The Construction Advantage

In this new edition of The Construction Advantage, Asha Echeverria reports on the FAST Act, Meredith Eilers reviews a case in which minor repairs may serve to delay discovery of cause of action for statute of limitations purposes, and Conor Shankman reviews a case from the Supreme Court of Idaho involving stipulated judgments.

The FAST Act: Finally Federal Long-Term Surface Transportation Funding

By Asha Echeverria

On December 4, 2015, President Obama signed into law the Fixing America’s Surface Transportation Act (the “FAST Act”) which over the next five years provides approximately $305 billion in federal funding for highway and transit projects around the country. After ten years of interim measures, the FAST Act is the first long-term transportation funding law passed which will provide secure federal funding to critical state and local transportation projects.

According to the Department of Transportation, the FAST Act “largely maintains current program structures and funding shares between highways and transit.” For example, ninety percent of funding will still be distributed to state departments of transportation through set formulas. The Act increases transportation funding by eleven percent over the next five years, but falls far short of the Obama Administration’s proposal in the GROW AMERICA Act, which proposed to increase funding by forty-five percent to relieve road congestion and keep up with increasing demands on the U.S. transportation system. Other concerns center around the funding mechanism for the law, which does not raise the federal gas tax, currently set at 18.4 cents-per-gallon, but instead relies on cleaning up federal accounting practices and possible future sales from the U.S. Strategic Petroleum Reserve.

The 1301 page Act has many interesting components; one example, is the Act’s focus on freight and multi-modal facilities. The Act creates a National Multimodal Freight Network (NMFN), which includes all interstate highways and 41,000 primary freight network highway miles identified by states and under previous transportation legislation. The Act also creates a dedicated source of federal funding for freight projects through the National Highway Freight Program (NHFP). The Program will be funded at an average of $1.2 billion per year, with the funds being distributed primarily to the states by formula. All states using funding through the Program must complete a State Freight Plan, either as a standalone plan or as part of the state’s overall transportation plan.

In addition, the Act creates a discretionary funding program for Nationally Significant Freight and Highway Projects of $4.5 billion over the five year term of the law. The Department of Transportation will award such funding in an attempt to promote “nationally significant” projects costing more than $100 million that improve and streamline freight movement, increase competitiveness of U.S. facilities, and increase intermodal connectivity.

A full copy of the FAST Act is currently available here.

Minor Repairs May Reasonably Delay Discovery Of Cause Of Action For Construction Defect Claim

By Meredith Eilers

The Illinois Supreme Court recently ruled in Henderson Square Condominium Association v. LAB Townhomes, LLC, 2015 IL 118139, — N.E.3d —, that minor repairs that serve to temporarily alleviate homeowners concerns could reasonably delay the plaintiffs’ discovery of cause of action for statute of limitations purposes. Questions of fact regarding the existence of a fiduciary duty, fraudulent concealment, and the date of discovery of the cause of action all precluded summary judgment based on statute of limitations.

Typically, a cause of action accrues for statute of limitations purposes when the facts giving rise to the cause of action occur. For example, if a cause of action is based on shoddy construction on a new home, the cause of action accrues when the new home is sold to the buyer. However, the “discovery rule” applied by most jurisdictions, including ME, provides for an exception. Under the discovery rule, a cause of action does not accrue until the plaintiff discovers, or reasonably should have discovered the defect. In ME, the Supreme Judicial Court has long held that the existence of a fiduciary duty between plaintiff and defendant is crucial for application of the discovery rule: the plaintiff must show that the relationship between the plaintiff and defendant was such that the plaintiff reasonably relied on the defendant and through this reliance, the plaintiff lacked the means of discovery of the cause of action. In ME, the Supreme Judicial Court has expressly declined to find such a fiduciary relationship between a condominium association and builder. See Dunelawn Owners’ Association v. Gendreau, 2000 ME 94, 750 A.2d 591.

However, this recent decision of the Illinois Supreme Court illuminates a slightly different approach. Unlike in Dunelawn, where it was unclear whether the plaintiffs alleged the existence of a fiduciary relationship, in Henderson Square, the plaintiffs alleged that the developers and certain former board members of the condo association had a fiduciary duty to the plaintiffs through their management of certain funds reserved for maintenance after the building was completed. The reserve fund was inadequately funded by the developer and former board members, which could have given the plaintiffs the appearance that the building was in much better shape than it was. The Court concluded that this, coupled with marketing materials produced by the developer that allegedly misrepresented the quality of the overall construction, as well as certain specifics regarding insulation and vapor barriers, presented a question of fact as to whether there was a breach of fiduciary duty resulting in fraudulent concealment of the cause of action sufficient to toll the statute of limitations under the discovery rule.

The Court in Henderson Square also found that the date of discovery of the cause of action was a question of fact. The plaintiffs were largely concerned with water damage resulting from persistent leaks. Initially, the plaintiffs hired a contractor to perform minor repairs and to undertake certain maintenance work that, at first, appeared to abate the problem. However, as the leaks persisted, the plaintiffs eventually hired a contractor to evaluate the source of the water infiltration. When that contractor opened up the walls to undertake more invasive testing and repairs, the full extent of the defect (as well as the misrepresentations regarding the quality and specifics of the construction) was discovered. The Illinois Supreme Court concluded that the minor repairs could have served to delay discovery of the defect, and thus the cause of action, and therefore it was a question of fact which precluded summary judgment on the statute of limitations issue.

Think Before You Roll Over – Not Easy to Undo an Admission of Liability

By Conor Shankman

Last month, in Fagen, Inc. v. Rogerson Flats Wind Park, LLC, No. 42684-2014, 2016 WL 308744 (Idaho Jan. 26, 2016), the Supreme Court of Idaho provided litigants with cautionary lesson regarding stipulated judgments: Unlike marriage, a stipulated judgment is almost impossible to get out of. Unless an established legal exception applies, they will not be reversed on appeal.

The facts in the case are straightforward; Fagen, a wind farm construction contractor brought suit against the owners of a wind farm for breach of contract after the owners failed to obtain financing due to “regulatory issues.” At the hearing on Fagen’s motion for summary judgment, the owners conceded liability, “subject to the Defendants’ ability to reduce the gross amount of damages by challenging specific invoices or line items.” At a latter pretrial conference on the damages issue, the owners sought to amend their pleadings to negate their concession of liability through newly discovered affirmative defenses. The court refused to grant the motion to amend as the parties had already stipulated with regard to liability, and alternative good cause to amend was not shown.

On appeal, the defendants asserted that the district court abused its discretion when denying their motion to amend and in “failing to set aside the grant of summary judgment.” The Supreme Court of Idaho declined to address these substantive issues, holding that “a stipulated judgment is not subject to appellate review” unless one of the very limited applicable exceptions applies (e.g. lack of actual consent, or lack of subject matter jurisdiction).

Admissions of liability and settlement agreements have ramifications – be cautious and talk to counsel before you enter into one, because it is easy to make a mistake that cannot be undone.

Upcoming events

On March 4, 2016, Mike Bosse will be speaking at the Regional Meeting of the ABA Forum on Construction Law in Newark, New Jersey on Insurance and Indemnity. In our next edition, Mike will give his Top Five Tips on Insurance and Indemnity Contract Provisions. Asha serves as the Program Co-Chair for all six Regional Meetings around the country.