New York Court Rules that Excavator’s Suit Against GC May Proceed Despite Releases It Provided with Progress Billings

by Pepper Hamilton LLP
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Laquila Grp., Inc. v. Hunt Constr. Grp., Inc., 2014 N.Y. Misc. LEXIS 2824 (N.Y. Sup. Ct. June 25, 2014)

This action arose out of a payment dispute following construction of the Barclays Center in Brooklyn, New York.  General contractor Hunt Construction Group, Inc. (“Hunt”) retained Laquila Group, Inc. (“Laquila) as a subcontractor to perform excavation and foundation work for the project.  The parties executed a subcontract whereby Laquila would perform the work for $27.5 million with the understanding that the work had to be completed in a timely manner due to events at Barclays already scheduled around the completion date.  The subcontract further specified that Hunt was not liable to Laquila for any additional costs or changes in the work absent a written change order.

The project experienced various complications, which resulted in the parties entering into numerous change orders.  Hunt paid Laquila the money due under the original $27.5 million subcontract, plus payments covering the change orders.  Each change order executed by Laquila contained the clause, “[a]cceptance of this Change Order constitutes a waiver of any claim, additional compensation and time whatsoever in relationship to the items covered under this Change Order.”  Moreover, with each progress payment, Laquila submitted releases and a “Partial Waiver of Claims” including a waiver of liens that confirmed that it had been properly paid for its work.

Following completion, however, Laquila submitted a claim requesting nearly $10.9 million be paid by Hunt for additional costs incurred.  Laquila claimed that changes to the scope and sequence of the work and delays related to permits and hazardous material found at the site added to the costs and time needed to finish its work.  Hunt denied the claim and Laquila filed suit.

In its motion to dismiss, Hunt’s primary argument was that it had paid all amounts due in progress payments and that acceptance of the payments included executed releases from claims.  Each submission, Hunt argued, represented that no other payments or remuneration remained due to Laquila.  Hunt further argued that the vast majority of Laquila’s claimed bases for additional costs were the subject of change orders that were previously paid, resolved and released.

Laquila, in opposition, alleged that, despite the subcontract’s requirement of written approval of all change order work, the parties established a routine, due to the expedited nature of the project, whereby Laquila would perform modified work while the change orders for such work were still pending.  Laquila explained that adjustments or changes to the work were agreed to verbally and later documented in writing.  Laquila further argued that the releases and partial waivers were required for payment and thus were simply an acknowledgement by Laquila of its payment for the work and for the amount of the change orders that had, up to the date of the payment application, been approved by Hunt.

Among the issues the court addressed in deciding Hunt’s motion to dismiss was whether Laquila could sue Hunt for additional payment even though Laquila signed releases when it accepted progress payments and entered into change orders. The court found that Laquila’s claim for additional payment could proceed.

The court noted the general rule that a valid, signed release acts to bar any claim that the release encompassed.  Nonetheless, the court held that a general release will not be read as applying to claims the parties did not intend to waive.  The court reasoned that a release is not an absolute defense when the evidence in the record including, inter alia, the circumstances surrounding the release, as well as the parties’ course of conduct, evinces that the parties’ intentions were not reflected in the general terms of the release.

In considering the purpose and context of the releases at issue, the court determined that Laquila raised two questions of fact concerning the intent of the parties that precluded dismissal.  First, was Laquila’s argument that it was contractually required to submit the forms as a condition precedent to its entitlement to and receipt of payment, which created an issue of fact regarding whether the forms constituted mere receipts for payment actually received.  Second, was Laquila’s argument that it and Hunt had, to accommodate the project’s deadlines, established a practice of performing necessary changes prior to the execution of applicable change orders with the understanding that, Laquila would, eventually, receive appropriate additional remuneration. Consequently the court concluded that issues of fact remained as to whether the parties’ conduct indicated that the waivers it executed were intended to bar all claims for additional payment.  Therefore, the court denied Hunt’s motion to dismiss pursuant to the various releases.

To view the full text of this decision, courtesy of Lexis ®, click here .

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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