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ConstructionPro Week, Volume: 1 - Issue: 23 - 10/08/2012

Is the Best Defense Always a Good Offense?

By Bruce Jervis

 

It’s an old sports cliché: the best defense is a good offense. In claims litigation, this strategy has been in evidence for years. For instance, if a design professional brings a collection action for a fee it is allegedly owed, the automatic response will be a counterclaim for breach of contract and professional malpractice. A recent case, however, illustrated a pitfall to this aggressive response.

 

The engineering services agreement said that in the event of a dispute, the losing party would pay the winning party’s attorney fees. The project owner, unhappy with the design prepared by the engineer, refused to pay the fee. The engineer sued to collect approximately $50,000 in compensation. The project owner counterclaimed for malpractice, alleging $1.5 million in damages.

 

The engineer prevailed on the counterclaim, incurring attorney fees in excess of $300,000 in the process. The engineer recovered not only its compensation but also its attorney fees from the project owner. The owner’s aggressive response proved very costly.

 

Everyone in the industry has seen examples of aggressive counter-punching. A relatively modest claim prompts a far more serious counterclaim. Matters escalate. What is your opinion of this practice? Is it effective? Is it ethical? Or does it primarily benefit the attorneys representing the parties? I welcome your comments.

 

COMMENTS

In my opinion it primarily benefit the attorneys representing the parties. Agressive counter-punching should be avoided if possible.
Posted by: Dave Honarkhah - Wednesday, October 10, 2012 11:19 AM


The benefit is to the deadbeat who never pays whether he wins or loses
Posted by: Richard Tomlinson - Wednesday, October 10, 2012 11:27 AM


In my experience representing design professionals, their insurance carriers generally advise them not to sue for unpaid fees, because they assume a massive malpractice counterclaim will follow--which the carrier would have to defend and cover. It's a no-win situation for the design professional.
Posted by: Michael Peters, RA Esquire - Wednesday, October 10, 2012 11:37 AM


Avoiding litigation in the first place generally benefits both the owner and the design professional in the long run.
Posted by: Hal Owens - Wednesday, October 10, 2012 11:38 AM


I agree, avoiding litigation in the first place is best for both parties, once things escalate, both are in a no win situation. However, I do believe the design professionals should be compensated for their work, but the parties would have to meet to determine the root cause for withholding payment. Is it a case where the design was deficient in meeting design criteria or industry standards or the owner "just didn't like it" where the design fulfilled all requirements, just aesthetically not appealing to the owner? The professional should be allowed to cure issues in dispute and a determination made between the parties whether such cure is compensable (aesthetically) or non-compensable for the additional work.
Posted by: Terry Houck - Wednesday, October 10, 2012 12:12 PM


I've recently been through the counter-claim process. My former client refused to pay $141,000 in fees for additional services that had been negotiated, covered under their contract. We had a couple of unique circumstances in that we had developed a unique system approach. Our client's breach of contract occurred prior to project completion and their attorney had inserted language in our contract that required us to suspend services beyond a certain date until a contract extension was "negotiated." In addition, we have a unique design that we are the only firm in the world can provide. As a result of our leaving the project, as required by the Agreement, the failed to completed the installation in accordance with the plans and specifications.

Negotiations failed because the client's attorney was prematurely claiming design error. During the 6-year mediation effort, we recovered most of the disputed payment, but the client remained in default. We successfully proved contractor error without "fixing" the system. As a result, this former client refused to move forward with arbitration. Because the client continued to refuse to meet their obligations, we declined to provide further services, a stipulated right under the original agreement.

This left our former client with a large, expensive and dysfunctional building. They were forced to turn to their outside "expert" whom we completely discredited during mediation. Having no experience with either the advanced system strategy or the basic technologies on which it was based, this "expert" has been systematically destroying the performance advantages our design provides. This, in turn, is causing increasingly serious problems for the client.

We estimate that the ultimate costs this former client will incur as a result of their counter claim strategy will be somewhere on the order of $15 million dollars for system replacement and another $45-$85 million dollars in increased operating energy costs over the next 20 years.

Due to an open ended tolling agreement, the case is still open. In addition to the remaining unpaid balance on the original invoices and interest earned, my firm is due consequential damages and damages for defamation of our intellectual property.

Counter claims can be a very poor strategy when A/E's are in the right and stand their ground.


Posted by: Mark S. Lentz, PE - Wednesday, October 10, 2012 12:38 PM


After having very negative experiences with attorneys in New York and Florida; I would recommend that both parties seek the assistance of a Mediator and settle the case. As some wise litigans say "a bad settlement is better than a good litigation"
Posted by: Jorge Cantero - Wednesday, October 10, 2012 12:42 PM


Any chance you can name the cases in your articles?


Posted by: Tracy Steedman - Wednesday, October 10, 2012 3:00 PM


Doesn't it tell you something when a client sues (and wins) a $50,000 claim and the attorney's fees is $300,000?
Posted by: Harald E. Gerber - Wednesday, October 10, 2012 3:43 PM


Design firms are at a distinct disadvantage in these situations. I have been forced to be aggressive to collect fees with a counter claim. Fortunately, I won summary judgements on initial and appeals, but it still took over 5 years to collect. I have had several clients bet that I would not push the issue to simply stiff us. Deposits on the design and careful cash flow management that keeps accounts receivable in line with the deposit amounts in reserve and a clause allowing the design firm to stop work if payment is not made on schedule are critical
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