Appeals court rejects $1.1M subcontractor claim on UWM project

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Michaela Paukner
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A Wisconsin Court of Appeals rejected an electrical subcontractor’s $1.1 million dollar claim against another subcontractor stemming from work on a $36.4 million addition at UW-Milwaukee.

The dispute involved the construction of a three-story, 92,000-square-foot integrated-research laboratory to the university’s existing Great Lakes Research Facility.

J.P. Cullen & Sons won a $36.4 million contract for design, labor and material work in 2012. Cullen hired Mechanical, Inc. to install the HVAC systems and Venture Electrical Contractors to install the electrical systems. Each company had its own separate but similar subcontract. Venture’s subcontract was for about $4.5 million, and Mechanical was to receive $9.2 million.

Upon the completion of the project, Venture asked Cullen for more than $1 million 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. Venture didn’t continue to pursue the claim after Cullen’s denial.

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

Mechanical sued Venture for the $12,000, and Venture submitted a counterclaim, seeking nearly $1.1 million for delay-related damages on the Cullen project. A Waukesha County judge dismissed Venture’s claim after applying the economic-loss doctrine. This doctrine is a legal defense that prevents a party to a contract from pursuing tort claims to recover economic losses from carrying out the contract.

Venture then appealed, arguing that the economic-loss doctrine doesn’t apply because the subcontracts were for services, not products. Scott Halloin, attorney for Venture and shareholder at Halloin Law Group, compared the two companies to spokes on a wheel with J.P. Cullen at the hub.

“If the Circuit Court’s ruling is affirmed, Venture would faII between the stools of contract and tort law because Venture and Mechanical do not have contractual remedies against each other,” Halloin said.

Mechanical’s lawyers, Roy Wagner and Lauren Triebenbach of Michael Best & Friedrich, 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 discussing 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 written court document said. “It is not some innocent first-time contractor, which could not have foreseen this risk.”

The Court of Appeals agreed with Mechanical, finding contract law provides the remedies for Venture’s economic loss.

“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.”

Mechanical’s lawyers praised the appellate court’s decision, saying it’s good for future projects.

“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