ANAHEIM CALIFORNIA CONSTRUCTION EXPERT WITNESS
DIRECTORY AND CAPABILITIES

Contractors Admit Involvement in Kickbacks

Two New Jersey contractors have pleaded guilty to charges that they made false representations for a government contract in a case related to kickbacks for construction work done in two school districts. New Jersey is recommending that the two men, Martin Starr and Stephen Gallagher, will each pay $50,000 in penalties, serve up to a year in jail, and be unable to accept public contracts for five years.

Last month, another individual in the case, Kenneth Disko, who had been the engineer for the school district, pleaded guilty on a similar charge. In addition to a $50,000 penalty, he will be serving three to five years in prison. A fourth conspirator, Robert Berman, the former business administrator for one of the school districts, has to pay a $13,000 fine and cooperate with the investigation. He is also barred from public employment in New Jersey and has been terminated from his position.

Starr admitted to preparing fictitious quotes which appeared to be from other contractors in order that his firm would seem to be the lowest bidder. Gallagher helped in preparing the fictitious bids and also provided cash kickbacks to Disko.

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Lower Court “Eminently Reasonable” but Wrong in Construction Defect Case

Noting that “circuit court’s orders are eminently reasonable, logical and just” the Supreme Court of Appeals of West Virginia has granted a writ to halt enforcement of these orders and to compel arbitration instead in the case of State v. Tucker. The initial case concerned claims that an HVAC system had been improperly designed, constructed, manufactured, or maintained, leading to serious problems. Glenmark Holding, the owner of the Suncrest Executive Plaza brought a lawsuit against seven defendants. Three of the defendants, Morgan Keller, Inc, York International Corporation, and Johnson Controls, Inc. argued that Glenmark was obligated to enter into arbitration.

Glenmark and the other defendants argued that the motions for arbitration should be denied “so all the claims and cross-claims of the parties could be litigated in one forum, in one proceeding.” The circuit court noted that arbitration is preferred over litigation because of its supposed “expeditious, economic resolution of issues,” but that in this case, “the petitioners would expend additional, not fewer resources responding to the parties’ claims and cross-claims.” As “compulsory arbitration would be insufficient and inequitable” the court denied the request, finding the arbitration clauses “unconscionable and, therefore, unenforceable.”

Morgan Keller, York, and Johson argued that “the interpretation of arbitration clauses is governed exclusively by the Federal Arbitration Act.” The appeals court found that “the circuit court was within its authority to consider Glenmark’s claim that the arbitration clauses were unenforceable.” However, the appeals court rejected the circuit court’s conclusion about the “piecemeal” resolution of the conflict, as it contradicts a Supreme Court ruling. The Supreme Court stated in 1983 that the FAA “requires piecemeal resolution when necessary to give effect to an arbitration agreement.” In a 1985 decision, the Court held that a court could “not substitute [its] own views of economy and efficiency.”

Nor could the court find the arbitration clause to be unconscionable or unenforceable. The court noted that the contract was a standard AIA form, and was amended by the parties involved, whom the court characterized as “commercially sophisticated.” The court found that the agreement limited the rights of all parties and was not one-sided.

As the arbitration clause was neither unconscionable nor unenforceable, and Supreme Court rulings preclude a court from substituting its own procedures, even when these are “eminently reasonable, logical and just,” the appeals court halted the order of the circuit court, sending the matter to arbitration.

Read the court’s decision…

Landmark San Diego Hotel Settles Defects Suit for $6.4 Million

After five years of legal battles, the condo owners of the El Cortez Hotel building in downtown San Diego settled for $6.4 million, as reported by The San Diego Union-Tribune on March 28, 2011. The Homeowners Association will net just over $3 million from the settlement.

The litigation may have had an adverse effect on the value of the condos within the El Cortez Hotel building. According to an article by Kelly Bennett of Voice of San Diego, “Many condos in the building originally sold for more than $600,000. Currently, the three units on the market are asking for just more than $200,000, the U-T said.”

Andrew Berman, the owners’ attorney, told The San Diego Union-Tribune that the five years of litigation included six lawsuits, 200 depositions, and multiple construction tests.

Read the full story... (San Diego Union Tribune)

Read the full story... (Voice of San Diego)

Wine without Cheese? (Why a construction contract needs an order of precedence clause)(Law Note)

For today’s law note, I’m addressing a comment that came to me last week from Dave O’Hern of Miller O’Hern Construction.  Dave writes:

I am a general contractor doing a fuel tank replacement project for our county. In the specifications there is a spec for a UL 142 tank, on the plans the spec references UL 2085 ? a much more expensive tank. My subcontractor bid the UL 142 tank. The specifications state that the specs and plans are on the same level of precedence.

The county wants me to furnish the more expensive tank without compensation citing the clause that states the plans and specs are complementary and what is called for by one is binding as if called by all and the most stringent requirement will apply.

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Reprinted courtesy of Melissa Brumback of Ragsdale Liggett PLLC. Ms. Brumback can be contacted at mbrumback@rl-law.com.

Construction Workers Face Dangers on the Job

OSHA calculates that for each 33,000 active construction workers, one will die on the job each year, making their risk over the course of their careers at one out of every 200 workers. This puts it many times over OSHA’s definition of “significant risk” of 1 death per 1,000 workers over the course of their careers. According to an article in People’s World, “the main risk of death is from falls.”

At a talk at the American Public Health Association’s meeting, one expert noted that “construction workers make up 6 percent to 8 percent of all workers, but account for 20 percent of all deaths on the job every year.”

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California Supreme Court to Examine Arbitration Provisions in Several Upcoming Cases

Glen C. Hansen, writing on Abbott & Kinderman’s Land Use Law Blog looks at several cases pending before the California Supreme Court which ask if a developer can insist on arbitration of construction defect claims, based on provision in the CC&Rs. Currently, there is a split of opinions in the California appeals courts on the issue.

Four of the cases are in California’s Fourth Appellate District. In the earliest case, Villa Milano Homeowners Association v. Il Davorge, from 2000, the court concluded that the arbitration clause was sufficient to require that construction defect claims undergo arbitration. However, the Fourth Appellate District Court concluded in three later cases that the arbitration clauses did not allow the developer to compel arbitration. In two cases, argued in 2008 and 2010, the court concluded that to do otherwise would deprive the homeowners of their right to a jury trial. In the most recent case, Villa Vicenza Homeowners Association v. Nobel Court Development, the court decided that the CC&Rs did not create contractual rights for the developer.

The Second Appellate District Court came to a similar decision in Promenade at Playa Vista Homeowners Association v. Western Pacific Housing, Inc. In their decision, the court noted that CC&Rs could be enforced by homeowners and homeowners associations, but not developers.

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Preparing For the Worst with Smart Books & Records

Contractors are often too caught up in keeping the wheel of business churning to recognize deficiencies in how their records are managed. Working hard and working often tend to leave little time for consideration of your documents. But all too often I see the unthinkable, a contractor gets into trouble and has to call on its surety for help. At that point, you might finally get your first dose of reality about your records ?Äì and it can cost you.

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Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com

Parking Garage Collapse May Be Due to Construction Defect

A parking garage under construction at the Doral campus of Miami Dade College collapsed on October 9. Experts state that the collapse may have been due to errors in the construction process, either in the fabrication of the pre-cast components or in their assembly. The Bradenton Herald quotes Mark Santos, a structural engineer, who “would look at erection procedures ?Äì that’s probably the one question to ask first.”

During the failure, floors separated from the south wall of the structure. The contractor responsible for the garage, Ajax Building Corp, said there was “no indication of any potential cause.”

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Contractual Liability Exclusion Bars Coverage

The Fifth Circuit Court of Appeals considered whether coverage existed for a defectively built tennis court in light of a contractual liability exclusion. Ewing Construction Company, Inc. v. Amerisure Ins. Co., 2012 U.S. App. LEXIS 12154 (5th Cir. June 15, 2012).

Ewing Construction Company entered a contract with the School District to construct tennis courts at a school. After completion, the School District complained that the courts were cracking and flaking, rendering them unfit for playing tennis. The School District filed suit, seeking damages for defective construction. It alleged that Ewing breached its contract and performed negligently.

Ewing tendered the underlying lawsuit to Amerisure. Amerisure denied coverage and Ewing filed suit.

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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com

Lien Law Unlikely To Change — Yet

For those of you following the proposed revisions to the NC lien law that is currently at the NC House Judiciary Subcommittee B, a quick update: the proposed bill (HB 489) is unlikely to be voted on this legislative session due to its unpopularity with several constituency groups, including both the AIA-North Carolinaand the NC Home Builders Association.

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Reprinted courtesy of Melissa Brumback of Ragsdale Liggett PLLC. Ms. Brumback can be contacted at mbrumback@rl-law.com.

Contractor Sues License Board

Judge Kendall J. Newman of the US District Court handed down a decision on June 24 on the case of Kent v California Department of Consumer Affairs. Mr. Kent, appearing as his own counsel, had brought the suit against the California Department of Consumer Affairs and the Contractors State Licensing Board after he was arrested in a sting operation and, as the plaintiff put it, “was absurdly arrested and uncooperatively detained for a time longer than necessary or allowed by law under the false pretense of contracting with out a license.” Mr. Kent’s alleged that Rick Lopez, one of the defendants, formed him to read allow from the California Business and Professions Code. He said he was later handcuffed and placed in an uncomfortable chair, “enduring physical pain and emotional agony.”

Although Kent was given a Notice to Appear, he alleged that a further defendant, Stuart Rind, “closed the plaintiff’s case marked citation A7773 without giving written notice to anyone.” As a result, the Placer County District Attorney’s Office had no record of his Notice to Appear.

Kent alleged that subsequently his firm was essentially shut down for two years and that he was prevented from “legally contracting or selling services for any other contractor or qualifying for any other licensed capacity governed by the CSLB.” After this, the CSLB suspended the license for his firm, DSI Construction. He was assessed a $1,500 fine, after which he claims he sent a letter to the CSLB demanding money damages. The judge noted that the letter was not included in the plaintiff’s Ninth Amended Complaint.

Judge Kendall recommended that the plaintiff’s Complaints be dismissed, although he did allow that sixth, and perhaps the eighth and ninth, could be amended with a tenth amended complaint.

Read the court’s decision…

Residential Construction: Shrinking Now, Growing Later?

Jim Haugey, the Chief Economist for Reed Construction Data noted that new residential construction spending fell 0.2% in June and a slightly larger drop of 0.5% in residential remodeling. While economic growth is still low, Haugey states that homebuilders have “record low inventories.” He forecasts a shrinkage of 1.5% in 2011, followed by about 20% growth in 2012.

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When Does a Claim Against an Insurance Carrier for Failing to Defend Accrue?

The following is an update on our December 20, 2010 article regarding United States Fire Insurance Company v. Pinkard Construction Company, Civil Action No. 09-CV-01854-MSK-MJW, and its underlying dispute, Legacy Apartments v. Pinkard Construction Company, Case No. 2003 CV 703, Boulder County Dist. Ct. That article can be found here.

The present action, St. Paul Fire and Marine Insurance Co., et al. v. The North River Insurance Co., et al., Civil Action No. 10-CV-02936-MSK-CBS, encompasses the coverage battle that ensued between Pinkard’s insurers, Travelers Indemnity Company of America (“Travelers”) and United States Fire Insurance Company (“USFI”), following the settlement of Legacy’s construction defect claims against Pinkard. A short history of the underlying facts is as follows:

In 1995, Pinkard constructed the Legacy Apartments housing complex in Longmont, Colorado. Following construction, Legacy notified Pinkard of water leaks associated with various elements of construction. Legacy ultimately filed suit against Pinkard in 2003, and would go on to clarify and amend its defect claims in 2004, 2006, and again in 2008. Following Pinkard’s notification of Legacy’s claims, USFI provided a defense to Pinkard, but Travelers refused to do so, on the purported basis that Legacy’s allegations did not implicate property damage under the terms of Travelers’ policy.

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Reprinted courtesy of David M. McLain, Higgins, Hopkins, McLain & Roswell, LLC. Mr. McLain can be contacted at mclain@hhmrlaw.com

Federal District Court Predicts Florida Will Adopt Injury In Fact Trigger

The U. S. District Court for the Middle District of Florida was confronted with determining whether Florida would follow the manifestation or injury in fact trigger in Axis Surplus Ins. Co. v. Contravest Constr. Co., 2012 U.S. Dist. LEXIS 104502 (D. Fla. June 5, 2012).

The homeowner's association sued the insureds for alleged negligent construction and development of individual dwelling units and common areas of their condominium. Due to this negligence, severe damage was caused by water intrusion. The Association's members only became aware of the defects through the retention of construction experts.

The insured had CGL coverage with Axis, with policies issued from 2003 to 2007. Coverage was denied for the periods 2003-2004 and 2004-2005. Axis provided a defense under the policies issued for 2005-2006 and 2006-2007, but under a reservation of rights. Axis sought a declaration that it had no duty to defend or indemnify because the damage manifested before its policy periods.

For coverage to exist, "property damage" must have "occurred" during Axis' policy period.

Read the full story…

Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com

Exact Dates Not Needed for Construction Defect Insurance Claim

The Texas Court of Appeals reversed the decision of the trial court in Vines-Herrin Custom Homes v Great American Lloyds Insurance Company on December 21, 2011. Vines-Herrin Custom Homes built a single-family home in Plano, Texas in 1999. They obtained a commercial general liability policy from Great American, later purchasing coverage from Mid-Continent, which the decision describes as “a sister company of Great American.”

While the home was under construction, Emil G. Cerullo sought to purchase it. At the time, it was under contract to another buyer. Two months later, Vines-Herrin told Cerullo that the deal had “fell through.” Cerullo bought the house with modifications from the original plan. Upon moving in, Cerullo began having water intrusion and other problems. “Cerullo noticed water gathering on window sills and damage to the sheetrock and baseboard.” Additional problems followed, including cracks, leaks, “and in early 2002, the ceiling and roof began to sag.”

Cerullo sued Vines-Herrin, claiming negligent construction. Vines-Herrin filed a claim seeking defense and indemnification under the insurance policies. Coverage was denied and Vines-Herrin filed suit to require coverage and also bringing claims for “breach of the duty of good faith and fair dealing, breach of contract, and DTPA and insurance code violations.”

In May, 2006 Vines-Herrin stated that it had no more defense funds and went into arbitration with Cerullo. The underlying construction defect action was settled for about $2.5 million. As part of the settlement, “Cerullo became the rightful owner of all remaining claims, rights, and causes of action against” Vines-Herrin’s insurers. He then joined the coverage lawsuit.

The non-jury trial was held under the controlling law of the time which “imposed a duty to defend only if the property damage manifested or became apparent during the policy period.” The court concluded in Cerullo’s favor. During the post-judgment motions, the Texas Supreme Court rejected the manifestation rule. Under this ruling, the trial court set aside its judgment and found in favor of the insurance companies. The trial court noted that although “the Residence was covered by an uninterrupted period of insurance (which began before the Residence was constructed) and that the damages to the Residence manifested during the uninterrupted period of insurance coverage,” “Mr. Cerullo failed to allege the date when actual physical damage to the property occurred.”

The first claim by Cerullo and Vines-Herrin was that the “Final Judgment” occurred in October 2004, and that all proceedings thereafter were void. The court rejected this as the “final judgment” is not “final for the purposes of an appeal unless it actually disposes of every pending claim and party or unless it clearly and unequivocally states that it finally disposes of all claims and all parties.” Despite the use of the word “final,” the trial court’s decision did not do this.

The second issue was the application of the Texas Supreme Court case Don’s Building Supply Inc. v. OneBeacon Insurance. In this case, framing rot due to defective stucco was not discovered until after the end of the policy period. The Supreme Court noted that “the key date is when injury happens, not when someone happens on it.”

The appeals court found that the trial court misapplied the Don’s Building Supply decision. Rather than an exact date, “so long as that damage occurred within the policy period, coverage was provided.” The appeals court noted that “Cerullo alleged the house was constructed in 1999 and he purchased it in May 2000.” “By April of 2001, Cerullo noticed that the windowsills in the study were showing signs of leakage and water damage.” As the court put it, “the petitions then alleged a litany of defects.”

The court noted that coverage by Great American was in effect from November 9, 1999 to November 9, 2000. In May of 2000, the house suffered “substantial flooding from a rainstorm that caused damage.” This was during the policy period. “As a matter of law, actual damages must occur no later than when they manifest.”

The court concluded that as damage manifested during the period of coverage, so must have the damage. The court ruled that “contrary to the trial court’s determination otherwise, the evidence showed Great American’s duty to indemnify was triggered, and expert testimony establishing the exact date of injury was not required to trigger the duty.”

Read the court’s decision…

Florida Chinese drywall, pollution exclusion, “your work” exclusion, and “sistership” exclusion.

In Auto-Owners Ins. Co. v. American Building Materials, Inc., No. 8:10-CV-313-T-24-AEP (M.D. Fla. May 17, 2011), insured drywall supplier ABM was sued by general contractor KB Homes seeking damages because property damage to houses built by KB Homes using defective Chinese drywall supplied by ABM. ABM’s CGL insurer Auto-Owners defended ABM under a reservation of rights and filed suit against ABM and KB Homes seeking a judicial declaration of no to duty to defend or indemnify ABM against the KB Homes lawsuit. On cross motions for summary, the federal district trial court directed entry of judgment in favor of ABM and KB Homes and against Auto-Owners, holding that Auto-Owners had a duty to defend and indemnify ABM against the KB Homes lawsuit.

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Reprinted courtesy of CDCoverage.com

School District Marks End of Construction Project by Hiring Lawyers

A school district in northeastern Pennsylvania has retained legal services as they approach the end of a construction project. The Mid Valley School Board cited concerns about the project’s budget, but Randy Parry, Superintendent of Mid Valley schools referenced “possible litigation at the end of the project.” Mr. Parry told the Scranton Times Tribune that construction delays could be a reason for litigation.

In addition to approving an additional $20,000 for legal representation, the board also approved $21,579 for additional project costs.

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Insurance Firm Defends against $22 Million Claim

The Houston law firm of Eggleston & Briscoe successfully defended their client, Colony Insurance Company, which was being sued for $22 million over roof hail damage. The Summer Hill Village Community Association did not convince a jury that the insurance company had violated state law or breached its contract when it denied coverage for the roofs. The homeowners association contended that the roof damage was due to a hail storm in 2007. The jury agreed with experts who contended the damage was already present at that time.

Mr. Eggleston noted that “when your client is sued for a claim of $22 million, it is very satisfying to hear a jury agree that they in fact acted honorably and owed nothing.”

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