Coghlin Elec. Contractors, Inc. v. Gilbane Bldg. Co.

• Decision Date: 02 September 2015
• Docket Number: SJC–11778.
• Citation: 36 N.E.3d 505,472 Mass. 549
• Parties: COGHLIN ELECTRICAL CONTRACTORS, INC. v. GILBANE BUILDING COMPANY & another; Division of Capital Asset Management and Maintenance, third-party defendant.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

472 Mass. 549

36 N.E.3d 505

COGHLIN ELECTRICAL CONTRACTORS, INC.

v. GILBANE BUILDING COMPANY & another;¹Division of Capital Asset Management and Maintenance, third-party defendant.

SJC–11778.

Supreme Judicial Court of Massachusetts, Worcester.

Submitted March 2, 2015.

Decided Sept. 2, 2015.

John W. DiNicola, II (Michael Brangwynne with him), Boston, for Gilbane Building Company.

James A. Sweeney, Assistant Attorney General, for Division of Capital Asset Management and Maintenance.

The following submitted briefs for amici curiae:

David J. Hatem, Cheryl A. Waterhouse, Boston, & Amanda E. Mathieu for American Council of Engineering Companies of Massachusetts & another.

Shannon A. Reilly, Buzzards Bay, for Construction Industries of Massachusetts.

Joel Lewin, Robert V. Lizza, Jonathan T. Elder, & Robert T. Ferguson, Jr., Boston, for Associated General Contractors of Massachusetts, Inc.

Hugh J. Gorman, III, & Jeffrey J. Pyle, Boston, for Columbia Construction Company.

Present: GANTS, C.J., SPINA, CORDY, BOTSFORD, DUFFLY, LENK, & HINES, JJ.

Opinion

GANTS, C.J.

This case requires us to resolve three issues regarding a public construction contract that implements the construction management at risk delivery method, pursuant to G.L. c. 149A: (1) Does the owner who furnishes the plans and specifications in a public construction management at risk project give an implied warranty of their sufficiency for the purpose intended, as the owner does under our common law in traditional design-bid-build construction projects? (2) If so, did the parties to the construction management at risk contract in this case disclaim the implied warranty?

(3) If they did not, did the indemnification provision in the contract prohibit the construction manager at risk (CMAR) from filing a third-party complaint against the owner in a case brought by a subcontractor seeking reimbursement of additional costs, thus requiring the CMAR to file a separate complaint against the owner to recover the additional costs caused by an insufficient or defective design under the implied warranty?

We conclude: (1) under our common law, a public owner of a construction management at risk project gives an implied warranty regarding the designer's plans and specifications, but the scope of liability arising from that implied warranty is more limited than in a design-bid-build project; (2) the construction management at risk contract in this case did not disclaim the implied warranty; and (3) the indemnification provision in the contract did not prohibit the CMAR from filing a third-party

complaint against the owner that sought reimbursement under the implied warranty for damages claimed by the subcontractor arising from the insufficiency of or defects in the design.²

Background. The Division of Capital Asset Management and Maintenance (DCAM) is the owner of a construction project to build a psychiatric facility at the site of the Worcester State Hospital (Project). DCAM entered into a contract with Ellenzweig Associates (Designer) to prepare the Project's designs. See G.L. c. 7C, § 44 (“Designer” is individual or other entity “engaged in the practice of architecture, landscape architecture, or engineering” and registered in discipline required for project). When the designs were partially completed, DCAM entered into a contract with Gilbane Building Company (Gilbane) as the CMAR.³ Gilbane entered into a subcontract with Coghlin Electrical Contractors, Inc. (Coghlin), to perform electrical work. The subcontract incorporated by reference the terms of the contract between DCAM and Gilbane.

On July 19, 2012, approximately one month before it substantially completed its work, Coghlin submitted to Gilbane a request for equitable adjustment of the contract price. Nearly one year later, on July 17, 2013, Coghlin filed a complaint in the Superior Court against Gilbane, alleging, inter alia, that Gilbane committed a breach of its subcontract with Coghlin by causing Coghlin to incur additional costs resulting from various scheduling, coordination, management, and design errors.⁴ Gilbane then filed a third-party complaint against DCAM, asserting that, “in the event that Coghlin proves its claims against Gilbane,” DCAM committed a breach of its contract with Gilbane by refusing to pay Gilbane the amounts claimed by Coghlin.

Because DCAM's liability on the third-party complaint is contingent upon Coghlin prevailing on its complaint, we recite the

relevant factual allegations in both the complaint and the third-party complaint.⁵ In October, 2009, Coghlin began performing electric work on the first of two sets of buildings and, for the first year, was generally able to perform on schedule. However, beginning around November, 2010, various errors, omissions, and changes severely affected Coghlin's performance, causing Coghlin to incur a forty-nine per cent increase in labor hours. Coghlin's increased costs resulted both from Gilbane's alleged mismanagement of the Project, such as its failure to issue monthly schedules and coordinate the various subcontractors, and from design defects and changes. As to the design, Coghlin alleged that the ceilings in the project were designed to leave two feet of space between the ceilings and the bottom of the structural steel, but “[w]hen Project work began, it was revealed that the design required approximately five feet of mechanical and electrical work to be placed in the ceiling area.” After six weeks of attempting to resolve the discrepancy, Coghlin was directed to place the electrical work as high as possible in the ceiling, and was told that the Designer and Gilbane would address the issue later. Coghlin also alleged that, “[w]hen wall framing began, based upon design changes and for other reasons not related to Coghlin's performance, it became evident that the floors would not be framed in a logical and sequential fashion.” In addition, Coghlin alleged that the Designer specified that Coghlin use certain specific electrical fixtures on the Project, but the Designer rejected them when Coghlin filed the product submittals.

In its third-party complaint, Gilbane claims that it performed its work in accordance with the contract, and that DCAM has not paid Gilbane for the amounts sought by Coghlin. DCAM filed a motion to dismiss the third-party complaint. After conducting a

hearing, the judge allowed the motion and judgment was entered in favor of DCAM.

In his decision, the judge recognized that Gilbane's third-party complaint effectively alleged that DCAM should indemnify Gilbane for “damages caused by design changes and design errors,” that were “unrelated to any wrongdoing on Gilbane's part,” for which Gilbane may be liable to Coghlin. The judge, citing J. Lewin & C.E. Schaub, Jr., Construction Law § 7:3, at 452 (2012) (Lewin & Schaub, Jr.), acknowledged that Massachusetts common law “traditionally has been protective of construction contractors in circumstances where the owner has supplied erroneous or, perhaps, ambiguous plans and specifications.” See Lewin & Schaub, Jr., supra at § 7:3, at 464 (2014–2015) (“where a party provides a contractor with a set of plans and specifications for construction to follow, there is an implied warranty that those plans and specifications are adequate and sufficient”). The judge concluded, however, that the implied warranty of the owner applies only where the construction project uses the traditional design-bid-build construction method, in which the owner retains a designer to design the project, construction bids are submitted based on that design, and the general contractor who wins the contract is expected to build the project in accordance with the plans and specifications of the design. The judge determined that this implied warranty does not apply where, as here, the construction project uses the construction management at risk method, given the “material changes in the roles and responsibilities voluntarily undertaken by the parties” to such contracts.

The judge also determined that the indemnification provision in the contract between DCAM and Gilbane, which requires Gilbane to indemnify, defend, and hold harmless DCAM from all claims, damages, losses, and expenses “arising out of or resulting from the performance of the Work,” as defined in the contract, imposes liability on Gilbane for any damages it might win in its third-party claims against DCAM. The judge concluded that, because Gilbane effectively is suing itself in its third-party complaint, Gilbane's third-party claims create “an impermissible ‘circuity of obligation’ ” (citation omitted). Gilbane appealed, and we allowed its motion for direct appellate review.

Discussion. “We review the allowance of a motion to dismiss de novo,” accepting as true the facts alleged in the plaintiff's and the third-party plaintiff's complaints as well as any favorable inferences that reasonably can be drawn from them.

Galiastro v. Mortgage Elec. Registration Sys., Inc., 467 Mass. 160, 164, 4 N.E.3d 270 (2014). To survive a motion to dismiss, the facts alleged and the reasonable inferences drawn therefrom must “plausibly suggest ... an entitlement to relief.” Flagg v. AliMed, Inc., 466 Mass. 23, 26–27, 992 N.E.2d 354 (2013), quoting Iannacchino v. Ford Motor Co., 451 Mass. 623, 636, 888 N.E.2d 879 (2008).

1. Construction management at risk contracts under G.L. c. 149A. a. Construction project delivery methods. The construction management at risk contract at issue in this case differs from contracts made pursuant to the conventional design-bid-build method. In a design-bid-build project, “the owner retains an engineer or an architect on a separate contract to complete the design of the public facility,” and once the design is complete, the design is made available to potential bidders and the construction contract is advertised for bid. Associated Subcontractors of Mass., Inc. v. University of Mass. Bldg. Auth., 442 Mass. 159, 165 n. 8, 810 N.E.2d 1214 (2004), quo...