Construction Law

• Jurisdiction: United States,Federal,Georgia
• Publication year: 2021
• Citation: Vol. 73 No. 1

Construction Law

David Cook

Peter Crofton

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Construction Law

David Cook^*

Peter Crofton^**

I. Introduction

The year 2020 brought about interesting judicial opinions in construction law addressing licensing issues, contractual, and common-law indemnity, including the anti-indemnity statute, homeowner's association rights, and the recovery of lost profits on incomplete work. It also addressed standard construction-law issues in unique contexts, such as construction liens and insurance coverage and exclusions. Though the year faced the COVID-19 pandemic, decisions addressing the unprecedented circumstances caused by the virus will likely come in future years. This Article surveys significant judicial, regulatory, and legislative developments in Georgia construction law during the period from June 1, 2020, through May 31, 2021.¹

II. Licensing

An often-overlooked aspect of construction law is compliance with contractor licensing. The Georgia Court of Appeals reaffirmed Georgia law concerning the invalidity of a contract with an unlicensed general contractor in Saks Management & Associates, LLC v. Sung General Contracting, Inc.² In Saks, an unlicensed contractor undertook the renovation of an apartment complex.³ A series of unfortunate events

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befell the contractor, and the project owner terminated the contractor and sued for damages. The contractor counterclaimed for breach of contract, quantum meruit, and unjust enrichment.⁴

The owner moved for summary judgment on all of the contractor's counterclaims.⁵ The Gwinnett County Superior Court denied the motion, and the owner appealed. The court of appeals reversed the trial court, determining that summary judgment should have been granted.⁶ It looked to Georgia's licensing law, codified at section 43-41-17 of the Official Code of Georgia Annotated (O.C.G.A.),⁷ to determine whether an unlicensed contractor can enforce its contract, stating,

[a]s a matter of public policy, any contract . . . for the performance of work for which a residential contractor or general contractor license is required by this chapter . . . and which is between an owner and a contractor who does not have a valid and current license required for such work in accordance with this chapter shall be unenforceable in law or in equity by the unlicensed contractor.⁸

Thus, the contractor's breach of contract and its equitable claims could not survive.

There is, however, a limit on the applicability of O.C.G.A. § 43-41-17. In a case decided less than a year after Saks, the Georgia Court of Appeals refused to apply O.C.G.A. § 43-41-17 to a contract involving an arbitration clause.⁹ In Jhun v. Imagine Castle, LLC, it explained that Georgia's public policy on the enforcement of arbitration clauses requires that the arbitration clause in an otherwise seemingly void contract be enforced so as to allow arbitrators to decide whether the underlying contract is void.¹⁰ The court also cited to the Supreme Court of the United States' decision in Buckeye Check Cashing, Inc. v. Cardenga,¹¹ as requiring that arbitrators, rather than courts, decide issues of contract voidness unless there is a specific challenge to the enforceability of the arbitration clause itself.¹²

The court of appeals also addressed the liability of a natural person who holds a contractor's license and qualifies a business entity for

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licensure.¹³ In Laliwala v. Harris,¹⁴ a business owner hired a general contractor to renovate a building.¹⁵ The general contractor was unlicensed, so it hired a licensed contractor "to serve as the statutory qualifying agent for the Project [and] allowed [the unlicensed general contractor] to use his general contractor's license to obtain permits for the Project." Problems developed, so the owner sued the general contractor and its owner for breach of contract and various tort claims, and also asserted various tort claims against the individual license holder in his capacity as the qualifying agent for the project.¹⁶

The license holder moved for summary judgment based on O.C.G.A. section 43-41-9(i),¹⁷ which provides that the license laws do not impose "civil liability against an individual qualifying agent by any owner . . . beyond the liability that would otherwise exist legally or contractually apart from and independent of the individual's status as a qualifying agent."¹⁸ The State Court of Cobb County granted summary judgment and the court of appeals affirmed.¹⁹

The court of appeals' decision is notable for two reasons. First, the decision clearly states that the license law does not impose a duty of care on license-qualifying agents to third parties.²⁰ Second, the decision leaves several unanswered questions such as what independent duties a licensed contractor—a licensed professional under O.C.G.A. section 9-11-9.1²¹ —owes to third parties, if any, and what are the legal ramifications of the unlicensed general contractor hiring a third-party company to allow use of its contractor's license, a practice often called "license renting" that is illegal in many jurisdictions.

In Fleetwood v. Lucas,²² the Georgia Court of Appeals addressed the definition of "contractor" under the licensing statute, as well as the exception for repair work.²³ In this case, Fleetwood hired Lucas to perform work on two houses.²⁴ Lucas alleged that he completed the work, but Fleetwood failed to pay the remaining balance owed.²⁵ Following the

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failure to pay, Lucas sued for breach of contract in the State Court of Fulton County. Fleetwood moved for summary judgment on the grounds that Lucas had no license to perform the work. The trial court denied Fleetwood's motion, and the case proceeded to a jury. After the jury returned a verdict in favor of Lucas, Fleetwood appealed.²⁶

Generally, if a person holds no residential or general contractor's license but performs work when a license is required, the contract is unenforceable.²⁷ However, under O.C.G.A. § 43-41-17(g), a person may perform repair work without a license if the person discloses that he or she does not have a license, and the work does not affect the structural integrity of the project.²⁸

In this case, Lucas held no license, and he testified at trial that he did not inform Fleetwood that he held no license.²⁹ Because Lucas failed to disclose that he held no license, the contract did not qualify for the repair exception under O.C.G.A. § 43-41-17(g), rendering it unenforceable under O.C.G.A. § 43-41-17(a).³⁰

Nevertheless, Lucas argued he was not a "contractor" within the meaning of the licensing statute because he bore no responsibility for any contractual risk to the Fleetwoods.³¹ The definition of "contractor" includes "construction management services" when the person performing the "services is at risk contractually to the owner for the performance and cost of the construction."³² Based on this segment of the definition, Lucas argued he was not a "contractor."³³ The court declined to accept Lucas's definition, and instead, the court liberally construed the term to further the legislative intent of protecting property owners against faulty construction.³⁴

Finally, Lucas argued he was a mere servant of Fleetwood.³⁵ But the evidence showed he contracted with Fleetwood to perform construction services, including repairs, in exchange for compensation. As a result, he met the statutory definition of "contractor" under O.C.G.A. § 43-41-2(4).³⁶

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III. Anti-Indemnity Statute

Georgia's anti-indemnity statute³⁷ directly applies to construction contracts and, as of July 1, 2016, contracts for engineering, architectural, and land-surveying services.³⁸ On remand from the Georgia Supreme Court, the Georgia Court of Appeals addressed the prior version of Georgia's anti-indemnity statute.³⁹ With a long history, the 2020 case of Milliken & Co. v. Georgia Power Co.,⁴⁰ originated with a plane crash that injured and killed several passengers and crew members.⁴¹ Their representatives sued several defendants, including a nearby plant owner, Milliken & Company (Milliken), based on claims that the location of transmission lines on Milliken's property was the contributing cause of the crash.⁴² Milliken asserted a cross claim against Georgia Power Company (GPC) based on an easement it granted to GPC. The easement required GPC to indemnify Milliken for any claims arising out of GPC's construction or maintenance of the transmission lines. The easement provision at issue read as follows: "[GPC], its successors or assigns shall hold [Milliken], its successors or assigns harmless from any damages to property or persons (including death), or both, which result from [GPC's] construction, operation or maintenance of its facilities on said easement areas herein granted."⁴³

On a motion for summary judgment, GPC argued that the provision did not impose an indemnity obligation on GPC or, even if it did, the provision violated the anti-indemnity statute.⁴⁴ The Fulton State Court found that the provision was a covenant not to sue, rather than an indemnity obligation.⁴⁵ The court of appeals affirmed the trial court's ruling but did so based solely on GPC's second argument—the provision violated the anti-indemnity statute.⁴⁶

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On appeal to the supreme court, Milliken attacked the court of appeals' interpretation of the anti-indemnity statute.⁴⁷ In general, "a party may contract away liability to the other party for the consequences of his own negligence without contravening public policy, except when such agreement is prohibited by statute."⁴⁸ As one such statute, the anti-indemnity statute applies when an indemnification provision (i) "relates in some way to a contract for 'construction, alteration, repair, or maintenance' of certain property" and (ii) "promises to indemnify a party for damages arising from that own party's sole negligence."⁴⁹ Since the easement required GPC to "construct, erect, install, operate, maintain, inspect, reconstruct, repair...