What the Courts Are Saying: Ohio Construction Cases

Reprinted from the Spring 2012 BrickerConstructionLaw.com Newsletter
Download the complete Spring 2012 BCL issue

Court of Claims Jurisdiction Clarified in Mechanics’ Lien Case

The purpose of the Court of Claims of Ohio is to hear most, but not all, civil actions against the state of Ohio. Sometimes, determining which cases should be heard by a county Court of Common Pleas and the Court of Claims can be tricky, as a recent case involving a defaulted contractor, the contractor’s surety, an unpaid supplier to the contractor, and the Ohio Department of Rehabilitation and Correction illustrates.

In Selective Ins. Co. of America v. ODRC (Franklin App. No. 11AP-597), 2012 Ohio 1314, an unpaid supplier on a state prison construction project filed both a mechanics’ lien against funds due to the general contractor and a payment bond claim against the contractor’s surety. Unfortunately, the state failed to set aside the liened funds as required by Ohio Revised Code 1311.28 and paid the contractor, leaving insufficient security for the supplier’s lien claim.

The supplier settled its payment bond claim against the surety, which included an assignment of the supplier’s claims against the state for failing to set aside the liened funds. The surety sued the state in the Court of Claims, but the Court of Claims dismissed the case for lack of jurisdiction, holding that the claim was being made under ORC 1311.32, whereby a lien claimant is authorized to sue the state in the Court of Common Pleas when foreclosing upon a mechanics’ lien against funds. (Usually the state, or any other public owner, is not a very active participant in such a case. The main contest is between the lien claimant and the state’s contractor. But with the state already in the case, it is easier to direct payment to whomever the court declares the winner.)

The Court of Appeals held that a) the action was best characterized as a complaint under ORC 1311.28 for the state’s failure to set aside the liened funds, and b) the Court of Claims had jurisdiction to hear a claim under 1311.28 because such a lawsuit was for money damages for the state’s negligence in paying the contractor over the lien, which is the type of case for which the Court of Claims was created.

Trial Court Reversed in Challenge of Contract Award

Disappointed bidders who challenge a public owner’s award of a construction contract face a severely uphill battle in Ohio. The discretion that Ohio public owners have in determining the “lowest and best” or “lowest responsive and responsible” bidder is legendary. But a recent case out of the Fifth Appellate District demonstrates that an owner’s discretion does not include the power to ignore clear statutory law.

In N.L. Construction Corp. v. Freed Housing Corp. (Stark App. No. 2011CA00192), 2012 Ohio 350, N.L. Construction was read the low bidder on a project over $3 million for the Stark Metropolitan Housing Authority. However, after the bids were opened, the project architect asked the bidders to “clarify” (actually, change) their bids to accommodate different prevailing wage criteria. N.L. was still low, but the owner awarded the contract to the second lowest bidder based on the “clarified” bid after determining that N.L.’s bid was nonresponsive for failing to identify its subcontractors per the instructions to bidders.

N.L. sued for a temporary restraining order and preliminary injunction to prevent the contract from moving forward and to have it declared void. The trial court denied the temporary restraining order and preliminary injunction, and N.L. appealed the decision not to declare the contract void.

The Court of Appeals focused its analysis on Ohio Revised Code 153.12, a lengthy statute covering the bidding and award of many classes of public contracts. Among other things, 153.12 requires that a contract be executed within 60 days of the bid and that any modifications to the plans and specifications be published at least 72 hours before the bid opening, or else the bid must be extended for a week. The court determined that neither 153.12 nor any other statute gave a public owner authority to modify plans and specifications after the bid opening. Thus the court determined that 153.12 had been violated and declared the contract awarded to the second lowest bidder to be void. The court cited several Supreme Court of Ohio cases where other contracts had been declared void for failure to follow statutory mandates for bidding procedures.

Claim Filing Time Limit Enforced

A recent case appealed from the Court of Claims of Ohio points up the importance of strictly complying with contract provisions regarding time limitations for making claims. In Ohio Farmers Ins. Co. v. Ohio School Facilities Commission (Franklin County No. 11AP-547), 2012 Ohio 951, the surety for the masonry prime contractor for a school construction project became the assignee of the construction contract after the contractor had financial difficulties. In that capacity, the surety asserted breach of contract claims against the OSFC for its alleged failure to compensate the contractor for acceleration and compression of the construction schedule and for failure to remit the contract balance and retainage.

The trial court awarded the OSFC summary judgment on the breach of contract claim because it found that the contractor failed to formally file a claim in the time limit set forth in the contract, and even if a claim was timely made, it was not appealed to the construction manager within the contractually mandated 30 days. The trial court made its findings based on deposition testimony from the contractor’s general counsel which seemed to admit that the claims deadlines were not met. To try to create an issue of material fact and preclude the award of summary judgment, the surety tried to clarify the general counsel’s deposition with an affidavit. That effort was unsuccessful, summary judgment was granted, and the surety appealed.

The Court of Appeals upheld the grant of summary judgment, holding that the general counsel’s affidavit did not clarify his deposition testimony. Instead, it contradicted his testimony. The court then invoked a rule of law that calls for affidavit testimony to be ignored when it conflicts with previous live testimony. The court was then left with general counsel’s admission that the contractor failed to submit a formal claim and the grant of summary judgment was upheld.

Ohio’s Statute of Repose Bars Home Owners’ Claims Against Even an Unqualified Builder

Ohio’s statute of repose, R.C. 2305.131, bars claims against professionals who provide construction or design services on improvements to real property that arise from defective and unsafe conditions more than 10 years after the date of substantial completion of the improvement.

But as the home owners learned in Tutolo v. Young (Lake App. No. 2010-L-118), 2012 Ohio 121, because of the broad language used in the statute, even builders who are unlicensed and unqualified to perform the work in the first place are protected from claims arising after 10 years under the statute of repose.

In Tutolo, the home owners purchased a house in 2005. The house was renovated in 1996 by the prior owners, who constructed a pitched roof directly over an existing flat roof. Instead of hiring a professional builder, the prior owners hired a retired industrial arts teacher whose only training in carpentry was the odd jobs that he had performed around his own house.

In 2009, after a tree limb fell and crashed through the pitched roof, the home owners discovered that a significant amount of moisture had been leaking through the pitched roof over the years, causing much of the wood in the roof to become wet and to rot. An expert in residential construction determined that the leaks were caused by errors in the design and construction of the pitched roof. The home owners filed suit against the prior owners and the builder who renovated the house, alleging negligence and fraud.
The trial court granted the builder summary judgment based upon Ohio’s 10-year statute of repose. The home owners appealed the trial court’s decision arguing that the builder could not be covered by the statute of repose because he was never a duly licensed carpenter or contractor.

The Court of Appeals disagreed. The Court of Appeals noted that there was no language in the statute of repose indicating that it applied to only professional carpenters or licensed architects and held that the protections provided to builders and designers is stated in broad terms and apply to any “person” who provides services for an improvement on real property. Since the retired industrial arts teacher was the person who provided design and construction services during the renovation of the house, the statute of repose applied to him and barred the home owners’ claims.