Construction Law Insights

Contech Engineered  Sols., LLC v. Apptech Sols., LLC, 2020 U.S. Dist. LEXIS 60058 (W.D. Va. Apr. 6, 2020)

In 2011, ACS Design, LLC (“ACS”) and Contech Engineered Solutions, LLC (“Contech”) entered into a series of agreements regarding the licensing, design, marketing, and sales of certain products for the wastewater treatment market: (i) a License Agreement; (ii) a Design Services Agreement; and (iii) a Marketing Agreement. In 2014, Apptech Solutions, LLC (“Apptech”), ACS, David Early (“Early”), and Scott Easter (“Easter”) sued Contech, alleging that Contech was not performing under these agreements. On September 21, 2015, the parties executed an Amended

Settlement Agreement and Limited Releases (the “Settlement Agreement”) to resolve the litigation, but Contech preserved claims and rights of action against ACS, Apptech, Early, and Easter related to engineering, design, and other services provided for the projects listed in Schedule A of the Settlement Agreement, which includes the Mora Project in Mora, New Mexico (“Mora”) and the Waterview Project in Gloucester, Virginia (“Gloucester”).

For both projects, one or more of the defendants was the engineer who designed the wastewater system for the project and Contech was hired to fabricate and deliver the wastewater treatment system. One or more of the defendants continued to revise the design for the project after Contech’s fabrication of the treatment system. A series of design and engineering errors by the defendants resulted in a poorly designed facility requiring numerous design revisions and significant additional work by the defendants. The defendants attempted to revise the project designs to address its flaws, but their recommended modifications to the treatment system did not meet the expected effluent parameters. After a time, the defendants became unresponsive to requests from Contech regarding corrections to the design. Contech agreed to pay the upfront cost for the modifications in exchange for preserving all rights against the defendants for reimbursement or recovery of costs incurred because of the design issues. Contech paid approximately $536,898.00 for the Mora Project and $544,115.00 for the Gloucester Project due to the defendants’ faulty design. Contech sued ACS, David Early, and Scott Easter, alleging claims for engineering and design malpractice, negligence, breach of the Settlement Agreement, contractual indemnification, and common law indemnification. The defendants moved to dismiss Contech’s claim for common law indemnification.

The Court denied the defendants’ motion to dismiss Contech’s common law indemnification claim. To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. The defendants argued that there was no common law indemnity because there was an express contractual provision for indemnity between the parties. In response, Contech argued that its amended complaint alleged that Contech had an indemnification agreement under the Design Services Agreement with ACS, but not with Early and Easter. Contech’s amended complaint also alleged that Early and Easter, along with the other defendants, are signatories to the Settlement Agreement, which Contech argued permitted claims for indemnity and other losses incurred by Contech for engineering activities by the defendants on certain project. Contech’s claims address design errors made by ACS during the time when the Design Services Agreement was in effect and after the Settlement Agreement was executed. Because the Court did not have any of the agreements and they were not attached to either Contech’s complaint, Contech’s amended complaint, or the defendants’ motion to dismiss and the fact that quoted sections of the agreements reference other sections, the Court found that issue would be best resolved after further factual development, not on the pleadings.

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