Premises Liability; Check Out These Damages

Arthur Mayo worked as a “rigger,” meaning he operated systems for moving staging props for concerts. Basically, he was a concert roadie. He worked about 45 weeks out of the year. How much he made depended on who he worked for, as follows:

Night Ranger/Bad Company/Ted Nugent $1,500-2,000 per week
Phil Collins/Genesis $2,000-2,250 per week
Barbara Streisand $2,400-2,500 per week
Grateful Dead $2,500 per week

One can only wonder how Streisand got into such an otherwise illustrious group. While working for Night Ranger, Rigger Mayo was booked into the Koko Motel in Lubbock County, Texas. The Koko had a leaking sewer line just underneath the motel lobby. If there’s any place you don’t want a sewer leak, it’s in the lobby, and this repair was no small job. Ramon Mendoza, the independent contractor plumber hired for this unenviable task, cut a hole in the lobby floor about 3 or 4 feet long. Underneath the floor, he excavated a hole about 12 feet long and 4 feet deep, just so he could reach the stinky leaky line. As he removed the aromatic soil and debris from this area, he hauled it out in buckets to an unenclosed utility trailer parked along a sidewalk outside an entrance to the motel.

Now, it would seem easy to see the big hole in the lobby (one can only imagine the stench that wafted out of this hole–even Stevie Wonder could find it), and the big dump trailer most likely hitched to a pick-up, and notice the activity going on. Unfortunately, Rigger Mayo wasn’t paying very much attention, because after going through the lobby, and walking around the parking lot, where he saw all the commotion and equipment and debris, he walked right by the trailer, stumbled on a piece of concrete laying on the ground beside the trailer, hit the trailer on his way down, and broke a bone in his foot. Rigger Mayo picked up this piece of concrete, and threw it into the trailer, no doubt orally wishing it well along its journey. While he was at it, he cleaned up some other rubble that likewise hadn’t found its way into the trailer. Apparently Plumber Mendoza wasn’t too detailed about getting the excavated debris into the trailer, and one can only hope he was more interested in keeping the sewer in the line than he was about getting the debris in the trailer.

In any event, at this point in the story we have an injury, and we now have to figure out who’s gonna pay. We call this lottery “premises liability.” The court opinion doesn’t say why Rigger Mayo didn’t sue Plumber Mendoza. And so, sights were set on the deep pockets of the lovely Koko Motel and its insurer.

Complicating this story was the fact that Plumber Mendoza was an independent contractor. The Koko Motel basically said “since Plumber Mendoza was an independent contractor, we didn’t have control over how he did his job, so we can’t be liable for an injury he caused.” But the Court didn’t agree. Here are the rules:

An owner/occupier of land has no duty to insure that an independent contractor performs its work safely;

HOWEVER, the owner/occupier cannot turn a blind eye to hazardous conditions created by the independent contractor when the owner/occupier retains control of the property and continues to welcome customers onto its premises. The right to control the contractor is irrelevant.

THEREFORE, the owner/occupier must inspect the premises and warn customers of dangerous conditions of which it knows or should have known.

No warning was given as to either the hole in the lobby or the trailer outside. So, the liability issue came down to this question: did the Koko Motel know, or should it have known, about the concrete and debris?

And now we come to the part of the story that perhaps could have changed things. When Rigger Mayo got injured, others helped him back into the motel’s lobby. The receptionist/clerk on duty came over and asked what happened. Hearing the story, she said “I hope we can get maintenance to clean that up, we’ve told them about it.” And as if that wasn’t bad enough, she added “we’ve been meaning to clean it up.” Folks, that’s actual knowledge, and proof that the Koko knew of the danger long enough to have called maintenance, and thus warn Rigger Mayo and others. The Koko Motel’s lawyer tried to argue that these statements really showed that maintenance was only called after the injury (what else could he say?), but the Court basically said “get real.”

Now to the dollars of the case. How in the world did a concert rigger, a roadie making about $100,000 per year win damages of over $1.5 million? Here’s where the plaintiff’s lawyer and his chosen experts really shined. They started with what Mayo earned before the injury. Then they showed what he made after the injury. It seems that this injury prevented Mayo from continuing as a rigger, so he was a carpenter on the tours of the Dixie Chicks, Barry White, and Metallica, and a lighting technician for Chicago and Bush. One can only wonder what is on this guy’s iPOD. He made $2,000 per week with the Dixie Chicks, about the same as he made as a rigger before the injury. Chicago and Bush were much more stingy, paying only $750 to $1,100 per week. Apparently his injury was accompanied by arthritis which worsened by the day, eventually preventing him from doing any job that required standing for any significant period of time.

Mayo’s experts then calculated lost wages per year, pre-trial, as follows:

1995 $ 6,600
1996 $ 27,000
1997 $ 93,000
1998 $ 27,000
1999 $ 36,000
2000 $ 78,000
Total $270,000

Mayo’s expert used “real” numbers for years 1995 through 1999, taking the difference between what Mayo would have made had he continued as a rigger, vs. what he actually made as a lighting tech/carpenter. For Y2K, the expert assumed that Mayo would have received a promotion to head rigger, and the accompanying raise, to $3,750 per week had he not been injured. That’s right. When someone is injured, they can argue “here’s how my career would have gone but for the injury” which, of course, is a “perfect” scenario. Don’t we all think highly of our skills?

Then, the expert said “now, multiply this difference in what Mayo would have made per week times 45 weeks, to get an annual figure, then multiply that annual number by the number of years Mayo could ‘reasonably’ be expected to work after the trial” (which in this case was 27 assuming a retirement age of 60, or 32 assuming retirement at 65), “and discount that back to present value.” That’s a lot of multiplying, and results in a range of lost future wages from $1,763,258 to $2,018,780. Do you really think this guy would have remained a roadie until he was 60 or 65? Well, the jury picked the number $1,200,000. Why? Nobody but the jury knows how they came up with that number. Welcome to one of the big uncertainties in premises liability lawsuits.

Mayo threw in some testimony about how painful his injury was for good measure, both when it happened as well as the continued pain thereafter, and the jury awarded him an additional $5,000 for past physical pain and mental anguish, $25,000 for future physical pain and mental anguish, $5,000 for disfigurement in the past, and $6,000 for medical care in the past. So this plaintiff’s lawyer basically took an injury that cost $6,000 to “fix” and parlayed it into a lawsuit worth over $1.5 million. If the lawyer’s contingency interest in the case was 1/3rd, the lawyer got just over $500,000. If, more likely, the lawyer’s contingency interest was 40%, the lawyer got more than $600,000 from this one case. Not a bad payday.

One other fact to note: Mayo’s injury was in 1994. The Court of Appeals opinion was delivered in November of 2002. That’s 8 years of uncertainty for all parties involved.

Koko Motel, Inc., v. Mayo, Case No. 07-01-0322-CV, Court of Appeals, Amarillo, Texas, Nov. 21, 2002

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Texas Recognizes “Pass-Through Claims”

In the construction industry, you have Owners, General Contractors, and Subcontractors. The big contract is between the Owner and the GC, with separate contracts between the GC and the Subs. The question is, when can a Sub and an Owner go at each other for breach of contract? Before this case the answer was “they can’t” because there is no contract directly between the two of them. But in 2004 the law changed. Substantially. Formally. The Texas Supremes decided that Texas law recognizes “pass-through claims.”

The Texas Supreme Court opinion in this case runs about 28 pages, and it is a very detailed review of this legal issue–pass through claims–by other courts around the U.S., followed by some very detailed logic as to why those cases are good/bad or right/wrong. But let’s cut to the chase here. Let’s start by defining what a “pass through” claim is, and is not, and then we’ll look at the new rule established by this case.

In the most typical situation, you have three parties (sometimes referred to as a “three ring circus”). Let’s call them “GC”, “Sub” and “Owner.” GC and Sub have a written contract. GC and Owner have a written contract. There is no contract between Owner and Sub. Owner does something (or fails to do something) that causes Sub damages. It is basically a breach of the contract between Owner and GC, but since there’s no contract directly between Sub and Owner, how is this handled?

One way would be for the Sub and the GC to sue each other on the claim, based on the contract between the GC and Sub, with the GC then suing the Owner, based on the separate contract between the GC and the Owner. But a second way is for the Sub to “pass through” its claim to the GC, with the GC suing the Owner based on the Sub’s claim.

First, here’s the Court’s formal definition of a pass-through claim. It is a claim: (1) by a party (Sub) who has suffered damages; (2) against a responsible party (Owner) with whom it has no contract; and (3) presented through an intervening party (GC) who has a contractual relationship with both.

Typically the GC remains liable to the Sub, but only to the extent the GC receives payment from the owner. The GC and Sub often enter into a “liquidation or consolidation-of-claims” agreement that sets out the manner and procedure by which the GC presents and pursues the Sub’s claim to the Owner. These types of agreements may be in the original contract, or they may be entered into later (as in after the trouble has shown up).

A “liquidation agreement” is where: (1) the GC acknowledges its liability to the Sub, thereby providing the GC with a basis for legal action against the Owner; (2) the GC’s liability is limited to the extent of the GC’s recovery from the Owner; and (3) the GC agrees to pass its recovery to the Sub. The Sub releases all claims it may have against the GC in exchange for the GC’s promise to pursue those claims against the Owner and remit the recovery to the Sub.

Now, right off the bat a red flag should go up here. Isn’t it in the GC’s best interest to deny the Sub’s claim, and fight it, so that the GC isn’t liable in the first place? Anytime 3 parties are involved, and it’s 2 vs. 1, the “1” is automatically in a weaker position, just from a practical standpoint. So owners would theoretically want to prevent this from occurring. But irrespective of red flags and desires, the answer to the red flag question is “yes, perhaps, but….”

But (1) the contracting industry has broadly accepted pass-through claims across the U.S.; and (2) the contractor is not the Sub’s pawn, as in the GC does not have to enter into a pass-through arrangement if it disputes the Sub’s claims, nor assert them against the Owner; and (3) they do not create a false impression of adversity between the GC and Sub; and (4) a GC exposes itself to counterclaims by the Owner if it pursues a pass-through claim, and to penalties assessed by the Court (although the GC may “elect to delegate” to the Sub the cost of prosecuting the Sub’s claim).

So what happens if the Owner doesn’t agree that the GC is even liable to the Sub for the Sub’s claim being asserted against the Owner via pass-through? Thus saith the Texas Supremes, “If the owner disputes that this requirement has been met, it bears the burden of proving, as an affirmative defense, that the pass-through arrangement negates the contractor’s responsibility for the costs incurred by the subcontractor.” To defeat a pass-through claim on its face, an Owner must prove that the GC would not be liable to the Sub if it refused to present the pass-through claim or to remit the recovery to the Sub.

Before we get too carried away, note this limitation on the reach of this decision: “In articulating this rule, we explicitly confine our rationale to construction contracts involving owners, contractors and subcontractors.” Otherwise, the parties have to be parties to the same contract in order to go at each other for breach of contract. We lawyers call this “privity of contract.”

And there you have it, a very important pronouncement from the Texas Supremes that Texas recognizes pass-through claims.

Interstate Contracting Corp. v. City of Dallas, Texas, Case No. 03-0152, Texas Supreme Court, decided April 16, 2004.

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Why Workers Comp is So Critical in Construction

Workers compensation insurance may be the proverbial red-headed step-child of insurance policies, but they are very important in construction projects. Here’s a good illustration that came along in 2004.

Clark Construction Group was hired as the general contractor on the Enron #2 high-rise office tower project. Clark Construction then hired Way Engineering Company to work on the project. Clark Construction also purchased a single workers compensation insurance policy from Travelers Property & Casualty that covered all subcontractors and employees who worked at the building site.

Sheldon Etie worked for Way Engineering on the Enron project. Way Engineering hired Walsh & Albert, Ltd., to perform some sheet metal work on the building. Way Engineering and its employees were covered by the Travelers workers comp policy, as were W&A and its employees.

Unfortunately, an employee of Walsh & Albert improperly attached a plenum to the ceiling, and Etie was in the wrong place at the wrong time, sustaining a serious but non-fatal injury. Etie filed for, and received, workers comp benefits under Clark Construction’s policy. But then he filed a negligence lawsuit against Walsh & Albert, seeking to collect more money for his injuries.

No one disputed any of the material facts, and so the case revolved completely around a point of law. One of the most valuable provisions of Texas’ workers compensation law is the so-called “exclusive remedy” provision, which is as follows:

Recovery of workers’ compensation benefits is the exclusive remedy of an employee covered by workers’ compensation insurance coverage or a legal beneficiary against the employer or an agent or employee of the employer for the death of or a work-related injury sustained by the employee. (Texas Labor Code, Section 408.001(a).)

So, if an employer takes out a workers’ compensation insurance policy, any covered employee cannot sue the employer once they recover workers’ comp benefits. This is a very important asset protection feature of construction law.

Now, in this case one can see why Etie thought he could get W&A with negligence. His “employer” was Way Engineering. But the negligence wasn’t committed by Way Engineering, nor anyone higher up the employment food chain. It was committed by a sub-contractor’s employee. How could W&A, a sub-contractor of Etie’s company, possibly be an “employer” for purposes of workers compensation laws?

Well, the court correctly realized that the Texas workers’ comp statutes are silent on that point. But the court rather quickly brushed aside the more obvious reasoning which would have allowed Etie to sue W&A.

Now here’s the Court’s logic: Clark Construction and Way Engineering had a written contract that included the requirement that Clark Construction would take out a workers comp policy to cover Way Engineering, and all of its employees working at the job site. These employees of Way Engineering were “deemed employees” of Clark Construction for purposes of the exclusive remedy restriction and other provisions of the Texas workers comp statute. While Way Engineering was a sub-contractor in relation to Clark Construction, it was a general contractor of W&A. The written contract between Way Engineering and W&A incorporated by reference all of the provisions of the contract between Clark Construction and Way Engineering. As a result, W&A employees were “deemed employees” of Way Engineering, which themselves were “deemed employees” of Clark Construction. Therefore, the employees of W&A were “deemed employees” of Clark Construction, and covered by the exclusive remedy provision of the workers’ comp law. Got that? It’s the old “A=B, B=C therefore A=C” logic from the Law School Admission Test. You just gotta know when to use it, apparently.

Here’s the bottom line effect of the ruling in this case:

“…the statutory employer/employee relationship extends throughout all tiers of subcontractors and…all covered employees are fellow servants who are equally entitled to workers’ compensation benefits and equally immune from suit…”

And so you can see there is real value in having a workers’ comp policy. It may be an expensive proposition, and the system may be less than perfect, but if you are a subcontractor, make sure you structure your written agreements with the general contractor, and other subcontractors, so that you are protected by the exclusive remedy provisions of the Texas workers’ comp statute. For general contractors, you will add value to your subs if you purchase a workers’ comp policy that covers an entire job site, like the one in effect in this case.

Finally, from a practical perspective, get several bids from different insurance companies when it comes time to purchase a workers’ comp policy, and pay careful attention to how you classify your employees for purposes of that quote. These will help you reduce your insurance costs as much as possible.

Etie v. Walsh & Albert Company, Ltd., et al., Case No. 01-02-01007, 1st District Court of Appeals (Houston), January 22, 2004.

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15950 Dallas Parkway, Suite 400
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How NOT to Modify a Written Contract: The Snakebit Pool Repair case

When heat from the burning cabana damaged his swimming pool, Owner DiMiceli got estimates from several swimming pool repair companies to put the fix on it. On May 24, 1999, Owner D and Affordable Pool Maintenance, Inc. (APM), signed a written contract which listed the repairs to be undertaken, and called for payment of $7,250 in three installments, one at the signing of the contract, one when APM started the work, which was supposed to be June 9, and one final payment when APM finished the work, which was supposed to be July 1, just in time for the July 4 weekend. In any event, at the time of inspection, APM found these repairs that needed to be done:

Drain the pool
Light acid wash
Remove old plaster
Repair cracks as needed
Repair gunite if required
Reseal all skimmers
Install diving board brackets and diving board
Install a new light fixture

Sounds like pretty superficial, appearance-driven stuff, the sorts of things that we might expect to be caused by intense heat close by. Ah yes, but looks can be deceiving. And anyone familiar with construction knows this scenario is going to breed a fight over when the work is finished. Owners have a peculiar way of demanding perfection in result, as opposed to perfection in effort, which is more often the construction company’s focus.

Even though there aren’t a lot of days between May 24 and June 9, apparently some things had changed, because when APM showed up to begin work, they unexpectedly found that the pool’s beam was broken in several places. It seems that Owner D had hired another subcontractor to remove some of the decking and decorative flagstones around the pool. There was no direct proof in the case as to what caused the beam to break. But this subcontractor had used a jackhammer to remove some of the decking and flagstones, leaving to Sherlock Holmes-minded people the obvious conclusion as to how it happened.

At this point, APM would probably have been better served to refuse to go on with its repairs, but I suppose the fact that it’d probably already spent the several-thousand-dollar down payment, as well as the taste for more cash (this is, after all, what it does to earn its revenues), pushed it onward. So APM did the next best thing. It told Owner D that the broken beam would cause an uneven tile line and make APM’s job more difficult. APM also said they couldn’t install tile in the places where the beam was broken.

Owner D was not convinced, but he did pull APM off the job temporarily, so that yet another subcontractor, Concrete Innovations, could come in and repair the beam, pour a new deck and add coping (coping is the lip that surrounds a pool to prevent water from running into the pool). APM politely asked Owner D to go about this a different way because pouring the deck before fixing the tile line could cause an uneven tile line. Owner D, acting as his own all-knowing, all-experienced general contractor, ignored the advice.

Ever notice how problems seem to breed problems, especially in construction? Once something goes wrong (I refer to these projects as being “snakebit” in my office), it takes a Herculean effort to keep the poison from infecting other parts of the project. Well, the poison in this project just kept on floating APM’s way, because when APM showed up to get after this repair job, it found that Concrete Innovations had forgotten to add the coping. How do you forget something like that? At this point, my intuition’s red flags of danger would have become Las Vegas style flashing neon signs! And yet, APM set about doing the work.

Keep in mind that all of this transpired on the basis of one written contract signed just a few weeks prior, most likely before the pool’s beam had been broken. But the real world facts, as they existed on that day, had now morphed into something far more complex. And those facts significantly changed the probabilities of a successful repair by APM or anybody else.

Well, APM finished the job, and, to no one’s surprise, Owner D refused to pay that last installment of $3,530.47, because the pool wasn’t in the shape he expected. “Breach of contract” he said. “Breach of the warranties of constructing it in a good and workmanlike manner” he bellowed, adding the kicker “so I don’t owe you a DIME.” And here’s the list of problems Owner D thought he had as of the “completion” date:

the decorative tile was not level with the water line
the skimmers in the pool were “intolerable”
the underwater light installed by APM didn’t work
APM failed to install a diving board

Not being able to come to any agreement on that last payment, APM finally sued Owner D in January of 2000. And you can safely assume that Owner D and APM each sued each other for everything they could think of.

But the poison that infected this deal the day the pool’s beam broke continued to find APM, because by the time the case got to trial, Owner D’s “expert” testified that the pool had these additional poisonous problems:

the underwater light didn’t work because it was not connected to the junction box which, in turn, wasn’t in operation (show me, in the list of services to be performed by APM, where APM agreed to fix the previous electrician’s problems–it’s not there, so how could APM be liable for this?)

the grab rails leading out of the pool were improperly placed and weren’t properly grounded (again, APM never agreed to fix grab rails, originally, but keep reading to see how this crept in)

the decorative tile wasn’t level with the water line (classic case of “told you so”)

the skimmers, which are supposed to circulate water at the top and bottom of the pool, weren’t aligned with each other, preventing water from circulating as it should (interesting note: APM agreed to reseal the skimmers, which, by definition, would not move them from the state in which APM found them. Time for some more Sherlock Holmes style deductive reasoning, and here’s the rhetorical question–how in the world could resealing a skimmer knock the skimmers out of alignment? Keep reading to figure out Owner D’s real gripe with APM, because this is just a symptom of the real problem).

the plaster in the pool was extremely rough

the bolts sticking out of the concrete to hold the diving board were unsafe

In response, APM told the jury that the proper sequence of renovation wasn’t followed. The proper sequence is to:

1. Prepare the pool for plaster;
2. Install the decorative tile;
3. Pour the deck and install the coping;
4. Plaster the pool;
5. Add the decking.

And why wasn’t this sequence of events followed, asked APM? Because Owner D decided to remove the old decking himself, and then have Concrete Innovations pour the deck before the tile line was fixed. Therefore, concluded APM, the reason the pool didn’t look right at the end had nothing to do with APM’s services, but rather Owner D’s errors.

Well, after thinking about things for awhile, the jury agreed with APM. They awarded APM $2,030.47 for Owner D’s breach of contract (this was the third and final installment), or in the alternative $6,380.47 for all the work done by APM for which Owner D didn’t pay, and $12,500 in attorneys fees (yes, the attorneys were the winners here). Now, APM could choose which damages it wanted, either the $2,030.47 for breach of contract, or the $6,380.47 in what us lawyers call “quantum meruit” damages. That’s a Latin phrase we learn in first-year law school.

“Quantum meruit” basically says “I provided x to someone, they accepted it, they are getting the benefit from it, I provided it under circumstances in which a reasonable person would have known x would have to pay for it, and a reasonable amount to pay for something like that is $y.” If you prove your case, you can collect $y from x, even though there’s no written contract.

So what else did APM do for Owner D to try to satisfy him? They installed pump equipment, bypassed the heater, hand cleaned the pool twice (because he was “fixing to have a party”), set chemical levels, and other various services.

As you might imagine, Owner D was quite unhappy with the jury trial result. He didn’t want to pay APM a dime, much less $6,380.47. So he appealed, and told the court “APM can’t get those fancy smancy ‘quantum meruit’ damages because we had a written contract covering their goods and services, and by definition, ‘quantum meruit’ means you don’t have any written contract. So, at worst, I should only have to pay contract damages.” APM said “not so fast. I have a written contract for some things, and then outside that contract we did these other things for you by agreement, and so I get to be paid for all of what I did.”

But said the court, “APM provided all these goods and services under the written contract, and so APM can’t get ‘quantum meruit’ damages. There were no services provided ‘outside the contract.’”

So let’s see, now, how this case came out. APM provided what it thought was $6,380.47 in goods and services, for which they only got paid $2,030.47, so APM was out $4,350.00 as well as all the goodwill you hope to have from a satisfied customer. Owner D had to pay APM $2,030.47 for a pool that, even with the extra work, still didn’t work right, so he was out untold thousands just to fix the pool in the future, plus he had to pay his own lawyers, plus he had to pay APM’s attorneys fees. Owner D easily got the worst of it. And what about those lawyers? Well, they got paid $12,500 plus an additional $4,000 for the appeal, for a total of $16,500. So who really benefitted from this dispute?

Now before you get too down on lawyers, the moral of this story isn’t “don’t involve the lawyers”. The moral is this: when you have a written contract, and you provide additional products and services over and above what’s called for in the written contract, make sure you note that fact in writing in a particular way. Don’t make it look like this extra “stuff” is just an extension of the pre-existing written contract.

Or, alternatively, if you intend for the extra “stuff” to be included in the written contract, so you can still take advantage of your warranty disclaimers and other liability limitations in that contract (hint: this may be the better way to go), then get something in writing that changes the contract price too. That way, you’ll increase the odds you will be made whole when a deal gets snakebit.

DiMicelli v. Affordable Pool Maintenance, Inc., Case No. 04-02-00497 (Tex. App.–San Antonio, Delivered and Filed May 7, 2003)

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CREDITS

Enviropinions are original writings of Mark McPherson.
© 2014, Mark McPherson. All rights reserved.
15950 Dallas Parkway, Suite 400
Dallas, TX 75248
214-722-7096 Office
214-540-9866 Facsimile
mark@texasenvironmentallaw.com
www.TexasEnvironmentalLaw.com