Catwalk leaves scratch marks

Subcontractor fights for payment, court turns to Severin doctrine

Article April 16, 2003
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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. style="mso-spacerun: yes"> 

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. style="mso-spacerun: yes"> 

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.

Jenkens & Gilchrist is making ?Design-Build
Legal Issues? available to the readers of ROADS & BRIDGES. The volume
is available for $42 (including shipping and handling). For more information,
contact Joyce Flo at 214/855-4490; e-mail: [email protected].

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