ECONOMIC LOSS RULE BARS CLAIMS AGAINST MANUFACTURER

The economic loss rule lives to bar a claim against a product manufacturer in a real estate transaction.  In a products liability action, there needs to be personal injury or property damage, other than to the property itself, in order to recover economic damages.  Otherwise, the economic loss rule will bar the recovery of such economic losses when the economic losses deal to the product itself.  This is important to keep in mind in any product liability action against a manufacturer.

In a recent case, 2711 Hollywood Beach Condominium Ass’n, Inc., v. TRG Holiday, Ltd., 45 Fla. L. Weekly D2179a (Fla. 3d DCA 2020), a condominium association purchased the condominium from the developer.  Subsequently, it noticed leaks with the fire suppression system in the condominium and sued multiple parties for damages for repairs due to the leaks and the replacement of the fire suppression system.  One of the parties sued in negligence and strict liability was a manufacturer of pipe fittings used in the fire suppression system.  The manufacturer moved for summary judgment based on the economic loss rule and relying on the 1993 Florida Supreme Court opinion in Casa Clara Condominium Ass’n v. Charley Toppino & Sons, Inc., 620 So.2d 1244 (Fla. 1993), holding “the economic loss rule limited a defendant’s tort liability for allegedly defective products to injuries caused to persons or damage caused to property other than the defective product itself.”  2711 Hollywood Beach Conominium Ass’n, supra.  The trial court agreed with the manufacturer and granted summary judgment.  On appeal, the Third District affirmed based on the economic loss rule:

The Association bargained for, purchased and received a building; [the manufactuer’s] fittings were only a component of the FSS [fire suppression system], incorporated into the building. Applying the rule set forth in Casa Clara, the Association purchased a completed building from the developer. [The manufactuer’s] fittings were “an integral part of the finished product and, thus, did not injure ‘other’ property.”  Injury to the building itself is not injury to “other” property because the product purchased by the Association was the buildingSee Casa Clara, 620 So. 2d at 1247. The economic loss rule therefore bars the Association’s recovery as to [the manufacturer] to the extent that it sought damages to replace the FSS [fire suppression system] and repair damage to the building.

2711 Hollywood Beach Conominium Ass’n, supra (internal citations omitted).

Notably, in Casa Clara, homeowners sued a concrete supplier for supplying defective concrete that caused the reinforcing steel in the concrete in their homes to rust.  The concrete supplier, in an action that went up to the Florida Supreme Court, prevailed based on the economic loss rule because there was no personal injury or damage to property other than the property itself, which was the completed building.  As the Florida Supreme Court held:

The homeowners also argue that [the supplier’s] concrete damaged “other” property because the individual components and items of building material, not the homes themselves, are the products they purchased. We disagree. The character of a loss determines the appropriate remedies, and, to determine the character of a loss, one must look to the product purchased by the plaintiff, not the product sold by the defendant.  Generally, house buyers have little or no interest in how or where the individual components of a house are obtained. They are content to let the builder produce the finished product, i.e., a house. These homeowners bought finished products—dwellings—not the individual components of those dwellings. They bargained for the finished products, not their various components. The concrete became an integral part of the finished product and, thus, did not injure “other” property.

We also disagree with the homeowners that the mere possibility that the exploding concrete will cause physical injury is sufficient reason to abrogate the economic loss rule. This argument goes completely against the principle that injury must occur before a negligence action exists. Because an injury has not occurred, its extent and the identity of injured persons is completely speculative. Thus, the degree of risk is indeterminate, with no guarantee that damages will be reasonably related to the risk of injury, and with no possibility for the producer of a product to structure its business behavior to cover that risk. Agreeing with the homeowners’ argument would make it difficult “to maintain a realistic limitation on damages.”

Casa Clara, supra, at 1247 (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.

 

ALLEGING PROPERTY DAMAGE IN CONSTRUCTION DEFECT LAWSUIT

When there is a construction defect lawsuit, there is an insurance coverage issue or consideration.  As I have said repeatedly in other articles, it is all about maximizing insurance coverage regardless of whether you are the plaintiff prosecuting the construction defect claim or the contractor(s) alleged to have committed the construction defect and property damage.  It is about triggering first, the insurer’s duty to defend, and second, the insurer’s duty to indemnify its insured for the property damage.   

The construction defect claim and lawsuit begins with how the claim and, then, lawsuit is couched knowing that the duty to defend is triggered by allegations in the lawsuit (complaint).  Thus, preparing the lawsuit (complaint) is vital to maximize the insurer’s duty to defend its insured.

In a recent opinion out of the Eleventh Circuit, Southern-Owners Ins. Co. v. MAC Contractors of Florida, LLC, 2020 WL 4345199 (11th Cir. 2020), a general contractor was sued for construction defects in the construction of a custom home.  A dispute arose pre-completion and the owner hired another contractor to complete the house and remediate construction defects.   The contractor’s CGL insurer originally provided a defense to the general contractor but then withdrew the defense and filed an action for declaratory relief asking for the declaration that it had no duty to defend the contractor because the underlying lawsuit did NOT allege property damage.  The trial court agreed with the contractor and granted summary judgment in its favor finding that the underlying complaint did not allege property damage beyond defective work.  But, on appeal, the Eleventh Circuit reversed.

Among other allegations, the owner’s underlying complaint against the contractor asserted that the contractor committed defects through chipped pavers in the driveways and walkways, inconsistent paint finish, marks on ceilings, damage to exterior doors, damage to the top stair tread, damage to hardwood floors, metal roof dents, scratches in granite, holes in ceilings, etc.  The owner sought its costs to repair and remediate the defects and damage from the contractor.  In looking at whether the  contractor’s CGL insurer had a duty to defend the contractor–the insured–the Eleventh Circuit (focusing on precedent out of the Eleventh Circuit) stated:

The operative amended complaint alleged that [the contractor] used subcontractors for work on the residence and that the residence was “replete with construction defects” and various damage. It did not further allege which subcontractors performed which work or how the damage occurred. Given these ambiguities, the complaint’s allegations are broad enough to allow [the contractor] to prove that one subcontractor negligently damaged nondefective work performed by another subcontractor.  If [the contractxor] could establish that at least some of the damage arose in this way, there would be “damage apart from the defective work itself” and therefore “property damage.”

***

For these reasons, we conclude that the underlying operative complaint can fairly be construed to allege “property damage” within the meaning of the CGL policy and Florida law. Accordingly, the district court erred in granting summary judgment to [the CLG insurer] on this basis.

MAC Contractors of Florida, 2020 WL at *4 (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.

 

CONSTRUCTION DEFECT DAMAGES: BENEFIT-OF-THE-BARGAIN OR RELIANCE RECOVERY

In the preceding article, I discussed a case where an owner sued its contractor and design professional for construction defects and design defects that contributed to the same damage.   There was a valuable discussion in this case as to the measure of damages in a construction defect dispute.  It is a discussion that construction defect parties and practitioners need to know.  A plaintiff needs to know for purposes of proving damages at trial and working with an expert in furtherance of proving their damages.   A defendant needs to know for the same reasons and to work with experts in establishing defenses to an owner’s construction defect and design defect damages.

 

 “The proper measure of damages for construction defects is the cost of correcting the defects, except in certain instances where the corrections involve an unreasonable destruction of the structure and a cost which is grossly disproportionate to the results to be obtained.”  Stated another way, “the measure of damages for breaching a construction contract is the reasonable cost of construction and completion in accordance with the contract, if this is possible and does not involve unreasonable economic waste.”  However, “[i]f in the course of making repairs the owner elects to adopt a more expensive [i.e., a better] design, the recovery should be limited to what would have been the reasonable cost of repair according to the original design.”  [This measure of damages is known as benefit-of-the-bargain damages.]

***

As an alternative to benefit-of-the-bargain damages, an injured party has a right to damages based on its reliance interest, including expenditures made in performance or in preparation for performance, the recovery of which will place the injured party in the position it occupied before entering into the contract.  However, “[a]ny benefit retained from the expenditures made in reliance on the contract must be offset against the injured party’s damages.”  In other words, a reliance recovery may be reduced to the extent that the breaching party can prove that a “deduction” is appropriate for any benefit received by the injured party. [This measure of damages is referred as a reliance recovery to damages.]

Broward County, Florida v. CH2M Hill, Inc., 45 Fla. L. Weekly D1736a (Fla. 4th DCA 2020) (internal citations omitted).

In this case, the appellate court held that the trial court erred in its measure of damages because the owner’s damages were based on a redesign that was a different, better design than the bargained for original design (as there was evidence that the original design was doomed from the get-go even if constructed correctly).   Thus, benefit-of-the-bargain damages did not apply–the owner did not present damages to correct defects per the original design but put on damages associated with its different and better redesign.  Yet, the appellate court maintained that if the public owner could not repair the defects in the original design, “a viable alternative measure of damages [under the reliance recovery] was the [owner’s] out-of-pocket costs, less any benefits the [owner] received from the contracts.”  Broward County, supra.   For this reason, the Fourth District remanded back to the trial court to enter judgment based on the owner’s reliance recovery based on the evidence already presented at trial relating to the owner’s out-of-pocket costs for the original design and construction and a potential deduct for the benefit the owner received relative to the original design and construction.

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.

 

COMPARATIVE FAULT APPLIED IN OWNER’S LAWSUIT AGAINST CONTRACTOR AND ENGINEER

There is nothing like a good old-fashioned dispute between an owner and its general contractor and design professional relating to construction and design defects where both parties have a role in the owner’s damages.  There are arguments that both the general contractor and design professional substantially contributed to the defects and damages.  Are the contractor and design professional jointly and severally liable for the owner’s damages?  Or, does comparative fault apply where the trial of fact allocates the contractor’s and engineer’s percentage of fault for the defects and damage?    A recent case found that comparative fault applied such that the trier of fact, in this case the judge, could allocate damages based the judge’s finding of the parties’ percentage of fault.  (For more information in comparative fault, please check this article.).  Comparative fault is not what an owner ideally wants because joint and several liability would be preferred.  However, this is what the contractor and engineer would want since their liability for damages is predicated on their percentage of responsibility as opposed to being liable for all of the damages.

In Broward County, Florida v. CH2M Hill, Inc., 45 Fla. L. Weekly D1736a (Fla. 4th DCA 2020), a public owner hired an engineer for airport improvements that included a taxiway to be designed and constructed in accordance with the Federal Aviation Administration’s design requirements.   The public owner also hired (i) a program manager to serve as its on-site representative and (ii) a separate engineering firm to provide materials testing and inspection services.  The public owner also hired a contractor to construct the taxiway.

Prior to substantial completion of the taxiway, the public owner discovered indentations in the surface of the taxiway (referred to as rutting).  This discovery prompted the public owner to investigate.  The public owner directed the contractor to mill away two inches of asphalt and install new asphalt.   The contractor achieved substantial completion in September 2008 and final completion in November 2008.  The contractor then submitted its final payment application to the public owner.  The public owner notified the contractor that it would retain money to deal with repairs associated with the indentations in the surface of the taxiway.  The public owner hired a new engineer to design the repairs.  The repair design was more robust (better) than the original engineer’s design because the repair engineer believed the new design was necessary to achieve a 20-year lifespan for the taxiway. A new contractor performed the repairs.

The contractor sued the public owner for nonpayment.  The contractor also sued the engineer for professional negligence in the design of the taxiway.    The pubic owner counter-sued the contractor for breach of contract and sued the engineer for breach of contract and indemnification.  The public owner asserted that the contractor performed defective construction and the engineer committed errors, omissions, and defects in the design and was obligated to indemnify the public owner for liability arising out of the design.  The public owner also sued its program manager (on-site representative) and testing engineer; these two parties settled prior to trial.

At trial, the public owner’s expert testified that both the contractor and engineer contributed to the indentations in the surface of the taxiway.  The expert testified that the engineer’s design deviated from the Federal Aviation Administration’s requirements and was doomed to fail such that if the contractor complied with the design, it would still fail.  The expert further testified that while the contractor contributed to the indentations as it failed to construct subgrade per the engineer’s design, it was to a lesser contributing factor than the engineer.

The engineer’s expert testified that the indentations were caused by undercompaction performed by the contractor.  The expert further testified that the public owner’s program manager violated its standard of care by allowing the contractor to deviate from the engineer’s original design in numerous ways.

The contractor’s expert testified that the indentations were caused by the design and undercompaction.

The trial court found that both the engineer and the contractor’s breaches were the proximate cause of the redesign of the taxiway.  The trial court also found that the public owner’s program manager, which had settled prior to trial, was also liable.  The trial court further found that public owner’s total damages were $6,2703,303 of which $725,000 was paid to the public owner pre-suit by the program manager and testing engineer.  After deducting this amount from the total damages, the trial court allocated damages as follows: (1) 60% was allocated to the non-party program manager (that had settled pre-suit); (2) 25% was allocated to the contractor; and (3) 15% was allocated to the engineer.   The public owner appealed the allocation in the final judgment.  The public owner argued that the trial court should not have apportioned liability at all because comparative fault does not apply in breach of contract cases.  Instead, the public owner contended that the trial court should have found that the engineer and contractor were jointly and severally liable for the damage (indentations) because their separate contractual breaches caused a single, indivisible injury.

The Fourth District Court of Appeal disagreed with the public owner concluding that Florida Statute s. 768.81 dealing with comparative fault authorized the trial court to allocate fault.  While comparative fault under s. 768.81 deals with negligence actions, it defines a negligence action as a “civil action for damages based upon a theory of negligence, strict liability, products liability, professional malpractice whether couched in terms of contract or tort, or breach of warranty and like theories. The substance of an action, not conclusory terms used by a party, determines whether an action is a negligence action.”  Broward County, Florida, supra, quoting Fla. Stat. s. 768.81.

The public owner’s claim against the professional engineer was predicated on the engineer breaching a contractual standard of care that required it to design the taxiway pursuant to the Federal Aviation Administration’s standards.  Although the public owner’s claims against the engineer were couched as a breach of contract, it was based on a theory of professional negligence (violation of a standard of care) warranting the application of comparative fault.

However, the public owner’s claims against the contractor were not based on a professional negligence theory.  Nonetheless, the Fourth District held that comparative fault did apply:

Applying a holistic approach to analyzing the complaint, we conclude that the contract action against [the contractor] fell under the umbrellas of the ‘negligence action’ against [the engineer], so that the circuit court’s allocation of fault was appropriate.  After all, [the contractor] was to perform the contract according to specifications designed by [the engineer], so the causes of action against each were necessarily intertwined.  To prove its case against [the contractor], the public owner was required to prove that [the contractor’s] ‘breach of its contractual responsibilities was a substantial factor in causing the [public owner’s] extensive damages.’   This is compatible with the concept of ‘fault’…and parallels the tort notion of a violation of a duty of care that is the proximate cause of damages.  Based on the evidence, the circuit court properly allocated fault among all actors whose conduct substantially contributed to the [public owner’s] damages.

 

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.

 

TEN-YEAR STATUTE OF REPOSE TO SUE FOR LATENT CONSTRUCTION DEFECTS

If you are dealing with latent construction defects, it is imperative that you consult with counsel to understand your rights.  This not only includes claims for property damage stemming from latent construction defects, but also personal injury stemming from such defects.  There is a ten-year statute of repose to sue for latent construction defects. See Fla.Stat. s. 95.11(3)(c).  After the expiration of this statute of repose you are out of luck, meaning you can no longer sue.

Now, I probably will not be the first to tell you that the statute of repose is not written so clear that you know the precise date it ends (or the last date you can sue for a latent defect).  For this reason, you really want to operate conservatively, meaning it is always better to sue early if you think you could be running on the end of the statute of repose period.  It is always advisable to avoid any legitimate argument that you filed your construction defect lawsuit too late.

In Harrell v. The Ryland Group, 44 Fla. L. Weekly D2054b (Fla. 1st DCA 2019), a subsequent owner of a house sued the original homebuilder in negligence for a construction defect causing a personal injury. The subsequent owner claimed the homebuilder defectively installed an attic ladder (that provided access to the attic for the original construction) which collapsed as he was using it. The homebuilder filed a motion for summary judgment that the statute of repose expired so the owner’s claim was time-barred. The First District agreed.

The subsequent owner tried to argue that the statute of repose did not apply because the installation of an attic latter does not constitute an “improvement” to real property and the statute of repose is based on actions “founded on the design, planning, or construction of an improvement to real property.”  The First District was not having this argument because “the attic ladder at issue here was installed as part of the construction process of the home, required labor and money, made the property more useful/valuable in that it provides a more convenient means of access to another level, was not mere repair or replacement, and was affixed to the attic, making it an integral part of the home.

Even something perceived as nominal like the installation or construction of an attic ladder can constitute an improvement to real property making it subject to the ten-year statute of repose to sue for latent defects.   Hence, do not sit idle if you are dealing with a latent construction defect – take the conservative approach and start the required litigation process sooner than later.

 

 

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.

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.

THE RELEVANCE AND REASONABLENESS OF DESTRUCTIVE TESTING

shutterstock_617053133Destructive testing is a routine investigatory procedure in construction defect disputes.   The destructive testing is necessary to determine liability (causation), the extent of damage, and the repair protocol.   Destructive testing is designed to answer numerous questions:  Why did the building component fail?  Was the building component constructed incorrectly?  What is the magnitude of the damage caused by the failure? What specifically caused the damage?  What is the most effective way to fix the failure and damage?  There are different iterations to the same questions, but in many instances, destructive testing is necessary to answer these questions.

 

Claimants sometimes prohibit destructive testing.  Of course, destructive testing is intrusive.  In many instances, it is very intrusive.  But, this testing is a necessary evil.  Without this testing, how can a defendant truly analyze their potential exposure and culpability?  They need to be in a position to prepare a defense and figure out their liability.  This does not mean destructive testing is warranted in every single construction defect dispute.  That is not the case.   However, to say it is never warranted is irrational. 

 

Florida Statutes Chapter 558 (the pre-suit notice of construction defects process) addresses the issue of destructive testing when parties are participating in this obligatory pre-suit notice of construction defect process:

 

(a) If the person served with notice under subsection (1) determines that destructive testing is necessary to determine the nature and cause of the alleged defects, such person shall notify the claimant in writing.

(b) The notice shall describe the destructive testing to be performed, the person selected to do the testing, the estimated anticipated damage and repairs to or restoration of the property resulting from the testing, the estimated amount of time necessary for the testing and to complete the repairs or restoration, and the financial responsibility offered for covering the costs of repairs or restoration.

(c) If the claimant promptly objects to the person selected to perform the destructive testing, the person served with notice under subsection (1) shall provide the claimant with a list of three qualified persons from which the claimant may select one such person to perform the testing. The person selected to perform the testing shall operate as an agent or subcontractor of the person served with notice under subsection (1) and shall communicate with, submit any reports to, and be solely responsible to the person served with notice.

(d) The testing shall be done at a mutually agreeable time.

(e) The claimant or a representative of the claimant may be present to observe the destructive testing.

(f) The destructive testing shall not render the property uninhabitable.

(g) There shall be no construction lien rights under part I of chapter 713 for the destructive testing caused by a person served with notice under subsection (1) or for restoring the area destructively tested to the condition existing prior to testing, except to the extent the owner contracts for the destructive testing or restoration.

If the claimant refuses to agree and thereafter permit reasonable destructive testing, the claimant shall have no claim for damages which could have been avoided or mitigated had destructive testing been allowed when requested and had a feasible remedy been promptly implemented.

Florida Statute s. 558.004(2).

 

Under this pre-suit process, if a claimant refuses to permit reasonable destructive testing, the claimant shall have no claim for damages which could have been mitigated or avoided had destructive testing been allowed and had a feasible remedy been promptly implemented.  In my opinion, this has very little teeth as it raises too many factual issues such as 1) was the destructive testing reasonable, 2) what damages could have realistically been mitigated and how do you prove this, 3) what is a feasible remedy and how is one to know whether the defendant would have even proposed or implemented a feasible remedy, 4) is the feasible remedy a remedy that mitigates future damage or fully addresses the root of the problem, and 5) what is the quantum of damages that could have been mitigated or avoided.   Establishing the reasonableness of the destructive testing is likely easy as an expert would support this.  But the same expert would have to establish the other requirements as a basis to establish an affirmative defense that some of the claimed damages the plaintiff is seeking could have been mitigated had the claimant allowed pre-suit destructive testing.

 

Oftentimes, however, a defendant wants to undertake certain destructive testing after a lawsuit has been initiated.  What happens if the plaintiff refuses such testing in this scenario?  In a recent products liability case, Westerbeke Corp. v. Atherton, 42 Fla.L.Weekly D1741c (Fla. 2d DCA 2017), a defendant wanted to perform destructive testing on a gas generator that caused an explosion on a boat.  The plaintiff did not want this testing to be performed.   In support of the testing, the defendant relied on a federal district case that applied four factors to consider whether the destructive testing is warranted:

 

1) Whether the proposed testing is reasonable, necessary, and relevant to proving the movant’s case; 2) Whether the non-movant’s ability to present evidence at trial will be hindered, or whether the non-movant will be prejudiced in some other way; 3) Whether there are any less prejudicial alternative methods of obtaining the evidence sought; and 4) Whether there are adequate safeguards to minimize prejudice to the non-movant, particularly the non-movant’s ability to present evidence at trial.

 

 Westerbke Corp., supra, quoting Mirchandani v. Home Depot, U.S.A., Inc., 235 F.R.D. 611, 614 (D.Md. 2006).

 

The trial court did not apply these four factors and denied the defendant’s request to perform destructive testing on the gas generator.  On appeal (through a petition for writ of certiorari), the appellate court reversed.  Unfortunately, the appellate court punted without providing specific guidance as to what standard the trial should follow when granting or denying a request for destructive testing.  The appellate court simply held that the four factors above may provide guidance to the trial court, but are not controlling in Florida.  The appellate court further summarily pointed to the Florida’s Rules of Civil Procedure to address the issue:

 

The Florida law regarding discovery in general provides that a party in a civil case is entitled to discover evidence that is relevant to the subject matter of the case and that is admissible or reasonably calculated to lead to admissible evidence. Fla. R. Civ. P. 1.280(b)(1); Allstate Ins. Co. v. Langston, 655 So. 2d 91, 94 (Fla. 1995). In addition, “[a]ny party may request any other party . . . to inspect and copy, test, or sample any tangible things that constitute or contain matters within the scope of rule 1.280(b) and that are in the possession, custody, or control of the party to whom the request is directed.” Fla. R. Civ. P. 1.350(a)(2). “The discovery rules . . . confer broad discretion on the trial court to limit or prohibit discovery in order to ‘protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense.‘ ” Rasmussen v. S. Fla. Blood Serv., Inc., 500 So. 2d 533, 535 (Fla. 1987) (citing Fla. R. Civ. P. 1.280(c)). We conclude that the trial court departed from the essential requirements of the law in failing to apply the proper discovery standard…..

 

 

The four factors outlined above are reasonable factors that comport with Florida law – whether the testing is relevant to the subject matter of the case. The factors provide guidance as to how to determine relevancy of destructive testing during the course of a lawsuit.  Plus, the court can always impose limitations or restrictions to reduce any intrusion and protect the claimant’s interests while allowing testing to be performed.   By the appellate court punting and not even ruling on whether the destructive testing would be relevant in the underlying action, the court is simply inviting another appeal.

 

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.