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

Back in December, I discussed the Florida Supreme Court’s decision in Stop the Beach Renourishment, and guessed that the United States Supreme Court would affirm the Florida court’s decision, but duck the novel constitutional question of whether there could be a “judicial taking.” I ended up being a little more than half right. The United States Supreme Court did affirm 8-0, but were hardly unanimous about what to do with the concept of a “judicial taking.”

Justice Scalia, writing for Justices Thomas, Roberts and Alito, concluded that there could be such a thing as a “judicial taking” “if a court declares that what was once an established right of private property no longer exists.” However, they concluded that the Florida Supreme Court’s decision did nothing to abolish property rights. Instead, the decision merely clarified that the property rights were not implicated by the project due to the doctrine of avulsion. Basically, Florida law allowed the State to fill in its own seabed, and the State still owned the suddenly exposed land, even though the State itself caused the avulsion.

As I thought would be the case, the other four justices did not want to reach the issue of whether there could be a “judicial taking.” Justices Kennedy and Sotomayor concluded that the “judicial taking” analysis was unnecessary because the Florida decision did not terminate property rights. They suggested that if a true “judicial taking” case were to come along, the Court could tackle the issue then, and should perhaps look to the Due Process Clause.

Justices Breyer and Ginsburg agreed that there was no taking, but felt it was “better left to another day” to determine the issues of when a federal court could review whether a state court decision amounted to a taking, and if so, what the proper test would be. Unlike Justices Kennedy and Sotomayor, Justices Breyer and Ginsburg did not hint at what kind of analysis they might use.

So the question becomes – what impact will this case have on cleaning up after the BP oil spill crisis? Perhaps there was no better time than now to re-affirm the government’s right to protect our beaches.
 

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In 2004, 515 Granby, LLC proposed a $180.5 million condo development. With 34 stories and 327 units, Granby Towers would be the tallest building in Norfolk and would revitalize the northern part of the city. The following year, the federal government threatened to condemn the property, causing just enough of a delay for the ebbing economic tide to overtake the Granby Tower project and thwart 515 Granby’s ability to secure financing.

Fortunately for 515 Granby, the prime contract with Turner Construction Company had the following language:

This Agreement and any liability and obligations of the Owner…shall be subject to and expressly conditioned upon the closing by the Owner, and the initial funding by its lender, of the construction loan… and Owner shall have no obligation or liability to Construction Manager for any costs for the Construction Phase under this Agreement unless such construction loan closing is completed.

Turner and its subcontractors, who were owed over $13 million for construction on the project, challenged this language in a two-day evidentiary hearing in the Circuit Court for the City of Norfolk. In a letter opinion issued by Judge Martin, Judge Martin rejected this challenge, finding that 515 Granby “made great efforts to secure financing for the project,” but was unable to do so due to the current conditions of the credit market. Judge Martin concluded that 515 Granby would have had to pay Turner only if and when it had received initial funding of the construction loan.  For an in-depth look at the court's reasoning, and what you can do if you face such a contractual provision, go to Yes, Virginia, Contract Terms Do Matter:  Financing Term Offers Owner an Escape Hatch, by my colleague, Tim Hughes, guest blogging on Construction Law Musings. 

Fortunately for Turner, its subcontracts contained the following language:

The obligation of Turner to make a payment under this Agreement, whether a progress or final payment, or for extras or change orders or delays to the Work, is subject to the express condition precedent of payment therefor by the Owner.

One of the subcontractors, Suburban Grading & Utilities, claimed this language was unenforceable. In a second letter opinion, Judge Martin upheld this provision as well, noting that the Supreme Court of Virginia finds “pay if paid” clauses enforceable “where the language of the contract in question is clear on its face.” This language was an unambiguous “pay if paid” clause that Judge Martin had no choice but to uphold, leaving Suburban to eat the costs of $575,928 for labor and materials and another $245,662 for dewatering.  For a great and very timely discussion of this opinion and advice about "pay if paid" clauses, I urge you to read Chris Hill's Construction Law Musings post, Pay if Paid, Pay Attention Subs.

Don’t go away thinking there will be no winners in this debacle! The federal government has since conveniently renewed its desire to condemn the property in order to expand the federal courthouse next door.  It offered a paltry $6.1 million to seize the Granby Tower property, an offer that no one is jumping at yet.  If you’re interested in reading more on this very likely end to the Granby Towers saga, take a look at Harry Minium and Tim McGlone’s recent article in The Virginian-Pilot.  
 

Image by:  Hyunsoo Leo Kim/The Virginian-Pilot 

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