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Offsets for Disputed Claims: Public VS. Private

In April 2018, the Louisiana Fourth Circuit Court of Appeal rendered a decision reducing the ability of owners to withhold payments by way of offsets claimed against contractors on public construction projects in the case of Woodrow Wilson Constr. LLC v. Orleans Par. Sch. Bd., 2017-0936 (La. App. 4 Cir. 4/18/18), 245 So. 3d 1. Specifically, the Court ordered that final payment be made to the contractor despite the owner’s disputed claim for delay damages and the existence of a contractual provision permitting the owner to collect its damages in any manner available, including the withholding of final payment. In other words, the decision required the public entity to make final payment to the contractor despite the existence of a claim for damages against the contractor.

In February 2019, the same Court was presented with a similar issue in the context of a private project in the case of Hamp's Constr., L.L.C. v. 1031 Canal, L.L.C., 2018-0686, 2019 WL 959821 (La. App. 4 Cir. 2/27/19). In that case, 1031 Canal, L.L.C. served as the owner and general contractor and entered into a subcontract for demolition work at a project site on which an abandoned building was located. During the demolition work, a common wall between the building and the neighboring property collapsed. As a result, the owner/general contractor refused to pay the subcontractor the contract balance due to alleged damages incurred.

The subcontractor initiated a lawsuit and filed a motion for summary judgment seeking an award of the unpaid contract balance. The subcontractor argued that the owner/general contractor could not establish that its alleged damages resulting from the collapse of the common wall were “liquidated” which is a requirement for set-off to occur by operation of law. Rather, the subcontractor argued that the alleged damages asserted by the owner/general contractor represented an unliquidated contract claim which could not serve to offset the contract balance presently due to the subcontractor.

The trial court ruled in favor of the subcontractor. However, the Louisiana Fourth Circuit Court of Appeal reversed the ruling. Specifically, the Court recognized that the Louisiana Civil Code provides that set-off (or “compensation” as phrased in Louisiana law) may be based upon an agreement between the parties even though the requirements for set-off by operation of law are not met. To that end, the Court cited to a provision in the contract between the parties expressly providing that damages resulting from default may be deducted from payments otherwise due. As such, the Court held that the possibility that the contractual provision in the contract would allow set-off to occur coupled with evidence supporting a claim of default was sufficient to defeat the subcontractor’s motion seeking an award of the unpaid contract balance, thereby requiring a full trial on the merits of the claims between the parties.  

The differing results from the seemingly similar cases of Woodrow Wilson and Hamp's is due to La. R.S. 38:2191, which statute only governs the prompt payment requirements of an owner to a contractor on public projects. The statute provides a summary proceeding to compel payment and has been held to render a public entity's disputed claims against a contractor as secondary to the contractor's right to prompt payment, which is not subject to waiver by contract as reflected in Woodrow Wilson. Since no equivalent statute exists governing payments to contractors (or subcontractors) on private projects, parties may continue to contractually agree to set-offs for disputed claims as shown in the recent Hamp’s decision. 

Offsets for Disputed Claims: Public VS. Private

In April 2018, the Louisiana Fourth Circuit Court of Appeal rendered a decision reducing the ability of owners to withhold payments by way of offsets claimed against contractors on public construction projects in the case of Woodrow Wilson Constr. LLC v. Orleans Par. Sch. Bd., 2017-0936 (La. App. 4 Cir. 4/18/18), 245 So. 3d 1. Specifically, the Court ordered that final payment be made to the contractor despite the owner’s disputed claim for delay damages and the existence of a contractual provision permitting the owner to collect its damages in any manner available, including the withholding of final payment. In other words, the decision required the public entity to make final payment to the contractor despite the existence of a claim for damages against the contractor.

In February 2019, the same Court was presented with a similar issue in the context of a private project in the case of Hamp's Constr., L.L.C. v. 1031 Canal, L.L.C., 2018-0686, 2019 WL 959821 (La. App. 4 Cir. 2/27/19). In that case, 1031 Canal, L.L.C. served as the owner and general contractor and entered into a subcontract for demolition work at a project site on which an abandoned building was located. During the demolition work, a common wall between the building and the neighboring property collapsed. As a result, the owner/general contractor refused to pay the subcontractor the contract balance due to alleged damages incurred.

The subcontractor initiated a lawsuit and filed a motion for summary judgment seeking an award of the unpaid contract balance. The subcontractor argued that the owner/general contractor could not establish that its alleged damages resulting from the collapse of the common wall were “liquidated” which is a requirement for set-off to occur by operation of law. Rather, the subcontractor argued that the alleged damages asserted by the owner/general contractor represented an unliquidated contract claim which could not serve to offset the contract balance presently due to the subcontractor.

The trial court ruled in favor of the subcontractor. However, the Louisiana Fourth Circuit Court of Appeal reversed the ruling. Specifically, the Court recognized that the Louisiana Civil Code provides that set-off (or “compensation” as phrased in Louisiana law) may be based upon an agreement between the parties even though the requirements for set-off by operation of law are not met. To that end, the Court cited to a provision in the contract between the parties expressly providing that damages resulting from default may be deducted from payments otherwise due. As such, the Court held that the possibility that the contractual provision in the contract would allow set-off to occur coupled with evidence supporting a claim of default was sufficient to defeat the subcontractor’s motion seeking an award of the unpaid contract balance, thereby requiring a full trial on the merits of the claims between the parties.  

The differing results from the seemingly similar cases of Woodrow Wilson and Hamp's is due to La. R.S. 38:2191, which statute only governs the prompt payment requirements of an owner to a contractor on public projects. The statute provides a summary proceeding to compel payment and has been held to render a public entity's disputed claims against a contractor as secondary to the contractor's right to prompt payment, which is not subject to waiver by contract as reflected in Woodrow Wilson. Since no equivalent statute exists governing payments to contractors (or subcontractors) on private projects, parties may continue to contractually agree to set-offs for disputed claims as shown in the recent Hamp’s decision. 

Offsets for Disputed Claims: Public VS. Private

In April 2018, the Louisiana Fourth Circuit Court of Appeal rendered a decision reducing the ability of owners to withhold payments by way of offsets claimed against contractors on public construction projects in the case of Woodrow Wilson Constr. LLC v. Orleans Par. Sch. Bd., 2017-0936 (La. App. 4 Cir. 4/18/18), 245 So. 3d 1. Specifically, the Court ordered that final payment be made to the contractor despite the owner’s disputed claim for delay damages and the existence of a contractual provision permitting the owner to collect its damages in any manner available, including the withholding of final payment. In other words, the decision required the public entity to make final payment to the contractor despite the existence of a claim for damages against the contractor.

In February 2019, the same Court was presented with a similar issue in the context of a private project in the case of Hamp's Constr., L.L.C. v. 1031 Canal, L.L.C., 2018-0686, 2019 WL 959821 (La. App. 4 Cir. 2/27/19). In that case, 1031 Canal, L.L.C. served as the owner and general contractor and entered into a subcontract for demolition work at a project site on which an abandoned building was located. During the demolition work, a common wall between the building and the neighboring property collapsed. As a result, the owner/general contractor refused to pay the subcontractor the contract balance due to alleged damages incurred.

The subcontractor initiated a lawsuit and filed a motion for summary judgment seeking an award of the unpaid contract balance. The subcontractor argued that the owner/general contractor could not establish that its alleged damages resulting from the collapse of the common wall were “liquidated” which is a requirement for set-off to occur by operation of law. Rather, the subcontractor argued that the alleged damages asserted by the owner/general contractor represented an unliquidated contract claim which could not serve to offset the contract balance presently due to the subcontractor.

The trial court ruled in favor of the subcontractor. However, the Louisiana Fourth Circuit Court of Appeal reversed the ruling. Specifically, the Court recognized that the Louisiana Civil Code provides that set-off (or “compensation” as phrased in Louisiana law) may be based upon an agreement between the parties even though the requirements for set-off by operation of law are not met. To that end, the Court cited to a provision in the contract between the parties expressly providing that damages resulting from default may be deducted from payments otherwise due. As such, the Court held that the possibility that the contractual provision in the contract would allow set-off to occur coupled with evidence supporting a claim of default was sufficient to defeat the subcontractor’s motion seeking an award of the unpaid contract balance, thereby requiring a full trial on the merits of the claims between the parties.  

The differing results from the seemingly similar cases of Woodrow Wilson and Hamp's is due to La. R.S. 38:2191, which statute only governs the prompt payment requirements of an owner to a contractor on public projects. The statute provides a summary proceeding to compel payment and has been held to render a public entity's disputed claims against a contractor as secondary to the contractor's right to prompt payment, which is not subject to waiver by contract as reflected in Woodrow Wilson. Since no equivalent statute exists governing payments to contractors (or subcontractors) on private projects, parties may continue to contractually agree to set-offs for disputed claims as shown in the recent Hamp’s decision. 

Offsets for Disputed Claims: Public VS. Private

In April 2018, the Louisiana Fourth Circuit Court of Appeal rendered a decision reducing the ability of owners to withhold payments by way of offsets claimed against contractors on public construction projects in the case of Woodrow Wilson Constr. LLC v. Orleans Par. Sch. Bd., 2017-0936 (La. App. 4 Cir. 4/18/18), 245 So. 3d 1. Specifically, the Court ordered that final payment be made to the contractor despite the owner’s disputed claim for delay damages and the existence of a contractual provision permitting the owner to collect its damages in any manner available, including the withholding of final payment. In other words, the decision required the public entity to make final payment to the contractor despite the existence of a claim for damages against the contractor.

In February 2019, the same Court was presented with a similar issue in the context of a private project in the case of Hamp's Constr., L.L.C. v. 1031 Canal, L.L.C., 2018-0686, 2019 WL 959821 (La. App. 4 Cir. 2/27/19). In that case, 1031 Canal, L.L.C. served as the owner and general contractor and entered into a subcontract for demolition work at a project site on which an abandoned building was located. During the demolition work, a common wall between the building and the neighboring property collapsed. As a result, the owner/general contractor refused to pay the subcontractor the contract balance due to alleged damages incurred.

The subcontractor initiated a lawsuit and filed a motion for summary judgment seeking an award of the unpaid contract balance. The subcontractor argued that the owner/general contractor could not establish that its alleged damages resulting from the collapse of the common wall were “liquidated” which is a requirement for set-off to occur by operation of law. Rather, the subcontractor argued that the alleged damages asserted by the owner/general contractor represented an unliquidated contract claim which could not serve to offset the contract balance presently due to the subcontractor.

The trial court ruled in favor of the subcontractor. However, the Louisiana Fourth Circuit Court of Appeal reversed the ruling. Specifically, the Court recognized that the Louisiana Civil Code provides that set-off (or “compensation” as phrased in Louisiana law) may be based upon an agreement between the parties even though the requirements for set-off by operation of law are not met. To that end, the Court cited to a provision in the contract between the parties expressly providing that damages resulting from default may be deducted from payments otherwise due. As such, the Court held that the possibility that the contractual provision in the contract would allow set-off to occur coupled with evidence supporting a claim of default was sufficient to defeat the subcontractor’s motion seeking an award of the unpaid contract balance, thereby requiring a full trial on the merits of the claims between the parties.  

The differing results from the seemingly similar cases of Woodrow Wilson and Hamp's is due to La. R.S. 38:2191, which statute only governs the prompt payment requirements of an owner to a contractor on public projects. The statute provides a summary proceeding to compel payment and has been held to render a public entity's disputed claims against a contractor as secondary to the contractor's right to prompt payment, which is not subject to waiver by contract as reflected in Woodrow Wilson. Since no equivalent statute exists governing payments to contractors (or subcontractors) on private projects, parties may continue to contractually agree to set-offs for disputed claims as shown in the recent Hamp’s decision. 

Offsets for Disputed Claims: Public VS. Private

In April 2018, the Louisiana Fourth Circuit Court of Appeal rendered a decision reducing the ability of owners to withhold payments by way of offsets claimed against contractors on public construction projects in the case of Woodrow Wilson Constr. LLC v. Orleans Par. Sch. Bd., 2017-0936 (La. App. 4 Cir. 4/18/18), 245 So. 3d 1. Specifically, the Court ordered that final payment be made to the contractor despite the owner’s disputed claim for delay damages and the existence of a contractual provision permitting the owner to collect its damages in any manner available, including the withholding of final payment. In other words, the decision required the public entity to make final payment to the contractor despite the existence of a claim for damages against the contractor.

In February 2019, the same Court was presented with a similar issue in the context of a private project in the case of Hamp's Constr., L.L.C. v. 1031 Canal, L.L.C., 2018-0686, 2019 WL 959821 (La. App. 4 Cir. 2/27/19). In that case, 1031 Canal, L.L.C. served as the owner and general contractor and entered into a subcontract for demolition work at a project site on which an abandoned building was located. During the demolition work, a common wall between the building and the neighboring property collapsed. As a result, the owner/general contractor refused to pay the subcontractor the contract balance due to alleged damages incurred.

The subcontractor initiated a lawsuit and filed a motion for summary judgment seeking an award of the unpaid contract balance. The subcontractor argued that the owner/general contractor could not establish that its alleged damages resulting from the collapse of the common wall were “liquidated” which is a requirement for set-off to occur by operation of law. Rather, the subcontractor argued that the alleged damages asserted by the owner/general contractor represented an unliquidated contract claim which could not serve to offset the contract balance presently due to the subcontractor.

The trial court ruled in favor of the subcontractor. However, the Louisiana Fourth Circuit Court of Appeal reversed the ruling. Specifically, the Court recognized that the Louisiana Civil Code provides that set-off (or “compensation” as phrased in Louisiana law) may be based upon an agreement between the parties even though the requirements for set-off by operation of law are not met. To that end, the Court cited to a provision in the contract between the parties expressly providing that damages resulting from default may be deducted from payments otherwise due. As such, the Court held that the possibility that the contractual provision in the contract would allow set-off to occur coupled with evidence supporting a claim of default was sufficient to defeat the subcontractor’s motion seeking an award of the unpaid contract balance, thereby requiring a full trial on the merits of the claims between the parties.  

The differing results from the seemingly similar cases of Woodrow Wilson and Hamp's is due to La. R.S. 38:2191, which statute only governs the prompt payment requirements of an owner to a contractor on public projects. The statute provides a summary proceeding to compel payment and has been held to render a public entity's disputed claims against a contractor as secondary to the contractor's right to prompt payment, which is not subject to waiver by contract as reflected in Woodrow Wilson. Since no equivalent statute exists governing payments to contractors (or subcontractors) on private projects, parties may continue to contractually agree to set-offs for disputed claims as shown in the recent Hamp’s decision. 

Offsets for Disputed Claims: Public VS. Private

In April 2018, the Louisiana Fourth Circuit Court of Appeal rendered a decision reducing the ability of owners to withhold payments by way of offsets claimed against contractors on public construction projects in the case of Woodrow Wilson Constr. LLC v. Orleans Par. Sch. Bd., 2017-0936 (La. App. 4 Cir. 4/18/18), 245 So. 3d 1. Specifically, the Court ordered that final payment be made to the contractor despite the owner’s disputed claim for delay damages and the existence of a contractual provision permitting the owner to collect its damages in any manner available, including the withholding of final payment. In other words, the decision required the public entity to make final payment to the contractor despite the existence of a claim for damages against the contractor.

In February 2019, the same Court was presented with a similar issue in the context of a private project in the case of Hamp's Constr., L.L.C. v. 1031 Canal, L.L.C., 2018-0686, 2019 WL 959821 (La. App. 4 Cir. 2/27/19). In that case, 1031 Canal, L.L.C. served as the owner and general contractor and entered into a subcontract for demolition work at a project site on which an abandoned building was located. During the demolition work, a common wall between the building and the neighboring property collapsed. As a result, the owner/general contractor refused to pay the subcontractor the contract balance due to alleged damages incurred.

The subcontractor initiated a lawsuit and filed a motion for summary judgment seeking an award of the unpaid contract balance. The subcontractor argued that the owner/general contractor could not establish that its alleged damages resulting from the collapse of the common wall were “liquidated” which is a requirement for set-off to occur by operation of law. Rather, the subcontractor argued that the alleged damages asserted by the owner/general contractor represented an unliquidated contract claim which could not serve to offset the contract balance presently due to the subcontractor.

The trial court ruled in favor of the subcontractor. However, the Louisiana Fourth Circuit Court of Appeal reversed the ruling. Specifically, the Court recognized that the Louisiana Civil Code provides that set-off (or “compensation” as phrased in Louisiana law) may be based upon an agreement between the parties even though the requirements for set-off by operation of law are not met. To that end, the Court cited to a provision in the contract between the parties expressly providing that damages resulting from default may be deducted from payments otherwise due. As such, the Court held that the possibility that the contractual provision in the contract would allow set-off to occur coupled with evidence supporting a claim of default was sufficient to defeat the subcontractor’s motion seeking an award of the unpaid contract balance, thereby requiring a full trial on the merits of the claims between the parties.  

The differing results from the seemingly similar cases of Woodrow Wilson and Hamp's is due to La. R.S. 38:2191, which statute only governs the prompt payment requirements of an owner to a contractor on public projects. The statute provides a summary proceeding to compel payment and has been held to render a public entity's disputed claims against a contractor as secondary to the contractor's right to prompt payment, which is not subject to waiver by contract as reflected in Woodrow Wilson. Since no equivalent statute exists governing payments to contractors (or subcontractors) on private projects, parties may continue to contractually agree to set-offs for disputed claims as shown in the recent Hamp’s decision.