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

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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Arlington County has moved to sue yet another individual transportation official in its pending HOT lanes project in federal court in the District of Columbia.  The pending case, a fight over the HOT/HOV lanes in I-395, argues that VDOT and the US Department of Transportation failed to undertake appropriate traffic, environmental, and other studies in approving the northern section of the project.

In its inital papers, Arlington elected to not only sue the various governmental agencies, but also the highly regarded Pierce Homer, then Secretary of Transportation for the Commonwealth of Virginia, individually.  The primary thrust of the case relates to an alleged failure to consider environmental, traffic and other impacts of the project during the review process.  Arlington County sued Secretary Homer individually for engaging in civil rights violations by allegedly favoring suburban white people over less affluent minority residents of Arlington County.  The Complaint alleges, in a remarkably long, rambling, ninety plus pages, things like:

The use of public funding, to serve the interests of wealthy, predominantly white Virginia residents from the southernmost counties affected by the Project and at the obvious expense of the largely less affluent, predominantly minority and ethnic populations that reside in and along the corridor of the Northern Section, in particular in Arlington County.

Arlington has been widely and universally criticized by the business community, amongst others, for this approach.  The Northern Virginia Transportation Alliance, with virtually every significant regional business organization signing off, wrote Arlington County Board Chair Jay Fissette on May 28, 2010 and called out the County's lawsuit as an impediment to regional transportation efforts.  In particular, the letter stated the the civil rights allegations "are not credible and frankly an embarrassment to this region."

How did the County respond?  On June 22, Jay Fissette sent a reply letter to NVTC.  The silence was deafening in that the letter did not even respond regarding the civil rights elements of the lawsuit.  We now see that rather than focusing on the traffic and environmental issues in the case, the County has elected to double down on its strategy of filing suits against individual transportation officials.  The County now seeks to add Edward Sundra, a Senior Environmental Specialist for the Federal Highway Safety Administration, as an individual defendant.  The County again argues in its Motion to Amend and Amended Complaint for individual liability based on Mr. Sundra's alleged individual acts of civil rights violations.

In a time of deep fiscal challenges for state and local governments, Arlington has reportedly spent over $1,000,000 already on this lawsuit.  It is rare that I editorialize and opine rather than report, but it seems to me that money should have been used for a variety of other causes, like keeping the planetarium open, instead of further killing Arlington's credibility in Richmond.  This case, and in particular the allegations against the individual defendants, are easy fodder for the rest of the state to throw up their hands, scoff at Arlington, and say, "See, I told you so."  Continued delays in litigation threaten the Commonwealth's ability to tap into various federal funding sources and we desparately need investment into every potential transportation avenue, including roads, in the region.

For lessons learned on litigation strategy, this case brings to mind a couple of strategic litigation truisms which are worth sharing.  I will leave it for others to judge whether these can or should be applied to this case.

1. Focus on your strongest arguments, do not permit distraction
2. Never weaken a strong argument with a weak argument
3. Always keep your credibility in mind ... it is the hardest coin the gain and the easiest to spend
4. Never forget the big picture or the finder of fact, and
5. Brevity is the soul of wit, especially in drafting pleadings

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It’s hard to believe it’s already been over six months since we discussed this case in the blog post Never Underestimate the Value of Facetime, where Judge Williams of the U.S. District Court for the District of Virginia (Richmond Division) found a “distinct and ripe controversy” of whether PHH owed Kersey a face-to-face interview before foreclosing on her home.

Since that time, the parties chose to forego a bench trial and submitted a joint stipulation of facts for Judge Williams’ review. In reviewing those facts and the parties’ proposed conclusions of law, Judge Williams issued this recent Memorandum Opinion after he became troubled with whether the case should even have been in federal court.

Ms. Kersey had initially filed her complaint in Richmond City Circuit Court seeking a declaratory judgment that PHH did not comply with the Deed of Trust, particularly with the requirement of a face-to-face pre-foreclosure meeting. PHH removed the case to federal court, claiming in a Notice of Removal that Kersey’s complaint raised a federal question under the FHA and HUD regulations. The Notice of Removal also claimed that there was diversity jurisdiction, because Kersey is a Virginia citizen, PHH is a Maryland corporation with its principal place of business in New Jersey, and the amount in controversy exceeded $75,000. PHH did not offer any other affidavits, evidence or other support for these jurisdictional allegations.

In her proposed conclusions of law, Kersey joined PHH’s bandwagon, arguing the court had jurisdiction under the Truth in Lending Act. In a footnote, Judge Williams dispensed with the Truth in Lending Act argument because the complaint alleges only declaratory relief due to PHH’s purported failure to comply with the FHA and HUD regulations incorporated by the Deed of Trust. In any event, Judge Williams threw the burden of proving jurisdiction on PHH as the party removing the case to federal court.

Regarding PHH’s federal question argument, neither the FHA nor the HUD regulations provided Kersey a federal private right of action. Kersey’s complaint alleged a state law claim that would therefore need to raise a “substantial” federal question in order for the court to have jurisdiction. Kersey’s demand was for declaratory relief that PHH failed to comply with a contract, namely the deed of trust. It just so happened that the deed of trust incorporated a HUD regulation. This claim that PHH violated a HUD regulation that was adopted in the deed of trust was just not enough for Judge Williams to find a “substantial” federal question to properly land in his court.

Regarding PHH’s diversity argument, Judge Williams had no problems finding complete diversity. But he did not buy that the amount in controversy really exceeded $75,000. Recall that the mortgage in question was $71,397. PHH claimed that once you added in charges and fees, that amount tipped over the $75,000 mark. Judge Williams pointed out that the amount in controversy in a declaratory judgment case is the “value of the object of the litigation,” which could be the “direct pecuniary value” of the right the plaintiff seeks to enforce or the cost to the defendant to comply with the relief. Kersey’s suit asked the court to determine whether PHH owed Kersey a face-to-face meeting prior to foreclosure, and Judge Williams refused to speculate what the “direct pecuniary value” of that meeting was to Kersey, or how much it would have cost PHH to comply with the meeting requirement.

Lesson learned: Figure out from the get-go whether you belong in state court or federal court. This removal and remand yo-yo has undoubtedly cost the parties a great deal of time and money. And to think that all of this could have been avoided by a thorough pre-foreclosure reading of the Deed of Trust to ensure that all of the requirements – including a face-to-face meeting – were satisfied!

Stay posted for the remand in state court to find out whether PHH really was required to have that face-to-face meeting with Kersey, and if so, what the penalty will be for skipping that step!
 

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Many plaintiffs attempt to allege fraud claims in construction cases.  These attempts generally fail in Virginia because a claimant must allege a basis for a fraud claim that arises outside the context of a contractual duty.  This theory was clearly established in the Richmond v. McDevitt Street Bovis case in 1998, but we still see it regularly playing out in Virginia state and federal courts. 

Fraud claims have a couple interesting features.  First, they must be pleaded with specificity and particularity.  Second, a host of case law establishes that the types of "representations" that can support a fraud claim are quite limited.  These first two features mean that a plaintiff can expect extensive aggressive motions practice attacking their offensive pleading and courts often throw out fraud cases.  Third, fraud claims have an elevated burden of proof.  Rather than proving fraud by a preponderance of evidence, the plaintiff must prove fraud by clear and convincing evidence.  Fourth, fraud claims allow recovery of punitive damages in egregious cases.  Fifth, fraud claims can also allow recovery of attorney's fees in some circumstances.

Why invite all this hassle and increased expense and effort into a case?  The reality is that recovery of punitive damages is extremely rare and punitive damages are capped in Virginia at $350,000.  The potential for attorney fee recovery is nice and may represent leverage in negotiations, but in my estimation this is not the driving issue.  The two biggest reasons in my mind are 1) attempting to gain the benefit of a discovery accrual trigger for statute of limitations, and 2) finding ways to circumvent the economic loss rule.

As we recently discussed, Virginia law has a hair trigger on when the limitations clock starts to run.  Unlike neighboring Maryland and DC, Virginia uses a damage trigger instead of starting from when a plaintiff knows they have a problem.  In construction cases, many elements of the project are covered up and defective work can take years to manifest in observable damages.

Fraud also may offer a way to sidestep the economic loss rule.  We have often discussed the economic loss rule which is critical to analyzing who can be sued for what.  In cases where a party is not in contract with the plaintiff, options are limited under Virginia law.  Fraud is one way to potentially get around that boundary, but it is a very narrow passage and subject to significant obstacles.

That being said, many plaintiffs seem to use the kitchen sink method of pleading and allege every cause of action that exists in Virginia.  This may not only be risky from a perspective of good faith pleading, it can be a strategic nightmare.  Why drive up litigation costs, invite hosts of well taken motions, and lost credibility in a case just to stretch to allege a claim that will ultimately fail?

Links to recent fraud posts by Heidi Meinzer:

Broken Promises Won't Get You a Fraud in the Inducement Claim

Broken Promises, Part 2

Construction Law Musings Reply: Fraud and Construction Contracts: Like Oil and Water?

Image by Marco Bellucci

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Last month, we looked at Station #2, where the Virginia Supreme Court refused to turn a breach of contract allegations into a fraud claim. Contrast that with Nathan, et al. v. Long & Foster, Real Estate, Inc., et al., in which the Circuit Court for the City of Roanoke has allowed a fraud in the inducement claim to go forward.

Geeta Nathan and Santam Singh were looking to buy a home in Roanoke, and worked with Barbara Michelsen, a Long & Foster real estate agent. They signed a Purchase Agreement to buy a home for $260,000, and the agreement listed Michelsen as the selling agent.

Under the Purchase Agreement, Long & Foster and Michelsen hired Donald Field to conduct radon testing of the home. Michelsen told Field to test for radon only on the first floor, and to ignore any readings in the basement. The testing revealed excessive levels of radon for the basement. Field mailed and faxed the results to Long & Foster and Michelsen.

In the meantime, the seller had signed a disclosure statement dated March 25, 2006, checking “yes” beside the question “Has the property been tested for radon gas?” However, Field did not conduct the testing until April 6, 2006. The seller and Michelsen had also signed a radon acknowledgment form that said they had “no knowledge concerning the testing of this property for radon or the presence or absence of radon in this property.”

Before closing, Nathan and Singh asked Michelsen about the radon test results, explaining concerns about radon and that a child would be living in the house. Michelsen assured them that everything was fine, and gave them a copy of the test results for the first floor only. Nathan and Singh closed on the house the same day.

Some time later, Nathan and Singh contacted Field when they were making repairs in the basement, and Field asked them whether the radon problem had been taken care of. Nathan and Singh had further radon testing done, and found elevated levels of radon. Not only did Nathan and Singh have to pay the costs of fixing the radon problem, but their house also diminished in value due to the fact that they would have to disclose the prior radon levels.

Nathan and Singh sued Long & Foster and Michelsen for breach of contract and fraud in the inducement. Long and Foster and Michelsen agreed that the breach of contract claim was properly pled, and Nathan and Singh agreed that they could not state a fraud claim against Long & Foster. That left the issue of whether Nathan and Singh could go after Michelsen for fraud in the inducement.

Michelsen argued that any duty to disclose the radon levels was contractual, not tort-based. She also argued that she complied with her obligations to disclose and was therefore protected by Virginia Code Section 55-523 of the Virginia Residential Property Disclosure Act (“VRPDA”).

Judge Dorsey wasn’t buying either of these arguments. Judge Dorsey found that Michelsen, as a real estate agent first employed by Nathan and Singh to be their agent, had a fiduciary duty that included the duty to disclose a complete set of the radon test results. Unlike the facts in Station #2, this duty was more than a mere contractual duty and could support fraud in the inducement. Judge Dorsey also ruled that because Michelsen and the seller never properly advised Nathan and Singh of the radon issue, Michelsen was not entitled to the protection of the VRPDA.
 

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Statute of limitations defenses are a hotly litigated and important aspect of construction law.  This is particularly true in Virginia where the clock often starts ticking based on a literal bright line trigger.  This means the time for filing suit can often start running in Virginia before anyone even knows there is a case.  In construction litigation, where problems can stem from latent defects which do not manifest for an extended period, these rules can be pivotal in limiting risk.

This backdrop is in sharp relief when you consider the impact of the huge snow storms throughout the DC metro region this winter.  There are numerous roof collapse cases working their way throught the system.  A couple weeks ago, ENR highlighted a story from the Roanoke Times about the Blacksburg Virginia High School roof collapse.

What caught my eye in the story were these quotes:

The entire school remains closed as officials also examine the safety of classroom areas after engineers, in the wake of the gym collapse, found six concrete beams that did not meet 1974 building codes ... The school board filed several lawsuits against Fralin's company, along with other contractors and suppliers involved in the high school's construction, in 1977. Three suits were settled out of court in 1978 with the defendants agreeing to pay $371,000 to provide the school with a new roof.

Beyond the question of whether any claim is already settled by the prior litigation, going after parties involved in the design and construction of facilities built in 1977 has some significant potential timing hurdles.  As can be seen from the report below, the school is forced to address a very serious roof collapse at this point.

Most construction cases focus on a five year written (or occasionally three year unwritten) contract statute of limitations.  The rub comes in that the limitations period begins to run "when the breach of contract occurs in actions ex contractu and not when the resulting damage is discovered".  Cases looking at this issue in Virginia had generally stated that the owner suffers damage when a project is defectively built, not when those defects translate into problems such as a collapsed roof.

We have talked in passing regarding statute of limitations matters and statute of repose matters in the past, but we are going to delve into them a bit over several post over the next few weeks.  For those interested in looking at North Carolina law on the topic, our friend Melissa Brumback has recently covered limitations and repose issues under that state's law.

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The Virginia Supreme Court recently gave us yet another example of a breach of contract case that couldn’t rise to a fraud in the inducement claim in Station #2, LLC v. Lynch, et al., Record No. 091410.

In Station #2, the Lynches owned a three-story building in the City of Roanoke. They sold the top two floors to 237 Granby LLC in order to convert the floors to condos. The Lynches then leased the ground floor to Station #2 so it could operate a restaurant with live music and other entertainment. The lease between the Lynches and Station #2 required Station #2 to install soundproofing material in the void space between Station #2’s ceiling and the lower level of 237 Granby’s condos. 237 Granby’s agent agreed to allow Station #2 access to the void space, but the company hired by the agent to renovate and develop the condos closed off the void space before Station #2 could soundproof.

After repeated noise ordinance citations, the City of Norfolk ordered Station #2 to stop all musical performances, causing a steep decline in the restaurant’s business. Station #2 threatened to withhold rent until it was allowed access to install the soundproofing, and the Lynches responded by locking Station #2 out of the building.

Station #2 filed suit, alleging among other things breach of contract and fraud in the inducement against 237 Granby’s agent and statutory conspiracy against the agent and the Lynches. The thrust of these claims was 237 Granby’s refusal to honor the agreement to allow access to the void space. The defendants filed a demurrer based on the economic loss rule and an interesting statute of frauds argument.

Regarding the fraud claim, the Court reiterated that fraud requires a false representation of a material fact, and that mere failure to perform a promise is insufficient unless the promisor had no intention of performing at the time he made the promise. Unfortunately for Station #2, its complaint did not allege that 237 Granby’s agent had no intent to perform at the time it promised to allow access to the void space. Instead, the complaint merely claimed that the agent and the Lynches agreed to prevent Station #2 from soundproofing the void space. The only duty alleged – providing access to the void space – was a mere contractual duty that could not give rise to fraud in the inducement. In resolving this issue, the Court unfortunately sidestepped the more interesting question – whether a person who fraudulently induces someone into entering into a contract can be liable for fraud in the inducement if that person is not a party to the ultimate contract.

Regarding Station #2’s statutory conspiracy count, the Court refused to allow mere breach of contract to constitute an “unlawful act” that could form the underpinning for a conspiracy. Had Station #2 sufficiently alleged fraud in the inducement, it may have been able to also proceed with its statutory conspiracy claim.

Regarding the statute of frauds, the defendants claimed that installing soundproofing in the void space was the equivalent of creating a party wall, i.e. accessing and occupying real property. According to the defendants, Station #2 was required to have an easement, and the agreement for an easement would have had to have been in writing. The Court rejected this argument, pointing out that Station #2 did not need continuing access to and use of the void space. Instead, Station #2 needed only permission – a license – to enter the void space and install the soundproofing, and that permission could be given orally.

Stay posted until next time when we contrast Station #2 with a recent Circuit Court opinion that reached the opposite conclusion and allowed a fraud in the inducement claim to go forward.
 

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Frequent readers will know that we have talked about Chinese drywall litigation and issues quite a bit here.  One of the ugliest cases was a builder who proactively repaired drywall issues having its initial complaint against its insurers who did not provide a defense thrown out on motion to dismiss.  The court originally found that the complaint failed to state a claim because the builder had not been sued and in essence the builder voluntarily made repair efforts in violation of the insurance policies.

Happily for Dragas, the court gave it leave to amend and it did so, alleging more facts regarding the threats of claims by home owners.  Dragas' claim has now officially survived a motion to dismiss.  While this is far from a victory, it does provide a bit of comfort to builders that they are not simply stuck with no path forward for coverage unless sued. 

Common sense and good policy certainly suggest that builders should be encouraged to solve problems rather than let them fester and worsen in the hope that they eventually get sued and an insurance policy is triggered.  Virginia law, however, is driven by contract and statutory interpretation rather than equitable consideration of good policy by courts.  Insurance coverage on construction projects is highly complex and poorly understood.  Look forward to us engaging in further discussion of this important issue moving forward.

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In the recent case of TC MidAtlantic Development, Inc. v. Commonwealth of Virginia, Record No. 091271, the Virginia Supreme Court was faced with the issue of properly pleading compliance with conditions precedent in a public contract. Despite the tongue-twisting nature of this issue, the crux of the case came down to simple timing.

In May 2004, TC MidAtlantic and the Virginia Department of General Services (“DGS”) entered into a contract to perform work on the Washington and Finance Buildings in Richmond, Virginia. Irreconcilable differences arose between TC MidAtlantic and DGS, with DGS ultimately sending TC MidAtlantic a letter dated February 16, 2007 terminating the contract. That letter also informed TC MidAtlantic that it was entitled to file any claims pursuant to Section 47 of the contract. Section 47 stated:

Contractual claims…shall be submitted, in writing, no later than sixty (60) days after final payment; however, written notice of the Contractor’s intent to file such claim must be given at the time of the occurrence or beginning of the Work upon which the claim is based. The filing of a timely notice is a prerequisite to recovery under this Section…. All claims shall be submitted along with all practically available supporting evidence and documentation.

TC MidAtlantic filed a complaint in the Circuit Court for the City of Richmond on April 24, 2007. The trial court concluded that DGS’s February 16, 2007 letter initiated the sixty-day period for TC MidAtlantic to submit a written claim, and that its April 24, 2007 complaint came too late to comply with Section 47.

On appeal, TC MidAtlantic argued that it sufficiently pled compliance with Section 47, pointing to paragraphs in its complaint alleging that it made written demands on DGS for payment and performance. The Virginia Supreme Court pointed out that the complaint never specifically alleged that TC MidAtlantic submitted a claim within the 60-day window or in a timely fashion, as required by Section 47. TC MidAtlantic also tried to escape the 60-day requirement by unsuccessfully characterizing the February 16, 2007 letter as a “final written decision” on its claim, arguing that it then had six months from February 16, 2007 to file suit. The Court likewise rejected that argument, and went out of its way in a footnote to say that TC MidAtlantic did not appeal the trial court's conclusion that the letter initated the claim procedure.

Most frustrating of all, TC MidAtlantic had filed a motion to reconsider with the trial court, attaching March 23, 2007 letters and supporting schedules showing amounts owed under its claim. But the Virginia Supreme Court concluded that TC MidAtlantic forgot to ask leave to amend its complaint to allege that the March 23, 2007 letters complied with the condition precedent of Section 47’s notice requirement. The Court instead held TC MidAtlantic to the original wording of its complaint, including the argument that the February 16, 2007 letter was a “final written decision” rather than the initiation of Section 47’s claim procedure.

The lessons to take from this case are:

1. If you are confronted with a party who insists on including a contractual provision that will shorten the time frame in which you must give notice of a claim or file suit, be realistic about the deadlines you agree to, and stick to them.
2. The second a dispute arises, get the contract out and read it carefully to ensure that you comply with all notice and claim provisions.
3. And if your case involves a condition precedent with notice or claim provisions, don’t forget to acknowledge the condition precedent in your pleadings, assert that you complied, and attach exhibits demonstrating exactly how you complied. 

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Law and negotiation go hand in hand and understanding the psychology surrounding negotiation is critical to successfully representing clients.  I have long been fascinated by the wrangling of the parties over the shape of the table in discussions to negotiate the end of the Viet Nam war.  As stated eloquently in Time Magazine:

For ten weeks of often absurd haggling, the parties in Paris—the U.S., South Viet Nam, North Viet Nam and the National Liberation Front—have argued about whether the table at which to discuss a settlement of the Viet Nam war should be square, oblong, rectangular, oval or any number of imaginative mutations. Last week, after studying nearly two dozen designs, the negotiators at last agreed on the shape of the table: it will be round. A few days later, they sat down as a group for the first time to get on with the deadly serious business of seeking a peace settlement.

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We have finally reached the last of the five cases from December’s Case Watch with the Virginia Supreme Court’s recent decision in Advanced Towing Company, LLC, et al. v. Fairfax County Board of Supervisors, Record No. 091180.

Virginia Code Section 46.2-1232 (A) allows localities to regulate towing of trespassing vehicles by ordinance, but is silent on the mode or manner of how to carry out that authority. The last sentence of Section 46.2-1232 provides that if a vehicle is towed from one locality to another, the local ordinance of the locality from which the vehicle was towed governs, if that locality has an ordinance.

Fairfax County took advantage of its discretion to have an ordinance regulating the towing of cars, and passed Section 82-5-32, which contains the following language in Subsection (e):

Every site to which trespassing vehicles are towed shall comply with the following requirement: (1) A tow truck operator must tow each vehicle to a storage site located within the boundaries of Fairfax County….

Three towing companies – Advanced Towing in Arlington County, Roadrunner Wrecker in Loudoun County and King’s Towing in the City of Fairfax – got together to challenge Section 82-5-32 (e). The towing companies each had property management clients within Fairfax County, but Section 82-5-32 (e) exposed them to prosecution for towing vehicles to their storage lots outside of Fairfax County. The companies argued that Section 82-5-32 (e) unfairly discriminated against towing companies outside of Fairfax County and favored companies inside the county, with no rational basis for that discrimination. They also argued that the ordinance ran afoul of the Dillon Rule, exceeded the county’s authority under 46.2-1232.

Regarding the Equal Protection argument, the parties agreed that the ordinance did not involve a suspect classification or fundamental constitutional right, so the “rational basis” test applied. The towing companies argued that forcing them to store the cars in Fairfax County was irrational because their storage lots are located within five and a half miles of Fairfax County, and allowing them to tow vehicles to those lots would better serve the public. Fairfax County justified the territorial limitation by arguing that Section 82-5-32 had many provisions for safeguarding towed cars, such as nighttime illumination, fencing and posted signs. Under the last sentence of Virginia Code Section 46.2-1232 (A), if a car was taken from Fairfax County and towed to a different locality, Section 82-5-32 controlled, creating a regulatory nightmare for Fairfax County. The trial court and the Virginia Supreme Court agreed that Fairfax County’s argument provided a rational basis for the territorial limitations in Section 82-5-32.

Regarding the Dillon Rule argument, the towing companies argued that the ordinance went beyond the power conferred on the localities to regulate towing vehicles under Virginia Code Section 46.2-1232. The trial court and the Virginia Supreme Court once again sided with Fairfax County. The ordinance allows localities to permit vehicles to be towed outside their borders, but did not compel the localities to do so. Nothing else in Section 46.2-1232 mandated where vehicles are to be towed. The Court concluded that localities can exercise reasonable discretion in setting territorial limits regarding where towed vehicles may be stored without running afoul of the Dillon Rule.
 

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There is big news in the world of Chinese drywall litigation.  First, various news sources including the Miami Herald reported a $2.5 million jury verdict on behalf of a homeowner couple against Banner Supply, the supplier of the drywall.  The verdict is reported to include not just loss of use of the home and repair costs, but also stigma damages for loss of value to the property.  The jury may have become inflamed by the supply company's actions after having been informed of complaints.  According to CBS4 in Miami:

According to documents entered into evidence, when Banner Supply notified its Chinese supplier about the complaints, the supplier replaced the distributor's inventory of Chinese-made drywall with American-made drywall. In return, Banner Supply allegedly signed a confidentiality agreement not to say anything about it to the government or its customers.

This verdict is well in excess of the total of the $2.6 million verdict awarded to seven Virginia families by a New Orleans federal judge in April.  In the New Orleans case, Virginia Lawyer's Weekly reported last week that the Chinese drywall manufacturer finally entered an appearance in the New Orleans case ... to file a notice of appeal of the $2.6 million verdict.  We will await the legal arguments with interest, but absent a pretty significant service of process problem, it seems pretty hard to appeal a verdict after the case is over.  That train has seemingly left the station, although there are plenty of other claims pending in the overall class action in New Orleans and elsewhere.  Even an appearance by the Chinese entity may provide some hope of a ability to recover some measure of compensation as opposed to getting a judgment against a judgment-proof entity.

Finding defendants with deep pockets is critical to claimants as the coverage posture on these claims appears quite shaky.  Per Virginia Lawyer's Weekly, a Norfolk federal judge recently ruled that there is no coverage under home owner' policies for such losses.  As we previously discussed, another Norfolk federal judge previously ruled that a builder had failed to state a claim for coverage under its liability policies.  That case is still pending with leave to amend having been granted, pending amended claims having been filed, and the parties still in the briefing stages of another round of motions to dismiss.

These cases continue to attract commentary and interest, and we have commented on them with some frequency.  In the words of one longtime friend and insurance defense/coverage guru I know well, "These case dwarf anything we have seen before in the construction industry products liability arena.  There are literally millions of implicated defendants and parties."  Even with insurance coverage hurdles and questions of collection of judgments abounding, we can expect this topic to continue echoing for years rather than weeks or months.

Image by Matt Callow

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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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While I LOVE trying cases, my clients usually detest court cases and do their best to avoid litigation.  Forming appropriate entities, drafting tight contracts, and ensuring proper documentation are all critical risk management strategies ... but I would say they all come a distant second.  The number one way to avoid problems is to avoid problem projects and problem customers.

What am I talking about?  You have had that moment of your "spider sense tingling" during your initial project meeting with an owner, that fleeting precognition that this owner will be a problem.  We have all had the sense that someone is unreasonable, has wildly unreasonable expectations, is highly combative, or cannot make up their minds.  These personality traits can doom your project success before it begins.  Listen to that little voice and avoid those situations.

I recall one case in particular from very early in my legal career.  A very esteemed architect (who will recognize this story!) took a project as a favor for a couple he knew socially.  His wife expressly warned him before the contract was signed that they knew the couple was difficult and would be a problem.  The architect said, "I ignored her, I knew I could handle it."  Years later, a successful court victory under his belt, the architect told me that his new permanent rule was always to listen to his wife when she said not to take a client.

Even if your project does not result in litigation, dealing with problem customers is a time sink that erodes all your profit margin, creates headaches and stress, and dilutes your focus from profitable and enjoyable work.  And that is the best case scenario.  The worst case is those personality quirks drag you and your company into protracted, expensive, and avoidable litigation.  Save your margins, avoid these people and spend your time doing what you love, not hate!

Image by davide.tarasconi

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Winding down our update of the first round of Case Watch opinions, the Virginia Supreme Court has finally released its long awaited decision in Tir Conaill Properties, L.C. v. 2401 Wilson, LLC, Record Number 090855. Although the opinion is quite short at only three pages, it is chock full of warnings to the unwary litigator.

This case involved a commercial lease dispute between Tir Conaill Properties, L.C., the tenant, and 2401 Wilson, LLC, the landlord. The day before trial, 2401 Wilson filed a pre-trial memorandum, arguing for the first time that Tir Conaill’s complaint should be dismissed because it failed to file a certificate for transacting business under an assumed name as required by Virginia Code Section 59.1-69 (A).

Section 59.1-69 (A) requires entities conducting business under a fictitious name to file a certificate with the name of the entity, the entity’s address, the fictitious name and the date of certificate of registration or authority to transact business in the court clerk’s office of the county or city where the entity transacts business. Under Section 59.1-76, an entity that fails to file the Section 59.1-69 (A) certificate cannot maintain a law suit unless and until the certificate has been filed.

Tir Conaill responded by arguing that it was in compliance, pointing to a certificate filed by “Tirconaill Properties LLC” stating that it was conducting business in the name of “Kitty O’Shea’s.” But on the morning of trial, the trial court granted 2401 Wilson’s motion to dismiss, rejecting the argument that “Tir Conaill Properties, L.C.” and “Tirconaill Properties, LLC” were in essence the same entities.

The Virginia Supreme Court affirmed, pointing out that Tir Conaill's only argument was that the certificate it produced purportedly complied with Section 59.1-69 (A).   The Court noted specifically that Tir Conaill did not request a continuance to have time to file the required certificate or argue that it was prejudiced by 2401 Wilson’s decision to raise this argument so late in the game.

A final issue raised in this case was the trial court’s use of deposition testimony to decide the Section 59.1-69 (A) argument. Although Virginia litigators would love to have more direction from the Court on the pre-trial use of depositions, the Court sidestepped the issue. Instead, the Court found that Tir Conaill waived this argument by failing to object to the trial court’s use of deposition testimony in deciding the Section 59.1-69 (A) issue.

Here are the lessons to take from this opinion.

1. First, be consistent! In every lease, contract, pleading and other document, include both the entity’s corporate name and fictitious name. Make sure the corporate name matches exactly what you have on record with the State Corporation Commission, and don’t assume that a name is “close enough.”
2. Second, if you have or represent a business that uses a fictitious name, take the time to make sure you have filed certificates in each jurisdiction where your entity conducts business. And if you find yourself filing suit on behalf of the business, do one final check to make sure that certificate has been filed!
3. Third, object, object, object! Be aware that the appellate courts are always on the lookout for procedural default and waiver.

Only one more opinion to go to finish out last year’s Case Watch! Stay posted for the outcome of Advance Towing Co., LLC, et al. v. Fairfax County Board of Supervisors.

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It’s no secret that Virginia law usually sides with the landlord more than the tenant. It’s also no secret that Virginia courts tend to let cases go to the jury more than other jurisdictions. So what happens when a Virginia tenant brings claims of misrepresentation and negligent repairs against his landlord?

In Sales v. Kecoughtan Housing Company, Ltd. et al., Judge Lerner of the City of Hampton Circuit Court stopped the tenant in his tracks by sustaining the landlord’s demurrer. The Virginia Supreme Court recently reversed, sending the case back to the trial court.

Mr. Sales entered into a rental agreement with Kecoughtan Housing Company, which hired Mr. Abbitt to manage the apartments where Sales lived. After several months, Sales told Abbitt that there was mold in his apartment and asked to have the mold repaired. Abbitt, as Kecoughtan’s agent, went into the apartment to make the repairs, but actually only painted over the mold. Afterwards, Abbitt told Sales that the mold had been fixed and that the apartment was fine. Sales kept living in the apartment and continued to pay rent. A few months later, mold started growing in Sales’ eyes and infested and destroyed his personal property. Sales then sued Kecoughtan and Abbitt for defective repair, fraud and constructive fraud.

As to the negligent repair claim, Kecoughtan and Abbitt argued that they had no duty to make repairs, and that there was no showing that Abbitt’s repairs created any danger that caused Sales’ injury. The Virginia Supreme Court rejected these arguments, resting on the fact that although a landlord has no common law duty to make repairs after delivering possession of the premises to the tenant, once the landlord undertakes the repairs and enters the premises, the landlord must use reasonable care to make those repairs.

As to Sales’ actual and constructive fraud claims, Kecoughtan and Abbitt argued that the representations that the mold had been repaired and that the apartment was habitable were matters of opinion, not statements of fact. The Court rejected this argument as well, finding that the representations were statements of the apartment’s present quality or character, constituting statements of fact rather than mere opinions.

The lesson to be learned is – finish what you start. To all of the landlords and property managers out there, when a tenant asks you to make a repair, find out exactly what you are getting yourself into before you agree to go inside!
 

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Here is a new sampling of cases in which the Virginia Supreme Court has recently granted appeals.

In April, the Court granted the petition for appeal in Studio Center Corporation v. WKW Construction, LLC, Record No. 092257, challenging the ruling of Judge Shockley from the Circuit Court of the City of Virginia Beach. Studio Center is contesting Judge Shockley’s holding that Virginia Code Section 54.1-1115(C) applied when the unlicensed contractor admitted it knew Virginia law required a license, but did not realize that it could not use someone else’s license. This case should give us some much needed guidance on Section 54.1-1115(C)’s requirement of “good faith” and “actual knowledge.”

What “Case Watch” would be complete without an appeal involving one of my favorite topics – BPOL tax! In March, the Court accepted the petition for appeal in Ford Motor Credit Company v. Chesterfield County, Record No. 092158. This case will delve into, among other issues, when a tax payer can take a deduction for out-of-state gross receipts under Virginia Code Section 58.1-3732(B)(2), and when it is appropriate to use the default apportionment method in Virginia Code Section 58.1-3703.1(A)(3)(b) to measure the tax payer's gross receipts.

In January, the Court also granted the petition for appeal in AMEC Civil, LLC v. Commonwealth of Virginia, et al., Record No. 091662. AMEC Civil designated no less than twenty-two assignments of error, with the Commonwealth designating seven assignments of cross-error. Much of the debate revolves around whether AMEC was required to give VDOT written notice of its claims at the “beginning of the work,” or whether AMEC could have given notice at the “time of the occurrence” under Virginia Code Section 33.1-386, whether that notice requirement could be satisfied by VDOT’s actual notice, and whether VDOT must show prejudice by any delay in providing notice. Some of the other issues involve whether sustained elevated lake levels constituted a differing site condition, and whether VDOT had a reciprocal duty to provide AMEC notice of that condition under the contract.

As always, stay posted!
 

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Back to another of the cases highlighted in Case Watch: Upcoming Virginia Supreme Court Opinions. In Schefer v. City County of the City of Falls Church, the Virginia Supreme Court was confronted with a 2006 amendment to a Falls Church ordinance that specified different building height requirements for one-family dwellings in the same zoning district.

Schefer owned twelve lots in Falls Church, all of which were zoned R1-B, a medium-density residential district. The minimum lot area requirement for one-family dwellings in the R1-B district is 7,500 square feet. Schefer’s lots were less than the minimum of 7,500 square feet, but had been lawfully created prior to that requirement, and were designated as “substandard lots.” For substandard lots, the maximum building height for “residential use” on all R1-B lots was the less of 35 feet or two and a half stories.

In 2006, Falls Church adopted Zoning Ordinance 1799, amending permissible height and yard set-back requirements for one-family dwellings of substandard lots. Ordinance 1799 created a formula for calculating the allowable building height of one-family dwellings on substandard lots within residential zoning districts, resulting in an allowable building height between 25 and 35 feet depending on the size of the lot. The maximum height for one-family dwellings on standard lots in R1-B districts remained 35 feet.

When Schefer discovered that Zoning Ordinance 1799 changed the maximum building height for one of his lots to just over 28 feet, he filed suit against Falls Church, claiming that Ordinance 1799 violated Virginia Code Section 15.2-2282’s uniformity requirement and the Equal Protection Clause.

The Court had no problem rejecting Schefer’s arguments and siding with Falls Church. Looking at the plain language of Section 15.2-2282, the Court pointed out this section is taken verbatim from the Standard State Zoning Enabling Act, except for the addition of the word “uses.” In full, Section 15.2-2282 reads:

All zoning regulations shall be uniform for each class or kind of buildings and uses throughout each district, but the regulations in one district may differ from those in other districts.

To make his argument under Section 15.2-2282, Schefer claimed that one-family dwellings constituted “buildings and uses” that required identical building height requirements. The Court rejected that argument, concluding that this case turned on two kinds of uses – residential use on standard lots and residential use on substandard lots.

The Court gave very short shrift to Schefer’s equal protection argument. Before reaching this issue, the Court noted that Section 15.2-2282’s purpose is to ensure that zoning regulations are not discriminatory, acting as a “statutory reaffirmation” of equal protection. Under its equal protection analysis, Ordinance 1799 was presumptively reasonable, with Schefer carrying the initial burden to show it was unreasonable. Schefer tried to avoid shouldering this burden by arguing that Ordinance 1799 was facially discriminatory, but the Court refused to allow him to escape his burden of proof because there was nothing inherently suspect about Ordinance 1799 and it did not infringe on the exercise of any fundamental right.

Two more highlighted cases remain. In TIR Connail Properties, L.C. v. 2401 Wilson, LLC, we have yet to see whether the Virginia Supreme Court will say that the plaintiff should have been allowed to sue using its trade name, and what the Court will do about the scope of use of discovery deposition testimony. In Advanced Towing Company, LLC, et al. v. Fairfax County Board of Supervisors, we’ll find out whether the Court agrees with the trial court regarding the Dillon Rule and the doctrine of ultra vires. Stay posted!
 

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The Virginia Supreme Court was busy last week, issuing eighteen opinions, two of which – Bailey v. Town of Saltville and Schefer v. City County of the City of Falls Church – were highlighted in the post late last year, Case Watch: Upcoming Virginia Supreme Court Opinions.

Bailey looked at whether a 1909 agreement and a deed concerning a railroad right of way conveyed only an easement or a fee simple interest. In 1909, James and Kate White recorded an agreement and a deed conveying a right of way to Norfolk and Western Railway Company. The agreement's stated purpose was to resolve a dispute over the width of Norfolk and Western’s right of way, and said that the Whites were conveying an eighty-foot wide right of way through their farm. The deed, executed the same day as the agreement, said that the Whites were granting and conveying a strip or parcel of land, described by metes and bounds, with a total acreage of 20.59 acres, setting out survey calls with bearings and distances for the centerline of the track. The deed ended with a covenant that the Whites “will warrant generally the land hereby conveyed.”

In 1993, Norfolk and Western abandoned the railroad line. In 1994, Norfolk and Western donated the railroad corridor to the Town of Saltville by way of quitclaim deed. In 2002, Bailey acquired title to a portion of the farm through which the old railroad line passed. In 2004, Saltville began removing the railroad tracks from the corridor. In response, Bailey posted “no trespassing” signs and denied Saltville entry to the corridor, prompting the town to file suit.

The Virginia Supreme Court began with the basic rule of giving the words used in the deed and agreement their natural and ordinary meaning. It also cited the rule that when two documents are executed at the same time and refer to the same topic, the documents are part of one transaction and are construed as if the provisions were from one whole document. To determine the intent of the parties, the Court looked at the deed’s language, including the language that described the conveyance of “all that certain strip or parcel of land” and warranting generally “the land hereby conveyed.” The Court sided with the Town of Saltville, concluding that the Whites had transferred complete ownership -- a fee simple interest, not a mere easement -- to Norfolk & Western.

The lesson to be learned from this case is – Say What You Mean! In any deed, be sure to spell out exactly what kind of interest you intend to convey. If you mean to convey a fee simple interest, then say so. If you mean to convey only an easement, then say so. [Don’t forget the lessons from Details, Details, Details: What it takes to convey an easement in Virginia and Details, Details, Details, continued: When 1 + 1 still equals 1!]

Also remember that if you are executing other documents along with a deed, make sure that all of the documents are consistent in spelling out exactly what the parties mean to do. The confusion in this case stemmed from the parties having executed two different documents, neither of which spelled out fully what the parties intended. Don’t leave the decision of what you intended to the court. It is much more time effective and much less expensive for you to say right in the documents exactly what you mean!

Bailey wasn’t the only easement related case decided on April 15. The Virginia Supreme Court issued two other opinions regarding easements. In Hafner v. Hansen, the Court concluded that there was no easement by prescription for an unrecorded underground sewer line. Although the neighbor continuously used the sewer line, the line was not so open and obvious that the owner should have known about it and objected to its use.

In Snead v. C&S Properties Holding Company Ltd, the owner installed a chain-link fence, trees and shrubs, signage and rip-rap along an easement. The trial court refused to issue an injunction because there was still enough room for a car to pass, allowing the holder of the easement access to his property. The Virginia Supreme Court reversed, saying that an injunction barring encroachment on the full width of the easement was the right outcome.

Stay tuned for the outcome of the second case, Schefer v. City Council of the City of Falls Church, in a post coming soon!
 

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At the risk of engaging in a bit of direct self-promotion for perhaps the first time, today we have a guest post from Raighne Delaney, a shareholder of Bean, Kinney & Korman, P.C. and lead counsel in the successful dismissal of a case on April 12, 2010 pending against the Views at Clarendon Corporation, Inc. involving an affordable housing project here in Arlington. Raighne’s comments regarding the case follow:

On April 12, 2010, Judge Hilton of the U.S. District Court for the Eastern District of Virginia dismissed a suit seeking to halt the Views at Clarendon affordable housing project in Arlington, Virginia. The plaintiff, Peter Glassman, claimed the project violated the U.S. and Virginia Constitutions’ establishment clause by allegedly using Arlington County government funds to erect and repair a church and support the church’s ministry. The court roundly disagreed with these allegations, finding that the plaintiff’s complaint failed to properly allege an Establishment Clause case. The court granted the various defendants motions to dismiss as to all counts of the case with prejudice and no leave to amend was granted.

The project, known as the Views at Clarendon, is being constructed on property formerly owned by the First Baptist Church of Clarendon (“FBCC”). In 2003, the FBCC decided to develop its property located one block from the Clarendon metro stop. Rather than sell the property, the FBCC felt that the best use for the site was to erect a ten story building, of which the first two floors would consist of a church sanctuary. The building’s remaining eight floors were designed as affordable housing.
Neighbors raised vocal objections to the project through typical Arlington County entitlement processes and extending into multiple iterations of litigation. After losing their case at the trial court level in the initial litigation, in 2006, various neighbors prevailed in challenging the County’s initial rezoning of the property. The County corrected the zoning procedural issues and again approved the project. The zoning approval eventually survived legal challenge. This latest Establishment Clause case was thus the fourth separate lawsuit filed by nearby property owners using various legal means to challenge this affordable housing project.

However, the suit failed because there is the FBCC, which is building the church sanctuary, and the Views at Clarendon Corporation (“Views”) which is constructing the residential units. The FBCC created the Views as a separate secular non-profit entity. Once created, the Views runs as a separate entity and the FBCC has no further involvement or control over the Views. For a variety of economic reasons, the secular and separate Views entity decided to create a new limited partnership, 1210 North Highland-Clarendon, LP (“1210 NHCLP”), and became 1210 NHCLP’s general partner.

FBCC entered into an arms-length transaction to sell the entire property for $5.6 million to 1210 NHCLP, a price well below the full value $14 million appraisal for the property. Arlington County lent $13.1 million to 1210 NHCLP, the Virginia Housing Development Authority (“VHDA”) lent $14.5 million to 1210 NHCLP, and 1210 NHCLP received an $18.6 million federal grant, collectively for use by 1210 NHCLP in the property acquisition and in construction of the residential units, though some of the funds had designated purposes.

When finished, the building will consist of two condominiums. Condominium A will consist of the former church steeple and the first two floors of the 10 story building for use as a church sanctuary. Condominium B will consist of the underground parking and the third through tenth floors of the 10 story building. The funding for the FBCC project (Condominium A) and the separate affordable housing project (Condominium B) are strictly separated. Not one penny of Arlington County’s money is being used by anyone to pay for the construction of Condominium A.

To access their apartments, future residents will not step onto the church’s land, and will use their own entrance, not the church’s entrance. Furthermore, the condominium rules and state regulations prohibit any religious indoctrination of residents. The FBCC will have zero control over the selection and retention of Condominium B’s residents. Furthermore, the Views’ has contracted with a private management company to run that process.

Ultimately, the court ruled that Arlington’s loan was for the secular purpose of providing affordable housing in Arlington. The judge further found that there was “no factual allegation” of religious indoctrination that would allow for the case to move forward. The court expressly found that the separate entities, their creation, their structure, and their membership created “no legal infirmity.” Finally, the court ruled that the funds received by the FBCC when it sold the property to 1210 NHCLP were not related to the FBCC’s status as a religious entity because a church can sell its property like any other person. We are very pleased as a firm that this exciting and important project is moving forward, particularly after prevailing in the face of repeated oppositions, lawsuit and challenges.

Those interested in learning more about the Views at Clarendon project may wish to visit DC Mud’s previous posts from October 2009 and December 2008.

Image courtesy of MTFA Architecture, Inc.

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I spent this weekend thinking about the significant victory for Virginia home owners in the Chinese drywall litigation that was tried as part of the pending class action in New Orleans.  It may have mattered quite a bit that this ruling was issued in New Orleans as opposed to Virginia. 

I run the risk of delving into legal complexity, but it is necessary here to understand these issues.  We have talked about the economic loss rule several times here, in particular as it relates to products liability cases, and implications of classifying damages in such cases.  Those interested in design and construction issues in Virginia absolutely need to understand the economic loss rule.  The contours of this rule define who can whom and for what.  This rule is heavily briefed, argued, and litigated and can mean the difference between a big payday and a big goose egg.

It is clear in the Chinese drywall case that the home owners purchased a single unitary home from various builders and that one part of the home (the drywall) damaged others (piping, wiring, HVAC, et c).  There is a strong argument these cases fall under the clear mandate of the seminal Virginia case on this topic, Sensenbrenner v. Rust, Orling & Neale.  At least as to the home repair issues, the Sensenbrenner case would potentially eliminate all of the negligence based property damage theories of recovery for home repairs.

The remaining theories of recovery against remote manufacturers would be for breach of UCC warranties.  The next layer of analysis would be to evaluate whether the repair costs claimed are direct damages or whether they were consequential damages requiring privity of contract that are thus barred.  The products cases in Virginia have stuck to the statutory measure of direct damages which is the difference of the value of the product as warranted versus as delivered.

Reading the court's opinion issued last week in the drywall case, the court never discussed any of these issues.  The court discusses Virginia law, property damage, and recoverable measures of damages for property damages at length.  The economic loss rule is never mentioned, nor is the Sensenbrenner case, nor is the UCC line of cases on direct versus consequential damages.  Reviewing the cases and our previous posts, this case may have turned out very differently if tried in a Virginia court.

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As reported today by Virginia Lawyer's Weekly, seven Virginia families were awarded $2.6 million in damages by New Orleans federal Judge Eldon Fallon.  The whopping verdict allowed recovery of extensive damages, but denied recovery due to loss of value stigma damages to the homes in question.  In addition the opinion contains a number of interesting points and wrinkles that are worth highlighting.

1. The case was tried by default against the defendants.  A number of other interested parties initially intervened, then dropped back out of the case.
2. The case issued extensive scientific findings regarding problems with Chinese drywall (pp. 12-16); time will tell how much portability this court's factual findings have, particularly in light of the empty defense table.  The court's opinion suggests there was defense expert information presented for consideration by the intervenors.
3. The plaintiffs were able to convince the court that the drywall caused their home to be classified as a "severe industrial corrosive environment" (pp. 20-21) ... not exactly the place you want to raise your kids!
4. The court found that even in homes with mixed Chinese and non-Chinese drywall, all drywall needed to be removed.  This was both more efficient and eliminated identification problems.
5. Similarly, the court found that all electrical wire, copper piping, HVAC units, and extensive numbers of electrical equipment and appliances needed to be removed and replaced. 
6. Carpet, hardwood flooring, counter-tops, bathroom fixtures, trim, insulation, and cabinets need to be replaced; tile flooring that is damaged during remediation would also need to be replaced.
7. Post remediation, HEPA filtering and independent testing and certification is required.
8. The court calculated the remediation cost average at $86 per square foot.
9. The court analyzed each home owner's situation and awarded damages for repair costs, loss of personal property, economic losses caused by the disruption (such as foreclosure and bankruptcies), alternative living arrangements, and loss of use of the homes and personal property.
10. The court found that stigma loss of value damages were speculative and that the situation was repairable.  As such, the court refused to award damages on this point.

This is a very significant verdict.  It remains to be seen how the plaintiffs will covert this verdict into recovering actual dollars.

Image by xxandyshredxx

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I had the pleasure and privilege of testifying as an expert witness in a case last week.  I have been retained as an expert a number of times and have now been qualified as such in two court proceedings and an arbitration hearing.  It is fascinating how the view of the courtroom changes depending on what seat you occupy.

In each case I have been retained, the lawyers have been particularly experienced, well qualified, and extremely well prepared.  Each case involved fairly detailed records and pleading review and analysis, interviews and sifting through significant information to develop an opinion in a relatively compressed time frame.  In each instance, the lawyers rapidly gathered everything I asked for and transmitted it timely and promptly.  I never got jumped with anything unexpected or unusual.  By the same token, when I have had these engagements, I have been prompt to point counsel to the totality of my practice, background, and publications so they were not surprised either.

Without getting into case details, there was one moment that was particularly educational.  I had been qualified on one topic by stipulation, but my ability to comment on another was challenged.  Counsel used some background facts that we had talked about in another context to ask an inspired softball question that came up spur of the moment.  Sitting in the witness box, it was like watching a slow pitch over the plate and ripping it.  While it is unclear what will happen in the case, I was admitted as an expert on all the proffered topics.

The experience of sitting in the witness box a number of time yields some important lessons for when I move back to counsel table:

• Be prepared
• Get your witness prepared
• Give your experts the materials they need
• Get them the materials when they need them
• Try to ensure your experts are truly conversant with the case so that rather than being scripted and robotic, they are instead conversational and able to react to opportunities or challenges on the fly
• Listen!  Listen to your clients and witnesses outside the courtroom.  Listen inside the courtroom.  Get out of your own head and into the moment, that is how you get the chance for taking that fact and turning it into the perfect question and answer for the moment during trial

Image courtesy of Science Education Resource Center at Carleton College

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 Earlier this year, Judge Bellows of the Circuit Court for Fairfax County found that repairing and replacing exterior building components including terrace soffits did not constitute an “improvement” for purposes of Virginia’s statute of repose. Now another court has limited what can constitute an “improvement” under Virginia’s mechanics’ lien statute.

In Summit Community Bank v. Blue Ridge Shadows Hotel & Conference Center, LLC, et al., Civil Action No. 5:10-CV-00005, Judge Conrad of the United States District Court for the Western District of Virginia (Harrisonburg Division) was confronted with whether furnishings including sleeper sofas, chairs, lamps, tables and art prints were properly claimed as “improvements” in a mechanics' lien under Virginia Code Section 43-3.

Judge Conrad began by pointing out that the General Assembly has failed to define the word term “improvement” in Virginia’s mechanics’ lien statute. Looking at Subsection A of Section 43-3, a mechanics’ lien is available for materials used in the “construction, removal, repair or improvement” of “any building or structure.” Judge Conrad reasoned that the “construction, removal, or repair of a building each results in a change to the actual building, not simply the building’s potential use or function,” and theorized that there must be a

greater connection between the materials furnished to improve the building or structure, and the building or structure itself. In other words, it is not sufficient for materials to simply add value to a building by their mere presence without any further connection to the building.

Judge Conrad concluded that a mechanics’ lien was not appropriate for the furniture at issue because the furniture had no real connection to the building itself other than its mere presence.

In reaching this conclusion, Judge Conrad had to grapple with a Virginia Supreme Court case, Moore & Moore General Contractors, Inc. v. Basepoint, Inc., 253 Va. 304, 485 S.E.2d 131 (1997). In Basepoint, the Virginia Supreme Court ruled that cabinets that had been installed and later removed from the building were properly the subject of a mechanics’ lien. Judge Conrad focused on the fact that the Virginia Supreme Court in Basepoint found that the cabinets, although removable, had initially been “installed and added value to the structure” itself. Therefore, the cabinets had actually been incorporated into the building. By contrast, the furniture in Summit Community Bank was not intended to be, and had not been, installed or incorporated into the building.

This is yet another lesson learned in the world of Virginia mechanics’ liens. Mechanics’ liens are an incredibly convenient way to recover costs, but the Virginia’s mechanics’ lien statute is a landmine for the unwary. And this is not only due to what kinds of materials will support a mechanics’ lien. Even more important are the very strict deadlines and procedures you must follow to properly file a mechanics’ lien. When in doubt, get advice right away!

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Our friend Matt Morse at Dovetail Construction had a great post on Friday entitled "Sometimes Things Go Wrong".  Matt makes some excellent points that even the best builders will face some problems -- the way a builder responds to those problems presents an opportunity to stand up, take responsibility, and potentially turn a "customer" into an "evangelist".

Those facing a potential confrontation need to keep in mind the cost, time and stress involved with court cases.  It generally is far better to work a situation out amicably, the earlier the better, than to get into a protracted fight.  As Matt said in his post, "Sure, it often costs money not to hide behind a contract or other document, but what is the cost of not getting referral business from that customer?"  The reality is that even with a great position, great facts, and a great contract, it is still going to be expensive, time-consuming and stressful to get involved in litigation.  No matter how good you think your case is, there is risk.

Psychology, personalities and relationships play a huge part in the dynamic of communication and its breakdown.  As Seth Godin very accurately described on his blog, the question generally comes down to whether we give people the benefit of the doubt ... a question which turns inherently on whether we trust someone.  To Seth Godin, "The challenge, then, is to earn the benefit of the doubt."

Builders facing these questions need to keep them front and center to avoid friction and conflict.  Stepping up and taking responsibility where appropriate is the direct path to earning the benefit of the doubt on construction projects.  It is great advice for any business, but especially in the construction industry where there is so much complexity and room for misunderstanding and problems.

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As reported yesterday by Virginia Lawyer's Weekly, a Virginia federal judge has ruled that a builder who remediated 70 homes constructed with Chinese drywall was not entitled to insurance recovery of the remediation costs.  This case is a painful reminder of how even positive, proactive business decisions can translate to tremendous liability risks, particular where interpretation of contracts and insurance occurs under Virginia law.

Judge Rebecca Beach Smith of the US District Court for the Eastern District of Virginia (Norfolk Division) issued the opinion.  Dragas Management Corp. had multiple liability and umbrella policies with Builders Mutual Insurance Company and Firemen's Insurance Company of Washington, D.C.  The underlying liability policies all contained language which obligated the insurers to pay damages which the builder became legally obligated to pay because of bodily injury or property damage.

Dragas received reports of health symptoms and property damage from various owners.  It filed claims on its various insurance policies.  It also indicated in writing it was planning on beginning a remediation plan and tendered the same to the insurers.  Soon after, BMIC flat denied coverage and rapidly filed a declaratory judgment action.  FIC rapidly denied coverage as well.  In June 2009, BMIC sent a new letter agreeing to defend Dragas against drywall related lawsuits subject to a reservation of rights. 

Four home owner complaints were filed against Dragas.  These claims were later voluntarily dismissed because of the Dragas voluntary remediation plan.  Dragas conceded there were no other drywall related cases pending.

The court agreed with the insurance carriers that based on the allegations, Dragas' remediation plan was voluntary and undertaken without legal obligation.  Dragas may have a glimmer of hope in that leave to amend was granted and the opinion emphasized that it failed to allege even specific threats of lawsuits by individual owners or specific demands made by owners prior to remediation.

There are a host of policy and business reasons to encourage parties to proactively respond to complaints and voluntarily remediate problems.  This case stands as a cautionary tale that such plans may run seriously awry when placed into the context of tightly written insurance policies.

Image by y-cart

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Back in November 2009, I highlighted five cases in which the Virginia Supreme Court granted appeals in Case Watch:  Upcoming Virginia Supreme Court Opinions.  The Virginia Supreme Court has recently published the opinion in the first of those cases, W&W Partnership v. Prince William County Board of Zoning Appeals, et al, Record No. 090328.

In this case, the Woodsides owned a piece of property that was over 46 acres. In 1940, they conveyed 1.44 acres to the Commonwealth of Virginia to extend Route 234, a public road, through their property. Route 234 bisected the property, leaving just over 5 acres to the north and about 40 acres to the south. The deed conveying the 1.44 acres contained a metes and bounds description of only the strip of land conveyed to the Commonwealth.

In 2000, the Woodsides conveyed their property to a church, which in turn conveyed the property to W&W Partnership. W&W subdivided and conveyed a portion of the 40 acres to the south of Route 234, leaving W&W with 15.3 acres total – 10.3 acres to the south, and 5.17 acres to the north. W&W sought a separate address and GPIN from Prince William County, claiming that the 5.17 acres of land constituted a separate, legally nonconforming lot created in 1940 by the Woodsides’ conveyance to the Commonwealth. The County denied this request, claiming that the Woodsides’ remaining property continued as one parcel with two noncontiguous pieces. Both the BZA and the Circuit Court sided with the County.

The Virginia Supreme Court followed the law set out in Chesterfield County v. Stigall, 262 Va. 697, 554 S.E.2d 49 (2001), which held that creation of a new lot

is a legal separation of property because it results from an action by the owner and involves, at a minimum, a change in the legal description of the property, either by a meets and bounds or by plat, which is duly recorded in the appropriate land records.

Stigall’s facts were very similar to the Woodsides’ situation, with a public road that bisected a lot and created two unequal sections. However, the Commonwealth acquired a portion of the property by way of eminent domain instead of voluntary conveyance in Stigall. The Court rejected W&W’s argument that this made any difference, holding that

the mere act of conveying property to the Commonwealth did not legally separate the noncontiguous portions of the Woodsides’ remaining property. Such legal separation of property must be shown by proof that the owner, at a minimum, duly recorded a change in the legal description of the property either by metes and bounds or by plat.

As I stressed in Details, Details, Details:  What it Takes to Convey an Easement in Virginia, this case yet again highlights that it’s all in the details. As with any real estate transactions, be sure to: (1) explain the parties’ intent precisely and specifically; (2) give details right in the deed – in this case by specific metes and bounds or by plat – and if you are relying on a separate document such as a plat, be sure to specify the plat in the deed itself and incorporate the plat by reference right in the deed; and (3) record all pertinent documents and attachments in the land records as soon as possible.
 

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Modular home construction presents significant potential improvements to home construction: significantly reduced construction time; less material waste; and reduced expense.  If not handled appropriately in terms of contracts and risk, modular homes can translate to a gigantic headache for both the designers, contractors, and the owner.

Last Thursday, Lisa Rein of the Washington Post wrote an article on mansions turning to modular construction to reduce time and costs.  The article caught my eye - while I have noticed this trend over the last 5 years or so, it was the first time I saw local mainstream press pick up on this.  My friend Jamie Baker Roskie at the always interesting Land Use Prof Blog picked up on the article and connected the thread towards local codes discouraging use of shipping containers as building materials. 

Adaptive reuse of discarded materials is one of the best ways to improve our economy's sustainability, and using shipping containers for modular construction is really an interesting approach.  Don't believe shipping containers make good construction materials?  Browse through a search of the articles at the highly informative Jetson Green blog that address containers and you will see some remarkable uses of containers, from emergency shelters for recovery in Haiti to very sweet, upscale small footprint breach structures.

Turning from containers to wood based modular construction, count me as a believer that we will see industry move towards more pre-fabricated assemblies to reduce cost and time of construction.  Despite my views on the future, I have particiated in some pretty ugly cases involving modular construction.  Based on the repetitive nature of these problems, I draw some conclusions about risks involving modular home construction that may help put the Washington Post's article into a legal context:

1. Prefabricated assemblies are sales of goods governed by Uniform Commercial Code not construction
2. Sales of goods involve different potential warranty theories and defenses than construction implied warranties
3. Sales of goods potentially have different statutes of limitations
4. While the install time may be shorter, manufacturing and delivery time may be a very different story
5. Most owner/contractor agreements involving modular construction are very weak on defining the remote manufacturer's role and responsibilities
6. Similarly, most owner/contractor agreements poorly define timing expectations until the modular unit is delivered and set on the building pad
7. Simple units seem to do pretty well; however, quality control seems to vary wildly amongst manufacturers and even within specific manufacturers depending on the specifics of a projects and the design complexity
8. As with other manufacturer's warranties, if there are problems, owners and contractors may struggly mightily to get manufacturers to respond appropriately to warranty complaints

This may be coming from the skewed perspective of seeing these projects in litigation, what do you think?  What have you seen?  Finally, how has the economic downturn improved or worsened working with modular manufacturers?

Images by Terretta

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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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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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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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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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A post yesterday from our friend Chris Hill at Construction Law Musings really resonated with me on a critical skill that many lawyers seem to lack.  The post, "What Owners Look for in Green Building and Why Contractors Should Care" advocated that contractors should know and understand what project owners were looking for in green buildings.  As Chris states well, "Knowing the other side's playbook is one way that a football team can prepare, the same holds true in pre-construction negotiation of contracts."

This same concept can and should be applied in every legal context.  If I cannot understand the strengths and weaknesses of not only my case, but also my opponent's, I am wearing blinders and courting disaster.  Not being able to play both sides of the chessboard is asking for surprises.  In negotiations, that means losing ground unnecessarily.  In litigation, it can mean flat out losing the case.

For years, a pocket classics translation of Sun-Tzu's absolute must read, The Art of War has lived on my desk.  A classic passage from centuries ago echoes this issue:

So it is said that if you know others and know yourself, you will not be imperiled in a hundred battles; if you do not know others but know yourself, you win one and lose won; if you do not know others and do not know yourself, you will be imperiled in every single battle.

For clients on the receiving end, you should understand and cherish the need for your lawyer to play the "devil's advocate" role in testing assumptions, articulating weaknesses, and educating you regarding the strengths and weaknesses of your position.  Ultimately, that very approach may mean success or failure of your matter.

Image by vlasta2

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I am writing with a very quick update on the status of the non-suit in Virginia, the subject of our very first blog post here.  While Virginia is typically viewed as a conservative and somewhat pro-defendant forum, it does have one very nice procedure that is very beneficial to plaintiffs, the right to take one voluntary dismissal with prejudice at virtually any time and start the case over again (called a statutory non-suit).  The plaintiff then gets the original statute of limitations, or an extra six months from entry of the non-suit order to re-file their case.

Our first post detailed the Spear v. MWAA case in Virginia where a plaintiff had filed a new case with a different requested damages amount.  Judge Chamblin from Loudoun County Circuit Court ruled that because the amount requested was different, it was not the same case and thus did not get the extra six-months to refile.  The case was therefore barred by statute of limitations.  This case has been the subject of not only significant commentary and criticism, but also has spawned a petition for appeal.

Virginia Lawyer's Weekly now reports that Judge Lane in Rockingham County Circuit Court has analyzed the same question and reached the opposite result.  Judge Lane found in O'Hearn v. Mawyer that refiling with a different request for damages is still the "same action" and entitled to the six month tolling period to refile.  At least one plaintiff's attorney is now breathing a little easier.

Image by Alma Mater

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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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A recent Fairfax County Circuit Court case highlights how fragile confessions of judgments can be in Virginia.  The case, Superior Paving v. Bud & The Boyz Construction, resulted in a confessed judgment being set aside by the trial court.

Virginia law provides at Code of Virginia Section 8.01-433.1 that the note, bond or other evidence of a debt with a confession of judgment provision contain a notice provision stating:

IMPORTANT NOTICE

THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE.

In Superior Paving, the plaintiff included the statutory notice language in the original credit agreement related to asphalt purchases.  The defendant later requested a proposal from plaintiff  for paving the entrance of an industrial building.  Defendant accepted the proposal.  According to the court's opinion, neither the proposal nor the later resulting invoices contained the statutory notice language.  The opinion is silent on whether the proposal, acceptance, and invoices expressly incorporated the terms of the credit application.

The court initially entered judgment in favor of plaintiff in March.  On October 5, the court set the judgment aside ruling that "any and all notes or evidence of debt upon which a confessed judgment is to be based must unclude the 8.01-433.1 language". 

There are a couple take-aways from this case:

• 1: Assume that confessions of judgment provisions are fragile and easily undone
• 2: Even after judgment is entered, See No. 1
• 3: Include the confession of judgment notice into the actual contracts

Image by Haole Punk

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No state has a longer shoreline than Florida – over 2,000 miles of shoreline, with 825 miles of beaches.  These beaches define Florida's top industry of tourism and are in a constant state of erosion.  Understandably, Florida has embraced the “public trust doctrine,” which dictates that tidal lands are held in trust for the people of Florida. The boundary between state-owned tidal lands and upland properties has traditionally been the “mean high water line” (“MHWL”). The MHWL may move inland due to erosion or seaward when land gradually forms (through accretion). However, the boundary will not shift due to a sudden change in the shoreline (through avulsion).

Recognizing the need to protect Florida’s beaches, Florida’s legislature enacted the Beach and Shore Preservation Act (“BSPA”) in 1965. Since then, Florida has restored approximately 200 miles of beaches through sixty actively managed projects.

The BSPA was amended in 1970 to define the property boundary for restoration projects along critically eroded beaches as the “erosion control line” (“ECL”). By adopting a fixed boundary for restoration projects, the BSPA meant to avoid boundaries that were constantly shifting due to coastal dynamics. Under the BSPA, the state would pump sand into the restoration area primarily on the state side of the ECL, creating a buffer of “sacrificial sand” that would protect the beaches and upland property. The 1970 amendments preserved, and arguably supplemented, the rights of landowners whose properties under the Act extended to the ECL rather than the MHWL.

With the devastating hurricane and storm damage we have seen over the last decade, Florida realized that it could no longer focus solely on its southern beaches. Florida decided to spend a total of $15 million – $4 million of state money and the rest paid by the local community and the town of Destin – to restore approximately seven miles of beach in Walton County, a jurisdiction located in Florida’s panhandle. In keeping with the BSPA, the state set the property line at the wet sandy beach.  The project was designed to create a narrow strip of dry beach by piling new sand where water – and therefore sovereign state land – once was.  What the project also created was a legal quagmire between government officials and private landowners that has now made its way to the United States Supreme Court.

State and local officials argue that the restoration project provides the private landowners with storm damage and erosion protection without taking land or property rights from the landowners. The officials note that, consistent with the BSPA, the project preserves all upland owners’ rights of view, access and use of the waters. You can read more on these arguments in the state’s brief and the brief for Walton County and the City of Destin.

Private landowners instead see a “land grab” that robs them of their right to gain land by accretion and their right to have their property in continuous and direct contact with the water. They complain that the officials dumped sand in their backyard to create what is now considered a public beach. To read more on the landowner’s arguments, read Stop the Beach Renourishment, Inc.’s brief and reply brief.

The Florida Supreme Court’s lengthy opinion concluded that the beach restoration program reflected “the state’s constitutional duty to protect Florida’s beaches in a way that reasonably balances public and private interests.” The court found that landowners maintained their rights to access and view the water, but that Florida law provides no basis for the landowners to own the new narrow strip of dry sand as private property, and therefore no basis for the property owners to demand compensation.

The United States Supreme Court has previously addressed whether a legislative or executive decision can amount to a constitutional taking. But now this case – Stop The Beach Renourishment, Inc. v. Florida, Case No. 08-1151 – raises the question of whether a state court decision can amount to an unconstitutional taking of property.  Based on comments from the Justices during oral argument last week, the opinion will likely not be unanimous, as noted in NPR’s December 2, 2009 article, High Court Appears Divided on Beach-Property Case.  Complicating things is the fact that Justice Stevens, who owns a Florida beachfront apartment, was absent from the oral argument, making it possible that the Justices will not have the votes one way or the other to reach a majority opinion.

My guess is that the United States Supreme Court will find a way to avoid deciding the novel issue of whether the Florida Supreme Court's decision can be considered a taking, and will not disrupt the Florida Supreme Court's determination that the beach preservation project did not take any legally cognizable state property right from the land owners.  Any other thoughts or predictions out there?

Image by:  Melissa Nelson/AP
 

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Here is a sampling of cases to watch for in 2010. The Virginia Supreme Court has granted appeals for these cases earlier this year, and will hear argument in 2010.

In May, the Court granted the appeal in W &W Partnership v. Prince William County BZA, et al., Record No. 090328, challenging the ruling of Judge Whisenant from the Prince William County Circuit Court. At issue in this case is whether a deed legally subdivided a parent tract of land, creating a separate lot and entitling the lot to its own GPIN and address. The Court will likely set the argument for this case in early 2010.

July was a busy month for the Court, accepting petitions and granting appeals in numerous real estate related cases. First up is Anton E.B. Schefer v. City Council of the City of Falls Church, Record No. 090803, contesting a ruling by Judge Newman of the Arlington County Circuit Court. This case will analyze whether a City of Falls Church zoning ordinance imposed height regulations on the appellant’s property that were more restrictive than regulations for other identically zoned properties, and whether the ordinance should be struck down on an equal protection theory.

The Virginia Supreme Court granted a second appeal from a ruling by Judge Newman in the Arlington County Circuit Court, TIR Conaill Properties, L.C. v. 2401 Wilson, LLC, Record No. 090855. This commercial lease dispute case will examine whether the plaintiff could sue using its trade name, and whether the trial court properly considered discovery deposition testimony.

Next, we have Bailey v. Town of Saltville, Record No. 090989, challenging the decision by Judge Lowe of the Circuit Court of Washington County. The Court will consider whether a 1909 agreement and a 1909 deed conveying a “right of way” for a “single track railway” granted a fee simple interest or only an easement to the railway company.

In September, the Court accepted the petition in Advanced Towing Co. LLC, et al. v. Fairfax County Board of Supervisors, Record No. 091180. This appeal disputes the ruling by Judge White of the Fairfax County Circuit Court, who refused to find that a Fairfax County Code provision contravened the Dillon Rule and was enacted ultra vires.

Stay posted as we keep an eye out for these cases and others!
 

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The first trial in the infamous Chinese drywall litigation will apparently involve seven Virginia homeowners.  The first case is currently set for a bench trial on January 25, 2010. 

We have written several times regarding the Chinese drywall litigation, including several months ago in Mid Atlantic Construction.  While Virginia plaintiffs will apparently occupy the first position on the trial docket, our area in Northern Virginia has thus far been very quiet to silent on this front.  The Tidewater area has been a little different as a supplier there sold a fairly significant quantity of the drywall that was used locally.

The Chinese drywall is just the most recent wave of products liability litigation to erupt across the construction industry.  The past several waves, such as the fire retardant plywood, plumbing material, and EIFS systems litigation, each pointed out that getting around the economic loss rule in Virginia is extremely difficult.  The economic loss rule in Virginia provides that a party suing for "economic losses" is seeking a contractual remedy and must demonstrate privity of contract to recover.

The economic loss rule and its various permutations is one of the most important legal issues in construction litigation in Virginia.  As such, we are going to take the change to explore the economic loss rule and discuss it over several posts moving forward.

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Earlier this year, the Virginia Supreme Court decided Martin Brothers Contractors, Inc. v. Virginia Military Institute, taking the opportunity to revisit its decision in Blake Construction.

The Virginia Military Institute (“VMI”) contracted with Martin Brothers to renovate VMI’s main dining facility. During the project, VMI requested changes resulting in a 270-day delay. VMI agreed that it alone was responsible for the delay. Martin Brothers sought $430,242.56 in delay damages plus the costs of recovery.

VMI paid only a portion of Martin Brothers’ delay claim, relying on terms found in the contract’s General Conditions. General Condition 43(b) stated that Martin Brothers could recover damages for owner-caused delay, provided the delay was “unreasonable” [sound familiar?!]. In such a case, Martin Brothers would be permitted to submit a change order adding additional days for completion of work. The General Condition governing change orders allowed some, but not all, site direct overhead expenses for delay, and disallowed all home office expenses. The same General Condition contained a subsection allowing a fifteen percent markup for overhead and profit. Martin Brothers’ claim included $225,937.40 in site delay damages and $204,305.16 in home office delay damages. Based on the language in the relevant General Conditions, VMI agreed to pay only $99.646.20 in site damages and refused to pay any home office damages.

At the trial court level, VMI successfully convinced the Circuit Court that the contract's terms, including its markup provisions, amounted to “liquidated damages,” one of the specifically enumerated exceptions in Virginia Code Section 2.2-4335 (B). The Virginia Supreme Court didn’t buy this argument, going right back to its decision in Blake Construction. The Court reiterated that Section 2.2-4335 “means what it says”:

Any provision…to waive, release, or extinguish the rights of a contractor to recover costs or damages for unreasonable delay in performing [a public construction contract]…shall be void.

The only exceptions to this broad language are those specifically enacted by statute, including Section 2.2-4335 (B):

1. provisions allowing a public body to recoup costs for delay caused by the contractor, subcontractors, and their agents and employees;
2. notice requirements;
3. liquidated damages; and
4. arbitration or other forms of alternative dispute resolution.

In analyzing whether the terms of the contract were in fact a liquidated damages clause, the Virginia Supreme Court asked whether Martin Brothers and VMI had actually entered into an agreement for the calculation of delay damages. VMI argued that the claimed home office expenses and all site expenses beyond $99,646.20 were included in the markup provisions, amounting to an agreed method of calculating the delay damages, and therefore a valid and enforceable liquidated damages clause.

The Court saw past this argument, pointing out that the markup provisions compensate Martin Brothers for added work required by VMI’s change order, but provide no compensation at all for extra expenses resulting purely from the delay. For instance, if VMI issued a change order requiring extra work, and Martin Brothers was able to complete the extra work on time, Martin Brothers would be entitled to its fifteen percent markup. However, if the extra work delayed the project by a year, Martin Brothers would still be entitled only to its fifteen percent markup, and nothing at all for the delay.

The Court concluded that the General Conditions with its markup provisions were not actually an agreed formula to calculate delay damages, and therefore not covered by Section 2.2-4335 (B)'s liquidated damages exception. Because the terms of the contract that VMI relied up acted as an absolute bar to most of the delay expenses incurred by Martin Brothers, the Court declared those terms void and unenforceable as against public policy.

In the wake of Martin Brothers, public bodies will likely become more and more creative in drafting supposed “liquidated damages” provisions. Take comfort in the Virginia Supreme Court’s and the General Assembly’s strong protection of a contractor’s right to delay damages in public contracts, and carefully scrutinize these provisions before you sign a contract.
 

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In the recent case of Martin Brothers Construction, Inc. v. Virginia Military Institute [pdf], the Virginia Supreme Court was confronted with whether Martin Brothers was able to claim delay costs, re-examining its 2003 opinion, Blake Construction Company, Inc./Poole & Kent v. Upper Occoquan Sewage Authority [pdf]. This post will review the Blake Construction opinion, and set the stage for the next blog post on Martin Brothers.

Blake Construction presented the Court with its first opportunity to examine a contract limiting delay damages in light of Virginia Code Section 2.2-4335 (A) [pdf], which states in part:

Any provision contained in any public construction contract that purports to waive, release, or extinguish the rights of a contractor to recover costs or damages for unreasonable delay in performing such contract, either on his behalf of on behalf of his subcontractor if and to the extent the delay is caused by acts or omissions of the public body, its agents or employees and due to causes within their control shall be void and unenforceable as against public policy.

The Court analyzed two contractual provisions, easily finding that the first was directly contrary to Section 2.2-4335 and therefore void as against public policy. That provision stated that an extension of time would provide the sole remedy for delay, and that the contractor agreed to make no claim for delay damages for “any sort of delay…for any reason, including but not limited to delay occasioned by any act or failure to act of the Owner.”

The rub in the case was the second provision, which tried to temper the blanket prohibition on delay damages. The second provision allowed the contractor to recover “additional compensation for the actual and direct costs” from unreasonable delay caused by the owner or engineer, provided that the contractor complied with notice and submission requirements. The provision also included a definition of “unreasonable delay” as amounting to bad faith, malice, gross negligence or abandonment.

As it should have, the Court began with the plain language of Section 2.2-4335, and the sweeping language by the General Assembly declaring any provision limiting delay damages as void. Viewed through that lens, the Court was not concerned about the language limiting delay damages to those within the owner’s control and requiring the contractor to give notice, because these were specific exceptions included in Section 2.2-4335 (A) and (B)(2). The Court was less forgiving about the bar for unreasonable delay damages except upon the owner’s bad faith, malice, gross negligence or abandonment, concluding that such a bar was void and unenforceable as against public policy under Section 2.2-4335.

The lesson to take from Blake Construction is to carefully compare any delay provisions in a public contract to Section 2.2-4335. A court is likely to find unenforceable and void delay provisions that go beyond Section 2.2-4335 (B), which specifically allows: (1) provisions allowing a public body to recoup costs for delay caused by the contractor, subcontractors, and their agents and employees; (2) notice requirements; (3) liquidated damages; and (4) arbitration or other forms of alternative dispute resolution.

Two more things to know about Section 2.2-4335: Under Subsection (C), a contractor making a delay claim is liable for a percentage of the public body’s costs to investigate, analyze, negotiate, litigate or arbitrate the claim. Under Subsection (D), a public body denying a delay claim is liable to the contractor for a percentage of the same kinds of costs, but only if determined in litigation or arbitration to have been in bad faith.

Stay tuned for the outcome of Martin Brothers in Part II of this post! I’ll give you a hint – we’ll look at Section 2.2-4335 (B)’s liquidated damages exception.
 

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Construction cases by their nature tend to involve a lot of facts, witnesses, and documents.  They also tend to involve multiple parties, legal issues and arguments, and strategic procedural and motions practice.  By their nature, these realities mean that construction cases can involve quite a lot of legal work and can be expensive to try.

There are several things that clients in construction cases, and indeed all legal matters, can and should do to help themselves.  Following these tips can not only streamline the effort undertaken by the lawyer and thus reduce expenses, but also can help to present your matter in the most effective manner and produce better results:

1. Be organized.  Handing your lawyer a tabbed binder of documents instead of a disheveled pile of documents means less time reviewing and understanding your care.
2. Be responsive.  When your matter is analyzed or litigated in fits and starts because you do not respond, that effort tends to always require retreading old ground ramping up again.
3. Do your homework.  A corollary to No. 2, if you are to obtain documents, information, or provide assistance, understand that your efforts are important to timely and efficient handling of your matter.
4. Make decisions.  Once there is sufficient information and analysis to make informed choices, it is time to decide.  Failing to pick often not only removes the need or chance to choose, but it translates to expensive lost effort without advancing your matter.
5. Understand time is money.  Even with all the discussion about alternative fee billing, this will always be true.  I know and understand that client communication is critical.  Clients should know and understand that the more we communicate, particular on rehashing prior discussions or decisions (see No. 4 above), the more expensive the case gets.

 Image by Brookenovak

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In the recent case of Burdette v. Brush Mountain Estates, LLC, the Virginia Supreme Court tackled head on what it takes to convey an easement. Burdette acquired two parcels of land by deed, which stated that the conveyance was “made subject to all easements, reservations, restrictions and conditions of record affecting the hereinabove described property,” and referred to a boundary line adjustment plat that was recorded in the land records. The plat depicted a fifty-foot easement traversing both parcels and this notation” ‘50’ PRIVATE EASEMENT FOR INGRESS, EGRESS AND PUBLIC UTILITY FOR THE BENEFIT OF [Brush Mountain’s property], IS HEREBY CONVEYED.”

Brush Mountain owned an adjacent parcel to the east of Burdette’s property. Brush Mountain submitted a request to rezone its parcel. To develop its property, Brush Mountain would need to rely on the easement for access. When Burdette discovered Brush Mountain’s plans, Burdette filed a complaint for declaratory judgment against Brush Mountain, contesting the existence of the easement.

In analyzing whether an easement must be conveyed by a deed or will, the Court began with Virginia Code Section 55-2, which states “No estate of inheritance or freehold or for a term of more than five years in lands shall be conveyed unless by deed or will.” In holding that an easement is not an estate in land, the Court concluded that Section 55-2 was not applicable.

The Court then turned to the language in the deeds and the plat, siding with Burdette that those documents did not contain the necessary words to convey an easement. First, the “subject to” language in the deed was merely boiler plate and did not specify a particular plat. Second, the plat did not show the full extent of the burden imposed by the easement because the easement spilled over into property not included in the survey and was identified only in a note. Third, Brush Mountain was in essence a stranger to the deeds.

The moral of the story is that, if you want to convey an easement, be as clear as possible about your intent. Details matter! Specify the plat directly on the face of the deed. Incorporate the plat, and show the full extent of the easement on the plat. And include all related parties in the deed.
 

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The story of the collapse of the Dallas Cowboys practice facility collapse continues to point towards serious design flaws as the culprit. The National Institute of Standards and Technology press release regarding its report states that the practice facility collapsed, “under wind loads significantly less than those required under applicable design standards”. A full copy of the draft NIST report and accompanying slideshow are quite interesting. The design and construction firm involved in the project has consistently claimed that severe weather conditions were to blame; however, the NIST report expressly concluded that wind speeds at the time of collapse were well below design loads and further that the demands at code required wind loads exceeded the structure capacity of the facility.

The practice facility was a steel frame structure with a tensioned fabric covering. The practice facility collapsed on May 2, 2009 during a windstorm. Twelve people were injured in the collapse, which left a scouting assistant permanently paralyzed and broke the neck of a special teams coach. The video report embedded with this post includes some harrowing footage prior to and during the collapse.

The factual backdrop of this disaster is fairly remarkable in the rapid and extensive dirt exposed relative to the project. As seen from the timeline prepared by The Dallas Morning News (this and the other links are free, sign-up is required), Cover-All Building Systems and its subsidiary, Summit Structures, designed and built the Cowboys practice facility. Cover-all suffered a warehouse collapse in Philadelphia that the Cowboys were aware of prior to hiring Cover-all for the practice facility project in 2003.

Reports following the filing of suit on the Cowboy practice facility matter have pointed to far deeper problems. It appears that the person who handled initial structural calculations on both the Philadelphia and the Cowboys’ facility was a trainee and unlicensed. Cover-all fired the engineering director of the Philadelphia and Cowboys facility projects. The person identified as the lead engineer of the project stated he had little to do with the project, worked for Summit only briefly, and had been hired to build small farm buildings. After the completion of the Cowboys’ project, the engineering director’s successor warned Cover-all management in 2004, "We can't continue to operate this way or we're going to kill somebody."

The Philadelphia collapse eventually resulted in a very large verdict against Cover-all. The Cowboys expressed some concerns regarding their facility and Cover-all eventual reinforced the facility roof, but that obviously was not sufficient to stave off the collapse.

There are a couple takeaways from this horrible event:

• Follow your instincts – if you are worried about your designer or contractor, there are probably good reasons
• Follow up on licenses, codes and inspections – reports indicate that permits were not pulled for the 2008 retrofit work as required
• Get second opinions when reasonable and required
• Know the qualifications and background of key personnel
• Don't assume
• To quote both my wife and Ronald Reagan, Trust but Verify!!

 Image: Copyright Silver Smith, 2009

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Be aware that the procedural requirements of Virginia Code Section 15.2-1246 [pdf] apply to appeals denying claims arising under contracts covered by the Virginia Public Procurement Act, according to the recent case, Viking Enterprise, Inc. v. County of Chesterfield, Record No. 080215 (Jan. 16, 2009) [pdf].

In Viking Enterprise, Viking entered into a written contract with Chesterfield County to construct a fire station. The County insisted that Viking had to remove and replace part of a concrete floor. Although Viking believed the floor could be repaired without removing and re-pouring the concrete, it complied with the County’s request and submitted a claim for $86,531 for additional work. The County’s board of supervisors denied the claim on July 25, 2005, and the clerk of the County’s board of supervisors gave Viking written notice of that denial in a letter dated August 2, 2005.

Relying on Virginia Code Section 2.2-4363(E) [pdf] and 2.2-4364(E) [pdf], Viking believed that it merely needed to file suit in Circuit Court within six months of the board of supervisor’s final decision to perfect its appeal. It filed a complaint in Chesterfield County Circuit Court on January 27, 2006. It later non-suited its action and re-filed its complaint on February 13, 2007.

The County argued that Viking failed to comply with Section 15.2-1246, which would require Viking to appeal within thirty days from the date of the board of supervisors’ decision (if Viking had been present at the July 25, 2005 meeting) or within thirty days of service of the clerk’s letter (had Viking not been present at the meeting), and that Viking failed to serve written notice on the clerk and to execute a bond.

The Circuit Court and the Virginia Supreme Court agreed with the County. Because Viking conceded it had not appealed within thirty days of the decision or service of the clerk’s letter, had not served notice of the appeal on the clerk and had not executed a bond, Viking’s appeal was dismissed because it did not comply with Section 15.2-1246.

The Viking Enterprise opinion concludes with the following recap of requirements to perfect an appeal from a county’s disallowance of a claim arising out of a contract covered by the Virginia Public Procurement Act:

[T]he claimant must serve written notice of its appeal on the clerk of the county’s governing body and execute a bond to the county, both within 30 days from the date of either the decision or service of the written notice of the denial, in accordance with Code § 15.2-1246. The claimant must then institute legal action in the appropriate circuit court within six months of the date of the decision denying the claim, in accordance with Code Code §§ 2.2-4363(E) and -4364(E).

Notably, the Court recognized that Section 2.2-4363(E) also allows for an administrative appeal if available, and declined to rule on whether that subsection conflicts with section 15.2-1246. The Court also assumed without deciding that the Virginia Public Procurement Act applied, although Chesterfield County argued that it had enacted an ordinance opting out of the Act.
 

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Think twice before you accept a check tendering only partial payment!  In a recent case, Helton v. Phillip A. Glick Plumbing, Inc., [pdf], the Virginia Supreme Court ruled for a homeowner who had repeatedly disputed his plumbing company’s charges and argued that his bill was excessive. The homeowner wrote his last check for  $1300 -- $1686.51 less than the final invoice -- and included the words “paid in full” in the memo line of the check.  He sent the check with a letter raising yet again the issue of overbilling and wasted time and materials, and said that he would make no more payments.  The plumbing company cashed the check, crossing out “paid in full” and writing “No” and “balance due $1686.51.”

Looking at Virginia Code Section 8.3A-311 [pdf], an amendment to the Uniform Commercial Code adopted in 1992, the Court reviewed the following elements that a debtor must prove to establish accord and satisfaction by use of an instrument: (1) the debtor tendered an instrument in good faith as full satisfaction of the claim; (2) the amount of the claim was unliquidated or subject to a bona fide dispute; and (3) the claimant obtained payment of the instrument.  Under that code section, the claim is discharged if the debtor shows the instrument, or an accompanying written communication, contained a conspicuous statement showing that the instrument was tendered as full satisfaction of the claim.

The Court had no problem concluding that the homeowner tendered the check intending the bill to be satisfied in full, that the final invoice was subject to a bona fide dispute, and that the plumbing company cashed the check. The Court ruled that the claim was discharged because the homeowner clearly marked “paid in full” on the check and sent a letter with the check outlining the repeated complaints of overbilling.  The language added by plumbing company before cashing the check only verified the company’s knowledge of the dispute and that the homeowner gave a “conspicuous statement” that he tendered the check as full satisfaction of the claim.
 

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It is common to have arbitration clauses in contracts, and courts will honor these clauses in all but very rare instances. In fact, Virginia courts have repeatedly stated a clear public policy in favor of arbitration and upholding arbitration agreements.  Additionally, Virginia Code Section 8.01-581.02 (A) [pdf] mandates a court to compel arbitration when a party to an arbitration agreement petitions the court and the opposing party refuses to arbitrate.

Nonetheless, a party can waive its right to invoke an arbitration clause when it initiates litigation and later uses the arbitration clause to thwart the litigation process. This is exactly what happened recently in the Circuit Court for the City of Hopewell in the consolidated cases of Shoosmith Bros., Inc. v. Hopewell Nursing Home, LLC, et al., Case No. CL06-299 and Kenbridge Constr. Co., Inc. v. Hopewell Health Investors, LLC, Case No. CL09-108 [pdf].

In Shoosmith Brothers, Judge Campbell noted that Virginia has not squarely addressed the issue of waiver of arbitration, but relied on the concept of “default” in the Federal Arbitration Act and cases from the United States Court of Appeals for the Fourth Circuit to articulate a test for waiver.  The question became whether Kenbridge Construction Company “so substantially utilize[d] the litigation machinery that to subsequently permit arbitration would prejudice” Shoosmith Brothers, Inc.  Judge Campbell had no problem finding waiver where Kenbridge had been participating for two and a half years in litigation involving two different cases with many different parties, and arbitration with only Kenbridge would have left the other parties in “judicial limbo.”

The lesson to take from this is “Finish what you started.” Arbitration can save parties a great deal of time, money and frustration.  You should be sure at the outset that arbitration is the dispute resolution forum you want before you include arbitration clauses in your agreements, and understand you may be stuck with your choices.
 

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 Virginia can be a difficult forum for plaintiffs. One tremendous advantage to plaintiffs, however, has been the “nonsuit”. So long as there are no cross-claims or counterclaims filed, a plaintiff has an absolute right to request a dismissal without prejudice and has a right to re-file their case. This statute in essence gives a plaintiff the chance to take a mulligan during the case so long as the case has not been sent to a jury or a dispositive motion is under the advisement of the court.

Statute of limitations concerns are integral to exercise of the nonsuit. The Code of Virginia at § 8.01-229(E)(3) states:

[I]f a plaintiff suffers a voluntary nonsuit … the statute of limitations with respect to such action shall be tolled by the commencement of the nonsuited action, and the  plaintiff may recommence his action within six months from the date of the order entered by the court, or within the original period of limitation … whichever period is longer. 

A new case from Loudoun County Circuit Court may make exercise of the non-suit and re-filing of the new case a far scarier proposition for plaintiffs. A plaintiff filed and non-suited a personal injury case that requested $325,000 in damages in the complaint. When the plaintiff re-filed the new case, the complaint asked for $500,000 in damages. The court found that because the damages requested had changed, the plaintiff did not “recommence” her “action” as required to gain the benefit of the tolling of the statute of limitations. As a result, the court found the personal injury claims were barred by statute of limitations and dismissed the entirety of the case with prejudice.

This is a trial court decision and is thus not controlling on other courts. It will be very interesting to see if other courts follow this ruling or if the ruling stands up in the face of further motions in the case or appeals. The ruling has already triggered negative commentary and reaction from the plaintiffs’ bar seen at Virginia Lawyer's Weekly. One thing is certain – whether in a construction litigation context or elsewhere, the case is a clear cautionary tale of how risky and unpredictable litigation can be.  Parties in litigation need to keep the upside and downside risks in mind throughout the entire process.

Image: Peter Hellebrand (phelle)

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