Our case summaries in November include one recent case from Cuyahoga County and two cases from Kentucky courts. The first decision comes to us from the Court of Appeals for Cuyahoga County, where a storm sewer was not adequate to hold increased flow that occurred during a heavy rain. Was the city immune from liability for the damages that occurred to a property owner when the storm sewers couldn’t contain all of the water? That was the question facing the Court of Appeals. Our second case comes from the Supreme Court of Kentucky, where the Court had to decide which statute of limitations applied to a land surveyor. Did the land surveyor provide professional services since the services were performed or overseen by a professional engineer? Finally, we stay in Kentucky to examine a decision dealing with the familiar topic of notice requirements in mechanics’ lien laws.

City Immune from Liability For “Grossly Inadequate” Storm Sewer System

Heavy rains and an inadequate storm sewer system can create problems for nearby property owners. Flooding may occur when the city’s storm sewer system can’t handle the amount of rainwater produced during a significant rain event. Add a nearby construction site and increased runoff and you have the potential for disaster. Is the city responsible for property damages that may occur? This was the question before the Ohio Court of Appeals for Cuyahoga County in Spitzer v. Mid Continent Construction Company, Inc., 2007-Ohio-6067.

In Spitzer, the property owner operated a bakery, deli, and café in North Royalton, Ohio. In May and June of 2004, a National City Bank building was under construction on a parcel located in the same area as the property owner’s café. During the same time period, there were several heavy rains that caused flooding at the café. The Health Department shut down the café because of the damages caused by the flooding. Facing the possibility of further flooding, additional property damage, and the resulting costs of repair, the owner decided to close the business permanently.

The property owner filed suit against the City of North Royalton, National City Bank, and the contractor performing work on the bank project. The owner claimed that the manner in which the construction was being completed caused “excessive runoff of silt and dirt, which blocked the city’s sewers.” The runoff allegedly caused the city’s sewers to overflow and flood the property owner’s business. According to the owner, “the city was informed on several occasions that the blocked city sewers were causing flooding and damage to [the owner’s] property.”

An expert was hired by the owner to evaluate the capacity of the storm sewers. The expert determined that the sewer systems were “grossly inadequate” and could not handle the rain events that occurred in June of 2004.

At some point after the café closed, the city replaced the existing 12-inch, 15-inch, and 18-inch storm sewers with 24-inch and 30-inch storm sewers. According to the expert, the new storm sewers could handle 4.5 to 6 times the capacity of the previous storm sewer system.

The trial court granted the city’s motion for summary judgment on the basis that the city was immune from liability under section 2744 of the Ohio Revised Code. R.C. 2744.02(A)(1) states, in part, that “a political subdivision is not liable in damages in a civil action for injury, death, or loss to persons or property allegedly caused by any act or omission of the political subdivision or an employee of the political subdivision in connection with a governmental or proprietary function.” The property owner appealed the trial court’s ruling.

The property owner relied on the expert’s report and the city’s decision to rebuild the sewer system to establish that the city was negligent. According to the appellate court, however, “Ohio courts have found that municipalities are immune from suit when flooding to private property was a result of an improperly designed sewer that was inadequate to handle increased storm runoff.”

In addition, the appellate court cited the lack of evidence that improper maintenance caused the property owner’s damages. Absent evidence that the City’s actions caused the damage to the property, the court determined that the City was immune from liability.

Kentucky Supreme Court – Surveyor Supervised by Engineer Provided Professional Services

Statutes of limitation provide time periods within which a party must file an action. Different causes of action or claims usually have different time limitations. Therefore, it is important to understand which time limit applies.

If you wait until after the applicable time limit, you will not be able to proceed with your claim. The key question is to ask what time limit applies. The Supreme Court of Kentucky, in the case of Matherly Land Surveying v. Gardiner Park Development, LLC, 2007 Ky. LEXIS 174, examined the issue of which time limit applies to a land surveyor when the surveyor provided engineering and surveying services.

Matherly Land Surveying, a professional engineering firm, entered into a contract with Gardiner Design & Development, an entity associated with Gardiner Park Development, to provide services in connection with the construction of a residential subdivision. The engineering firm was to provide, among other things, the proposed alignment of sanitary sewers and lift stations, the design of the internal roads for the subdivision, and the record plat for the subdivision.

The engineering firm started work on the project on August 5, 1997. During the time the engineer worked on the project, Gardiner complained that the engineering firm’s work was slow and inaccurate. The parties attempted to reach a solution, but were unable to do so. Gardiner hired a replacement firm to complete the project after Matherly Land Surveying stopped work on August 16, 1998.

In February 1999, Gardiner hired Woodward, Hobson, & Fulton, a law firm, to represent their interests against the engineering firm. In December of 1999, the parties attempted to mediate the dispute, but the engineering firm ultimately canceled the mediation and claimed that any future actions were barred by the one-year statute of limitations on professional services found in Kentucky Revised Statute 413.245. Gardiner then fired their attorneys and engaged new counsel.

Gardiner filed suit against both the engineering firm and their original law firm in September 2001. Gardiner asked the Court to determine the applicable statute of limitations for its claims against the engineer. Alternatively, Gardiner claimed that the law firm had breached its duty of care when it potentially allowed the statute of limitations to run. Gardiner also filed a second suit against the engineer alleging breach of contract.

The engineer filed a motion to dismiss arguing that the one-year statute of limitations for professional services under KRS 413.245 applied to all the claims made by Gardiner. The law firm argued that Gardiner’s claims were for breach of contract and thus the fifteen-year statute of limitation under KRS 413.090 was the proper limitation. The law firm further argued that even if the one year statute of limitations was applicable, it had not even started to run yet as Gardiner’s damages were not “fixed and nonspeculative.”

The trial court did not address whether a land surveyor was a professional. Instead, it found that the engineering firm was a professional engineering company providing professional engineering services. Any surveying services provided were incidental to the engineering services. Thus the one-year statute of limitations was applicable.

The appeals court did not agree with the trial court. After closely examining the scope of professional services included in KRS 413.245, the appellate court determined that land surveying was not a professional service. Therefore, only the claims involving engineering services were time barred. The Kentucky Supreme Court agreed to review the case.

The Supreme Court agreed with the trial court’s conclusion that engineering is a professional service. It also found that, until this case, land surveying had not been expressly declared a profession under KRS 413.245.

The court likened the relationship between surveying and engineering to the relationships between a paralegal and a lawyer or a doctor and a nurse. Some courts have determined that both of these relationships are within the professional services statute of limitations. The lawyer or doctor was responsible when either the paralegal or nurse was negligent.

While some of the services required under the contract did not require the use of a professional engineer, the engineering firm was a “professional” engineering firm and a professional engineer was overseeing the work, including the surveying. To complete the engineering tasks under the contract, the engineering firm was required to survey the land. The court found that, under the circumstances, both the engineering and surveying services provided by the engineering firm were professional services and, as a result, were subject to the one-year statute of limitations.

The court appeared to agree with Gardiner that the engineering firm breached the contract. However, the court looked at the express language of KRS 413.245 which states that “a civil action, whether brought in contract or tort, arising out of any act or omission in rendering, or failing to render, professional service for others shall be brought within one (1) year from the date of occurrence or from the date when the cause of action was, or reasonably should have been discovered.” Since the breach of contract was a result of the performance or lack of performance of professional services, the dispute was not governed by statute of limitations for a breach of contract.

Turning to the argument that the statue of limitations had not started to run since Gardiner’s damages were not “fixed and non-speculative,” the court determined that Kentucky law has never required that a specific dollar amount be known before the statute of limitation begins to run. According to the court, Gardiner was aware of the damages when the engineering firm walked off the job.

Prior to the scheduled mediation, Gardiner produced a document listing all of “Gardiner Design’s Known Damages.” Therefore, by December 1999, Gardiner was well aware that it was damaged as a result of the engineering firm’s actions and Gardiner even had a good idea as to the amount of those damages. However, Gardiner did not file suit until September of 2001, well after one-year statute of limitations had run.

In order to protect your rights, you must act within the applicable statute of limitations. These laws vary from state to state. The key is to determine which limitation applies to your situation.

Subcontractor Failed To Provide Timely Notice – Lost Mechanics’ Lien Rights

Mechanics’ lien laws often require notice to be given at key points throughout the construction process. Subcontractors and material suppliers may lose their lien rights if they fail to meet these notice requirements. In this case, we find a subcontractor who did not follow Kentucky’s mechanics’ lien statute and, as a result, lost his lien rights.

Appealing a summary judgement, a subcontractor was seeking recovery based on the legal theory of unjust enrichment and under the mechanics’ lien statutes for the State of Kentucky. These were the issues before the Court of Appeals of Kentucky in Irvin Brock v. Pilot Corporation, 234 S.W.3d 381 (Ky. Ct. App. 2007).

Pilot Corporation, the owner, was in the process of constructing a Pilot Food Mart in Middlesboro, Kentucky. Pilot entered into a contract with Munlake Contractors, Inc. for the construction of the new building. Munlake, the general contractor, subcontracted the excavation work to Young Earthmoving Company. Young entered into a subcontract with Irvin Brock through which Brock was required to haul excavated material from the construction site.

Brock performed the work for Young and last hauled excavated material on September 27, 2005. Young never paid Brock for his services. Brock did not attempt to collect the amount due from Young. Instead, on March 9, 2006, Brock provided written notice to Pilot stating his intent to file a lien against Pilot’s property.

Brock filed a mechanics lien for $16,260 against the property on the same day that he provided the written notice letter to Young. A few weeks later, Brock filed a lawsuit against Pilot Corporation to recover the amount due for the work that Brock performed. Brock based his claim on unjust enrichment and Kentucky’s mechanics’ lien statutes.

Kentucky courts previously held that a plaintiff is required to prove that the defendant not only benefited from the work performed, but also did not pay any person for the work performed. Evidence showed that Pilot paid the general contractor for all work associated with the project, including the hauling of excavated materials. The court denied the unjust enrichment claim against Pilot because Pilot paid the general contractor in full.

When conducting its analysis on the mechanics’ lien claim, the court turned to Kentucky Revised Statute 376.010(3). The language in KRS 376.010(3) is as follows:

No person who has not contracted directly with the owner or his agent shall acquire a lien under this section unless he notifies in writing the owner of the property to be held liable or his authorized agent, within seventy-five (75) days on claims amounting to less than $1,000 and one hundred twenty (120) days on claims in excess of $1,000 after the last item of material or labor is furnished, of his intention to hold the property liable and the amount for which he will claim a lien.…

Brock did not provide written notice until well after the 120 day time period specified in the statute. As a result, Brock’s lien notice was untimely.

Brock, however, argued that he dealt with the general contractor during the project, and that the general contractor was acting as Pilot’s agent. Because of the alleged agency relationship, Brock asserted that the notice requirement in the mechanics’ lien statute did not apply. Brock further claimed that the general contractor assured him that he would be paid by Pilot.

Prior case law established by the Kentucky Supreme Court provided that a general contractor is not deemed an agent of a landowner as a matter of law. The court considered factors established by prior case law to determine if the general contractor was Pilot’s agent.

The court reviewed the facts to determine whether an agency relationship existed between Pilot and the general contractor. Because Pilot did not make daily decisions on the job site and because the general contractor provided its own tools and workers, the court determined that no agency relationship existed. Therefore, the notice provision applied and Brock lost his lien rights when he failed to provide timely notice.

Subcontractors must be sure to follow all notice requirements set forth in the mechanics’ lien law for the state where the project is located. Lien laws vary from state to state, so be certain of your rights and obligations.