Joint Venturers: Will You Have To Share in the Liabilities of a Troubled Project?

Simply defining a contractual relationship as a joint venture may not be enough to share in the liabilities of a troubled project. The Indiana Court of Appeals recently issued a published decision defining what it means to be a joint venture in Indiana. (See DLZ Indiana, LLC v. Greene County, Indiana; link: http://www.ai.org/judiciary/opinions/pdf/03120902.ewn.pdf) In 2001, Greene County, Indiana, entered into an agreement with United Consulting Engineers & Architects and DLZ of Indiana, LLC (collectively the “Firm”) for design services. The agreement provided that United and DLZ entered into the agreement “jointly and in collaboration.”

The agreement outlined the design services that the “Firm” was to perform for Greene County. DLZ and United subsequently entered into a Subcontract which identified United as “the Architect” and DLZ as “the Consultant” on the project. The Subcontract provided that United would compensate DLZ for its work on the project. DLZ received payments for its work directly from United. After the project began, but before work was completed, Greene County filed a Complaint against DLZ and United alleging breach of contract, breach of warranty and negligence. The County alleged that DLZ and Untied are jointly liable “as a Joint Venture.” The trial court concluded that there was a joint venture between DLZ and United.

On appeal, the court held that a joint venture in Indiana will arise only from an express or implied contract or implied from the conduct of the parties, but a joint venture will not arise by operation of law. The Court further noted that a joint venture is a specific type of business organization with clearly defined attributes. The fact that two or more parties agree to work “jointly and in collaboration” and “collectively” does not necessarily mean that they are doing business as a joint venture. While the agreement showed that United and DLZ agreed to work on the project “jointly and in collaboration,” the agreement does not demonstrate that they exercised joint or mutual control over the project. The Court focused on the Division of Services/Liability language contained in the agreement which provided that United would have control as the “Principal” over the project and United assumed “full responsibility and liability for all services” provided under the contract. In contrast, DLZ assumed responsibility and liability only for the services it provided to Greene County.

The Court found that there was not a joint venture between DLZ and United. The Court further noted that the evidence demonstrates that United paid DLZ for its services according to its hourly rates. The payment of professional fees to DLZ for services rendered at a pre-determined contract rate is not a distribution of profit. Since the parties did not “share in any profit” no joint venture was established. Further, there was no evidence that the parties exercised joint or mutual control over the project, which is an essential element to the formation of a joint venture.

Posted by: Daniel P. King

Categories: Construction Contracts, Current Developments / Legislation, Risk Management / Insurance