Construction Law
Legal Matters: A Closer Look at Four Pivotal Construction Law Cases
Dan Heilman
December 18, 2012
The year 2012 didn’t boast a construction law case with the marquee value of the Interstate 35W bridge collapse settlements that commanded headlines in 2010 and 2011. But that doesn’t mean a lot of interesting cases didn’t make their way to the state’s highest courts this year.
At Leonard, Street and Deinard’s recent construction law seminar, shareholder Liz Kramer and associate Tom Cuthbert outlined many of those cases. Here are a few:
Mechanic’s liens were the focus of NewMech Companies v. Grove Hospitality, decided in the Minnesota Court of Appeals in May. Grove planned to build a hotel and restaurant in Maple Grove on land it had purchased from Ryan Cos. U.S. Inc. with the provision that Ryan would make site improvements.
As construction proceeded, Grove failed to make timely payments to contractors and suppliers, and five companies recorded mechanic’s liens against the company — but not before Citizens Independent Bank recorded a mortgage and concluded there was no visible improvement to the property.
Even so, earthwork had been done and rebar delivered to the site. The court ruled that those constituted improvements and the liens of NewMech and four other companies had priority over the bank’s.
The ruling is notable because it requires banks that are lending money in construction projects to do more than just go out to the site and snap a few pictures to prove that no work has occurred, according to Patrick J. Lindmark, an attorney with Leonard, O’Brien, Spencer, Gale & Sayre, which represented NewMech.
“They must make a reasonable inspection of the project site and cannot ignore the fact that construction materials might have been delivered to the site or earthwork commenced,” said Lindmark. He added that the ruling furthers the remedial goal of the mechanic’s lien statute “to compensate contractors for the labor and materials provided to projects that ultimately fail financially through no fault of the contractors.”
Prevailing wage
In Caldas v. Affordable Granite and Stone Inc., the Minnesota Supreme Court found that third parties such as employees can sue to enforce prevailing-wage provisions only if the contracting parties intended to give them that right.
Employees of Affordable Granite, who were doing floor repair work on a project for the city of Minneapolis, sued the company, saying they should have been classified as terrazzo mechanics — a status that would have entitled them the $44 per hour such workers receive under prevailing wage laws, rather than the $15 per hour they were receiving.
The problem was that the employees didn’t have a contract requiring a prevailing wage and had to argue that they were third-party beneficiaries to that contract, meaning they could enforce that prevailing-wage provision. The court said there was no evidence that either the city or Affordable Granite intended the workers to be third-party beneficiaries.
“It’s very difficult for other parties to come in and try to enforce a contract between two people,” said Kramer. “Once you’ve satisfied the other parties to your contract, you’re golden. You can generally expect that no one is going to come in and try to interrupt that relationship.”
Bidding rules
In a bidding-related case, Rochon Corp. v. City of St. Paul, the Court of Appeals found that competitive bidding is meant to eliminate discrimination on the part of public officials and that allowing a material change to a bid after bids have been open can raise questions of abuse and favoritism.
In the case, Shaw-Lundquist Associates was the low bidder for the controversial Lofts at Farmers Market project in downtown St. Paul, but after discovering that a clerical error had caused the contractor to bid much lower than it had intended to, the city let Shaw-Lundquist change its bid. The revised bid was still the low bid and Shaw-Lundquist was awarded the project, so Rochon sued to void the contract.
A state district court found that while the city had violated competitive bidding laws, the change was not material because it didn’t give Shaw-Lundquist a substantial advantage.
The Minnesota Court of Appeals disagreed, saying that because Shaw-Lundquist knew the next-lowest bid on the job, it could adjust its bid accordingly. It also noted that two other bidders were not given a chance to revise their bids.
“Material changes are typically defined as those that affect the price, quality, quantity or manner of performance of a bid,” said Dean B. Thomson of Fabyanske, Westra, Hart & Thomson, who represented Rochon.
Without the appellate court’s decision, he said, bidders could “salt their bid papers with supposed mistakes, bid very low and then use any combination of supposed mistakes to increase their bid after bid opening to an amount just under that of their competitors.
“Simply put, the decision protects public bidding from those types of games,” he said.
Data privacy
In Helmberger v. Johnson Controls Inc. & Architectural Resources Inc., the state appellate court said a company hired by the St. Louis County school district to manage a major construction project cannot keep its agreements with subcontractors secret.
The Tower, Minn., Timberjay newspaper and its editor, Marshall Helmberger, had asked Johnson Controls to turn over its subcontract with an architectural firm so it could evaluate the use of taxpayer money for the $78 million reconstruction project.
Johnson Controls resisted a Data Practices Act request, saying the company wasn’t performing a governmental function. The court disagreed, ruling that since government is obligated to provide schools for children and had delegated that function to Johnson Controls, it was within the parameters of the Data Practices Act.
The Minnesota Supreme Court has been asked to review the case. Kramer said competitive concerns could keep the high court from upholding the ruling.
“It’s one thing to have to turn over a subcontract to a newspaper,” she said. “It’s a whole other thing if it means your competitors can make a data practices request for your bid work papers or job costs reports.”
SOURCE: finance-commerce.com