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On December 19, 2023, the United States District Court for the District of Utah denied summary judgment in part to Vanderlande Industries (Vanderlande), holding that a reasonable jury could find that Vanderlande negligently misrepresented the viability of subcontractor Ludvik Electric Co.’s (Ludvik) pass-through claims during the parties’ settlement negotiations over the claims. 

In 2013, the Salt Lake City Corporation awarded HDJV Big-D Construction (HDJV) a contract for construction at the Salt Lake City International Airport.  HDJV subcontracted installation of the bag handling system to Vanderlande, which subcontracted the mechanical and electrical portion to Ludvik.  In January 2019, Ludvik alerted Vanderlande that it had pass-through claims to assert against HDJV for changes in scheduling that allegedly caused $10 million in unanticipated losses.  Vanderlande and Ludvik eventually entered into a settlement agreement under which Vanderlande would pass through Ludvik’s delay claims and Ludvik would receive any recovery from HDJV.  In return, Ludvik released Vanderlande from any liability if HDJV rejected the pass-through claims.  Before Ludvik submitted its claims, however, Vanderlande and HDJV executed Change Order 22 with release language that failed to preserve Ludvik’s claims.  When Vanderlande later submitted Ludvik’s pass-through claims, HDJV rejected them as untimely and waived by Change Order 22. 

Ludvik filed suit against Vanderlande seeking to recover its losses, alleging negligent misrepresentation and breach of contract.  In its suit, Ludvik claimed that it was fraudulently induced into the settlement agreement by Vanderlande’s misrepresentation that the pass-through claims were viable.  Vanderlande then moved for summary judgment, arguing that Ludvik’s claims were barred by the release in the settlement agreement. 

The Court rejected Vanderlande’s motion, holding that a provision releasing a party from liability for negligent misrepresentation, when the provision itself was procured by a negligent misrepresentation, is unenforceable.  Additionally, the Court noted that, although Vanderlande shared a letter with Ludvik making it clear that the pass-through claims would be rejected, Vanderlande’s conduct after sharing the letter led Ludvik to believe that the claims remained viable.  Because Vanderlande was in a superior position to know material facts about the viability of the pass-through claims, Vanderlande had a duty to disclose such facts to the subcontractor.

This decision underscores the importance of clear communication and disclosure in contractual relationships, especially when one party is in a superior position to know material facts that could affect the other party’s decision-making.  Parties also should be aware that the efficacy of a release may be limited if a negligent misrepresentation is involved.   

Note: Our lawyers leveraged AI in creating this client alert, including using a transcript summary created by generative AI.  As we explore the potential of generative AI in the legal space, it is our intention and our practice to be transparent with our readers and to showcase the results we are achieving using generative AI with publicly available resources.  Crowell’s AI group is comprised of lawyers and professionals across our global offices, including from Crowell & Moring International (CMI), our international public policy entity, with decades of sector-specific experience.  We intend to lead by example in our own responsible use of AI, as it pertains to both the risks and benefits.  Should you have questions about the use of generative AI in the legal sector or Crowell’s use of AI, please contact innovation@crowell.com

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Photo of Michelle Coleman Michelle Coleman

Michelle D. Coleman is a counsel in the Government Contracts Group in Crowell & Moring’s Washington, D.C. office. Michelle advises clients from diverse industries in connection with contract disputes and other government contract matters, including Contract Disputes Act (CDA) claims and requests for…

Michelle D. Coleman is a counsel in the Government Contracts Group in Crowell & Moring’s Washington, D.C. office. Michelle advises clients from diverse industries in connection with contract disputes and other government contract matters, including Contract Disputes Act (CDA) claims and requests for equitable adjustments, fiscal law questions, prime-sub disputes, and bid protests.

Photo of Skye Mathieson Skye Mathieson

Skye Mathieson is a partner in the Government Contracts Group in Crowell & Moring’s Washington, D.C. office. He works with and advises clients from diverse industries on a wide array of matters, including contract performance disputes (CDA claims and equitable adjustments), cost allowability…

Skye Mathieson is a partner in the Government Contracts Group in Crowell & Moring’s Washington, D.C. office. He works with and advises clients from diverse industries on a wide array of matters, including contract performance disputes (CDA claims and equitable adjustments), cost allowability issues, defective pricing, fiscal law questions, prime-sub disputes, bid protests, internal investigations, and responding to DCAA audits. Prior to joining Crowell & Moring, Skye spent several years as a trial attorney at the procurement litigation division of the Air Force Headquarters for Legal Operations, where he pioneered the seminal “Laguna Defense” that is now widely raised and litigated at the Boards of Contract Appeals.

Skye has extensive experience litigating cases before the Armed Services Board of Contract Appeals (ASBCA), the Civilian Board of Contract Appeals (CBCA), the Government Accountability Office (GAO), and the Small Business Administration (SBA). Through this litigation, Skye has gained valuable experience in a wide variety of industries, such as aerospace (fighter jets, satellites, refueling tankers, simulators, and counter-measures), information technology and software development, construction, healthcare services, intelligence gathering, battlefield services and logistics, scrap disposal, base maintenance and repair contracts, and many others.

Skye also has experience counseling and litigating on a broad range of legal issues, including defective pricing, cost disallowances, contract terminations, unique commercial item issues, constructive changes, differing site conditions, statute of limitations problems, CDA jurisdictional hurdles, contract fraud, Government superior knowledge, unabsorbed overhead and Eichleay damages, CICA stays and overrides, and small business issues.

Having advocated and litigated on behalf of both the government and contractors, Skye has unique insights into both parties’ perspectives that he leverages when exploring and negotiating settlements or other avenues for alternative dispute resolution (ADR). Where settlements are not possible, Skye embraces opportunities for courtroom advocacy. He has significant trial experience examining both expert and fact witnesses on both direct and cross examination, as well as taking and defending depositions, drafting hearing briefs and dispositive motions, and managing millions of pages of document production.

Skye is an active member of the government contracts community. He is the editor-in-chief of the BCA Bar Journal, a quarterly publication of the Boards of Contract Appeals Bar Association, which allows him to work alongside judges, government attorneys, and in-house counsel in the production of each issue. He is also a member of the ABA Section of Public Contract Law.

Photo of Charles Baek Charles Baek

Charles Baek is a counsel in Crowell & Moring’s Washington, D.C. office, where he practices in the Government Contracts Group.

Charles represents government contractors in both litigation and counseling matters. His practice focuses on contract claims/disputes under the Contract Disputes Act (CDA), litigation…

Charles Baek is a counsel in Crowell & Moring’s Washington, D.C. office, where he practices in the Government Contracts Group.

Charles represents government contractors in both litigation and counseling matters. His practice focuses on contract claims/disputes under the Contract Disputes Act (CDA), litigation before the Armed Services Board of Contract Appeals (ASBCA), federal regulatory and ethics compliance and due diligence, bid protests before the Government Accountability Office (GAO), and False Claims Act (FCA) investigations. His practice also includes state contracting due diligence and litigation before the Court of Federal Claims.

Photo of Zariah Altman Zariah Altman

Zariah helps clients with antitrust investigations, government contracts matters, including bid protests, and other complex and fast-paced disputes.

In her antitrust practice, Zariah provides counsel on a range of issues and agency actions, including investigations into company hiring practices, such as no-poach/non-solicitation. In…

Zariah helps clients with antitrust investigations, government contracts matters, including bid protests, and other complex and fast-paced disputes.

In her antitrust practice, Zariah provides counsel on a range of issues and agency actions, including investigations into company hiring practices, such as no-poach/non-solicitation. In addition, in the area of government contracts, she advises clients on agency submissions, state and federal regulatory compliance, including FOIA requests, and bid protests.

She received her J.D., cum laude, from Howard University School of Law and served as a senior articles editor for the Howard Law Journal. Zariah worked as a Henry Ramsey Dean’s Fellow for a legal writing professor and as a student attorney in Howard’s Reentry Clinic, where she represented clients with criminal records that were seeking to have their records sealed or to terminate their parole early.