A Construction Contract's Ambiguity Creating Third-Party Class Action Liability?
In Stewart v. Gino's East, et al. (N.D. IL, Doc. No. 07 C 6340), the defendants, restaurants that accept credit cards for payment, were sued under the Fair and Accurate Credit Transactions Act (FACTA) in a class action alleging they violated the FACTA by not removing the expiration dates of credit cards from their customer's receipts. One of the defendants brought a third-party action against a company that installed the software and hardware used for the credit card transaction for breach of contract. The third-party complaint attaches the contract. It is a short agreement entitled "Construction Contract" and appears to be a standard contract used by the defendants for the contractor installing the equipment and allows the architect final approval on the remediation of unsatisfactory work.
The third-party complaint alleges that the description of the services provided in the contract meant that the contractor would assure that the software and hardware were in compliance with all applicable laws, including FACTA. The contractor brought a motion to dismiss and argued that nothing in the contract obligated it to make sure the system was in compliance with FACTA and pointed to provisions of the contract arguing that they were not ambiguous and precluded a complaint against the contractor.
The court found that the provisions pointed to by the contractor were silent about the system or hardware complying with FACTA (after all, it reads like a contract for the installation of the machines):
- "You do hereby warrant, that all material and equipment supplied for this job shall be new and free from faults and defects, and standard written equipment warranties shall be included and delivered to owner and also included is an one year warranty (from completion of the contract work) on all workmanship and materials."
The court went on to hold that other provisions could be interpreted to mean that compliance with FACTA was included in the contract:
- [the contractor] is "authorized to furnish all labor and equipment to do the POS set up for the building"
- "[t]he work is intended to be complete and fully useable as a finished product or system."
- "that all material and equipment supplied for this job shall be new and free from faults and defects."
Finding that these contractual provisions might be interpreted to require the system, as installed, would be compliant with FACTA. The court denied the motion to dismiss, pointing out that these ambiguities created a question requiring future litigation.
Now, obviously, the court, and we, don't have all the facts about the nature of the agreement, but if it was just an agreement for the work on the installation of the equipment, then the ambiguities have created an issue and possible liability in a situation where absolutely none was intended. Again, it might seem like a pain to have lawyers reviewing your agreements and helping negotiate even something as small as this contract must have seemed, but there is a reason such a big deal is made over contractual language.
