Top Three Construction Law Developments of 2013
Kegler Brown Construction Newsletter January 2, 2014
There were a number of significant legal developments impacting the Ohio construction industry over the past year:
1. U.S. Supreme Court enforces forum selection clause
The U.S. Supreme Court in the Atlantic Marine case generally upheld forum selection clauses and said that private interests – like the inconvenience of a party – could not be considered in determining where a case should be filed. But it stated public interests could be considered when challenging such clauses, leaving open the ability to attack such clauses on public interest grounds, particularly in states (like Ohio) where such provisions in construction contracts are unenforceable.
The Supreme Court’s decision also let stand the laws in more than 20 states that make such clauses invalid – if they attempt to make construction project participants litigate outside the state where the project is located.
2. Ohio Supreme Court considers challenge to “pay-if-paid” clauses
A number of Ohio appellate courts have recently found “pay-if-paid” clauses to be unenforceable because they have not been unambiguous, even when they use “condition precedent” wording that some have argued is traditional “pay-if-paid” language. After the Ohio Sixth District Court of Appeals in Transtar ruled that a clause providing:
“RECEIPT OF PAYMENT BY CONTRACTOR FROM OWNER FOR WORK PERFORMED BY SUBCONTRACTOR IS A CONDITION PRECEDENT TO PAYMENT BY SUBCONTRACTOR FOR THAT WORK.”
was simply a “pay-when-paid” clause requiring payment be made by the contractor within a reasonable period of time (even if the contractor was never paid). The Ohio Supreme Court has accepted the case for review and a decision with statewide, or perhaps even national ramifications, is expected in 2014.
3. Tenth District Court of Appeals upholds bad faith finding against state
The Tenth District Court of Appeals, which has treated contractor claims harshly in recent years, found for the contractor on his delay/impact claim in the J&H case and ruled that technical deviations in notice and documentation of the claim could be overcome by the Fairness in Construction Contracting Act (R.C. §4113.62), waiver and the state’s own poor behavior. The case found that the state and its construction manager demonstrated a lack of good faith and fair dealing when dealing with the contractor’s claim, including when they tried to put the contractor in a bad light and pit the prime contractors against each other. A recovery of extended home office overhead was also sustained.
The case demonstrates that the state cannot hide behind legal technicalities when it mismanages a construction contract and mistreats the contractors.