Superseding the Implied Warranty of Good and Workmanlike Repair in Texas

In a case involving foundation repairs to a residence, the Texas Supreme Court addressed the question of whether the implied warranty for good and workmanlike repair of tangible goods or property can be disclaimed or superseded.  The Court held that the implied warranty cannot be disclaimed, but it can be superseded by the parties. Gonzalez v. Southwest Olshan Foundation Repair Company, LLC, 400 S.W. 3d 52 (Tex. 2013).

In Gonzalez, a homeowner (“Gonzalez”) hired Olshan Foundation Repair Co., LLC (“Olshan”) to repair the foundation of their home.  The repair contract (the “Contract”) included two warranty provisions.  First, the Contract stated Olshan would use the Cable Lock system of foundation repair and would adjust the foundation for the life of the home.  Second, it required Olshan to perform all of the necessary work in a good and workmanlike manner.  Olshan repaired the foundation, but Gonzalez continued to experience foundation problems. 

Gonzalez ultimately sued Olshan for, among other things, breach of express warranty, breach of the common law warranty of good and workmanlike repair, and DTPA violations.  The jury found that Olshan did breach the implied warranty of good and workmanlike repair and committed DTPA violations, but did not breach any express warranty.  The Court of Appeals reversed this holding on the grounds that the implied-warranty and DTPA claims were barred by the two-year statute of limitations.  The case then proceeded to the Texas Supreme Court. 

Olshan argued that its express warranty superseded any implied warranty of good and workmanlike repair.  Therefore, because the jury held Olshan did not breach any express warranty, liability was precluded on Gonzalez’s implied-warranty claims. The Texas Supreme Court agreed.  The Court stated that Texas law recognizes an implied warranty to repair or modify existing tangible goods or property in a good and workmanlike manner, and that such implied warranty cannot be disclaimed or waived.  The Court then analogized this implied warranty with the implied warranty of good workmanship related to new home construction. See Melody Home Manufacturing Co. v. Barnes, 741 S.W.2d 349, 354 (Tex. 1984).  The Court held that the implied warranty of good and workmanlike repair may be superseded if the parties’ agreement sufficiently describes the manner, performance or quality of the services to be provided. 

In the case at bar, the Court found the Contract sufficient to supersede the implied warranty.  The Contract specified the manner, performance or quality of the services by stating that Olshan would perform the work in a good and workmanlike manner and would use the Cable Lock foundation repair system and would adjust the foundation for the life of the home.  Accordingly, because the implied warranty was superseded, the jury’s finding that there was no breach of an express warranty was conclusive on Gonzalez’s claims.  

New ConsensusDocs Contract Between CM and Owner Supposed to Help Avoid Disputes

ConsensusDocs has published a new Construction Management Agency standard agreement, the 831 "Agreement Between Owner and Construction Manager (CM Does Not Provide General Conditions)." The agreement provides an alternative to the ConsensusDocs 830 Agreement, in which the CM provides General Conditions. According to ConsensusDocs, the 831 Agreement provides greater clarity in defining costs, fees and profit to avoid potential claims and disputes. For those of you who have used the new 831 Agreement (I have not yet), please let us know your thoughts.

The Standard of Care in a Design Build World, by Robert C. McCue, PE and E. Mitchell Swann, PE

Is a design-build contractor entitled to 'reasonably rely upon' the materials prepared by its designer...even if the designer works for the design-build contractor?

The article below, The Standard of Care in a Design Build World, from Robert C. McCue, PE and E. Mitchell Swann, PE of MDCSystems® helps frame and provides context for this question.

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The Standard of Care in a Design Build World

Design-Build Delivery can create new responsibilities for designers where they would not exist in traditional Design-Bid-Build delivery situations and require new awareness on the part of contractors to the iterative and uncertain world of conceptual design. These new responsibilities require a paradigm shift for both Designers and Contractors as the realities of working together challenge the leadership of the organizations.

For designers the change requires them to abandon their traditionally "client only" focused advice and consent role and adopt a new paradigm of working for, or with, the contractor to deliver an acceptable and profitable product. For the contractor working with and supporting the designer changes the very nature of their previous working relationship. The contractor is now working with and for the people they are all too often at odds with concerning project delivery.

The following situation is illustrative of the evolving nature of construction in the Design Build world.

MDC's client was a building contractor who wanted to bid on a public project being offered as a Design-Build (DB) opportunity. In order to prepare a bid the contractor had to team with a designer and develop the bid from what were advertised as 30% complete preliminary design documents – bridging documents or a "two step" design-build process. In our example the contractor retained a design firm as a sub-contractor. In selecting his design partner, the contractor looked for a firm with significant experience in the region and with the agency soliciting the work. A number of similar DB ventures formed and provided competing bids for the work. The agency soliciting the work provided a bid preparation design fee reimbursement in recognition of the design effort required of the DB teams to prepare the bids. On award the designer was retained to prepare the construction documents as part of the team.

As the contractor/designer team prepared their bid, the contractor looked to his designer to provide technical guidance on interpreting the 30% bid documents and conceptualizing and quantifying bid quantities which formed the basis of the contractor developed unit prices and overall estimate. As the project entered the construction phase, it became evident that there were major features of the project that had not been fully developed in the agency-issued bid documents; but those documents were not defined as being a "100% complete" document set. The requirements and constraints for and on the project were described, if not detailed. To be fair, there were potential risk items identified by the designer in preparing the bid documents and quantities. But the contractor did ask for guidance from his design sub-consultant on these issues and there was an extension of the bid submission deadline which would have ostensibly created an opportunity to make some adjustments.

The wrinkle in this DB instance is that normally if the bid documents showed a scope -- say, 100 linear feet and the final work actually required 150 linear feet then he could make an argument to be paid for the difference. He, the contractor, expects to "reasonably rely upon" the bid documents. It is a risk inherent in the owner declaring that the "instruments of service" are reasonable and complete. The designer however often sees such differences between "as shown" and "as built" as a part of the contractor's risk. A requirement of the installation that is "reasonably inferred from the documents" and part of his obligation to provide a "complete and working system." However in this case the design is contracted (in part) to the contractor via the DB team and the designer is contracted to construct (in part) via the DB team. Who is responsible for making sure the instruments are suitable for the service intended and who is responsible for making sure that reasonable inferences are made and included in the bid?

This scenario raises a number of challenges to the traditional application of Standard of Care. In this situation the designer has the normal Standard of Care responsibilities and also the additional requirements imposed through its contract with its design-build partner, the contractor. A number of unique situations contributed to the challenges posed by the agency receiving the work. The agency was accustomed to letting Design-Bid-Build work. All of its procedures, specifications and approvals were applied to the project compounding any scope challenges. The designer had worked directly for the agency historically and was hesitant to challenge or resist agency requests or preferences. The pacing of the discovery of "challenges," constraints and restrictions in the contractor's originally intended solutions along with the staggered issuing of "revised" drawings during construction prevented the IFC construction documents prevented the contractor from addressing the cost implications at the start of the project and thus reduce or mitigate some of the overruns that occurred.

All parties to the work had plausible denial of responsibility for the cost issues.

• The agency said, "It is a Design-Build contract and we are not accepting change orders."

• The designer said, "The changes are minor in nature and within the Standard of Care for any project and we warned of risks."

• The contractor said, "These cost overruns accumulated and not until the end of the drawing issues did we see the problem and determine the final installed quantities and related costs."

In this instance MDC® had to first determine the applicable Standard of Care in the design effort. Because, hundreds of construction items are aggregated to make a bid pricing submission, relatively minor changes in quantity (considered as acceptable in the normal application of design Standard of Care for DBB) become significant to the final installed contractor cost. Is the contractor entitled to 'reasonably rely upon' the materials prepared by the designer...even if the designer works for him? In this particular case, it was significant that the designer was compensated for its pre-bidwork (along with any work performed after award), nor was there any type of profit/loss sharing agreement as part of the subcontract between designer and contractor.  They received fees for service. 

What became key along with contracted agreement was the trail of correspondence during the bid development period; when the contractor was putting his numbers together in part based on input from the design team. There are some interesting points of view that rattle around like loose pebbles in a hubcap. The designer in this case had worked for the owner on several occasions before but in traditional Design-Bid-Build arrangements. It was the presumed advantage of that prior experience that prompted the contractor to select them. But is it possible that the designer wasn't really enthused about the prospects of Design Build arrangements where there was now an intermediary – the contractor – between him and his traditional client?

The designer certainly wouldn't want the owner to be unsatisfied with the finished project, but would he be really concerned about the financial position of the contractor? MDC® suggests that a brave new world exists to be developed and there are some points worth pondering before your next Design-Build team formation and undertaking.

How precise should you make your bridging documents? Is it possible that you could unwittingly create an 'impossibility' defense if you ask for ...the impossible? Is it possible that you could leave a major gap undefined in what is expected to address it?

If a designer is asked to address issues like quantities and installation sequencing, is that a drift into the traditionally forbidden territory of "means and methods?" What about if the designer is a subconsultant to the contractor?

If a bid package leaves elements open to interpretation, does the contractor have a role (and responsibility) to play in arriving at solutions? If the contractor is the lead of the team, can he truly defer to a sub-consultant if things go awry? (Is it similar to the "linkage" that binds an architect to his or her engineering subconsultant.)

If you go into a "project specific" design-build should you be setting up appropriate incentives (and penalties?) to properly align the team members' interests?

Should DB teams develop specialized language to address the overlaps or bridge between design and construction to avoid stepping on toes or dropping fly balls?

A Blueprint for a Successful Construction Mediation, by Judge Nancy Holtz (Ret.)

Division 1 Member, Nancy Holtz, shares with The Dispute Resolver her insight on a blueprint for a successful construction mediation. 

Project: Settlement. Construction mediation is no different than any other type of mediation. However, it can present additional challenges since there are frequently a multitude of parties, as well as numerous collateral issues which can impede settlement. Let’s take a look at the critical path to getting the case settled.

The Program. For almost every construction case, the best pathway out of the dispute is through settlement rather than through adjudication by judge, jury or arbitrator. Point out to your client that in choosing mediation over litigation, your client is retaking control of his business – and life. Because as litigation unfolds, your client will quickly and unhappily experience a complete lack of control over what happens. But with mediation, your client will have control over the timing, process and outcome of the dispute. Your client’s business will have no interruption occasioned by assisting in discovery, attending depositions, and, worst of all, attending and testifying at trial. There will be no bad blood between business entities with whom your client wishes to continue to work. Bear in mind, people in the construction industry are used to having a fair amount of control over their part of a construction project. So, the idea of regaining control of their fate regarding the legal dispute is very appealing.

Design-Build. The beauty of mediation is that the parties can create whatever dispute resolution process they feel will be most effective. Formats to consider include mediation, mediation-arbitration, or arbitration-mediation.

Seek Bids for the Job - The Mediator. A construction mediator should possess the characteristics of any good mediator: skill, fairness, and common sense. But, because of the challenges of construction mediation, more is needed. No one wants a mediator who thinks The Eichleay Formula is a Robert Ludlum book; but, to resolve a tough construction dispute, you will want a mediator who has certain traits beyond some level of fluency in construction law. An effective construction mediator must have highly developed interpersonal skills, tenacity, and boundless energy for the marathon sessions which can occur.

A mediator should be flexible and be able to move between approaches – facilitative and evaluative – depending on the circumstances of the mediation and needs of the parties. Specifically, you will want a mediator who can speak to questions of evidence and other legal issues which may arise if the case goes to trial.

Erect the Scaffolding. A candid pre-mediation telephone conversation is crucial to the success of the mediation. Although dubbed a “pre” mediation call, it is in fact the beginning of the mediation because you will begin to describe the case from your perspective during this conversation. This is also the time where you should talk about the trial date, what settlement discussions have already occurred, and any particular challenges you anticipate. For example, are there issues regarding insurance coverage; in multi-defendant cases, is there a question of apportionment among the defendants; what to do about a non-participating defendant; and, whether a defense-only mediation session might be helpful. There may also be personality issues to address. Finally, you should discuss opening statements which, on occasion, can be unduly lengthy, provocative and even counterproductive.

The Project Documents. A good mediation summary should distill the significant information into a format which is persuasive and manageable. An unfiltered data dump of plans, photos, and technical information does not provide the mediator with the most effective tools to question and challenge the other side’s position.

Assembling the Team. The oft cited advice of bringing the people with authority to settle is a good starting point. Beyond that, consider bringing people who are knowledgeable on anticipated areas of controversy. You may want to bring someone at a senior management level who is above the fray of having worked on the project himself. Such a person can bring great knowledge without the protective feelings of ownership regarding the project. You, as advocate, need to move beyond the role of warrior and become a diplomat. As the attorney at a mediation, you should be part of the solution-not part of the problem.

No Hard Positions on Hard Hats. The construction industry is populated by people who take great pride in their work. So, if your opening statement includes claims which might be taken as insulting, such as shoddy workmanship, try to soften your words a bit. A successful mediation needs buy in from all participants. Harsh statements attacking the integrity or competence of a party are sure ways to harden positions.

Loss of Productivity. Be careful if you choose to bring an expert. An expert should attend a mediation to help educate and elucidate - not carry the day for your side. The goal of mediation is to move the parties beyond their positions and focus on their interests. So, do not waste valuable time having the expert expound on why your client’s position is 100% unassailable.

Also, sometimes even powerful evidence presented at mediation can be a waste of time. Such evidence is not particularly valuable if it is so technical that it will never be understood by a fact finder or, worse still, will never pass evidentiary muster. Never forget that this is a legal dispute headed for court if it cannot be resolved. To make the session productive, focus on those items which will be admissible and persuasive to the ultimate fact finder. That is what will elicit movement on the other side.

Delay Damages (Don’t). Do not spend the whole session trying to jam a week’s worth of evidence into a single day in order to prove the liability part of your case. Regardless of the strength of your case, your interest now is to get it settled. So, like it or not, you simply must move to the numbers and - working with the mediator - find the number that everyone can live with.

Be Ready for Change Orders. Come to the mediation with a settlement range in mind, but, be prepared to be flexible. Those last moves beyond your hoped for end point may be tough but will be worth it when the case settles.

Terminations for Convenience. It can be tempting to take the easy route and walk out on a mediation when it is not going well. But remember, rarely is your client better served by a trial. The brief moment of righteousness upon walking out will soon be eclipsed by the specter of a lengthy expensive trial looming in your client’s future.

Concurrent Delays. As the parties near resolution, there are some obstacles which tend to crop up all at once. You may have some terms which you consider minor but which the other side might balk at. Do not wait until the very end of negotiations to raise these terms. When you present additional terms after the other side thinks they have struck a deal, it can derail the process. In fact, you may be providing the other side with new leverage. So, raise these issues earlier rather than later in the negotiations.

Another cause for delay at the end is the task of reducing the settlement to writing. Even when everyone is exhausted and content with a handshake, do not leave until the basic terms of the settlement are memorialized in a binding agreement. Your mediator should provide the parties with a Memorandum of Understanding to use once a settlement is reached. But, you should come to the mediation with any particular language which you want to be included in the Memorandum of Understanding already prepared. You will want to address any liens and logistics of releases of those liens. Consider the collateral effect of this settlement. Do you want language relating to any warranties or on any ongoing insurance litigation. These are all items which can be anticipated and you should have language ready to include in the Memorandum of Understanding if at all possible. It is much wiser to have an enforceable Memorandum of Understanding when the mediation breaks than hope the necessary terms will all be included in a later drafted settlement agreement and release.

Punch List. If the case does not settle at mediation, the project is still not over. Construction mediations can take more than one session – in person or by phone. Keep working with your mediator. With the right plan you can complete Project: Settlement within an acceptable budget and your client will thank you for it.

Latest Wave Of The Litigation World -- Technology Assisted Review (TAR), by Jared R. Lake, RCSP, BDO Consulting

Year over year, the main line of legal press generates a fair amount of "noise" with articles in their periodicals, publications, journals, and blogs about the rising expense and burden surrounding the litigation world- as it does with the rapidly changing world of litigation technology. The use of technology has become common place in litigation.  Yet, even as technology related law experiences gains in both admissibility, as well as understanding, parties are under more scrutiny with respect to tolls they have utilized to identify, preserve, and collect electronically store information (ESI).

Enter the latest technology wave to crash into the litigation world- Technology Assisted Review (TAR).  The Blair Maron study empirically established beyond a statistical doubt that humans are not nearly as accurate than they self-reported being when working amidst a heterogeneous data set of documents that have a variety of different data types and formats...or using ad hoc, keyword as the lone approach to identifying relevant ESI, for that matter. This, then, is a very important factor that should be at the root of and interwoven into the foundation of evaluating the effectiveness of automated search technology and accompanying tools with respect to their positive impact on litigation practices.

The 2012 judicial opinion approving the use of said TAR will only expedite its acceptance and utilization of this methodology.  At its core, TAR is a process for ranking or coding a collected corpus of ESI by using a computerized system that harnesses a the knowledge base of a multitude of subject matter experts on a smaller set of documents- and then takes license and liberty when applying them to the remaining documents in the corpus of the collection.

How does this happen?  It could be through a few different methods:

1.      algorithms can be to either show how similar- or dissimilar- the remaining documents are to what has already been coded as "relevant"  to a litigation matter by subject matter experts'

2.      Or by implementing methodologies that develop a set of stringent, systematic rules that essentially emulate the patterns of the expert decision makers processes.

3.      Generally, TAR systems incorporate the use of statistical and/or sampling techniques that serve as a road map of sorts to guide and measure the overall process.

There is, importantly, often an accepted trade-off for the practitioner between precision and volume.  The system to “retrieve more documents” comes with an expense- figuratively and literally- of decreasing accuracy/precision, resulting in the presence of more irrelevant documents.  For this reason, logically, practitioners and litigating parties would be best served to evaluate the use of TAR methods and techniques in a wide range of cases- but particularly in large and complex litigation matters.  For additional background and a glossary of terms, see Maura R. Grossman and Gordon V. Cormack, The Grossman-Cormack Glossary of Technology-Assisted Review, with Foreword by John M. Facciola, U.S. Magistrate Judge, 2013 Fed. Cts. L. Rev. 7 (January 2013).

A publication from The Sedona Conference, The Sedona Conference, Navigating The Vendor Proposal Process (2007 ed.), p. 29, summarizes this best:

Technology is developing that will allow for electronic relevancy assessments and subject matter, or issue coding. These technologies have the potential to dramatically change the way electronic discovery is handled in litigation, and could save litigants millions of dollars in document review costs. Hand-in-hand with electronic relevancy assessment and issue coding, it is anticipated that advanced searching and retrieval technologies may allow for targeted collections and productions, thus reducing the volume of information involved in the discovery process.

The trajectory and enormity of growing data warehouses- in concert with human language fluidity/interchangeability, and individual differences- in concert with cost factors- should make this a required approach to litigation going forward.

 

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.   

Eighth Circuit: Damages from Exposure to Concrete Sealant are subject to "Pollution Exclusion" in CGL Policy

Just a few days ago, the Eighth Circuit (applying Missouri law) analyzed whether a contractor had insurance coverage under a CGL policy relative to personal injuries stemming from three ladies' alleged exposure to an acrylic concrete sealant. The contractor had utilized the sealant in an office park where the ladies were employed. In a declaratory relief action, United Fire & Casualty Co. v. Titan Contractors Service, Inc., the Circuit Court held that a reasonable person purchasing the policy would consider the acrylic concrete sealant to be a "pollutant," which was defined in the policy to include an "irritant." While the term "irritant" was not defined in the policy, the Circuit Court held that the concrete sealant was an "irritant" as that term is ordinarily utilized, and thus fell under the policy's "pollution exclusion." The Circuit Court did remand the case for a determination of whether the alleged injuries resulted from the "discharge, dispersal, seepage, migration, release or escape" of the sealant. To avoid uninsured liabilities, contractors using potentially harmful solvents and various other chemicals should ensure they are properly insured against injuries stemming from the alleged exposure to such products.

One minute practice pointer: Dispute Avoidance – It works in Court too!

     by Judge Nancy Holtz (Ret.), Mediator/Arbitrator Available Nationally, (617) 720-0501, nancy@holtzadr.com    

It is the pretrial conference right before trial.  You have filed your Motion in Limine.  The issue is one of great importance to you. There is a very damaging piece of evidence which you know opposing counsel is going to seek to introduce.  You want it excluded and have so moved, in limine.

Your motion is well researched, well reasoned and well written.  You are now before the trial judge arguing the motion.   Despite a strong argument and making all your points, it is clear by the judge’s questions or comments that the judge is not persuaded and is about to rule against you. This is the moment when a lot of inexperienced lawyers will double down and argue even more vociferously to win the day.  But the seasoned lawyer knows there is another way to win:  avoid the dispute for the moment. Do not let the judge say “no”.  Instead, when you can see that you are probably not going to prevail, it is far better to offer an alternative to receiving a negative ruling:  Avoid this dispute for now.

“Your honor, may I ask that the Court reserve on this motion.   I would ask that you instruct opposing counsel not to mention it in his opening and approach sidebar before asking any questions about it.  I believe that once you have heard some evidence, my position will be more clear and it might be easier to rule then.  There will be no prejudice to the other side in holding off until you have a chance to see the issue in the context of the evidence.”

Needless to say, this same advice applies when you are opposing a motion in limine.  Suggest to the judge that you will not mention the particular piece of evidence in your opening but that you believe that when the judge hears more evidence, the relevance of that evidence will be more clear.

You live to fight another day and once the judge is a little more “educated” about your position, in the context of the evidence, you may well prevail.

The Top Ten Mistakes Made in Digital Presentations and Demonstrative Evidence

Thanks to Ed Josiah, the Forum's tech guru from Nautilus Consulting, we have the following helpful list of common errors that attorneys and experts make when using electronic presentation tools such as PowerPoint in court or in arbitrations.  Ed kindly provided this article to us to share with our members.  Here is the article:

The Top Ten Mistakes Made in Digital

Presentations & Demonstrative Evidence

By Edward M. Josiah1

Electronic presentation technology is a pervasive force in the world today. This is especially true in the field of law and more so in document intensive and multi-issue construction disputes. An exceptional oral advocate has always had a powerful advantage in the courtroom, but today, presentation technology brings an intensity and flexibility of its own to court. Carefully planned legal strategy and strong content remain the hallmark of a solid case. Carefully planned visual strategies and compelling graphics are the hallmark of a persuasive electronic trial presentation. It is the combination of the two that wins your arguments. This article will explore the top ten mistakes made in the formulation and design of electronic exhibits and presentations.

  

1.    Misuse of slides – Digital slides should not be viewed as electronic versions of document enlargements. The educative power of digital exhibits is in teaching the details. Jurors will read and remember a phrase that is enlarged on the screen. Displaying a full-page document is not conducive to learning. A “picture” should be worth a thousand words -- a thousand words should not be in the picture.

2.    Confusing slides - Each slide should address one fact or argument. A slide that attempts to focus on more than one issue will confuse viewers. Rather than decipher its meaning, jurors will simply discount it. Remember, the purpose of the presentation is to communicate facts efficiently for the viewers to remember.

3.    Wordy text slides – Electronic exhibits are like road signs. Imagine driving down a highway at 65 mph and seeing the following sign: “The best exit to take to get to 84th Street is coming up in approximately 4.2 miles on the right side of the road”. Even if you could read it, would you? The sign “84th St., Right lane, 4.2 miles” works so much better; it’s clean, short and simple. Electronic exhibits should get to the point.

4.    Digital Video – A common misconception is that an event or testimony video taped using digital video is in a format that’s ready to play back at trial. This is not true. The video will need to be translated into a format that computer software can accept. It can then be transferred onto a computer and converted to a file such as an “mpeg”. The digital video is a much higher quality of video, but costs more and takes longer to produce.

5.    Faster is not better – One of the most powerful features of electronic presentations is the ability to tell a story slowly and methodically. A good story unfolds one fact at a time. Each new fact should build on the credibility of the last and support the overall theme of the case. By revealing one point at a time, you control the flow of information and how you want the viewers to learn the case and your arguments.

6.    Information Overload – The most significant element involved in designing electronic presentation graphics is deciding “what” information should be included. Slides should be driven by the desire to influence the decision making process not exclusively by graphic design. The function of analytical graphics is to enhance the message or testimony. The design of the slide (colors, line weight, etc.) should not compete with the information being presented. Content should work hand-in-hand with the design.

7.    Technology Overkill – One of the biggest pitfalls that attorneys fall into is overdoing their presentations with too much technology. Fancy animations and effects have their place but should not be used just because the technology has the capability. The initial design of the slides should reflect simplicity. The need for animations and effects will become clear as the presentation and testimony come together.

8.    I don’t need to Rehearse! -- A technological-based presentation must be sensitive to the style of the attorney employing it. It is necessary to synchronize technique with technology and this requires practice. Rehearsals afford the attorney an opportunity to refine problem areas and to become comfortable with the flow of the presentation as a whole. Keep in mind that electronic presentations affect where the attorney stands and how he/she interacts with witnesses, the judge and the jurors.

9.    Rooms have Limitations -- Technology considerations must be addressed to ensure that the presentation has the maximum impact on the jury. The best presentation will not be effective if the jury can’t see it clearly. Reviewing and planning for the physical courtroom is critical for success during trial. The size of the room, location of monitors and/or screen, electrical wiring, acoustics, lighting and equipment are all part of the trial environment and must be considered early on.

  

10. Murphy’s Law will rule -- Anything that can go wrong will go wrong. While the reliability of technology has dramatically improved over the past few years, an attorney should always prepare for the worst. Back-ups for all hardware such as laptops and projectors as well as duplicate informational CD’s are a must. Physical handouts of the presentation should be considered for backup purposes.

Ed Josiah is Director of the Nautilus Consulting Demonstrative Evidence Practice Group. He is one of the nation’s leading demonstrative evidence specialists, past president of the Demonstrative Evidence Specialists Association and graphics consultant to the American Bar Association’s Forum on the Construction Industry.

He can be reached directly at ejosiah@nautcon.com or (631) 891-3043.   

2014 Cornerstone Award: Holt Gwyn

Every year at the Annual Meeting, the attendees convene for the Forum's Annual Business Meeting during our lunch on the Thursday of the meeting. This year was no different, of course, as we convened in a ballroom to install our new Governing Committee members and Division Chairs (including our new chair for Division 1) and hand out awards and thank yous for those people who edited books published in the past bar year or who chaired national or regional Forum events.

Here's a photo of outgoing Chair Terry Brookie leading the meeting this year.

From time to time, the Forum Governing Committee determines that an individual should be honored for his or her lifetime of achievements and contributions to the Forum.  This award is known as the Cornerstone Award.  It is not awarded every year, and it is only awarded to those who have truly given back to the construction law profession through their service, activity, and scholarship in the field.  Past winners of the Cornerstone Award are a veritable "Who's Who" of construction law; a list of the awardees through 2013 is available on the ABA Website here.

This year, Doug Oles of Oles Morrison Rinker Baker LLP in Seattle had the privilege to introduce the latest winner of the Cornerstone Award, A. Holt Gwyn of Conner Gwyn Schenck PLLC in Greensboro, North Carolina.

The video below is Doug's introduction and gentle roasting prior to Holt's acceptance of the award.  Doug could have continued on for much longer if he had chosen to mention all of the awards that Holt has earned through his distinguished career, but he did abbreviate somewhat.




Here is Holt's humble acceptance of the award.




And my apologies for the shakiness of the videos at times.

Workshop A: Labor Today, None Tomorrow

Danny Jarrett of Jackson Lewis LLP in Albuquerque and Christopher Whitney of Pierce Atwood LLP in both Boston and Providence are the speakers for Workshop A. All of us have seen picketing, bannering, and other labor union tactics. But, as construction lawyers, how do we handle issues raised by those behaviors -- or even strikes?

Danny and Chris are giving us the lowdown on these issues. 

Good Morning from New Orleans

Day 1, plenary 2: we are learning about the use of random sampling to deal with construction defect claims. Our speakers are Clifford Shapiro of Barnes & Thornburg LLP in Chicago, Clairmargaret Groover of Becker & Poliakoff in Orlando, and William Mazur of Rimkus Consulting Group in Houston. 

If you are missing out on the presentation, be sure to check the searchable knowledgebase on the Forum's website for the written materials. 

New Mississippi Lien Law To Protect Subcontractors, Suppliers and Materialmen

During the 2014 legislative session, the Mississippi Legislature passed a construction lien law in response to a 2013 judicial determination that Mississippi's "Stop Notice" statute was unconstitutional. The bill has passed out of conference but it must be enrolled and signed by the governor. The new law is applicable to residential and commercial construction projects and allows unpaid subcontractors, sub-subcontractors, suppliers and materialmen ("Claimants") to place a lien against real property. Lumber suppliers, electric suppliers, equipment providers, plumbing, and roofing companies supported the construction lien bill, Senate Bill 2622, which will be codified as Section 85-7-401, et seq. of the Mississippi Code of 1972.

Under the new law, all Claimants furnishing services, labor and/or materials for the improvement of real estate shall have the right to file a lien on the real estate under certain enumerated circumstances. The lien claim also includes interest and the Claimant has the right, in unusual circumstances, to petition the court for an award of attorneys' fees.

The lien may be only filed by licensed Claimants. Further, with a nod to equity and perhaps the "clean hands" doctrine, only Claimants who have substantially complied with or completed their contractual obligations may file a lien.

First, as is typical with most lien statutes across the United States, a pre-lien notice must be issued to the owner and/or contractor if the materialman or supplier does not have contractual privity with these parties. This pre-lien notice must be issued within 30 days following the first delivery of labor, services, materials or work on the property. Without this pre-lien notice, a Claimant cannot subsequently lien the job.

The lien must be filed within 90 days from the Claimant's last work, labor, services or materials performed or delivered for the construction project. Once filed, the Claimant has two business days to serve or mail a copy of the lien upon the owner and/or the contractor. The lien may be amended to increase or decrease the amount of the claim with such amendment relating back to when the lien was originally filed.

The new law provides further that the suit to enforce the lien must be filed within 180 days of when the lien was filed and a Notice of Lis Pendens must be filed with the commencement of the lien action.

Finally, the new law reiterates the general provision that the lien is only a claim against the property, and as such, the Claimant may obtain a judgment in rem against the property. The judgment is not an in personam obligation of the property owner.

The process for filing a lien against residential property is somewhat different. Rather than the 30-day notice referenced above, the Claimant must provide the owner of the residence a pre-lien written notice at least 10 days before filing a lien. Like the lien above, the claim is only an in rem claim allowing the Claimant to obtain an in rem judgment against the property and does not impose in personam liability upon the property owner.

The statute also allows the owner to shorten the litigation period of 180 days referenced above by serving upon a Claimant a "Notice of Contest." Upon such issuance, unless suit is initiated within the 180-day-period, the lien is automatically extinguished upon the earlier of 90 days after the filing of the "Notice of Contest" or 180 days from the date the lien was filed.

When the contractor obtains a payment bond for the benefit of subcontractors and material suppliers, that bond cancels the ability of the subcontractors and materialmen to obtain a construction lien.

The effective date of the statute will be the date of signing by the governor or 14 days from legislative approval, whichever is earlier.

Texas Court Rejects General Contractor's Fraud Claims Against Owner's Lender

A Texas court of appeals recently rejected a general contractor's claims for fraud against the project owner's lender.

In that case, the general contractor did not receive several progress payments for its work on the project, and was not paid its retainage by the owner. The owner defaulted on its construction loan, which led to the lender foreclosing on its lien on the property.

The general contractor filed suit against the lender, claiming (among other things) that lender fraudulently misrepresented that it was withholding retainage from the loan amounts disbursed to the owner for the general contractor's periodic pay applications. The trial court granted summary judgment in favor of the lender on the fraud and constructive-trust claims.

The court of appeals affirmed. It pointed out that the general contractor had failed to present evidence showing the lender had made any "misrepresentations" concerning retainage. The lender's witness stated that the lender did not actually withhold any retainage, but instead forwarded the full amounts to the owner. The general contractor, in turn, did not present any evidence that its requests for payment were presented directly to the lender, or that the lender withheld any of the retained funds for the owner. Absent such evidence, the court held that the general contractor failed to raise an issue of material fact on whether the lender made any misrepresentations.

The opinion is David Wight Constr. Co., Ltd. v. FDIC, No. 14-12-01003-CV (Tex. App--Houston [14th Dist.] Feb. 25, 2014, no pet. h.).

Though the court did not discuss the issue, by analogy, some statutes in Texas expressly exempt lenders from certain obligations concerning construction loans. For example, the Texas Trust Fund Act expressly exempts lenders from any obligations to hold construction payments in trust for the contractors who work on projects. Tex. Prop. Code Sec. 162.004(a). However, this exemption would not excuse the lender from liability for any fraudulent misrepresentations to the general contractor.

Has anyone seen a successful claim for fraud or negligent misrepresentation by a contractor against a lender? Would allowing such claims expand the lenders' liability in a manner that would interfere with the normal administration of pay applications in commercial construction projects?