Construction Law Watch

Don’t Fret Your Flip: Mitigating Risks Particular to Homes Renovated for Resale

Posted in Construction Contracts, Due Diligence, Selling a home

The breathless growth of Portland’s housing market has nurtured a growing income opportunity to developers who purchase homes for renovation and resale; so-called “house flippers.” Such homes not only provide potential profit for developers, but also provide turnkey renovations for home purchasers and improved aesthetics for surrounding neighborhoods. However, misconceptions about the flipping and sale process can spark disputes between developers and their eventual purchasers. Most of these troubles can be avoided through better contracting and more candid communication on both sides. The following are recommended steps toward reducing the risk of future problems, from the perspectives of purchasers and developers.

  1. Purchasers

Recently flipped homes offer the best of both worlds: old-home charm with new-home fit and finish. But that blessing is also a curse, because new renovations can mask undiscovered problems. Too many purchasers see beautiful finishes and promptly neglect the potential for hidden old-home problems. The purchase process – when done right – is more complicated for a flipped home than a new home. Several pieces of advice will help.

The first and best piece of advice is to know your contract. In the recent case of Shell v. The Shollander Companies, Inc., 358 OR 552 (2016), discussed below in a post by David Delmar, an owner sued for construction defects in a home she purchased when new. However, because hers was a contract for sale rather than a contract for construction, a different time limit applied. This distinction between a construction contract and a sale contract is far more critical with a flipped home. Purchasers tend to perceive the seller’s renovations as something akin to new construction and believe that new construction standards should apply. This is not necessarily true; a typical sale contract contains no obligation to perform construction services according to any particular standard. Moreover, the “as-is” clause could prevent a purchaser from asserting certain claims later. Continue Reading

Joint Ventures and Contractor Licensing Requirements in Oregon and Washington

Posted in Licensing

A client recently asked me to confirm when a joint venture must be licensed to bid and perform construction work. I explained that the answer depends on the name of the joint venture, where the work will be performed, and – depending on the state in which work is to be performed – the stage of construction.

Both Washington and Oregon generally require contractors to be registered or licensed to perform construction work in their respective states. RCW 18.27.020 requires every contractor to be registered with Washington’s Department of Labor and Industries to advertise, offer, bid, or perform any construction services in Washington. Similarly, ORS 701.021 requires every contractor to be licensed with Oregon’s Construction Contractor’s Board to offer, bid, or perform any construction services in Oregon.

In Washington, RCW 18.27.065 further provides: Continue Reading

The Focus is on “Discovery” of Claims after Goodwin v. Kingsmen Plastering, Inc.

Posted in Construction Contractors Board, Negligence, Oregon Supreme Court, Uncategorized

Last week, the Oregon Supreme Court held in Goodwin v. Kingsmen Plastering (June 16, 2016), that a property owner must sue a contractor for negligent construction, if at all, within two years of when the property owner “knew or should have known of the injuries or damage that form the basis of their claims” under ORS 12.110(1). The ruling highlights the issue of “discovery,” and appears to be at odds with the Supreme Court’s ruling in Rice v. Rabb, 354 Or 721 (2014), which held that a claim for conversion or replevin must be brought within six years of the time “plaintiff knows or reasonably should know of the elements of such claims[.]” What does it take for a property owner to “discover” its claim?

Historically, the Supreme Court has written that claims accrue only after the potential plaintiff discovers “harm (i.e., injury), causation, and tortious conduct.” Gaston v. Parsons, 318 Or 247, 255-256 (1994). The Oregon Supreme Court has held that such language requires not only knowledge of “injury” in a vacuum, but also knowledge of tortious conduct and causation for that damage. Gaston. Continue Reading

Design Professional Firms Selling Prefabricated Accessory Dwelling Units, Building Substructures, or Micro Homes May Be Liable for Breach of Implied Warranty, or Strict Product Liability.

Posted in Implied Warranties, Product Liability

A recent Illinois State Court of Appeals decision has highlighted the distinction between providing a product for sale to the public on the one hand, and providing a service under a contract on the other. Many design firms are now branching out to market and deliver their own products, satisfying a growing market for prefabricated structures, substructures, and building systems while taking advantage of developments in manufacturing coordination. Historically, architects involved solely with design have enjoyed immunity from expanding breach of warranty doctrines. But, as designers enter the stream of commerce to deliver fully manufactured products, that protection may disappear. When they do, design firms may subject themselves to liability for implied warranties and strict liability, concerns typically reserved for manufacturers and builder-sellers. Design firms need to make sure their products are priced to account for this risk and that they are insured for it. Sophisticated customers ordering prefabricated structures, substructures, and building systems from design firms or their subsidiaries should seek proof of the same.

In Board of Managers of Park Point at Wheeling Condominium Ass’n v. Park Point at Wheeling, LLC, 2015 IL App (1st) No. 123452, ___N.E.3d___, 2015 WL 9589615 (December 31, 2015), a condominium homeowners association sued an architecture firm for defective design leading to water and air infiltration. The architecture firm had designed the 128-unit complex in 2000, and construction had commenced from 2001 to 2004. The architecture firm did not take part in the construction or sale of the units. Continue Reading

Deep In Repose: New Decision Clarifies Longstanding Confusion

Posted in Oregon Supreme Court, Statute of Repose

Last month, the Oregon Supreme Court issued a decision with important implications for construction litigation. Ball Janik attorneys were heavily involved in the appeal to the Supreme Court.

In Shell v. The Schollander Companies, Inc., 358 Or 552 (2016), the court held that where a home is constructed without a contractual relationship between its builder and its first owner, the applicable statute of repose for negligent construction claims is ten years “from the date of the act or omission complained of.”

The fact that two statutes of repose are potentially applicable to Oregon construction defect litigation has for some time created uncertainty.  Continue Reading

Oregon Federal District Court Applies Recent Developments in Common Law Indemnity to Strict Product Liability Claims

Posted in Negligence, Product Liability

Earlier this year, the Supreme Court issued Eclectic Investment, LLC v. Patterson, 357 Or 25, 346 P3d 468, modified, 357 Or 327 (2015). Eclectic has fundamentally affected pleadings and third-party practice in multi-party tort actions. Previously, it was standard for third-party defendants without a contractual relationship to sue each other for common law indemnity and contribution. Where liability was closely related or possibly overlapping, this was a negotiation tool and a potentially valuable claim. Not anymore. By confirming the elimination of common law indemnity for negligence claims in Oregon, the decision has prompted much argument and motion practice. Parties are now seeking to extend the reach of the several liability statute, ORS 31.610, to eliminate common law indemnity and contribution claims in other contexts.

Of recent note is Wyland v. W. W. Grainger, Inc., No. 3:13-CV-00863-AA, 2015 WL 3657265 (D Or June 11, 2015). There, the plaintiff, a mechanic, was injured on the job when a grinder broke apart. The plaintiff sued the distributor for negligence and strict products liability, and the distributor sought indemnity from the suppliers. The suppliers moved for summary judgment, arguing that Eclectic precluded the distributor from recovering common law indemnity. The Court held that Eclectic did preclude the claim as to negligence, but not as to strict liability. The holding raises at least two issues of note. Continue Reading

Oregon Court of Appeals Reaffirms that Engineer Lien Claimant Must Provide Notice of Right to Lien to Perfect and Foreclose Lien

Posted in Lien Rights in Oregon, Oregon Court of Appeals

The Oregon Court of Appeals recently issued a decision confirming the pre-lien notice requirements necessary to perfect a lien in Oregon. The case, known as Multi/Tech Engineering Services, Inc. v. Innovative Design & Construction, LLC, 274 Or App 389 (2015), discussed whether a lien recorded by Multi/Tech for engineering services could be foreclosed where Multi/Tech may have failed to provide the project owner a notice of right to lien.

The case involved the development and construction of a commercial project in Salem owned by Adler Commercial Properties (ACP). The project owner retained the services of Innovative and Gene Pfeifer to assist in the development of the project, who in turn hired Multi/Tech to provide various engineering services. Following Innovative’s and Pfeifer’s failure to pay Multi/Tech’s final invoice, Multi/Tech recorded a lien identifying ACP (and other related entities) as the project owners and Innovative and Pfeifer as the lien debtors. Thereafter, the trial court granted a judgment of lien foreclosure to Multi/Tech. ACP, among others, appealed asserting that Multi/Tech failed to properly perfect its lien.

The Court of Appeals confirmed that under ORS 87.010(5) professionals providing engineering services, such as Multi/Tech, were generally authorized to lien the project for which such services were supplied. The Court went on further, however, to emphasize that “[i]n order to perfect one of the construction liens authorized by ORS 87.010, including a lien under ORS 87.010(5), a person who is entitled to a lien ordinarily must provide the owner of the property subject to the lien with notice of the person’s right to a lien.” Citing ORS 87.021(3)(a), the Court cautioned that “[f]ailure to provide the notice – when notice is required – means that the lien is not perfected and is not valid.” Continue Reading

Across the Spectrum: Utah’s Recent Move Toward a Proper Interpretation of “Occurrence” In Commercial General Liability Policies

Posted in Construction Defect, Insurance Coverage, Utah

Fortunately for Utah policyholders, a recent District of Utah decision has continued the trend toward liberalizing Commercial General Liability (“CGL”) coverage in Utah. In The Cincinnati Ins. Co. v. Spectrum Devel. Corp, the District of Utah held that defective construction can be an “occurrence” so as to trigger coverage under a CGL policy.

CGL policies generally cover amounts that an insured “becomes legally obligated to pay as damages because of property damage” caused by an “occurrence.” The standard definition of “occurrence” is “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Utah courts have had considerable difficulty determining whether defective construction is an “accident.”

The previous rule in Utah was that conduct, and the result of conduct, is not accidental if it is deliberate or intentional, even if the result was neither deliberate nor intentional. Until recently, Utah courts borrowed the reasoning of the Washington Court of Appeals, which put it this way:

 [A]n accident is never present when a deliberate act is performed, unless some additional, unexpected, independent, and unforeseen happening occurs which produces or brings about the result[.]

Safeco Ins. Co. of Am. v. Dotts, 38 Wash.App. 382, 685 P.2d 632, 633-34 (1984).

Two previous Utah cases, Rosenberg and Geary, illustrate the above rule. In Geary, the Utah Court of Appeals held that bodily injury resulting from a shotgun blast was not accidental because the shooter deliberately pulled the trigger, whether or not he had any intention to harm the victim. See State Farm Fire & Cas. Co. v. Geary, 869 P.2d 952, 955-6 (Utah Ct. App. 1994).  Similarly, in Rosenberg, bodily injury resulting from a cherry bomb was not accidental because the bomb was deliberately and intentionally thrown. See Fire Ins. Exchange v. Rosenberg, 930 P.2d 1202, 1205 (Utah Ct. App. 1997). Continue Reading

Just What Is a Capital Improvement and Does a Judgment Against an HOA Have Preclusive Effect on the HOA’S Directors and Members?

Posted in CC&Rs, HOA, Oregon Court of Appeals, Uncategorized

Recently, the Oregon Court of Appeals issued a decision that may have far reaching impacts for communities looking at whether a particular project constitutes a “capital improvement” under their Covenants, Conditions and Restrictions (more commonly known as CC&Rs). The case, known as Eagle-Air Estates Homeowners Ass’n, Inc. v. Haphey, 272 Or App 651 (2015), involved whether an assessment levied by a homeowners association to pay for certain attorney fees incurred in a prior litigation constitutes a “capital improvement,” and therefore a “special assessment” under the HOA’s CC&Rs.

Relying on Black’s Law Dictionary, the Court of Appeals found that the term capital improvement “is commonly understood to mean a permanent structural improvement to property.” (Emphasis added). The Court also cited to Webster’s Dictionary’s definition of “capital expenditure,” as further explanation of the phrase, noting that a “capital expenditure” refers to “long-term additions or betterments properly chargeable to a capital assets account.”

After analyzing the above two definitions, along with the language in the HOA’s CC&Rs regarding other types of specific capital improvements, the Court of Appeals held that “[a]n assessment to pay for attorney fees in litigation. . . is not the type of expense that an ordinary person would regard as a ‘capital improvement’.” As a result, the assessment did not constitute a “special assessment” under the HOA’s CC&Rs and was therefore not subject to any temporal limits as to how long the assessment may be issued. Continue Reading

Phantom Menace: Beware of Unknown Unknowns in Contracts

Posted in Construction Contracts

Written contracts generally provide a very stable method of making promises enforceable. Reducing all promises to a single self-contained writing reduces surprises and provides a single yardstick to measure compliance. Unfortunately, many contracts today – especially construction contracts – tend to be composites; assemblages of different documents into a single contract. We’ll call this a “Compound Contract” for ease of reference. Compound Contracts have the benefit of avoiding excessive cut-and-paste work, but also have a nasty potential side effect: parties may not know what is in their contract. Thus, contractors and owners are sometimes surprised when they seek to enforce certain promises, only to learn that those promises were altered by attachments to the main contract form.

Perhaps the simplest form of Compound Contract is a one-page invoice or bid with a statement at the bottom that says, “subject to terms and conditions on reverse side.” Flip the document over, and you’ll find a clump of fine print, which may add contour, nuance, or red tape to what was otherwise a clear exchange of money for goods or services.

The more complicated Compound Contract may have “terms and conditions” from numerous other documents intended to be attached to the contract itself, and all of which alter the parties’ promises in ways large and small. Today’s Compound Contracts can be several inches thick, making substantive review difficult. Continue Reading