Researchers have for years warned the public, various government agencies and building owners/managers of the potential dangers related to older buildings within reach of Southern California’s notorious faults in a major earthquake. In short, what building experts once thought would be sufficient, in terms of structural design requirements, we now know could leave building occupants seriously injured, or worse.

Los Angeles’ city council has been working on a seismic retrofit program for buildings previously identified by various experts as at risk. Beginning tomorrow, Santa Monica will formally announce its own mandatory seismic retrofit program. The LA Times’ Rong-Gong Lin II, Raoul Rañoa and Jon Schleuss have more:

Santa Monica is poised to require safety improvements to as many as 2,000 earthquake-vulnerable buildings in what would be the nation’s most extensive seismic retrofitting effort.

Santa Monica’s safety rules would go beyond what Los Angeles has done by requiring not only wood apartments and concrete buildings to be retrofitted, but also steel-frame structures.

Steel buildings were once considered by seismic experts to be among the safest. But after the 1994 Northridge earthquake, engineers were stunned to find that so-called “steel moment frame” buildings fractured.

Santa Monica City Council has already established a website to serve as a central repository for the latest info regarding the program. Of the six building types listed, the first to require a structural evaluation report to be submitted will be unreinforced masonry buildings, which must submit their evaluation within 3 months and have retrofits completed within 2 years.

As this is a developing story, expect to hear much more about this issue over the coming months.

You can download the complete list of addresses identified by the city in Excel format from the city’s GitHub repository (meaning the file will likely be updated over time).

San Diego has been at the epicenter of the microbrewery and craft beer scene since the beginning. The neighborhood my wife and I lived in when we were first married went from being an affordable place to rent an apartment, to becoming the scene for artisanal brews. The hookers have been mostly displaced by hipsters.

Besides my own personal observations, and bold statements made by various pundits in the local beer scene, is there really anything to this craft beer explosion in San Diego? (more…)

My colleague Alan Nevin provides a much-needed clarity to understanding the development challenges in San Diego in this piece, which originally appeared in the Daily Transcript. There is a study yet to be published that found that up to 39% of the cost of a residential housing unit in the San Diego region is strictly due to regulatory fees.

I recently completed a market study on a property in Placer County, immediately northeast of Sacramento. The property, immediately west of Roseville, contains 5,000 acres and is destined to have 14,000 housing units.

Placer County has been a cheerleader for the development of the property and has worked diligently for its approval as a master-planned community.

Processing on the property started in 2007 and if everything goes right, the first home could break ground in 2017. One wonders why it takes 10 years to approve a project if the local government is in favor of it.

The answer lies in increasing bureaucracy at all levels of the development process.

Source: SDDT

Tim Logan via the LA Times:

Los Angeles passed a law last year requiring bicycle racks within 50 feet of the front door of many new buildings. But a problem surfaced immediately: The federal Americans With Disabilities Act requires handicapped parking spaces with an easy path to the door clear of things like bikes.

The conflicting requirements — one in the city’s building code, the other in its zoning code — left developers in a quandary, said Craig Lawson, a land use consultant who’s seen several clients stumble on the rule. They could redesign the entryway of their building — no small task — or seek a variance to put the bike parking elsewhere, a costly process that can take months of hearings.

The City of Los Angeles zoning code is over 70 years old and will be completely revamped under a project by the city planning department known as re:code LA. The ambitious project is slated to be completed by 2017, but city officials warn that this will be no panacea. The planned effort is not an actual rezoning—zoning is still the jurisdiction of 35 individual community plans—but instead, “re:code LA is creating a new palette of zones that stakeholders will be able to choose from during the community planning process.”

Source: LA Times

Colleague, friend, and leading economist, Alan Nevin, wrote a fascinating article for the San Diego Daily Transcript on the relationship between apartment construction costs and rental rates.

The analysis shows the difference in the costs of developing three different types of apartment projects in San Diego County. The three types are a three-story garden walk-up, a five-story with two decks of above-surface concrete parking (known as podium parking) and a 22-story high-rise.
Each assumes current land costs, construction costs, the price of money and each assumes a 200-unit project with apartment units averaging 850 square feet.

I won’t spoil the results of the analysis, but will say that it certainly shows the long-term investment potential of apartments.

Source: San Diego Daily Transcript

Tamara Boeck, writing for the Stoel Rives blog, Ahead of Schedule, has written an excellent analysis on a very important appellate decision in the state of California. The case: Regional Steel Corporation v. Liberty Surplus Insurance Corporation (PDF) (May 16, 2014, No. BC464209) Cal.App.2d. [2014 WL 2643242]

The facts of this dispute are not unfamiliar, and could be substituted for many projects by changing the name, location, and nature. Here, the owner/GC of a 14-story mixed-use apartment project hired a subcontractor to erect the steel and another subcontractor to pour concrete.

The owner also retained Quality Assurance, presumably, to do just that. As a part of the construction process, the steel subcontractor (Regional) submitted shop drawings during a four-month period. The owner/GC and the owner’s engineer approved the drawings, which identified two types of seismic hooks. Four months after the last shop drawing approval, the City issued a correction notice requiring the exclusive use of only one type of hook. The owner became aware of the problem four months after the correction notice, and thereafter stopped further concrete pours until the hook issue was resolved.

The City then notified the owner/GC that the first three levels and part of the fourth level of the building had defective hooks and required repairs. The owner/GC withheld $545,000 of Regional’s progress payments as a result. Not surprisingly litigation followed, including a claim against Regional for the defective hooks, the engineer for approving the shop drawings, the concrete subcontractor for not catching Regional’s error, and Quality Assurance for, well, not providing quality assurance.

The owner/GC alleged that it was damaged because completion of the project was delayed, resulting in loss of use, loss of rental income, and other damages. Thereafter, the owner/GC filed a first amended cross-complaint adding claims based upon theories of negligence and negligent interference with economic advantage, and asserted claims against the parties’ performance bonds.

Ultimately, the insurer denied coverage for Regional (the contractor) because there was no evidence established of resultant damage. This is a critical element in construction defect claims in the state of California, and unfortunately, poorly understood in the building industry outside of the realm of construction defect litigation.

The actual workmanship of a contractor is not covered by standard CGL policies, unless it results in damage to another component. According to the Court in this case, “The risk of replacing and repairing defective materials or poor workmanship has generally been considered a commercial risk which is not passed on to the liability insurer.”

Lessons Learned; Best Practices

Boeck offers some recommendations for both owners and general contractors, stating that this case highlights some important concepts:

  1. The importance of good project contract documents
  2. The importance of good “hands on” project risk management
  3. The importance of understanding what insurance covers
  4. The importance of bonds
  5. Considering coverage in claims

Back to the “Quality Assurance” issue…

I just want to point out that in this project, “the owner also retained Quality Assurance, presumably, to do just that.” I have been involved with a number of cases recently where third-party “quality assurance” had been retained, yet failed to live up to their stated goal of actually assuring quality.

As Boeck says:

[W]hy didn’t anyone catch the hook error until the fourth floor had been built? Paper management is one thing, active and effective quality control is another. Even if the “catch” wasn’t in the shop drawing phase, there were plenty of potential “eyes” that could have caught the error on the first floor and saved substantial time and money. I’m sure everyone is grateful the “catch” wasn’t delayed until the 13th floor, but were there qualified personnel randomly verifying basic work?

Not all QA/QC companies/approaches are created equal. In the ensuing weeks and months, expect much more digital ink on this important topic.

Please take the time to read all of Boeck’s article, as I think it is an outstanding analysis on a crucial issue impacting California’s built environment.

Source: Ahead of Schedule


Construction_work_on_the_Millennium_Tower_(301_Mission_Street),_SF

Image courtesy Wikimedia

I just got done posting my first news update for the Xpera Group website. The title: The Next Wave of Condominiums and Other Updates. The article contains a number of updates which I’d like to highlight here.

The Next Wave of Condominiums

Our resident Economist, Market Research Analyst and Forensic Expert, Alan Nevin wrote an outstanding article on multifamily housing in California. He notes that there is typically a five to eight year delay between when a condo project is constructed and when litigation is likely to occur.

Of the 57 condo projects built in San Diego from 2000 to 2007, 41 ended up in litigation and of those, Xpera was retained for expert services on 32. After 2007, new condos and conversions stopped almost completely. According to Nevin:

My take is that new condominium development and conversions in California most probably will gradually ramp up during the next several years, but most activity will be in the Bay Area and western Los Angeles. I do not anticipate that condominium activity will reach the levels of the past decade. In fact, I project that the levels in the 2010-2020 period will be less than 50% of what we saw in the last round.

From Litigating the Boom to Litigating the Bust

Xpera Group founder and president Ted Bumgardner wrote an article that picks up where Nevin’s article leaves off:

Back in 2011, we discovered an interesting correlation between residential permits issued in California and defects lawsuits filed six years later. Between 1995 and 2006, we saw the number of residential building permits issued in California double in volume. According to Westlaw, the number of construction defect cases filed in California doubled from 2000 to 2011, similar to the growth that occurred in residential construction, just shifted five years.

He notes that in 2005, towards the end of the residential building boom in California, 155,000 permits were issued. That number dropped 86% by 2011 to just 22,000 housing permits. However, there was only a 26% drop in construction defect lawsuits filed from 2012 to 2013.

Why is that? According to Bumgardner, “we have now moved from litigating the boom to litigating the bust. Over the next few years, several factors will affect the number of homes ultimately ending up in defects litigation.”

Source: Xpera Group News

As promised, over the coming weeks and months, we’ll be publishing a series of articles gleaned from West Coast Casualty’s 2014 Construction Defect Seminar. This article focuses on one appellate decision that impacts attorneys and specifically, their relationship with expert witnesses.

Presented by Thomas Halliwell, Esq. and Barry Vaughan, Esq.

Somehow, in less than an hour, Halliwell and Vaughan ran through dozens and dozens of appellate decisions. But they didn’t just read off of a list, they added a great deal of context and some occasional comments.

I couldn’t type fast enough to cover these master orators and their insightful observations, but I was able to gain access to some notes that they published to accompany the presentation. Under the category of decisions impacting attorneys, there was just one case.

DeLuca v. State Fish Co, Inc. (2013) Cal.App.4th 671

In this case, a former corporate officer filed suit against the corporation. The initial filing involved real estate claims. The Defendant filed its own claim to rescind the deed to the property in question, and additional claims over violation of corporate doctrine. The Defendant also retained an expert to offer testimony at trial.

According to Halliwell and Vaughan:

The trial court declared a mistrial on the unlawful detainer action and found in favor of Defendant on the rescission and corporate opportunity doctrine claims. The Court of Appeal reversed on the rescission and corporate opportunity doctrine claims, and remanded for trial of the unlawful detainer claim.

Then things got interesting…

For the retrial, the Plaintiff in this case retained the same expert witness that had testified on behalf of the Defendant. Perhaps somewhat surprisingly, Plaintiff’s counsel was disqualified because of the possibility that the expert gave the attorney confidential information.

The case went to appeal:

The Second District Court of Appeal held that the expert witness did not possess any confidential information because once the expert witness was designated a testifying expert, the attorney- client privilege and work product protection were waived as to information conveyed to him by Defendant’s counsel in the prior trial. The Court then found that Defendant failed to establish the rebuttable presumption that confidential information materially related to the pending proceeding was conveyed to the expert witness. The Court stated that even if the information conveyed prior to the expert’s designation as a testifying witness could potentially be covered under the work product doctrine, Defendant failed to show that confidential information was actually conveyed, and moreover, that it was relevant to the pending proceeding.

For even more background on this case, visit FindLaw.


Old and new state office buildings, 350 McAllister St, SF

Image courtesy Wikimedia

Steve Jobs is known for many things. Perhaps most notably, Jobs was an impressive presenter and really understood how to get people excited about what he was doing.

Working with a number of developers over the years, I’ve noticed that deals get done in a variety of ways. Some exercise strong political influence, others use money (sometimes quite unethically), and yet others use a variety of legal strategies to accomplish their goals.

When Steve Jobs was seeking approval from the Cupertino City Council for Apple’s proposed campus development project (some of which was in a former apple grove, some on the site of HP’s former glory…), he simply used words and his (in)famous power of persuasion. Wired has more:

One of his last wins for Apple wasn’t launching a blockbuster product, but helping to cement the company’s future in Cupertino, California, the city where Apple was born and whose name became synonymous with the company. It was a project he nursed for at least five years (see videos below).

In 2006–the year Apple turned 30–he attended a town meeting to tell the city council about Apple’s expansion plan. In typical Steve fashion, he laid on the charm. He told them he wanted to stay in Cupertino, even if it was much more costly than moving. The pitch certainly wooed the council, but for a while, it didn’t look like his mission would succeed. Then Apple found a way: It bought up nine properties totaling 50 acres just down the street from One Infinite Loop.

Source: Wired

Below are the videos. Both are somewhat lower resolution. The second one was too difficult for me personally to watch as it shows Jobs in a seriously deteriorated state at the very end of his life.

2006:

2011:

Another year, another conference at the Disneyland Hotel in Anaheim, CA with about 1,500 of my colleagues who work in the construction defect litigation industry. Once again, Dave and Coral Stern put on an outstanding event that was jam-packed with information on how construction claims are being handled, as well as new approaches to resolving claims. Below is an overview with some of my general impressions.

One interesting aspect of attending West Coast Casualty’s Construction Defect seminar is that it really shines a light on the business climate surrounding our little cottage industry. Although I was unable to attend last year’s event, I did notice that there seemed to be slightly less attendees, and less vendors from a couple years ago.

If I were to hazard a guess as to why that is, I’d venture that it might have something to do with a prediction from two years ago that there would be a 75% reduction in construction defect cases over a five year period.

As a result, some of the exhibitors at this year’s event seemed to be spending less money than in past years, and looking at the attendee list, it seems that some firms are sending less employees to attend.

Tightening the Belt

One theme that remains consistent over the years—this year’s event is no exception—is the focus on reducing the total cost of construction claims. There were panel discussions on the difficulty of collecting defense costs from additional insureds (AIs, as they are commonly called), bad-faith claims (which seem to be on the rise), and tactics for dealing with bankrupt defendants and insolvent carriers.

Another theme that seemed to be prevalent was exploring claims involving different types of construction projects and expanding into jurisdictions outside of California and Nevada. For example, there was a panel discussion on public works projects, claims associated with product manufacturing, and multiple panels associated with a wide range of states including Florida, Washington, Oregon, Texas and Colorado.

Why “Doing It Like We Always Did It” Won’t Do Anymore

Of course I would be remiss if I didn’t mention the panel discussion that my colleagues at Xpera Group presented. The title: Why “Doing It Like We Always Did It” Won’t Do Anymore.

This panel started off with economist and market researcher, Alan Nevin, explaining major shifts in the types of construction projects currently underway and in the planning stages. According to Nevin, we can expect to see a whole lot less of the massive single-family residential tract developments that were the “bread and butter” for those of us in construction defect litigation for so many years. Instead, expect a lot more in the way of urban infill, high-density, residential and multi-use projects. While there will likely be some condo projects coming online, expect a lot more apartments to meet the changing needs of the marketplace.

The Xpera team also highlighted an area where I personally see a huge potential for growth: Third-Party Quality Assurance and Quality Control. On the plus side, insurance carriers are realizing that demanding third-party QA/QC helps offset risk. However, we are seeing some unfortunate trends in the marketplace. Specifically, the quality of the third-party QA/QC services are going down as the industry races to the bottom as a result of commoditization. (How’s that for irony?)

In the last several months, I have been involved on several construction claims where well-known and established QA/QC companies failed to deliver on their promise. Sadly, two of these third-party entities are also well-known for their work in construction defect litigation.

Clearly, there is a need in the marketplace for better quality in construction quality management services. Conveniently, that also happens to be my mission in life…

The Only Constant is Change

Summing it all up, I had a blast at this year’s event, although I had to leave early for some family obligations. Now that the industry has matured—in San Diego, we are moving into the fourth decade of construction defect litigation—some of the biggest struggles involve coping with changes in the marketplace and changes to the laws and insurance policy language that dictates how the game is played.

Regardless of the changes, there is no end in sight for construction defect litigation.

In the coming weeks and months, expect more posts on insight gleaned from West Coast Casualty’s 2014 Construction Defect Seminar, as well as posts from another construction defect litigation conference I attended in Key West. Until then, take care.


WCCCDS2014-cover