Virginia Real Estate, Land Use & Construction Law : Virginia Construction Lawyers & Attorneys : Bean Kinney & Korman Law Firm : VA Real Estate, Land Use & Zoning

In a recent Fairfax Circuit Court case, Travelers Indemnity Co. v. Simpson Unlimited, Inc., the court wrestled with the issue of what exactly constitutes an “improvement” under Virginia’s statute of repose found in Virginia Code Section 8.01-250.

Three Flint Hill Partnership, RLLP designated Simpson Unlimited Inc. to act as in independent contractor on a building construction project, requiring Simpson to repair and replace exterior building components, including removing and replacing terrace soffits on the eighth floor, as well as cleaning other building surfaces. Simpson submitted its application for final payment on December 4, 2002, and was paid for its work on December 16, 2002.

On December 20, 2004, there was a water leak on the eighth floor, causing damage to areas of the building occupied by tenants. Travelers Indemnity did not file suit until March 18, 2009, claiming that the water leak was related to work that Simpson performed under its contract with Three Flint.

Under these facts, Section 8.01-243 (B), the statute of limitations for property damage, gave Travelers Indemnity five years from December 20, 2004, the date the water leak damaged the building and the cause of action therefore accrued. Therefore, Travelers Indemnity’s claim would survive the statute of limitations.

Getting creative, Simpson instead filed a plea in bar based on the five-year statute of repose found in Section 8.01-250. Simpson argued that its work under the contract constituted an “improvement” allowing it to take advantage of the statute of repose, which began to run upon completion of the building project in 2002. Section 8.01-250 states:

No action to recover for any injury to property, real or person, or for bodily injury or wrongful death, arising out of the defective and unsafe condition of an improvement to real property, nor any action for contribution or indemnity for damages sustained as a result of such injury, shall be brought against any person performing or furnishing the design, planning, surveying, supervision of construction, or construction of such improvement to real property more than five years after the performance or furnishing of such services and construction….

Simpson claimed that the soffit replacement was an “improvement” because it enhanced the value of the building. Travelers Indemnity argued that the soffit replacement not an “improvement” because it was akin to a repair.

Judge Bellows analyzed dictionary definitions and opinions in other jurisdictions, ultimately agreeing with Travelers Indemnity and concluding that the soffit replacement was merely part of the normal upkeep and maintenance of the building rather than a modification or addition of the building, and therefore not an “improvement” that would allow Simpson to take advantage of the statute of repose.
 

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The Fourth Circuit has just issued their decision upholding the district court’s ruling in Universal Concrete Products Corporation v. Turner Construction Company, the topic of a December 2009 blog post on the Granby Tower litigation.

The parties agreed that the pay-when-paid clause in the Turner-Universal contract was unambiguous. However, just as it did at the trial court level, Universal argued that the subcontract incorporated the contract between Turner and the owner, creating an ambiguity about whether Turner would pay Universal before being paid by the owner. Universal relied on language that stated the costs the owner would reimburse Turner included “[p]ayments made by the Construction Manager to Subcontractors in accordance with the requirements of the subcontracts.” Just like Judge Martin, the Fourth Circuit concluded that clause related only to the reimbursement amount and not the timing of the payments.

Universal relied on cases from two other jurisdictions – Florida and Missouri – refusing to enforce very similar pay-if-paid clauses. The Fourth Circuit concluded that Virginia would simply not follow those jurisdictions, noting that an October 2009 City of Norfolk Circuit Court decision, W.O. Grubb Steel Erection, Inc. v. 515 Granby, LLC, mentioned the Florida and Missouri cases and opted not to follow their reasoning.

Once again, this case demonstrates that Virginia courts will invariably attempt to enforce the parties’ intent when faced with contractual disputes, even when that may lead to harsh results for one of the parties. Stay tuned on this case – the word is still out on whether the federal government will successfully condemn the site to expand the federal courthouse!
 

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Land use policy is the fulcrum in the tug of war between the property rights of individual owners and the regulatory interest of communities in establishing and enforcing a vision of their own community.  Three separate conversation and analysis threads bring home the reality that the cookie cutter approach to development and even to the ordinances and interpretations that govern development are not the best approach.  Indeed, inflexibility of approach and failing to encourage a more diverse and vibrant style of development are exactly the failings that the new schools of thought of "urbanism" are seeking to replace.

On the first topic, Chris Cheatham reported last week on some criticism of the Tyson's Corner proposal to allow density bonuses to developers for reaching green certification levels.  A multi-family residential developer raised what I regard as legitimate questions about whether LEED should be the only standard used.  If jurisdictions are turning to third party voluntary programs and means of certification, they should develop the means to evaluate and understand these tools and avoid getting handcuffed to a single green standard fits all approach.  While the LEED standards have certainly evolved and continue to evolve, there are some who believe they still reflect their roots flowing primarily from the commercial design and construction environment.

The second thread was covered by my colleague Tad Lunger last week in reporting the results of the recent Arlington Retail Task Force.  Much of Arlington's success has been pinned to the concept of mixed-use development, but many developers have expressed heartburn over filling first floor retail space in areas that do not appear to support such uses.  Many retailers have expressed heartburn that this land use policy creates a glut of too much retail and too much competition.  It appears that the task force has reached similar conclusions.  This is another thread towards the same conclusion that a cookie cutter approach of requiring the same thing in the same way on every project does not achieve the intended results.

Against this backdrop, I ran across a brilliant presentation by James Howard Kunstler posted at Aribra entitled The Tragedy of Suburbia, a video from a TEDTalks conference.  Mr. Kunstler may be somewhat of a lightning rod for the vehemence of his critiques of suburbia, but he makes a lot of great points regarding architecture, community, the challenges we face regarding fossil fuels, and how to build a sense of lasting community through urbanism.  I know this may be a lot to ask, but trust me: watch this video.  It is worth the 20 minutes for sure.  It is thought provoking, and will honestly give you multiple gut busting laughs to boot if your sense of humor is anything like mine.

Pulling this all together, developing vibrant communities certainly requires a regulatory and legislative framework that permits local government to plan areas of density, areas of commercial and residential development, and to encourage the creation of appropriate infrastructure to support those efforts.  That framework should not be reduced to a cookie cutter, one-size fits all approach.  That type of approach is arguably what helped foster the suburban sprawl that most planners are seeking to undo now, most notably in Tyson's Corner locally.  In encouraging a more transit oriented style of development, localities should be mindful of not not crippling the development of true urban commercial cores through excessive restrictive and repetitive requirements, but instead should like to foster organic growth a much as possible. 

Image: Alice and Lorina Liddell on See-saw, from Lewis Carroll photobooks

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My friend Vickie Pynchon recently posted at Chris Hill's blog, Construction Law Musings, on "How to Get Sued".  On the flip side, there are some simple pointers that all individuals and entities can follow that will dramatically reduce the chances of being sued.  These tips apply across a spectrum of businesses and are certainly not limited to just construction, real estate and land use.

1.  Be likable.  It is a lot harder to sue a friend.  If you maintain a friendly, warm relationship and the other side genuinely likes you, it is very difficult to cross the threshold of considering suit, let along filing one.

2.  Failing that, at least be palatable and not obnoxious.  On some level, likability and personality are somewhat pre-wired and we may not all be blessed with the so-called "winning personality".  It is clearly within most of our ability to avoid being confrontational, impolite or nasty.  Those traits make it real easy to turn a dispute personal and into trench litigation warfare.

3.  Be honest and maintain credibility.  Understand that if you get caught even in somewhat meaningless falsehoods, they come at the price of your credibility throughout the deal.  Many lawsuits flow from the plaintiff losing trust in the honesty of their opponent.

4.  Play nice.  Taking extreme advantage during a deal may feel like a good move at the time, but it can create an atmosphere that calls for payback.  Building a relationship of shared mutual success and teamwork can help smooth over differences of viewpoint during performance of contracts.

5.  Be organized.  Expensive, protracted and risky litigation looks a lot less attractive if your opponent looks like they have their act together and can or may win.  Sending the message that you are well organized throughout a contract can help create that impression.

6.  Document, document, document.  This may be the most important substantive point, as opposed to personality driven point, of all.  My career is littered with cases fraught with peril due to the failure of clients or opponents to document decisions, conversations, agreements, or notices.  In the era of instantaneous e-mail transmission, there is no excuse for why you failed to drop a quick line confirming what turns out to be the pivotal facts once you get into litigation.  Sending that timely confirmation is a great investment in avoiding litigation.

Image:  Yale University Art Gallery

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A recently completed study by Arlington's Retail Task Force outlined some interesting conclusions for ground floor retail, suggesting something contrary to the status quo of conventional urban planning thought .  Traditionally, in Arlington County, as well as other urban jurisdictions, it has been a moot argument that good urban planning require ground floor space to be used almost solely for retail, or other similar uses that are thought to improve the pedestrian experience and serve the immediate vicinity's every-day needs.  Quite frankly, ground floor retail is simply expected by jurisdictions for almost all urban projects.

The study was a holistic review of modern retail policies that would be of value to any urban locality, focusing not just on any one piece of the puzzle, but instead on economic development/jurisdictional competitiveness, urban planning and transit goals, availability of space to both national and local retail businesses, and the cold, hard numbers that are the result of current land use policies in Arlington County.  The report concluded that "[r]egional retail destinations, including Tysons Corner, Old Town Alexandria and Georgetown are siphoning sales within a very mobile and competitive market.  Whereas Arlington’s land use policies have successfully concentrated development along Metro corridors, our 'retail everywhere' policy - the requirement for first floor retail in nearly all new development - has inadvertently resulted in producing marginal retail spaces in problematic locations...." as well as  an overcapacity of retail space.  The report provides that "[s]uccessful retail cannot be located just anywhere and everywhere. Retail needs sufficient concentrations and massing to build and benefit from synergies and to attract a solid customer base. Spreading retail away from these concentrated nodes dilutes its ability to work cohesively." 

These are a pretty dramatic conclusions, given that virtually all ground floor space of virtually every project, for the past decade or so, has been absolutely required to be retail space.  Clearly, empty retail space that cannot be filled fails to provide any of its intended benefits, and requiring "retail everywhere" may very well have had the opposite of its intended effects.  Empty retail space is not good planning, and is hardly engaging to the pedestrian.  Clearly, nobody wins when space sits empty.

So what does the report suggest as solutions?  Here are the recommendations in a nutshell: (i) focus retail uses in planned retail nodes that provide the convergence of transit/accessibility options (including both walk-ability, transit, and yes, convenient parking), retail density, and retail business mix necessary for sustainable retail success (ii)  broaden the definition of "retail" in the Zoning Ordinance to allow not only classical retail uses, but also other uses that would achieve and/or compliment the same intended planning and economic results, such as studio and service uses, etc., (iii) allow additional flexibility for signage necessary to allow retail businesses to succeed, and (iv) allow more flexibility in first floor building design during the County's special exception processes so that tenant space is more readily and efficiently adaptable to attract prospective tenants.

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Award winning design does not necessarily translate to an effective, successful or liveable built environment.  My interest and passion for interesting design is somewhat tempered by my having seen the consequences of projects not matching constructability and coordination with interesting design.  As I have previously revealed obliquely in my post on How to Pick a Lawyer, I am a junky for interesting technology, construction and design.  I still think that instead of art for arts sake, our building environment is our living environment and at its best, design and construction integrate these two potentially disparate arenas. 

I have spent a career of construction litigation crossing boundaries in the industry.  I cut my teeth defending design professionals, but I have since represented contractors and subcontractors.  I have worked with owners and product manufacturers.  Each camp has its own shorthand description of the failures of others.  I have heard the constant grumblings of the inability of contractors to follow the plans and specifications (or at worst even read them).  On the other side, I have heard contractors complain that architects draw pretty pictures but are clueless about how to put buildings together.  I have seen examples where each criticism was fair and others where they were totally unwarranted.

Placing all this in the context of the end user, I have lived the first hand experience of a train wreck between architecture as high design versus and living in the end product.  I attended Yale University and lived on campus in the Morse College dorm my sophmore year.  When most people think Yale, they envision the gothic style architecture which dominates the campus and is ably represented by the imposing shot of Harkness Tower to the above.  Morse College is a little different ... designed in a distinctly modern style by architect Eero Saarinen.

I was open on some level to Saarinen's style.  I grew up with his Dulles Airport design in Northern Virginia and loved that project with its suggestion of a sweeping plane's wing in the terminal.  Morse College was a little different.  Try living in spaces with literally no right angles in the living areas (which can be seen easily here where there are floor plans for Stiles and Morse Colleges).  As Wikipedia pithily states, "This resulted, notoriously, in two rooms which have eleven walls, none of which is long enough to put the bed against and still be able to open the door."

The lack of right angles was a physical impediment that ranged from a mere minor annoyance to a constant source of fury depending on how your room lottery worked out.  Luckily, our group drew well and my cozy single was pretty workable.  The more complex aspect of preparing to live in Morse College was based in social structure.  For every other dorm, planning for living arrangements basically called for grouping off in pairs.  Sets of best friends could group up into fours for lotteries.  There might be an odd person out here or there, but the numerical structure basically fit typical social conventions.

Not so with Morse.  The numerical structure of the rooms was as completely incongruous as the walls.  Instead of pairs forming groups of four, most room bidding centered around bizarre troups of sevens matching up with other sevens.  Every year, the politics around room assignments were a bloody nightmare of hurt feelings and betrayals.  Reaching up the elder food chain (and while I started in 1984, I had friends who dated back to the 1970's), I was informed that this bitter history was constant and consistently repeated each year.

Now that I litigate construction and design issues on a constant basis, I often find myself relearning the experience of living architecture first hand.    I am fascinated by the tension between celebrated design and practical performance.  I love the aesthetic of Frank Lloyd Wright's Falling Water, but I will admit to a chuckle regarding the near constant structural, mold and water problems at Falling Water.

The best projects are those which marry both art and application.  The most successful projects are those where the architects embody the master builder concept rather than the smug artiste, where the contractors are not only master craftsman but knowledgeable about design and helping with coordination.  It is perhaps utopian to expect everyone to pull the oars in the same direction, but when there are shared values, relationships and mutual respect, it can produce tremendous results in the built environment.

(Credit or blame for encouraging this post should go to my pal Laurie Meisel, social media presence for Architectural Record and Green Source Magazine, amongst other endeavors)

Images:

Harkness Tower by wallyg

Eero Saarinen Dulles Airpor by XYZ+T

Morse College Renovation by Phil Handler

Frank Lloyd Wright's Falling Water by Figuura

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There are a number of important construction law and economic developments that I want to pass along to our readers.  Given timing and the plethora of topics to address, I wanted to share these developments in a more rapid fire format so these updates remained timely.

You should be on the lookout for more information on these topics in the future.  We may expand on some of these threads in the future here as well:

• The Supreme Court of Virginia will hear the appeal in AMEC Civil LLC v. VDOT.  This case is a very important case involving what is required for notice of claims on construction projects; any person or entity involved in Virginia construction needs to keep an eye on this case as it could have a major impact on future Virginia construction litigation
• As reported by our friend Chris Cheatham, the District of Columbia has attempted to fix their green building ordinance by no longer requiring a "performance bond" guaranteeing verification of green construction ... they will instead just require a "bond" guaranteeing verification of green construction.  Count me as a skeptic that this editorial change is meaningful or will fix the problem of lack of available bonds in the markets to cover this risk.
• The economy is sending some mixed messages.  Overall unemployment dropped from 10.0% to 9.7% in January according to the latest Bureau of Labor Statistics report
• Unfortunately, that improvement did not translate to the construction industry.  ENR reports a significant continued rise in construction unemployment, jumping from 22.7% in December to 24.7% in January.  The Bureau of Labor Statistics indicates that the construction sector lost 75,000 jobs in January bringing the total to 1.9 million since December 2007
• Associated Builders and Contractors released their latest Construction Economic Update.  The skinny: private non-residential construction spending rose 0.2% in December, but was down almost 18% year over year.

The continuing sluggish economy continues to place significant bidding pressure on the construction industry.  I still stand by my post last October that this bidding pressure will translate to serious claims issues over the next couple years.  Put on your seat belts, it will be a rocky ride here for a while.

Image by Ian Britton courtesy of Freefoto.com

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So, here in the Washington, DC area we are buried under a couple feet of snow.  You know we have a lot of snow when the Lincoln Memorial steps have been transformed into a good tobogan run.  Unfortunately, so much snow means a ton of dead load placed on roof structures.  There are a number of roof collapses reported around the area.  So far, the major blessing is it appears that none of these events have led to any serious personal injuries.  You can definitely expect that these significant collapse events will trigger equally significant property damage claims, business interruption issues, and perhaps threaten the long-term viability of some businesses.  These events include:

• The roof of the Bailey's Crossroads Volunteer Fire Department collapsed
• A hangar roof at Dulles Airport fully collapsed, reportedly destroying several business jets
• The roof at a commercial strip store in Forestville, MD collapsed Saturday
• The roof at St. John School in Maryland collapsed, destroying six classrooms, the computer lab, library, and offices
• A storage warehouse in California, MD collapsed
• The scariest has to be the collapse of the Prince William Ice Center which happened with the building occupied with skaters; owners were able to clear all the occupants out when they observed a ceiling beam start to twist

Here is a news report on the Baileys Crossroads roof collapse from WJLA:

With the threat of more snow potentially on the way, the region may not have seen the last of these problems.  Building owners may face some significant hurdles to full recovery, including finding out the limitations of their insurance policies, facing problems with statutes of limitations and/or statutes of repose, and finding that responsible parties are casualties of the current economic crisis and thus are judgment proof.  All of these factors point to a few very important lessons:

• Know and understand your insurance coverage and its limitations before you have problems
• When shopping for insurance, evaluate risk and consider not just shopping for the lowest price; you may find that going cheap on insurance ultimately costs you far more
• Know and understand applicable statutes of limitations and statutes of repose prior to entering into design, construction, or property purchase agreements
• Factor in the impacts of these time limitation issues when you asses the appropriate levels and types of insurance your purchase
• Do your homework - conducting detailed inspections prior to purchase and properly evaluating the strength and credentials of your consultants and contractors is an investment of time and money, but it is worth it in the long run rather than face a catastrophic loss in the future

Image by vpickering

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After much back and forth, the Soil and Water Conservation Board announced on January 14th that they voted to suspend their hotly debated changes to stormwater regulations to permit an additional 30-day comment period.  The stage was formally suspended on January 26, 2010 which means that the status will be stuck in suspension until a new round of comments opens from February 15 through March 17.

We reported on the both the initial regulations and later changes to the proposed regulations which eased some of their impacts on the home building industry.  The Home Builders Association of Virginia indicates that they mobilized significant response and opposition to even the later round of regulations.

In addition to the underlying technical tug-of-war, there are two interesting political subtexts which may sweep this issue off the table.  First, in the intervening time since the regulations were first proposed, the Republican former Attorney General, Bob McDonnell, has won the Governor's race, Governor Tim Kaine has left office,  and Governor McDonnell has been sworn in.  The impact of the new Governor on these regulations is unknown at this point, but the suspension may be a significant indicator of future direction.

The import of state regulation may be swept away by federal intervention.  The US Environmental Protection Agency has sought comments and then transmitted a second notice on specific stormwater management regulations.  Chesapeake Bay run-off continues to generate active press and political reaction, so the states may ultimately be preempted by federal action in this arena.

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In 2002, Brenda Kersey received a $71,397 mortgage loan to purchase a home in Richmond, Virginia. The loan was a Federal Housing Administration (“FHA”) loan governed by FHA regulations. PHH Mortgage Corporation was the holder of the note in connection with Ms. Kersey’s loan.

Like so many unfortunate homeowners, Brenda Kersey fell behind on her mortgage payments. PHH appointed the Professional Foreclosure Corporation of Virginia (“PFC”) as substitute trustee on the Deed of Trust securing the mortgage and instructed PFC to foreclose on Ms. Kersey’s home. PFC scheduled a foreclosure sale without having or attempting to arrange a face-to-face meeting between PHH and Ms. Kersey.

The deed of trust allowed foreclosure only if the holder of the note complies with FHA regulations. One of those regulations is 24 C.F.R. Section 203.604 (b), which states in part:

The mortgagee must have a face-to-face interview with the mortgagor, or make a reasonable effort to arrange such a meeting, before three full monthly installments due on the mortgage are unpaid. If default occurs in a repayment plan arranged other than during a personal interview, the mortgagee must have a face-to-face meeting with the mortgagor, or make a reasonable attempt to arrange such a meeting within 30 days after such default and at least 30 days before foreclosure is commenced….

Based on PFC’s failure to schedule a face-to-face interview before initiating foreclosure, Ms. Kersey filed a complaint in the Circuit Court for Richmond City seeking a declaratory judgment that PHH failed to comply with the deed of trust sufficiently to go forward with the foreclosure. PHH removed the matter to the United States District Court for the Eastern District of Virginia, Richmond Division, and moved to dismiss the action under Rule 12(b)(6) for failure to state a claim.

In a memorandum opinion in Kersey v. PHH Mortgage Corporation, Judge Williams refused to dismiss Ms. Kersey’s complaint, concluding that there was a “distinct and ripe controversy” as to whether PHH owed Ms. Kersey a face-to-face interview prior to foreclosing on her home.

PHH’s first argued that Section 203.604 and the National Housing Act (“NHA”) do not grant a plaintiff a private cause of action. Judge Williams dispensed with this argument by concluding that Ms. Kersey was not bringing a claim under the NHA and Section 203.604, but rather was seeking a declaratory judgment based on a state law breach of contract claim. Interestingly, Judge Williams hinted to PHH that perhaps it could assert that Ms. Kersey’s failure to make timely payments constituted the first material breach between the parties that would have relieved PHH from the obligatory face-to-face meeting.

PHH’s second argument was that it fell under an exception found in Section 203.604 (c), that a

face-to-face meeting is not required … if [t]he mortgaged property is not within 200 miles of the mortgagee, its servicer, or a branch office of either.

PHH has loan origination branches, but no servicing branches, within 200 miles of Ms. Kersey’s property, and pointed to an interpretation of this exception on HUD’s website that Section 203.604 relates only to mortgagors living within a 200-mile radius of a servicing office. Judge Williams refused to be swayed by the interpretation on HUD’s website, finding the exception in Section 203.604 (c) to be unambiguous. According to Judge Williams, a lender could escape the face-to-face meeting requirement only if the following are not located within 200 miles of the mortgaged property:

1. the mortgagee;
2. the mortgagee’s mortgage servicer;
3. a branch office of the mortgagee;
4. a branch office of the mortgagee’s mortgage servicer.

Judge Williams found that PHH could not therefore escape its face-to-face obligation when Ms. Kersey’s complaint alleged that PHH maintains “branch offices” within 200 miles of the mortgaged property.

It will be interesting to see if PHH ultimately prevails by alleging that Ms. Kersey committed the first material breach when she fell behind on her payments.  However, stepping back from the legal analysis for a moment, maybe there is a point to these face-to-face meetings, even if they are time consuming.  In the right situation, such a meeting could enable lenders and borrowers to come up with a mutual plan to avoid painful and costly foreclosure proceedings. 

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Rockville based contractor Hann & Hann will pay $600,000 plus the plaintffs' legal fees to settle a wage and overtime based class action suit.  As reported in the Washington Post by Rubin Castaneda on January 30, 2010, Hann & Hann agreed to pay overtime plus 50% for every employee working with the company not paid overtime between May 8, 2006 and May 8 2008.

There are a couple important subtexts to this case and settlement.  First, reports describe the 200 plus employees and former employees as almost all Spanish speaking immigrants.  This naturally raises questions not only of immigration status, but also of whether the contractor was perceived as taking advantage of employees less able to defend themselves.  In this case, the employees not only had the Immigrant and Refugee Rights Project at the Washington Lawyers' Committee for Civil Rights and Urban Affairs on the case, but also were represented by Arnold and Porter pro bono.

Second, claims by employees for unpaid overtime and wages have been a hot topic over the last several years (some more detailed discussion touching on this is available here at Daniel Schwartz' excellent blog).  In many ways, the issue of classification of exempt and non-exempt employees which dictates whether overtime is required dovetails quite closely with distinctions between independent contractors and employees which we recently discussed.  Back wages, penalties and attorneys' fee claims are a big risk in this arena, as is the underlying threat of more involved scrutiny as the weight of the government comes to bear.  Contractors should:

• Take employee classifications seriously
• Understand that mistakes in classifications can translate to serious damages
• The short term benefit of cutting corners can come at a cost that buries your company
• As a result, handle classifications conservatively and pay out overtime accordingly

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