What the Courts Are Saying: Recent Construction Court Cases

Reprinted from the Summer 2012 BrickerConstructionLaw.com Newsletter
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The Importance of Unambiguous Contract Language

A recent case from the Eleventh Appellate District provides an example of what can happen when parties enter into a contract that contains ambiguous language. In Look v. H & M Custom Home Builders Co., Inc., 2012 Ohio App. LEXIS 2654, property owners hired a contractor to construct their home. The relationship ended in a dispute that could only be resolved by determining which plans were the subject of the contract.

The home owners provided the contractor blueprints of the home they were planning to construct. The parties’ relationship turned sour and, before the home was complete, the owners ceased payment, claiming the contractor failed to construct the home in accordance with the original plans and specifications and omitted work from the project. In an effort to establish their damages and recover the entire cost of two rooms that were not constructed by the contractor, the owners offered the design plans to the court.

The problem with the contract was that it did not expressly detail the specifications for construction of the home. Instead, the contract incorporated the finalized, owner-approved site plans where it provided that “[u]pon final review and approval by the Owner and the Builder… the work drawings, site plan, and specifications shall become a part of this Contract as if they were fully rewritten” in the contract.

This language failed to clearly identify the plans that were to be the subject of the contract — the original plans included the additional rooms and the plans submitted to the county for approval had the rooms crossed out with the notation “not building.” The owners maintained that the original plans containing the rooms were the subject of the contract and they had not approved the plans omitting the rooms. The contractor maintained that the plans submitted to the county for approval were the subject of the contract and it could not be held responsible for rooms that were omitted from the project.

The court relied on some fundamental laws of contracting. Namely, the court stated that: (1) it must examine a contract “to interpret and give effect to the intentions of the contracting parties;” (2) “if contract terms are unambiguous, a court may not interpret the contract in a manner inconsistent with the clear language of the instrument;” and (3) if the terms of the contract are ambiguous, the court is permitted to consider extrinsic evidence to determine the intentions of the parties.

As a result of the ambiguous contract language regarding which plans were the subject of the contract, the trial court was permitted to go beyond the contract and into the post-agreement verbal negotiations and circumstances. The trial court determined that the two rooms were omitted from the contract. Furthermore, because an appellate court may not substitute its judgment for that of the trial court where there is some competent, credible evidence to support the trial court’s findings, the appellate court affirmed the trial court’s decision. The owners were unable to recover damages from the contractor for the omitted rooms because of ambiguous contract language.

Court Enforces Limitations on the Scope of an Arbitration Provision

When parties to a contract agree to resolve their disputes through arbitration, Ohio courts will generally force the parties to arbitrate. Ohio’s arbitration statute, R.C. 2711.01, offers little discretion to courts when determining the enforceability of an arbitration clause. This statute states that “a provision in any written contract. . . to settle by arbitration a controversy that subsequently arises out of the contract…shall be valid, irrevocable, and enforceable.”

However, a court cannot force parties to arbitrate when the parties have not agreed to do so. A recent case from Ohio’s Ninth Appellate District provides an example of how courts will not expand an arbitration clause that limits itself to certain aspects of the underlying contract.

The dispute in Avenbury Lakes Homeowners Assn., Inc. v. Avenbury Lakes, Inc., 2012 Ohio App. LEXIS 2253, arose from the construction of a community clubhouse within a residential development. The homeowners’ association filed a lawsuit against the developer alleging poor workmanship and severe deficiencies in the construction of the clubhouse, which resulted in damages in the amount of $698,118.

In response to the lawsuit, the developer asserted similar claims against the architect and HVAC engineer who designed the clubhouse. The architect also asserted claims against the HVAC engineer. Since the contract between the architect and the HVAC engineer contained an arbitration provision, the HVAC engineer asked the trial court to stay the underlying lawsuit so that the architect and the HVAC engineer could arbitrate the claims between them. When the trial court agreed to stay the entire lawsuit pending the results of the arbitration, the architect appealed arguing that the dispute was not within the scope of the arbitration clause.

In reviewing the matter, the court acknowledged that there were two basic types of arbitration provisions. First, there is an “unlimited clause,” which requires arbitration of all disputes between the parties arising out of the contract. Second, there is a “limited clause,” which limits arbitration to specific types of disputes that arise out of a contract.

The court looked to the arbitration provision to determine whether the parties agreed to arbitrate the dispute at issue. The court found that the arbitration agreement at issue was a limited clause as follows:

The arbitrators will not have jurisdiction, power or authority to consider, or make findings (except in denial of their own jurisdiction) concerning any claim, counterclaim, dispute or other matter in question where the amount in controversy of any such claim, counterclaim, dispute or matter is more than $100,000 (exclusive of interest and costs).

In applying the arbitration provision to the dispute, the court held that the dispute in question fell outside the scope of the provision because the amount in controversy was $698,118, which exceeded the $100,000 limit. As a result, the court found that the trial court erred in staying the proceedings pending the outcome of arbitration between the architect and the HVAC engineer.

Expert Testimony Explaining How Engineer’s Conduct Fell Below the Standard of Care is Necessary to Establish Negligence

A technical breach by an engineer of its design professional agreement may not be enough to establish that the engineer is negligent. As the City of Huntington Woods learned in Huntington Woods v. Orchard, Hiltz & McCliment, 2012 Mich App. LEXIS 879, expert testimony may be required to establish that an engineer’s contract breach amounts to negligence by the engineer.

In Huntington Woods v. Orchard, Hiltz & McCliment, the City of Huntington Woods executed a design engineering services contract with Orchard, Hiltz & McCliment, Inc. (OHM). As part of the design services, OHM was to design and observe the reconstruction and rehabilitation of portions of Coolidge Highway in Oakland County, Michigan.

 

The final plans and specifications prepared by OHM specified that a 70/22 binder was to be used in the asphalt and that seasonal suspension of paving was to occur from November 14 to April 16. The plans and specifications required a change order for any change in the plans.

During the construction of the project, OHM allowed the project to be constructed with 64/28 binder and allowed paving on the project to occur on November 16, after the November 14 deadline. After the completion of the project, when the asphalt began to deteriorate, Huntington Woods filed a lawsuit against OHM alleging that OHM provided negligent design, inspection and supervision services resulting in defective pavement on the project.

The experts testifying on behalf of Huntington Woods at trial testified that in order for OHM to meet the standard of care, OHM had to ensure that the general contractor built the road in accordance with the plans and specifications for the project. After Huntington Woods obtained a judgment in its favor, OHM appealed.

On appeal, OHM argued that Huntington Woods failed to establish the prima facie case of negligence and contended that Huntington Woods must establish that OHM’s actual conduct on the project breached the standard of care. In other words, OHM argued that Huntington Woods must establish that by allowing the contractor to pave on November 16 and allowing the contractor to install 64/28 binder, OHM’s conduct fell below the conduct required of an engineer of ordinary skill and judgment.

The court agreed with OHM, finding that in order to establish negligence, Huntington Woods must offer expert testimony that OHM’s actual conduct fell below the standard of care. Since there was no expert testimony that a professional engineer of ordinary skill and judgment would not have allowed paving on November 16 or allowed the contractor to install 64/28 binder, Huntington Woods did not present a prima facie case of professional malpractice against OHM.