Christopher Hill (no relation to yours truly) is a longtime construction law attorney and mediator practicing out of Richmond, Virginia. His blog, Construction Law Musings, has always been one of my must-read sources of news and insight pertaining to construction law ever since he started it in late 2008. Be sure to follow @constructionlaw on Twitter for the latest updates from a true thought leader in the art and science of resolving construction disputes. Without further ado, I am proud to present Mr. Hill’s guest post on a topic that I couldn’t agree with more — the business case for why the mediation process is so critical to the A/E/C industry.
The more things change, in some way, the more things seem to stay the same. One of the constants in my ongoing education as a marketer in the legal industry is the sage advice of Ed Poll’s LawBizBlog.
A recent post of Ed’s tackles the perennial subject of technology’s impact on labor markets. Specifically, as a legal professional, he focuses on the impact of technology on the legal profession combined with the economic climate of the most recent recession. (more…)
The Consumerist’s Chris Morran has a post up about why they believe consumers should always opt out of what they call “forced arbitration” clauses. Here is one of the reasons they give:
Companies want you to arbitrate because the system has been shown to be heavily unbalanced in favor of businesses — who have the legal knowledge, experience, and funding to put up a proper defense — while harmed consumers often enter into the complicated process without legal representation.
Here’s the thing: I’m not a lawyer, but neither is Chris Morran. So neither Morran’s post nor this one should be mistaken as legal advice.
Unlike Morran however, I have been involved in hundreds of legal disputes—most of which involve consumers, typically homeowners. I have been involved with cases that ended in a jury trial and cases that ended up in binding arbitration. At least 95% of the cases I worked on ended up settling out of court, typically as a result of mediation.
When a consumer suffers damages as a result of a defect or poor workmanship, the legal aspects of presenting such a case typically involves a great deal of technical analysis and expert opinion. In most cases, the outcome often depends heavily on interpretation of these technical details.
What most people fail to consider
In a jury trial, it is the jury that must decide the merits of a particular case. As we all know from grade school, juries are made up of “peers” selected at random from the populace. As attorneys will tell you behind closed doors, most juries are made up of people (and this is a direct quote) “too stupid to get out of jury duty.”
Here is the point: If the experts can’t agree on the merits of certain highly technical issues, how is the average citizen supposed to make a determination?
A better option?
In a binding arbitration, my experience has been that the arbitrators are generally more knowledgeable and informed. Every attorney and expert I have worked with prefers arbitration over jury trial—regardless of whether they are representing plaintiff (consumer) interests of defense (business). In fact, some attorneys and experts I know representing consumers report that they typically see awards that are 50% more than what they would expect for similar cases before a jury. Also, the costs for legal fees and expert costs are typically much less for an arbitration than for a jury trial.
Regardless, the key to a successful outcome depends on the attorneys, their staff, their experts, and most importantly, the evidence at hand. The reason most cases I have been involved in have settled out of court is because nobody in their right mind wants to gamble with the unpredictable outcome of a jury trial.
Again, I’m not an attorney, so you should really check with your attorney before making a decision either way.
Melissa Brumback, a construction attorney at Ragsdale Liggett PLLC in North Carolina, recounts a recent ruling in that state regarding a home construction project gone bad. In this case, the partnership that performed the work was licensed, however the individual that signed the contract was not:
Imagine being told that you will not be paid for a house you constructed pursuant to a contract with homeowners.
I have witnessed the scenario spelled out below first hand:
A new community association experiences some leaks. Management tells the board about an attorney who will provide a free seminar on the fiduciary duty of board members in the face of construction problems. The board accepts the offer.
Nicole Black is a noted attorney and blogger. Writing for the Daily Record, she gives some great perspective on what is required to create an effective legal blog. (Hint, a J.D. and a domain name are not enough…)
I?m frequently asked to explain what makes a ?successful? law blog. However, as is the case with any other type of social media, success is in the eye of the beholder.
A law blog is successful if it helps you achieve your goals, whether they are to obtain new clients, increase your law firm?s search engine standing, showcase your expertise and writing skills, or simply serve as a creative outlet for your headstrong opinions.
Regardless of your goals, there?s no point in blogging unless you enjoy the process of writing and have a passion for your subject matter. Otherwise, the blog will fall flat. While it may achieve desired goals of increasing search engine optimization, it will ultimately be uninteresting and will have few regular readers.
- Marketing: Should a Blog Be Separate From Company Website? (blhill.net)
- How To Use An Email Newsletter To Build And Maintain Relationships With Your Clients And Prospects (blhill.net)
- Power Friending by Amber Mac: Demystifying Social Media to Grow Your Business (blhill.net)
In response to an article discussing the diminishing role of architects in the construction process, Virginia-based attorney Christopher Hill points out that a “a contract is like a building: it will always cost more to fix than to get it right the first time.”
Conversely, failure to set forth expectations in a state where the contract is king can lead to disaster.
Here in California the weather is cold (relatively speaking), but the climate is electrifying. Construction defect litigation remains active despite numerous changes to legal strategies and continues to be shaped by the insurance carriers. CA SB800, our Builders Right to Repair laws, under Civil Code §895, et seq., has failed to achieve its stated goals as it enters the eighth year of enforcement. And among most construction defect lawyers, a “green building” is one that features a verdant exterior paint color. This is the state of the industry in the first full week of 2011, as I see it. (Part 1 – Construction Defect Litigation in the U.S., Part 2 – California’s SB800, The “Right To Repair” Law)
Green Building and Construction Defect Litigation
Parts 1 and 2 of this series on the state of the industry (see links above) were admittedly a little depressing. Truth be told, the construction defect litigation industry seems kind of depressing. I’ve watched as numerous colleagues and counterparts have been laid off and a few firms have scaled back dramatically or shut down altogether. But there is a bright spot I see on the horizon: Green Building.
Energy efficiency, use of sustainable materials and methods, and reducing environmental impact are the goals of the green building movement. Those are also the keywords that are used in marketing everything from homes to bleach to even coal mining. My experience has been that any time sales and marketing executives have influence over product development, risk increases.
Due to the collapse of the mortgage markets and other economic factors, construction and residential construction in particular, have taken a huge hit. Profits have declined and builders are struggling to make payroll or even keep employees busy. The obvious response from the board rooms of developers and builders is to ramp up marketing efforts. You see, something that isn’t widely understood by the general public, is that construction financing usually includes terms related to sales performance. In order to secure a loan on a large development, a certain number of homes need to be under a purchase agreement by buyers in order to proceed. Thus, if a development fails to get a sufficient number of future sales under contract, subsequent phases of development might not be approved for financing. So just to stay active in construction, sales contracts need to progress. What do buyers of homes today want? To save money and if possible, help save the environment.
Without question, the green building movement is the primary factor that is driving construction in this down economy.
Let’s take a step back for a moment and consider in practical terms, just what exactly “green building” entails. As I mentioned, energy efficiency and use of sustainable materials and methods are the main characteristics.
Energy efficiency implies a certain level of performance. This involves a factual, evidence-based assessment. Thus a claim of “uses 25% less water” is a verifiable claim that can be measured, versus a claim of “light and airy with great views” for example. Such performance guarantees made in the course of selling a property could arguably result in a bona fide claim for damages if that level of performance is proven to be false.
Another factor contributing to risk in green building is that it involves materials and methods that may not have the familiarity and track record of more conventional techniques. Whereas 50 years ago construction involved a higher percentage of artisans pursuing quality over quantity, modern construction crews take on more of an assembly-line approach. Most actual construction is performed by less-skilled laborers willing to work for the relatively low pay. Skilled workers with plenty of experience are promoted to supervisory positions. The industry standards of quality in typical residential construction are well-established, yet green building techniques necessitate tighter levels of tolerance and compliance. For example, in a typical single-family home, as long as there is insulation in most of the stud bays of the exterior walls, the home will generally be in compliance. However, even a small gap in insulation at an exterior wall could adversely impact energy efficiency in a “green” home. These performance guarantees and new materials/methods will require better supervision and more attention to detail than ever before.
How does this fit into construction defect litigation? Easy. With more stringent requirements for the construction of homes, as well as increased awareness on the part of homeowners, green buildings create many more potential “defects” that would not have existed even just a few years ago. As more potential defects exist, an increase in construction defect claims is virtually guaranteed. And that’s not all. Many green building projects are being subsidized in part through various tax breaks and other governmental and/or third party incentives. The closest corollary I can draw to this would be with accessibility issues. I’ve been involved in construction defect lawsuits where ADA violations were alleged that resulted in a separate cause of action involving Federal jurisdictions. The complexity of such cases requires more participation by counsel and experts alike.
Sadly, there doesn’t seem to be much interest in learning about green building among professionals in the construction defect litigation industry. At the Veritext seminar I attended in San Diego a couple months back, the participants on the panel turned discussion to the future of construction defect litigation. I mentioned green building to the audience. The response was like something out of a movie: one attorney actually said, “you mean like a house that is painted green? Is that a defect?” A defense attorney approached me later and said, “next time keep the green building thing to yourself – we don’t want to give plaintiff attorneys anything else to go after.” It was this response that made me rethink my plan to publish an article discussing the topic of that seminar. I was floored. Elsewhere in construction law, attorneys are actively discussing green building and its implications.
Clearly, there will be a bit of a learning curve for professionals in the construction defect industry. Here are some excellent resources for learning about the legal aspects of green building:
- Chris Cheatham’s Green Building Law Update
- Stephen Del Percio’s Green Real Estate Law Journal
- Shari Shapiro’s Green Building Law Blog
In the meantime, stay tuned right here to More From Less. At the end of this week, I’ll be announcing a new email newsletter that enable you to stay aware of what is happening in construction defect law, construction consulting and green building. Please feel free to contact me with any questions or leave a comment.
Here in California the weather is cold (relatively speaking), but the climate is electrifying. Construction defect litigation remains active despite numerous changes to legal strategies and continues to be shaped by the insurance carriers. CA SB800, our Builders Right to Repair laws, under Civil Code §895, et seq., has failed to achieve its stated goals as it enters the eighth year of enforcement. And among most construction defect lawyers, a “green building” is one that features a verdant exterior paint color. This is the state of the industry in the first full week of 2011, as I see it. (Part 1 – Construction Defect Litigation in the U.S.)
SB800: The “Right To Repair” Law
Civil Code §895, et seq., not only provides a statutory right to builders for making repairs to defective homes, it actually codifies specific defects. Apparently some of the legislators fancied themselves as construction experts. The law went into action on January 1, 2003, but due to the latent nature of some defects, it hasn’t been until the last couple years that the majority of construction defect actions fell under the provisions of SB800.
In a nutshell, SB800 establishes certain procedures and certain conditions for construction defect claims. Homeowners have certain responsibilities as do builders. Certain defects have a shorter statute of limitations than other defects. For example, some defect claims must be made within the first year after close of escrow, whereas other defects can be claimed up to ten years after close of escrow. In exchange for the right to make repairs, SB800 requires that builders respond to the Notice of Claim from the homeowner within 30 days, generally. This means that the builder must send experts on their behalf to inspect the home and make recommendations in response to allegations made by experts hired by the plaintiff counsel. That doesn’t sound too unreasonable if we were talking about a single home. What about when the Notice of Claim is filed on behalf of a hundred homeowners? Trust me, inspecting 100 homes, analyzing the data, writing repair recommendations and getting it to the plaintiff counsel within 30 days is a herculean feat.
What I find most ironic about California’s so-called “Right To Repair” law is that the right to repair is rarely exercised. Instead, settling cases with a large check is still the norm in construction defect litigation. Why? I notice two reasons in particular: plaintiff counsel and subcontractors. Construction defect plaintiff attorneys are accustomed to contingency fee agreements that stipulate the attorney receives a certain percentage of the amount awarded or the settlement to the homeowner client – generally around 30-40%. If the builder exercises their right to repair a home under SB800, it is hard for the plaintiff attorney to get paid. Therefore defense counsel and carriers are seeing that is is far less costly in the long run to pay off the homeowner and thus the plaintiff attorney. For subcontractors, SB800 is arguably not real fair. They are not included in the SB800 process directly, but due to the requisite indemnification of the developer by the subcontractor, they do get asked to pay for the whole thing. Subcontractors cannot make repairs themselves and have no right to do so. Subcontractors can inspect homes as part of the discovery process, but they have no real say when it comes to how the case is handled. The bargaining chip used is the “1542 Waiver” which lets the subcontractor off the hook for future claims at a particular home in exchange for putting up cash for defending and settling the claim. By writing a check instead of making repairs, cases get settled much faster. Unfortunately, not many repairs get made as a consequence.
It has been estimated that every residential development built in the last couple decades has been subject to a construction defect lawsuit. Individual homeowners may opt out, but I would venture a guess that a large number of existing home sales involve properties that were involved in a construction defect case but no repairs were made despite money being paid to the homeowner. Sure this is a disclosure issue, but who’s willing to jeopardize a sale over something like that?
I predict that SB800 will make construction defect litigation more commoditized and more automated. Professionals that adapt will thrive, but sadly, I also predict that more expert firms and other specialty businesses in the construction defect industry will fail in the coming years.
I?ve been drawing waterproofing details all week, and it might be affecting me. So, I?ll let you in on a secret. There are certain things that Architects may say or do that are clear warning signs of future water infiltration problems. I think the kids are calling them ?leaks? these days. If you happen to be reviewing the drawings with your Architect and you?re drifting off to sleep as he waxes and wanes and waves his arms around, try to perk up a little if you hear him say one of these things. These are just euphemisms for leaks. So, beware, and, begin the process of lining up expert witnesses.
- NYT: Casement Windows See Improved Performance and Increased Use By Architects (blhill.net)
- Life of an Architect: Words that Architects use (blhill.net)
- ArchDaily: Tips for an Architect’s website (blhill.net)