Inside this Issue
- A1 - Engineer’s Duties Specified by Contract Cannot be Expanded by Plaintiff’s Expert Testimony to Elevate the Standard of Care to Jury Question
- A2 - Electronically Stored Information and the Law: Delete, Destroy, Go Directly to Jail!
- A3 - Oral Construction Contract Enforceable
- A4 - Action against Engineer for Recommending Rejection of MBE Firm’s Bid is Dismissed
Engineer’s Duties Specified by Contract Cannot be Expanded by Plaintiff’s Expert Testimony to Elevate the Standard of Care to Jury Question
As a result of a fatal accident that occurred when a car hit a low median separating traffic on a highway overpass bridge and vaulted over it into oncoming traffic, plaintiffs filed suit against the engineering firm that had years earlier performed professional services involving the bridge. Pursuant to a contract with a developer, the engineer performed improvements to the public roads, and bridge, as part of its client’s development of a shopping mall. Although the engineer, CH2 M Hill, had complied with the contract by designing a replacement deck equivalent virtually the same as the one that was replaced, the plaintiff argued the engineer owed it a duty and failed in that duty.
Specifically, the plaintiff asserted that the engineer was negligent for not to do a median barrier analysis, not considering the necessity of crossover protection on the bridge deck, and not including a Jersey barrier in its design to separate the traffic. Because the contract did not require median barrier analysis or design, the engineer argued it met the requirements of its contract and owed no independent duty to the plaintiff to perform analysis or design services going beyond what was called for by the contract. The trial court granted summary judgment for the engineer, which was reversed by the intermediate appellate court, and ultimately reinstated by the Illinois Supreme Court.
The supreme court decision held that the contract set forth the standard of care as “the degree of skill and care and diligence normally employed by professional engineers or consultants performing the same or similar services.” (Emphasis added by the court). Based on this contract language, the court held “the standard of care was limited to the degree of skill and diligence normally employed by professional engineers performing the same or similar services, namely, replacing the bridge deck --- [and] replacing the bridge deck did not include improving the bridge deck or considering or adding a Jersey barrier.” For these reasons, the court found the appellate court incorrectly permitted the plaintiff’s expert witness affidavit to attempt to raise a question of fact whether the engineer’s standard of care required it to improve the bridge to include a Jersey barrier.
The court concluded that the scope of the engineer’s duty is defined by the contract between it and its client and that the question of whether the standard of care is met is appropriately addressed on summary judgment motion rather than permitting expert testimony to be considered by a jury as a fact question to decide whether the expand the engineer’s services and duties beyond stated on the face of the contract. Corrine Thompson v. Christie Gordon, (N. 110066, Sup. Ct. Illinois, January 21, 2011).
In this case the Illinois State Highway Toll Authority, which owned the highway overpass bridge in question, had to approve any change to the road and bridge, did in fact approve the plans and issued a permit for the work to commence following the engineer’s design. The work was completed in 1991 or 1992. The accident at issue occurred in 1998 – approximately 7 years later.
At trial, in response to the engineer’s motion for summary judgment, the plaintiff filed an expert witness affidavit that maintained the defendants failed to meet the ordinary standard of care. In particular, the expert asserted that the defendants should have considered and analyzed all available data provided by their consultants; considered crossover protection; and submit to IDOT for its consideration the necessity of crossover protection in the form of a Jersey barrier; and should have but failed to design a Jersey barrier. He also testified that crossover accidents were likely to occur and that if the defendants had designed for a Jersey barrier it would have prevented the car from flipping over the median into the oncoming traffic.
The trial court granted the motion for summary judgment in favor of the defendant, engineer stating that the engineer’s duty to the plaintiff was circumscribed by the terms of the contract the engineer had entered into with its client and that the scope of the engineer’s work was determined by its contractual undertaking. As explained by the Illinois Supreme Court:
“The trial court observed that the contract did not call for an assessment of the sufficiency of the median barrier specifically. Rather, the contract simply required the defendants to reconstruct the raised median and road surface. The trial court concluded that to impose an obligation on defendants to perform a median analysis, as if the contract called for a redesign of the roadway or a raised median, would impose an obligation on defendants that was not specified in their contract.”
Ironically, when the intermediate appellate court reviewed the trial court reasoning, it agreed that when given its most logical meaning, the contract required the engineer “to submit plans to rebuild the bridge deck and median exactly as it already existed.” The appellate court, however, then found that the standard of care clause in the contract added an important qualifier to the engineer’s work – i.e. that the engineer was required to act within the prescribed standard of care – and this meant that the engineer had to a duty to its client to submit plans to replace the bridge deck in the same configuration as existed before the construction project, but also to perform its contractual task using the degree of skill and diligence normally employed by professional engineers.
Next, the appellate court, having found a duty of care imposed by the contract, decided that the plaintiff had presented sufficient evidence through its expert witness to allow the matter go forward to a jury to decide as a question of fact whether the engineer had met its duty. This is where the Illinois Supreme Court found the appellate court went wrong in its analysis. The supreme court agreed with the engineer that its duties were confined to those explicitly stated in the contract and should have been decided as a matter of law as done by the trial court rather than allowing expert testimony to attempt to expand the duties beyond what was called for by the contract. For these reasons, the court reversed the appellate court decision and affirmed the trial court decision that had granted summary judgment for the engineer.
Comment: This is a well-reasoned and very important decision. The logic of this decision can be applied to many cases involving questions concerning standard of care, where there is a written contract clearly specifying the scope of services and including a generally accepted standard of care provision such as the one in this contract. The standard of care language in the contract at issue is similar to the standard of care language in the AIA B 101 Owner-Architect Agreement. It is likewise the standard that courts historically would impose on professionals in the absence of a contract. Those who are counseling design firms on their contract language will want to keep a copy of this decision close at hand as a useful tool to help reiterate their design professional clients how important it is to get the standard of care language in a contract right. The example as I use as what I call the “gold standard” is the new AIA B101, section 2.2 that provides as follows:
“The Architect shall perform its services consistent with the professional skill and care ordinarily provided by architects practicing in the same or similar locality under the same or similar circumstances. The Architect shall perform its services as expeditiously as is consistent with such professional skill and care and the orderly progress of the Project.”
About the author: Article written by J. Kent Holland, Jr., 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 founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk.com Report, Vol. 13, No. 2 (February 2011).
Electronically Stored Information and the Law: Delete, Destroy, Go Directly to Jail!
By: Brian K. Stewart, Esq. & Robert R. Walker, Esq. – Collins Muir +Stewart, LLP.
More than ten years ago when we hit the proverbial “Y2K,” individuals and organizations around the world were frantically backing up their electronic files and systems in an effort to save the computer data that was becoming so critically important to everyday life. Now, more than a decade later, companies and individuals are doing everything they can to delete and destroy electronically stored information they fear could hurt them in a lawsuit or arbitration. Our information age and reliance on massive amounts of electronic data raises a salient and somewhat daunting conundrum for businesses in California.
What do we do with our data and what happens if we delete it before or during a lawsuit?
ESI and the Courts
Electronically Stored Information (“ESI”) is becoming an increasingly important part of the litigation discovery process throughout the country. Plaintiffs and defendants alike are seeking recovery of electronic files, emails, system server information, even text messages and “Tweets” or Facebook messages and the courts are increasingly willing to allow this discovery to proceed. This signals an alarming trend for businesses potentially faced with not only having to save ESI, but to also assist the opposition in recovery efforts to produce ESI stored on computers, networks, and even cell phones.
At least initially, the courts were reluctant to impose sanctions or to delve too far into the electronic landscape, but this is changing. Perhaps this was simply a function of the law lagging behind the hard disk or an older judiciary being replaced by tech savvy judges, but over the past couple of years there have been a series of decisions, many of them coming out of the 9th Circuit Federal Court (the Federal Circuit for California and several other Western states) and the rulings are predominantly in favor of saving and producing data.
9th Circuit’s Message is Save That Data!
The first question anyone should ask is: “What kind of data do I have to preserve?” In California, the answer may well be anything that is potentially relevant evidence in your possession or control. (Leon v. IDX Systems Corp., 464 F.3d 951 (9th Cir. 2006).) This may include information and ESI on computers, laptops, and even portable electronic devices, and the duty to protect this information extends to what one court has called the “key players” of an organization. A “key player” is someone in the organization that has access to relevant information that is associated with the claims or disputes at issue in the case. (Hous. Rights Ctr. V. Sterling, 2005 WL 3320739 (C.D. Cal. Mar. 2, 2005)).
So what happens when a “key player” decides to delete or destroy ESI they know to be relevant to the dispute at hand? If the court determines the loss of data (called spoliation of evidence) substantially denies the opposing party’s ability to support or defend a claim, the answer may be expensive sanctions and even dispositive rulings against the party destroying the ESI.
The determination of whether or not it was reasonable for ESI to be destroyed is becoming a careful balancing act and some California courts have already ruled that a showing of bad faith is not required. Dae Kon Kwon v. Costco Wholesale Corp., No. CIV 08-360 JMSBMK (2010 WL 571941).
This means the party seeking the ESI may not even have to prove the deleting party acted improperly; instead, all that must be shown is the deletion or destruction of the ESI was negligent or that it was somehow disobedient conduct that resulted in the loss of data that could have been relevant. (Henry v. Gill Indus., 983 F.2d 943 (9th Cir. 1993)).
And, as this article’s title suggests, some judges (outside the 9th Circuit) have even recently handed down decisions where sanctions were granted over deletion of ESI that included jail time for flagrant attempts to delete ESI during an ongoing proceeding. (Victor Stanley v. Creative Pipe, 269 F.R.D. 497 (D. MD. 2010)).
Standards and Safeguards for Businesses to Comply with ESI Requirements
With the threat of sanctions, dispositive rulings, and even jail time in some states all looming over our heads, the real issue today regarding ESI is how companies and individuals can protect themselves and what safeguards need to be considered.
At the very least, sound document retention policies must be in place in every organization and must be strictly followed. Any deviation from the retention policy is cause for alarm. For most companies, document retention policies are already in effect. What these companies need to do now is make sure their retention policies extend to ESI and that the information is being properly handled in compliance with the stated policy. Putting this safeguard in place protects the data and also helps to avoid the appearance of impropriety if and when disputes arise.
Beyond standard data retention, all businesses need to recognize that once a dispute has ripened into litigation, there is a very real possibility that a court is going to place strict requirements on the parties to ensure data is not lost or deleted. In many situations, a “litigation hold” is sent out by the opposing party demanding retention of ESI. Often, these “litigation holds” demand that a party must not erase, destroy, alter, or otherwise dispose of any document or ESI. Further, the court may also impose onerous requirements to back-up and recover data during the litigation.
As our business world continues into the 21st Century, electronic data is becoming increasingly important, and the courts have recognized that ESI is an integral part of the discovery process. Please contact us at either the South Pasadena or Orange offices to discuss how ESI is impacting you and your organization.
About the Authors: Brian Stewart and Robert Walker are attorneys with the law firm of Collins Collins Muir + Stewart, LLP, 1100 El Centro Street, South Pasadena, CA 91030, Phone: (626) 243-1100; www.ccmslaw.com; e-mail: email@example.com and firstname.lastname@example.org
Oral Construction Contract Enforceable
Although oral contracts for construction or renovation of residential home improvement projects may be voidable pursuant a California statute, they are not automatically void, and in fact a homeowner must demonstrate that the contractor is not entitled to have the contract enforced under one of the exceptions to the draconian impact of the statute. Where a homeowner undertook a remodeling project for almost $1 million and was well educated, sophisticated, and had the benefit of an architect to design the project and process payment requests to the contractor, the trial court and appellate court found an oral contract to be enforceable and that the contractor was also entitled to recover the $200,000 in attorneys fees it incurred in recovering $200,000 in unpaid construction billings.
In Hinerfeld-Ward, Inc. v. Lipian, 188 Cal. Appl4th 86 (2010), the homeowner retained an architect to design renovations of a home and then retained a general contractor that left the job due to allegedly excessive design changes, and was replaced by another contractor with whom the owner never entered into a written contract. Over the course of two years of construction, the contractor submitted and was paid on 19 payment applications. Payment application number 20 was paid in part but then the contractor was terminated leaving an unpaid balance of about $200,000. The contractor sued the owner for breach of oral contract, quantum meruit, and wrongful withholding of progress payments (this last of which would entitle the contractor to a penalty (including attorneys fees) from the homeowner.
The homeowner counter-sued for breach of contract, negligence, fraud, negligent misrepresentation, recovery on a bond, and sought a declaratory judgment that the oral construction contract was void. A jury returned a verdict for the contractor – finding it had substantially complied with the terms of the oral contract. The jury found that the homeowner breached the oral contract and awarded damages to the contractor for $202,181, plus granted an award on the theories of quantum meruit and foreclosure on the mechanics liens in the amount of $820. The trial court entered judgment (but not in that full amount) together with attorneys fees of $200,000 and a penalty of a monthly two percent charge on amounts wrongfully withheld from payment.
On appeal, homeowner argued that the trial court erred in enforcing the oral home improvement contract because the Business and Professional Code of California required such contracts to be in writing. Indeed, the statute applies to “ ‘home improvement contracts' between a contractor and an ‘owner or tenant’ for ‘work upon a building or structure for proposed repairing [or] remodeling’ where the aggregate contract price exceeds $500.” This rule, however, had previously been held by the California Supreme Court to be flexible and that a wide range of exceptions to enforcing it must be recognized. (Asdourain v. Araj (38 Cal. 3d 276). Oral contracts are, therefore not void—they are merely voidable. In the Asdourain case the supreme court held the oral contracts at issue were enforceable “because as real estate investors, the owners were not within the class of unsophisticated consumers the statute was designed to protect.” The Supreme Court concluded that in this context, “the misdemeanor penalties provided in section 7159 were sufficient and that the policy underlying the statute would not be defeated if the contractor was allowed to recover for work performed.”
In the case at bar, the homeowner argued that the trial court should not have required them to prove that the Asdourain exception did not apply but instead should have put the burden of proof on the contractor. In rejecting the owner’s argument, the court stated that the party (here the owner) that advances an affirmative defense to the plaintiff’s claims bears the burden of proof on the defense.” The court considered the experience of the homeowner here and concluded they had some experience with contracts, and had some relevant training and experience. They also had the benefit of an architect managing the project. It also bothered the court that the owner would be unjustly enriched if the contractor were not allowed to recover.
For these reasons, the court concluded that they were the type of homeowners that fall within the meaning of the applicable code section, and stated “We agree with the trial court that this is a compelling case warranting enforcement of the oral home improvement contract….” In reaching its decision to also award an interest penalty and attorneys fees to the contractor as a prevailing party, the court considered the legislative history of the statute and found that it would not be appropriate to merely look at the “natural meaning” found on the face of the statute, but that instead “resort to the legislative history is necessary in order to determine whether the Legislature intended attorneys fees to be available….” The court held that the Legislature intended both the monthly two percent change and reasonable attorneys fees to be available to a party prevailing on an action under the statute to recover unpaid construction costs.
Comment: This is an interesting case in that it enforces a contract despite a state statute that requires as a general matter that home improvement contracts be in writing. What saved this contractor was the fact that it was dealing with a sophisticated homeowner that the court felt did not need the protection that the statute was intended to afford to less sophisticated homeowners. The court makes an important distinction between a contract that is void versus one that is voidable. If the statute had rendered the contract void, the court could have done nothing by way of interpreting the legislation and the equities at issue to find that it could nevertheless be enforced for the benefit of the contractor. Being a “voidable” contract means the court could consider the types of matters that it did to decide whether to void out the oral contract or not. It could go either way – depending upon the subjective judgment of a court. In this case, the factors lined up in favor of the contractor.
As a risk management comment, it is preferable to get a contract in writing even if there is no statute requiring a written instrument. Among the benefits of a written agreement are the fact that the scope of service and the payment terms can be well defined so as to avoid uncertainty, ambiguity and later disagreements over what was intended.
Action against Engineer for Recommending Rejection of MBE Firm’s Bid is Dismissed
An MBE firm’s suit against an engineering firm for recommending rejection of its low bid on a public road project was dismissed on summary judgment which was affirmed on appeal. The causes of action included racial discrimination, tortious interference with business expectancy, and malpractice. The engineer was under contract to the county road commission and it recommended rejecting the low responsible, responsible prime contract bid from a minority business enterprise (MBE) for a repair project on an intake bed, and also recommended rejecting the second low prime contract that included the same MBE firm as a subcontractor.
The reason for the adverse recommendation was that work by the MBE firm had performed work as an MBE subcontractor on the original intake bed project several years before and there had been delays blamed on its personnel problems and there had been defects in the final project that the prime contractor refused to correct under warranty and that the County, therefore, was having to correct by the current repair project. Both the original contractor and the MBE subcontractor bid on the current repair project as prime contractors. The MBE was included as a subcontractor in the bids of three of the other prime contractors bids.
No explanation is given concerning the outcome of litigation between the county and contractors over the defects in the work on the original project. Nor is there any discussion of whether the prime contractor and MBE sub were given a hearing and listed on some type of a debarment list for failure to perform, or were otherwise listed as non-responsible bidders unqualified to bid on future projects. It would appear not—since both firms bid on the repair project that was allegedly necessitated by the defective work they performed on the original project. I mention this because it is so perplexing in view of what transpired in rejecting their bids on the repair project.
In the case of MCM Marine, Inc. v Ottawa County Road Commission and Prein & Newhof, Inc., 2010 WL 1461557 (Mich. App. 2010), the court explains that the civil engineering firm of Prein & Newhof was hired by the county to be the project engineer on both the original bed project and the repair project that is the subject of the current case. MCM Marine is described as an MBE contractor with 25 years of experience. Problems with the original project included over-excavation that caused sand to enter a water treatment plant due to failure of an intake bed. As stated above, there was litigation over this matter. It must not have been resolved with a judgment in favor of the county to require the contractors to re-perform the work at no cost. Otherwise, why would there be the current procurement for the repair work—with the original contractor and subcontractor bidding to do the repair work?
After the bids were received by the county, the county acknowledged that the MBE firm bid was responsive and that the bidder was responsible. One might have expected that this would require under normal procurement law principles the award of the contract to the low responsive, responsible bid. Instead, the director of public utilities for the road commission issued a report recommending rejection of the MBE firm bid for the following reasons:
“MCM Marine, Inc. (“MCM”) submitted the next lowest bid. For a number of reasons, staff does not recommend that the bid of MCM be accepted. First, MCM proposes to use [Great Lakes Dock & Material] as its subcontractor, which is unacceptable. Further, MCM was a subcontractor of [Great Lakes Dock & Material] on the original construction of the South Intake. That prior experience was not good, as there were delays on the part of MCM to have [sic] equipment and laborers on the project and in performing the work. Moreover, the work plan submitted by MCM having its dredge working between barges raises a concern that the work may be very sensitive to weather conditions. Therefore, Staff does not believe that acceptance of this bid would be in the best interests of the OCRC or the Water System.”
The court summarized the county’s actions and rationale as follows:
“Zarzecki [Public Utilities Director] recommended rejection of Great Lakes Dock & Material's bid based on the fact that it was the primary contractor responsible for the original project, which failed. Zarzecki also recommended rejection of Luedtke's bid, noting that Luedtke proposed to use MCM Marine as a subcontractor, which, for the reasons stated above, Zarzecki found unacceptable. Ultimately, Zarzecki recommended acceptance of King Company as the lowest acceptable bidder…. King Company, which was the only bidder that did not have any minority participation, had performed maintenance work on the original intake bed for several years.”
According to the court, the county “directed Prein & Newhof, the engineering firm, to find reasons to support rejection of MCM Marine’s bid. Pursuant to that request, the engineer requested that the MBE “submit a statement of its qualifications, references, financial status, contracts in progress, and similar information.” The information was received but no one at the county contacted any of the references or otherwise followed up on the information. The engineer contacted the MBE firm and inquired about its plans for completing the project. No concerns were ever voiced regarding the proposed plan.
The engineer then contacted King Company (4th low bidder) and asked it if it would agree to work as a subcontractor for the 3rd low bidder—replacing the MBE. King Company declined to do so. And, the 3rd low bidder advised the engineer that it was quite satisfied using the MBE as intended because it had no concerns with the firm’s qualifications and “that it was comfortable with MCM Marine, and that it would address any alleged concerns that [engineer] had relative to MCM Marine.” The county proceeded to award the contact to King Company – the highest bidder—at almost double the amount of the low bid that included the MBE firm as a subcontractor.
Apparently the MBE thought there was something wrong with this picture and decided to sue the county and the engineer on the legal theories summarized above.
On the question of whether the MBE had a cause of action against the engineer based on “tortious interference with business expectation,” the court said the MBE would have to allege “the intentional doing of a per se wrongful act or the doing of a lawful act with malice and unjustified in law for the purpose of invading the contractual rights or business relationship of another.” Although the court acknowledged that there was evidence the engineer “assisted in intentionally avoiding awarding the contract to MCM Marine …. And the facts indicated that the Ottawa Road Commission instructed [engineer] to assist in developing reasons on which to reject MCM Marine,” [it] has not alleged any other illegal or malicious act.” The court further stated:
“To the contrary, the record evidences that [engineer] had legitimate reasons to make the recommendations it did. MCM Marine’s participation in the project was not acceptable because of the problems with the original construction. Therefore, the evidence suggests [engineer] was merely performing its contractual duty to recommend the best bidder…. And, considering MCM Marine’s involvement in the original, failed project, and its personnel issues, it was not the best bidder.”
The engineer was, therefore, found to not have intentionally interfered with any alleged business expectancy. The court next considered the malpractice claim and held that the MBE “is simply a disappointed bidder on a construction project, and Michigan law makes clear that disappointed bidders have no protected interest in being awarded a government contract.” In addition, the court stated: “It is well settled that competitive bidding is designed for the benefit of taxpayers, and not for the benefit or enrichment of the bidders. Therefore, [engineer], acting on behalf of the public …, owed no duty to MCM Marine.”
The final count of the homeowners complaint alleged that the engineer should be liable under 42 USC 1981 that protects the right to “make and enforce contracts.” To prove a violation under that statute, the court says, “a plaintiff must show that the defendant purposefully discriminated based on race.” In this case, “Because MCM Marine does not provide any direct evidence that [engineer] intentionally discriminated against it based on race, we consider circumstantial evidence.” The court went on to conclude that the circumstantial evidence did not support a claim for intentional interference.
Comment: I don’t profess to know the public procurement laws of the state of Michigan, but generally speaking, under the law of most states it would be more effective to file a bid protest, challenging the decision of the county to award to someone other than the low responsive, responsible bidder rather than to sue the engineering firm. It is curious that the court’s decision does not explain what happened in the litigation over what it calls the original “failed project.” One might think that if the County prevailed in that litigation, the MBE and the prime contractor for whom it worked on that project would have been required, without additional fee, to correct the defective work.
If the work of the MBE on the original work was so defective that the county deemed that firm to be a firm that lacked responsibility to receive further work from the county, was there any process to put the firm on a list of unacceptable bidders (like a debarred list) after first providing some due process procedures to consider the merits of the MBE’s arguments? In this case, there was no formal determination made that the bidder was non-responsible. In fact, the court quoted the county as finding that the MBE’s bid was responsible and that as a firm it was “responsible.” The decision sets forth some good legal principles as far as litigation against design professionals that are making procurement recommendations to their clients, but it would have been nice to learn the basis of ipso factor rejection of the MBE as non-responsible.