Woods Rogers Successfully Argues Two Cases Before Virginia Supreme Court Involving Construction Industry

Woods Rogers PLC attorneys prevailed in two Virginia Supreme Court cases involving the construction industry.

In the first case, English Construction Co. v. City of Lynchburg, argued by Frank K. Friedman, chair of Woods Rogers’ appellate section, the Supreme Court affirmed the lower court’s ruling that a city cannot impose business license taxes on the gross receipts of a contractor who earned money from a definite place of business outside the city, even if the locality where the work is performed does not tax the contractor.
           
As a result of the ruling, Virginia localities cannot tax based on the gross receipts of local contractors for work performed elsewhere. Localities who have violated this rule must issue refunds to contractors in their locality that have been so taxed.
           
The case began in December 2005, when English Construction Co. sued the City of Lynchburg for $185,472 in taxes the company had paid. Neil V. Birkhoff tried the case in the Circuit Court for the City of Lynchburg which ruled in favor of English in April 2008. The city appealed to the Supreme Court, where oral arguments were heard on Feb. 26.
           
“With this decision by the Supreme Court, contractors throughout Virginia should review their records to determine if they have paid the business license tax to their home jurisdiction based upon gross receipts from definite places outside of their home jurisdiction and file refund claims as appropriate,” advises Birkhoff, chair of Woods Rogers’ tax and estate planning group.
           
In the second Supreme Court case involving Woods Rogers attorneys, Martin Bros. Contractors, Inc. v. Virginia Military Institute, argued by D. Stan Barnhill, chair of Woods Rogers’ construction law group, the Supreme Court reversed the trial court’s prior ruling that VMI could limit a contractor’s right to recover delay damages by means of a purported contractual liquidated damage clause.  The Supreme Court held that such contractual limitations were unenforceable by virtue of Virginia Code § 2.2-4335.

The case involved a contract to renovate Crozet Hall, the main dining facility on the VMI campus. Due to causes within VMI’s control, the project was delayed by 270 days.  As a result, Martin Bros, a Roanoke-based contractor, claimed $430,242 in damages for the delay.  VMI admitted that Martin was without fault in causing the delay, but claimed Martin Bros. could not recover the full extent of its delay damages because of certain contractual limitations on recovery, which VMI sought to characterize as permitted liquidated damage provisions under the statute. The Supreme Court rejected VMI’s argument and held that Martin Bros. could recover the full extent of its provable delay damages. 

The contract limitations deemed unenforceable in this case are currently found in all public contracts where the Commonwealth of Virginia, or one of its institutions or agencies, is the project owner.  As a result of this ruling, limitations on delay damages, in the guise of liquidated damage provisions, can no longer be used by such entities to limit the full recovery of the contractor’s delay damages.