Can Surety Enforce Venue Selection Provision From Construction Contract

Can Surety Enforce Venue Selection Provision From Construction Contract

Can a surety on a public project enforce a venue selection provision from the construction contract?

No, in disputes over a payment bond, a surety cannot enforce a venue selection provision from a construction contract.  A viable forum selection clause is strongly controlling in all but exceptional circumstances. Dane Constr. & Co., Inc. v. Travelers Cas. & Sur. Co. of Am., 2016 WL 5724280, at *2 (S.D. Fla. Sept. 19, 2016).  Section 255.05(1)(a), Florida Statues, prohibits the inclusion of language in any bond seeking to restrict the venue of any proceeding thereupon.

In Dane Construction , Tutor Perini, the general contractor, entered into a subcontract with Dane Construction for a public construction project in Broward County, Florida.  Tutor Perini posted a payment bond for the project.  This bond contained no provisions governing venue for any action under the bond.  The subcontract between Tutor Perini and Dane Construction had a venue provision naming the State court of the 17th Judicial Circuit of Broward County, Florida as exclusive venue for all disputes.

The general contractor failed to remit payment and Dane filed a complaint in the United States District Court, Southern District of Florida against the surety for breach of payment bond.  The surety then filed a motion to dismiss on grounds of forum non conveniens, asserting that the venue  provisions contained in the Owner’s agreement and subcontract require venue in the Seventeenth Judicial Circuit Court in and for Broward County, Florida.  When moving for motion to dismiss on grounds of forum non conveniens, the moving party must demonstrate that (1) an adequate alternative forum is available, (2) the public and private factors weigh in favor of dismissal, and (3) the plaintiff can reinstate his suit in the alternative forum without undue inconvenience or prejudice.

The United States District Court denied the surety’s motion to dismiss.  The Court reasoned that this suit is a dispute between the Subcontractor and the surety for a claim against the bond — not a claim under the contracts that contained a venue selection provision.  The bond itself has no provisions regarding venue and only incorporated the Owner’s agreement, not the subcontract.

Even if the court was to incorporate the Owner’s agreement into the bond, §255.05(1)(a), Florida Statues, prohibits the inclusion of language in any bond restricting venue. Thus, no legally enforceable venue provision existed in the bond.  Accordingly, the court denied the motion to dismiss based on forum non conveniens.


Arbitration in Construction Contracts

Arbitration in Construction Contracts

Many construction contracts contain arbitration provisions, requiring that all disputes be decided by arbitration as opposed to in court.  A court has a three-pronged test to determine whether a dispute is subject to arbitration: (1) whether there is a valid agreement between the parties to arbitrate; (2) whether the specific issue is subject to arbitration; and (3) whether the right to arbitration was waived.

The recent case of Am. Eagle Veteran Contracting, LLC v. Eiland highlights when a party waives its right to arbitration by actively participating in the lawsuit or by acting in a way that is inconsistent with the right to arbitrate.  2016 WL 6023934, at *1 (Fla. Dist. Ct. App. Oct. 14, 2016).

In American Eagle, American Eagle, the general contractor, subcontracted with Architectural Drywall for work on a construction project.  The contract between American Eagle and Architectural Drywall contained an arbitration provision.  A dispute arose between the parties and Architectural Drywall sued American Eagle for breach of contract as a result of American Eagle’s failure to make payment.  American Eagle responded by filing a motion to stay the proceedings pending arbitration.

Architectural Drywall filed a motion for summary judgement.  American Eagle responded by filing a motion to stay the proceedings, compel arbitration, and to strike Architectural Drywall’s motion for summary judgement.  While American Eagle’s motion to compel was still outstanding, the trial court granted summary judgment in favor of Architectural Drywall.

On appeal, American Eagle argued that summary judgement was inappropriate because a genuine issue remained relating to American Eagle’s motion to compel arbitration.  The Fifth District Court of Appeals agreed with American Eagle, finding that the trial court erred in failing to rule on the motion to compel arbitration prior to the entry of summary judgment.  Florida public policy favors arbitration and parties with an agreement for arbitration have a right to arbitrate disputes.

By consistently claiming its right to arbitration from the beginning of the action and not filing an answer or any other pleading in response to the complaint, American Eagle did not waive its right to arbitration.  A party must be careful not to take any action in litigation that may cause it to unintentionally participate in litigation.  Such action may be construed as waiver of the right to arbitrate.

Contractor Right to Repair Defective Construction Work

Contractor Right to Repair Defective Construction Work

Does a contractor have the right to cure defective construction work?

Where a contract requires notice of a defect and an opportunity to cure, an owner must give a contractor proper notice of their defective work and an opportunity to repair that defective work.

In Underwater Engineering Services, Inc. v. Utility Bd. of City of Key West 194 So. 3d 437, 441 (Fla. Dist. Ct. App. 2016), the Utility Board of Key West contracted Underwater Engineering Services, Inc. to perform maintenance on 57 pillars of the seven-mile bridge in the Florida Keys.  The contract between the Utility Board and Underwater had a defect assessment provision, which required the Utility Board to give notice of any defects to Underwater and to give them an opportunity to cure.  After completion of the project, the Utility Board discovered defects in the concrete coating of the pillars.  Without notifying Underwater, the Utility Board hired a contractor to repair Underwater’s defects, then sued Underwater for failing to properly pour eight concrete collars according to the project specifications.  Underwater raised a defense that the Utility Board was required to give them notice of the defect and an opportunity to cure the defect before engaging someone else to repair the collars.

The trial court held that Underwater was liable for the defects.  On appeal, the Florida Third District Court of Appeal reversed, holding that where the contract requires notice and an opportunity to cure, Underwater must have been afforded the opportunity to repair any of the work that was not conforming to specified requirements.  As a result, the Utility Board could not recover for the cost incurred to fix Underwater’s defective work.

Therefore, it is very important for an owner to provide a contractor with notice and an opportunity to cure its defective work where the contract provides for this right.  If an owner subsequently repairs the defect without giving the contractor notice and an opportunity to repair, the owner may not be able to recover the amount expended for the repairs from the contractor.


Unlicensed Contractors

Can unlicensed contractors defend against homeowner’s claims?

Yes, an unlicensed contractor can defend claims according to the Fifth District Court of Appeal in Brock v. Garner Window & Door Sales, Inc., 187 So. 3d 294 (Fla. 5th DCA 2016).

In Brock, the homeowners sued a window installation contractor alleging that the contractor defectively installed windows which caused water intrusion.  Garner Windows, the contractor, was not licensed.  Garner Windows raised the statute of limitations defense.

The homeowners argued that Garner Windows could not rely on the statute of limitations because the four year statute of limitations in section 95.11(3)(c), Florida Statutes, states that the limitations period begins to run on the date of completion or termination of the contract between the . . . licensed contractor and his employer.  In this case, since Garner Windows was not licensed, the homeowner argued that the 4 year statute of limitations did not apply.

The Fifth District disagreed with the homeowner finding that the 4 year statute of limitations did apply even though the contractor was not licensed.  The court reasoned that the term “licensed contractor” was only referring to wen the statute starts to run and not the type of actions to which it applies.  The court held that although section 489.128, Florida Statutes, prohibits an unlicensed contractor from enforcing its contract, it does not preclude an unlicensed contractor from defending against an action to enforce a contract by the owner.

Statute of Limitations for Breach of a Construction Contract

What is the Statute of Limitations for Breach of a Construction Contract?

In Florida, section 95.11(3)(c), Florida Statutes, requires actions brought within four years  if it is “founded on the design, planning, or construction of an improvement to real property, with the time running from the date of actual possession by the owner, the date of the issuance of a certificate of occupancy, the date of abandonment of construction if not completed, or the date of completion or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer, whichever date is latest . . . “

There is also also a discovery rule which extends this limitations period for latent defects.

In the recent case of Brock v. Garner Window & Door Sales, Inc., 2016 WL 830452 (Fla. 5thd CA March 4, 2016), Brock hired Garner Window to install windows in their home.  The home sustained water intrusion and Brock sued Garner Window.  The lawsuit was filed more than 4 years after discovery of the latent defect, but less than 5 years.  Garner argued that the general five year statute of limitations for actions founded on written contracts applied.  The basis of this argument was that Garner Window was not a licensed contractor.

The Fourth District Court of Appeal rejected this argument and held that the statute of limitations is still four years, and that an unlicensed contractor can raise this defense.

Venue Selection Provisions in Construction Contracts

What kind of claims are subject to venue selection provisions in construction contracts?

In Fairbank Contracting and Remodeling v. Hopcroft, the Fourth District Court of Appeal, held that all claims that have “a significant relationship and clear nexus with the contract” are subject to a venue selection provision.  40 Fla. L. Weekly D1637a (Fla. 4th DCA July 15, 2015).

In this case, Fairbanks Contracting entered into a construction contract with Hopcroft to remodel a bathroom.  The construction contract stated that Marion County would serve as the venue for “any proceeding relating to the contract”.  Hopcroft sued Fairbanks for violation of the Florida Deceptive and Unfair Trade Practices Act (FDUTPA), and not for breach of contract.  Hopcroft alleged that through conduct, Fairbanks violated FDUTPA in its work on the project.

The trial court denied Fairbanks motion to dismiss or transfer venue pursuant to the venue selection provision in the construction contract.  On Appeal, the Fourth District reversed holding that there was a significant and obvious nexus between the claim and the construction contract.  The court held that whether the venue selection provision will apply to a FDUTPA claim depends on the violations alleged and the language in the venue selection provision.  The Fourth District in this case found such a nexus and transferred the case to Marion County.

Contractor’s Notice of Defect – Does it Trigger Insurance Coverage?

Contractor’s Notice of Defect – Does it Trigger Insurance Coverage?

One court in Florida has said “No”.

In Florida, Chapter 558 of the Florida Statutes provides pre-suit procedures for a property owner to assert construction defect claims against a contractor.  The statutes provide  a mechanism giving notice to the contractor and providing the contractor with an opportunity to cure the alleged defects prior to litigation.

In Altman Contractors, Inc. v. Crum & Forster Specialty Insurance Company, the Sapphire Condominium Association sent Altman Contractors, the general contractor, a Notice of Claim pursuant to Chapter 558, Florida Statutes, alleging defective construction of the condominium. 2015 WL 3539755 (S.D. Fla. June 4, 2015).  Altman Contractor’s sent this notice to its insurance company, Crum & Forster.  Crum & Forster denied that it had a duty to defend Altman Contractors because the case was “not in suit”.

Altman Contractors sued Crum & Forster seeking a declaration determining that Crum & Forster owes a duty to defend and indemnify it relative to the 558 Notice; and for breach of contract for Crum & Forster’s refusal to defend Altman Contractors.  The court held that Chapter 558 is a “mechanism” and not a “proceeding”.    Since the 558 process is not a “civil proceeding” or a “suit” under the policy, Crum & Forster had no obligation to defend or indemnify Altman Contractors in the 558 process.

When Is a Contractor Unlicensed in Florida

When is a Contractor Unlicensed in Florida?

Section 489.128, Florida Statutes, states that any contracts entered into by an unlicensed contractor are unenforceable in law or in equity by the unlicensed contractor.  A contractor is considered unlicensed only if the contractor was unlicensed on the effective date of the original contract for the work, if stated.  If no date is stated, the court will look at whether the contractor was licensed on the first date upon which the contractor provided labor, services, or materials under the contract.

In Taylor Morrison Services, Inc. v. Ecos, the First District Court of Appeal analyzed whether a contractor is unlicensed where its qualifying agent does not obtain the permit or supervise the construction under the contract. 2015 WL 3407929 (Fla. 1st DCA 2015).  In Taylor Morrison, Ecos hired Taylor Morrison to construct a home.  After closing on the home, Ecos discovered defects and sued Taylor Morrison for negligence by an unlicensed contractor.

On the effective date of the contract with Ecos, Taylor Morrison had four qualifying agents.  One such agent was Lisa Marie Steiner – who had recently resigned her employment with Taylor Morrison prior to the Ecos contract.  Taylor Morrison pulled the construction permit in the name of Steiner without her authorization.  Additionally, Steiner did not supervise the construction and no licensed contractor ever supervised the construction.  The trial court held that Taylor Morrison was unlicensed due to these facts.

On appeal, the First District reversed, holding that Taylor Morrison did have a qualifying agent concerning the scope of work to be performed under the contract as of the effective date of the Ecos contract.  There were other qualifying agents besides Steiner on this effective date.  Since Taylor Morrison possessed this license on the effective date, it was not “unlicensed”.  It was irrelevant whether the qualifying agent obtained the permit or supervised the construction.  Accordingly, Ecos could not support a claim for unlicensed contracting against Taylor Morrison.

Venue Selection Clauses in Construction Contracts

The Enforcement of Venue Selection Clauses in Construction Contracts

Parties to a construction contract may agree where any disputes are to be litigated.  However, there are certain situations where a court may not enforce this type of provision.  In the recent case of Love’s Window & Door Installation, Inc. v. Acousti Engineering Company, Florida’s Fifth District Court of Appeal illustrated one such scenario where it would not enforce the venue selection clause. 2014 WL 4471631 (Fla. 5th DCA Sept. 12, 2014).

This case involved a multi-party litigation that began in Osceola County regarding construction of the Artisan Club Condominium.  At the end of the project, the Association filed a construction defect action against the general contractor.  The general contractor sued Dunn Corporation for improper installation of the aluminum windows.  Dunn then sued Love’s – it’s subcontractor that performed the installation.  Love’s, based on a provision in its contract with Dunn, moved to sever Dunn’s claims from the multi-party litigation and transfer venue to Volusia County.  The contract between Love’s and Dunn called for all litigation to take place in Volusia County.

The trial court refused to transfer the case and the Fifth District affirmed.  The court held that there are compelling reasons not to enforce a forum selection clause – which include multiple lawsuits, minimizing judicial labor, reducing the expenses to the parties, nad avoiding inconsistent results.  The court required the Dunn/ Love’s dispute to stay with the multi-party litigation.

Therefore, parties to a construction contract must be aware that even though the contract specifies the venue for any disputes, it is possible that a court will not enforce that provision if there is a compelling reason.