Construction Litigation Roundup: “Hold the Pickles, Hold the Lettuce?”
October 02, 2023 —
Daniel Lund III - LexologyHold the pickles, hold the lettuce?
You can even hold the service… or at least proof of it!
In a dispute over the construction of a Burger King restaurant in Tupelo, Mississippi, a state court suit by the owner against its general contractor and architect was removed to federal court by one of the defendant parties, on the basis of the diversity of citizenship of the defendant parties from the plaintiff, per 28 U.S.C. § 1331(a).
For its part, plaintiff, upon achieving service of its state court complaint against the various defendants, filed a proof of service as to the party which sought to remove the case, but not as to the other defendants (even though the other defendants were served). Once the case was removed to federal court and after the deadline for removal has passed, plaintiff sought to have the matter remanded based on the lack of the consent of the entirety of the defendant group to the removal, in accordance with 28 U.S.C. § 1446 (“When a civil action is removed solely under section 1441(a), all defendants who have been properly joined and served must join in or consent to the removal of the action.”).
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Daniel Lund III, PhelpsMr. Lund may be contacted at
daniel.lund@phelps.com
Conspirators Bilked Homeowners in Nevada Construction Defect Claims
March 28, 2012 —
CDJ STAFFCourthouse News has a summary of the current lawsuit over a Nevada conspiracy to defraud homeowners by taking control of homeowner boards and then providing inadequate repairs. Homeowners in eight Las Vegas area communities are involved in the suit, which claims that the conspirators purchased units in the communities and then transferred fractional interests to others to allow them to run for HOA board elections. The suit claims that David Amesbury and his firm helped manipulate the elections.
Once homeowner boards were controlled by the conspirators, Nancy Quon, the construction defect attorney whose recent death appears to be by suicide, handled the litigation against homebuilders. She would settle out of court, engaging Silver Lining Construction to “do very minor and superficial repairs” to the homes. The remainder of the money was split by the conspirators. The suit also notes that the construction defect claims were “frivolous,” and?in addition to the negative publicity?caused the homes to lose at least 5% of their value.
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Can an Architect, Hired by an Owner, Be Sued by the General Contractor?
September 10, 2014 —
Craig Martin – Construction Contractor AdvisorAs is often the answer in this blog, maybe. And, it will likely depend on which state’s law is applied. Over the last few weeks, courts around the country have reached differing conclusions on whether a general contractor may sue an architect that it did not hire.
Here’s the situation: The owner hires an architect to draft plans for a project. The project is then put out for bid and the owner hires a general contractor for the work. The general contractor and architect do not enter into a contract with each other.
If, during construction, the general contractor finds fault with the plans, it may seek Request for Information and Change Orders, to shore up the perceived problems with the plans. Ultimately, the general contractor may sue the architect to recover damages it suffered in completing the project.
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Craig Martin, Lamson, Dugan and Murray, LLPMr. Martin may be contacted at
cmartin@ldmlaw.com
Novation Agreements Under Federal Contracts
November 29, 2021 —
Hal Perloff - Construction ExecutiveA unique aspect of doing business with the federal government is the built-in limits on a contractor’s right to assign the contract or the right to payment under the contract to third parties. The Anti-Assignment Act (41 U.S.C. § 6305) prohibits the transfer of a government contract or interest in a government contract to a third party. An assignment of a contract in violation of this law voids the contract except for the government’s right to pursue a breach of contract remedies.
What’s a contractor to do when it is acquired/merged with another firm, is restructured or goes through a variety of other types of corporate transaction? The Federal Acquisition Regulations recognize that firms involved in government contracts get bought and sold from time to time and includes procedures for the novation of contracts in certain situations to avoid a potential violation of the Anti-Assignment Act.
What Is a Novation?
A novation is a three-party agreement between the United States, the original contractor and the new contractor offering to assume the government contract. The purpose the novation is to allow the government to recognize a new contractor as the successor-in-interest to a government contract and avoid a violation of the Anti-Assignment Act.
Reprinted courtesy of
Hal Perloff, Construction Executive, a publication of Associated Builders and Contractors. All rights reserved.
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Mr. Perloff may be contacted at
hal.perloff@huschblackwell.com
New Insurance Case: Owners' Insurance Barred in Reimbursement Action against Tenant
April 17, 2019 —
Jason Adams - Gibbs GidenThe Western Heritage Ins. Co. v. Frances Todd, Inc. (2019 Cal.App. LEXIS 299 / 2019 WL 1450731) case has potential implications for insurance carriers, policyholders, condominium associations, unit owners, landlords and tenants.
The case involves a fire at a commercial condominium complex (the “Association”). The Association’s CC&Rs required the Association to purchase a master fire insurance policy for the benefit of the Association and owners, with a waiver of subrogation endorsement that stated the insurance company could not seek reimbursement from the Association, its officers, owners or occupants of the units in the event of a covered fire. The CC&Rs also prohibited individual owners from obtaining their own fire insurance. The Association purchased the required fire insurance policy from Western Heritage Insurance Company (“Western Heritage”).
One of the owner’s tenants, Frances Todd, Inc. (“Frances Todd”), allegedly caused a fire that damaged several units. Although the unit owner was covered as an additional named insured under the Western Heritage fire policy, the tenant, Frances Todd, was not. Western Heritage paid for the common area fire damage caused by Francis Todd, and then sued Frances Todd in a subrogation action to recover the amounts paid.
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Jason M. Adams, Gibbs GidenMr. Adams may be contacted at
jadams@gibbsgiden.com
Are Construction Defect Laws Inhibiting the Development of Attached Ownership Housing in Colorado?
October 29, 2014 —
James M. Mulligan, Esq. – Snell & Wilmer, LLPThis article responds to the article published in the September 18, 2014 issue of the Construction Defect Journal. It provides a different perspective to this issue, based on the author's experience with these matters during the past decade of attention to this specific challenge.
During recent years, there has been much discussion about the lack of attached ownership housing construction in Colorado. The main culprit, according to several sources within the community, seems to be our state's construction defect laws.
Since 2001, there has been a periodic series of legislative fixes to our construction defect laws that saw the pendulum swing back and forth between the interests of the consuming public who purchase the homes and certain protections of the developers and homebuilders from excessive and unnecessary litigation. Some say that the current state of the law is more onerous than necessary on the developers and homebuilders and it is artificially inhibiting the development of multifamily ownership housing in a time of high demand and low supply.
A recent opinion article in the September 29th, 2014 issue of the Denver Post stated, in part:
"No one is suggesting that developers escape liability for construction defects or that homeowners be denied the right to sue. But under the state's current defect laws, the scales have tilted too far in favor of litigation as the default tool for resolving disputes. And this appears to be the biggest reason for the collapse in the number of new multifamily [ownership] dwellings in recent years."
Rather than the typical conflict between the plaintiffs’ bar (representing the homebuyer) and the homebuilding industry that has produced the "back-and-forth" nature of our construction defect laws in the past, this 2014 legislative session found new constituents and a different perspective on the issue. A broad ranging coalition that included the Metro Mayors Caucus, major segments of the affordable housing community, and the general business community came together to address what their research showed as an astonishing lack of construction of ownership attached housing. There was a continuing boom going on in the development of multifamily "rental" housing, but an even more unusual deficit in multifamily "ownership" housing. Research apparently showed that, although about 20% + of construction of attached housing was in the ownership format throughout the Rocky Mountain West, Colorado was only producing about 2%. Interviews conducted by the research group that was retained by this coalition revealed that the development and homebuilding community were not willing to commence construction of ownership attached housing because of the continuing threat of litigation available under current interpretations of our state's construction defect laws. Lenders were also reluctant to provide financing for such projects faced with the apparent real threat of litigation that could shut down their projects and materially impact their loan viability and the value of the loan's collateral. Moreover, insurance premiums to cover such claims were so high, and many times unavailable, as to make such projects unfeasible.
This lack of available multifamily ownership housing was creating an ever-increasing concern over the resulting imbalance of housing options in and around the metro area, where the urban character of the metro region would need such ownership options in the attached housing format in order to address the more dense character of the urban setting. This imbalance of ownership attached housing was thwarting the advancement of "community" in the context of creating opportunities for all options of housing so important for a community balance. This included ownership options in this format that address the need for the younger professionals entering the workforce, newly forming households, seniors desiring to scale down their housing size and location, as well as the segment of the market who have limited means and need to address the affordability of homeownership. This was being most clearly felt along the FasTracks lines where attached ownership housing was an important element in originally advancing the TOD communities that are expected to be developed around these transit stops.
Rather than engage the battle of creating more contention in the various aspect of construction defect legislation per se, this coalition attempted to temper their approach and address specific issues that seemed to advance protection of the consuming homeowner while, at the same time, advocating a method of dispute resolution encouraged in the state's laws regarding such issues.
Normally, attached ownership housing is developed under our state laws governing the creation of Common Interest Communities ("CIC's"), including those communities where there are units that are attached and contain common elements. These CIC's will be encumbered by certain recorded documents (normally referred to as "Declarations") that structure the "community" within which the units are located and set up certain rules and restrictions that are intended to respect the common interests of the unit owners within that community. There is also a Homeowners Association ("HOA") organized for the common interest community that is charged with the management of the common elements and the enforcement of the rule and regulations governing the community.
The coalition chose to address their concerns through a bill including a couple of changes in the state laws governing CIC's, which would provide further protection to the homeowner and advance alternative dispute resolution as an expedient approach to resolving disputes should they arise. Those changes included:
1. Majority Owner Vote Re: Litigation -Rather than allowing two owners plus a vote of the HOA Board to determine whether or not to file litigation alleging construction defects in a CIC, the proposed change would require a simple majority vote of the unit owners who are members in the respective HOA where the alleged defect occurred. This approach addressed the increasing concern of unit owners whose homes are unmarketable and not financeable during the course of any such litigation.
This does not prevent an aggrieved owner from pursuing claims regarding that person's own unit, it just requires a majority of the owners to vote for litigation that affects the entire CIC in such litigation. This approach also included a provision for advance notice to the owners of such pending litigation accompanied by several disclosures regarding the potential litigation and its potential impact on the respective owner. This approach to protecting the rights of homeowners in a CIC seemed to be in line with everyone's interests, while not preventing an individual consumer/unit owner to advance its own claims.
2. Alternative Dispute Resolution -This proposal clarified the stated intent of the CIC statutes that advances alternative dispute resolution by providing that any mandatory arbitration provisions that are already contained in the Declaration that encumbers the respective unit in a CIC shall not be changed or deleted without the permission of the Declarant (e.g.; the developer of the CIC). This provision was to affirm a provision that the purchasing unit owner was aware of at the time of purchase and that it follows the spirit and intent of the state statutes governing such CIC's.
Notwithstanding the curative nature of these proposals, the legislation did not address the issue because a legislative maneuver was employed that did not allow for its consideration during the waning days of the session.
More recently, one of Colorado's municipalities, the home rule city of Lakewood, passed a local ordinance addressing this issue in a similar fashion, with a few more definitive suggestions regarding how to alleviate the lopsided nature of our current state of law. Without going into detail at this time with that specific ordinance, or the issue of its ability to address matters of a state-wide concern at the local level, the point is that several of Colorado's local communities, frustrated with the inability of the state legislature to deal with the issue are, at the very least, sending a signal that something must be done and, if the state is unwilling to lead on this matter, local communities will have to act.
This issue has not receded into the back room, and we will see a continuing crusade from an updated coalition to address these reasonable modifications to our state laws that will at least provide some protections to the CIC homeowner regarding unwanted litigation and some relief to the homebuilding industry from excessive litigation.
James M. Mulligan is a partner in the Denver office of Snell & Wilmer, LLP, a full-service commercial law firm located in nine cities throughout the Western United States and in Mexico. The firm’s website is http://www.swlaw.com.
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Motion to Dismiss Insureds' Counterclaim on the Basis of Prior Knowledge Denied
September 04, 2018 —
Tred R. Eyerly - Insurance Law HawaiiThe insurer unsuccessfully moved to dismiss portions of the insureds' counterclaim based upon prior knowledge. Hudson Spec. Ins. Co. v. Talex Enter., 2018 U.S. Dist. LEXIS 105598 (S. D. Miss. June 25, 2018).
The insureds' building collapsed in McComb, Mississippi. Pubic utilities were damaged and traffic disrupted. The City sued the insured, alleging that the building collapsed because there was too much water gathered on its roof. The City further alleged that the insureds knew too much water was on the roof because they had been told by someone hired to clean the drain that it was clogged and by a contractor that the roof was so damaged that it could not safely be repaired.
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Tred R. Eyerly, Damon Key Leong Kupchak HastertMr. Eyerly may be contacted at
te@hawaiilawyer.com
Power of Workers Compensation Immunity on Construction Project
November 30, 2017 —
David Adelstein - Florida Construction Legal UpdatesOn construction projects, workers compensation immunity is real and it is powerful. (See also this article.) Workers compensation immunity is why all general contractors should have workers compensation insurance and they should ensure the subcontractors they hire have workers compensation insurance. Workers compensation insurance becomes the exclusive form of liability for an injured worker thereby immunizing an employer (absent an intentional tort, which is very hard to prove as a means to circumvent workers compensation immunity).
If a general contractor, with workers compensation insurance, hires a subcontractor without workers compensation insurance, the general contractor’s workers compensation insurance will be responsible in the event an injury occurs to a subcontractor’s employee. The general contractor becomes the statutory employer.
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David Adelstein, Florida Construction Legal UpdatesMr. Adelstein may be contacted at
dadelstein@gmail.com
