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Monthly Archives: August 2017

25AUG 2017

Florida’s Fifth District Court of Appeal recently addressed the issue of retroactive application of a construction subcontract on the basis of a merger clause in Don Facciobene, Inc. v. Hough Roofing, Inc.[1]

In the case, in late 2010, Don Facciobene, Inc. (“DFI”), a licensed general contractor, contracted with Digiacinto Holdings, LLC, an owner of a home built in 1905 in Melbourne, Florida, known as the Nannie Lee House or the Strawberry Mansion, to perform various renovations in preparation for a restaurant to be opened on the premises.  One of the renovations included a new roof.  DFI subcontracted the roofing work to Hough Roofing, Inc. (“HRI”), a licensed roofing subcontractor.  In mid-March 2011, HRI submitted an estimate and proposed statement of work to DFI.  DFI’s project manager signed HRI’s proposal on April 5, 2011, as well as an additional expanded proposal six days later.  According to the proposals, payment was due on completion.  HRI began work on the roof on April 15, 2011, without a signed subcontract.  However, DFI and HRI ultimately executed a subcontract on June 8, 2011, even though HRI had mostly finished its work by the end of May.

Under the subcontract, the terms of payment differed from the proposals.  Specifically, rather than payment being due on completion per the proposals, HRI was due progress payments, minus a ten percent retainage, on the twentieth day of the following month for work completed during the prior month.  Final payment, which amounted to the payment of the accrued ten percent retainage, was not due until thirty days after the entire renovation was complete.  The subcontract also required several conditions precedent to progress payments and final payments.  Specifically, prior to issuance of progress payments, DFI had to obtain payment from the owner for HRI’s work associated with the progress payment.  Also, HRI had to submit, upon request from DFI, a sworn statement identifying entities who provided labor and materials to HRI and documentation confirming they had been paid by HRI.  In addition, prior to final payment being issued, HRI was required to (1)  have completed at least 98% of its work; (2) submit unspecified closeout documents to DFI for approval; and (3) provide ia final lien waiver and release to DFI.

On the same day the subcontract was executed, HRI submitted its “final” invoice for $22,370.  Due to disputes over some of the charges, and despite receiving payment for HRI’s work from the owner on July 15, 2011, final payment for the entire project on December 21, 2011, and completion of the renovations occurring on December 30, 2011, DFI did not pay HRI anything for its work on the home.  Accordingly, HRI filed a claim of lien against the property, and on December 6, 2011, a Complaint against DFI and the owner for breach of contract.  On December 27, 2011, DFI notified HRI that the owner had discovered a leak in the roof; however, the owner refused permission for HRI to come onto the premises and repair the leak until May 2012.  Consequently, DFI repaired the roof, even though it did not have a roofing license, and filed a counterclaim against HRI seeking damages for the estimated cost of repairing the leak.  DFI also answered HRI’s breach of contract claim by asserting, as an affirmative defense, noncompliance with unspecified conditions precedent.

Following a bench trial, the trial court issued an amended final judgment.  The trial court found that both parties did not sign the subcontract until June 8, 2011, and, as of that time, HRI’s performance was more than 90% complete.  The trial court determined that “to retroactively apply the language to the work performed prior to the Contract being fully executed is not required since the total work called for by the Contract was substantially performed prior to the written Contract being signed.”  The trial court ruled that DFI breached the implied covenant of good faith and fair dealing by ceasing communications with HRI and not paying in late June.  The trial court awarded HRI the uncontested charges for metal roofing panels, plywood sheathing, thirty-one pitch pockets, and flat roof and base sheet, totaling $19,788.50.  However, after certain offsets and a small award being granted on the counterclaim, the trial court only awarded $15,439.65 to HRI, plus post-judgment interest.  The balance of the contract price was not part of the award because the trial court ruled that HRI did not comply with the conditions precedent to final payment contained in the subcontract.

Both DFI and HRI appealed the amended final judgment on HRI’s breach of contract claim and DFI’s counterclaim.  DFI asserted that the trial court erred in finding that its subcontract with HRI did not apply retroactively and that, consequently, HRI was barred from receiving any payment at all due to noncompliance with the conditions precedent to progress payments and final payment contained in the subcontract.  HRI filed a cross-appeal seeking payment for the full value of its subcontract.

While “multiple errors” were found in the amended final judgment that warranted reversal, of significance is the Fifth District’s holding that the trial court’s decision not to apply the subcontract retroactively was error in light of the merger clause contained within the subcontract.  The Fifth District reasoned that the merger clause required retroactive application because it acted to replace the original contract with the new one.  For support, the Fifth District relied on Katz v. Fifield Realty Corp.[2] and Aly Handbags, Inc. v. Rosenfeld[3], citing Aly Handbags for the proposition that  [t]he well established rule of law is that a contract may be discharged or extinguished by merger into a later contract entered into between the parties in respect to the same subject which replaces the original contract.”  The Fifth District noted that the trial court’s failure to apply the subcontract retroactively resulted in HRI being barred by the conditions precedent from collecting the final payment, while allowing it to receive a progress payment for work performed before execution of the subcontract.

Even though the Fifth District agreed with DFI’s position that the trial court should have applied the subcontract retroactively, it disagreed with DFI’s position that such retroactive application would bar HRI from receiving any payment at all due to HRI’s failure to comply with the conditions precedent.  In its Complaint, HRI alleged that it had “fully performed all of its obligations under the Contract or has been excused from performance.”  As noted above, DFI asserted, as an affirmative defense, noncompliance with unspecified conditions precedent.  The Fifth District pointed out that DFI did not specify which conditions precedents HRI did not comply with or how HRI failed to comply with them.  Accordingly, because the affirmative defense did not contain the specificity required pursuant to Florida Rule of Civil Procedure 1.120(c), the Fifth District concluded that DFI failed to preserve its right to demand proof that HRI complied with the conditions precedent to progress payments and final payment.  As a result, the Fifth District confirmed that the trial court’s award of uncontested charges to HRI was appropriate, as was most, but not all of the offsets.  Additionally, the Fifth District concluded that the trial court should have also awarded HRI the ten percent retainage, and, because this case involved liquidated damages, prejudgment interest from July 20, 2011, for the progress payment and January 29, 2012, for the final payment.

Based on this decision of the Fifth District, it is likely that construction subcontracts containing merger clauses in Florida will be retroactively applied in instances where proposals for work to be performed are executed in advance, even though the subcontracts are not executed until after the work described therein is nearly complete.  Accordingly, for those entities that decide to enter into such subcontracts in similar circumstances, prudence requires knowledge of and compliance with the terms of the subcontract, not reliance on terms contained within earlier executed proposals.

If you have any questions about this Fifth District decision, please do not hesitate to contact a member of CSK’s Construction Group.

[1] No. 5D15-1527, 42 Fla. L. Weekly D1627 (Fla. 5th DCA July 21, 2017).

[2] 746 F. Supp. 2d 1265 (S.D. Fla. 2010).

[3] 334 So. 2d 124 (Fla. 3d DCA 1976).

04AUG 2017

The independent tort doctrine is a prohibition against tort actions that are calculated to recover solely economic damages for one in contractual privity with another. In other words, the doctrine is intended to prevent parties to a contract from circumventing the allocation of losses set forth in a contract by bringing an action for economic loss in tort.[1]

In 2013, the Florida Supreme Court issued its landmark decision in Tiara Condominium Association, Inc. v. Marsh & McLennan Companies, Inc.,[2] reducing the applicability of the economic loss doctrine[3] and holding that it is only applicable in the context of products liability cases, rather than all consumer lawsuits. After issuance of the Tiara majority opinion, many debated whether the opinion would have far-reaching consequences with respect to other types of actions, potentially opening the floodgates to multi-count tort/contract actions,[4] by perhaps having eliminated the independent tort doctrine.[5]

In Peebles v. Puig,[6] Florida’s Third District Court of Appeal has reaffirmed the independent tort doctrine and used it to reverse a judgment awarding damages in tort in a case where the damages resulted from a breach of contract, with no evidence of a tort or tort damages independent and distinct from the contract.

In Peebles, the plaintiff alleged, and the jury found, that the defendant made fraudulent misrepresentations that, to a certain extent, led the plaintiff to continue to perform her contractual employment duties by re-selling Bath Club units.[7]  The defendant’s company declined to pay the plaintiff’s commissions for those resales, and instead, retained these funds.[8]  There was no dispute that the plaintiff’s contract predated the defendant’s alleged misrepresentation s(therefore, fraud in the inducement to a contract was not at issue).[9]  There was also no dispute that the damages sought by the plaintiff and eventually awarded by the jury were the identical damages that the plaintiff sustained as a result of the defendant’s failure to pay her commissions for the resales.[10]

In re-affirming the independent tort doctrine, the Peebles court stated, “[i]t is well settled in Florida that, where alleged misrepresentations relate to matters already covered in a written contract, such representations are not actionable in fraud.”[11] The Court continued, “[i]t is similarly well settled that, for an alleged misrepresentation regarding a contract to be actionable, the damages stemming from that misrepresentation must be independent, separate and distinct from the damages sustained from the contract’s breach.”[12] According to the Court, “[b]oth of these legal principles are rooted in the notion that, when a contract is breached, the parameters of a plaintiff’s claim are defined by contract law, rather than by tort law.”  In a footnote, the court then makes clear that it did not evaluate this case under the economic loss rule and Tiara,[13] thereby reaffirming the independent legal authority of the independent tort doctrine.

To further solidify its point, the Third District stated clearly, that when, as in Peebles, “a contract has been breached, a tort action lies only for acts independent of those acts establishing the contract’s breach.”[14]

The result of this ruling is that there now appears to be further clarity regarding the continued viability of the independent tort doctrine in Florida. As such, Peebles will continue to provide Florida state courts with the basis for, and foundation to, dismiss a tort action that is merely a recitation of damages suffered as a result of the breach of a contract.  Conversely, the wise plaintiff can carefully craft a complaint which positions its alleged damages as the result of an independent tort in order to survive the dismissal of its tort claim (at least at the motion to dismiss stage). Therefore, although the economic loss rule is no longer applied to actions between parties in privity of contract, the independent tort doctrine remains applicable and in the hands of a skilled defense attorney, can still be used to thwart a plaintiff’s attempts to recover tort damages if and as it becomes apparent that the damages sought in tort are identical to the damages for breach of contract.

If you have any questions about the economic loss doctrine, independent tort doctrine, or the Third District Court of Appeal’s decision in Peebles, please do not hesitate to contact Haldon Greenburg at haldon.greenburg@csklegal.com or a member of CSK’s Construction Group.

[1] Indemnity Ins. Co. of N. Am. v. Am. Aviation, Inc., 891 So. 2d 532 (Fla. 2004), overruled in part by Tiara Condo. Ass’n v. Marsh & McLennan Cos., 110 So. 3d 399 (Fla. 2013); see, e.g., Ginsberg v. Lennar Fla. Holdings, Inc., 645 So. 2d 490, 494 (Fla. 3d DCA 1994) (“Where damages sought in tort are the same as those for breach of contract a plaintiff may not circumvent the contractual relationship by bringing an action in tort.”).

[2] 110 So. 3d 399 (Fla. 2013).

[3] The economic loss doctrine is a judicially created rule which prohibits the recovery of monetary damages based on a tort theory, unless there was also physical property damage or personal injury.

[4] Among those who believed the Tiara majority opinion would have such effects was Justice Canady, who, in his dissenting opinion, opined that “[w]ith today’s decision, we face the prospect of every breach of contract claim being accompanied by a tort claim.” Id at 411. (Canady, J., dissenting).

[5] Further muddying the waters was a position left out of the majority opinion in Tiara, but included in Justice Pariente’s concurring opinion, which explicitly stated that the majority’s conclusion did not undermine Florida’s contract law, and that in order to bring a valid tort claim, a party still must demonstrate that all of the required elements for the cause of action are satisfied, including that the tort is independent of any breach of contract claim. Id. at 407-10 (Pariente, J., concurring).

[6] 42 Fla. L. Weekly D1080 (Fla. 3d DCA May 10, 2017).

[7] Id.

[8] Id.

[9] Id.

[10] Id.

[11] Id. (citing La Pesca Grande Charters, Inc. v. Moran, 704 So. 2d 710, 712-13 (Fla. 5th DCA 1998) (explaining the difference between fraud in the inducement and fraud in the performance, the latter not constituting a separate cause of action from that of a concurrent breach of contract action)).

[12] Id. (citing Rolls v. Bliss & Nyitray, Inc., 408 So. 2d 229, 237 (Fla. 3d DCA 1981)).

[13] Id. at n.4.

[14] Id. (citing Ginsberg, 645 So. 2d at 494).