Construction Law

• Publication year: 2014

Construction Law

Frank O. Brown Jr.

[Page 27]

Construction Law

by Frank O. Brown, Jr.^*

I. Introduction

This Article focuses on noteworthy opinions issued by Georgia appellate courts between June 1, 2013 and May 31, 2014 that are relevant to the practice of construction law.¹ Because condominium projects often result in construction-defect litigation, this Article also briefly discusses an amendment to section 44-3-106(h) of the Official Code of Georgia Annotated (O.C.G.A.), part of the Georgia Condominium Act, which became effective July 1, 2014.

II. Arbitration

Archer Western Contractors, LLC v. Holder Construction Co.² is a Georgia appellate case arising out of the now familiar tragic death of Mack Pitts, a subcontractor's employee on the Atlanta airport's International Terminal project. The Pitts estate received a large judgment against the sub-subcontractor and its employee that exceeded the sub-subcontractor's automobile liability insurance coverage.³

The estate then sued the City of Atlanta, the general construction manager, and the construction manager's subcontractor, alleging that they had failed to require the sub-subcontractor to maintain at least $10 million in automobile liability insurance as required by both the general contract and the subcontract. The construction manager was a joint venture composed of Holder Construction Company, Manhattan

[Page 28]

Construction Company, C.D. Moody Construction Company, and Hunt Construction Group. The subcontractor was also a joint venture composed of Archer Western Contractors and Capital Contracting Company.⁴

Earlier Georgia appellate cases from 2011 to 2013 that arose from the estate's claims focused on whether Pitts was a third-party beneficiary of the contract's insurance provisions, including those incorporated into a Phase 2 subcontract between the construction manager and the subcontractor.⁵ On remand from the Georgia Supreme Court, the Georgia Court of Appeals ultimately determined that Pitts was a third-party beneficiary.⁶

The principal issue in the current court of appeals case was whether an arbitrator or judge should decide the res judicata effect of an unappealed part of the trial court's order, which was entered in December of 2010 before the series of appeals mentioned above.⁷ The unappealed part of the order granted summary judgment to the subcontractor on the construction manager's cross-claim that the subcontractor had breached its duty under the Phase 2 subcontract to indemnify the project manager pertaining to the estate's claims.⁸

In December 2011, a year after the summary judgment order, the construction manager notified the subcontractor that it would withhold further payments to the subcontractor under the Phase 3, but not the Phase 2 subcontract until conclusion of the Pitts litigation. The construction manager withheld future payments because of the subcontractor's breach of its contractual duty in the Phase 2 subcontract to ensure that the sub-subcontractor carried the requisite insurance.⁹

In response to the withholding of payment, the subcontractor filed suit in state court seeking a declaration that the res judicata effect of the trial court's December 2010 summary judgment order on the construction manager's indemnity claim prevented the construction manager from withholding funds under the Phase 3 subcontract. The construction manager then notified the subcontractor of its election to arbitrate under the arbitration provision of the Phase 3 subcontract. Thereafter, the construction manager filed motions to dismiss the declaratory judgment

[Page 29]

suit and to compel arbitration.¹⁰ The trial court granted those motions, reasoning that, under the Federal Arbitration Act (the FAA)¹¹ and related federal law, the res judicata effect of the trial court's December 2010 judgment was for an arbitrator, not a court, to decide.¹²

First, the court of appeals agreed with the trial court's conclusion that the FAA applied.¹³ Relying on federal case authority that it found persuasive, the court then determined that, while gateway issues about whether an arbitration provision is valid or covers a claim are for the court to decide unless the parties have clearly agreed otherwise, res judicata is not a gateway issue and is therefore for an arbitrator to decide.¹⁴ It analogized res judicata defenses to waiver, laches, and estoppels defenses, which are also for arbitrators to decide.¹⁵

The court acknowledged that in Bryan County v. Yates Paving & Grading Co.,¹⁶ the Georgia Supreme Court held that a res judicata defense should be decided by the trial court.¹⁷ However, it distinguished Bryan County from the current case because Bryan County had been decided under the rubric of the Georgia Arbitration Code¹⁸ rather than the FAA.¹⁹

In Miller v. GGNSC Atlanta, LLC,²⁰ the court of appeals addressed, as a matter of first impression, whether the FAA allows a substitute arbitrator to be named when the parties' chosen arbitration forum in a consumer contract has failed or is otherwise unavailable.²¹ The court reasoned that the FAA does allow a substitution if the selection of a particular forum was merely an ancillary logistical concern, but it does not if that selection was an integral term of the agreement.²²

In this case, the court held that the designation of the chosen arbitration provider was integral to the arbitration agreement because the agreement expressly stated that any dispute "shall" be resolved "exclusively" through arbitration conducted in accordance with the designated arbitration provider's code of procedure, which, in turn,

[Page 30]

specified that only the chosen arbitration provider could administer the arbitration.²³ Because the arbitration provider could no longer perform arbitrations because of a consent judgment it had entered into in response to a lawsuit by the Minnesota Attorney General alleging deceptive practices, the court determined that the arbitration provision was impossible to enforce.²⁴ This decision suggests that parties to contracts with arbitration provisions may wish to expressly authorize the court's appointment of an alternative arbitration forum in the event the designated arbitration forum becomes unavailable.

III. Common Law Allocation and Indemnification

Allocation, contribution, and indemnification are important principles in construction disputes. In District Owners Ass'n v. AMEC Environmental & Infrastructure, Inc.,²⁵ the plaintiff filed a premises-liability action against a property owner for injuries he sustained when he jumped off a wall that concealed a thirty-three-foot drop between the wall and the parking deck. The owner filed a third-party complaint against the designers and builders of the wall and the parking deck for common-law indemnification and common-law apportionment.²⁶ The trial court granted the third-party defendants' motions to dismiss and motions for summary judgment on the ground that O.C.G.A. § 51-12-33²⁷ barred the owner's claims. The owner appealed that decision.²⁸

The court of appeals affirmed the trial court's ruling on the common-law indemnification claim.²⁹ The court stated that O.C.G.A. § 51-12-33 does not bar indemnity claims by one who is vicariously liable for the negligence of another.³⁰ However, it does bar the claims asserted by the owner, which were against third-party defendants as joint tortfeasors for any amount that the owner is ultimately found liable to the plaintiff.³¹

The court also affirmed the trial court's holding on the common-law apportionment claim, reasoning that O.C.G.A. § 51-12-33 abrogated that cause of action, including third-party claims asserting it.³² The court

[Page 31]

also called into doubt the continued viability of its reasoning in Murray v. Patel³³ -which allowed third-party claims for common-law contribution-in light of the Georgia Supreme Court's Couch v. Red Roof Inns, Inc.³⁴ decision.³⁵

IV. General Liability Coverage

In Taylor Morrison Services, Inc. v. HDI-Gerling America Insurance Co.,³⁶ the Georgia Supreme Court provided three answers to two certified questions from the Eleventh Circuit Court of Appeals relating to a standard commercial general liability policy.³⁷ The first was that the term "occurrence"-the event necessary to trigger coverage under a policy-does not require damage to the property or work of someone other than the insured.³⁸ The court quickly noted that this does not necessarily mean that coverage will exist because the policy contains many exclusions, including "business risk" exclusions.³⁹ The second was that in most circumstances, a claim for fraud, as defined by Georgia law, is incompatible with the notion of "accidentia denned element of an "occurrence"-and will not, therefore, involve an "occurrence" or coverage.⁴⁰ The third was that in many cases an "occurrence" might be found in the context of a breach of warranty claim, but actual coverage for breach of warranty claims will generally be limited to cases involving breach of a warranty of non-defective property, because liability for breach of the warranty of defective property would not involve "damages because of property damage to the nondefective property."⁴¹

V. Contract Termination

Hope Electric Enterprises, Inc. v. Schindler Elevator Corp.⁴² arose from a general contractor's termination of a subcontract due to the subcontractor's alleged safety violations. The subcontract provided, in part, that if the subcontractor "repeatedly" failed to perform in accordance with the subcontract, the general contractor could, following a ten-day cure period, terminate the...