Where Pragmatism and Law Collide

Christopher G. Hill | Construction Law Musings

If there is one “theme” to Construction Law Musings, those that read regularly hopefully see that I take my role as counselor to construction companies seriously.  Aside from the fact that litigation and arbitration are both expensive and not a great way for any business, particularly a construction business, to make money, I have found construction professionals to be a pragmatic group of people that would rather solve a problem than go to court.

I have also discussed the need for a good foundation for the project in the form of a well drafted and properly negotiated contract.  This contract sets out the rights of the parties and essentially makes the “law” for your construction project.  Virginia courts will not renegotiate the terms for you and while this can lead to problems where parties either don’t understand the terms or don’t work to level the terms, it does mean that the parties know what the expectations are where the expectations are properly set, preferably with the help of your friendly neighborhood construction attorney and counselor at law.  Practical considerations such as your feel for the other party and which terms are worth forgoing the work for should drive your considerations almost as much as the legal implications.

With a good contractual foundation, hopefully you won’t ever have to call your attorney to deal with a dispute (at least in a “public” sense).  While I highly recommend getting advice early and often when you see a problem coming down the pike (and there will be problems), be practical about whether you want to use any of the “hammers” in the contract (which can range from termination to stopping work to arbitration).  The first and likely best option is to try and work through the problem and figure out a solution.  The least expensive and fastest way to get through to the end of a project that has problems almost never to terminate a subcontractor or walk off a job.  While these are proper in the right circumstances from a legal standpoint, they lead to additional issues, non-payment, mechanic’s liens, and in the end litigation or arbitration.

While I come from a litigation background, and litigate more often than I’m sure my clients would like, most often the practical approach, with a healthy dose of understanding the contract and the law, will get a construction project to the end and resolve issues in a less expensive and more satisfactory manner.

South Carolina Supreme Court’s Quiet Erosion of Insurers’ Attorney-Client Privilege Rights

Roben West | Property Casualty Focus

One decision that flew under the radar in 2019 continues the recent trend of courts to dispense, under among other things the previously discussed “at-issue” waiver doctrine, with insurers’ fundamental rights to confidentiality with respect to legal advice. In the June 2019 decision In re Mt. Hawley Insurance Co., No. 2018-001170 (S.C. June 12, 2019), South Carolina directed, in response to a certified question from the Fourth Circuit Court of Appeals, the circumstances under which it decided that an insurer no longer has a right to confidential attorney-client communications in bad faith cases.

The insurance dispute stemmed from various alleged construction defects plaguing a residential development. The insurer issued an excess commercial liability policy to the construction company that was responsible for constructing the residential development. Upon the discovery of alleged construction defects, the development’s homeowners association sued the construction company. Eventually, the construction company settled with the homeowners association and assigned its interest in the excess policy to the homeowners association.

In response to the insurer’s coverage denial, both the insured and the construction company filed a bad faith action in state court, which was removed to federal court shortly thereafter. During discovery, the insurer relied on the attorney-client privilege to withhold several documents from the plaintiffs. Arguing that the insurer’s denial of bad faith implicated the “at-issue” exception and established the insurer’s waiver of the attorney-client privilege, the plaintiffs filed several motions to compel, resulting in in-camera inspection of the documents. The insurer sought a writ of mandamus to avoid the production, and the Fourth Circuit certified the following question to the South Carolina Supreme Court:

Does South Carolina law support application of the “at issue” exception to attorney-client privilege such that a party may waive the privilege by denying liability in its answer?

The court began its analysis by surveying South Carolina bad faith law and the various approaches surrounding the implied attorney-client privilege waiver in the bad faith context. The court adopted a “middle-ground” case-by-case approach, finding the rule less harsh than establishing a per se waiver every time an insurer defends a bad faith action by denying bad faith or asserting good faith but more stringent than an absolute application of the privilege.

The court acknowledged that as it relates to implied waiver and the at-issue exception to the attorney-client privilege, insurers are often stuck between “Scylla and Charybdis” because it is difficult to respond or otherwise defend a bad faith action without asserting that it investigated the claim in good faith and evaluated the applicable law. The court clarified that it is when the insurer affirmatively alleges that its actions were based on its reasonable good faith belief and its subjective belief — which was informed by advice of counsel — that the court found that the privilege must give way.

The court did not comment on the potential policy implications of a rule that encourages insurers and their counsel to reduce the scope of what they are willing to commit to paper.

Defining A Win In Litigation

Drew York | Gray Reed & McGraw | October 31, 2019

Does a “win” in litigation require a final judgment in your favor? Not necessarily. Litigation “wins” are defined by the circumstances facing a party at the outset of litigation, and how those circumstances change as litigation progresses. Over the next few months we will dive deeper into this topic, and talk about issues such as:

  • Taking the emotion out of litigation: why being cool, calm and objective reduces the cost and strain of disputes;
  • Why it is important to have clear, comprehensive communication and buy-in between the client and attorney concerning the client’s goals in the litigation, and the game plan the attorney and client intend to follow during the case;
  • Good navigators: why constantly re-evaluating litigation is crucial to meeting your goals;
  • Why the distraction of litigation is a “hidden” additional costs to your company;
  • The benefits of resolving a dispute prior to litigation;
  • Mitigating the plaintiff’s damage recovery at trial can be just as good of a win;
  • Reputation matters: how your stance in litigation conveys a message to your vendors, competitors, and even your employees; and
  • The big picture: how will the outcome of this litigation affect my business relationships going forward?

Tilting the Scales in Your Favor

Do not necessarily assume that you must get a final judgment in your favor to “win” the outcome of a particular piece of litigation. There are many ways in which your company can win a dispute short of a judgment. Those that understand all of these interconnected avenues are best equipped to handle the “ups” and “downs” that come with protracted litigation.

The Concrete (Legal) Jungle

Victor Metsch | Smith Gambrell & Russell | November 21, 2019

Serge Somrov purchased apartment 7A at the Bay Parkway Terrace  Condominium. After moving in Somrov replaced the floor of the terrace with Board approval.

Ten years later, Somrov was told that a leak on his terrace was causing water damage to the apartment below. Pursuant to the By-Laws Somrov was required to remove the tiles he installed as well as the cement underneath. And Bay Parkway was obligated to install waterproofing  after which Somrov could re-install the tiles. Somrov  removed the tiles but did not remove the cement. Bay Parkway refused to install the waterproofing until the cement was removed.

Somrov sought a preliminary injunction that required Bay Parkway to remove the cement and install the waterproofing.

To obtain a preliminary injunction, Somrov was required to demonstrate: a likelihood of success on the merits; an irreparable injury absent the injunction; and a balancing of the equities in his favor. The for the injunction was the allegations that Bay Parkway refused to install the waterproofing without a valid justification. Thus, Somrov argued that Bay Parkway Terrace was insisting that he “remove not only my tiles and adhesive, but the original concrete floor down to the existing layer of waterproofing material. The original concrete and the existing layer of waterproofing was not affected by either the installation of my original tiles, nor their removal.”

Bay Parkway’s By-Laws stated, concerning the terrace, that the owner of the unit must install “protective decking” and was responsible for the maintenance of any decking installed as well as the “repair or replacement of surface material where damaged”. The  By-Laws  also stated that Bay Parkway was responsible for “structural elements, such as rafters, bulkheads, etc.”

Somrov was clearly required  to remove the tiles and the surface material of the terrace. Bay Parkway argued that  the concrete was a  surface material which was the responsibility of Somrov.

The Court found that was a question of whether or not the concrete should be considered sub-surface material, a distinct category. There were further questions whether Somrov removed all the tiles and glue which he was obligated to do. Thus, while it was true that a preliminary injunction could be granted where some facts are in disputes, some evidence of likelihood of success must be presented. Therefore, when “key facts” are in dispute and the basis for the injunction rests upon “speculation and conjecture” the injunction must be denied.

In this case the entire basis for Somrov’s request was subject to factual and legal questions, namely which party was responsible to remove the sub-surface concrete. While Somrov insisted it was the responsibility of Bay Parkway  considering the nature of the material, there remained questions whether the responsibility rested with Bay Parkway  Since Somrov did not demonstrate a likelihood of success on the merits, the motion seeking a preliminary injunction was denied.

In This Case, The “Crux Of The Biscuit” Was The Missing Apostrophe

Keith Bishop | Allen Matkins | November 8, 2019

Consider the following provision of in a contract between a general contractor and a subcontractor:

“Ten percent (10%) of Subcontractor’s contract amount shall be withheld and will be released 35 days after completion of subcontractors work.”

After the subcontractor abandons the job, the general contractor refused to pay the 10% retention even after the job is completed by another subcontractor.  The subcontractor argued that the reference to “subcontractors” (no apostrophe) must mean any subcontractor, not just itself.  Thus, it was entitled to payment of the retention when the replacement subcontractor finished the job.  The general contractor took the position that “subcontractors” refers to the first sub-contractor and since it did not finish the job, it is owed nothing more.  Who won?

The trial court found for the general contractor and the Court of Appeal affirmed based on a literal interpretation. Regency Midland Constr. v. Legendary Structures, 2019 Cal. App. LEXIS 1110.  The Court of Appeal supported its holding by referring to the purpose of the retention clause – to ensure proper performance.

“He said: “IT DOESN’T, ‘n YOU CAN’T!”

Why we use an apostrophe to denote possession is somewhat mysterious.  The word is derived from two Greek words, ἀπό (meaning away from) and στρέφειν (meaning to turn away).  Thus, an apostrophe is used to denote an elision.  In can’t, for example, the apostrophe denotes the elision of no.  But what does elision have to do with possession.  In Old English, singular possessives were often formed by adding es to a word.  For example, the singular possessive of the Old English word for ship, sċip, is sċipes.  The theory is that the apostrophe was used to denote the elision of the e.