ConstructionRisk.com Report - 01/2011

• Engineer Sued by City for Negligently Recommending Acceptance of Low Bidder
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• Subcontract Claim against General Contractor Barred by Waiver and Release Agreement
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• Contractor not Liable under Superfund Law for Accidently Damaging Methanol Pipeline with Backhoe Causing Environmental Damages
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• Government Contractor Defense not Available to Bar Katrina Class Action Suit against Firm that provided Excavation and Remediation Services on Canal.
  
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All articles in this issue of the ConstructionRisk.Com Report are written by J. Kent Holland, a construction lawyer located in Tysons Corner, Virginia,  with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is also president of ConstructionRisk, LLC, a consulting firm providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and the construction risk management website, www.ConstructionRisk.com. Readers are welcome to reprint or republish these articles with attribution to the author and to ConstructionRisk.com Report, Vol. 13, No. 1 (Jan 2011).

Article 1

Engineer Sued by City for Negligently Recommending Acceptance of Low Bidder

Where an engineer was required by contract with a city to recommend a contractor following competitive bidding, a court held that because the bid by the contractor that the engineer recommended be accepted was dramatically lower than the other bidders, it was foreseeable that the contractor could not, or would not, perform the services for the promised price.  Since the engineer also should have reasonably foreseen that the city would rely upon its recommendation to award to the low bidder and that the City would have to pay extra re-procurement costs if the recommendation was negligent, it was appropriate to find in favor of the city against the engineer on the basis of a negligent recommendation.

In Sunland Construction Company v. Wilbur Smith, Inc., 387 Fed Appx. 361 (C.S.4 (S.C.), 2010), the court of appeals held that there was sufficient evidence to support the trial court's finding of negligence on the part of the engineer in making the recommendation to award to the low bidder. 

With regard to the engineer's argument that it was not the legal or proximate cause  of the city's injuries, the court stated that a plaintiff does not have to prove a defendant's negligence was the sole proximate cause of his injuries, but instead merely has to show that it was foreseeable that the defendant's act or omission could cause, or be a contributing cause, to the plaintiff's injury.  Thus, says the court, "It is sufficient if the evidence establishes that the defendant's negligence is a concurring or contributing proximate cause."    Even if the contractor's conduct contributed to the city's injuries, "this fact alone does not sever [engineer's] liability for its initial negligence, which set into motion all of the events that ultimately, and foreseeably, lead to the City's injury."   Having found the engineer's conduct to be a substantial factor in the harm to the city, the court concluded that "the mere fact that [Engineer] 'neither foresaw nor should have foreseen the extent of the harm or manner in which it occurred does not negate its liability.'"      The trial court judgment in favor of the city against the engineer was affirmed accordingly.  

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A subcontractor sued the general contractor for breach of contract and quantum meruit, and also the contractor's surety on a Miller Act claim.  What the subcontractor sought was payment for unanticipated costs incurred in constructing a federal law enforcement training center.  It alleged that it had performed additional work in reliance on oral promises that it would be reimbursed its costs.  In submitting pay requests, and certain change order requests, however, the subcontractor accepted interim and even final payments containing release language.  

The subcontract was in the amount of $135,000 to replace floor tiles in the building cafeteria.  According to the subcontract, no additional amounts would be due unless the subcontractor gave the prime contractor written notice of claims and the claims were reduced to written change orders.  For each payment application, the subcontract required that a lien waiver be submitted.  And the contract had a typical clause stating that final payment would constitute a waiver of all claims by the subcontractor relating to its work. 

In opposing asummary judgment motion, the sub argued the motion should not be granted because there were material questions of fact that must be decided by a jury.  First, the sub states that there was a factual dispute as to whether the prime knew it contested the amounts being paid despite the signed release.  This issue was quickly disposed of by the court, finding that even if the contractor knew the sub contested the amounts being paid that was not relevant since the sub signed a valid release waiving its rights.  Second, the sub asserted that there was a question of fact as to whether it was told it had to sign the waiver in order to be paid.  This, however, was not deemed an issue by the court since the contractor didn't deny requiring the sub to sign releases. 

Where language of a release agreement is clear and unambiguous, as was the case here, the agreement is controlling.  The release agreement contains two distinct waiver clauses.  The first of these waives all claims against the prime contractor.  The second waives liens against property owned by the prime contractor.  The sub's claims fall within the waiver of "claims" against the contractor and were, therefore, waived pursuant to the waiver of claims provision of the release agreement. 

Artistic Stone Crafters v. Safeco Insurance, 2010 WL 2977894 (E.D. Va) 

Article 3 

 

Contractor not Liable under Superfund Law for Accidently Damaging Methanol Pipeline with Backhoe Causing Environmental Damages

The United States Court of Appeals for the Fifth Circuit held that a contractor has no "arranger" liability under the Superfund law (CERCLA) for unconsciously denting a methanol pipeline that several years later cracked, thereby resulting in the release of methanol and causing environmental damage.   In the absence of intentional steps or plans by the contractor to cause the disposal of a hazardous substance such as methanol, there is no CERCLA liability.

 An employee operating a backhoe for a contractor, Martin K. Eby Construction Company unknowingly struck and dented a methanol pipeline belonging to the Celanese Corporation while installing an underground water pipeline.  In order to install part of the pipeline segment underneath the methanol pipeline, the contractor had to first uncover those pipelines.  While doing so, its backhoe operator struck and dented the pipeline without knowing it.  Years later, the dented areas of the pipe deteriorated and cracked, allowing methanol to leak from the pipe during methanol transfer.  The leak was discovered when a patch of dead grass along the pipeline was noticed.  Celanese worked with the state and federal agencies to clean up the site and prevent contamination of nearby groundwater. 

Celanese sued the contractor under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and Texas Solid Waste Disposal Act (SWDA) to recover its clean-up costs. 

Celanese's complaint that the contractor had liability under CERCLA and SWDA was based on the allegation that the contractor was an "arranger" as defined by the statutes.  In the lower court, it was found that the release of methanol at the site would not have occurred but for the damage to the pipeline by the contractor.  Despite the finding, however, the trial court found that the contractor was not liable as an arranger because it didn't know it had damaged the pipeline and because the contractor was "not a person responsible for solid waste under the SWDA."  This was affirmed on appeal.

The court stated that even if the defendant had consciously disregarded the risk that its actions woudl cause the leakage of the methanol, this was not enough to create Superfund liability.  In reaching its decision in this case, Celanese Corporation v. Martin K. Eby Construction Company, 620 F.3d 529 (5^th Cir. 2010), the Fifth Circuit relied heavily upon the decision of the U.S. Supreme Court in the case of Burlington Northern & Santa Fe Ry. Co. v. United States, 129 S.Ct. 1870 (2009) which held that an entity's knowledge that its action will result in a spill or leak is insufficient, by itself, to establish arranger liability; instead, the entity must take "intentional steps" or "plan for" the disposal of the hazardous substance.  The Fifth Circuit concluded: "Hence, under Burlington, Eby is liable as an arranger only if it took intentional steps or planned to release methanol from the Celanese Pipeline." 

Comment:  This is an important decision, applying the principles set forth by the U.S. Supreme Court in the case of Burlington Northern & Santa Fe Ry. Co. v. United States.  It is refreshing to see that common sense and reason are being applied by the courts in interpreting these environmental statutes.  The federal and state environmental protection agencies misconstrued CERCLA for many years in lawsuits alleging strict liability against individuals and companies where there was no evidence of any intent or plan to arrange for the disposal of hazardous substances.  One of my early American Bar Association (ABA) presentations, after I left the U.S. Environmental Protection Agency (EPA) where I had been an attorney with the General Counsel's Office for five years,  was entitled "Superfund:  Is it Super?  Does it Fund?"  My cynical conclusions expressed in my paper stood the test of time and are still good reading if you are so inclined.  

Article 4 

 

Government Contractor Defense not Available to Bar Katrina Class Action Suit against Firm that provided Excavation and Remediation Services on Canal

• ORDER from ACEC
   

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