Foran Glennon Palandech Ponzi & Rudloff

December 2013

Latent Defect Exception in Property Claim Settlement Agreement Enforceable.

By Brian G. Cunningham and George D. Pilja

In Allied Aviation LLC, et al. v. Aon Fire Protection Engineering Corp., et al., Plaintiffs operate and manage a fuel storage and distribution facility located at the Miami-Dade International Airport.  A fire occurred and spread within the facility in March, 2011, resulting in millions of dollars of damage to the facility.  Plaintiffs allege that several Defendants’ negligent failure to properly design, manufacture and install an appropriate fire protection and emergency shutdown systems for the facility in connection with a facility upgrade project resulted in the massive fire that spread within the facility.  In their First Amended Complaint, Plaintiffs allege that one of the Defendants, Underground Construction Company, Inc. (“UCCO”) breached its contract for the project to properly and adequately oversee, supervise, monitor and review the design, construction and/or installation of the fire protection and emergency shutdown systems, and to properly construct and install those systems.

UCCO filed a Motion to Enforce Settlement Agreement and For Prevailing Party Attorneys’ Fees and Costs. The referenced Settlement Agreement between Plaintiff Allied Aviation Fueling, Inc.’s assignor and UCCO predates the subject lawsuit, and arose from an earlier lawsuit by UCCO seeking payment for services provided in connection with the underlying project.  In its Motion, UCCO argued that the expressed intent of the parties to the Settlement Agreement was to resolve and settle all claims associated with the project including the subject lawsuit, and therefore all of Plaintiffs’ claims against UCCO in the subject lawsuit should be dismissed with prejudice.  In response, Foran Glennon argued for the Plaintiffs that the scope of UCCO’s contractual obligations were broad and all-encompassing as to the design, and construction and installation of the fire protection and emergency shutdown systems as part of the project, and the release provisions of the Settlement Agreement expressly excluded claims relating to latent defects in the work.  Because Plaintiffs’ claims against all of the Defendants are based upon latent defects in the work, Foran Glennon argued, the Settlement Agreement did not limit or bar any of Plaintiffs’ claims, and UCCO could not recover any attorneys’ fees or costs as they do not arise out of the “enforcement” of the Settlement Agreement.

Following oral argument, the Court denied UCCO’s motion.  In its written Order, the Court specifically concluded that while the totality of UCCO’s rights, duties and obligations as it relates to the subject fire protection system upgrade project are set forth in UCCO’s contract, the Settlement Agreement provides a specific narrow exception for latent defects in the work.  The Court found that this provision of the Settlement Agreement is an incorporation of UCCO’s obligation pursuant to the underlying contract documents, by which UCCO provided a 15 year obligation to correct any discovered latent defects in the work.  Accordingly, based upon the consistent language of the contract documents and the Settlement Agreement, the Court concluded that Plaintiffs are entitled to proceed with their claims against UCCO based upon the latent defects exception within the Settlement Agreement, as the claims asserted in the First Amended Complaint relate to or arise from alleged latent defects, not from any payment dispute.  Accordingly, UCCO remains a Defendant in this pending litigation.