ANAHEIM CALIFORNIA CONSTRUCTION EXPERT WITNESS
DIRECTORY AND CAPABILITIES

New Washington Law Nixes Unfair Indemnification in Construction Contracts

Contractual fairness ? it is part of my mantra. If you read the blog, you probably know that I preach brevity, balance and clarity in contracting. The State of Washington did well to finally eliminate something that has angered me for quite some time ? unfair indemnification.

One of my favorite construction contract revisions is mutual indemnification. Many “up the chain” contractors and owners are going to stick you with a unilateral indemnification clause that protects them for just about everything, including their own fumbling of a project. Adding mutual indemnification provides some balance, and keeps parties reliant upon each other for success on the job site.

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

Construction Law Alert: A Specialty License May Not Be Required If Work Covered By Another License

Contractors should always be sure that they understand the licensing in any Subcontract or Prime Contract before entering into any agreement. However, on March 3, 2011, in the case of Pacific Casson & Shoring, Inc. v. Bernards Bros., Inc. 2011 Cal.App.Lexis 236, the Court of Appeal determined that if a specialty license is subsumed within another license, the specialty license may not be required.

Bernards entered into a subcontract with Pacific to excavate, backfill, grade and provide geotechnical design parameters for a hospital. The Prime Contract required the bidder to maintain a Class C-12 specialty earthwork license. However, Pacific only held a Class A general engineering license which it turns out was suspended during the performance of the work. Pacific sued Bernards for nonpayment of $544,567, but the lawsuit was dismissed because the trial court found that Pacific (1) lacked a C-12 license, and (2) Pacific’s Class A license was suspended for failure to pay an unrelated judgment. Pacific was also ordered to disgorge $206,437 in prior payments.

The Court of Appeal reversed and remanded. The Court of Appeal agreed with Pacific and held that a C-12 specialty license was not required despite the Prime Contract. The Court of Appeal found that the C-12 specialty license would have been “superfluous” since it was fully encompassed within the Class A requirements. However, the Court of Appeal also remanded the case for further

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Reprinted courtesy of Steve Cvitanovic of Haight Brown & Bonesteel, LLP.

Arbitration Clause Not Binding on Association in Construction Defect Claim

Determining that a community’s CC&Rs do not form an agreement to arbitrate, the California Court of Appeals has reversed the decision of the Superior Court inVerano Condo. Homeowners the Ass’n v. La Cima Dev., LLC (Cal. App., 2012). La Cima purchased an apartment complex in December 2004, which they converted into condominiums. In the process, La Cima created the CC&Rs, under which the Verano Condominium Homeowners Association came into being. One section of the CC&Rs included arbitration clauses. Additionally, the purchase agreements for individual condominium units also contained arbitration clauses. Subsequently, the owners became aware of construction defect both in units and in the common areas. The Association sued La Cima both in its own interest and on behalf of its members. La Cima moved to compel arbitration, which was denied by the trial court. La Cima appealed.

The court concluded that “CC&Rs are insufficient to form an agreement to arbitrate between La Cima and the Association.” The court noted that “no evidence exists to show the Association consented to the terms of the CC&Rs, either explicitly or implicitly.”

The court agreed with La Cima that the arbitration agreement applied to those owners who had purchased their units directly from La Cima. Moreover, as the conversion to condominiums involved interstate commerce, in part because a Delaware company was selling condominiums located in California, the court held that the Federal Arbitration Act (FAA) applied, and as such “even a state constitutional standard, such as the the jury waiver provision requirements of the California Constitution, cannot be used to circumvent the FAA in the face of an otherwise valid arbitration agreement.”

However, the court also held that there was “no agreement in the CC&Rs between La Cima and owners who did not purchase units directly from La Cima,” adding that “no meeting of the minds between La Cima and these later purchasers and their successors occurred.” The court did not believe that “the Legislature intended that CC&Rs would be used to provide continuing and irrevocable contractual development or role as a representative of the owners of the development.”

The purpose of the CC&Rs, according to the court are to “protect owners from one another and permit enforcement of its terms by the Association.” The court stated that “La Cima relinquished its interests in the land by selling its property and may not assert any rights under the CC&Rs following the transfer of its ownership interest.

In its conclusion, the court determined that claims must be organized in three classes. The claims the association made against La Cima for defects in the common area “are not subject to any valid agreement to arbitrate.” The second category are those owners who did not purchase their units directly from La Cima. Here, also, the court found that the units “are similarly not subject to a valid arbitration agreement.”

The third category, however, was “owners who purchased units directly from La Cima.” The court held that these arbitration agreements were valid, and if the claims were to be taken up by the association, the association could only submit these claims to arbitration. The lower court was instructed to separate these claims, as here La Cima’s motion could be granted.

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Construction Spending Dropped in July

Bloomberg News reports that after four months of gains in construction spending, July saw a drop of 0.9 percent, wiping out June’s gain of 0.4 percent. Despite the overall decline in spending, there was an increase of 1.5 percent in expenditure on building new single-family homes and 2.8 percent on multifamily residential construction.

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Consumer Protection Act Whacks Seattle Roofing Contractor

It’s been over 1 year since we last visited the CertainTeed Corp. v. Seattle Roof Brokers lawsuit. After my original post, the contractor, James Garcia, appeared at Builders Counsel in a comment to defend himself. It appears that 1 year later, the court decided to side with CertainTeed and award them significant attorneys’ fees. Ready for the whole story? Its a pricey one.

Back in July 2010, good friend Mike Atkins (Seattle Trademark Attorney) authored a post about a Seattle roofing contractor who had been sued for false advertising on his website. The lawsuit was raised by CertainTeed, a roofing material producer, whose products were the target of a Seattle contractor’s ire. Seattle Roof Brokers, owned by James Garcia, published content on its website, remarking that CertainTeed products have a history of “premature failure” and that they “will fail?.resale inspection after 15-20 years.”

CertainTeed filed its action to obtain an injunction and damages under the Consumer Protection Act.

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

Allowing The Use Of a General Verdict Form in a Construction Defect Case Could Subject Your Client to Prejudgment Interest

A recent opinion from the Colorado Court of Appeals is a cautionary tale concerning the calculation of pre-judgment interest. See Hendricks v. Allied Waste Transportation, Inc., 2012 WL 1881004 (Colo. App. 2012). The Hendricks sued Allied after one of its drivers backed into the corner of their home with an Allied garbage truck. At trial, a jury awarded the Hendricks $160,100 in damages. Although the jury was instructed on the cost of repairs, diminution in value, and non-economic damages, the parties agreed to a general verdict form that did not ask the jury to specify the types of damages awarded. Id. at *1. The Hendricks sought to amend the judgment to include prejudgment interest and costs, which the trial court granted.

Allied appealed, arguing that the trial court erred by awarding the Hendricks prejudgment interest from the date their property was damaged. Id. at *7. The Colorado Court of Appeals found no error, and affirmed.

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Reprinted courtesy of Heather Anderson, Higgins, Hopkins, McLain & Roswell, LLC. Ms. Anderson can be contacted at anderson@hhmrlaw.com

Condo Owners Allege Construction Defects

Last November, mold problems were discovered at the Siena Condominiums in Montclair, New Jersey, which had been described by their developers as “an enclave of luxury in an urban village setting.” The owners have filed a lawsuit against Pinnacle Companies, Kohl Parnters, and Herod Development, seeking “compensatory damages, interest, reasonable attorney’s fee and costs, and for such other, further, and different relief as the Court may deem just and proper.”

According to the article on Baristanet.com, an engineering report commissioned by the condominium association revealed many problems, including improperly installed windows and siding. The developers commissioned two engineering reports themselves and found evidence of water pounding on the roof. Despite these reports and repeated promises, no repairs have been made.

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Contractor Manslaughter? Safety Shortcuts Are Not Worth It

It’s been a while since I discussed the importance of safety. But, a recent article on ENR.com compelled this brief article. Don’t shortcut safety — you could be facing serious criminal repercussions.

A New York crane company owner and one of his employees are each facing a second-degree manslaughter charge for the death of two construction workers.  The charges stem from the collapse of a crane in New York City. The district attorney determined that the crane owner cut a few corners to reduce its operation costs, significantly sacrificing safety.

Another example was the 2010 trial of another New York crane operator who was charged with manslaughter. In that case, the criminal charges failed to stick, but an administrative judge found that the contractor used a damaged sling to support the steel collar binding the tower-crane mast to the 18th floor of a high-rise building being constructed. The company also used four slings instead of the eight, as specified by the crane manufacturer; improperly attached the slings and failed to pad or soften them.

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

Association May Not Make Claim Against Builder in Vermont Construction Defect Case

The Vermont Supreme Court issued a ruling on September 28 on Long Trail House Condominium Association. The case was heard by a panel of two Supreme Court justices, Marilyn Skoglund and Brian Burgess, and three justices specially assigned for the case, Kupersmith, Davenport, and Johnson. The decision came down with a 3-2 split; Judges Kupersmith and Johnson joining in a dissent.

In the underlying case, Stratton Corporation entered into an agreement with Engelberth Construction in which Engelberth would supply “recommendations on construction feasibility, consultation as to the selection of materials and equipment, assistance with zoning requirements and permits, and cooperation with the ‘design team’ to provide valuable engineering services.” Engelberth was not responsible to determine that the drawings and specifications were in accordance with the law and building codes, nor were they responsible “for the design team’s designs, errors, or omissions.”

Subsequent to the agreement was a construction project which culminated in the incorporation of the Long Trail House Condominium Association. The condominium owners initiated a lawsuit over alleged defects. Stratton, Intrawest, and the association settled claims for $7,025,00 with Stratton and Intrawest both pursuing claims against Engelberth. This case is still unsettled.

The association progressed on remediation, which cost about $1,500,00 more than was provided by the settlement, and so the association also sued Engelberth. In this case, the court granted a summary judgment to Engelberth, concluding that negligence claim was barred both “by the economic loss rule and that the absence of contractual privity was fatal to the warranty claims.”

The court upheld both determinations of the lower court. The court noted that “the economic loss rule ‘prohibits recovery in tort for purely economic losses’” and that “in tort law, duties are imposed by law to protect the public from harm.” A negligence claim could only be supported with evidence of “some accompanying physical harm, which does not include economic loss.”

The association made the claim that the economic loss rule applies only when there is a contractual relationship between the two parties. The court rejected this argument, citing a reference that “economic interests are protected, if at all, by contract principles, rather than tort principles.”

Nor did the court find it persuasive that a “professional services” exception to the economic loss doctrine applied, noting that the court has rejected this notion in two prior cases. The noted that the association’s losses were purely economic, and their inability to settle those claims with Engelberth did not mean that they had not means of settling them, as they were able to settle these very claims with Stratton and Intrawest.

The association also raised claims of an implied warranty, resting on the construction contract between Engelberth and Stratton. This was also rejected by the court, noting that Vermont “case law plainly contemplates the existence of contractual privity before a breach of implied warranty claim can be raised.” The court noted that there was neither a contract nor a sale between Engelberth and the association, and thus there were no grounds for an implied warranty. The court concluded that “the Association’s warranty remedy lies against the entity that sold it the condominium units and implicitly warranted through the sale that the units were built in a good and workmanlike manner and that they were suitable for habitation.”

Read the court’s decision …

Construction Case Alert: Appellate Court Confirms Engineer’s Duty to Defend Developer Arises Upon Tender of Indemnity Claim

In the recent case of UDC-Universal Development, L.P. v. CH2M Hill, 2010 Cal.App.LEXIS 47 (filed January 15, 2010), the Sixth District Court of Appeal provided a stunning illustration of the far-reaching effects of the California Supreme Court’s holding in Crawford v. Weather Shield Manufacturing Inc. (2008) 44 Cal.4th 541. In Crawford, the Court held the duty to defend under an indemnity agreement arose upon the mere tender of defense of a claim covered by the indemnity.

In the UDC case, CH2M Hill provided engineering and environmental planning services to developer UDC on a project that ultimately wound up in a construction defect lawsuit by the homeowners association ( HOA ). UDC tendered its defense to CH2M Hill, the tender was rejected, and UDC filed a cross-complaint for negligence, breach of contract and indemnity against CH2M Hill and others. After the HOA’s construction defect claims were settled, UDC proceeded to trial against CH2M Hill. The jury found in favor of CH2M Hill on the claims for negligence and breach of contract. At the request of the parties prior to trial, the trial court ruled on the application of the indemnity agreement in light of Crawford and, in so doing, found that the defense obligation arose upon the tender and that CH2M Hill breached that duty despite the jury finding in favor of CH2M Hill.

The Court of Appeal affirmed, noting that the defense obligation arose as soon as the defense was tendered and did not depend on the outcome of the litigation, and that the HOA’s general description of the defects along with an allegation that Doe engineers were negligent triggered the duty to defend.

Although this case did not expand the crushing impact of Crawford’s holding, it is

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A Downside of Associational Standing - HOA's Claims Against Subcontractors Barred by Statute of Limitations

In multi-family construction defect litigation in Colorado, homeowners associations rely on associational standing to pursue claims affecting more than two units and to bring claims covering an entire development. This practice broadens an association’s case beyond what individual, aggrieved owners would otherwise bring on their own against a developer or builder-vendor. However, reliance on associational standing to combine homeowners’ defect claims into a single lawsuit has its drawbacks to homeowners.

A recent order in the case Villa Mirage Condominium Owners’ Association, Inc., v. Stetson 162, LLC, et al., in El Paso County District Court, presents an example. There, the HOA unsuccessfully sought a determination from the court that its claims against subcontractors were not barred by the statute of limitations. To do so, the HOAs attempted to apply the Colorado Common Interest Ownership Act (“CCIOA”), which governs the creation and operation of HOAs, and a statute intended to apply to persons under a legal disability.

Under CCIOA, during the period of “declarant control” the developer may appoint members to the association’s executive board until sufficient homeowners have moved into the development and taken seats on the board.

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Reprinted courtesy of Bret Cogdill of Higgins, Hopkins, McClain & Roswell, LLC. Mr. Cogdill can be contacted at cogdill@hhmrlaw.com.

Demand for Urban Living Leads to Austin Building Boom

The New York Times reports that Austin is undergoing a building boom as a high-tech firms, including Facebook and Google, have moved into the downtown area. With them, comes a need for more apartment buildings and more retail space. Mike Kennedy, the president and chief executive of an Austin real estate firm, told the Times “the office space was here, the housing came, and retail is arriving last to the scene.” Currently, two large projects that will add about 500 apartment units is underway, including a 222-unit, 18-story building, and another that will contain 277 units. Apartment occupancy in Austin is at ninety-seven percent.

Developers also have hotels and more office space planned. The area has about 6,000 hotel rooms with an additional 2,000 planned, but events in Austin can bring in more people than the city’s 30,000 hotel rooms can accommodate. Office space is eighty-eight percent occupied, and a lack of office space could cause firms to look elsewhere.

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Texas contractual liability exclusion

In Ewing Construction Co., Inc. v. Amerisure Ins. Co., No. C-10-256 (S.D. Tex. April 28, 2011), insured Ewing was the general contractor for an athletic facility constructed for a school district. The school district sued Ewing alleging defective construction of the project. The underlying complaint included contract and negligence causes of action, and sought damages for the repair of the damages and loss of the use of the project. The complaint did not allege damage to any property other than the project itself. Ewing tendered its defense to its CGL insurer Amerisure. Amerisure denied a defense and Ewing filed suit against Amerisure. The federal district trial court entered summary judgment for Amerisure. Applying Texas law, the court held that all of the damages fell within the “contractual liability” exclusion precluding any duty to defend or indemnify.

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Reprinted courtesy of CDCoverage.com

Florida Contractor on Trial for Bribing School Official

Lloyd Whann, an executive in M. M. Parrish Construction, a Gainesville, Florida firm, is going to trial over claims that he bribed a school district official with more than $50,000 in gifts. The trial has been pushed to March of 2012, in order for his defense to review documents.

Bob Williams, the former school official, plead guilty to conspiracy to commit bribery. He agreed to testify against Whann and M.M. Parrish Construction.

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CC&Rs Not the Place for Arbitration Agreement, Court Rules

In January, the California Court of Appeals ruled that an arbitration clause inserted in a development’s CC&Rs by the developer could not be enforced. The case, Villa Vicenza Homeowners Association v. Noble Court Development, involved a case in which, according to the opinion, “following the first sale Nobel controlled the board of directors of the Association and because the initial condominium buyers noticed defects in common areas and common facilities and did not believe Nobel had provided a reserve fund sufficient to repair the defects, the condominium owners brought a derivative action on behalf of the Association against Nobel.”

The court concluded, “The use of CC&R's as a means of providing contractual rights to parties with no interest in or responsibility for a common interest development is also problematic from the standpoint of determining what if any consideration would support such third-party agreements. By their terms the CC&R's bind all successors, even those with whom a third party such as Nobel has never had any contractual relationship and to whom Nobel has not provided any consideration.” The court determined that “the trial court did not err in denying Nobel's motion to compel arbitration.”

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Texas Law Bars Coverage under Homeowner’s Policy for Mold Damage

Although the insurer paid for some of the mold damage at the insured’s home, the Fifth Circuit eventually determined the homeowner’s policy did not cover such damage. Rooters v. State Farm Lloyds, 2011 U.S. App. LEXIS 12306 (5th Cir. June 15, 2011).

The policy excluded loss caused by hail to personal property unless the direct force of wind or hail made an opening in the roof allowing rain to enter. Further, the policy excluded loss caused by mold or other fungi.

In 1999, hail and rain caused water damage to the roof and interior of the residence. State Farm paid $19,000 to repair the roof. Another $1,800 was paid for repairs to the interior of the building. In 2002, the insured noticed black mold. State Farm issued an additional check for $4,402 for mold abatement.

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

Largest Per Unit Settlement Ever in California Construction Defect Case?

BusinessWire reports that the Chelsea Court Homeowners Association has settled their construction defect case for $5.4 million. That works out to $169,000 per unit, which BusinessWire describes as “California’s largest per-unit recovery known to be on record to date.”

Most of the money in the settlement is coming from insurance companies for the builder and thirteen subcontractors. Issues included roof and window leaks, deck failures, and unsafe walkways.

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Minnesota Starts Wide-Ranging Registration of Contractors

Minnesota has replaced its Independent Contractor Exemption Certificate program with the Contractor Registration Pilot Project, according to an article in the Martindale-Hubble Legal Library by Michael B. Lapicola. Mr. Lapicola notes that “it will be a violation of the law to contract with or perform construction services for another person without first being registered with the Pilot Project, or to contract with or pay another person to perform construction services if the other person is not registered with the Pilot Project. There are, however, quite a few exceptions, including those who are currently registered with the earlier program. Additionally, independent contractors who do not register can avoid the fine (up to $2,000) by registering within thirty days of fines being levied. Individuals and firms that do not perform building construction or improvements are exempt from the hiring aspects of the statute.

Minnesota’s goal is to “assist state agencies to investigate employee misclassification in the building industry.” Employees of construction firms do not individually register. Rather, the intent of the of law is to stop those who would “require any individual through coercion, misrepresentation or fraudulent means to adopt independent contractor status” or to “knowingly misrepresent or misclassify an individual as an independent contractor.”

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