Court Reminds Us That Claims Generally Must Be Asserted Against Those With Whom You Have A Contract
17 January 2024
Anyone who has undertaken a construction project knows that there are many activities to be coordinated, with many different people performing these activities. It is also accepted that different trades generally have no duty (or right) to direct the work of other trades, and that ultimately all direction comes from the general contractor or construction manager. In a like vein, claims by and against trade contractors must flow in the same direction—up or down, to or from the GC/CM. In the recent case of Greg Beeche, Logistics, Inc. v Cross Country Construction, Inc., successfully argued by my co-author, Mr. Spaun, an appellate court reminds us that absent exceptional circumstances, differing trade contractors cannot assert claims directly against each other, and that all claims must be asserted by or through the GC/CM.
In June of 2014, Cross Country Construction entered into a subcontract with Lendlease, as agent for an owner/developer, VNO 225 West 58th Street, LLC, to perform the concrete and superstructure work for the construction of a 69 story condominium in Manhattan. In conjunction with the preparation for that work, Cross Country was obligated to provide a schedule of its own activities to be incorporated into Lendlease’s master schedule. Cross Country provided such information, and Lendlease ultimately created a master schedule.
Around the same time, Lendlease entered into a similar subcontract with Enclos for it to furnish and install the curtain wall. Enclos, in turn, entered into a fixed term lease with Greg Beeche, Logistics, for Beeche to furnish the scaffolding that would permit Enclos to perform its work. In determining the length of the lease, Beeche referred to Lendlease’s master schedule, and built in a small cushion.
Like many projects, this one was beset with various delays. These delays required that Beeche’s equipment remain on site for 20 months longer than the extended lease term. Ultimately, the project was completed and Beeche’s equipment was removed. In order to obtain its final payment, Beeche executed standard releases and waivers of lien releasing the owner, Lendlease, and Enclos—the very parties against which Beeche may have had a delay claim (and two of which could have backcharged Cross Country, if such were justified).
With the proper targets of its claims released, Beeche commenced suit against Cross Country to recover for the extra time, alleging that it was an intended third-party beneficiary of Cross Country’s contract (which Beeche claimed was breached by Cross Country), and that Cross Country’s misrepresentations (its contribution to the master schedule) were negligent. Cross Country moved to dismiss, arguing that the beneficiaries to the contract were limited to the owner and the construction manager, and that there was no relationship between these two separately retained subcontractors that approached privity sufficient that Beeche was justified on relying on Cross Country’s contribution to Lendlease’s schedule (and assuming that a prediction of future scheduling was actually a statement of fact that could be relied upon at all). Beeche opposed, contending that without language limiting the beneficiaries to those contracting parties, it could also be construed as a beneficiary of the contract. As to the negligent misrepresentation claim, Beeche argued that as the superstructure contractor, Cross Country was the “premier subcontractor” and, thus, all other schedules were built from Cross Country’s and, as such, other subcontractors not in privity with Cross Country could nonetheless maintain claims against it.
The motion court granted the motion to dismiss, first noting that Beeche had released its claims against the parties with which it was in privity, and then finding that the language of the contract specifically precluded third party beneficiaries. As to the negligent misrepresentation claim, the court found that Cross Country had no greater or lesser relationship with Beeche than that of other subcontractors also not in privity of contract with Cross Country, and therefore Beeche could not recover from Cross Country because, to do otherwise, “would subject Cross Country to limitless liability for any project delays”.
Beeche appealed, and the appellate court affirmed. Citing well settled case law, the appellate court held that regardless of any prohibitory language in Cross Country’s contract, Beeche had not carried its burden to establish that Cross Country and the owner intended that Beeche be benefitted by the contract, or that Beeche had the right to enforce the terms of that contract. As to the negligent misrepresentation claim, the appellate court held that Beeche was not a known party to Cross Country. As a result, Cross Country had no duty to speak with care to Beech on the subject of scheduling (or any other subject). Importantly, similar to the motion court, the appellate court also noted that to permit a claim like this to proceed “would be to sanction limitless liability against contractors such as (Cross Country) for delays ubiquitous in construction”. Beeche moved before New York’s highest court, the Court of Appeals, for a further appeal; that motion was denied, leaving the appellate court’s dismissal of Beeche’s claims in place.
This case reinforces that courts frown on claims asserted outside of a contractor’s own chain of contractual privity, such as those between distinct trade contractors. As the appellate court noted, while all contractors are generally performing for the benefit of the project as a whole, to permit these type of inter-trade claims would be to subject contractors to potentially limitless liability for the type of problems that are pervasive on a construction project. However, contractors are not without recourse and can assert such claims against the GC/CM and/or the owner (who can pass any claim on in the form of a backcharge)—provided that they do not blindly sign a release and waiver of lien for the sake of obtaining a quick payment. While many owners and general contractors will not release payment in the absence of a signed release and waiver of lien, there may still be ways to preserve your right to preserve your right to later pursue such claims. Consulting with experienced construction counsel can help you determine what your exact rights are under your contract, and how to best preserve such claims while still being paid your undisputed contract balance and retainage.