MAKE SURE CONSTRUCTION LIENS ARE PROPERLY PREPARED AND DO NOT CONTAIN ERRORS

UnknownIf a construction lien is improperly filed or contains errors, an owner will try to capitalize on the improper filing or errors in order to get the lien discharged from his property. This is what an owner should do, although he should not lose sight over the difference between a ministerial error in the lien that you do not bank your entire defense on versus a truly substantive error under Florida’s Lien Law that could give the owner leverage in the dispute (e.g., not recording the claim of lien within 90 days from final furnishing, a subcontractor/supplier not serving a notice to owner, a lien from an unlicensed contractor, or a lien that includes improper amounts for nonlienable items).

 

The recent case of Premier Finishes, Inc. v. Maggirias, 2013 WL 5338052 (Fla. 2d DCA 2013), illustrates an error in a lien (that appears ministerial at first glance) that resulted in the lien being discharged by the trial court. However, although not discussed in the opinion, this case addresses much more than an error in a lien, but an interesting licensing issue.

 

In this case, a contractor was engaged to build a house. The contractor entered into the contract under a fictitious name. However, from reviewing the case, it does not appear that the fictitious name was a registered fictitious name, nor does it appear that the fictitious name was registered as a licensed contractor. Rather, it was simply an acronym used by the licensed contractor.

 

A payment dispute arose when the owner terminated the contractor, and the contractor recorded a claim of lien and moved to foreclose the lien. However, the lien was recorded and lawsuit initiated by the contractor and not the fictitious name that entered into the contract. The owner argued that the contractor was not a proper lienor and therefore the lien should be discharged because it was not the entity that actually entered into the contract. The trial court agreed.

 

On appeal through a petition for a writ of certiorari, the Second District reversed for two main reasons.

 

First, the Court held that a contract entered into under a fictitious name is enforceable (even if that fictitious name is not properly registered). See Fla. Stat. 869.09(9). The Court explained: “[I]f Premier Finishes [contractor] was the real entity using the fictitious name when entering into the contract, it is the actual party to the contract or the contractor…and is entitled to proceed with a claim of lien against the Owner.” Premier Finishes, 2013 WL 5338052 at *3.

 

Second, under Florida’s Lien Law, a ministerial error does not invalidate a lien unless the owner can show he was prejudiced by the error. See Fla. Stat. 713.08(4). The owner will have to show how he was adversely affected / prejudiced by the error, which would require an evidentiary hearing and can be quite challenging to prove.

 

Now, what is interesting about this case is whether there was any argument that the lien should be unenforceable because the fictitious entity that signed the contract was an unlicensed contractor (assuming this is the case). Under Florida Statute s. 489.128, contracts entered into by an unlicensed contractor are unenforceable in law or in equity by the unlicensed contractor. Thus, an unlicensed contractor cannot properly lien. Instead of the focus being on the error in the lien due to the lien being recorded by the contractor instead of the fictitious entity, the argument could center on the fact that the contract was entered into by an unlicensed contractor and, therefore, the contract and corresponding lien are not enforceable. Perhaps, the owner plans on raising this argument to establish prejudice.

 

While the contractor can certainly raise arguments to address the fact that the fictitious name is properly licensed since the contractor that owns the fictitious name is properly licensed, a contractor that is required to be licensed by the state (e.g., general contractor, mechanical contractor, electrical contractor, plumbing contractor, etc.) is technically supposed to register and identify the fictitious name it is doing business under. See Fla. Stat. 489.119.  Although, notably, there is an older case, Martin Daytona Corp. v. Strickland Const. Services, 881 So.2d 686 (Fla. 5th DCA 2004), that held that a subcontractor’s failure to obtain a license under its fictitious name did not render the contract unenforceable. However, this case was decided under a previous version of Florida Statute s. 489.128 and, importantly, the current version of this statute likely would not have applied to this case since the subcontractor (a mason) is not required to obtain a state license like a general contractor. It is uncertain how this case would be decided under current law.

 

The key is to double check your liens to ensure they are accurate and do not contain errors. Naturally, it is always a good thing to work with an attorney to prepare your lien so that if you know that if an error will likely exist you can game plan accordingly.  For example, if you entered into contracts in the name of an unregistered fictitious name, the decision in Premier Finishes can support your argument that the fictitious name would not render the contract or lien unenforceable especially if the fictious name is used by a properly licensed contractor.  Also, contractors needs to be sure they maintain proper licenses to remove any argument that the contract or lien is unenforceable. Keep in mind that under the law, a contract with an unlicensed contractor is unenforceable one-way by the unlicensed contractor; the other party to the contract can still seek recourse.

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

CONDO ASSOCIATIONS AND CONSTRUCTION LIENS

imagesCA3RVZ03Condominium associations hire contractors for capital improvements and repair / restoration work to common elements (painting, balcony/concrete/stucco restoration or repairs, etc.). When a condominium association hires a contractor to provide labor, services, or materials to the condominium, it needs to understand that nonpayment can lead to the contractor liening–recording a construction lien–the condominium units in the condominium.

 

Florida Statute s. 718.121(2) maintains: “Labor performed on or materials furnished to the common elements are not the basis for a lien on the common elements, but if authorized by the association, the labor or materials are deemed to be performed or furnished with the express consent of each unit owner and may be the basis for the filing of a lien against all condominium parcels in the proportions for which the owners are liable for common expenses.”

 

Furthermore, s. 718.121(3) maintains: “If a lien against two or more condominium parcels becomes effective, each owner may relieve his or her condominium parcel of the lien by exercising any of the rights of a property owner under Chapter 713 [Florida’s Lien Law], or by payment of the proportionate amount attributable to his or her condominium parcel. Upon payment, the lienor shall release the lien of record for that condominium parcel.”

 

Now, what does this mean? First, it means that when an association hires a contractor to perform construction-related work, the work is deemed authorized by all unit owners. Second, it means that because all unit owners are deemed to consent to the work, the contractor, if unpaid, can lien each condominium parcel / unit. Third, it means that the lien against each unit will be in the proportionate amount that the owner is liable for common expenses. And, last, it means that each owner has options to discharge the lien from his/her condominium unit- the owner can pay his/her proportionate share to discharge the lien or the owner can transfer the lien to a bond or other security.

 

If a contractor is not paid by the association and elects to lien and move forward with a lien foreclosure lawsuit, the contractor is not required to sue each individual owner. Rather, the contractor can simply sue the association since the association is deemed to represent the unit owners’ interests. See Trintec Construction, Inc. v. Countryside Village Condominium Association, Inc., 992 So.2d 277 (Fla. 3d DCA 2008) (finding that unpaid roofing contractor that filed lien foreclosure action against association was not required to join all of the unit owners in the action); Four Jay’s Construction, Inc. v. Marina at the Bluffs Condominium Association, Inc., 846 So.2d 555 (Fla. 4th DCA 2003) (finding that balcony contractor properly sued the association in breach of contract action as a class representative on behalf of the owners).

 

Contractors that are hired by associations need to understand their lien rights in the event of nonpayment. And, associations that hire contractors need to understand their options in the event they are involved in a payment dispute with a contractor so that owners can be best advised.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

PROPERTY (INCLUDING ALL-RISK) INSURANCE POLICIES AND THE EFFICIENT PROXIMATE CAUSE DOCTRINE

windstorm photoAn important new insurance coverage case came out dealing with “all risk” property insurance policies (such as homeowners or builders risk policies). The case, American Home Assurance Co. v. Sebo, 38 Fla. L. Weekly D1982a (2d DCA 2013), discusses when coverage applies when both excluded and covered perils contribute to a loss / damage. The case also discusses the application of anti-concurrent cause language in the policy. These are both important insurance coverage issues.

 

In this case, an owner purchased a four-year old home in 2005 and obtained an “all risk” homeowner’s property insurance policy. The policy was not a standard form policy but a manuscript policy specifically created for purposes of the house. Almost immediately after the purchase, rainwater started to intrude in numerous locations throughout the house. Then, Hurricane Wilma struck causing further damage to the house. The damage to the house was so extensive that it could not be repaired and the house had to be demolished.

 

The owner submitted an insurance claim to its carrier, but the carrier denied coverage except for tendering $50,000 based on language in the policy that provided for $50,000 worth of coverage for ensuing (resulting) damages caused by fungi, wet or dry rot, or bacteria. (This is often referred to as the mold exclusion and some policies allow for ensuing damages caused by mold up to a specified amount.)

 

The owner sued the sellers, the contractor, and the architect (arguing defective construction) and settled with each of them. The owner also sued its property insurance carrier in a declaratory action for insurance coverage.

 

An all risk policy, such as the policy in this case, starts out covering all risks except the numerous risks or perils that are excluded. As the Court explained:

 

“Property insurance is a contract between the insured and the insurer to cover property losses that are either caused by certain perils that are specifically named in the policy or are caused by “all perils” except for those specifically excluded from coverage. These perils are usually physical forces such as fire, rain, and wind.”  Sebo, supra.

 

In this policy (like most property insurance policies), there was a faulty workmanship / design exclusion where the policy did not cover loss caused by faulty, inadequate, or defective planning, design, specifications, workmanship, repair, construction, etc.

 

The coverage issue in the case centered on the undisputed fact that more than one cause (excluded and covered) contributed to the owner’s loss or damage, such as faulty construction, rain, and wind. When this occurs, what legal doctrine applies to determine whether the loss is covered?

 

The owners wanted the legal doctrine known as the concurrent cause doctrine to apply. Under this doctrine, insurance coverage applies “when multiple perils act in concert to cause a loss, and at least one of the perils is insured and is a concurrent cause of the loss, even if not the prime or the efficient cause.” Sebo, supra. In other words, if faulty workmanship (not covered) and rain (likely covered) concurrently contribute to a loss, the loss would be covered under the concurred cause doctrine.

 

The insurance carrier wanted the legal doctrine known as the efficient proximate cause doctrine to apply. Under this doctrine, “the finder of fact, usually the jury, determines which peril was the most substantial or responsible factor in the loss. If the policy insures against that peril, coverage is provided. If the policy excludes that peril, there is no coverage.” Sebo, supra. In other words, if faulty workmanship (not covered) is the most substantial factor in the loss, the loss would not be covered.

 

The trial court applied the concurrent cause doctrine. However, on appeal, the Second District reversed finding that the efficient proximate cause doctrine should apply to determine whether coverage exists. (For more on the application of the efficient proximate cause doctrine to all-risk property insurance policies, check out this article and this article.) 

 

The Court additionally discussed what is known as anti-concurrent cause language that exists in many insurance policies. An example of this language in the policy would be under the pollution exclusion which provided that the policy did not “cover any loss, directly or indirectly, and regardless of any cause or event contributing concurrently or in any sequence to the loss” caused by pollutants / contamination. Sebo, supra. Thus, based on this language, the concurrent cause and efficient proximate cause doctrines would be moot based on this anti-concurrent cause language. The Court dismissed this argument because the anti-concurrent cause language was not specifically incorporated into the faulty workmanship exclusion whereas it was specifically incorporated in other exclusions such as the pollution exclusion. (Importantly, other states have found this language to be unenforceable so there may be an argument as to the enforceability down the road that the Court did not delve into but noted.)

 

All-risk property insurance policies and named-peril policies are complicated. When a loss occurs, it is important to understand your property insurance policies in order to present claims and arguments for coverage. The Sebo case’s application of the efficient proximate cause doctrine is an important case because it is not uncommon that both weather-related issues and defective workmanship / design related issues contribute to the loss. This raises the “what came first, the chicken or the egg argument” because when this issue is tried by a jury, the insurer will likely argue that the weather-events would not have contributed to the loss if not for the defective workmanship / design so the defective workmanship / design must have been the substantial factor. Conversely, the owner will likely argue that he purchased a four-year old home and the defect issues did not surface until severe weather-related events, so the weather-related events must have been the substantial factor.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

A SURETY’S RIGHT TO DEMAND COLLATERAL SECURITY

power plantBefore payment and performance bonds are issued by a surety, the bond principal-contractor is required to execute an indemnity agreement with the surety that is often personally guaranteed. The indemnity agreement is naturally written in favor of and for the benefit of the surety that is issuing bonds that are typically in the amount of the contracts that are awarded to the contractor. Contractors that execute indemnity agreements need to understand what the surety’s rights and remedies are in the event performance and/or payment bond claims are made that raise a concern to the surety. Not understanding these rights could put the contractor in a losing situation with the surety.

 
The recent Southern District of Florida opinion in Developers Surety and Indemnity Co. v. Bi-Tech Construction, Inc., 2013 WL 4563657 (S.D.Fla. 2013), exemplifies a surety’s options against its bond principal-contractor. In this case, the contractor was awarded a contract by a public owner to install a new generator system. The contractor was required to obtain public performance and payment bonds. Shortly after construction commenced, a payment dispute arose between the contractor and the public owner. The public owner refused to pay the first full payment application amount because it originally over-estimated the amount of trenching that the contract would require. The contractor contended that it bid its work on its own assessment of the trenching and needed to be paid in full to cover project costs. The contractor further argued that it could not complete the project without full payment; the public entity therefore elected to terminate the contractor from the project.

 
The public owner and the contractor’s surety entered into discussions as the public owner must have submitted a performance bond claim to the surety. They agreed that the public owner would pay the contractor in full and the contractor would be reinstated to complete the work. The surety then issued the contractor a memorandum of understanding that outlined the terms of its agreement with the public owner and needed the contractor to sign off on the memorandum of understanding. The contractor, however, refused because it objected to certain provisions in the memorandum of understanding that would have, among other things, required the public owner’s payments to the contractor to be held in a third party trust account until the surety authorized the disbursement of the funds.

 
Meanwhile, subcontractors to the contractor remained unpaid. The electrical subcontractor was owed approximately $172,000 and filed a suit against the contractor’s payment bond. Additionally, another subcontractor was owed approximately $8,000. The surety decided to create a reserve account and deposited $205,000 into that account. The surety demanded that the contractor also deposit $205,000 into the reserve account as collateral security. The contractor refused prompting the surety to file suit against the contractor.

 

 

While the surety’s lawsuit against the contractor was pending, the surety immediately moved for a preliminary injunction asking the Court to order the contractor to provide the surety $205,000 as collateral security to be deposited into the reserve account.
“In order to obtain a preliminary injunction, the plaintiff [surety] must establish [the following elements:] (1) a substantial likelihood that it will prevail on the merits of the underlying cause of action; (2) a substantial threat that it will suffer irreparable injury if the injunction is not granted; (3) that the threatened injury to the plaintiff outweighs the threatened harm the injunction may have on the defendant; and (4) that the public interest will not be adversely affected by granting the preliminary injunction.” Bi-Tech, 2013 WL at *3. If the Court decides that an injunction is appropriate, it has the discretion to determine the amount of the bond the plaintiff (in this case, the surety) will have to post as security to cover damages in the event the injunction is wrongfully issued. Id. at *5 quoting Fed.R.Civ.P. 65.
The Court, in determining whether the elements for injunctive relief were satisfied, analyzed the terms of the indemnity agreement. (The Court would also do this when determining whether the contractor breached the terms of the indemnity agreement.) The indemnity agreement contained few applicable provisions:

 

 

“-Indemnitor [contractor and guarantors]…shall indemnify and hold harmless Surety from and against any and all liability…which Surety may sustain or incur by reason of or in consequence of the execution and delivery by Surety of any Bond on behalf of Principal [contractor].
-Indemnitor shall, immediately upon demand and whether or not Surety shall have made any payment therefor, deposit with Surety a sum of money equal to such reserve account and any increase thereof as collateral security on such Bond…If Indemnitor shall fail, neglect or refuse to deposit with Surety the collateral demanded by Surety, Surety may seek a mandatory injunction to compel the deposit of such collateral together with any other remedy at law or in equity the Surety may have.
-Principal and Indemnitor…agree to hold all money and all other proceeds for the Obligation, however received, in trust for the benefit of Surety and to use such money and other proceeds for the purposes of performing the Obligation and for discharging the obligations under the Bond, and for no other purpose until the liability of the Surety under the Bond is completely exonerated.”
Bi-Tech Construction, 2013 WL at *1.

 

 

 

Based on these provisions, the Court maintained that the surety has the contractual right to create the reserve account and demand for the contractor to post collateral security in the reserve account equal to the amount deposited by the surety. This contractual right exists irrespective of whether the contractor disputes the legitimacy of claims made against the surety’s bond. Once the Court recognized this contractual right, it recognized that the surety could suffer irreparable injury because it would be unsecured against claims (hence, the reason why the indemnity agreement allows the surety to request collateral security). Finally, finding that an injunction was appropriate, the Court did not require the surety to post a bond.

 

 

Indemnity agreements with sureties contain very similar provisions as the ones referenced above. The provisions applicable for purposes of the preliminary injunction are contained in many indemnity agreements which, among other things, give the surety the right to request collateral security. It is important to understand rights and remedies in connection with the indemnity agreement to hopefully avoid any situation or dispute where the surety pursues recourse against the bond principal-contractor and the guarantors that executed the indemnity agreement.

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

FALSE CLAIMS ACT–PROVING A FALSE CLAIM OR STATEMENT SUBMITTED TO THE GOVERNMENT

false-claims-265The False Claims Act, without going into all of its intricacies, allows a private person (referred to as a relator) to file an action for the benefit of the government against a person/entity that violated the Act and submitted a false claim or false statement to the government. This action is known as a qui tam action when the private person–relator–files an action for the benefit of the government. When this occurs, the qui tam action is initially filed under seal and the government has the opportunity to determine if it wants to intervene and take over the prosecution of the action. A violation of the False Claims Act can subject the offending party to a civil penalty plus three times the amount of the government’s damages.  See 31 USCA s. 3279 et seq.

 

 

The benefit to the relator is that it is entitled to receive a percentage range of the amount the government recovers in the action based on whether the government took over the prosecution of the action or elected not to intervene. The relator is also generally entitled to its attorneys’ fees and costs.

 

 

Thee Middle District of Florida case, Prime v. Post, Buckley, Schuh, & Jernigan, Inc., 2013 WL 4506357 (M.D.Fla. 2013), is a recent case discussing the False Claims Act. In this case, the United States Army Corps of Engineers (“USACOE”) entered into a fixed-price indefinite delivery/indefinite quantity architect-engineering contract with a joint venture design professional firm (the “Firm”). The USACOE entered into the contract for the Firm to provide architectural and engineering services relating to everglades restoration work. The contract between the USACOE and the Firm included specific daily labor rates that the Firm was to charge for various personnel / labor (i.e., project manager, engineering technician, etc). The USACOE would give the Firm specific design professional tasks which would be negotiated into fixed price task orders (i.e, the specific task would be performed for a lump sum amount). The fixed price for the tasks would be determined by the type of labor used to complete the task times the number of man-hours. The price was then negotiated which included a component for profit for the Firm. Upon the completion of a task, the Firm would send an invoice to the USACOE for payment which was never questioned by the USACOE.

 

 

However, because the tasks were negotiated on a lump sum basis, USACOE representatives acknowledged that if it cost more for the Firm to complete the task, then the Firm was responsible for the overrun. Conversely, if the Firm could perform the work cost effectively by using lower cost labor to complete the tasks, then the Firm would keep the profit. This is the essence of a lump sum contract with the objective being to maximize the profitability by performing the work more cost effectively then negotiated. In other words, the actual costs to perform the work become irrelevant because the parties already negotiated a lump sum amount.

 
The plaintiff in this action was a former high-ranking employee of one of the design professional entities that formed the Firm. He was heavily involved in the negotiation of the contract and served on the management committee of the Firm for performing the work. At some point early on, plaintiff learned that the Firm’s profits were over 30% (and he felt that the profits should have been in the range of 8-10%). He learned the profits were greater because the Firm was using lower cost labor than the rates set forth in the contract. Yet, plaintiff, nearly seven years after the contract was executed, decided to discuss this issue with his boss. This issue was internally looked into and the Firm determined that it did nothing wrong. Shortly thereafter, plaintiff’s position with his design professional firm changed (a demotion) and his bonus and salary were reduced. Plaintiff was ultimately laid off due to lack of work.

 
Following plaintiff’s lay-off, he (as the relator) initiated this qui tam action under the False Claims Act for the benefit of the government. He argued that the Firm violated the Act by falsely impliedly certifying in in its invoices to the government by using cheaper labor and not disclosing true profits. (He also argued that he was terminated in violation of the Act although this portion of the case will not be discussed in detail other than that the plaintiff failed to prove he was retaliated against or terminated in violation of the whistleblower portion of the Act). The Firm argued that the task orders were fixed price task orders and they were entitled to keep any profit no different then they’d be liable for eating any losses.

 

  

To prove a claim under the False Claims Act, the plaintiff must establish the defendant made a false claim or statement. Prime, 2013 WL at *7. The Middle District explained:

 

 “There are two categories of false claims under the FCA: a factually false claim and a legally false claim. A claim is factually false when the claimant misrepresents what goods or services that it provided to the Government and a claim is legally false when the claimant knowingly falsely certifies that it has complied with a statute or regulation the compliance with which is a condition for Government payment.

***

There is a further division of categories of claims as the courts have recognized that there are two types of false certifications, express and implied. Under the ‘express false certification’ theory, an entity is liable under the FCA [False Claims Act] for falsely certifying that it is in compliance with regulations which are prerequisites to Government payment in connection with the claim for payment of federal funds. There is a more expansive version of the express false certification theory called ‘implied false certification’ liability which attaches when a claimant seeks and makes a claim for payment from the Government without disclosing that it violated regulations that affected its eligibility for payment. Thus, an implied false certification theory of liability is premised on the notion that the act of submitting a claim for reimbursement itself implies compliance with governing federal rules that are a precondition to payment.”

Prime, 2013 WL at *7-8 quoting U.S. ex rel. Wilkins v. United Health Group, Inc., 659 F.3d 295, 305 (3d Cir. 2011).

The Middle District held that the plaintiff in this case failed to prove the “false” requirement and granted summary judgment for the Firm because the plaintiff failed to prove how the Firm violated the contract or federal law when the task orders were for fixed prices. The Court noted: “Here, the man-day labor rates in the Contract were set at fixed rates. Therefore, the Government knew, or should have known, that Defendants would reap the benefits of any cost savings, just as they would suffer the consequences of any cost increases.”

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

“ACTUAL DAMAGES” UNDER FLORIDA’S DECEPTIVE AND UNFAIR TRADE PRACTICES ACT

u dec prUnder Florida’s Deceptive and Unfair Trade Practices Act (“FDUTPA”), a party can only recover in principal what the statute refers to as “actual damages.” See Fla. Stat. s. 501.211(2) (“In any action brought by a person who has suffered a loss as a result of a violation of this part, such person may recover actual damages, plus attorney’s fees and court costs….”) However, the statute does not define the term actual damages and, thus, parties need to analyze Florida caselaw to understand the meaning of actual damages. This is important so parties know the damages covered under FDUTPA. A claim under FDUTPA is sometimes asserted in a construction-related dispute. Sometimes, it is asserted if a party is seeking an avenue to potentially recover attorneys’ fees.

 
Florida courts (or federal courts interpreting Florida law) have maintained that “actual damages” refer to the “difference in the market value of the product or service in the condition it was delivered and its market value in the condition in which it should have been delivered according to the contract of the parties. A notable exception to the rule may exist when the product is rendered valueless as a result of the defect-then the purchase price is the appropriate measure of damages.Rollins, Inc. v. Butland, 951 So.2d 860, 869 (Fla. 2d DCA 2006) quoting Rollins, Inc. v. Heller, 454 So.2d 580, 585 (Fla. 3d DCA 1984).

 
This is similar to benefit of the bargain damages – the market value of the product represented minus the market value of the product delivered. See Gastaldi v. Sunvest Resort Communities, LC, 709 F. Supp. 2d 1299, 1304 (S.D.Fla. 2010).
Based on the way Florida cases define actual damages under FDUTPA, a party needs to prove its damages in accordance with this definition by analyzing the market value of the product represented versus the market value of the product actually received / delivered.

 

Examples of cases discussing the measure of actual damages under FDUTPA are as follows:

 

Rollins v. Heller, 454 So.2d 580, 585 (Fla. 3d DCA 1984) – measure of damages would be the market value of the alarm system and the services alarm company agreed to provide [as represented] minus the market value of the alarm system and services actually provided [as delivered];

 

Ft. Lauderdale Lincoln Mercury, Inc. v. Corgnati, 715 So.2d 311, 315 (Fla. 4th DCA 1998) –measure of damages would be the market value of the used BMW that was never in an accident and with a remote infrared opener [as represented] minus the market value of the BMW which had been in an accident and without remote infrared opener [as delivered];

 

– H&J Paving of Fla., Inc. v. Nextel, Inc., 849 So.2d 1099, 1102 (Fla. 3d DCA 2003) –measure of damages “would be the value of the product at the time of the sale based upon a useful life of approximately eight years [as represented] and [minus] the value of the product which would become obsolete within a few years [as delivered];”

 

– Gastaldi v. Sunvest Resort Communities, LC, 709 F. Supp. 2d 1299, 1307 (S.D.Fla. 2010)– measure of damages would be the difference in the market value of the condominium units with the condominium having a luxury sports club in 2009 [as represented] minus the market value of the condominium units without the condominium having a luxury sports club in 2009 [as delivered].

 

Notably, actual damages under FDUTPA does not include consequential-type damages (or damages other than those established by the measure provided above). See Dorestin v. Hollywood Imports, Inc., 45 So.3d 819, 824-25 (Fla. 4th DCA 2010) (FDUTPA does not allow for consequential damages or any other damages outside of actual damages); Orkin Exterminating Co., Inc. v. DelGuidice, 790 So.2d 1158, 1162 (Fla. 5th 2001) (actual damages do not include actual consequential damages). For example, lost profits or interest on payments would not be a recoverable consequential damage. See Rodriguez v. Recovery Performance & Marine, LLC, 38 So.3d 178 (Fla. 3d DCA 2010) and Siever v. BWGaskets, Inc., 669 F.Supp.2d 1286, 1294 (M.D.Fla. 2009).

 

Understanding actual damages in a FDUTPA claim is important prior to asserting a claim so that a party knows what is recoverable and what is not recoverable under FDUTPA. It is also important so that a party knows how to prove actual damages.

 

 

For more information on FDUTPA, please see:

https://floridaconstru.wpengine.com/attorneys-fees-under-a-floridas-deceptive-and-unfair-trade-practices-act-and-b-offers-of-judgment/

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

CGL POLICIES AND THE “YOUR PRODUCT” EXCLUSION

images[1]Understanding exclusions in insurance policies is important to understand what is and what is not covered under the policy. The recent case of Liberty Mutual Fire Insurance Co. v. MI Windows & Doors, 38 Fla. L. Weekly, D1890a (Fla. 2nd DCA 2013), discusses the “your product” exclusion that is found in CGL policies.

 

 

In this case, MI is a manufacturer of sliding glass doors. It sold its doors to All Seasons which installed the sliding glass doors in condominium projects. In some of the condominiums, All Seasons manufactured and installed transoms along the top of the sliding glass doors. Condominium associations sued MI and All Seasons when the condominiums experienced damage from tropical storms and hurricanes. MI settled the lawsuits. It then sued its CGL carrier to recover consequential damages and for the costs of replacing defective sliding glass doors in the condominiums.
The CGL carrier argued at the trial level that the “your product” exclusion barred coverage for MI’s damages to its products, i.e., sliding glass doors. The trial court found that the “your product” exclusion did not apply to the doors with transoms because adding the transoms to the top of the sliding glass doors significantly changed the doors. Thus, the doors were no longer MI’s product.

 

The “your product” exclusion in MI’s CGL policy provided that the insurance did not apply to:

 

Damage to Your Product. ‘Property Damage’ to ‘your product’ arising out of it or any part of it.”

 

On appeal, the Second District reversed finding that “[t]he addition of transoms to the sliding glass doors did not fundamentally change the nature and function of those doors.” MI Windows & Doors, supra. In other words, because the sliding glass doors continued to operate as sliding glass doors even with the addition of the transoms, the doors remained MI’s product. For this reason, the Second District held that the “your product” exclusion applied to bar damages to replace the doors.

 

 

In MI Windows & Doors, the Court found that if alchemy alters the original product, then the “your product” exclusion may not apply based on cases outside of Florida that discuss this exclusion. Importantly, however, the Court footnoted Auto-Owners Ins. Co. v. American Building Materials, Inc., 820 F.Supp.2d 1265, 1272 (M.D.Fla. 2011), where the Middle District of Florida also discussed this exclusion. The Middle District in this case maintained that drywall that was incorporated into a house was not barred by the “your product” exclusion based on the language of the exclusion because the drywall, once incorporated, became real property and the exclusion did not apply to real property.  Because this case or issue was not framed on appeal in MI Windows & Doors, the Court did not apply this case to the facts.

 

 

The “your product” exclusion can be found in CGL policies to bar coverage. Understanding the exclusion as written in the policy (as well as other exclusions) is important so that coverage is understood before or when a dispute arises.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

FLORIDA CONDOMINIUM ACT STATUTORY WARRANTIES — DIFFERENCE BETWEEN MANUFACTURER AND SUPPLIER

can-stock-photo_csp9881764A benefit to condominium unit owners and their associations is that Florida’s Condominium Act provides for statutory warranties that are extended from developers, the contractor, subcontractors, and suppliers. Fla. Stat. s. 718.203. These statutory warranties allow for direct breach of statutory warranty claims against the responsible party. The statutory warranties included in Florida’s Condominium Act are set forth at the bottom.

 

In The Port Marina Condominium Association, Inc. v. Roof Services, Inc., 38 Fla. L. Weekly D1876a (Fla. 4th DCA 2013), the Court discussed a breach of statutory warranty claim against a manufacturer compared to a supplier of building materials to a project. Florida’s Condominium Act does not provide a statutory warranty that extends to manufacturers. In this case, the developer hired a roofer to install a roof on boat storage building with a manufacturer guarantee from GAF (manufacturer) for the roofing product called TOPCOAT. After the condominium was turned over to the Association, leaks in the roof of the boat storage building were discovered. The Association was told that the leaks were due to the failure of the TOPCOAT product. A GAF manufacturer’s representative inspected the roof and advised that the product did not fail, rather it was the application of the product by the roofer that failed (which would not be covered by the manufacturer’s warranty, which typically does not cover workmanship).

 

The Association filed a complaint against the manufacturer (and others) for breach of the statutory warranties. The manufacturer moved to dismiss because Florida’s Condominium Act does not allow for a breach of a statutory warranty claim against a manufacturer. As it relates to a claim against a supplier, the Court explained:

 

The essential elements of a cause of action under this statutory provision against a supplier are: (1) the defendant is a supplier of materials to a condominium; (2) the materials failed to conform to the generally accepted standards of merchantability applicable to goods of that kind, or the materials failed to conform to the requirements specified in the contract; and (3) the failure of the goods to conform was a proximate cause of the plaintiff’s damages. See Leisure Resorts, 654 So.2d at 914. “Supplier” and “manufacturer” are not defined in Chapter 718, Florida Statutes. Black’s Law Dictionary defines “supplier” as “a person engaged, directly or indirectly, in the business of making a product available to consumers,” and “manufacturer” as “a person or entity engaged in producing or assembling new products.” Black’s Law Dictionary (9th ed. 2009).

 

The Port Marina Condominium, supra.

 

Whether the Association could properly assert a claim against GAF (manufacturer of TOPCOAT) is based on whether GAF was a supplier or manufacturer for purposes of the condominium project. The Court noted that the distinction would be whether GAF furnished, sold, or delivered anything to the entities involved in construction, i.e., “‘was in the business of making the product available to consumers,’” as opposed to merely “‘producing or assembling’” the product that Best Roofing, a roofing contractor [that applied the product], not a consumer, then purchased and used for the roofing project.” The Port Marina, supra.

 

The distinction between a supplier and manufacturer is not always clear as a manufacturer can be a supplier with respect to a given product. Typically, one would think of GAF as a roofing manufacturer where its materials are likely sold through distributors or retailers (e.g., supply companies). Where the supply company could certainly be a supplier if it sold products directly for purposes of the project, the manufacturer should not constitute a supplier.

 

In this case the Court allowed the Association to amend its Complaint to clarify that GAF was a supplier and not a manufacturer in order to survive a motion to dismiss. It is uncertain whether the Association pursued a claim against the manufacturer for breach of an express warranty. In particular, if the Association has an argument that the manufacturer breached the express warranty for TOPCOAT that was assigned or extended to it (oftentimes these manufacturer warranties state they are assignable or extended to the end user), then perhaps a breach of express warranty claim could have been asserted against it. While there could have been hurdles with this claim because privity of contract is generally required to assert a breach of express or implied warranty claim, this privity of contract requirement could have been negated if there was an assignable warranty.

 

Understanding the statutory warranties is important for Associations and condominium unit owners because it is a benefit that should be realized. Equally important is the manner in which allegations are pled in a complaint in order to survive any motions to dismiss and get the potentially responsible parties to the table.

 

Fla. Stat. s. 718.203

(1) The developer shall be deemed to have granted to the purchaser of each unit an implied warranty of fitness and merchantability for the purposes or uses intended as follows:

(a) As to each unit, a warranty for 3 years commencing with the completion of the building containing the unit.

(b) As to the personal property that is transferred with, or appurtenant to, each unit, a warranty which is for the same period as that provided by the manufacturer of the personal property, commencing with the date of closing of the purchase or the date of possession of the unit, whichever is earlier.

(c) As to all other improvements for the use of unit owners, a 3-year warranty commencing with the date of completion of the improvements.

(d) As to all other personal property for the use of unit owners, a warranty which shall be the same as that provided by the manufacturer of the personal property.

(e) As to the roof and structural components of a building or other improvements and as to mechanical, electrical, and plumbing elements serving improvements or a building, except mechanical elements serving only one unit, a warranty for a period beginning with the completion of construction of each building or improvement and continuing for 3 years thereafter or 1 year after owners other than the developer obtain control of the association, whichever occurs last, but in no event more than 5 years.

(f) As to all other property which is conveyed with a unit, a warranty to the initial purchaser of each unit for a period of 1 year from the date of closing of the purchase or the date of possession, whichever occurs first.

(2) The contractor, and all subcontractors and suppliers, grant to the developer and to the purchaser of each unit implied warranties of fitness as to the work performed or materials supplied by them as follows:

(a) For a period of 3 years from the date of completion of construction of a building or improvement, a warranty as to the roof and structural components of the building or improvement and mechanical and plumbing elements serving a building or an improvement, except mechanical elements serving only one unit.

(b) For a period of 1 year after completion of all construction, a warranty as to all other improvements and materials.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.