History of Defects Leads to Punitive Damages for Bankrupt Developer
March 01, 2012 —
CDJ STAFFThe South Carolina Court of Appeals has ruled that evidence of construction defects at a developer’s other projects were admissible in a construction defect lawsuit. They issued their ruling on Magnolia North Property Owners’ Association v. Heritage Communities, Inc. on February 15, 2012.
Magnolia North is a condominium complex in South Carolina. The initial builder, Heritage Communities, had not completed construction when they filed for bankruptcy protection under Chapter 11. The remaining four buildings were completed by another contractor. The Property Owners’ Association subsequently sued Heritage Communities, Inc. (HCI) alleging defects. The POA also sued Heritage Magnolia North, and the general contractor, BuildStar.
The trial court ruled that all three entities were in fact one. On appeal, the defendants claimed that the trial court improperly amalgamated the defendants. The appeals court noted, however, that “all these corporations share officers, directors, office space, and a phone number with HCI.” Until Heritage Communities turned over control of the POA to the actual homeowners, all of the POA’s officers were officers of HCI. The appeals court concluded that “the trial court’s ruling that Appellants’ entities were amalgamated is supported by the law and the evidence.”
Heritage also claimed that the trial court should not have allowed the plaintiffs to produce evidence of construction defects at other Heritage properties. Heritage argued that the evidence was a violation of the South Carolina Rules of Evidence. The court cited a South Carolina Supreme Court case which made an exception for “facts showing the other acts were substantially similar to the event at issue.” The court noted that the defects introduced by the plaintiffs were “virtually identical across all developments.” This included identical use of the same products from project to project. Further, these were used to demonstrate that “HCI was aware of water issues in the other projects as early as 1998, before construction on Magnolia North had begun.”
The trial case ended with a directed verdict. Heritage charged that the jury should have determined whether the alleged defects existed. The appeals court noted that there was “overwhelming evidence” that Heritage failed “to meet the industry standard of care.” Heritage did not dispute the existence of the damages during the trial, they “merely contested the extent.”
Further, Heritage claimed in its appeal that the case should have been rejected due to the three-year statute of limitations. They note that the first meeting of the POA was on March 8, 2000, yet the suit was not filed until May 28, 2003, just over three years. The court noted that here the statute of limitation must be tolled, as Heritage controlled the POA until September 9, 2002. The owner-controlled POA filed suit “approximately eight months after assuming control.”
The court also applied equitable estoppel to the statute of limitations. During the time in which Heritage controlled the board, Heritage “assured the unit owners the construction defects would be repaired, and, as a result, the owners were justified in relying on those assurances.” Since “a reasonable owner could have believed that it would be counter-productive to file suit,” the court found that also prevented Heritage from invoking the statute of limitations. In the end, the appeals court concluded that the even apart from equitable tolling and equitable estoppel, the statute of limitations could not have started until the unit owners took control of the board in September, 2002.
Heritage also contested the jury’s awarding of damages, asserting that “the POA failed to establish its damages as to any of its claims.” Noting that damages are determined “with reasonable certainty or accuracy,” and that “proof with mathematical certainty of the amount of loss or damage is not required,” the appeals court found a “sufficiently reasonable basis of computation of damages to support the trial court’s submission of damages to the jury.” Heritage also claimed that the POA did not show that the damage existed at the time of the transfer of control. The court rejected this claim as well.
Finally, Heritage argued that punitive damages were improperly applied for two reasons: that “the award of punitive damages has no deterrent effect because Appellants went out of business prior to the commencement of the litigation” and that Heritages has “no ability to pay punitive damages.” The punitive damages were upheld, as the relevant earlier decision includes “defendant’s degree of culpability,” “defendants awareness or concealment,” “existence of similar past conduct,” and “likelihood of deterring the defendant or others from similar conduct.”
The appeals court rejected all of the claims made by Heritage, fully upholding the decision of the trial court.
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New York Bridge to Be Largest Infrastructure Project in North America
October 22, 2013 —
CDJ STAFFNew York’s Tappan Zee Bridge is going to be replaced by the New NY Bridge, but it might be a while in coming. Work has begun, but the project is expected to last most of the next five years. Howard P. Milstein, chairman of the Thruway Authority notes that “the New NY Bridge is the largest transportation infrastructure project in North America and one of the largest construction contracts in New York State history.”
The current bridge was designed for 100,000 vehicles daily, or about 38,000 fewer than cross the bridge each day. Maintenance costs have been hundreds of millions of dollars in the last few years. The cost of the new bridge is expected to be less than $4 billion. The initial estimate was that it would cost more than $5 billion to build the new bridge.
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Homebuilding on the Rise in Nation’s Capitol
November 07, 2012 —
CDJ STAFFIs the homebuilding crunch over in DC? The Washington Post has reported that while new home construction is up throughout the country, in the DC area, construction has reached levels last seen in 2006. From January to August 2012, there were more than 19,000 building permits issued in the area, nearly doubling the number issued by that point in 2011.
While building is on a quicker pace, what’s being built has changed. As compared to 2006, there are more townhomes, condos, and smaller homes being built. The article notes that 11 percent of new construction is condos, while in 2006, it was only 5 percent.
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Professional Liability Alert: Joint Client Can't Claim Privilege For Communications With Attorney Sued By Another Joint Client
February 05, 2015 —
David W. Evans and Stephen J. Squillario – Haight Brown & Bonesteel LLPIn Anten v. Superior Court (No. B258437 – Filed 1/30/2015), the Second Appellate District held that when joint clients do not sue each other, but one of them sues their former attorney, the nonsuing client cannot prevent the parties to the malpractice suit from discovering or introducing otherwise privileged attorney-client communications made in the course of the joint representation.
Under California Evidence Code §958, in lawsuits between an attorney and a client based on an alleged breach of a duty arising from their attorney-client relationship, communications relevant to the alleged breach are not protected by the attorney-client privilege. Similarly, Evidence Code §962 provides that if multiple clients retain or consult with an attorney on a matter of common interest and the joint clients later sue each other, then the communications between either client and the attorney made in the course of that relationship are not privileged in the suit between the clients.
Reprinted courtesy of
David W. Evans, Haight Brown & Bonesteel LLP and
Stephen J. Squillario, Haight Brown & Bonesteel LLP
Mr. Evans may be contacted at devans@hbblaw.com; Mr. Squillario may be contacted at ssquillario@hbblaw.com
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Toolbox Talk Series Recap – Best Practices for Productive Rule 26(f) Conferences on Discovery Plans
May 13, 2024 —
Douglas J. Mackin - The Dispute ResolverIn the April 4, 2024 edition of Division 1’s Toolbox Talk Series,
Julian Ackert and
Steve Swart presented on how to prepare for and structure Rule 26(f) conferences to be more effective. While Swart and Ackert focused on the requirements of Federal Rule of Civil Procedure 26(f) regarding the requisite conference of the parties prior to a scheduling conference or scheduling order, it is worth noting that many states have substantially similar requirements.
Rule 26(f) requires the parties to (i) discuss the nature and basis of their claims or defense; (ii) make or arrange for mandatory disclosures pursuant to Rule 26(a)(1); (iii) discuss issues about preserving discoverable information (including Electronically Stored Information – “ESI”); and (iv) develop a proposed discovery plan. Swart and Ackert’s presentation focused on the preservation of ESI and the proposed discovery plan.
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Douglas J. Mackin, Cozen O’ConnorMr. Mackin may be contacted at
dmackin@cozen.com
Indictments Issued in Las Vegas HOA Scam
January 22, 2013 —
CDJ STAFFA federal grand jury has indicted eleven individuals involved in the Las Vegas homeowners association scam. Leon Benzer, Keith Gregory, and Barry Levinson were all indicted for their roles in the scam, where conspirators took over homeowners associations in order to profit from construction defect suits. According to the Las Vegas Review Journal, all eleven were charged with conspiracy to commit mail and wire fraud. Mr. Levinson's license to practice law has been suspended due to an investigation that he misappropriated client funds. Mr. Benzer has been described as the "mastermind" of the scam.
Twenty-eight defendants have plead guilty, with all but one agreeing to cooperate with investigators. The report quotes William C. Woerner, the acting special agent in charge of the FBI in Las Vegas, as saying that "today's indictment demonstrates the continued commitment of the FBI and its law enforcement partners to identify and root out public corruption at all levels."
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AB5 Construction Exemption – A Checklist to Avoid Application of AB5’s Three-Part Test
February 18, 2020 —
Blake Dillion - Payne & Fears LLPConstruction companies have a unique opportunity to avoid the application of the restrictive new independent contractors law that took effect this year. This article provides a checklist that will help construction companies determine whether their relationships with subcontractors qualify for this exemption.
California’s Assembly Bill 5 (“AB5”), which went into effect Jan. 1, 2020, enacts into a statute last year’s California Supreme Court decision in
Dynamex Operations West, Inc. v. Superior Court, 4 Cal. 5th 903 (2018), and the Court’s three-part standard (the “ABC test”) for determining whether a worker may be classified as an employee or an independent contractor.
Certain professions and industries are potentially exempt from this standard, including the construction industry. The ABC test does not apply to the relationship between a contractor and an individual performing work pursuant to a subcontractor in the construction industry, if certain criteria are met. In order for the “construction exemption” to apply, the contractor must demonstrate that all of the following criteria are satisfied.
- The subcontract is in writing;
- The subcontractor is licensed by the Contractors State License Board and the work is within the scope of that license;
- If the subcontractor is domiciled in a jurisdiction that requires the subcontractor to have a business license or business tax registration, the subcontractor has the required business license or business tax registration;
- The subcontractor maintains a business location that is separate from the business or work location of the contractor;
- The subcontractor has the authority to hire and to fire other persons to provide or assist in providing the services;
- The subcontractor assumes financial responsibility for errors or omissions in labor or services as evidenced by insurance, legally authorized indemnity obligations, performance bonds, or warranties relating to the labor or services being provided; and
- The subcontractor is customarily engaged in an independently established business of the same nature as that involved in the work performed.
The contractor must be able to establish each of the above criteria for the construction exemption to apply. If the contractor is successful, the long standing multi-factor test for determining independent contractor vs. employee status as described in
S.G. Borello & Sons, Inc. v. Dep’t of Industrial Relations, 48 Cal. 3d 341 (1989) will apply.
You should review your processes and procedures for engaging subcontractors to ensure that you can satisfy the above criteria. If you have questions about the application of AB5, the construction exemption, or the
Borello factors, you should speak with an attorney.
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Blake A. Dillion, Payne & FearsMr. Dillion may be contacted at
bad@paynefears.com
How AB5 has Changed the Employment Landscape
March 16, 2020 —
Jason Morris – Newmeyer DillionAs a result of California's Assembly Bill 5, effective January 1, 2020, the California Supreme Court's ABC test is now the standard for evaluating independent contractor classifications for purposes of the Industrial Welfare Commission Wage Orders, California Labor Code, and the California Unemployment Insurance Code. That dramatically ups the ante for companies that rely on independent contractors, particularly those that have not re-evaluated such classifications under the ABC test.
Misclassification cases can be devastating, especially for misclassified non-exempt employees, and can result in minimum wage violations, missed meal and rest periods, unpaid overtime, unreimbursed business expenses, record-keeping violations, steep penalties, attorneys' fees, and even criminal liability, among other consequences. Misclassifying workers creates enormous risks for companies and is fertile ground for class actions and representative actions under the Private Attorneys General Act (PAGA).
The Costs Of Misclassification Are Expensive, And Hope Is Not A Strategy
Many business owners I speak to understand AB5 has caused the ground to shift beneath their feet and recognize the resulting risks of misclassifying workers. Despite these risks, companies often balk at taking the necessary steps to evaluate their classifications and mitigate the risk of an adverse classification finding.
The most common reason I hear from resistant companies is the worker does not want to be reclassified as an employee and the company trusts the worker ("I've worked with her for years; she won't sue me because she wants to be a contractor"). I get it. Making the change from contractor to employee results in less flexibility and greater administrative burden for everyone involved. While I'm sympathetic, the government is not. Reluctance to change while acknowledging the associated risks amounts to a strategy based on hope. As we say in the Marine Corps, however, "hope is not a strategy."
Aside from the sometimes foolhardy belief that a misclassified worker can be trusted to not file suit after a business breakup (when the deposits stop and mortgage bill comes due, guess who's a prime target), companies often fail to recognize the numerous ways in which their classification decisions can be challenged even when they are in agreement with their (misclassified) contractors. Here are just three examples of how your classifications can be scrutinized despite the lack of a challenge by the worker:
- Auto Accidents: Whether delivering products, making sales calls, or traveling between job sites, independent contractors often perform work that requires driving. Of course, sometimes drivers are involved in automobile accidents. When accidents happen, insurance companies step in and look for sources of money to fund claims, attorneys' fees, costs, and settlements. One potential source is your insurance. "But the driver isn't my employee!," you say. You better buckle up because the other motorist's insurance carrier is about to challenge your classification in an attempt to access your insurance policies.
- EDD Audits: During the course of the last several years, the California Employment Development Department (EDD) has increased the number of verification (random) audits it performs in search of additional tax revenue. One reason government agencies prefer hiring entities classifying workers as employees rather than independent contractors is it's a more efficient tax collection method; employers collect employees' taxes on the government's behalf, which increases collection rates and reduces government collection costs. The consequences of misclassification include pricey fines, penalties, and interest.
- Unemployment Insurance, Workers' Compensation, and Disability Claims: In addition to verification audits, the EDD performs request (targeted) audits. Targeted audits may result when a contractor files an unemployment insurance, workers' compensation, or disability claim because independent contractors are ineligible for such benefits. Request audits, like verification audits, can result in costly fines, penalties, and interest if the EDD concludes you have misclassified your workers. Even so, that may not be the worst of it: the EDD often shares its findings with the Internal Revenue Service.
Your Action Plan
AB5 has changed the measuring stick, misclassification costs are high, and you do not have complete control of when the government or others can challenge your classifications. So what can you do? Here are several steps all prudent companies should take if they are using independent contractors:
- Conduct an audit of current classification practices;
- Review written independent contractor agreements;
- Implement written independent contractor agreements;
- Update workplace policies;
- Update organizational charts;
- Reclassify independent contractors as employees if necessary.
Jason Morris is a partner in the Newport Beach office of Newmeyer Dillion. Jason's practice concentrates on the areas of labor and employment and business litigation. He advises employers and business owners in employment litigation, as well as advice and counsel related to employment policies and investigations. You can reach him at jason.morris@ndlf.com.
About Newmeyer Dillion
For 35 years, Newmeyer Dillion has delivered creative and outstanding legal solutions and trial results that achieve client objectives in diverse industries. With over 70 attorneys working as a cohesive team to represent clients in all aspects of business, employment, real estate, environmental/land use, privacy & data security and insurance law, Newmeyer Dillion delivers holistic and integrated legal services tailored to propel each client's success and bottom line. Headquartered in Newport Beach, California, with offices in Walnut Creek, California and Las Vegas, Nevada, Newmeyer Dillion attorneys are recognized by The Best Lawyers in America©, and Super Lawyers as top tier and some of the best lawyers in California and Nevada, and have been given Martindale-Hubbell Peer Review's AV Preeminent® highest rating. For additional information, call 949.854.7000 or visit www.newmeyerdillion.com.
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