Contractor Wins Judgment…Momentarily
CONTRACTOR WINS JUDGMENT AGAINST OWNER.
MOMENTARILY AT LEAST
By: Robert S. Tanner, Esq.
In Kritikos v. Anderson, 2013 WL 1748678 (Fla. 4 th DCA Apr. 24, 2013), a residential owner of Florida property (“Owner”) entered into a contract with a New York architect (“Architect”) to design an ocean front home to be built on Jupiter Island, Florida. Owner entered into a contract with a separate company owned by Architect pursuant to which that company was to serve as the construction manager (“Construction Manager”). Construction Manager but, acting as an agent of Owner, entered into a construction contract with a general contractor (“General Contractor”).
The original construction budget was approximately $4 million. When the originally scheduled completion date arrived, construction was 60% complete and the projected cost was at $8 million. Four months after the originally scheduled completion date, Owner terminated the General Contractor.
The General Contractor sued Owner for monies it claimed were due and owing. Owner counterclaimed for defects, overcharges, and delay damages. In a separate lawsuit, Owner sued Construction Manager, seeking damages for defects, overcharges, and delays. The two cases were consolidated, and a month long trial ensued.
During trial, the trial court ruled that Owner was prohibited from presenting against General Contractor evidence of estimated costs of repairing the claimed defects. The trial court’s ruling was based on its understanding that an Owner must prove costs of repairs with evidence of actual costs and that estimates were not acceptable. The trial court did not place a similar prohibition on Owner’s evidence against Construction Manager.
In the claims between Owner and General Contractor, the jury awarded $548,817.04 to General Contractor for unpaid work but awarded $130,000 in delay damages to Owner. The trial court found General Contractor to be the prevailing party and allowed it to recover its mediation/arbitration fees and prejudgment interest. The amount of General Contractor’s final judgment against Owner was $581,912.33.
The results were much different in Owner’s case against Construction Manager, where Owner was permitted to present evidence of the estimated costs to repair the alleged defects. There, the jury awarded Owner $1,139,343. It is not clear whether that amount included an award of mediation/arbitration fees.
An appeal followed. The appellate court found that the trial court mistakenly prohibited Owner from presenting evidence of estimated costs to repair against General Contractor. The appellate court remanded the case for a new trial on damages, noting in its opinion that the trial court should re-determine the issue of prevailing party for purposes of awarding mediation/arbitration fees.
If the results of Owner’s claim against Architect and Construction Manager provide any guidance of what to expect from the new trial on Owner’s damages against General Contractor, General Contractor will not fare so well. Instead of winning a judgment for more than $500k, the General Contractor may lose somewhere around that same amount. For many, such a swing is not easy to swallow.
As a person who was not involved in this particular case, what lessons can be learned from it? A contractor might look for ways to minimize or avoid litigation costs. Sometimes it is impossible to avoid litigation altogether.
Although it is not always possible to avoid disputes that require outside help to resolve, there are measures that can be taken to control how disputes are handled. One option is to control the forum in which your dispute is resolved, which can significantly impact the costs of the dispute resolution process. For example, many have chosen to have their disputes resolved in privately run arbitrations rather than government run courts.
A well-drafted arbitration provision can significantly curtail the discovery that occurs prior to the arbitration, which can reduce costs in comparison to the generally expansive discovery procedures available in the court system. First, arbitrations are usually, and with the right arbitration provision must be, presided over by experts in the area of the particular dispute. That is in contrast to trial proceedings where judges are randomly assigned to cases and may, or may not, have experience in the subject area of the dispute.
Had the Kritikos v. Andersen dispute been resolved in arbitration rather than the court system, the mistake of excluding evidence of the estimated costs to repair may not have occurred, thus eliminating the major ground for appeal, as well as the costs related thereto. moreover, usually there is no second bite at the apple in arbitrations because the permissible bases for having an arbitration award reviewed are very narrow and the standards getting an “appellate” review are generally hard to meet.
We also note that difficulties may have arisen, for both Owner and General Contractor, from the structure of the contracting arrangements. Owner did not contract directly with General Contractor but, instead, General Contractor was hired through Architect. Additionally, Architect and Construction Manager appear to have been essentially the same person. So, the structure of the contracting arrangements may have prevented General Contractor from credibly and forcefully voicing concerns it may have had about the project to Owner. Owner may have been better served by having an owner’s representative whose sole duty was to protect Owner.
Owners typically like to have projects built on time, within budget, without a bunch of drama. Contractors typically like to get paid for the work they perform. It is our goal to assist owners and contractors alike in achieving their respective objectives.