Monthly Archives: September 2012

Allowing the Use of a General Verdict form in a Construction Defect Case could Subject your Client to Prejudgment Interest.

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David M. McLain – July 16, 2012

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.  In its opinion, the Court of Appeals acknowledged that the trial court’s award of prejudgment interest was pursuant to C.R.S. § 5-12-102.  The pertinent portion of this statute provides:

1   Except as provided in section 13-21-101, C.R.S., when there is no agreement as to the rate thereof, creditors shall receive interest as follows:

b Interest shall be at the rate of eight percent per annum compounded annually for all moneys or the value of all property after they are wrongfully withheld or after they become due to the date of payment or the date judgment is entered, whichever first occurs.

C.R.S. § 5-12-1021b.

Allied argued that the trial court should have awarded interest from the date of the verdict pursuant to Goodyear Tire & Rubber Co. v. Holmes, 193 P.3d 821 Colo. 2008, and Hildebrand v. New Vista Homes II, LLC, 252 P.3d 1159 Colo. App. 2010.  The Court of Appeals found Allied’s reliance on these cases misplaced as these cases concern damages for the cost of repairs whereby interest accrues from the date repairs are made.  Importantly, the Court of Appeals pointed out that in Goodyear and Hildebrand, the juries returned special verdict forms, which allowed the courts to calculate interest based specifically on the cost of repairs.  Id.

In the Hendricks case, the parties agreed to a general verdict form whereby the jury was instructed on the cost of repairs, as well as diminution of property value, and noneconomic damages.  As a result, the Court of Appeals could not determine which portion of the verdict, if any, was for the cost of repairs.  In its opinion, the Court of Appeals referred to a recent Colorado Supreme Court case, Ferrellgas, Inc. v. Yeiser, 247 P.3d 1022 Colo. 2011, wherein the Supreme Court affirmed the trial court’s calculation of prejudgment interest from the date the plaintiff’s home was initially damaged since the jury’s general verdict form lacked any basis to distinguish between the amount of damages awarded for the reasonable cost of repair and diminution in value concerning the calculation of prejudgment interest.  In accordance with these recent Colorado opinions, those defending property damage claims should insist on the use of a special verdict from to limit the exposure to their clients stemming from prejudgment interest.

via Colorado Construction Litigation: Allowing the use of a general verdict form in a construction defect case could subject your client to prejudgment interest..

Another Tool in the Fight in Construction Defects

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Advise & Consult, Inc. – September 26, 2012

It has become pretty common to see advertising on TV and radio for CarFax, a tool that would be used car buyers can use to find out what, if anything, has happened to that particular car prior to them purchasing that car.  They can find out if it was in a wreck, a flood, and if it has had any particular mechanical problems.  This tool can help you determine if you are still interested in buying that car, and if you are, what you are willing to pay.  Certainly a would be buyer wouldn’t pay the same price knowing that there have been some particular problems with the car.

Now, wouldn’t it make even more sense to have something similar to CarFax for an investment that will probably cost 20 – 50 times more than a used car?  I think that the only people that are not excited for these types of products are the crooks that are out there selling bad cars and homes with construction defects.  Well, I have found one such tool that will help solve some of these issues – www.housefaxreview.com.  Right now it looks like it is mostly centered around Nevada construction defects, but has the capability to expand to the entire country.  It currently has over 10,000 entries and growing.

Construction defects can be just as hidden to the untrained eye as mechanical problems are on cars, only now we can be talking about hundreds of thousands of dollars to repair some major construction defects, not to mention the cost and hardship associated with having to deal with the repairs, possible health problems, legal fees, among many other problems.

When you go to House Fax Review, you can search for a particular address, city or state and pull up information on the house(s) you are interested in purchasing.  For a very minimal fee – especially when you are talking about a $200,000 or more purchase – varying between $5 and $100, depending on the quality and quantity of the report, you can download a report, pictures and other factual information that can help you decide on buying that house.  Going into a purchase of this magnitude and as important as your family’s home, it is good to have these weapons and be aware of as much as you possibly can.

When there are construction defects present, the homeowner must either have the repairs made or disclose the defects when the sale is being made.  While having construction defects is a real problem and not fun to deal with, having these problems thrust upon you when you weren’t aware of them, assume that the house is fine, and paid the full price with the assumption that there were no problems.  If there are problems and you are aware of them going into the sale to begin with can be a blessing for both parties, but it can get ugly really fast when one party is trying to pull wool over another party’s eyes.

California Supreme Court Enforces Arbitration Provision in Construction Defect Case

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Timothy J. Toohey – September 14, 2012

In our December 2011 Under Construction newsletter, we reported on the tendency of certain California courts to decline to enforce arbitration provisions in construction defect cases. See Arbitration in California Construction Defect Cases After AT&T Mobility v. Concepcion. As we noted, California courts have continued after the U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion to evidence their long-standing hostility to arbitration provisions in consumer contracts, despite Concepcion’s clear message that invalidation of arbitration provisions could not be justified on grounds of unconscionability.

On August 16, 2012, the California Supreme Court threw its weight behind the enforceability of arbitration provisions by holding that a condominium owners’ association was bound by such a provision in the recorded declaration of covenants, conditions and restrictions (CC&Rs) when it brought a construction defect lawsuit against the condominium developer. Pinnacle Museum Tower Assoc. v. Pinnacle Market Development (US), LLC, et al., No. S186149 (Cal. Aug. 16, 2012).

The case involved the familiar scenario where a developer (Pinnacle) developed a mixed use residential and commercial common interest property and recorded CC&Rs governing the use and operation of the property pursuant to California’s Davis-Stirling Act, which governs the creation and operation of common interest developments. See California Civil Code § 1350 et seq. The CC&Rs, among other things, created an owners’ association (Association) responsible for managing and maintaining the property and specified that by accepting a deed for any portion of the property that the Association and each condominium owner would be required to have any construction disputes against developers resolved exclusively through binding arbitration in accordance with the Federal Arbitration Act (FAA) and the California Arbitration Act. The purchase agreements signed by individual owners included references to the CC&Rs generally and the arbitration provision specifically.

The Association filed a construction defect action against Pinnacle on behalf of itself and its owner-members and Pinnacle moved to compel arbitration. The trial court invalidated the agreement, primarily on the grounds of procedural unconscionability, and the Court of Appeal affirmed, again on the ground of unconscionability.

The California Supreme Court’s opinion, reversing the Court of Appeal, rested on two primary grounds – the binding nature of the CC&Rs and the fact that they were not unconscionable as regards to the Association.

The California Supreme Court found that the CC&Rs should be given binding effect, even if they do not fulfill common law requirements for equitable servitudes or the privity requirements of contracts, because recorded declarations act as contracts. Although the Association did not agree to the contract, the court found that it was bound by the fact that the owners of the condominium units (its exclusive members) had either “expressly consented or [are] deemed by law to have agreed to the terms in a recorded declaration.” The Association thus “should not be allowed to frustrate the expectations of the owners (and the developer) by shunning their choice of a speedy and relatively inexpensive means of dispute resolution.” The court also found that its conclusion was bolstered by the policies of the FAA, which would preempt “singling out an arbitration clause as the only term in a recorded declaration that may not be regarded as contractual in nature.”

The court also rejected the argument that the CC&Rs were unconscionable, finding that the fact that they were drafted and recorded before the sale of any units and without input from the Association was due to the “legislative policy choices embodied in the Davis-Stirling Act.” Although such declarations may be viewed as “adhesive,” the developer’s compliance with the act “provides a sufficient basis for rejecting an association’s claim of procedural unconscionability.” The court also found that the CC&Rs were not substantively unconscionable because the Association had not met its burden of finding that any aspect of the arbitration provision was “overly harsh or so one-sided that it shocks the conscience.” Indeed, the court found that the provision in question was consistent with the Davis-Sterling Act.

Although Pinnacle represents a definite “win” for condominium developers, it is worth reiterating that careful consideration of both the pros and the cons of arbitration is important when parties are involved in construction disputes. Knowledgeable counsel can be helpful when considering this issue.

via California Supreme Court enforces arbitration provision in construction defect case – Lexology.

Designation of Non-Parties at Fault in Construction Defect Cases is Not as Straightforward as it First Seems

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Jonathan M. Allen

In Colorado construction defect cases, defendants often designate non-parties at fault under a Colorado statute that allows for the fact-finder to apportion fault between parties and non-parties. See C.R.S. § 13-21-111.5(3). Issues frequently arise involving whether builders owe non-delegable duties of care, thus rendering designation of non-parties at fault improper, or whether apportionment of fault is appropriate when the theory of recovery is based on contract, rather than tort. No published appellate decision has addressed the issue head-on, so practitioners often look to trial court decisions for guidance.

Unfortunately, as is so often the case, Colorado trial courts are split on the issue. A recent decision from the Arapahoe County District Court determined that a homebuilder does not owe a non-delegable duty to the homeowner. See Marx v. Alpert Custom Homes, 10-cv-405, Order Regarding Plaintiffs’ Motion for Determination of a Question of Law (Arapahoe Co. Dist. Ct., Dec. 27, 2011). The trial court denied the plaintiffs’/homeowners’ request to strike the defendant’s/homebuilder’s designation of non-parties at fault on the theory that the homebuilder’s duty to plaintiffs was non-delegable. The court looked to A.C. Excavating v. Yacht Club II Homeowners Association, 114 P.3d 862 (Colo. 2005), which held that a subcontractor owed an independent duty of care to a homeowner. The Marx court reasoned that there would be no reason for the holding in Yacht Club II if the homebuilder’s duty to the homeowner was non-delegable. Consequently, the Marx court concluded that the homebuilder’s designation of its subcontractors as non-parties at fault was proper.

The issue also presents itself in the context where tort claims are barred by the economic loss rule, leaving a plaintiff with only a contract remedy. The question then is whether designation of non-parties at fault under a contract theory of recovery is proper. In Dwight v. R.A. Nelson & Associates, 09-cv-94, Order re: Plaintiff’s Motion for Determination of Questions of Law (San Miguel Co. Dist. Ct., March 12, 2010), the court concluded that designation of non-parties at fault was appropriate for a breach of contract claim. The court rejected the defendant’s argument that apportionment of fault to non-parties was inappropriate in a breach of contract action because a non-party must owe a duty to the plaintiff before designation of fault is appropriate. Thus, defendant argued, because only the parties to the contract owe duties to the other, no non-party to that contract could appropriately be designated. The court rejected this argument, concluding, “A party who breaches a contract should only be responsible for damages caused by the breach. When there are multiple causes of the damage, the jury must be given a way to apportion the damages among the various causes. The apportionment statute is a sensible and practical way for a jury to do just that.”

Other courts have reached different conclusions. For example, in Ashby Family Partnership v. Design Service & Construction, LLC, 10-cv-89, Order (Grand Co. Dist. Ct., March 11, 2011), the court concluded, without much analysis, that “[r]egardless of whether there are contract or negligence claims, a general contractor may not designate its independent contractor as a non-party at fault.”

Whether and under what circumstances designation of non-parties at fault is appropriate in a construction defect case has important consequences and impacts a defendant’s potential exposure, expert witness opinions and the presentation of one’s case to a jury. However, until a Colorado appellate court weighs in on the issue, practitioners and trial courts will continue to struggle with non-party designation of fault issues in construction defect cases.

via Under Construction – Fall 2012 | Snell & Wilmer L.L.P. – JDSupra.

The Strict Nature of Virginia Lien Apportionment Rules

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Christopher Hill – August 29, 2012

As always, thanks to Scott for the kind invitation to guest post here.  I always enjoy sharing a few nuggets of Virginia mechanic’s lien wisdom here at the Mechanic’s Lien Blog.

Mechanic’s liens are near and dear to Construction Law Musings.  Mechanic’s liens are a great weapon in the toolbox of any construction contractor in Virginia.  However, the rules for perfection of these liens are strict and failing to follow them to the letter will cause the lien to be thrown out.

The Loudoun County, Virginia Circuit Court issued another reminder of this fact in a recent opinion.  As a bit of background, Va. Code 43-3(B) contains provisions whereby a site contractor (or other contractor that provides work and material that benefits and entire subdivision) can file a single lien memorandum and apportion the burden of that lien on a per lot basis.  In order to do so, that contractor must also file a disclosure statement at the local courthouse in order to be able to lien common areas and the lots that are subdivided and sold.  Like everything relating to the proper recording and perfection of a Virginia mechanic’s lien, this statute creates strict technical requirements that the Virginia courts will strictly enforce.

In William A Hazel, Inc v Sycolin Center the Court faced a question of agreement between a disclosure statement filed by a site contractor and the lien filed by that same subcontractor.  The Court looked at a disclosure statement filed by the Plaintiff that listed 3 lots for the subdivision and properly allocated the amounts due per the statute.  However, when filing the lien, the site contractor only listed two of the lots found in the initial disclosure statement and then divided the total by 2 (the number of lots liened, not the number in the subdivision).  The Court examined past cases regarding mechanic’s liens, apportionment and errors and then threw out the lien as having been improperly apportioned.  For more details, be sure to read the case in its entirety, it contains a great analysis.

This case is yet another example of the need to be diligent in the filing of mechanic’s liens in the Commonwealth of Virginia.  These powerful tools will be strictly construed and the assistance of an experienced Virginia construction attorney can be invaluable in the proper perfection and enforcement of them.

via The Strict Nature of Virginia Lien Apportionment Rules.