Lamar Contractors, LLC v. SRF Group Consulting, LLC, 22-212 (La. App. 5 Cir. 2/1/23). 2023 WL 1426506. (NOTICE CASE)

The Fifth Circuit Court of Appeal’s Interpretation of AIA Contractual Provisions Allows Owners (and Likely Contractors) to Assert Claims Outside of the 21 Day Notice Requirement.

Authors: Christopher K. LeMieux and Michael Levatino

The Louisiana Fifth Circuit Court of Appeal recently issued another ruling in the Lamar Contractors, LLC v. SRF Group Consulting, LLC case that impacts both owners and contractors. In Lamar Contractors, the Fifth Circuit interpreted the impact of Sections 13 and 15 of the AIA 201 General Conditions of a contract. The Court held that the owner of the project could not waive its right to assert defective work claims contrary to the clear terms of Section 15 requiring notice with 21 after knowledge of the occurrence of the event.

In this case, the lawsuit arises out of a public recreation building owned by St. James Parish (“Parish”). The Parish entered into a contract with Lamar Contractors, LLC (“Lamar”) to serve as the general contractor and to build a building designed by SRF Group Consulting, LLC (“SRF”). A dispute arose regarding the design and specifications and Lamar stopped work. Subsequently, Lamar filed a notice of termination and filed suit. The Parish filed a Reconventional demand alleging Lamar had performed defective work and breached the general contract in unilaterally deciding to stop work. Lamar filed a motion for summary judgment regarding Parish’s claims of defective work. In the motion, Lamar argued that the Parish failed to preserve its Reconventional demand as defined in Section 15 of the Construction Contract, requiring the Owner to assert a claim against the contractor within 21 days of the event giving rise to the claim. The trial court granted Lamar’s motion dismissing the Parish’s claims.

The Parish appealed, asserting that the court committed a legal error in interpreting Section 15 of the claim procedure in the contract. In response, Lamar argued that the Parish waived its right to assert claims for defective and/or deficient work because it failed to assert a claim within the 21 day deadline. Section 15.1.2 of the Contract stated in part:

Claims by either the Owner or Contractor must be initiated by written notice to the other party and to the Initial Decision Maker with a copy sent to the Architect, if the Architect is not serving as the Initial Decision Maker. Claims by either party must be initiated within 21 days after occurrence of the event giving rise to such Claim or within 21 days after the claimant first recognizes the condition giving rise to the Claim, whichever is later.

The Parish argued the alternative, mainly that it could not waive its claims for defective and deficient work under the terms of the contract.

Upon review of the contractual provisions of the Contract, the Court found that the failure by the Parish to use that process set for in Section 15 does not result in a waiver of those claim. The Court found that Lamar was contractually obligated to supply work, and materials and produce a functionally complete project. Further, there was a specific process for identifying unsatisfactory work through “punch lists”. If Lamar failed to perform its obligations under the contract Section 3.20 provided the contractor shall be liable to the owner for all costs and/or damages that the Owner incurs as a result of the Contractor’s failure to perform such work. Thus, the Court found the contract clearly provides the Parish a right to redress in the event Lamar’s work is deemed unsatisfactory.

The Court then discussed Section 13.4.2, which is a broad and somewhat vague clause. Section 13.4.2 states “no action or failure to act by the Owner, Architect, or Contractor shall constitute a waiver of a right or duty afforded them under the Contract, nor shall such action or failure to act constitute approval or acquiescence in a breach there under, except as may be specifically agreed in writing.” Based on this broad clause, which it is not clear whether the Parish even raised, the Court found that the Parish could not waive its right to recover for defective workmanship, even though the more specific clause in Section 15 required the owner to make claims within 21 days Therefore, the court found that the trial court erred as a matter of law in finding that Article 15 could be used to preclude the Parish’s Reconventional demand and reversed and remanded.

This part of the ruling has both positive and negative effects for both owners and contractors. On the positive side, either an owner or a contractor’s failure to comply with the 21 day notice provision does not bar a claim. On the negative side, the party making the claim does not have to provide notice within 21 days of the event to maintain the claim. As a result, the party against whom the claim is being made should be concerned that the party making the claim can assert it well after the explicit contractual deadline to do so.

After discussing the notice provision, the Court addressed the Parish’s offsets for allegedly defective work. The Court reviewed the Parish’s obligation to notify Lamar after Lamar terminated the contract. The Court found that when the contract was terminated, it also ended any obligations the Parish had except those which were provided for in the contract, i.e., payment to Lamar for work properly executed. The court also found the alleged defects were relevant to show the Parish’s entitlement to potential offsets for remaining payments left to Lamar after termination.