California Booms With FivePoint New Schools: Real Estate
May 13, 2014 —
John Gittelsohn – BloombergFivePoint Communities Management Inc. is already constructing a school at its Great Park Neighborhoods project in Irvine, California, for 1,000 elementary and middle school students even as it’s still building the first 700 homes.
“We build the schools ahead of time,” said Emile Haddad, chief executive officer of Aliso Viejo, California-based FivePoint, which has permits for about 10,000 homes at Great Park. “That way we always have them ready.”
Local schools, along with parks and recreation facilities, have long been draws for buyers in new communities. Now, as school districts face tight construction budgets and homebuilders compete to attract families able to qualify for mortgages, developers are taking the lead on school construction instead of waiting for local governments to do the job.
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John Gittelsohn, BloombergMr. Gittelsohn may be contacted at
johngitt@bloomberg.net
COVID-19 Likely No Longer Covered Under Force Majeure
February 01, 2023 —
Rachel E. Pelovitz - Construction ExecutiveA recent decision by the U.S. Government Accountability Office (GAO) has shaken up construction contracts. While companies could claim “force majeure” to exempt themselves from contractual obligations during much of the pandemic, this decision challenges ongoing validity of those claims.
The decision was based on the Army Corps of Engineers deeming a bid from Boulder, Colorado–based American Mine Services (AMS) as nonresponsive because it included a COVID-19 force majeure clause. In reviewing the Corps’ decision, GAO—referencing the Federal Acquisition Regulation—found that “epidemics” and “quarantine restrictions” were already included in the contract between the Corps and AMS. Although AMS claimed that “COVID-19 is considered a force majeure event along with any other similar disease, epidemic or pandemic event,” the GAO concluded that this interpretation limited the rights of the government too much.
Reprinted courtesy of
Rachel E. Pelovitz, Construction Executive, a publication of Associated Builders and Contractors. All rights reserved.
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Ms. Pelovitz may be contacted at
pelovitz@abc.org
How Small Mistakes Can Have Serious Consequences Under California's Contractor Licensing Laws.
February 15, 2018 —
Eric Reed - Myers, Widders, Gibson, Jones & Feingold, LLPIn construction, some risks have nothing to do with how well a contractor executes a project. Licensing problems is one of these risks. Even a brief lapse caused by an unintentional administrative error can give the CSLB grounds to discipline a contractor, or enable a customer to seek disgorgement and other remedies provided by Business and Professions Code section 7031. This article discusses five tips for mitigating the liabilities associated with licensing problems.
Tip 1: Take workers' compensation insurance very seriously. Workers’ compensation insurance problems can trigger license suspension in California. Business and Professions Code section 7125.4 calls for automatic suspension if a contractor cannot provide proof of workers’ compensation insurance for any period of time. This is particularly serious for residential remodelers who claim exemption for workers’ compensation but are later discovered – usually during litigation with a homeowner – to have “off the books” workers helping them. Courts can declare the contractor retroactively unlicensed under these circumstances and order it to disgorge,
i.e., to pay back, every penny paid by the customer for the entire project (even for materials). (Bus. & Prof. Code, § 7031, subd. (b);
Wright v. Issak (2007) 149 Cal.App.4th 1116.) The contractor will also find itself unable to collect any amounts owed to it by the customer. (Bus. & Prof. Code, § 7031, subd. (a).)
Tip 2: Watch out for licensing confusion after a merger or acquisition. The economic downturn of 2008 and 2009 resulted in consolidation throughout the building industry. The newly merged or acquired entities often allowed redundant licenses to expire, assuming they could complete all pending projects under the umbrella of the acquiring company's license. Many learned this was a mistake the hard way. Armed with the California Supreme Court's opinion in
MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co., Inc. (2005) 36 Cal.4th 412, customers began refusing to pay invoices and demanding disgorgement under Business and Professions Code section 7031 because the original contractor did not maintain licensure “at all times.” Many of these customers succeeded.
Tip 3: If a license suspension has occurred or is imminent, prepare to prove substantial compliance. Section 7031(a) and (b) give a disgruntled or indebted customer every incentive to capitalize on a contractor's licensing problems. Subdivision (e) is where a contractor must turn to protect its interests if this happens. It allows the contractor to prove “substantial compliance” with licensing requirements and avoid (a)’s and (b)’s sharp edges if it can show the following:
(1) The contractor “had been duly licensed as a contractor in this state prior to the performance of the act or contract”;
(2) It “acted reasonably and in good faith to maintain proper licensure”; and
(3) It “acted promptly and in good faith to remedy the failure to comply with the licensure requirements upon learning of the failure.”
The Court of Appeal confirmed in
Judicial Council of California v. Jacobs Facilities, Inc. (2015) 239 Cal.App.4th 882 that a contractor, upon request, is entitled to a hearing on these three factors before it is subjected to disgorgement under Section 7031(b). The legislature amended Section 7031 shortly after the Court of Appeal published this case. The Assembly’s floor analysis went so far as to directly quote the opinion’s observation that penalizing a construction firm for “technical transgressions only indirectly serves the Contractors Law’s larger purpose of preventing the delivery of services by unqualified contractors.” (Assem. Com. on Bus. and Prof., Off. of Assem. Floor Analyses, analysis of Sen. Holden's No. 1793 (2015-2016 Reg. Sess.) as amended August 2, 2016, p. 2.) This echoed an industry consensus that clarifying the law was needed to ensure that properly licensed and law-abiding construction firms were not “placed at fatal monetary risk by malicious lawsuits motivated by personal gain rather than consumer protection.” (Assem. Com. on Judiciary, com. on Assem. Bill No. 1793 (2015-2016 Reg. Sess.), pp. 6-7.)
Unfortunately, existing law does not give many examples of what it means to act “reasonably and in good faith to maintain proper licensure” or to act “promptly and in good faith” to fix license problems. A practical approach is for a contractor to work backwards by assuming it will need to prove substantial compliance at some point in the future. Designated individuals within the organization should have clear responsibility over obtaining and renewing the proper licenses and should keep good records. If necessary, these designees can testify about the contractor's internal policies and their efforts to fix licensing problems when they arose. For example, if the suspension resulted from not providing the CSLB proof of workers’ compensation insurance, the designee can testify about the cause (a broker miscommunication, transmission error,
etc.) and produce documents showing how he or she worked promptly to procure a certificate of insurance to send CSLB. Saved letters, emails, and notes from telephone calls will provide designees and their successors with an important resource months or years down the line if a dispute arises and the contractor is required to reconstruct the chronology of a licensing glitch and prove its due diligence.
Tip 4: Don't sign new contracts unless all necessary licenses are active and any problems are resolved. A recently-formed contractor should not begin soliciting and signing contracts until all required licenses are confirmed as “active.” The first requirement of substantial compliance – being “duly licensed as a contractor in this state prior to the performance of the act or contract” – cannot be met by a contractor that first obtains its license mid-project. (Bus. & Prof. Code, § 7031, subd. (e)(1);
Alatriste v. Cesar’s Exterior Designs (2010) 183 Cal.App.4th 656.) A licensed contractor should also consider refraining from signing new contracts if there is any reason to believe its license might be suspended in the near future – especially if the suspension will be retroactive. Having a suspension on record at the time of contracting may complicate the question of whether the contractor was “duly licensed . . . prior to performance” for the purposes of substantial compliance.
Tip 5: Any judgment against a contractor can cause license suspension if not handled promptly and correctly. The Business and Professions Code authorizes the CSLB to suspend the license of a contractor that does not pay a construction related court judgment within 90 days. The term “construction related” is interpreted to include nearly all types of disputes involving a contractor. (16 Cal. Code Reg. 868;
Pacific Caisson & Shoring, Inc. v. Bernards Bros. Inc. (2015) 236 Cal.App.4th 1246, 1254-1255.) This means a contractor should treat a judgment against it for unpaid office rent, for example, as one carrying the same consequences as one arising from a construction defect or subcontractor claim. The contractor should also not assume that filing an appeal, or agreeing with the other side to stay enforcement, automatically excuses the 90-day deadline in the eyes of the CSLB. It does not. A contractor must notify the CSLB in writing before this period expires, then post bond for the amount of judgment, if it wishes to delay payment for any reason. (Bus. & Prof. Code, § 7071.17, subd. (d).) A suspension may result if it does not. This applies even to small claims judgments.
Recent case law and the 2016 amendments to Business and Professions Code section 7031 provide some solace to those caught in the dragnet of California's licensing laws. But avoiding these problems altogether is preferable. Consider licensing the foundation of a successful business and deserving of the same attention as the structures a contractor builds.
Eric R. Reed is a business and insurance litigator in the Ventura office of Myers, Widders, Gibson, Jones & Feingold, LLP.
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Eric Reed, Myers, Widders, Gibson, Jones & Feingold, LLPMr. Reed may be contacted at
ereed@mwgjlaw.com
Development in CBF Green Building Case in Maryland
August 19, 2015 —
Christopher G. Hill – Construction Law MusingsRemember that case I discussed a while back relating to the Chesapeake Bay Foundation (CBF) building in Annapolis, Maryland? Remember how it was a lawsuit over parallams and failure of those parallams? Do you even remember what a parallam is?
Well, that case was initially dismissed upon the Defendant’s Motion for Summary Judgment because the trial court determined that CBF did not file its lawsuit within the proper time frame after notice of the potential failure of the building materials. Of course, CBF appealed to the Fourth Circuit Court of Appeals under the caption The Chesapeake Bay Foundation, Inc., et. al. v. Weyerhaeuser Company (4th Circuit).
After a great review of the facts of the case, the engineering inspections and reports at issue and the trial court’s ruling, the Fourth Circuit vacated the dismissal and remanded the case for further proceedings. The Court of Appeals reasoned that the district court jumped the gun in dismissing the lawsuit so early in the process because:
a genuine dispute exists as to whether knowledge of the water infiltration problem would have put a reasonable person on notice that the Parallams were susceptible to premature deterioration and that their PolyClear 2000 treatment would not preserve them.
In short, the court ruled that the engineering reports relating to moisture issues would have put CBF on notice of the particular issue of deterioration that was at issue in the litigation.
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Christopher G. Hill, Law Office of Christopher G. Hill, PCMr. Hill may be contacted at
chrisghill@constructionlawva.com
Appellate Court Lacks Jurisdiction Over Order Compelling Appraisal
January 16, 2024 —
Tred R. Eyerly - Insurance Law HawaiiThe Eleventh Circuit recently held that the district court's order compelling appraisal and staying the proceedings pending appraisal was an interlocutory order that was not immediately appealable under 28 U.S.C. 1292 (a) (1). Positano Place at Naples Condominium Association, Inc. v. Empire Indem. Ins. Co., 2023 U.S. App. LEXIS 27961 (11th Cir. Oct. 20, 2023).
Postiano Condominium Association suffered damage from Hurricane Irma. Pastiano notified its insurer, Empire, seven months later. Empire investigated the claim and inspected the property. Positano sent a written request for appraisal. Empire did not respond and Pastiano filed suit, alleging that the parties' dispute was not a coverage dispute but a dispute over the amount of the loss. Postiano moved to compel appraisal and to stay the proceedings pending completion of the appraisal.
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Tred R. Eyerly, Damon Key Leong Kupchak HastertMr. Eyerly may be contacted at
te@hawaiilawyer.com
Should I Pull the Pin? Contractor and Subcontractor Termination for Cause
January 26, 2017 —
Patrick McNamara - Porter Law GroupAny owner or general contractor who has a few projects under his or her belt has likely had this thought: “My contractor (or subcontractor) is not performing the way I expected; should I replace him?” The other side of the termination coin is: “This project is not going the way I expected; should I get out?”
While there may be an emotional high that immediately comes from terminating a contractor or subcontractor (or leaving a project, in mid-stream), there are many factors to be weighed, before making that decision.
Project Delay. Replacing a contractor or subcontractor that has already begun performance always results in delays to the project. Assessing the work in place, interviewing replacement contractors, and negotiating the terms of the new relationship can easily consume weeks, if not months of project time.
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Patrick McNamara, Porter Law GroupMr. McNamara may be contacted at
pmcnamara@porterlaw.com
How Philadelphia I-95 Span Destroyed by Fire Reopened in Just 12 Days
July 24, 2023 —
James Leggate - Engineering News-RecordLess than two weeks after a tanker truck crash and fire destroyed an Interstate-95 bridge in northeast Philadelphia, the highway reopened to traffic on a temporary road surface June 23. The hastened work to reopen the highway, which has an average daily traffic count of nearly 160,000 vehicles, including about 13,000 trucks, was the result of collaboration between contractors, material suppliers and union workers with local, state and federal officials, Pennsylvania Gov. Josh Shapiro (D) said.
Reprinted courtesy of
James Leggate, Engineering News-Record
Mr. Leggate may be contacted at leggatej@enr.com
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Reminder: Just Being Incorporated Isn’t Enough
June 29, 2020 —
Christopher G. Hill - Construction Law MusingsI have discussed why contractors need to incorporate previously here at Construction Law Musings. Among the many reasons to incorporate are possible tax benefits and the protection of personal assets (like your house and your dog) from judgement and collection actions. This latter reason is key in the construction world in which Murphy can look like an optimist and projects have so many moving parts that something is likely to go wrong.
The reason incorporation works as at least a partial shield is that the company and the owners are separate “people” or entities from a legal perspective and a contract with one “person” cannot be enforced against another. This same logic applies in the context of corporate versus individual actions, i. e. the actions of one person cannot be legally attributed to another person. By extension the assets of an individual cannot be collected to satisfy a purely corporate debt or judgment.
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The Law Office of Christopher G. HillMr. Hill may be contacted at
chrisghill@constructionlawva.com
