RELEASE LANGUAGE EXTENDED TO SUCCESSOR ENTITY BUT ONLY COVERED “KNOWN” CLAIMS

A recent case contains valuable analysis that has impact on whether a “successor” entity will be bound by a settlement agreement it was not a direct party to.  This case contains arguments for contractors that can be raised in a number of different contexts if it is sued by a successor or related entity.  

 

The same case discusses the difference between releasing a party for “known” claims without releasing the same party for “unknown” claims.  This is an important distinction because unknown claims refer to latent defects so a release that only releases a party for known claims is not releasing that party for latent defects.

 

 

In MBlock Investors, LLC v. Bovis Lend Lease, Inc., 44 Fla. L. Weekly D1432d (Fla. 3d DCA 2019), an owner hired a contractor to construct a project.  At completion, the owner transferred the project to an affiliated entity (collectively, the “Owner”).  The contractor sued the Owner for unpaid work, the Owner claimed construction defects with the work, and a settlement was entered into that released the contractor for KNOWN claims.  Thereafter, the Owner defaulted on the construction loan and agreed to convey the property through a deed in lieu of foreclosure to an entity created by the lender (the “Lender Entity”). 

 

The Lender Entity sued the contractor for construction defects – in negligence (negligent construction) and a violation of Florida’s building code.   The contractor argued that such claims should be barred by its settlement agreement with the Owner.  There were two driving issues:

 

First, did the settlement agreement with the Owner extend to the Lender Entity because the Lender Entity was a successor entity to the Owner?  

 

Second, even if the Lender Entity was a successor entity to the Owner, were the construction defects latent defects because the settlement agreement only provided a release of KNOWN (or patent) defects?

 

As to the first issue, the appellate court held that the Lender Entity was a successor entity to the Owner. 

 

[I]t is rather clear that [Lender Entity] is in fact, [Owner’s] ‘successor’ for purposes of the settlement agreement with [contractor] because [Lender Entity] took over the Property and all of [Owner’s] rights with regard to the Property.  Thus, [Lender Entity] clearly met the privity requirement for the application of res judicata in this case: it has a mutual or successive relationship to the same right that [Owner] had when it settled with [contractor]: a reduction in the amount owed to [contractor] for its services in exchange for releasing [contractor] from any claims of construction defects as provided for in the [settlement agreement].

 

As to the second issue, and really the driving issue whether or not the Lender Entity was a successor, was whether the release even protected the contractor from the types of construction defect claims sought.   This is a question of fact because the settlement agreement only included a release of “known” claims and did NOT release the contractor for “unknown” claims, i.e., latent defects.    Hence, the Lender Entity will establish such claims were unknown or could not reasonably have been discovered at the time of the settlement (a latent defect).  The contractor will try to argue otherwise creating an issue of fact as to whether the settlement agreement released the contractor for the construction defects the Lender Entity is asserting.

 

 

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.

SERVING THE 558 NOTICE OF CONSTRUCTION DEFECT LETTER IN LIGHT OF THE STATUTE OF REPOSE

shutterstock_683852965Florida Statutes Chapter 558 requires a Notice of Construction Defect letter (“558 Notice”) to be served before a construction defect lawsuit is commenced.  This is a statutory requirement unless contractually waived for a completed project when latent defects or post-completion construction or design defects are pursued.  

 

A recent Florida case held that this statutory requirement is NOT intended to bar a lawsuit based on Florida’s ten-year statute of repose for construction defects IF the 558 Notice is timely served within the statute of repose period.  After the expiration of the statute of repose period, a construction defect lawsuit can no longer be commenced.  

 

In Gindel v. Centex Homes, 43 Fla. L. Weekly D2112d (Fla. 4th DCA 2018), homeowners took possession of townhomes on March 31, 2004.  The homeowners discovered construction defects and on February 6, 2014 provided the 558 Notice to the homebuilder.  This notice was served before the expiration of the ten-year statute of repose period.  The homebuilder notified the homeowners it would not cure the defect and the homeowners initiated a construction defect lawsuit on May 2, 2014, more than ten years from when they took possession of their townhomes, and outside of the statute of repose period. 

 

The issue was the application of Florida’s ten-year statute of repose in Florida Statute 95.11(3)(c). 

 

The homeowners argued that its action commenced upon serving the statutorily required 558 Notice so that its lawsuit was timely filed.

 

The homebuilder argued that the homeowners commenced their action by filing the lawsuit after the ten-year statute of repose, irrespective of when the 558 Notice was served, meaning the construction defect lawsuit should be barred.  The trial court agreed with this argument.

 

On appeal, however, the appellate court agreed with the homeowners that the presuit notice requirements called for in Florida Statutes Chapter 558 constitute an action for purposes of the statute of repose.  In other words, by the homeowners serving the 558 Notice within the ten-year statute of repose period, the homeowners timely commenced their construction defect lawsuit.  To hold otherwise would be to view Florida Statute Chapter 558 as a device to potentially bar claims when the required 558 Notice was timely served.  This position makes sense considering a claimant cannot file a construction defect lawsuit without complying with Chapter 558.  See Fla.Stat. s. 558.003.

 

When it is coming close to the ten-year statute of repose (or statute of limitations) deadline, the safer approach is to file the lawsuit and move to stay or abate the lawsuit pending compliance with the Florida Statues Chapter 558.  This way this issue is fully avoided by the lawsuit already being initiated. This approach is also supported in Chapter 558 by stating the action shall be stayed pending compliance with the requirements of the statute.  See Fla.Stat. s. 558.003.  

 

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.

 

SLAVIN DOCTRINE AND DEFENSE FROM PATENT DEFECTS

shutterstock_1094947985The Slavin doctrine is an affirmative defense primarily geared to the personal injury context designed to protect contractors from third-party negligence-type claims when an owner accepts a patent defect.  

 

The Slavin doctrine protects contractors from liability for injuries to third parties by presuming that the owner has made a “reasonably careful inspection” of the contractor’s work prior to accepting it as completed; if the owner accepts the contractor’s work as complete and an alleged defect is patent, then the owner “accepts the defects and the negligence that caused them as his own,” and the contractor will no longer be liable for the patent defect.

 

“[T]he test for patency is not whether or not the condition was obvious to the owner, but whether or not the dangerousness of the condition was obvious had the owner exercised reasonable care.” While in most cases, the patency or latency of a dangerous condition is a question of fact for the jury, thereby precluding summary judgment, there are exceptions where the undisputed material facts establish that if there was a defect, then that defect would have been patent.

Valiente v. R.J. Behar & Company, Inc., 2018 WL 2708712, *2 (Fla. 3d DCA 2018) (internal quotations omitted).

 

Valiente is a recent decision where the trial court, as affirmed by the appellate court, ruled in favor of contractors (and an engineer) as to the applicability of the Slavin doctrine in a wrongful death action.  In this case, the decedent was killed in 2008 when his motorcycle ran into another vehicle at an intersection.  The estate claimed that the shrubs in the swale create a dangerous condition by blocking the view of motorists and causing the accident.  The shrubs were planted in 2005 as part of a city’s roadway project.   The estate sued the city, the designer, the general contractor, and the nursery hired by the city to provide the landscaping for the roadway project.

 

The designer, contractor, and nursery moved for summary judgment on their Slavin doctrine affirmative defense.  They all claimed they should be relieved of liability for the accident (and, thus, the death) because the work was long completed, the City accepted the work, and the alleged defect dealing with the shrubs blocking passing motorist’s views was patent.  The evidence revealed that when the shrubs were originally planted they were 2 feet taller than the maximum height required.  

 

For purposes of patency under the Slavin doctrine, the relevant question is: if the plantings [shubs] created a visual obstruction (the alleged dangerous condition), was that dangerous condition latent or patent? And, to reiterate, the test for patency, is not what the City knew, but rather, what the City could have discovered [the dangerous condition] had the City performed a reasonably careful inspection.  

Valiente, 2018 WL at *2.

 

Here, because the it was ruled that the city accepted a patent defect, the Court granted summary judgment in favor of the defendants on their Slavin doctrine defense.  

 

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.

SETTLING WITH SOME, BUT NOT ALL, OF THE DEFENDANTS IN A CONSTRUCTION DEFECT CASE

shutterstock_510239200Construction defect lawsuits can be complex multi-party disputes, especially when the plaintiff is doing what is necessary to maximize recovery.  This means the plaintiff may sue multiple defendants associated with the defects and damage.  For example, the owner (e.g., plaintiff) may sue the contractor, subcontractors, design professionals, etc. due to the magnitude of the damages.  In many instances, the plaintiff is suing multiple defendants for overlapping damages.  The law prohibits a plaintiff from double-recovering for the same damages prohibiting the windfall of a plaintiff recovering twice for the same damages.  Perhaps this sentiment is straight common sense, but this sentiment is a very important consideration when it comes to settling with one or more of the defendants, while potentially trying the construction defect case as to remaining defendants.  Analysis and strategy is involved when settling with some but not all of the defendants in a construction defect case (and, really, for any type of case).  Time must be devoted to crafting specific language in the settlement agreements to deal with this issue. Otherwise, the settlement(s) could be set-off from the damage awarded against the remaining defendants.

 

The recent decision in Addison Construction Corp. v. Vecellio, 43 Fla.L.Weekly D625(a) (Fla. 4th DCA 2018) details the analysis and strategy required when settling with some but not all of the defendants in a construction defect case, and the concern associated with a trial court setting-off the settlement amount from the damage awarded against the remaining defendants.   

 

This dispute involved the sale of a high-end residential home where the buyer of the home sued numerous parties due to construction defects—the sellers, the developer, the general contractor, and subcontractors.   Before trial, the buyer settled the dispute with certain subcontractors for a sum total of $2,725,000.  The buyer then proceeded to trial with remaining defendants.  Prior to trial, the buyer filed a motion in limine to exclude the remaining defendants from mentioning these subcontractor settlements.  The trial court granted the motion.  After trial, the plaintiff was awarded approximately $3.5 Million in damages associated with the construction defects.  However, smartly, remaining defendants moved the trial court to set-off the sum total of the subcontractor settlements from the approximate $3.5 Million to reduce the overall principal judgment amount.  The trial court granted the motion in most respects reducing the judgment amount finding that that the settlements covered the same damage.  Remember, a party cannot recover double damages for the same issue.

 

An appellate issue dealt with this set-off of the subcontractor settlements from the total judgment awarded against the remaining defendants.  This is a critical strategic  legal issue, not to be taken loosely, when settling with defendants in a multi-party construction defect dispute, particularly when you may try the case against non-settling defendants. 

  

The purpose of the setoff statutes is to prevent a windfall to a plaintiff by way of double recovery. Thus, any “settlement recovery sought to be set off must be ‘in partial satisfaction for the damages sued for.’ ”  Accordingly, “[i]f the settlement funds are applicable to a claim asserted only against the settling co-defendant, the non-settling co-defendants are not eligible for a set-off in the amount of the settlement.”  In the same vein, “[w]hen a settlement recovery is allocated between claims with different and distinctive damage elements, set-off should only be allowed to co-defendants jointly and severally liable for the same claims.” 

***

Although the same-damages-sued-for prerequisite seems simple enough in theory, because settlement agreements are often so broadly worded, in practice it is not always easy to determine whether damages paid as part of a settlement overlap with damages awarded against a remaining co-defendant. To that end, the law provides that if settlement proceeds are “not apportioned between (a) claims for which co-defendants are jointly and severally liable with the settling co-defendant, and (b) claims which were only asserted against the settling co-defendant, the entire amount of the undifferentiated recovery is allowable as a set-off.”  This is the case even where some of the settlement amount may have been for different damages and the settlement amount exceeded the damages it setoff. 

Addison Construction Corp., supra, (internal citations omitted).

 

 

Clearly, while this law seems simple, it is not.  And it certainly is not in a multi-party construction defect case which is why—again—settling with some but not all defendants in a construction defect case requires analysis and strategy. Otherwise, what could happen is a trial court setting-off the total sum of the settlements from the principal damages awarded at trial.  Probably not what the plaintiff had in mind! This is what the trial court did in this case based on otherwise broad language in the respective settlement agreements.  Guess what?  The appellate court agreed:

 

In sum, because the subcontractor settlement agreements failed to differentiate the damages settled for, it is simply “impossible to know whether [Buyers] would be receiving a duplicate payment” for their breach of contract based claims. If Buyers wanted to prevent this problem, they should have allocated the damages encompassed in each subcontractor settlement. Buyers made a strategic and understandable decision not to do so, and this is the end result. We acknowledge that this may seem harsh, but it is the only pragmatic result. If courts were required to delve into the scope of undifferentiated settlement agreements for the purposes of making a setoff determination, then post-judgment proceedings would turn into a second trial. Principles of judicial economy prohibit this result.

Addison Construction Corp., supra, (internal citations omitted).

 

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.