Enforceability of Limitation of Liability Clauses
Limitations of Liability
North Dakota courts uphold limitations of liability. All Seasons Water Users Ass’n v. N. Imp. Co., 399 N.W.2d 278 (N.D. 1987) (stating that a contractor is subjected to liability for failure to conform to the contract “so long as . . . there is no clear and unequivocal language in the contract which limits . . . liability”); see also Shirazi v. United Overseas, Inc., 354 N.W.2d 651, 656 (N.D. 1984) (finding that limitation of liability located on reverse side of bill of lading did not become a contract term because it was not clear parties had assented to provision). Parties to sales contracts may limit or modify remedies and warranties, absent unconscionability. N.D. Cent. Code Ann. §§ 41-02-33, 41-02-98 (West 2020). Courts are likely to find unconscionability when the limitation of remedy leaves the non-breaching party with no effective remedy. Constr. Assocs., Inc. v. Fargo Water Equip. Co., 446 N.W.2d 237, 244 (N.D. 1989) (finding provision limiting contractor’s remedy to replacement pipe “useless” because replacement of pipe would not remedy the leaks). Unconscionability may even be found in the commercial context if there is gross inequality of bargaining position. Id. at 242 (comparing “relatively small local construction firm” with “an enormous, highly diversified, international conglomerate”).
North Dakota courts recognize exculpatory clauses but construe them against the benefitted party. Reed v. Univ. of N.D., 589 N.W.2d 880, 886-87 (N.D. 1999). To be enforceable, exculpatory clauses must be clear. Id.; see also Kondrad ex rel. McPhail v. Bismarck Park Distr., 655 N.W.2d 411, 413 (N.D. 2003). Exculpatory clauses that limit a contractor’s damages for delay are also permissible. Markwed Excavating, Inc. v. City of Mandan, 791 N.W.2d 22, 30 (N.D. 2010).
By statute, North Dakota law prohibits contracts that directly or indirectly exempt anyone from responsibility for fraud or willful injury or violation of the law, whether willful or negligent. N.D. Cent. Code Ann. § 9-08-02 (West 2020). This provision, however, does not cover injury caused by reckless acts. EOG Res., Inc. v. Badlands Power Fuels, LLC, No. 4:08-CV-038, 2009 WL 3857191, at *4 (D.N.D. Nov. 17, 2009) (finding that the word “willful” modifies “injury” and, therefore, “willful injury” under the statute means that the injury must be intentional, and not merely reckless). North Dakota law also prohibits provisions in construction contracts that “make the contractors liable for the errors or omissions of the owner or the owner’s agents in the plans and specifications.” N.D. Cent. Code Ann. § 9-08-02.1 (West 2020).
North Dakota does not have a general anti-indemnity statute for construction contracts. However, N.D. Cent. Code Ann. § 32-12.2-17 (West 2020) provides that state contracts may not require the contractor to indemnify the state for contributory negligence, comparative degree of fault, sole negligence, or intentional misconduct of the state or its agents unless the director of the office of management and budget or the director’s designee determines a more stringent indemnification provision is appropriate.
In addition, N.D. Cent. Code Ann. § 9-08-02.1 (West 2020) prohibits any provision in a construction contract that makes the contractor liable for the owner’s errors or omissions in the plans and specifications of a contract. See also City of Bismarck v. Mariner Constr., Inc., 714 N.W.2d 484, 492 (N.D. 2006) (finding that provision in a public construction contract requiring contractor to guarantee all work against faulty materials or workmanship not due to city’s specifications was valid). An agreement to indemnify a party against his own negligence should be express, although courts do not require “magic words” to demonstrate the parties’ intent. Bridston by Bridston v. Dover Corp, 352 N.W.2d 194, 196 (N.D. 1984). North Dakota courts will not interpret an indemnity agreement to indemnify a party against the consequences of his own negligence unless that construction is very clearly intended. Id.
Enforceability of Waiver of Consequential Damages Clauses
North Dakota courts have not directly addressed the enforcement of contractual waivers of consequential damages in the construction context, but it appears that they may likely enforce such clauses because they have enforced contractual limitations of liability in other contexts. Generally, North Dakota courts recognize that “when parties enter [into] a contract, they make their own law, and the duties between them are established by the contract.” Jones v. Pringle & Herigstad, P.C., 546 N.W.2d 837, 842 (N.D. 1996). North Dakota courts uphold limitations of liability. See All Seasons Water Users Ass’n v. N. Improvement Co., 399 N.W.2d 278, 285 (N.D. 1987) (stating that a contractor is subject to liability for failure to conform to the contract, “so long as . . . there is no clear and unequivocal language in the contract which limits . . . liability”); see also Shirazi v. United Overseas, Inc., 354 N.W.2d 651, 656 (N.D. 1984) (finding that limitation of liability located on reverse side of bill of lading did not become a contract term because it was not clear whether the parties had assented to that provision).
In the context of transactions for the sale of goods, the North Dakota Uniform Commercial Code allows a buyer to recover consequential damages from the seller under appropriate circumstances. See N.D. Cent. Code Ann. §§ 41-02-90 – 41-02-93, 41-02-94(2). However, North Dakota code section 41-02-98 permits the buyer and the seller to contract to limit or exclude consequential damages unless the contractually specified limitation or exclusion is unconscionable or where the circumstances cause the contractually specified limited or exclusive remedy to fail of its essential purpose. See Constr. Assocs. v. Fargo Water Equip. Co., 446 N.W.2d 237, 244 (N.D. 1989); id. at 241 (“[A] general limitation of remedies clause, including those limiting liability to repair or replacement, may be subject to unconscionability analysis under the [State] Code.”).
Application of Economic Loss Doctrine
North Dakota courts recognize the economic loss doctrine in products liability cases. Hagert v. Hatton Commodities, Inc., 350 N.W.2d 591, 595 (N.D. 1984) (“[E]conomic loss, as distinguished from injury to property, may be recovered under express or implied warranty under the Uniform Commercial Code but not under [Restatement (Second) of Torts] § 402A, strict liability in tort.”); see also Arena Holdings Charitable, LLC v. Harman Prof’l, Inc., 785 F.3d 292, 293 (8th Cir. 2015) (citing Leno v. K & L Homes, Inc., 803 N.W.2d 543, 550 (N.D.2011)) (“Under the economic loss doctrine in North Dakota, economic loss resulting from damage to a defective product, as distinguished from damage to persons or other property, may be recovered in a cause of action sounding in contract, but not in tort.”). The economic loss doctrine applies to consumer transactions and to commercial transactions. Steiner v. Ford Motor Co., 606 N.W.2d 881, 884 (N.D. 2000); see also Clarys v. Ford Motor Co., 592 N.W.2d 573, 574 (N.D. 1999).
The Supreme Court of North Dakota has not had an opportunity to decide whether the economic loss rule applies to preclude tort claims based on damage to “other property.” However, in two separate cases, the Eighth Circuit has predicted that the Supreme Court of North Dakota would adopt the “modern foreseeability approach to the economic loss doctrine” and hold that “the economic loss doctrine extends to preclude liability in tort for physical damage to other nearby property of commercial purchasers who could foresee such risks at the time of purchase.” Dakota Gasification Co. v. Pascoe Bldg. Sys., 91 F.3d 1094, 1101 (8th Cir. 1996); see also Arena Holdings, 785 F.3d at 296 (reviewing North Dakota caselaw on the issue since Dakota Gasification and holding that “because North Dakota has yet to speak on the matter, we follow the precedent established in Dakota Gasification”).
Implied Warranty of Fitness for a Particular Purpose in Construction Contracts
With respect to construction cases, the economic loss rule has been applied to preclude tort claims, with courts holding that the proper remedy in construction cases to be for breach of the implied warranty of fitness for a particular purpose, a contractual remedy. See Bakke v. Magi-Touch Carpet One Floor & Home, Inc., 920 N.W.2d 726, 730–31 (N.D. 2018) (“Bakke’s breach of contract claim falls under the judicially-recognized doctrine of implied warranty of fitness for a particular purpose arising from the parties’ construction contract … . Despite pleadings which asserted negligence, fraud/deceit, unlawful sales practices, defective products and other tort claims, … the actionable portion of this case involves a breach of contract and is governed by contract law, not the law of torts.”); Leno v. K & L Homes, Inc., 803 N.W.2d 543, 550 (N.D. 2011) (“Though implied warranties are often described as sounding both in tort and contract law, we decline to apply a tort concept to a contractually-based implied warranty.”).
Enforceability of No Damages for Delay Clauses
No damages for delay clauses are generally enforceable in North Dakota. Markwed Excavating, Inc. v. City of Mandan, 791 N.W.2d 22, 27 (N.D. 2010). Notably, the court in Markwed declined to recognize an exception for uncontemplated delays due to the unambiguous language of the no damages for delay clause before it. Id. at 30. In 2014, the North Dakota Supreme Court recognized active interference as an exception to the enforcement of no damages for delay clauses. C&C Plumbing & Heating, LLP v. Williams Cnty., 848 N.W.2d 709, 716 (N.D. 2014).
Strict Interpretation of Contract
North Dakota courts strictly interpret contracts. In North Dakota, the primary goal of contract interpretation is to give effect to the mutual intention of the parties as it existed at the time of contracting. N.D. Cent Code § 9-07-03; Nat’l Bank of Harvey v. Int’l Harvester Co., 421 N.W. 2d 799, 802 (N.D. 1988); see also Bakken v. Duchscher, 827 N.W.2d 17, 21 (N.D. 2013). If the language of the contract is clear and unambiguous, the intention of the parties is to be ascertained from the written contract alone. Id. § 9-07-04 2014; Hart Constr. Co. v. Am. Family Mut. Ins. Co., 514 N.W. 2d 384, 388 (N.D. 1994); see also Hallin v. Inland Oil & Gas Corp., 903 N.W. 2d 61, 64-65 (N.D. 2017) (“When a contract’s language is plain and unambiguous and the parties’ intentions can be ascertained from the writing alone, extrinsic evidence is not admissible to alter, vary, explain, or change the contract.”). If the language is ambiguous, however, the intention of the parties becomes a question of fact, and the court may then consider extrinsic evidence. Wachter Dev., L.L.C. v. Gomke, 544 N.W. 2d 127, 131 (N.D. 1996). The extrinsic evidence may be considered to clarify the parties’ intentions. Hallin, 903 N.W. 2d at 65; see also Big Pines, LLC v. Baker, 940 N.W.2d 616, 619 (N.D. 2020). “A contract is ambiguous when rational arguments can be made for different interpretations,” and “[w]hether a contract is ambiguous is a question of law for the court to decide.” Big Pines, LLC, 940 N.W.2d at 619 (quoting Nichols v. Goughnour, 820 N.W.2d 740, 744 (N.D. 2012)); see also James Vault & Precast Co. v. B&B Hot Oil Service, Inc., 927 N.W.3d 452, 462 (N.D. 2019). If uncertainty still exists after considering extrinsic evidence and the other rules for interpreting a written contract, then North Dakota courts will construe the language of the contract most strongly against the party who drafted the contract. N.D. Cent Code § 9-07-19; Northwest G.F. Mut. Ins. Co. v. Norgard, 518 N.W. 2d 179, 181 (N.D. 1994).
Prompt Payment Requirements (Public/Private)
North Dakota Public – N.D. Cent. Code §§ 13-01.1-01 to 13-01.1-06 (2022) (owner to prime within 45 days of invoice; prime to sub/sub to lower tier within 45 days after payment; interest at 1.75% per month).
North Dakota Private – N/A
False Claims Statute
Federal False Claims Act – 31 U.S.C. § 3729-3733 – Many states have enacted false claims statutes modeled on the federal False Claims Act (referenced as the “FCA” throughout this survey). 31 U.S.C. §§ 3729–3733. State analogues to the FCA aim to address claims involving state and local governments instead of the federal government. This summary identifies the FCA’s state analogues for construction claims. It does not address false claims statutes for other subjects, such as health care claims, applications for public assistance, or insurance claims.
The FCA defines “claim” as any request or demand for money or property where the government will provide or reimburse any portion of that money or property. Id. § 3729(b)(2). The FCA imposes civil liability for any of seven separate acts including: 1) knowingly presenting a false claim for payment; 2) knowingly making a false record or statement to obtain approval of a claim; 3) conspiring to obtain approval of a false claim; 4) knowingly delivering less than the amount of money or property owed to the government; 5) delivering a receipt for government property without knowledge of the receipt’s veracity and with intent to defraud; 6) knowingly purchasing or receiving public property from a government employee or member of the Armed Forces illegally; and 7) knowingly making or using a false record or statement to decrease a payment obligation to the government. Id. § 3729(a)(1).
A person found guilty of any of the above acts is liable to the government for: 1) a civil penalty between $5,000 and $10,000, as adjusted by inflation; 2) three times the amount of damage sustained by the government; and 3) the costs of a civil action brought to recover damages sustained by the government. Id. § 3729(a)(1-3). The FCA, however, allows mitigation of the penalty if the violator cooperates with the government’s investigation. Courts may reduce the violator’s liability to two times the amount of damage sustained by the government when the violator: 1) provides all of the information known about that violation to the investigative team within 30 days of gaining such knowledge; 2) provides the information without actual knowledge of the investigation and before the government files charges; and 3) fully cooperates with the government’s investigation. Id. § 3729(a)(2).
North Dakota – N/A
Licensing Requirements for Construction Managers
A construction manager engaged in connection with a public work of improvement must either possess a contractor’s license under North Dakota law or be employed by a properly licensed contractor. In 2007, the North Dakota Century Code was amended to define “construction manager,” as follows:
‘Construction manager’ means a contractor licensed under chapter 43-07 or an individual employed by a licensed contractor which has the expertise and resources to assist a governing body with the management of the design, contracting, and construction aspects of a public improvement.
N.D. Cent. Code Ann. § 48-01.2-01(7). “Governing body” is defined as the “governing officer or board of a state entity or a political subdivision.”
The 2007 revisions also contain new procurement rules for the solicitation and award of “agency construction management” and “construction management at-risk” delivery methods. See id. §§ 48-01.2-01(1), (6); 48-01.2-19, -20. With respect to procurement of “agency construction management” services, which are defined to encompass traditional construction management services short of a construction management at-risk contract, selection of such services shall be based on a number of factors, including whether the proposed construction manager possesses a class A contractor’s license. See id. § 48-01.2-19(5)(i). Thus, it appears that, while the State of Minnesota looks favorably upon construction managers licensed as a contractor, construction managers may work unlicensed under a licensed contractor.
Given that the North Dakota Century Code’s definition of “construction manager” does not extend to private contracts, it is unclear whether a construction manager is required to obtain a contractor’s license for work on private projects. However, a contractor is broadly defined as “any person engaged in the business of construction.” Id. § 43-07-01.1. Accordingly, it may be prudent for a construction manager to obtain a contractor’s license.