A contractor's recovery from an owner for damages suffered by its subcontractor is limited in certain circumstances. The Severin doctrine provides that a general contractor cannot sue an owner on behalf of one of its subcontractors to recover monies due to the subcontractor unless the general contractor is itself liable to the subcontractor (see Severin v. United States, 99 Ct. Cl. 435 [1943]). In its recent decision of Aetna Bridge Company v. State of Rhode Island Department of Transportation, the Supreme Court of Rhode Island formally adopted the Severin doctrine.
In early 1994, the Rhode Island Department of Transportation RIDOT advertised for bids to reconstruct and retrofit the Pawtucket Bridge No. 550, a part of I-95. Aetna Bridge Co. was the successful bidder and contracted with RIDOT to do the bridge reconstruction work, including the installation of a catwalk access inspection system. Aetna subcontracted with several companies to furnish the structural steel necessary for the bridge catwalks. In furnishing RIDOT with its list of subcontractors, Aetna failed to include L.B. Foster, a material supplier with whom Aetna had agreed to pay a lump sum payment for structural steel.
Subsequently, Foster hired Alpha Structures Inc. to do the detailing and produce the drawings for the bridge catwalk. Alpha estimated it would need to do 30 shop drawings, each taking 20 hours for a total of 600 hours. Alpha actually prepared 70 shop drawings, taking 1,650 hours. Alpha asserted the additional drawings and time resulted from inadequate design specifications prepared by A.G. Lichtenstein & Associates for RIDOT.
Blocked pass-through
Alpha sought payment from Foster for its additional expenses. Foster then sought payment of Alpha's additional expenses from Aetna. Aetna presented a claim on behalf of Foster to RIDOT, which refused to pay as it had paid all that was owed to Aetna.
Aetna filed a demand for arbitration. After a four-day hearing, Aetna was granted an award by the arbitrator. When Aetna moved to confirm the arbitrator's award in the Superior Court, RIDOT objected and moved to vacate the award. RIDOT asserted that Aetna's claim was a "pass-through" claim on behalf of Foster and was not arbitrable because Aetna had no remaining liabilities to either Foster or Alpha. The Superior Court affirmed the arbitrator's award, and RIDOT appealed.
In examining RIDOT's argument that the claim asserted by Alpha was not arbitrable, the court noted that the right to have a grievance heard in arbitration is the equivalent of subject matter jurisdiction in the courts, which can be raised at any time.
When RIDOT first learned that Aetna's claim was a "pass-through" claim on the final day of the arbitration hearing, it raised its Severin doctrine challenge to the substantive arbitrability of Aetna's claim.
Aetna disputed RIDOT's claim asserting its liquidation agreement constituted a liability to Foster. Unfortunately, Aetna never produced it at the arbitration hearing. The court concluded that if Aetna's claim against RIDOT was a pass-through claim with no concomitant liability to Aetna, then the claim would not be arbitrable pursuant to the Severin doctrine.
A contractor who brings suit against an owner for damage or injury suffered by one of its subcontractors must prove not only the damage or injury caused by the owner but also that the contractor is responsible to the subcontractor for those damages. The court remanded the case to the Superior Court in order for it to be determined whether Aetna's claim was a pass-through claim. Hopefully, when the trial court reviewed the liquidation agreement, it concluded the claim was not a pass through claim.
In presenting a claim to an owner for damages allegedly suffered by a subcontractor, a contractor must be careful that the claim is not solely a pass-through claim. The contractor must have some remaining liability to the subcontractor for the damages in order to properly present the claim to the owner for payment. A well drafted liquidation agreement will generally accomplish this purpose. Otherwise, the claim will be denied pursuant to the Severin doctrine.
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