Common Law Implied Warranties in Construction

When dealing with construction defects, lawyers seeking recovery on behalf of owners often turn to implied warranties arising under state law to provide grounds for an owner to recover for losses that otherwise might not be recoverable. Such situations arise often when the "owner" has changed from being a developer in direct privity with a contractor to being a condominium or homeowners' association with no privity.  

Today's discussion relating to this topic specifically in Florida -- but providing food for thought elsewhere also -- come from Division 1 member Jason M. Rodgers-da Cruz of Siegfried, Rivera, Hyman, Lerner, De La Torre, Mars & Sobel, P.A. of Coral Gables, Florida.  Jason's practice relates specifically to construction defect claims that often are raised on behalf of condominium associations.  This article discusses a Florida Supreme Court decision issued late last year called Maronda Homes, Inc. v. Lakeview Reserve Homeowners Ass'n, 127 So. 3d 1258 (Fla. 2013). 

(Note: There are four footnotes in this article, which are denoted with a bracketed number: e.g., [1].)

Florida’s Common Law Implied Warranties: A brief review of the scope and application of Florida’s common law implied warranties. 

In representing a purchaser, developer or a developer/builder involved in a warranty dispute pertaining to a residence in the State of Florida, consider the Florida Supreme Court’s most recent ruling concerning the scope and application of common law implied warranties in Maronda Homes, Inc. v. Lakeview Reserve Homeowners Ass’n,  127 So. 3d 1258 (Fla. 2013).

In Maronda, a homeowner’s association filed suit against its developer for breach of common law implied warranties for a defective storm water drainage system serving the entire property. The association experienced buckling, splitting of pavement and asphalt, excessive flooding, soil erosion, mosquito infestation and swamp-like conditions, which directly affected the homes and access to the homes. 

The developer filed a third party action against the contractor seeking indemnification for the allegations raised by the association. The developer and the contractor filed a motion for summary judgment against the association, and relied, in part, on the Fourth District Court of Appeal’s application of common law implied warranties in Port Seawall Harbor & Tennis Club Owners Association, Inc. v. First Federal Savings & Loan Association of Martin County, 463 So. 2d 530 (Fla. 4^th DCA 1985).  They argued that the defects did not meet the elements required for asserting common law implied warranties because the alleged defects did not immediately support the residences.[1]  

The trial court agreed with the developer and contractor and granted the motion for summary judgment.  The association appealed to the Fifth District Court of Appeal.  The Fifth District reversed the trial court and certified a conflict (to the Florida Supreme Court) with the Fourth District’s application of common law implied warranties in Port Seawall.  An appeal to the Florida Supreme Court ensued.   

The Florida Supreme Court conducted a historical review of the rationale and standards supporting common law implied warranties, including 1) the privity requirement between the seller and the owner,[2]  and 2) that common law warranties were not extended to investors. [3]  

The court then adopted the standard set forth by the Fifth District, known as the “’essential services’” standard.  The essential services standard provides that if the improvement provides an essential service to the habitability of the residence, then common law implied warranties apply. Conversely, if the improvement does not provide essential services to the residence, then the common law implied warranties do not apply. Further, the improvements need not be physically attached to the homes but rather provide essential services to the habitability of the home.  The court opined that the essential services standard is consistent with the “Florida requirement that the implied warranties apply to improvements that are ’immediately supporting’ a residence.”  However, the court noted that essential services do not include “items that provide mere convenience or aesthetic beauty, such as landscaping, sprinkler systems, recreational facilities or other similar improvements.”

The court also addressed the Florida Legislature’s attempt to limit common law implied warranties in Section 553.835, Florida Statutes. [4]   The legislative impetus for enacting Section 553.835, can be found in Section 553.835(1):

[t]he Legislature finds that the courts have reached different conclusions concerning the scope and extent of the common law doctrine or theory of implied warranty of fitness and merchantability or habitability for improvements immediately supporting the structure of a new home, which creates uncertainty in the state’s fragile real estate and construction industry.

Section 553.835(4) specifically limits common law implied warranties as a cause of action for an offsite improvement.  Section 553.835(4) provides, in part, that: 

[t]here is no cause of action in law or equity available to a purchaser of a home or to a homeowners’ association based upon the doctrine or theory of implied warranty of fitness and merchantability or habitability for damages to offsite improvements…

Although the court briefly reviewed the Legislature’s definition of an offsite improvement, it primarily focused on whether the statute could be retroactively applied. The Court held that the statute could not be retroactively applied as the Legislature attempted to limit vested common law implied warranties.  The court opined that Section 553.835 violated the right of access to the courts and that the Legislature’s attempt was a “clear violation of separation of powers because the Legislature does not sit as a supervising appellate court over our district courts of appeal.”  Accordingly, Section 553.835 “does not apply to any causes of action that accrued before the effective date of this section.”

In closing, if you are litigating in a jurisdiction that allows for common law implied warranties, consider: 1) the scope of the warranty; 2) to whom the warranty extends; 3) whether the legislature has attempted to limit those warranties; and 4) although not addressed in this article, whether those warranties can be or have been disclaimed.

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[1]Port Seawall Harbor & Tennis Club Owners Association, Inc. v. First Federal Savings & Loan Association of Martin County, 463 So. 2d 530 (Fla. 4^th DCA 1985)(declined to extend common law implied warranties to the facts in the case because "[t]he foot bridge in question and the defective work complained of involved roads and drainage in the subdivision and did not pertain to the "construction of homes or other improvements immediately supporting the residences.")

[2] Gable v. Silver, 264 So. 2d 418 (Fla. 1972).

[3] Conklin v. Hurley, 428 So. 2d 654 (Fla. 1983).

[4] The Florida Legislature enacted Section 553.835, Florida Statutes, on July 1, 2012, and intended for the statute to apply retroactively.   

Demonstrative Evidence: Evidentiary Issues & Laying a Proper Foundation

In this post, we are reprinting an article (with the author's permission) that Ed Josiah, the Forum's tech guru from Nautilus Consulting, wrote regarding how attorneys can lay a proper foundation to turn what otherwise would be considered as demonstrative evidence into substantive evidence that a jury or fact finder can rely on in reaching its decision. Later this week, we will be using an example of this type of presentation to walk through the issues that Mr. Josiah raises in a practical manner.  At any rate, after the jump is Mr. Josiah's excellent discussion of these issues.

Concurrent Delays Dissected

(c) 2013. Navigant Consulting

In its most recent newsletter, "Insight from Hindsight," Navigant Consulting's Tom Peters provided a fascinating article entitled "Dissecting the Doctrine of Concurrent Delay."  I have linked the article here so that we can discuss it and so that you can read it more closely.  

In the article, Mr. Peters first points out that lawyers and schedulers differ on what effect concurrent delays might have both on the excusability and the compensability of various concurrent delays.  As the table makes clear, nothing is clear when it comes to answering a number of the key questions.  For example, is a delay that is excusable actually excused if the delay occurs concurrently with a non-excusable delay? Some commentators say it is, while others say it is not. 

Mr. Peters then looks at various boards of contract appeal decisions and -- no surprise -- finds similarly conflicting points of view.  As a practice issue, if major articles and treatises cannot agree and if the cases are all over the place, how does an attorney advise his or her client correctly?

This also raises another issue for discussion: with the increase of technology usage in our daily lives, will construction companies be able to harness this technology to improve their as-built and as-happening schedules?  For example, with smart phone cameras now being nearly ubiquitous, will workers be required to take photos every hour to show progress on their work?  Should contractors or owners expect that kind of documentation when faced with delay claims?

Let's hear from you in the comments.

Are Witnesses Overrated In Construction Cases?

Check out Witnesses Are Overrated - a piece written by Attorney Ned Nicholas, of Vandeventer Black LLP (Bill Franczek's firm).  In the article, Mr. Nicholas discusses the key role documentary evidence has over witness testimony in construction litigation. 

While the finder of fact (whether Judge, Jury, or Arbitrator) still must see, hear, and believe as reasonable the party's story from at least one witness (preferably a likeable one), our construction cases often swing based upon the contemporaneously prepared project documents. 

On some issues, for example, loss of productivity claims, oral testimony often pushes the fact finder to its decision.  During one bench trial, I (Tom Dunn) recall walking back upstairs into court during a break following the testimony of my client's foreman wherein he described the working conditions during the winter months.  With opposing counsel at my side, I couldn't help but smile (and opposing counsel couldn't help but to shrug) when I heard the courtroom clerk and security officer talking about how horrible it must have been to work that job.  I figured if they got "it" enough to talk about it, then the Judge probably did as well.  I don't think photos or contemporaneous documents (other than maybe video) could have done what that witness did with his personality. 

Default Terminations: A Death Penalty?

In this linked article distributed by Advise & Consult, Inc., Smith, Currie & Hancock's Gene Heady discusses default-termination clauses in subcontracts and their impact on the parties.  

In particular, the article provides some ideas as to what should constitute an "event of default" for the subcontractor, including failing to pursue its work diligently, failing to prosecute the work in a workmanlike and skillful manner, failing to pay sub-subcontractors and suppliers, or failing to correct defective work, among others. One very important point that may be ignored by some general contractors is the requirement to follow the contractual provisions allowing subcontractors to cure their defaults.

The article is a good summary of what types of clauses should be incorporated into subcontracts to protect both the subcontractor and the contractor.  More saliently for us as a dispute-resolution group, it helps to remind us of possible defenses to a termination for default claim.