Michael Best prevails on subcontractor dispute appeal

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Two attorneys at Michael Best & Friedrich prevailed in a $1.1 million subcontractor dispute in front of the Court of Appeals.

The case had the appellate court consider the application of the economic-loss doctrine and the distinction between tort and contract law in Mechanical, Inc. v. Venture Electrical Contractors, Inc. The dispute was one of first impression in Wisconsin, the firm said in a press release.

The two companies were subcontractors working on a research-laboratory addition to the Great Lakes Research Facility at UW-Milwaukee. Each received separate but similar subcontracts from J.P. Cullen, the general contractor, in 2012.

Upon the completion of the project, Venture asked for more than $1 million from Cullen for costs related to delays and untimely performance. Venture blamed Mechanical and other subcontractors for its losses. Cullen denied the claim, saying it was untimely and Venture’s subcontract precluded recovery for delay.

Unrelated to Mechanical’s work for Cullen, Venture asked Mechanical to install concrete embeds to support the electrical conduit. Mechanical billed about $12,000 for the work, but the company said it had never received payment.

Mechanical sued Venture for the $12,000 payment, and Venture counterclaimed in negligence, seeking nearly $1.1 million for delay-related damages on the Cullen project. Mechanical moved for summary-judgment dismissal of the counterclaim on the ground that it was barred by the economic-loss doctrine. Waukesha County Circuit Court Judge William Domina granted Mechanical’s motion.

Venture then appealed, arguing that the economic-loss doctrine didn’t apply in the dispute because the subcontracts were for services, not products. Scott Halloin, shareholder of Halloin Law Group in Milwaukee, represented Venture. He said the two companies were horizontal subcontractors, not vertical, in a chain of contracts.

“If the Circuit Court’s ruling is affirmed, Venture would fall between the stools of contract and tort law because Venture and Mechanical do not have contractual remedies against each other,” wrote Scott Halloin of Halloin Law Group in Milwaukee, who represented Venture.

Mechanical’s lawyers, Roy Wagner and Lauren Triebenbach of Michael Best, argued that the economic-loss doctrine bars claims for economic damages by one subcontractor against another. Mechanical said each subcontractor had negotiated its own subcontract that contained a procedure for dealing with  impact claims, meaning an affected subcontractor should pursue relief with the general contractor.

“Venture is a sophisticated commercial party that negotiated and signed a contract where it received over 5 Million Dollars,” Mechanical’s brief said. “It is not some innocent first-time contractor, which could not have foreseen this risk.”

The Court of Appeals affirmed the circuit court’s order, finding contract law provides the remedies for Venture’s economic loss. In the opinion released on April 22, the appellate judges agreed the economic loss doctrine barred the negligence claim.

“The network of interrelated contracts contained their duties of care and contractual remedies,” the Court of Appeals opinion said. “Thus, there is no independent tort duty owing from Mechanical to Venture to timely perform its contract with Cullen, or to avoid the risk of economic loss to Venture. Finding otherwise would eliminate the contract/tort distinction.”

Michael Best praised the appellate court’s decision, saying it was a natural progression in Wisconsin’s line of cases concerning the economic-loss doctrine.

“Furthermore, the ruling prevents the risk and legal confusion that would occur if project subcontractors could sue each other, which would be detrimental to owners, contractors, and overall project stability,” the firm said in a press release. Follow @WLJReporter