Tuesday, February 12, 2019

Expansion of Statutes of Limitations and Repose in K-12 and Municipal Construction Contracts

The purpose of this whitepaper is to bring attention to a trend in K-12 and municipal construction contracts, which expands the time periods for law suits against construction professionals.

Introduction and Background

Under Colorado statute, the period of time within which a legal action for construction defects may be brought against a construction professional in Colorado is two years from when the claimant (or its predecessor in interest) discovers or in the exercise of reasonable diligence should have discovered the physical manifestations of a defect (the “Statute of Limitations”), but in no case may an action be brought more than six years after substantial completion of the improvement, unless the claim arises in the fifth or sixth year after substantial completion, in which event the action may be brought within two years of such date, i.e., up to eight years after substantial completion (the “Statute of Repose”).  See C.R.S. § 13-80-104.  While the triggering events differ for the Statute of Limitations and Statue of Repose, the periods are intended to run concurrently to limit the period of time an action may be brought against construction professionals for construction defects to, at most, eight years after substantial completion.  Importantly, these limitations periods may be expanded by agreement. 

Prior to 1986, Colorado law provided for a 10-year Statute of Repose.  However, in 1986, Colorado’s legislature shortened the Statute of Repose time limit to the current six (or up to eight) year period.  In 1986, Colorado also redefined the date the claim arises from the date the defect was discovered or should have been discovered to the date the physical manifestation of a defect was discovered or should have been discovered.  Therefore, after 1986, the two-year limitations period could begin to run when a claimant should have discovered the manifestation of a defect, even if the claimant did not recognize that a defect existed. 

The reasons for these changes, as described by members of the Colorado legislature at the time, were as follows:
1.      Relieve construction professionals of the prospect of potentially open-ended, indefinite liability for their acts or omissions;
2.      Encourage the timely resolution of construction disputes while preserving property owners’ rights;
3.      Encourage diligent investigation of the cause and extent of the problem;
4.      Curb perceived abuses related to construction-defect litigation; and
5.      Stabilize the costs of insurance and insurance products for construction professionals.

These changes have, in fact, helped to encourage the timely resolution of construction defect disputes, resulted in an efficient insurance market for commercial general liability and completed operations insurance coverage, and a competitive construction market – all of which help contribute to lower costs of construction in Colorado.

Recent Trend in the Wrong Direction

In recent years,there has been a trend in K-12 construction contracts (as well as other municipal and local government construction contracts) which expands the potential liability of construction professionals beyond the current Statutes of Limitations and Repose.  Several school districts have expanded the Statute of Limitations to 6 years (after discovery of the defect) and the Statute of Repose up to 16 years (or in the case of Cherry Creek, a potentially unlimited Statute of Repose period).  These school districts have also changed the language of the limitation period so that it does not begin to run until actual discovery of the defect (rather than the physical manifestation), thus, reversing the changes made by the legislature in 1986.  A table summarizing examples from recent K-12 construction contracts is attached as Attachment 1.  Relevant excerpts from these construction contracts are attached as Attachment 2.

It is important that construction professionals in Colorado be aware of these contract provisions because they greatly expand the liability of construction professionals and disrupt the industry standards on which construction professionals (and their insurers and other related industries) rely.  Further, such negative trends tend to lead to inequitable risk shifting which is harmful to the industry.  The reasons such contract provisions are harmful to the construction industry in Colorado include:

 Potential expiration of insurance coverage.  Completed operations periods under most commercial general liability policies are capped at the statute of repose or ten years.  Therefore, a construction professional may be left without insurance coverage against a construction defect claim brought outside that period.

Destabilizing the insurance market.  Longer and inconsistent limitations and repose periods destabilize the market for insurance in Colorado as insurers attempt to price the increased risk of such longer periods on a contract-by-contract basis.

Prejudices construction professionals’ ability to defend themselves.  Construction professionals rely on project documentation and personnel to defend against defect claims.  It will be more difficult to locate project documents and personnel (witnesses) (who may no longer be available or remember the project) to defend lawsuits filed up to 16 years or longer after substantial completion of a project.

Construction professionals are more likely to be blamed for improper maintenance.  Construction professionals may face claims for issues which are, in reality, caused by improper or inadequate maintenance.  The passage of time increases the difficulty in distinguishing between damages caused by improper maintenance versus improper construction.

Unfair to allow claimants to sit on their claims.  A longer Statute of Limitations period means a claimant can sit on its hands and wait to bring an issue to the attention of a construction professional for up to six years after the claimant became aware of the issue, which runs counter to the public and industry interests in timely investigating and resolving problems.

Attachment 1
School District
Statute of Limitations
Statute of Repose
Lewis Palmer
6 years

10 years w/ extension of 6 years if discovered in 10th year

Douglas
6 years

15 years after final completion

Cherry Creek

6 years from SC or date of discovery, whichever is longer

None
Adams
6 years

10 years w/ extension of 6 years if discovered in 10th year

Aurora Public Schools
6 years

10 years w/ extension of 6 years if discovered in 10th year

Weld
6 years

8 years w/ extension of 2 years if discovered in 5th or 6th year

District 49
6 years

15 years from final completion and acceptance



Attachment 2
Lewis Palmer

GC 59.00

LIMITATION OF ACTIONS

Any actions against the Contractor, its subcontractors, suppliers, or others providing materials or services for the Project, brought to recover damages for injury to person, damage to property (including loss or damage to property on the Project itself), or defects in materials caused by the design, manufacture, supplying, planning, supervision, inspection, construction, or observation of construction of the Project shall be brought within six (6) years after such claim for relief arises and the nature and extent are fully discovered. In no case shall such an action be brought more than ten (10) years after the date of final completion and acceptance of the Project; provided, however, that in any case where the cause of action arises during the tenth year, such action shall be brought within six (6) years after such cause of action arises and the nature and extent are fully discovered by the Owner.
Douglas County
Short form contract - 10.2 Limitation of Actions - Any actions against the CM/GC, his employees or agents brought to recover damages for injury to person or defects in or damage to property, including the Work itself, caused by the administration, superintendence or efforts of the CM/GC or those under his control relating to this Project shall be brought within six (6) years after such claim for relief arises and is discovered by the Owner.
Regular General Conditions - GC - 53.00 LIMITATION OF ACTIONS
53.01 Any actions against the Contractor, his subcontractors, suppliers or others providing materials or services for the project, brought to recover damages for injury to person, damage to property or defects in materials caused by the design, manufacture, supplying, planning, supervision, inspection, construction or observation of construction of the project shall be brought within six (6) years after such claim for relief arises and the nature and extent are fully discovered. In no case shall such an action be brought more than fifteen (15) years after the final completion and acceptance of the project.

Cherry Creek





13.4.3 shall be added and shall read as follows:

Notwithstanding any other provision of these General Conditions, the statute of limitations for the filing of any and all claims arising pursuant to the Work and Contract Documents shall be six (6) years from the date of Substantial Completion as defined in subparagraph 8.1.3 or the date of discovery of the claim, whichever is later, or such longer period as may be permitted by law.

ARTICLE 13 - MISCELLANEOUS PROVISIONS / 13.7 TIME LIMITS ON CLAIMS
13.7.1 Add the following to the end of the first sentence of the Paragraph: or the Date of Actual Knowledge of the Cause or Claim by the Owner, whichever is later.

Adams 12

GC 53.00 LIMITATION OF ACTIONS
Any actions against the Contractor, its subcontractors, suppliers, or others providing materials or services for the Project, brought to recover damages for injury to person, damage to property (including loss or damage to property on the Project itself), or defects in materials caused by the design, manufacture, supplying, planning, supervision, inspection, construction, or observation of construction of the Project shall be brought within six (6) years after such claim for relief arises and the nature and extent are fulldiscovered. In no case shall such an action be brought more than ten (10) years after the date of final completion and acceptance of the Project; provided, however, that in any case where the cause of action arises during the tenth year, such action shall be brought within six (6) years after such cause of action arises and the nature and extent are fully discovered by the Owner.
Aurora Public Schools
GC-54.00 LIMITATION OF ACTIONS
Any actions against the Contractor, its subcontractors, suppliers, or others providing materials or services for the project, brought to recover damages for injury to person, damage to property (including loss or damage to property on the project itself), or defects in materials caused by the design, manufacture, supplying, planning, supervision, inspection, construction, or observation of construction of the project shall be brought within six (6) years after such claim for relief arises and the nature and extent are fully discovered. In no case shall such an action be brought more than ten (l0) years after the final completion and acceptance of the project; provided, however, that in any case where the cause of action arises during the tenth year, such action shall be brought within six (6) years after such cause of action arises and the nature and extent are fully discovered by the Owner.
Weld County
GC-54.00 LIMITATION OF ACTIONS
Any actions against the Contractor, its subcontractors, suppliers, or others providing materials or services for the Project, brought to recover damages for injury to person, damage to property (including loss or damage to property on the Project itself), or defects in materials caused by the design, manufacturesupplying, planning, supervision, inspection, construction, or observation of construction of the Project shall be brought within six (6) years after such claim for relief arises and the nature and extent are fully discovered. In no case shall such an action be brought more than eight (8) years after the date of final completion and acceptance of the Project; provided, however, that in any case where the cause of-action arises during the fifth or sixth year, such action shall be brought within two (6) years after such cause of action arises and the nature and extent are fully discovered by the Owner.
District 49
GC - 53.00 LIMITATION OF ACTIONS
53.01 Any actions against the Contractor, his subcontractors, suppliers or others providing materials or services for the project, brought to recover damages for injury to person, damage to property or defects in materials caused by the design, manufacture, supplying, planning, supervision, inspection, construction or observation of construction of the project shall be brought within six (6) years after such claim for relief arises and the nature and extent are fully discovered. In no case shall such an action be brought more than fifteen (15) years after the final completion and acceptance of the project.

This whitepaper comes from Henry Bangert and our friends at Beltzer Bangert & Gunnell, LLP.  

Tuesday, February 5, 2019

Steven L. Heisdorffer Joins Higgins, Hopkins, McLain & Roswell

Higgins, Hopkins, McLain & Roswell is pleased to announce that Steve Heisdorffer has joined the firm as Special Counsel.  Steve joins the firm after having been a partner at Godin & Baity, LLC for the last twenty-five years. 

Mr. Heisdorffer represents construction professionals in construction defect disputes and advises them regarding risk mitigation and transfer. Mr. Heisdorffer is an experienced trial lawyer that has tried commercial disputes and construction defect cases in arbitration forums and courts over the last 28 years.  In addition, he has successfully represented large and small companies in commercial disputes, including computer software performance and intellectual property disputes, taking several to trial.  Steve has also acted as a counselor to technology companies.  Steve has expertise drafting and negotiating development agreements, distributor agreements, license agreements, and service agreements for his technology clients.

Mr. Heisdorffer graduated with high honors from both the University of Northern Iowa and University of Iowa, College of Law and is an AV ® Preeminent™ Peer Review Rated attorney by Martindale-Hubbell and has presented to a variety of trade groups including technology, construction, and insurance industries. 

Regarding Mr. Hesidorffer’s joining the firm, founding member Dave McLain said: “We have a long history with Steve and his former partners at Godin & Baity, going back to co-counseling and trying cases while Dave Higgins and I were still at Long & Jaudon in the late 1990s.  Our firms have always had similar clientele and an unwavering devotion to serving our clients’ best interests.  I could not be happier that Steve decided to join HHMR.”

You can reach Steve Heisdorffer by e-mail at heisdorffer@hhmrlaw.com or by telephone at (303) 653-0044.

Monday, February 4, 2019

Will There Be Construction Defect Legislation Introduced in the 2019 Colorado Legislative Session?

With the 2019 Colorado legislative session well underway, the construction industry is waiting with bated breath to see what the Democrat controlled legislature might do with respect to construction defect legislation.  In recent years, having a split legislature has prevented any attempts to roll back positive changes in the law, either from the legislature or Colorado courts, that have been hailed by the construction community.

This year, odds are good that we will see at least one bill similar to two introduced last year that would hinder the ability to have disputes decided by binding arbitration.  While not full frontal assaults on the Colorado Supreme Court decision in the Vallagio case, HB18-1261, the “Colorado Arbitration Fairness Act,” and HB 18-1262, the “Arbitration Services Provider Transparency Act,” would have negatively impacted the ability to resolve any type of case through arbitration.  Anything that prevents the resolution of construction defect cases through arbitration will increase the judgments and settlements in such cases, ultimately increasing the costs of construction and for insurance for those in the industry.  

There are also rumors floating around that plaintiffs’ attorneys may try to convince the legislature to overturn the Colorado Supreme Court’s decision in Goodyear Tire & Rubber Co. v. Holmes, which ruled that homeowners or homeowners associations are not entitled to prejudgment interest in situations where the measure of damages is in the form of cost of repairs not yet made.  If such an attempt is successful, and prejudgment interest becomes recoverable, this will also increase judgments and settlements in construction defect cases. 

When there is still a struggle to provide attainable housing in Colorado, either of these changes would also be a step in the wrong direction.  We will continue to watch the goings on at the State Capitol and will report any changes to roll back past changes to Colorado law.     

For additional information regarding warranty repairs or about construction defect litigation in Colorado, generally, you can reach David M. McLain by telephone at (303) 987-9813 or by e‑mail at mclain@hhmrlaw.com.

Thursday, December 27, 2018

Plaintiffs’ claims in Barry v. Weyerhaeuser Company are likely to proceed after initial hurdle.

By: Frank Ingham

On December 18, 2018, Federal Magistrate Judge Scott T. Varholak recommended in a written opinion that the Motion of Defendant Weyerhaeuser Company (“Weyerhaeuser”) to Dismiss Amended Complaint Pursuant to F.R.C.P. 12(b)(6) be denied. Barry v. Weyerhaeuser Company, 2018WL6589786 (D. Colo. 2018). As such, we believe District Court Judge Christine M. Arguello will accept this recommendation and the lawsuit will proceed.

At interest in this lawsuit are TJI joists designed, manufactured, and sold by Weyerhaeuser for residential construction. Headquartered in Seattle, Washington, Weyerhaeuser is one of the world’s largest private owners of timberlands, owning or controlling nearly 12.4 million acres in the United States and managing 14 million acres in Canada. It is a public company that trades on the New York Stock Exchange with revenues of $7.2 billion in 2017.[1] In addition to managing forests, Weyerhaeuser has interests in energy, minerals, and wood products.[2] 

In this case, the joists were used in homes built at the Wyndham Hill subdivision in Weld County and the Dove Creek in Douglas County. A lawsuit was filed in Colorado District Court, case number 2018CV01641, Barry et al. v. Weyerhaeuser Company. The six Plaintiffs worked in various capacities during the construction of the homes within the two subdivisions. In addition, as discussed below, there are class action lawsuits against Weyerhaeuser in five other states regarding the TJI joists. The joists are composed of wood particles and treated with Flak Jacket coating, a proprietary coating designed by Weyerhaeuser. Barry at 1. The joists are installed during construction to support floors and ceilings within the home and are typically covered by drywall or the flooring. The joists look like typical I-beams with the vertical center made wood chips, covered with the Flak Jacket coating.

In December 2016, Weyerhaeuser began commercial production of a fourth generation of Flak Jacket known as “Gen 4,”which contained a formaldehyde-based resin. Barry at 1. As reported by the American Cancer Society, formaldehyde is commonly found in building materials, including various wood products, adhesives, many household products, and even added as a preservative to food.[3] Formaldehyde is also released in automobile exhaust and tobacco smoke. Id.  Four months after production of Gen 4 began, in April 2017, Weyerhaeuser received notice that homeowners were complaining of an odor in homes where these joists were installed. Barry at 1. Weyerhaeuser concluded the odor was related to formaldehyde “off-gassing” and on July 6, 2017, sent a letter to dealers, distributors, and home builders warning them of the odor related to the joists which contain formaldehyde. Id. In a second letter sent that same day, Weyerhaeuser warned builders that workers in basements in affected homes to contact Weyerhaeuser’s customer care line for guidance. Id. In July 2018, Weyerhaeuser announced it stopped production and sales of these joists and advised affected homeowners to vacate their homes until the Flak Jacket could be remediated. Id

The Amended Complaint states the Plaintiffs were unknowingly exposed to dangerous levels of formaldehyde. Barry at 2. They alleged coughs, shortness of breath, burning eyes, rashes, sinus issues, and increased risks of respiratory ailments and cancer. Id. The Complaint alleges that the Occupational Safety and Health Administration (“OSHA”) recognized formaldehyde as a cancer hazard and respiratory illness. Id. According to Plaintiffs, and as confirmed by OSHA,[4] OSHA set a permissible exposure to formaldehyde limit of .75 parts per million in an eight-hour time weighted average. Id. At 2 parts per million, the maximum exposure allowed is 15 minutes, and levels exceeding 100 parts per million are immediately dangerous to life and health. Id.  Plaintiffs alleged they were exposed to levels exceeding 2 parts per million for many hours per day, for months. Id. at 3.

Weyerhaeuser moved to dismiss the two claims of Strict Liability and Negligence pursuant to F.R.C.P. 12(b)(6), failure to state a claim upon which relief can be granted. Magistrate Varholak recommended this motion be denied. Barry at 5. Under this rule, the court must accept the factual allegations as true and in the light most favorable to the plaintiff. Id. (citing Casanova v. Ulibarri, 595 F.3d 1120, 1124 (10th Cir. 2010)). To survive the motion, the amended complaint must contain sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face. Id. (citing Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). A complaint must contain enough factual matter to suggest that the plaintiff is entitled to relief. Id. (citing Bell Atl. Corp. v. Twombly, 550 U.S. 554, 556 (2007)). The court reviews whether there are sufficient alleged facts supporting all the elements necessary to establish an entitlement to relief under the legal theory proposed. Id. (citing Forest Guardians v. Forsgren, 478 F. 3d 1149, 1160 (10th Cir. 2007)).

For both claims, Weyerhaeuser argued Plaintiffs failed to plausibly allege they sustained any damages or that the product caused any damages they did sustain. Barry at 3. For negligence, a plaintiff must prove the existence of a legal duty on the part of the defendant, breach of that duty, causation and damages. Id. at 5 (citing Davenport v. Cmty. Corr. of Pikes Peak Region, Inc., 962 P.2d 963, 966 (Colo. 1998). For strict liability, Colorado recognizes three areas of the manufacturing process that lead to strict liability claims: 1) physical flaws due to improper manufacture; 2) inadequate design; and 3) inadequate warnings for safe use. Id. (citing Union Supply Co. v. Pust, 583 P.2d 276, 280 (Colo. 1978)). For each of the three areas, a plaintiff must prove, among other elements, that the alleged defect caused plaintiffs’ injuries. Id. (citing Barton v. Adams Rental, Inc., 938 P.2d 532, 536-37 (Colo. 1997), Wollam v. Wright Med. Grp., Inc. 2012 WL 4510695 at 2 (D. Colo. Sept. 30, 2012); Oja v. Howmedica, Inc., 111 F.3d 782, 791 (10th Cir. 1997)).

Magistrate Varholak noted that Weyerhaeuser itself recognized the dangers from the defective joists and instructed homeowners to vacate their homes with these joists. Magistrate Varholak found these allegations plausibly allege the ailments were caused by the defective joists and recommended the Weyerhaeuser motion to dismiss be denied. Id. at 4-5.

Class Action Lawsuit

Berger & Montague, P.C. filed six class action lawsuits in federal courts in Colorado, Delaware, Minnesota, New Jersey, New York, and Pennsylvania against Weyerhaeuser regarding the TJI Joist.[5] The Colorado case is styled, Smith et al v. Weyerhaeuser Company, case number 17CV01900, and seeks more than $5 million in damages, exclusive of interests and costs.[6] In the initial pleading, the class of plaintiffs lists only Alyse Smith and Ryan Smith, but purports to represent a class of hundreds or thousands of members. Locally, the Law Office of Franklin D. Azar & Associates, P.C. is listed as counsel for Plaintiffs. This lawsuit was filed on August 4, 2017. On August 3, 2018, the case was administratively closed by order granting Weyerhaeuser’s Motion to Compel Arbitration and Dismiss or Stay This Action. Plaintiffs’ home purchase agreements with the developer required arbitration for any supplier who provided labor, services, or materials to the project.  The Court agreed with Weyerhaeuser and ordered the matter to arbitration.

Conclusion

Magistrate Varholak merely issued a recommendation. However, in light of the actions taken by Weyerhaeuser to warn homeowners to leave their homes, along with the OSHA standards, we find it unlikely District Court Judge Christine M. Arguello will reject the recommendation and deny plaintiffs their day in court. It is not yet known if Weyerhaeuser will seek to enforce arbitration in the Barry lawsuit, or whether the cases will be joined into a single class action. We believe both to be likely scenarios to ensure judicial economy.

Concerning our developer clients, the arbitration provisions in the home purchase agreements between the developer and the home buyer were broad enough to benefit a material provider such as Weyerhaeuser.  We recommend broad arbitration provisions in construction contracts as arbiters tend to avoid the emotional issues regarding home defects, where juries tend to be more empathetic.  This is evident by the fact that Plaintiffs in the Smith class action lawsuit fought to prevent arbitration. 

For additional information regarding Barry et al. v. Weyerhaeuser Company or about construction defect litigation in Colorado, generally, you can reach Frank Ingham by telephone at (303) 653-0046 or by e-mail at ingham@hhmrlaw.com.
[6] The amount of damages sought is likely much higher than $5 million.  This is the amount listed in the Complaint as required to give jurisdiction to the District Court of Colorado.[1] 

Disclaimer

The information contained in this blog is provided for informational purposes only. It is not legal advice and should not be construed as providing legal advice on any subject matter.