Construction Law Points from the Latest Carnell Opinion

Well, it appears that the Carnell Construction case is not over yet, and it continues to create interesting construction law precedent. The Fourth Circuit is sending the case back down for trial number four! This case is starting to remind me of the famous Zubulake cases, with its several important e-discovery opinions numbered Zubulake I through V. A quick look on Google Scholar shows fifteen Carnell opinions! So, let’s take a look at the latest iteration (perhaps, we should call it Carnell XV) as it relates to construction law. Note that there are many interesting (and apparently controversial – check out the unusual website – Danville Justice Delayed) legal points related to race discrimination claims under Title VI of the Civil Rights Act, but those are beyond the scope of this blog’s focus.

Here is an abbreviated summary of the facts:

Carnell entered into a $793,541 contract with the Danville Redevelopment and Housing Authority to perform the site work on the Blaine Square project in Danville, Virginia, and it began its work in June 2008 with a planned June 2009 completion date. The relationship between Carnell and the Housing Authority “steadily deteriorated as each party became dissatisfied with the other’s performance.” The Housing Authority complained about unacceptable work, and Carnell complained about race discrimination.

In May 2009, the Housing Authority advised Carnell that it would not extend Carnell’s contract beyond the completion date, and that Carnell must vacate the project site in June regardless of whether the work had been completed. Carnell left the project before the June 2009 completion date, and requested payment for unpaid work. The Housing Authority rejected Carnell’s request and declared a default under Carnell’s performance bond.

Carnell sued the Housing Authority for race discrimination and breach of contract. Carnell’s contract claims focused on allegations that Carnell was directed to perform work for which it was never paid, and that Carnell improperly was removed from the project and declared in default of its contract obligations. The Housing Authority and Blaine filed a counterclaim for breach of contract and, at trial, framed Carnell’s lawsuit as an example of “occasions when false claims of race discrimination are made in order to cover up poor performance.” There have now been three trials of the case.

In the first trial, the jury awarded Carnell over $3.1 million in damages on the race discrimination claims and found in favor of both parties on their respective breach of contract claims, but did not award damages on any of the contract claims. In a post-trial ruling that certain testimony admitted on behalf of Carnell was false, the district court ordered a new trial.

After the second trial, the jury could not agree on a verdict and the district court declared a mistrial.

In the third trial, Carnell did not prevail on its race discrimination claims, but the jury found in favor of both parties on their respective breach of contract claims. The jury awarded Carnell $915,000 on its contract claims, allocating $515,000 for the defendants’ failure to pay Carnell for extra work and $400,000 for the removal of Carnell from the project without just cause. The district court later issued a post-trial ruling that significantly limited the jury’s award of contract damages to a reduced total of about $215,000, based on the court’s determination that Carnell had failed to plead special contract damages, and that the Virginia Public Procurement Act, Virginia Code §§ 2.2-4300 through 4377, restricted the amount by which the parties’ fixed-price, public contract lawfully could be increased.

Those are the facts, and here are our top 3 construction law take-aways from the opinion:

1. In Virginia, on public jobs, proper notice of claims is critically important. Carnell continues the tradition of the AMEC case – on which it relies. (Here is the AMEC opinion.) The Fourth Circuit held that Carnell was limited to recovery of its contract claims ONLY to the extent that it had provided proper notice, which complied with Va. Code § 2.2-4363 (A).
2. The Fourth Circuit reaffirmed the Virginia Public Procurement Act’s cap on change orders to $50,000 or 25% of the original contract amount (whichever is greater) unless there is “advance written approval of the Governor or his designee, in the case of state agencies, or the governing body, in the case of political subdivisions.” See Va. Code 2.2-4309.
3. In Virginia, if you want to try to recover consequential or special damages, then you must plead them. The Fourth Circuit affirmed the District Court’s decision to reduce the jury’s verdict by removing the “lost profits” consequential damages portion of the verdict because Carnell had not sought that form of damages in its pleadings.