Variations on a Theme

Timothy R. Hughes, is the principal of the Northern Virginia law firm of Hughes & Associates, P.L.L.C.. He specializes in construction litigation, corporate and business related representation, and complex civil litigation.  He may be reached at tim@hughesnassociates.com or (703) 671-8200.

By Timothy R. Hughes

The question of who can sue whom and for what is reason perhaps the most basic question in law. The law varies from state to state on which parties can sue each other for contract style damages. Tort claims and statutory claims make the question even more complex. Each player on a construction project needs to know the contours of this most basic question to understand their potential remedies and also the extent of their potential exposure to litigation.

Tort v. Contract

Contract suits involve claims for damages flowing from disappointed economic expectations. In contrast, tort claims arise from breaches of duties imposed by common law rather than by agreement. In tort, an aggrieved party can generally state a claim if it can show damages from a defendant’s breach of a common law duty owed to the claimant. Statutes can create another category of claims where legislation can create and define the duties owed.

While tort and statutory claims are part of the construction industry, the true focus of construction litigation is in contract. You may think that the only party that can sue you is the party with whom you contracted. Depending on which state’s law applies and what the specifics are of your case, you may end up very surprised.

Who Cares?

The headlines are filled with stories of tightening credit and a serious slowdown in the residential construction market. You need to consider the solvency of all parties involved in your projects. If you are in a state which strictly limits contract claims, a client’s bankruptcy can gut your ability to obtain payment. In such a situation, you need to be careful to understand other possible alternative remedies to the contract, such as mechanic’s lien claims and bond claims.

Neighbors with Differences

A study of adjoining jurisdictions highlights the range of treatment of these issues. Virginia law provides that in the absence of privity of contract, economic losses are simply not recoverable. Its neighbor to the north, Maryland, also tends to limit economic loss claims to those in privity. Maryland recognizes, however, an exception to the rule where a claimed construction problems represents a serious risk of personal injury or death. Maryland’s exception threatens to swallow the rule as claimants try to push the envelope of life threatening conditions. I had a case once where a plaintiff tried to claim that efflorescence on brick used for the walls of an enclosed swimming pool established a life-threatening condition. Happily the judge disagreed, but there are no guarantees.

To the south, North Carolina law states that a suit for economic losses lies in contract, not in tort, and is limited to the parties to the contract. Parties outside the contract can, however, sue in negligence for damages to other property caused by negligence of the party and the courts seem to take a relatively elastic approach to defining what is “property damage” to other property in some cases. Architects get hammered under North Carolina law. North Carolina law permits contractors and subcontractors not in privity with the architect to sue for malpractice if it is “foreseeable” they would rely on the architect’s work.

The Overlay of Forum Selection and Choice of Law

The wide variety of legal positions on the basic question of how far contract duties extend, not to mention tort and statutory claims, highlights the critical importance of which states law applies. The parties often define applicable law by contract. The AIA form documents establish project location as the choice of law. General contractors often inject their home state’s law into the equation. Multi-district owners may attempt to do the same. Clauses that establish where suit must be filed add another layer to the dynamic. It should be noted that one state may often struggle and even fail to properly analyze, interpret, and apply another state’s law.

Many people simply sign form proposals and contracts without considering applicable law. Choice of law and even choice of forum provisions may be easy to overlook as boilerplate and thus acceptable. The reality is that the question of what state’s law applies and where a case is litigated can create a seismic shift in your rights or your liabilities. You need to have a firm grip on this subject before you sign the deal.

Conclusion

Defining which parties can sue whom, and for what, is the most basic starting question in construction litigation. This most basic question can often become a quagmire for unsuspecting parties. Educating yourself on applicable law, potential claims, and which parties can sue whom for what before you sign any contracts is not only prudent, it is imperative.

Timothy R. Hughes, Esq., is the principal of the Northern Virginia law firm of Hughes & Associates, P.L.L.C. He specializes in construction litigation, corporate and business related representation, and complex civil litigation. He may be reached at tim@hughesnassociates.com, or by phone at (703) 671-8200.