the award of $966,022.00 for additional services because the County Council had not approved payment for these additional services. Article 21 of the parties contract contained the following provision: 21.1 Council Approval: The Architect covenants that this Agreement is subject to and in compliance with provisions of Section 715 of the Baltimore County Charter, Article VII, title, Budgetary and Fiscal Procedures. Baltimore County Charter 715 provides, in part, that: Any contract must be approved by the county council before it is executed if the contract is:... For services for a term in excess of two years or involving the expenditure of more than $25,000 per year or such amount or term as may be set by legislative act of the county council. The Court of Special Appeals held that, by a plain reading of Article 21.1 and Charter 715, the Architect agreed that any contract for services lasting more than two years or for a cost of more than $25,000 per year must be approved by the County Council. The Court held that the County can make a contract only in the manner prescribed by the legislature. This rule is strict, and if the County s charter provisions are not precisely followed during the contracting process, the contract is ultra vires and void ab initio. The Court of Special Appeals ruled that the County had no obligation to pay the Architect for the additional services because the County Council had not approved a contract amendment authorizing such payment. COPYRIGHTED MATERIAL 2012 5

Capital Select Realtors, LLC v. NRT Mid-Atlantic, LLC, 197 Md. App. 698, 14 A.3d 1257 (2011) This case involved the interpretation and enforceability of an arbitration award. In particular, the Court of Special Appeals held that a written arbitration award must be interpreted according to its objective terms. Any dispute over the intent of the arbitration award must be timely raised under the Courts and Judicial Proceedings Article, sections 3-222 or 3-223. The underlying arbitration involved multiple parties. The arbitrators award expressly stated that there was due and owing $14,475.00 to be paid by Hyongjin Oh to Bonnie Camarata. The award did not mention payment by the other two respondents Capital Select Realtors, LLC and Chong Barden. The claimants filed a petition in Circuit Court to confirm the award and named all the respondents in the arbitration as defendants. The defendants moved to dismiss the petition, claiming that any attempt to modify the arbitration award was time-barred. The trial court denied the motion, relying on the record from the arbitration proceeding to find an intent that the award was supposed to be against all three defendants. Accordingly, the trial court ordered judgment against Hyongjin Oh, Capital Select Realtors, LLC and Chong Barden. The Court of Special Appeals reversed the trial court, holding that it was error to enter judgment against parties who were not ordered to pay in the arbitration award. The Court reasoned that the arbitration award, similar to a contract, is subject to objective interpretation principles. Unless the language is ambiguous, a court must refrain from going beyond the four corners of the arbitration award and should apply the plain meaning of the language used by the arbitrators. If a party believes that the language of the arbitration award does not reflect the arbitrator s intention i.e., here that the award only named one of the three respondents then a party may petition the arbitrator to modify the award under C.J. 3-222, or petition the court to correct the award under C.J. 3-223. Sections 3-222 and 3-223, however, are subject to express time limits for seeking such a modification or correction. If no petition is made to modify or correct within the applicable timeframes, then a court must enforce the award as written. Because the time for seeking to modify or correct the arbitration award had expired, the claimant was entitled only to the judgment confirming the award as written. COPYRIGHTED MATERIAL 2012 6

Bayly Crossing, LLC v. Consumer Protection Division, Office of the Attorney General, 417 Md. 128, 9 A.3d 4 (2011) This case addresses the scope of releases prohibited by the Consumer Protection Act (CPA) in residential building contracts as well as the exemption for real estate developers from the Home Builder Registration Act. The Consumer Protection Division of the Attorney s General Office brought the claims against Bayly Crossing, LLC and its principals (Mr. and Mrs. Passyn and their son (the Passyns )) in connection with the development of a residential subdivision. The Division alleged that Bayly Crossing failed to properly register as a home builder and engaged in unfair and deceptive trade practices by using purchase contracts containing a buyer s general release in exchange for a one-year home warranty. There was no dispute that Bayly Crossing was not a registered home builder in Maryland. Bayly Crossing, as seller, entered into purchase contracts with various buyers to produce new homes. The purchase contracts and related sale documents identified T.B. Passyn & Sons as the home builder and Bayly Crossing as the seller and/or landowner. The contracts also identified T.B. Passyn & Sons home builder registration number. Accordingly, the Court of Appeals found that because Bayly Crossing did not enter into contracts as the home builder, it was not required to register as such. As to the question concerning the general release, the Court of Appeals found that the defendants violated the CPA. The general release stated that the buyers gave up any and all actions or causes of action relating to the construction in exchange for a one-year limited warranty. Section 13-301(13) of the CPA prohibits a seller of consumer realty from limiting or precluding the buyer s right to obtain consequential damages as a result of the seller s breach. The defendants argued that the general release made no mention of consequential damages and therefore 13-301(13) was not applicable. The Court of Appeals disagreed and found that the language of the general releases was broad enough to violate the CPA s prohibition on limiting the right to consequential damages. COPYRIGHTED MATERIAL 2012 7

Greenstein v. Council of Unit Owners of Avalon Court Six Condominium, Inc., 201 Md. App. 186, 29 A.3d 604 (2011) This case involves the duties owed by a condominium association to the individual unit owners. The condominium community was made up of thirty-six units within four buildings. Pursuant to the Condominium Declaration and By-Laws, the Council of Unit Owners of Avalon Court Six Condominium, Inc. (the Council ) was responsible for maintaining the common elements and repairing damage to the common elements. The individual unit owners possessed a property interest in the common elements. In 2006, the Council, in its own right and on behalf of the individual unit owners, filed suit against the original builder/developer, Questar, for alleged design and construction defects that caused leaks. The suit against Questar was dismissed as timebarred by the statute of limitations. As a result, the Council obtained a loan to pay for the repair work and increased the individual unit owners condominium fee by $400 per month. The unit owners subsequently filed suit against the Council. The unit owners alleged that the Council was negligent in failing to timely investigate the water leaks and in failing to timely sue Questar within the statute of limitations. The parties filed crossmotions for summary judgment. The Council argued that it had no legal duty to file suit against the developer on behalf of the individual unit owners. The motions originally were denied, however, after reconsideration, the trial court granted the Council s motion and dismissed the claim. The unit owners appealed. On appeal, the unit owners argued that the Council had both a duty to maintain the common elements and the exclusive right to bring litigation in connection with the common elements. In response, the Council argued that it cold not be sued in tort because it only had a right not a duty to file suit on behalf of the unit owners. Rejecting that argument, the Court of Special Appeals found that: A condominium association, which has the obligation to maintain and repair the common elements and the right to bring suit thereon, has the duty to pursue a recovery for any alleged construction defects in the common elements which [the association] maintains, and the individual unit owners have a cause of action against the association when the association breaches that duty by failing to pursue the claim altogether or to negligently pursue each claim. The Court reasoned that the Council s duty and exclusive right creates a concomitant obligation of the Council to pursue the builder/developer for damages to the common elements. The Court of Special Appeals also rejected the Council s argument that the unit owners claims were barred by the statute of limitations. The Council asserted that when the individual unit owners discovered the leaks they could have filed suit against the COPYRIGHTED MATERIAL 2012 8

Council for failing to pursue the developer and therefore the statute of limitations began to run at that time. The Court of Special Appeals observed that the unit owners claim was for the Council s failures to properly pursue the claims against Questar; it was not a claim for defective design or construction. The earliest time that the unit owners claim accrued was when the trial court determined that the Council s claim against Questar was time-barred. CASE LAW COMMITTEE Michael P. O Day, Chair DLA Piper LLP (US) Kenneth K. Sorteberg Huddles Jones Sorteberg & Dachille, P.C. Joseph L. Katz Huddles Jones Sorteberg & Dachille, P.C. DISCLAIMER: The summaries and information provided herein are for informational purposes only and do not constitute legal advice. Readers should not act upon information contained in this summary without consulting a professional advisor familiar with his or her particular factual situation for advice counseling concerning specific legal matters. COPYRIGHTED MATERIAL 2012 9