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

As many of our readers know, the new Crystal City Sector Plan was considered last night (see here for our prior analysis of the proposed plan), but did you know it contained a proposal for a Tax Increment Financing ("TIF") fund  to include the Crystal City, Potomac Yard and Pentagon City areas at the same time?

So what is a TIF fund?  It is actually a very common and pretty straightforward tool used by localities nation-wide to finance area-specific public improvements, however, this tool often makes many people nervous because it essentially is based upon using future, anticipated tax revenue increases to finance current improvements.  Said another way, the County has projected a certain "incremental" increase in property values, and will use this projected incremental increase to finance debt issued to pay for specified projects.  The County has projected these incremental tax revenue increases based upon planned new densities and several projected build-out timeline possibilities.

The Crystal City Sector Plan anticipates about $207,000,000 in costs for public infrastructure improvements in streets, mass transit and public spaces over the next 20 years (such as the proposed new streetcar system, etc.).  According to County staff, the recently adopted FY 2011 - 2016 Capital Improvement Program already relies on the TIF as a funding source for these three geographic areas.  TIF fund programs have been critical components to many regional revitalization efforts, including Arlington's Columbia Pike Revitalization Initiative.  The County believes, over the next six years, this tool will provide approximately $27,000,000 of funding for dedicated TIF capital improvements.

Here's a link to the County Manager's report on the Crystal City, Potomac Yard, and Pentagon City TIF fund proposal.

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On the return trip from visiting my brother and his family in North Carolina this weekend, we randomly stopped at an Arby's off I-95.  We were greeted by not just surprisingly good food in a suprisingly clean spot, but also a surprise thought exercise in food, sustainability and the potential for market change.

Randomly, this specific Arby's was part of a Richmond chain of 19 restaurants that switched to grass-fed beef during 2010.  Patrons at the restaurant were greeted inside not only by aisles for ordering food, but also printed menus with caloric and dietary information and a gloss multiple page print of an article regarding industrial food production entitled, "You Are What Animals Eat" by Jo Robinson.

In digging a bit, I have found skeptics on the Wendy's/Arby's chain sustainability efforts as a whole.  I found skeptics even as to the Richmond chain's effort commenting on some posts, saying things like:

You got to be a serious moron of epic proportions in order to actually believe arby’s could seriously and truly serve/cook grass fed beef. Arby’s does not sell beef, it sells a beef product, a complete different thing loaded with monosodium glutamate, high fructose corn syrup and all diff. excitotoxins. Yeah, I love this. This is just what we need.

A fast food trip for me is a pretty rare occurrencenow, but with two hungry kids and a long road ahead it felt like a choice of necessity.  What a concept that in perhaps the most industrial of food outlets, we found healthy and sustainable approaches to business percolating.  What would happen if we all increased our awareness and demanded more healthful choices from our built environment, transporation, food and entertainment?  How would the market respond?

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Per a request made by Delegate Christopher Peace (R - 97th District, who represents parts of Hanover, Caroline, King William, King and Queen, Henrico, Spotsylvania Counties and all of New Kent County), Attorney General Cuccinelli has clarified the position of the AG's office about the newly enacted Section 15.2-2303.1:1 of the Code of Virginia, which prohibits localities from collecting conditional zoning cash proffers.  As many of our readers recall, the General Assembly passed Section 15.2-2303.1:1 this past legislative session which, through July 1, 2014, prohibits localities from requiring payment of cash proffers until after completion of final inspections and prior to issuance of a certificate of occupancy for residential development in order to alleviate the financial hardship currently being experienced by the residential building and development community.  A number of localities in Virginia have taken the position that this statute does not apply to proffers made prior to the enactment of 15.2-2303.1:1, prompting the opinion requested by Delegate Peace.

The specific questions posed by Delegate Peace were:

"...[W]hether newly enacted § 15.2-2303.1:1, which prohibits localities from collecting
conditional zoning cash proffers at any time other than after completion of the final inspection and prior to issuance of any certificate of occupancy for the subject property, applies to proffer agreements that were formed prior to July 1, 2010, the effective date of the statute... [and] whether such retrospective application would violate the Contracts Clause of the United States or the Virginia Constitutions."

The AG's response was positive for the residential development and building community, providing that, "...as of July 1, 2010 and through July 1, 2014, a locality may not accept or demand payment of any uncollected cash proffer payments, including those agreed to prior to July I, 2010, until the completion of a final inspection and prior to the issuance of a certificate of occupancy for
the subject property, notwithstanding the provisions of any such proffer agreement to the contrary... [and that] this interpretation does not infringe the Contracts Clauses of the United States or Virginia Constitutions."

With litigation between certain localities and developers looming on the horizon on this issue, it remains to be seen whether localities will respect the opinion of their Attorney General or not.  The reasoning behind the AG's opinion was clear and straight forward, that the Contracts Clause was drafted and included in our Constitutions to protect private citizens' contractual rights, not created to be used by localities to claim they are not subject to the authority of the Commonwealth and  statutes enacted by the General Assembly.  Additionally, the AG found that the plain language of 15.2-2303.1:1, as well as the very clear legislative history of the statute, clearly establish the intent of the General Assembly to have the statute apply to all proffers, already existing at the time of enactment the statute and thereafter.  Here's Attorney General Cuccinelli's written opinion if you are interested in reading the entire opinion.
 

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The U.S. Department of Justice (DOJ) recently published new regulations in the Federal Register on September 15, with the final rules taking effect March 15, 2011. Compliance with the 2010 Standards for Accessible Design is permitted as of September 15, 2010, but not required until March 15, 2012.   These new regulations relate to the implementation of Title II and Title III of the Americans With Disabilities Act and apply to public entities as well as a number of types of facilities owned/operated by private entities relating to public accommodations in private facilities. DOJ is issuing these rules in order to adopt "enforceable" accessibility standards under the Americans with Disabilities Act of 1990 (ADA) that are consistent with the minimum guidelines and requirements issued by the Architectural and Transportation Barriers Compliance Board.

Title III prohibits discrimination on the basis of disability in "places of public accommodation" (described by DOJ as businesses that are generally open to the public and
that fall into one of 12 categories listed in the ADA, such as restaurants, movie theaters, schools, day care facilities, recreation facilities, and doctors' offices) and requires newly constructed or
altered commercial facilities (privately owned, nonresidential facilities such as factories, warehouses, or office buildings) to comply with the ADA Standards.  The new rules include a general "safe harbor" under which elements in these types of facilities that were built or altered in compliance with the 1991 Standards would not be required to be brought into compliance with the 2010 Standards until the elements were subject to a planned alteration.  A similar "safe harbor" also applies to elements associated with the "path of travel" to an altered area.  The official fact sheet outlining the changes to Title II can be found here and the fact sheet outlining the changes to Title III can be found here.

So what do you need to know about these new regulations?  Well, first of all, these new regulations should help simplify things because they were intended to be in congruity with the International Building Code/most uniform statewide building codes, to reduce conflicts per the old requirements, where you had various federal and state requirements that were different.  Also, remember that the "safe harbor" provisions should be taken into account when scoping new construction or upgrades at facilities.  Additionally, because compliance with the 2010 Standards for Accessible Design is permitted as of September 15, 2010, but not required until March 15, 2012, it looks like there will be a window where you will have a choice of which standards to implement, which should also be kept track of.  And, of course if you have any special excpetions going through the public processes right now, pay attention to what you agree to.

Here is the link to the Federal Register provisions for Title II official text changes and here is the link to the Federal Register provisions for the Title III text changes.

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The Virginia Supreme Court has released its opinion in the first of the pending Case Watch. Commonwealth of Virginia v. AMEC Civil, LLC, and the companion case of AMEC Civil, LLC v. Commonwealth of Virginia had twenty-two assignments of error on AMEC’s part, along with two assignments of error and seven assignments of cross-error on VDOT’s part.

At issue was a $72.5 million contract to construct the Route 58 Bypass in Mecklenburg County, and AMEC’s demand for over $21 million. The trial court – which issued two letter opinions – awarded AMEC its full $21 million. The Court of Appeals – which issued its own published opinion – and the Supreme Court were not as kind to AMEC.

The Virginia Supreme Court did an excellent job narrowing down the case to five main issues:

1. Did AMEC gave timely notice of its claims to VDOT?
2. Were unanticipated sustained high water levels a “differing site condition”?
3. Was AMEC entitled to home office overhead damages?
4. Should AMEC have been able to use the Rental Rate Blue Book to establish damages related to equipment costs?
5. Was AMEC entitled to prejudgment interest?

Notice was the primary focus of the case, requiring an in-depth look at Virginia Code Sections 33.1-386, which says that a

… claim shall set forth the facts upon which the claim is based, provided that written notice of the contractor’s intent to file such claim shall have been given to [VDOT] at the time of the occurrence or beginning of the work upon which the claim and subsequent action is based.”

Section 33.1-387 makes this claims process a condition precedent to filing suit against VDOT.

The trial court, which awarded the full judgment of $21 million to AMEC, found notice of AMEC’s claims to VDOT in various meeting minutes, emails and other documents. The trial court reasoned that these “writings” gave VDOT actual notice of the claim and VDOT suffered no prejudice with that notification. The Supreme Court wasn’t buying it, and directly held that actual notice is insufficient to satisfy Section 33.1-386. As to form, the Supreme Court held that:

At a minimum, to satisfy the written notice requirement, the written document at issue must clearly give notice of the contractor’s intent to file its claim and must be “given to [VDOT]” by letter or equivalent communication directed to VDOT at the appropriate time. As to timing, the Court looked to Section 33.1-386 (A) to say that notice has to be given either: (1) “at the time of the occurrence” of the claim; or (2) at the “beginning of the work upon which the claim…is based.”  The Court split the baby on these claims, finding at times AMEC gave sufficient notice, and at times not.

As to the second issue of “differing site conditions,” AMEC argued that the water level of Kerr Lake fluctuated so far outside of the U.S. Army Corps estimations that its sustained elevated water levels constituted a “differing site condition” that delayed the project to the point that AMEC was entitled to delay damages. VDOT granted two work orders extending the project, but refused to give AMEC delay damages.

The contract between AMEC and VDOT contained a specification called “differing site conditions” that would entitle AMEC to delay damages for: (1) subsurface or latent physical conditions differing materially from the contract; or (2) unknown physical conditions of an unusual nature, differing materially from those ordinarily encountered and generally recognized as inherent in the work provided for in the contract.

The Supreme Court found that, as neither subsurface nor latent, the elevated levels could not be a Type 1 differing site condition. But they were a Type 2 differing site condition. The contract adopted the U.S. Army Corps estimates, and the the lake levels remained above those estimates for a length of time that even VDOT’s witnesses agreed was “unusual.” VDOT benefited from accurate bidding by allowing the contract to adopt the U.S. Army Corps’ estimates, and therefore bore the risk on this issue.

Regarding home office overhead damages, the Supreme Court noted that, for a contractor to prove it suffered unabsorbed overhead damages, the contractor need not show its overhead increased due to delay, but only that it could not otherwise reasonably recoup its pro rata home office expenses incurred while its workforce was idled by the delay. AMEC’s expert merely calculated a per diem rate multiplied by the number of days of delay. The Supreme Court rejected this model, finding that AMEC failed to prove it was entitled to overhead expenses because no fact or expert witness presented evidence that AMEC could not have recouped its home office overhead from some other revenue-producing work.

As to equipment costs, AMEC used the “Rental Rate Blue Book,” just as Specification 109.05 (d) in the contract allowed it to do. The parties agreed that “actual costs” were the proper measure of damages, but disagreed as to whether AMEC could just rely on the Blue Book, without making adjustments such as for the equipment’s age. AMEC also presented expert testimony – unchallenged by VDOT – that the Blue Book represented the industry standard to determine equipment costs. That was enough to satisfy the Supreme Court.

For the last issue, the Court had no problem affirming both the trial court and the Court of Appeals, which refused to grant prejudgment interest to AMEC. The only way AMEC could prevail on this issue was to show statutory or contractual waiver of VDOT’s sovereign immunity, which it failed to do.
 

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We are hosting a seminar on the Benefits, Costs and Risks of Green Building.  The class is run through the AIA Northern Virginia as a 3-hour workshop on sustainable projects, examining timely topics including cost/benefit issues, public and private regulations and markets, and potential legal risks. This workshop offers 3 HSW/SD LUs for those interested in AIA continuing education credits.  There is a $30 registration fee (includes Continental breakfast) and pre-paid reservations are required.

The workshop will focus on cost and benefit analysis for project design and construction decisions, including green construction costs, costs associated with LEED® certification, potential financial benefits to owners in terms of operating expenses, and available tax credits. Federal and local regulations pertaining to sustainable projects will be analyzed, including the potential log jam of these regulations, the federal executive order relating to sustainability of federal buildings, and the proposed Federal Acquisition Regulation (FAR) implementing these requirements. The speakers will discuss the government’s impact on the marketplace of green building and the vagaries of working through a remote voluntary third party rating system.  Finally, we will discuss legal risks, exposure, and mitigation of those risks will be analyzed in the virtually undefined arena of green building litigation.

The presenters include:
• Timothy R. Hughes, LEED AP with Bean, Kinney & Korman, P.C.
• Hope Lane and Maral Nakashian with Aronson & Company
• Robert J. Kobet, AIA, LEED Faculty with The Kobet Collaborative

Where:    2300 Wilson Boulevard, Arlington 22201, 1st Floor

When:     October 1, 2010, 8:30 am-12 p.m

How:       Email reservations@aianova.org. Please include your AIA number, if applicable.

                 Online reservations available here:  http://www.aianova.org/eventPop.php?eventID=414

For questions, contact the Chapter at

or 703-549-9747.

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In an attempt to get out of having to comply with a proffer, a developer has tried, and failed, to claim that a proffer could not be amended at a public hearing without having to resubmit the amended in proffer in writing and to conduct a subsequent public hearing.  The facts in Arogas, Inc., Et Al. v. Frederick County Board of Zoning Appeals, Et Al., were pretty straightforward.  Prior to a public hearing for a rezoning, a property owner submitted a written proffer to the Frederick County Board of Supervisors, which the property owners thereafter orally agreed to modify at the public hearing, and then about a week after the hearing the property owners signed a written amended proffer pursuant to their oral agreement at the hearing.  The amended proffer limited the underlying by-right permitted uses of the property.

Subsequently, the developer acquired the property from the owners, and, of course, wanted to use the property for a purpose prohibited by the amended proffer, and the Zoning Administrator let them know they were not permitted to do so.  After the Zoning Administrator refused to accept a site plan submitted by the developer which demonstrated the prohibited use, the developer appealed the Zoning Administrator's decision to the Board of Zoning Appeals, which denied the appeal.  In order to get around this, the developer then appealed the Board of Zoning Appeal's decision on two basic points: (i) The amended proffer was void ab initio because the amended proffer was not submitted to the Board of Supervisors five days before the public hearing, contrary to the Frederick County Code, and (ii) that the underlying zoning district allowed the use proposed, and disagreed the proffer prohibited the use they had proposed.

Not suprisingly, the Supreme Court came down against the developer, as had the Circuit Court before them, the useful take-aways from this case being basically threefold:  (i) the Board of Supervisors can in fact reserve (and in this case had) the authority to amend proffers during a public hearing at which the proffer is being considered, and that a subsequent hearing is not necessary to memorialize an amended proffer in writing, (ii)  a Board of Supervisors clearly has the authority to modify and/or limit the underlying by-right uses through use of proffers while considering a rezoning application, and (iii) both courts did make it clear that a Zoning Administrator could not refuse to accept a site plan application proposing a prohibited use, but rather must accept the application and then deny it.

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We are joined today with a guest post from our colleague, Phil Keating, with a timely report on Arlington County’s newly released Energy Plan issued by the Arlington County Community Energy and Sustainability Task Force. In addition to being Chair of the Arlington Chamber of Commerce, Phil is a member of the Task Force and has provided us with some analysis and suggestions:

The Task Force released its draft Energy Plan on September 17, 2010. The plan, truly developed by a group of consultants led by Peter Garforth with input from Task Force members, County Government staff, and other interested parties, is scheduled for a public hearing Thursday, October 21 from 6:00 p.m. to 9:00 p.m. at Wakefield House School in Arlington. Additional public presentations are scheduled and e-mail comments are being accepted. The schedule for the Task Force contemplates that the Arlington County Board will consider the Energy Plan and move to adopt it in the February to April 2011 time frame.

The draft Energy Plan uses 2007 emissions data as a baseline. The Plan includes a quite aggressive goal to reduce greenhouse gas emissions levels by two-thirds from 2007 levels within the next 40 years. Data contained in the plan highlights that commercial building use is significantly higher than either residential or transportation so businesses can expect a disparate impact if the plan is fully implemented. The Plan envisions that the Arlington County Board and the Office of the County Manager will develop and enforce aggressive efficiency requirements, including:

• For renovations, 30% increased efficiency for residential and 50% for commercial construction
• For new construction, 30% increased efficiency above current code expectations
• Submission of a detailed narrative on how projects plan to achieve the goals
• Developers willing to commit to agreed levels of energy performance, “may be allowed incentives.”

The Plan further calls for migration to District-Energy (DE) in high-density areas starting in 2015. Interestingly, the Plan states, “The legal framework for the DE utility will be created immediately with clear business rules, along with access to the appropriate utility expertise, capital depth, and operating understandings with the County, Washington Gas (WGL), and Dominion Virginia Power (DVP). .. The County will create planning and construction guidelines for DE preferred areas including connection norms to make buildings DE-ready as an early implementation action following approval of the CEP.” While some specific areas under unified ownership may currently be ripe for a DE approach, these provisions of the Plan should rightly give the business and development community significant hesitation as potential threats to an already complex approval process.

As stated above, the real work with respect to the Energy Plan starts now and, as the expression goes, “the devil is in the details.” In the case of the draft Energy Plan, the essential details are not being addressed at this stage and are being deferred to County Government staff and, possibly, groups of individuals appointed by the County Board. From the perspective of the business community, including the broader development and real estate sector, there are significant concerns about the implementation and enforcement phases of the Energy Plan. These include the unstated issues of cost, the decisions that need to be made as to who will bear the cost, the economic and marketplace viability of the stated goals in the time frames contemplated, the impact on the rights of property owners, and the enforcement mechanisms that will be adopted by the County Government. In cases where actions are being taken in the interest of the general public good, the position we are advocating at the Arlington Chamber of Commerce is that the general public should bear the expense of that action and not just the business community.

We look forward to future commentary and discussion regarding this topic, both in the public process and here at the blog. For more detailed comments and reaction, please feel free to review my longer treatment of the Plan.

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The Supreme Court of Virginia has issued its long awaited notice decision in the Commonwealth v. AMEC Civil LLC case.  The result is a pretty painful smack-down of the substantial bulk of the contractor's claims based on lack of statutory notice.  Not surprisingly, the court strictly construed statutory notice requirements for claims against the Virginia Department of Transportation under the umbrella of its historic strict statutory construction rules.  Notice was deemed a condition precedent.  Actual notice, which had originally satisfied the trial court due to lack of prejudice to VDOT, failed to comply with the statute's requirement for written notice.

What are the take-aways?

1. If you think you may be entitled to additional compensation, ask for it in writing and reserve your claim rights;
2. Scrutinize your contracts closely for all claims and notice requirements;
3. Scrutinize any applicable statutory notice provisions closely as well;
4. Do not trust the other side playing along and being fair and taking care of you, that is the path to potential ruin;
5. If you have any inkling of of a dispute, make sure you formalize all claims and demands and notices in writing;
6. Do not expect project meeting minutes and e-mails to suffice to establish notice.

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As promised, just wanted to circle back with the results of yesterday's Commonwealth Transportation Board hearing.  It is official, the Commonwealth Transportation Board passed the actions necessary to transfer Columbia Pike to Arlington County, with assurances from Arlington County staff that they would preserve the functionality of Columbia Pike and that there were plans to do so in place.  This action is a major step for the Columbia Pike Revitalization Initiative, giving Arlington County the control it has wanted over streetscape, pedestrian, transportation, street and intersection alignment, and its street car planning.

All this comes despite the ongoing lawsuit between Arlington County, VDOT and others.

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The Commonwealth Transportation Board is scheduled to finalize the deal and take the necessary actions to convey Columbia Pike to Arlington County tomorrow, being the culmination of many years of urban and transportation planning by Arlington County, the Columbia Pike community, and the Columbia Pike Revitalization Organization.  This is in response to the Resolution passed by the Arlington County Board back in July of 2009 to acquire Columbia Pike from the Commonwealth in order to clear the way for construction of the planned street car system along Columbia Pike in Arlington County and to help realize the goals and visions of the Columbia Pike Revitalization Initiative. 

Arlington is one of only two Counties in Virginia that owns and operates its own local street system, with the Commonwealth operating the rest of the roadways in all other localities.  Once the transfer is complete it will be up to Arlington to maintain and operate Columbia Pike on its own.  Mike Estes' recommendation to the CTB is for the CTB to authorize the Commissioner to execute the transfer agreement with Arlington County this month, have the CTB transfer Columbia Pike from the Primary Road System to the Local Road System, and then in October to have the CTB approve the 2011 fiscal maintenance payment to Arlington County include Columbia Pike.  It is my understanding that the Commonwealth Transportation Board is moving forward with the transfer of Columbia Pike despite Arlington County's ongoing lawsuit against VDOT and the Commissioner of Transportation over the environmental and civil rights claims surrounding the "Hotlanes Lawsuit" (click here for my posting on this lawsuit from last year, which was updated and opined on by one of our co-bloggers last week here)

The hearing will occur down in Richmond at the VDOT Central Auditorium at 10:00, but if you cannot attend or observe here are copies of Michael Estes' presentation and the hearing agenda.  Also, here is the proposed Resolution for action by the CBT, and here is the actual proposed Memorandum of Agreement if you are interested in some of the finer the details.  We'll keep you posted on the results of the hearing, though I imagine the press releases will be flying around pretty quickly tomorrow. 

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While it may not seem like it from talking to many lawyers, a very important part of the job of the lawyer is effective communication.  Occasionally, I run across materials that are great examples of great communication, or even more often examples of how not to communicate.  (Happily, these are often the most entertaining things to share as well!)

Without further ado, I present a video posted by Andrew Sullivan at The Daily Dish which has been described by some as the "worst stump speech ever".  Please note, I am not going here for substantive politics on the right or the left, but rather just to point out that yelling and rambling at a audience is perhaps not the best way to persuade.

 I bet our good friends at The Jury Room would have some good tips on how to improve this presentation, but a good start might be volume control.

Updated:

This gets even better.  Courtesy of my good friend from the Washington Business Journal, Roger Hughlett, we know have the official Thus Spake Phil Davison - a Space Odyssey Remix.  The music adds something special!

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Our blog went live on September 10, 2010, so today marks our first anniversary.  We have enjoyed the conversations and appreciated being forced to keep up with the avalanche of technical and legal information that flows past trying to find good topics. 

By far the most gratifying part of this experience is getting to know and become peers, confidants and friends of people of so many people. At the risk of singling some individuals out, our blog would not be what it is without the consistent interest, support and commentary of people like Chris Hill, Chris Cheatham, Matt DeVries, Jay O'Keeffe, Shari Shapiro, Scott Judy, Andrew McRoberts, and especially the Lex Blog team formed by Kevin O'Keefe.  Your friendship and counsel and sharing, especially in the infancy of this effort, has been greatly appreciated.

I thought it would be interesting to share the twenty posts that got the most traffic this year, particularly as you may have missed some.  Thanks for your support!

1. Lead Paint Regulations April 22: Are You Ready? Is Anyone??
2. Renovators Beware: Lead Paint Regulations Change in April
3. Drywall Claims: New Testing Data, and is US Drywall a Problem Too?
4. Living in Architecture: Me and Eero Saarinen
5. Is USGBC Going To Gut GBCI Administered LEED Certifications?
6. Chinese Drywall News: New Verdict; New Appeal; Insurance Coverage Updates
7. Predictions on the Future of Green Building
8. Financial Contingencies, "Pay if Paid" Clauses and Takings, Oh My!: The Fallout from the Granby Towers Litigation
9. Modular Homes: Wave of the Future, But Currently Risky
10. Never Underestimate the Value of Face Time: Kersey v. PHH Mortgage Corporation
11. Subordination, Non-disturbance and Attornment Agreements
12. Misclassification as Independent Contractors: Contractors be Careful!
13. Basics of Mechanics Liens in Virginia, Maryland and the District of Columbia
14. Chinese Drywall Verdict and the Economic Loss Rule: Forum Matters
15. Lead Paint Regulations Changing: Owner Exception Going Away, Commercial Structures Coming Soon??
16. LEED 3.0: Changes Reflect the Need to Increase Energy Focus
17. Huge Snowfall Leads to Wave of Roof Collapses
18. Virginia Builder Fixing Drywall Without Lawsuit Gets No Insurance Coverage
19. Fee Simple or Easement? Bailey v. Town of Saltville
20. Building Codes and Earthquakes: Contrast Haiti and Chile 

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Virginia follows the “American Rule,” which basically stands for the proposition that each litigant is on the hook for its own counsel fees. However, as we have discussed numerous times, parties are free to enter into contracts that deviate from the norm. Fortunately for Thor, Inc., the contract it had with Shen Valley Masonry contained just such an attorneys' fees provision allowing it to escape  the American Rule. In the recent case of Shen Valley Masonry Inc. v. Thor, Inc., in the Circuit Court for the City of Roanoke, Judge Apgar had a chance to review this attorneys' fees provision in detail.

In September 2004, Shen Valley and Thor entered into a written contract in which Shen Valley agreed to perform masonry work for the Wilson Middle School construction project in Fisherville, Virginia for a fixed price of $1,050,000. After Shen Valley finished its work on the school in January 2006, it demanded an additional $587,824.47 for brick based on an alleged oral contract with Thor. Thor refused to pay, and Shen Valley filed suit against Thor and its bonding company for breach of contract and quasi-contract theories. The case went to jury trial, and Thor prevailed at a motion to strike at the end of Shen Valley’s evidence.

Four months after the trial, Thor moved for attorneys' fees based on the parties’ written contract, which stated:

To the fullest extent permitted by law, you [Shen Valley] agree to defend, indemnify and hold harmless Thor, Incorporated, the Owner, the Architect/Engineer and all of their agents and employees from and against all claims, damages, losses, fines, penalties and expenses, including but not limited to attorney’s fees, arising out of, or resulting from the performance, or failure in performance, of your Work under this Subcontract Agreement.

Shen Valley fought Thor’s attorneys' fees demand on a variety of grounds. First, Shen Valley argued that Thor waived its claim pursuant to Virginia Supreme Court Rule 3:25 because Thor failed to identify the specific basis it was relied on to claim attorneys' fees. Thor’s answer contained one line in the prayer for relief asking the court to “grant Thor its attorneys’ fees and expenses to the extent allowed by law.” Rule 3:25 (B) requires a party to make an attorneys' fees demand in a complaint, counter- or cross-claim, third party pleading or responsive pleading, identifying the specific basis upon which it relies to claim those fees. Rule 3:25 (C) makes it clear that a party who fails to file such a demand waives its right to recoup its fees. The court held squarely that Thor’s prayer for relief did not meet Rule 3:25’s specificity requirement. But Rule 3:25 did not take effect until mid-2009, two and a half years after Thor filed its responsive pleading. Fortunately for Thor, Judge Apgar ruled that Rule 3:25 was not retroactive.

Next, Shen Valley argued that Thor waived its claim for attorneys' fees because it failed to present evidence of its fees at trial and because there was no agreement between the parties or approval by the court to bifurcate the attorneys' fees claim. Judge Apgar pointed out that the case ended at motion to strike after Shen Valley’s evidence, and that Thor would have had no opportunity to present evidence of its fees. In fact, Rule 3:25 (D) gives the courts flexibility in setting up a procedure (albeit pre-trial) for adjudicating attorneys' fees claims.

Judge Apgar had absolutely no problems tossing Shen Valley’s next argument. Shen Valley actually argued that Thor had no basis for seeking fees because there was a question as to whether the parties entered into a valid written contract in the first place. Judge Apgar found this wholly inconsistent with Shen Valley’s position at trial, including its own complaint that attached a copy of the contract with the indemnification language.

Shen Valley’s final argument had a bit more merit. Shen Valley claimed that the indemnification provision only applied to third party claims, and did not apply to fees incurred in defending against its oral contract and quasi-contractual claims. Judge Apgar followed Virginia Supreme Court precedent concluding that broad indemnification provisions using the language “to the fullest extent permitted by law,” indemnifying “against all claims…arising out of or resulting from the performance of the Work” included claims between the parties as well as third party claims. Judge Apgar also reviewed Thor’s answer and affirmative defenses, in which Thor denied the existence of any oral contract and insisted that any work performed was performed pursuant to the parties’ written contract. Because the defenses arose under the contract, Judge Apgar ruled that Thor was entitled to recover its attorneys' fees.

We could certainly benefit from a healthy discussion on whether we should do away with the American Rule and award the prevailing party its attorneys' fees. But in the meantime, the lessons to take from this case are:

1. Include well drafted attorneys' fees and indemnification provisions in your contracts.
2. Recall Rule 3:25 (B). In your very first first pleading, specify the exact contractual provision, statute or other authority that you are relying on to recover attorneys' fees.
3. Also recall Rule 3:25 (D). Raise the issue of how attorneys' fees will be adjudicated well in advance of trial.

Stay posted for further discussions and other recent cases about attorneys' fees....
 

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For those of you out there who are following whether commercial real estate can be taxed at a different rate than residential property, FFW Enterprises v. Fairfax County, et al. has been slated for the Supreme Court's September arguments docket.  Like most other states, in the Commonwealth of Virginia the Constitution contains a "Uniformity Clause" which was intended to prevent the General Assembly from allowing the taxation of different classifications of real property in an inequitable manner.  Specifically, Article X, Section 1 of the Constitution of Virginia provides:

"...All taxes shall be levied and collected under general laws and shall be uniform upon the same class of subjects within the territorial limits of the authority levying the tax, except that the General Assembly may provide for differences in the rate of taxation to be imposed upon real estate by a city or town within all or parts of areas added to its territorial limits..."

The core of the dispute is whether Fairfax County may tax only commercial property owners, such as FFW Enterprises, without taxing residential property owners, to fund transportation projects.  The General Assembly, through Section 58.1-3221.3 of the Code of Virginia, granted authority to Northern Virginia localities to levy special taxes for  transportation projects, and in combination with this authority, Fairfax County created a special tax to fund portions of the Silver Line metro project using Section 33.1-431 of the Code of Virginia.   In a nutshell, Fairfax County taxed commercial property owners a special transportation surcharge and exempted residential property owners from having to do so to fund metro improvements.

Last summer, the Circuit Court of Fairfax County (see here for opinion) held that the Uniformity Clause does not prohibit localities from "...provid[ing] for differences in the rate of taxation to be imposed upon real estate..." so long as these differences are not imposed upon the "same class of subjects."  However, in 1947 pursuant to City of Hampton v. Ins. Co. of North America, the Supreme Court has already held that the test to determine the constitutionality of such a tax is:

"[Alre there others, who are benefited as much or more than those smarting under the tax imposition, who go unwhipped of its burden?"

FFW Enterprises plead just that, asserting that residential property owners will benefit as much from the construction of the Silver Line as commercial property owners in Fairfax, however commercial property owners will bear the sole brunt of the costs and taxes.  Nonetheless, the Circuit Court of Fairfax County found FFW Enterprises failed to establish this, and that the 1947 standard is no longer relevant or applicable.  These questions will now be put to the Supreme Court in just a few weeks - we'll keep you posted.

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