Better Roads Digital Magazine
Issue link: https://read.dmtmag.com/i/85926
E. Monks Construction Company (Monks) executed a contract with the Telluride Regional Airport Authority (TRAA) for the project known as Runway 9-27 Reconstruction Phase II, Telluride Regional Airport, in April 2009. The project involved extensive drilling and blasting operations associated with the construction of an airport runway. Monks subcontracted the drilling and blasting operations to Fisher Sand and Gravel Co., doing business as Arizona Drilling & Blasting (AD&B). Prior to the contract, TRAA hired Terracon to per- form exploratory drillings. Monks alleged the borings were located in the area where drilling and blast- ing would occur, were done to determine whether groundwater could be expected, and reflected that groundwater should not be expected. As a result, Monks submitted a bid to TRAA of anticipated costs to perform "dry hole" blasting, and stated that if "wet hole" conditions were encountered on the project, ex- tra costs would result. In early April 2009, AD&B commenced drilling and blasting. Almost immediately, Monks and AD&B al- leged they encountered significant levels of groundwa- ter in areas that TRAA represented would be dry. TRAA was notified of the wet hole condition and was in- formed that extra costs would result due to a differing site condition. TRAA refused to pay for any extra costs. In June 2011, Monks, on behalf of AD&B, filed suit against TRAA, seeking in excess of $874,676 in dam- ages. Prior to filing suit, Monks and AD&B entered in- to a liquidation agreement, wherein Monks and AD&B agreed to resolve the resolve the wet hole blasting claim between Monks and AD&B. In the liquidation agreement, Monks granted AD&B the authority to pur- sue the wet hole blasting claim in the name of Monks. In addition, the liquidation agreement reserved all rights against TRAA. TRAA requested the court dismiss the case, arguing the liquidation agreement was not enforceable because of the prohibition against assignments in the TRAA/ Monks contract, and because any claim that Monks had against TRAA was extinguished as a result of AD&B releasing Monks from any liability to it. The court denied TRAA's request to dismiss the case. The court disagreed that the liquidation agreement violated the TRAA/Monks contract prohibition against assignments. The court reasoned that if the liquidation agreement was an assignment of rights, any monies recovered would have to be paid directly by TRAA to AD&B. This was not the case. TRAA also argued that under the Severin doctrine, Monks' claim against TRAA was nullified as a result of AD&B releasing Monks from any liability. The court disagreed, finding the liquidation agreement between Monks and AD&B did not contain an "iron-bound" release. As a result, the court allowed Monk's pass- through claim against TRAA to go forward. The R. E. Monks Construction Co. case highlights the importance and complexity of understanding and properly drafting pass-through claims and liquidation agreements. The rules regarding pass-through claims, including time and procedural requirements, often vary between federal, state and local government ju- risdictions. The failure to follow these requirements can be fatal to a pass-through claim (prior to the claim ever being considered on the merits). In order to properly preserve and assert their rights should a "pass-through claim" arise, prime contractors, subcon- tractors, material suppliers, sureties and their counsel should understand the differences and distinctions regarding "pass-through claims" in whatever jurisdic- tions they transact business. Brian Morrow is a partner in Newmeyer & Dillion LLP, a law firm in California. He is a licensed California Civil Engineer, and specializes in the field of construction law, including road and heavy construction. Contact him at brian.morrow@ndlf.com Better Roads July 2012 15b