Construction Manager Who ‘Controls’ Site Can Be Liable For Subcontractor Employee’s Injury

Calloway v. Bovis Lend Lease, Inc., 2013 WL 4428894 (1st Dist. 2013) examines a construction manager’s negligence liability to a subcontractor’s employee where the construction manager entrusts work to the subcontractor but still exercises some control over its work.

Facts: A father and son were piping installers for a subcontractor on a construction project managed by the defendant.  They sustained fatal (father) and permanent (son) injuries when a trench wall collapsed. The father’s estate sued the defendant for wrongful death and the son sued for negligence.

Held: The First District upheld the jury verdict of over $8M for the son and just over $1M for the Estate (after a 49% damages reduction for contributory negligence) against the defendant.

Reasoning:

Affirming the jury verdict, the court held that the defendant construction manager entrusted the underground piping work to the subcontractor (the father and son’s employer).  However, it also exercised a sufficient amount of supervisory control over the subcontractor and was responsible for overall project safety.  These rules were integral to the court’s decision:

one who employs an independent contractor is not liable for the independent contractor’s acts or omissions;

– If the employer retains control over the operative detail of the contractor’s work, the employer is liable under agency law principles (i.e. respondeat superior);

– if the employer retains only supervisory control – such as power to direct timing of the work or to forbid the work from being done in a potentially harmful way – the employer can be liable unless he exercises that control with reasonable care to prevent injury to others;

– when a contractor entrusts part of work to a subcontractor but superintends the entire job through a foreman, the entrusting contractor can be liable if  he (1) fails to prevent the subcontractor from jeopardizing the safety of others; (2) knows or should know that the subcontractor is engaging in unreasonable dangerous activity; and (3) has the opportunity to prevent the dangerous activity by exercising his retained power of control;

– a principal contractor’s right to order work stopped or started, to inspect its progress or receive reports, or make recommendations is not enough – standing alone – to confer liability on the principal contractor;

– the key inquiry in determining whether a contractor owes a duty of care under negligence rules turns on whether the contractor retains control or the right to supervise the contractor.

¶¶ 47-50; Restatement (Second) of Torts, Section 414

The court found that defendant entrusted the underground piping work to plaintiffs’ employer and did more than just administrative work on the job.  The contract documents gave defendant the authority to act as the owner’s agent and afforded it wide latitude in bidding and choosing contractors on the project.  ¶¶ 60-63.

The court cited as support for its findings the evidence that defendant was in charge of overall project safety and even produced safety videos and published safety protocols.  Several witnesses also testified that defendant had day-to-day control over the project and actively monitored its progress.  ¶¶ 68-75.

Witness Discovery Deposition Admitted Into Evidence As A Party Admission

The court affirmed the trial court’s allowing defendant’s former employee’s discovery deposition to be read to the jury.  Rule 212(a)(5) allows a discovery deposition to be used at trial where the deponent isn’t a retained expert, his evidence deposition hasn’t been taken and he can’t testify due to death or infirmity.  SCR 212(a)(5).

The First District found that Rule 212(a)(5) didn’t apply since the deponent wasn’t dead or sick. He was just out of the country.  However, under Rule 212(a)(2) and (3), the discovery deposition was properly read to the jury as a party admission.  These sections specifically allow discovery depositions to come into evidence as party admissions.  A statement is not hearsay if (1) it’s a statement offered against a party; (2) is a statement by the party’s agent (3) concerning a matter within the scope of the agency and (4) is made during the existence of the relationship.  ¶ 88.

The court found that the deposition met all of the rule’s requirements for a party admission and was properly read to the jury.  ¶ 89.

Conclusion: Calloway discusses an entire gamut of important and recurring substantive, procedural and evidentiary topics including compensable damages, contributory negligence, the Dead Mans’ Act, the hearsay rule and exceptions, proper discovery sanctions and the importance of jury instructions.  The case is especially instructive on the entrustment rule – derived from Section 414 of the Restatement (Second) of Torts.  Calloway makes clear that regardless what the contract documents say, if a construction manager retains a sufficient level of supervisory or “superintending” control over a project, it can be subject to negligence liability to third parties if it fails to exercise reasonable care.

 

 

 

 

Negligent Infliction of Emotional Distress: The Physical Injury Requirement

Ultimate_Post_wCat__V402326037_Maggie”, “Mr. Kitty” and “Carmel Cream.”

Are they the stage names of the um, “dancers”, at your local gentleman’s club, peut-etre?

Not sure. But they are the names of the plaintiff’s cats who figure prominently in Myers v. Condominiums of Edelweiss, Inc., 2013 WL 4597973 (N.D.Ill. August 29, 2013). 

Myers examines what happens when a condominium association’s no-pet policy collides with a Federal discrimination statute.

The plaintiff lived in a condominium unit managed by defendant (which has a recorded no-pet policy) for over 15 years.  For that entire time, plaintiff has had multiple cats in her unit: a clear violation of the no-pet rule. 

After several years of litigation in Illinois eviction court (ultimately resolved in plaintiff’s favor), plaintiff sued in Federal court alleging that the defendants (condominium association and individual board members) violated the Fair Housing Act (42 U.S.C. § 3601 et seq.)(FHA) and joined state law claims for intentional and negligent infliction of emotional distress against the defendants.

Held: Defendants’ summary judgment motion on negligent infliction claim granted.

Reasoning:

cats) was reasonable and necessary under the FHA standard. *6.

Intentional Infliction of Emotional Distress

The court denied summary judgment for the defendant on this count.  An intentional infliction plaintiff must allege (1) defendant’s conduct was “extreme and outrageous”; (2) defendant intended to inflict severe emotional distress or knew there was high probability that his conduct would do so; (3) defendant’s conduct actually caused severe emotional distress. *7. 

To determine whether conduct is extreme and outrageous, the court considers  (a) the power and control the defendant has over plaintiff; (b) whether defendant believed his objective was legitimate; and (c) defendant’s awareness of plaintiff’s susceptibility to mental distress.  *7. 

The court found that a jury could find the Association’s conduct extreme and outrageous.  The Association, knowing of plaintiff’s chronic depression (supported by a doctor’s opinion), still sued to evict her and didn’t follow its by-laws by not first calling a meeting to discuss the no-pets infraction. *3, 8.  The Association’s decision to try and force plaintiff from her home instead of “less disruptive” measures raised a question of fact on the extreme and outrageous element.  *8.

Negligent Infliction of Emotional Distress (the ‘Impact Rule’)

Defendant’s motion on plaintiff’s negligent infliction claim was  granted.

A Negligent infliction plaintiff must satisfy the impact rule: a plaintiff can’t recover for emotional distress suffered due to a defendant’s negligence unless the emotional distress is accompanied “by a contemporaneous physical injury or impact to the plaintiff.”  *8. 

Emotional pressure, loss of business, and reputational damage do not constitute sufficient physical injury or impact.  *9.  Since plaintiff didn’t offer any physical harm or injury (beyond mental anguish) evidence, she failed to raise a genuine fact question on whether she suffered physical impact sufficient to survive summary judgment.

Take-aways:

– Whether given conduct is extreme and outrageous for an intentional infliction claim is a highly fact-specific calculus with no bright-line rules;

– For a negligent infliction claim, physical injury is required.  Mental distress, economic and reputational harm don’t suffice;

 

 

The Contractual ‘Pay-If-Paid’ Clause – How Broad Is Its Scope?

A pay-if-paid (PIP) clause in a construction contract says “I, the general contractor, will only have to pay you, the subcontractor, if the owner – the guy I contract with – pays me.”  Substitute “when” for “if” in the above example and you have a pay-when-paid clause.  Both of these clauses are standard in multi-layered construction projects (ones that involve multiple contractors and contracts). 

Neither term can be used to defend a mechanics’ lien foreclosure suit, though.  Section 21(e) of the Illinois Mechanics’ Lien Act (770 ILCS 60/21(e)) prevents a general contractor from using pay-if-paid or pay-when-paid provisions as a defense to a subcontractor’s mechanics’ lien claim.  But the terms are valid defenses to regular breach of contract claims. 

BMD Contractors, Inc. v. Fidelity and Deposit Company of Maryland, 679 F.3d 643 (7th Cir. 2012), examines whether a third party (i.e., a guarantor or surety) can use a PIP clause in defense of a subcontractor’s payment bond claim.  Under Indiana law, the answer is yes.

Facts:  When an Indiana manufacturer declared bankruptcy, it caused a chain reaction of defaults starting with the prime contract between the owner and the general contractor and cascading down to lower tier subs.

When the entity that hired plaintiff failed to pay, plaintiff sued the subcontractor’s bonding company under a payment bond.  The bonding company moved for summary judgment because of a PIP clause in the sub-subcontract. 

The bonding company said that since the subcontractor – the bonding company’s principal – wasn’t paid by the general contractor, the subcontractor didn’t have to pay the plaintiff.  The District Court agreed and granted summary judgment.  The plaintiff appealed.

Held: District Court affirmed.

Why?:

The Court defined a PIP clause as one that provides a subcontractor will be paid only if the contractor is paid by the owner; with each contractor bearing the risk of loss.  By contrast, a pay-when-paid (PWP) clause denotes a timing issue: the general contractor is obligated to pay the subcontractor – but only when or within a fixed time after the contractor is paid by the owner.  (p. 648). 

The Court, looking to other jurisdictions, held that the term “condition precedent” in a construction contract usually signals a PIP provision.  And viewing the unambiguous language of the operative contracts, the plaintiff’s right to  payment was only triggered if the subcontractor was paid by the general contractor.  (pp. 649-650)

Public Policy and Surety (Guarantor) Liability

The Court found that PIP terms don’t violate Indiana public policy reflected by two statutes that (1) prohibit contractual waivers of payment bond claims and (2) prevent conditioning a contractor’s right to record a lien on first receiving payment from a third person.  Indiana Code 32-28-3-16(b), 18(c). 

The Seventh Circuit held that these statutes didn’t apply to whether a contractual PIP term was a defense to a breach of contract suit.  Based on Indiana’s strong policy favoring freedom of contract, and because no statute outlaws PIP provisions as a breach of contract defense, the PIP term didn’t violate public policy. BMD at 652.

Summary judgment for the bonding company was also proper based on the general rule that a surety’s (the person guaranteeing another’s debt) obligations mirror those of its principal.  A surety can have no greater liability than its principal (the person whose debts are being guaranteed). 

In Indiana, payment bonds and the contracts they secure are construed together.  BMD at 654.  And since the subcontractor didn’t have to pay the plaintiff unless the subcontractor was paid by the general contractor, the bonding company’s obligations weren’t triggered and it didn’t have to pay the plaintiff.

Conclusions

(1) if a contract contains “condition precedent” (to payment) or similar language, this will signal a pay-if-paid clause and it will present a valid defense to a breach of contract suit;

2) lower-tier subcontractors should actively monitor the financial health of  the project so they aren’t caught off-guard by an owner’s or higher-tier contractor’s default.