Be a Good Neighbor: Techniques to Mitigate the Risk of Claims From Adjacent Landowners

Joshua Levy, Josh Neudorfer and Madeleine Bailey | Construction Executive

In May 2020, a real estate developer performing excavation work in New York was sued by a neighboring property owner for property damage. A court overturned an injunction preventing the developer from continuing excavation work after reviewing a preconstruction assessment that showed the damage to the neighboring property was preexisting—not caused by the excavation (see Feldman v. 3588 Nostrand Ave. LLC as an example)

A preconstruction assessment is one of the most important tools in the arsenal of a developer protecting itself from neighbors bringing claims for property damage. Part two of this series will review the benefits of risk mitigation tools recommended for developers such as postconstruction assessments and monitoring during construction.

PRECONSTRUCTION ASSESSMENT OVERVIEW

A preconstruction assessment is a review of a property adjacent to a site where demolition and/or construction activities are to take place. The goal of the assessment is to establish baseline conditions by conducting an inspection of buildings and infrastructure, including identification of existing damage to improvements, so that causation of any alleged damages can be more easily determined.

The types of construction activities that would warrant a preconstruction assessment include foundation work in close proximity of adjacent structures; overhead work such as scaffolding and overhead crane access; demolition work generally, and particularly where blasting work or explosives are used; delivery routes where heavy hauling will occur; and construction work above existing utilities or transportation lines (i.e. subway tunnels).

The following items should be included in a preconstruction assessment:

  • Location of the proposed structure and adjacent structures;
  • Evaluation of potential concerns and sensitive buildings and/or infrastructure;
  • Location and conditions of existing structures or monuments;
  • Existing roads and parking lots to be retained;
  • All utility lines, gas lines, phone lines or cable lines near the proposed construction area;
  • Any existing objects to be demolished, and any existing trees or vegetation to be retained;
  • Observed deficiencies and anomalies;
  • Identification of conditions such as background noise, lighting, vibrations, water conditions and ambient air quality sufficiently in advance of project commencement; and
  • Still photos, videos and survey documentation of existing conditions in addition to a written summary of findings.

Preconstruction Assessment Technology


The preconstruction assessment can be conducted using photo, video, survey tools including laser scanning, vibration monitoring equipment and a variety of other tools depending on the nature of the work being conducted. For example, decibel meters should be used when noisy work is anticipated, and passive and active collectors should be used when air quality will be affected. The preconstruction assessment should also evaluate subsurface conditions that are important to wave transmission such as localized geotechnical information and regional soil conditions and lithology. The preconstruction assessment can also be used to identify signs of structural issues on adjacent properties that should be monitored throughout the construction to monitor potential changes. The preconstruction assessment can ultimately be compared to a follow-up post-construction assessment to determine whether damage occurred during construction.

Who Should Conduct a Preconstruction Assessment?

A third-party engineering group should conduct the assessment to minimize conflicts of interest. The conducting party and the adjacent property owner may want to retain their own third-party investigators to provide separate condition assessments. This is acceptable, however, both parties should meet to review the condition assessments and confirm and agree as to the existing conditions on the neighboring property.

ESTABLISHING A REGULATORY BASELINE

In addition to establishing a baseline for structural site conditions, developers should consider involving relevant regulators in the project before project commencement, for example, by inviting the regulator to the jobsite prior to commencement. This way, the regulator is aware of baseline site conditions and is familiar with the site and the project scope. Early involvement of relevant regulators sets a productive tone for the relationship, and can be a cost-saving measure as it prevents delay-inducing surprises that can result from involving a regulator later in the project or after issues arise.

MONITORING DURING DEMOLITION/CONSTRUCTION

Monitoring during demolition and construction can allow developers to identify concerns quickly, allowing for rapid work modifications and proactive management of contractor behavior to limit more severe issues that might develop during field activities. Often, early discovery of a developing issue can lead to proper identification of the root source of the issue, potentially a source wholly unrelated to the work on site. Developers should consider use of monitoring tools that alert project managers of site conditions in real time.

The background assessment provides a key element to addressing potential concerns identified during the on-going monitoring process, as it allows for a comparison to baseline conditions. Monitoring detail will be addressed in part three of this series.

This is the second article in a three-part series. Part one reviewed how to avoid a lawsuit on a project in close proximity to other buildings.

Be a Good Neighbor: Protect Against Claims by an Adjacent Landowner During Construction

Joshua Levy and Madeleine Bailey | Construction Executive

There’s nothing like working in an office while pilings are being pounded into the ground next door, leading to crashing sounds of pile driving and the attendant afternoon headaches. Fortunately, that’s often the extent of a neighboring project’s real inconvenience. In other cases, however, construction in close quarters can mark the beginning of costly and emotional disputes, which can escalate to costly legal battles during and after construction.

NUISANCE AND STRUCTURAL DAMAGE CLAIMS

Construction claims are often based on the concept of “nuisance,” or on structural damage to adjacent property. Nuisance claims are typically based on noise and dust from construction sites, while structural damage claims are based on direct physical damage caused by neighboring demolition, vibrations, excavation and dewatering. These types of claims can result in monetary damages for neighbor plaintiffs, loss of permits for contractors and reputational damage to the developer.

In one recent case in New York City, the developer faces up to $10 million in damages in a lawsuit with a neighboring property owner. The developer was conducting excavation, dewatering and installation of steel sheet piles, which the plaintiff alleges caused its five-story building to settle and shift, rendering doors inoperable and causing extensive cracking and separation of floors and ceilings from walls and supports. The plaintiff filed its complaint on Jan. 24, 2019, and the lawsuit is ongoing, exemplifying that construction claims such as these can be time consuming and costly (Complaint, 642 East 14th St. v. 644 E. 14th Realty [N.Y. Sup. Ct. January 24, 2019]).

Non-monetary costs associated with adjacent property damage claims can also be steep. In one infamous Philadelphia case, a construction crew destroyed a shared foundation wall while working underground, causing the ceiling of the neighboring rowhouse to cave in, and the stairs to separate from the wall. The city ordered demolition of the neighboring house, revoked the contractor’s permits and ordered a district attorney investigation of the incident.



Nuisance claims can be similarly costly. In a Texas nuisance case, plaintiff homeowners sued a developer constructing a project near their homes, alleging that vibrations, lights and noise caused “loss of use and enjoyment” of their properties. The court upheld an award of more than $200,000 to the neighbors even though the developer held proper city permits. The court specifically relied on the facts that the contractor worked “around the clock” for approximately four months, including weekends and holidays, using bright lights placed directly behind the plaintiffs’ homes to illuminate the worksite at night. Some of this around-the-clock work included excavation work performed within 20 feet of one of the plaintiff’s homes. The court held that these actions were “abnormal and out of place.” ( C.C. Carlton Indus. v. Blanchard, 311 S.W.3d 654 [Tex. App.—Austin, 2010, no pet.])

RISK-MITIGATING MEASURES

High-risk projects in urban or high-density areas also put developers at risk of being sued by neighbors falsely claiming that preexisting damage was caused by the developer’s construction. Preconstruction surveys can save developers from opportunistic neighbors by debunking claims that they caused such damages.

One New York court reversed a previous injunction which prevented a developer from construction based on evidence shown in a preconstruction survey. In this case, the plaintiff alleged property damage resulting from excavation work. The court specifically relied on an independent engineering report showing that the damages alleged by the plaintiff were actually preexisting as shown by the preconstruction survey. (Feldman v. 3588 Nostrand Ave. LLC, 2020 NY Slip Op 31274 [U], ¶ 18 [Sup. Ct.])

Minimizing potential nuisance claims is a bit simpler. Developers can mitigate this risk by maintaining appropriate work hours and good worksite housekeeping practices. Also, developers should conduct a thorough review of the jurisdiction’s noise and vibration ordinances to ensure compliance. Proactive developers may consider visiting neighbors in advance to review the days and times when more obtrusive activities will take place.

Finally, while nuisance and structural damage claims can result in costly damage awards, the potential costs to goodwill between neighboring property owners should not be overlooked. Recognizing the disruption a project will cause and implementing disturbance mitigation measures can help owners and contractors avoid neighbor disputes.

This is the first article in a three-part series. Parts two and three will review preventative measures that can mitigate the relational fallout from construction incidents, and minimize the chances a construction project is tied up in costly and time consuming litigation.

No Longer in the Dark: A Primer on the Distinction between Delay and Disruption Damages in a Construction Dispute

Matthew DeVries | Best Practices Construction Law

If you are left in the dark about something, you don’t have the information you should have to make an informed decision.  Delay claims on a construction can be confusing, especially when you think about the delay to the work being performed and the disruption to other activities.  A few years ago, I found a case that shed some light on the delay v. disruption distinction.

In County of Galveston v. Triple B Services, LLP, decided on May 26, 2016, the Court of Appeals of Texas reviewed a contractor’s claim for damages on a road expansion project.  While the legal issue focused on the County’s right rely on the defense of sovereign immunity, the Contractor’s (and it expert’s) characterization of the damages was critical to the outcome of the case.  Since the applicable statute waives a county’s sovereign immunity for breach-of-contract damages that are “a direct result of owner-caused delays,” the Court had to decide whether disruption damages—as opposed to delay damages—were recoverable.

The Contract.  The County entered into an agreement with the Contractor to expand a three-mile stretch of road. Under the contract, the County was responsible for moving gas, water, and fiber-optic utilities.  According to the Contractor’s expert, the contract established a “baseline schedule … created by the County’s engineer,” which showed a starting date with unhindered access along the area of the road where the utilities were located. The contract allowed for “delay damages” if the Contractor’s request for those damages “is determined to be compensable.”

Owner-Related Delays.  Although the Contractor’s plans for the construction project anticipated that the County would move the utilities by a particular date, those utilities were moved almost one year later.  Nevertheless, the Contractor completed its work within the contract time.  According to the Contractor, it incurred additional costs to hand-form manholes, set and reset barricades, extended field office overhead, as well as additional labor, equipment, street cleaning, flagging, and traffic control—all of which resulted from the County’s delays in moving the utilities.

Sovereign Immunity Argument.  The County argued that Section 262.007 of the Local Government Code waives a county’s sovereign immunity for construction contracts involving claims for delay damages.  Here, the County relied heavily on the testimony of the Contractor’s expert witness who testified about the Contractor’s damages resulting from the County’s delays. Since the County did not timely move the utilities as anticipated in the original construction plan, that schedule of work was “disrupted.”  By seeking disruption damages, the County argued, the Contractor sought damages that were excluded from recovery under the statute.

So, are these delay damages or disruption damages?

On appeal, the Contractor agreed that its “disruption damages” do not meet the definition of “delay damages” as traditionally understood in the construction law arena. However, it argued that the statutory waiver of sovereign immunity for damages that are “a direct result of owner-caused delays or acceleration” includes more than “delay damages” as defined under construction law: “Disruption and lost productivity costs are … recoverable damages under the clear meaning of the words of the statute.”

The Court turned to the construction law bible written by Phillip Bruner and Patrick O’Connor to address the inquiry, noting that delay damages have a technical definition distinct from disruption damages:

 Delay damages refer to damages “arising out of delayed completion, suspension, acceleration or disrupted performance”; these damages compensate the contracting party that is injured when a project takes longer than the construction contract specified. . . .

Disruption damages, on the other hand, are for a project that may be timely completed but nevertheless includes disruption to the contractor and compensates it for “a reduction in the expected productivity of labor and equipment—a loss of efficiency measured in reduced production of units of work within a given period of time.” . . . Disruption damages can also be caused by an “event [that] both disrupts and delays a critical path activity….” A project that finishes on time but at greater expense because of disruptive events or scheduling errors presents a claim for disruption damages.

The Court’s Decision.  Based upon a plain reading of the statute, the Court concluded that Section 262.007 allows a claim for disruption damages against a county “if the disruption damages directly result from the county’s delay in performance of its contractual obligations….” Significantly, the statute did not distinguish between “delay damages” and “disruption damages” that are directly caused by the breaching party’s delay.

Lesson Learned.   According to the expert in this case, the Contractor incurred significant increased costs to finish the work on time. The Court’s opinion provides an excellent roadmap of the type of expert proof required to establish the damages sought by the Contractor, including the following:

  • The expert examined the “daily summaries” of work and “the manner [the project] was intended to be executed … [and] the manner by which the project was actually executed and some of the specific things that caused that deviation.”
  • Using this information, the expert testified that the Contractor had to adjust its approach to accommodate the County’s delay by “segmenting the work into smaller segments of the roadway, waiting on the utilities … just a various sundry of impacts that caused them to not be as productive from a direct labor standpoint.”
  • The “waiting on the utilities” caused the Contractor to waste “man-hours trying to deal with working around utilities and bouncing around back and forth and dealing with not being able to set barricades and … progress the roadway [in the way] that they thought they would be able to in an unhindered manner.”
  • The expert also testified that the Contractor had to add “a number of crews because they were working in so many different areas to try and progress the work….”
  • Finally, the expert opined that the Contractor’s clean-up crew also had to perform additional work because “whenever you slow down that progression and create situations where you’re excavating and you’re staging materials in one location[,] … you wind up with … more debris than if you were just moving in a steady progressive manner.”

Although the project in this case was finished on time and the Contractor never completely “stopped” its work, the Court readily found that the Contractor was “hindered” because of the County’s actions.  Since the type of recoverable damages include those that are “a direct result of owner-caused delays,” the Contractor could recover its disruption damages.

Don’t Forget to Certify Within Six Years: Recent Opinion Addresses Timeliness of Government Contractor’s Appeal

Douglas L. Patin, Aron C. Beezley & Amandeep S. Kahlon | Buildsmart

On May 19, 2020, the Federal Circuit upheld summary judgment against a government contractor for failure to file a claim timely within the six-year time limit prescribed by the Contract Disputes Act (CDA). In Electric Boat Corp. v. Secretary of the Navy, the Federal Circuit determined that the claim from the contractor, Electric Boat, accrued no later than August 15, 2005, the date when it first became entitled to a cost adjustment under its contract with the Navy. By certifying its claim more than seven years later, Electric Boat’s claim and appeal were untimely.

In 2003, Electric Boat signed a contract with the Navy to construct up to six submarines.  The contract included a change of law provision providing for a price adjustment if compliance with a change in federal law increased or decreased Electric Boat’s costs. For the first two years of the contract, no cost adjustment was allowed under that provision, but, after August 15, 2005, for cost increases in excess of $125,000, Electric Boat could qualify for an adjustment under the clause. The clause required that Electric Boat provide the Navy prompt notice of any change of law and submit a request for equitable adjustment for any cost increase.

In September 2004, OSHA issued a new regulation requiring Electric Boat to post a “fire watch” if certain conditions were present during “hot work” at its shipyard. Five months later, Electric Boat submitted a notice of change to the Navy stating that Electric Boat anticipated a cost increase from the new regulation in excess of $125,000. Electric Boat submitted a cost proposal to the Navy in 2007, and the Navy formally denied the proposal in May 2011.

After certifying its claim in December 2012 and receiving a Final Contracting Officer’s Decision from the Navy denying the claim, Electric Boat filed an appeal with the Armed Services Board of Contract Appeals (ASBCA). The Navy moved for summary judgment, arguing that Electric Boat did not file its claim within the six-year limitations period provided under the CDA. The ASBCA agreed, finding that Electric Boat knew of its claim no later than February 2005 and suffered injury no later than August 15, 2005. Because Electric Boat did not certify its claim until December 2012, some seven years later, the claim was untimely.

Electric Boat appealed the ASBCA’s decision to the Federal Circuit. Affirming the ASBCA’s decision, the Federal Circuit noted that claims under the CDA must be submitted within six years of “accrual.” Per the Federal Circuit, claim accrual is set as “the date when all events, that fix the alleged liability of either the Government or the contractor and permit assertion of the claim, were known or should have been known,” and, while monetary damages need not have been incurred, “for liability to be fixed, some injury must have occurred.”

Per the Federal Circuit, the Navy’s liability became fixed for purposes of claim accrual on August 15, 2005, when Electric Boat became eligible for costs associated with the new OSHA regulation under the change of law clause. The Federal Circuit rejected Electric Boat’s argument that its claim did not accrue until formal denial of its cost proposal in May 2011. The Federal Circuit found that, in the absence of any “mandatory pre-claim procedures” that prevented certification of Electric Boat’s claims, the date for claim accrual should not be linked with the May 2011 denial. The contract did not require Electric Boat to await a unilateral price adjustment or denial from the Navy prior to filing a claim, so the formal denial by the Navy did not excuse Electric Boat’s failure to timely file its claim in accordance with the CDA six-year limitations period.

The Federal Circuit’s decision in Electric Boat is an important reminder for government contractors to be conservative when calculating the time for filing any certified claims against the government. Government review of potential changes and requests for equitable adjustment can lag substantially during a project and even extend well-beyond project completion. However, the government’s delay in reviewing and assessing requests for equitable adjustment will not toll the running of the statute of limitations under the CDA for filing a certified clam. When you first anticipate a claim might require appeal to the U.S. Court of Federal Claims, the ASBCA or the Civilian Board of Contract Appeals, it is a good idea to calendar a date six years from the earliest date when your claim may have accrued regardless of whether you have received a response to a request for an equitable adjustment. Being mindful of the limitations period will help you avoid Electric Boat’s unfortunate fate.

An Insurer’s Duty to Defend does not Extend to a Construction Claim that Falls Clearly Within a Policy Exclusion

Amandeep Kahlon and Alex Purvis | Build Smart

On May 14, 2020, in James G. Davis Constr. Corp. v. FTJ, Inc., the Virginia Supreme Court upheld a judgment on an unjust enrichment claim in favor of FTJ, a drywall supplier on a condominium project, against Davis, the general contractor. Notably, FTJ did not have a purchase order with Davis, but FTJ was able to rely on the existence of a joint check agreement and Davis’s multiple assurances regarding payment and the resulting inducement for FTJ to continue performance to succeed on its theory of unjust enrichment.

Davis subcontracted with a drywall company to complete the drywall and metal framing for the building. The subcontractor hired FTJ to supply the drywall materials for the project. According to the court, to ensure the smooth operation of the project, Davis, its subcontractor, and FTJ executed a joint check agreement for Davis to make any and all checks out to both the subcontractor and its supplier. When the subcontractor fell behind on invoices for drywall, FTJ repeatedly contacted Davis about these past due payments, and each time, Davis assured FTJ that a check had been written or would be written for the materials at issue. As a result, FTJ continued to ship materials that it would have typically withheld on a past due account. During these interactions, Davis learned that its subcontractor was having trouble meeting payment obligations and worried that it would be unable to pay FTJ for materials.

When the subcontractor defaulted, Davis requested that FTJ not ship further materials and, again, assured FTJ that there were funds available to pay FTJ on past due amounts. FTJ did not file a lien, in part, because of its confidence that Davis would satisfy its subcontractor’s debts. However, after terminating the subcontractor, Davis incurred additional costs to complete the subcontractor’s work and informed FTJ that Davis could only pay a fraction of the past due invoices. FTJ filed suit, and, after finding the joint check agreement void for lack of consideration, the trial court ruled in FTJ’s favor on its claim for unjust enrichment.

On appeal, Davis argued the trial court decision should be overturned based on the following:

  1. The joint check agreement was valid, and the existence of a contract covering the subject matter of a dispute precluded recovery for unjust enrichment.
  2. The unjust enrichment claim should be barred because it forced Davis to pay for the same goods twice, first, under the subcontract and, again, under the court’s judgment.
  3. Because the joint check agreement required Davis to make payments only when Davis actually owed money to the subcontractor, and no such payments were actually owed, FTJ failed to satisfy one of the key elements of an unjust enrichment claim — that a defendant must reasonably have expected to repay the plaintiff for the benefit conferred.

The Virginia Supreme Court rejected each of these arguments finding:

  1. The existence of the joint check agreement, even if valid, did not foreclose recovery under a theory of unjust enrichment, where the benefit conferred was outside the scope of that agreement. The court concluded the joint check agreement governed the parties’ interactions only as to the form of payment, and, thus, FTJ’s claim regarding nonpayment of delivered materials fell outside the plain terms of the joint check agreement. The court also reasoned that Davis’ repeated assurances that it would pay FTJ for materials after the subcontractor fell behind on payment created separate expectations regarding payment outside the confines of the joint check agreement.
  2. Davis was not being asked to pay twice for the same goods because the dispute with FTJ involved payment for specific supplies and not the overall cost of the project. The evidence established that Davis did not pay for the delivered materials, Davis used the materials, and, absent those materials, Davis would have had to procure replacement supplies elsewhere, so, the court reasoned, Davis was only being required to pay once for those materials.
  3. The language in the joint check agreement limiting Davis’s obligation to payment for amounts actually owed to the subcontractor was undone by Davis’s course of conduct in repeatedly assuring FTJ of payment to induce further delivery of materials. Based on that course of conduct, the trial court could plausibly conclude that Davis expected to pay for the drywall delivered by FTJ.

In upholding the trial court’s decision, the Virginia Supreme Court emphasized the narrowness of its holding as to the specific facts at issue. The court appeared particularly troubled by Davis’s intrusion into the subcontract-supplier relationship by providing repeated promises of payment to encourage FTJ’s continued performance. The opinion also includes a lengthy dissent criticizing a number of legal positions staked out by the majority.

What lessons can be learned from this decision?

Under these circumstances, any broad takeaways or lessons from the court’s ruling are limited. The decision creates as many questions as it answers.  For example, progress billings often do not itemize expenditures from individual suppliers, but the court’s decision suggests a contractor will not be able to rely on progress payments to demonstrate payment of suppliers whose work should have been incorporated into the work during the applicable pay period.  How, then, can a contractor be expected to avoid double payment for work when sub-subcontractor raises a claim for unjust enrichment?

Regardless, contractors should be mindful of the court’s approach in Davis. Strong legal arguments will not always be enough to overcome certain factual scenarios, and the reverse may also be true. The dispute in Davis was only over $160,000, and after extensive and expensive litigation, the court found the contractor responsible for the full amount. To avoid unfortunate and unpredictable results like the decision in Davis, it is important to spend time evaluating claims on the front end and exploring reasonable commercial resolutions to any dispute.