Friday, April 2, 2021

Attorneys' fee clauses are engraved invitations to sue

As we start another trip around the sun, hopefully you are in the process of updating your form contracts, including purchase and sale agreements and express written warranties. Because the law and litigation landscape continually changes, it is a good practice to periodically update the forms you use in order to give yourself a fighting chance if and when the plaintiffs' attorneys come knocking on your door. As you engage in this process, I hope that you will take a critical look at whether your contracts include a prevailing party attorneys' fees clause and, if so, whether you should leave it in there. 

In Colorado, parties are entitled to recover attorneys' fees only if provided for by statute or by contract. Historically, plaintiffs' attorneys relied on two statutes, the Colorado Consumer Protection Act and Colorado's Statutory Interest statute, to recover attorneys’ fees in construction defect cases. In 2003, the Colorado legislature capped treble damages and attorneys' fees under the Colorado Consumer Protection Act at $250,000, effectively restricting plaintiffs' attorneys from relying on the CCPA to recoup their attorneys' fees, especially in large cases. In 2008, the Colorado Supreme Court issued its decision in Goodyear v. Holmes, stating that plaintiffs can only claim prejudgment interest under Colorado's Statutory Interest statute, in cases where they have already spent money on repairs, not when they are suing for an estimate of what repairs will cost in the future. Without either the CCPA or the prejudgment interest statute to recover attorneys' fees, plaintiffs' attorneys most often now rely on the prevailing party attorney fee clause in contracts between the owner and builder, or in the declaration of covenants, conditions and restrictions in situations where a claim is prosecuted by an HOA.

In speaking with clients in the past, it seems that the conventional wisdom has been that homeowners or HOAs would be less likely to pursue legal action if there was a threat that they may have to pay the builder's attorneys' fees if they lose. While I cannot speak to any specific situation in which this clause has been used to successfully fend off a construction defect case, I can speak to the innumerable times that we have had to fight with plaintiffs' attorneys about the fees they claimed because our own clients' documents provided for prevailing party attorney fees.

Just for a moment, put yourself in the shoes of a homeowner or an HOA board member. Would you be more or less willing to pursue a construction defect action, or to push questionable claims, if you knew that at the end, you would have to pay your own attorneys' fees out of the cost of repair ultimately awarded? If your contracts provide for prevailing party attorneys' fees, this is not a question that your buyers or HOAs will ever have to answer. With the clause in the contracts or CCRs, plaintiffs' attorneys are able to say, truthfully, that they only get paid if they recover a cost of repair for you, by virtue of the contingent fee agreement used. Better yet, because of the prevailing party clause in the contract or CCRs, they will be able to get the builder to pay the attorneys’ fees, such that it will not even come out of the cost of repair awarded. Viewed in this light, the prevailing party attorneys' fees clause is nothing more than an engraved invitation for your owners to sue.

As you start another year, consider whether the time is right to remove the prevailing party attorneys' fees clause from your purchase and sale agreements and CCRs. It remains appropriate to seek attorneys' fees from subcontractors actually performing the work, as part of their duties to defend and indemnify you, but I believe it is time to reconsider whether you want to provide that incentive to your homeowners or HOAs.


For additional information on attorneys' fees, or construction litigation in Colorado, you can reach Dave McLain by telephone at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com

Tuesday, March 23, 2021

Settlement Agreement? It Ain’t Over ‘Til it’s . . . Final, in Writing, Fully Executed, and Admissible

As litigators we have all been there: nearing the end of a hard-fought mediation that lasted all day.  Your significant other texts to ask what is for dinner; daycare closes in thirty minutes; the dog needs to be let out.  The mediator, a retired judge, gently reminds you of his prior commitment—a speaking engagement at a volunteer charity dinner event that night.  Though the parties started the day at opposite ends of the spectrum, after numerous counteroffers, persistent negotiation, and mediation tactics, they finally strike a deal.  

As the mediator prepares a document memorializing the terms of settlement, the parties wait with bloodshot eyes, and a sense of guarded accomplishment considering compromises were
made, but alas, an outcome seems certain.   You text your significant other to indicate that you will pick something up for dinner on your way home. 
 

Then, the mediator informs you that computer problems are preventing finalization and transmission of the document for signature.  The mediator offers to send an e-mail setting forth the material settlement terms and asks each party to respond via e-mail to confirm the terms are correct, which the parties do. After a quick e-mail to your experts and case team asking them to cease trial preparation work, you leave for home. 

A few days later, after drafting and circulating a formal settlement agreement, the other side gets cold feet—and refuses to sign it.  Too bad, right?  Their e-mails to the mediator confirming settlement will make for a surefire motion to enforce a settlement agreement, right?  Wrong—at least according to a division of the Colorado Court of Appeals in Tuscany Custom Homes, LLC v. Westover, 2020 COA 178.

The Tuscany court reviewed a similar situation involving a breach of construction contract dispute between Tuscany Custom Homes, LLC (“Tuscany”), which contracted with John Westover and two of his companies (collectively “Westover”) to construct a home and sell it to Westover, who would in turn sell it to John and Cynthia Platenak, who were joined as third-party defendants.

During mediation, the mediator encountered technical difficulties with his computer and concluded mediation by sending the following e-mail to the parties:

 

Dear Counsel,

 

I would like to thank each of you and your respective clients for your hard work today in reaching a resolution. . .  The purpose of this email is to summarize the terms of the settlement reached today, which summary will be used to prepare a formal Mutual Release and Settlement Agreement that is to be prepared by [Tuscany's counsel]. The terms of the settlement are as follows. . .

 

I request that all counsel review the above and e-mail their assent to the above terms of settlement.

By e-mail, the parties each indicated their assent, but when Tuscany’s counsel sent a proposed settlement agreement, which Westover’s counsel approved, Westover refused to sign.  Tuscany and the Platenaks pursued a motion to enforce the settlement agreement.  In response, Westover argued an additional clause should be included in the agreement to avoid construing it as preventing Westover from asserting future claims against nonparties.  The parties deposed the mediator who testified that settlement was reached, and that the terms in the settlement e-mail chain accurately reflected the agreement. 

After a hearing, and over objections from Westover that various evidence was inadmissible as confidential mediation communications, the Larimer County District Court granted the motion to enforce the settlement agreement finding that an enforceable oral contract was formed, and that Westover’s additional clause regarding future nonparty claims was not a material term.

On appeal, the Tuscany court ruled that much of the evidence of settlement offered to support the motion to enforce the settlement agreement including the mediator’s e-mail and Tuscany’s draft settlement agreement, constituted inadmissible mediation communications under Colorado’s Dispute Resolution Act (C.R.S. § 13-22-301, et seq.).  In reaching this ruling, the court cited C.R.S. § 13-22-302(2.5), which excludes from the definition of mediation communication: fully executed, written agreements reached as a result of mediation, unless otherwise agreed upon by the parties.  Tuscany ultimately held that, in general, the only admissible evidence of an agreement reached during mediation is a signed written agreement.  As a result, the lower court was reversed because there was insufficient admissible evidence to prove the existence of an enforceable agreement.

Tuscany highlights an important takeaway: the often-overlooked distinction between forming a contract, and proving a contract.  Because evidence of contract formation is generally inadmissible, perhaps the only certain way of proving the existence of terms of an agreement reached at mediation is by ensuring it is: (1) a final agreement; (2) reduced to writing; and (3) fully executed.  While the recent increase in virtual mediations create difficulties in this regard, the experienced litigator must be insistent and vigilant in order to perfect a settlement.  If for some reason a final settlement is not possible, the client must be advised of the risk of settlement unenforceability if any party backs out.  

Remember, the next time your significant other asks what is for dinner, you should probably tell him or her to look at what is in the freezer.   

For additional information regarding the Tuscany decision, or construction litigation in Colorado, you can reach Todd Likman by telephone at (303) 987-9814 or by e-mail at likman@hhmrlaw.com.

 


Thursday, March 11, 2021

Carin Ramirez and David McLain recognized among the Best Lawyers in America© for 2021

Higgins, Hopkins, McLain & Roswell is pleased to announce that Carin Ramirez and David McLain were recently selected by their peers for inclusion in The Best Lawyers in America© for 2021. Carin Ramirez has been recognized for her work in insurance litigation and David McLain has been recognized for his work in construction law. 

Carin Ramirez has over 11 years of experience in civil defense litigation with an emphasis on the defense of construction defect lawsuits on behalf of developers, general contractors, and other construction professionals. She also practices in the areas of personal injury defense, premises liability, environmental torts, wrongful death, negligent design, property damage, subrogation claims, contract disputes, bad faith, and commercial litigation.   David McLain has over 22 years of experience and is well known for his work in the defense of the construction industry, particularly in the area of construction defect litigation. He is a member of the Executive Committee of the CLM Claims College - School of Construction, which is the premier course for insurance, industry, and legal professionals.

HHMR is highly regarded for its expertise in construction law and the litigation of construction-related claims, including the defense of large and complex construction defect matters. Our attorneys provide exceptional service to individuals, business owners, Fortune 500 companies, and the insurance industry. The firm is experienced in providing legal support throughout trials and alternative dispute resolution such as mediations and arbitrations.

Since it was first published in 1983, Best Lawyers® has become universally regarded as the definitive guide to legal excellence. Best Lawyers lists are compiled based on an exhaustive peer-review evaluation. Almost 108,000 industry leading lawyers are eligible to vote (from around the world), and we have received over 13 million evaluations on the legal abilities of other lawyers based on their specific practice areas around the world. For the 2021 Edition of The Best Lawyers in America©, 9.4 million votes were analyzed, which resulted in more than 67,000 leading lawyers being included in the new edition. Lawyers are not required or allowed to pay a fee to be listed; therefore inclusion in Best Lawyers® is considered a singular honor.

Friday, January 22, 2021

This is why I practice law

This week I received an e-mail from a developer client with whom we have recently been working on a residential construction defect matter.  I receive a lot of e-mails during any given week, but this one struck me.  Short and sweet, the e-mail reads:

Dave,

Just thinking today about the legal problems in the last couple years.  I just wanted you to know that there isn’t a day that goes by that I don’t think I’m just plain lucky I found David McLain.  I may not always sound appreciative on the phone but I want you to know that I truly am grateful our paths have crossed. 

Thanks
[client]

Being on the defense side of cases is not glorious.  Defense attorneys typically do not get headlines or recognition, certainly there are more lucrative practice areas out there, and the goal in many cases on the defense side is essentially to minimize exposure in settlement or judgment in as cost-effective manner as possible.

The reason I practice in this area is to make a difference in the lives of my clients and to help them get through tough situations.  Knowing that I can do this and do this well keeps me going.  To get an e-mail like I did this week is just icing on the cake.  

For additional information on construction litigation in Colorado, you can reach Dave McLain by telephone at (303) 987-9813 or by email at mclain@hhmrlaw.com.

Thursday, December 10, 2020

Colorado requires builders to accommodate high-efficiency devices in new homes

Starting in 2009, the Colorado Legislature began adding requirements that builders offer certain options to accommodate high-efficiency devices. These requirements started with solar prewire options in 2009, then water-smart home options in 2010. In 2020, the Legislature added requirements for electric vehicle charging and heating systems. These sections apply to unoccupied homes serving as sales inventory or a model home or manufactured homes, as defined by Colorado law. While the Legislature has only required builders to include options to accommodate these devices, it may be just a matter of time until builders must install the prescribed devices themselves.


In 2009, the Legislature passed C.R.S. 38-35.7-106, which was amended this year by HB 20-1155. As it now reads, Colorado law requires every builder of single-family detached residences to offer to have the home’s electrical or plumbing system, or both, include:

  1. A residential photovoltaic solar generation system or a residential thermal system, or both;
  2. Upgrades of wiring or plumbing, or both, planned by the builder to accommodate future installation of such systems; and
  3. A chase or conduit, or both, constructed to allow ease of future installation of the necessary wiring or plumbing for such systems.

The builder must also provide buyers with a list of businesses in the area that offer residential solar installation services.

In 2010, the Legislature passed C.R.S. 38-35.7-107, which requires every builder of single-family detached residences to offer one or more of the following water-smart home options:

  1. Energy Star dishwashers or washing machines;
  2. Landscaping that follows the practices outlined in “Green Industry Best Management Practices for the Conservation and Protection of Water Resources in Colorado: Moving Toward Sustainability,” released in May 2008, or this document’s successor; or
  3. A pressure-reducing valve that limits static service pressure in a residence to a maximum of 60 pounds per square inch.

Finally, in 2020, the Legislature passed HB 20-1155, to be codified as C.R.S. 38-35.7-109. This law requires every builder of new residences to offer to have the home’s electrical system include one of the following:

  1. An electric vehicle charging system;
  2. Upgrades of wiring to accommodate future installation of an electric vehicle charging system; or
  3. A 208- to 240-volt plug-in receptacle accessible to a motor vehicle parking area.

Builders must also offer buyers an option for an efficient electrical heating system, including an electric water heater, electric boiler, or electric furnace or heat-pump system. Finally, this law requires that the builder offer the buyer pricing, energy efficiency and utility bill information for each natural gas, electric or other option available, either from the federal Energy Star program, or similar information reasonably available to the builder.

Nothing in these laws preclude the builder from charging or requiring deposits for these upgrades, or requiring that the decision to include the upgrade be made according to a specific deadline or construction schedule; or prohibit the builder from selecting the contractors for installation of the offered upgrades. These sections all state that the builder can, by contract, indicate that the higher efficiency options are based on technology available at the time of installation; that they may not support high-efficiency devices installed in the future, or that additional upgrades, retrofits or other alterations may be necessary to accommodate high-efficiency devices installed in the future; and that the builder is not liable for any such upgrades, retrofits or alterations. Builders should be sure to include this language in their purchase and sale documents.


For additional information on green building, or construction litigation in Colorado, you can reach Dave McLain by telephone at (303) 987-9813 or by email at mclain@hhmrlaw.com.

Friday, September 25, 2020

Colorado’s abbreviated legislative session offers builders a reprieve

Would you believe me if I told you that this year could have been worse for builders? Had COVID-19 not hit, the Colorado Legislature may have passed bills that would have had a severely negative impact on the home building industry. In response to the COVID-19 pandemic, the Legislature temporarily adjourned in mid-March, 67 days into the 120-day legislative session. After a two-month recess, the Legislature returned for approximately one month to pass critical bills including the state budget, the school finance act and what to do with the money from the federal CARES Act. Of the bills on the calendar when the Legislature temporarily adjourned, legislators focused on those that were “fast, free, and friendly,” and let the others fall by the wayside. 

Bills that died included SB 20-138, which would have extended Colorado’s statute of repose for construction defect claims from six plus two years to 10 plus two years. The bill also contained a number of accrual and tolling provisions, which would have made it harder for builders to convince tribunals that claims were untimely. This bill died on the Senate floor, for lack of support. We will see whether plaintiffs’ attorneys will revive this effort next year. 

SB 20-093, while not an outright ban on arbitration or a legislative overturning of the Vallagio decision, would have made it harder to administer and more difficult to get cases into arbitration. The bill died under the “fast, free, and friendly” test, i.e., it faced too much opposition. I expect to see this bill again next year, in some form.

HB 20-1046 would have limited retainage to 5% on certain construction contracts. The bill also included requirements on timing of payments, interest on late payments, and attorneys’ fees and costs to be awarded to those who sued for late or non-payment. The bill died in committee prior to the COVID-19 recess in the face of opposition from owners’ groups. It remains to be seen whether this bill will be rerun next year.

The Legislature did pass a number of bills that will impact the home building community. Among them, HB 20-1155 will require, once it goes into effect, home builders to offer: a solar panel system, a solar thermal system or both; prewiring or pre-plumbing for the solar systems; and a chase or conduit for future installation of such systems. The bill will further require builders to offer: an electric vehicle charging system; prewiring for the future installation for such a system; or a plug-in receptacle in a place accessible to a vehicle parking area. Finally, the bill will require builders to offer electrical heating systems.

Buckle up for next year when some or all of the unsuccessful bills from this year return, and the plaintiffs’ bar takes another crack at the home building industry.


For additional information on Colorado's legislative session, or construction litigation in Colorado, you can reach Dave McLain by telephone at (303) 987-9813 or by email at mclain@hhmrlaw.com

Thursday, September 10, 2020

David McLain Recognized Among the 2021 Edition of The Best Lawyers in America© for Construction Law

David McLain is a founding member of Higgins, Hopkins, McLain & Roswell.  Mr. McLain has over 22 years of experience and is well known for his work in the defense of the construction industry, particularly in the area of construction defect litigation. He is a member of the Executive Committee of the CLM Claims College - School of Construction, which is the premier course for insurance, industry, and legal professionals. Law Week Colorado recently named Mr. McLain as the 2019 People’s Choice for Best Construction Defects Lawyer for Defendants.

HHMR is highly regarded for its expertise in construction law and the litigation of construction-related claims, including the defense of large and complex construction defect matters. Our attorneys provide exceptional service to individuals, business owners, Fortune 500 companies, and the insurance industry. The firm is experienced in providing legal support throughout trials and alternative dispute resolution such as mediations and arbitrations.

Since it was first published in 1983, Best Lawyers has become universally regarded as the definitive guide to legal excellence. Best Lawyers lists are compiled based on an exhaustive peer-review evaluation. Almost 108,000 industry leading lawyers are eligible to vote (from around the world), and is has received over 13 million evaluations on the legal abilities of lawyers based on their specific practice areas around the world. For the 2021 Edition of The Best Lawyers in America, 9.4 million votes were analyzed, which resulted in more than 67,000 leading lawyers being included in the new edition. Lawyers are not required or allowed to pay a fee to be listed; therefore, inclusion in Best Lawyers is considered a singular honor.

 

For information about construction litigation in Colorado, you can reach Mr. McLain by e-mail at mclain@hhmrlaw.com or by telephone at (303) 987-9813.

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.