In Re Golba: The Knaubs v. Golba and Rollison, Debtors - Revisited

Roughly a year ago, this blog reviewed a bankruptcy court order finding an individual’s, Greg Rollison (“Rollison”), debt was non-dischargeable.  The court found Rollison made false representations under § 523(a)(2)(A)  to Kelvin and Holly Knaub (the “Knaubs”), knowing such representations to be false, with the intent to deceive the Knaubs into believing a replacement house would be built for them.    While the court did not find the corporate veil should be pierced in the case, it did find that Rollison made personal representations on which the Knaubs relied.  In the end, the court ruled that the Knaubs suffered damages, in an amount to be determined later, arising from problems with a defective home.  Thus, as to Rollison, the Knaubs’ debt was found nondischargeable under § 523(a)(2)(A).

The United States Bankruptcy Court in Denver, Colorado, through the Honorable Michael Romero, recently ruled on the damages Rollison owes to the Knaubs.  Among the damages to be determined were pre and post-judgment interest as well as attorney’s fees and costs.  The court found neither pre-judgment interest nor attorney’s fees were appropriate, but post-judgment interest at statutory rate and the Knaubs’ costs should be awarded.

The facts bear a quick review.  In May 2003, the Knaubs purchased a home from Gemm Homes (“Gemm”), which was owned by Robert Golba (“Golba”) and which employed Rollison.  Gemm was in financial trouble and transferred some of its assets to Avalon Homes (“Avalon”), primarily run by Golba, but also employing Rollison.  Once foundation issues with the Knaubs’ home were identified, Rollison, around May 1, 2007, made representations to the Knaubs that he would be able to construct a new home for them.  The court found Rollison made false representations because he represented he possessed the ability, through other projects, to build the Knaubs a new home.

The Knaubs sought entry of a judgment for non-dischargeable amount of $162,000, plus attorney fees and costs, pre-judgment interest at the rate of 8% per annum from May 1, 2003 through May 15, 2012, and post-judgment interest at the rate of 8% per annum.  Rollison did not oppose post-judgment interest and did not challenge the underlying principal amount of $162,000, calculated pursuant to Mascio v. Gronewoller (In Re Mascio), 454 B.R. 146 (D. Colo. 2011).  Rollison did oppose any awards for pre-judgment interest and attorney fees and costs.

The court briefly discussed the calculation of the underlying non-dischargeable debt of $162,000.  Pursuant to Mascio, the court calculated the difference between the actual value of the Knaubs’ home with its defects on the purchase date, and the purchase price for the home without defects to be $162,000 as stipulated to by both parties.

Next, the court discussed post-judgment interest and found it appropriate. However, the court found that 28 U.S.C. § 1961(a) allowed the interest to run at a different rate.  Therefore, instead of the 8% per annum the Knaubs requested, the court found that post-judgment interest would run at the federal judgment interest rate under 28 U.S.C. § 1961.  The interest under the federal statute is calculated at a rate equal to the weekly average one-year constant maturity Treasury yield for the calendar week preceding the date of the judgment.

The court’s finding regarding pre-judgment interest was a bit more involved as it had to first determine when, if ever, there was any money or property wrongfully withheld.  In Goodyear Tire & Rubber Co. v. Holmes, 193 P.3d 821 (Colo. 2008), the Supreme Court of Colorado stated that “wrongfully withheld” means the aggrieved party lost or was deprived of something to which it was otherwise entitled.  The court was quick to distinguish the fact that the date when something is “wrongfully withheld” is not necessarily the same date as when a party is “wronged” and cannot be before a party is “wronged.”

The Knaubs were seeking to get the date of their initial purchase of the house, May 1, 2003, established as the date the $162,000 they were owed was “wrongfully withheld” to begin the running of the pre-judgment interest.  In the alternative, the Knaubs argued that the May 1, 2007, when Rollison made his representations should be the date when pre-judgment interest should begin.  The court found the Knaubs were not wronged until the date Rollison made his representation, thus pre-judgment interest would not start on May 1, 2003.  Thus, the pre-judgment interest would run from when, if ever, Rollison “wrongfully withheld” money or property in connection with his misrepresentation.

The court reviewed the evidence presented by both parties and found that neither party provided a date or a time frame for when the replacement home Rollison promised was to be built.  Thus, without a definite date, the court could not find that pre-judgment interest could accrue from the date of Rollison’s representation on May 1, 2007.  The court was also persuaded by the fact that there was no written contract for the replacement home between the Knaubs and Rollison, and the Knaubs were not out-of-pocket for any repairs costs.  Thus, the Knaubs were not able to recover pre-judgment interest under C.R.S. § 5-12-102(1).

The attorney fees the Knaubs sought were also dismissed, largely because of the lack of contract between Rollison and the Knaubs.  The American Rule maintains that attorney fees must be provided for by statue or within a contract document.  Along with the fact that no contract exists between the parties, no statute which governs the case provides for attorney fees.  However, the Knaubs’ complaint requested an award under § 523(a)(2)(A), plus costs, and the Fed. R. Bankr.P. 7054(b) does provide for costs to the prevailing party.  The court then found that an award of costs was appropriate based on the facts of the case.  In the end, Rollison is facing a judgment of $162,000 plus whatever costs the Knaubs incurred and any post-judgment interest – a heavy nondischargeable debt.

For additional information regarding the Golba case or construction law in Colorado, you can reach Brady Iandiorio by e-mail at Iandiorio@hhmrlaw.com or by telephone at (303) 987-9816.

Colorado Senate Bill 13-052 Dies in Committee

On April 17, 2013, the Colorado Senate Judiciary Committee voted, along party lines, to postpone indefinitely SB 52. Here is a link to the Denver Business Journal's story regarding the bill and its untimely demise: "Lawmakers kill lawsuit limits on condo defects."

Unfortunately, it will be at least another year before the legislature will have the ability to provide some much needed relief to the Colorado construction industry. I would like to thank those who came out to support Senate Bill 52 and those who contacted legislators to urge their support. As noted by the Denver Business Journal, "[Senator ] Scheffel is a resilient legislator — this is the man who's brought bills pushing some form of business personal property tax relief for five straight years — and you can bet he'll be back with some effort at limited construction-defects tort reform next year." 

Until then, please feel free to contact me by e-mail at mclain@hhmrlaw.com or by telephone at (303) 987-9870 if you have any questions regarding construction law in Colorado. 

- David M. McLain

Update on Colorado Senate Bill 13-052

Here is an update regarding SB 52 from Amie Mayhew, Executive Director of the Colorado Association of Home Builders:

Yesterday, the Senate Judiciary Committee heard the proponents testimony on SB-52.  Because the Senate was due back on the floor by 5:00 they were not able to hear all of the opponents or to deliberate.  

SB-52 has been scheduled for tomorrow, Wednesday, April 17th at 1:30 p.m. In room 356 – the Committee will hear from the rest of the opponents and will then vote on the bill.  If you can't join us at the Capitol, you can listen to the hearing online by clicking here.  When you arrive on this page after 1:30 p.m. - you'll need to click on "Listen to Event."  

A huge thank you to all of the witnesses who testified in favor of SB-52 for us yesterday!  

• Mayor Marc Williams, Arvada
• John Covert, MetroStudy
• Tom Clark, Metro Denver Economic Development Corp., the Denver Metro Chamber of Commerce and C3, The Colorado Competitive Council
• Brittany Morse-Saunders – Downtown Denver Partnership
• Mike Fitzgerald – Denver South Economic Development Partnership
• Gary Frisch, Professional Independent Insurance Agents of Colorado
• Tony Milo - Colorado Contractors Association and Michael Gifford Associated General Contractors 
• Ken McLagan, Hyder Construction 
• Mike Wisneski and Kevin Eronimous – AIA Colorado
• Wendy Amann, American Council of Engineering Companies of Colorado, Allen Lisowoy, Colorado Association of Geotechnical Engineers, Andrew Kelsey, Structural Engineers Association of Colorado
• Mark Trenka – Colorado Association of REALTORS
• Chetter Latcham, Shea Homes
• Gary Godden, Godden, Sudek Architects 
• Chris Pressley, Meritage
• Eric Eckberg, Village Homes
• Rip Reid, Standard Pacific
• Tom Hall, Renaissance Homes
• Ryan Warren, Polsinelli Shughart 
• Dennis Polk, Holley, Albertson & Polk
• David McLain, Higgins, Hopkins, McLain & Roswell 

I believe that the names in bold are those witnesses who are members of the CAHB. I will provide an additional update after tomorrow's hearing. In the interim, please feel free to contact me with any questions you may have regarding Senate Bill 13-052 or construction litigation in Colorado. I can be reached by telephone at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.

- David M. McLain

Colorado Senate Bill 13-052 Has Been Scheduled for its First Hearing April 15th in the Senate Judiciary Committee

After a long wait, Colorado SB 13-52 has been scheduled for its first hearing in the Senate Judiciary Committee on Monday, April 15th at 1:30. The long delay in hearing was caused by a desire to wait for the release of a study to determine why there are so few construction professionals willing to build for-sale multi-family projects, particularly those along the Denver Metro Area's growing web of mass transit lines. Unfortunately, it appears as though there may be a wrench in the works with respect to this study, and it may not be forthcoming after all.  

As currently drafted Senate Bill 52 contains the following four parts:

Section 1 creates the "Transit-oriented Development Claims Act of 2013."

Section 2 institutes a right to repair for construction professionals that receive a notice of claim with respect to a construction defect in a transit-oriented development.

Section 3 institutes a binding arbitration requirement for claims against construction professionals with respect to transit-oriented development. This section also makes construction professionals immune to suit for environmental conditions including noise, odors, light, temperatures, humidity, vibrations, and smoke or fumes causally related to transit, commercial, public, or retail use.

Finally, with respect to construction defect actions in general, Section 4 clarifies that the 90-day tolling provision found within C.R.S. § 13-80-104 for third-party claims against downstream construction professionals tolls the running of the statute of limitation and the statute of repose applicable to those claims.

Current supporters of Senate Bill 13-052 include:

·       American Institute of Architects ·       Associated Builders & Contractors ·       American Council of Engineering Companies ·       Associated General Contractors of Colorado ·       Colorado Association of Geotechnical Engineers ·       Colorado Association of Home Builders ·       Colorado Association of Mechanical & Plumbing Contractors ·       Colorado Association of REALTORS ·       Colorado Civil Justice League ·       C3, the Colorado Competitive Council ·       Colorado Concern ·       Colorado Contractors Association ·       Denver Metro Chamber of Commerce ·       Denver South Economic Development Partnership ·       Denver Water ·       Douglas County Business Alliance ·       Downtown Denver Partnership ·       Hispanic Contractors of Colorado ·       Housing Colorado ·       Independent Bankers of Colorado ·       Independent Electrical Contractors of Colorado ·       International Electrical Contractors ·       Mayor Jim Gunning, Lone Tree ·       Mayor Bob Murphy, Lakewood ·       Mayor Marc Williams, Arvada ·       Mayor Heidi Williams, Thornton ·       Metro Denver Economic Development Corp. ·       Metro North Chamber of Commerce ·       NAIOP Colorado ·       Professional Independent Insurance Agents of Colorado ·       Rocky Mt. Chapter, National Electrical Contractors Association ·       Structural Engineers Association of Colorado

The Senate Judiciary Committee is made up of five members, including Senator Guzman, the Chairman, Senator Ulibarri, the Vice-Chairman, Senator Aguilar, Senator King, and Senator Lundberg. If you are available to come to support the bill on Monday, please make a point of it.

To learn more about SB 52 or construction litigation in Colorado, you can reach David M. McLain at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.

Travelers v. Larimer County and the Concept of Covered Cause of Loss

Travelers Indemnity Company (“Travelers”) recently won a decision against Larimer County regarding a claim for damage caused to the roofs of several buildings at the County Fairgrounds.  Travelers Indemnity Company v. Board of County Commissioners for Larimer County, Slip Copy, 2013 WL 238865, p. 1 (10^th Cir. 2013).  Larimer County alleged, in district court, that snowstorms and the weight of the snow build-up caused damage to the roof structures.  Id.  After the district court found for Travelers on a motion for summary judgment, Larimer County appealed the ruling, claiming that Traveler’s was obligated under the insurance policy to pay for repair costs to portions of the roofing structure.  Id.

The underlying claim for repairs originates with several snowstorms that caused damage to several buildings on the County Fairgrounds.  The damage claimed was widespread to the roof structures, evidenced by rolling and buckling purlins (horizontal beams running along the length of the roof, resting upon the principal rafters at right angles and supporting the ordinary rafters).  Travelers denied the claim based on its own investigation which concluded the damage was caused by design and construction defects, and therefore excluded from coverage under the insurance policy.

The relevant language of Larimer County’s insurance policy with Travelers (the “Policy”) states that Travelers will “pay for direct physical loss or damage” to the property if that damage is “caused by or resulting from a Covered Cause of Loss.”  Id.  Covered Loss is defined in the Policy as “risks of direct physical loss unless that loss is excluded” by other provisions in the Policy.  Id.  The language of the defective construction exclusion states, “in the event that an excluded cause of loss . . . results in a Covered Cause of Loss, [Travelers] will be liable only for such resulting loss or damage.”  Id. 

The Court focused on the specific language providing that where “an excluded clause of loss -here, defective construction- “results in a Covered Cause of Loss,” any resulting loss is covered.  Id. at 2.  Essentially, even though a construction defect is not covered by the Policy, if that defect causes (or results in) a Covered Cause of Loss, and then that Covered Cause results in property damage, the resulting property loss is covered.  Id.  In effect, the exception provides for coverage only when the excluded cause becomes a new causal agent that itself causes resultant damage.  Id. 

In relation to the facts of the case, the Court found that while the defective condition of the roof may have acted as a causal agent to damage the purlins, the purlins themselves are not a Covered Cause of Loss resulting in additional damage.  Id.  Larimer County was only claiming a loss for the damage to the purlins, not that the damage to the purlins caused some other loss or property damage.  Id. 

The Court stated that the claimed damage was the displacement of the purlins and the unambiguous language of the exclusion precludes coverage.  The Court agreed with the district trial court and affirmed the summary judgment. 

To learn morTravelers Indemnity Company v. Board of County Commissioners for Larimer County case or about construction litigation in Colorado, you can reach Brady Iandiorio at (303) 987-9816 or iandiorio@hhmrlaw.com.

Colorado Oil and Gas Conservation Commission Approves New Setback Rules

The following comes from a recent Capitol Close-Up, a legislative update from Amie Mayhew, Chief Executive Officer - Colorado Association of Home Builders:

On February 11^th, the Colorado Oil and Gas Conservation Commission (“COGCC”) voted 8-1 to approve a new set of setback rules.  One substantive change is to the effective date in Rule 604, which will be August 1, 2013 rather than July 1, 2013. A brief summary of the rules as they impact CAHB members is below:

·                     Designated Setback Locations for Oil and Gas Locations will be 500 feet from building units, 1,000 feet from High Occupancy Building Units, and 350 feet from Designated Outside Activity Areas;

·                     Waivers are required from Building Unit owners within 500 feet of a proposed Oil and Gas Location in Urban Mitigation Areas.  If waivers cannot be obtained, the operator can seek a variance from the Director, and if not granted, have a hearing before the Commission;

·                     Rule 604(b)(2) exempts Existing Surface Use Agreements or Site Specific Development Plans;

·                     Rule 604(b)(3) exempts Surface Development after August 1, 2013 pursuant to a Surface Use Agreement or Site Specific Development Plan;

·                     Rule 604(c) Mitigation Measures will be required within Designated Setback Locations statewide.

CAHB also was persuasive in arguing for the inclusion of setback exception language (“grandfathering”) of Existing Surface Use Agreements or Site Specific Development Plans and for future Surface Development Pursuant to Surface Use Agreements or Site Specific Development Plans in the final Rules as adopted by the Commission in Rule 604(b)(2) and 604(b)(3).  COGCC staff did not include these two exceptions in their initial draft rules, and it was made clear that the inclusion of these exceptions was a result of CAHB’s efforts.  CAHB also succeeded in maintaining the exception for Existing Surface Use Agreements or Site Specific Development Plans as a mandatory exception through the use of the word “shall” rather than a permissive exception through the use of the word “may” as advocated by several parties and supported by some Commissioners.

Finally, CAHB, along with other parties and stakeholders, was influential in eliminating the consent requirement from adjacent land owners.  While waivers are still required in Urban Mitigation Areas, a variance process now exists, eliminating the veto power of adjacent land owners as the initial draft Rules had provided.

CAHB was extremely influential in both the stakeholder and the rule-drafting processes.  While firmly opposed to the setback distances, CAHB’s narrow definitions of High Occupancy Building Units in the 100 Series Definitions tied to other statutory definitions were incorporated, drastically reducing uncertainty in the application and impact of the 1,000 foot setbacks.

Please contact Amie Mayhew at the CAHB office with any questions or concerns you have.  Amie can be reached by phone at (303) 691-2242 or by e-mail at amie@hbacolorado.com.

Colorado HB 13-1090: Concerning Payment of Amounts Due Under a Construction Agreement

On January 17, 2013 Representative Fischer introduced House Bill 13-1090 into the Colorado House of Representatives. HB 1090 was assigned the House Business, Labor, Economic and Workforce Development Committee.

The bill, sponsored by Senator Tochtrop in the Senate, sets the following requirements for both private and public construction contracts:

• The owner and contractor must make regular progress payments approximately every 30 days to contractors and subcontractors for work actually performed.
• To receive the progress payments, the contractor and subcontractor must submit a progress payment invoice plus any required documents.
• A contractor must pass on the progress payment to the subcontractor within 5 days or by the end of the billing cycle.
• Interest accrues on unpaid progress payments.
• A contract may extend a billing cycle to 60 days, but the contract must duly warn of this.
• An owner or contractor may only retain 5% of each progress payment to ensure work is done properly.
• If a subcontractor's work is done before the whole project is done, the subcontractor may apply to be paid the retained 5%. The owner and contractor must pay the retainage if the work is done correctly and the subcontractor gives waivers and the proper documents.
• A person who retains from a payment must give the contractor or subcontractor a chance to cure the default.
• The owner and contractor must pay for changes made to the contract. If they cannot agree on the price, the person doing the work may bill monthly at cost plus 15% or terminate performance.
• A contractor or subcontractor is authorized to suspend performance after 15 days’ notice if the owner or contractor fails to make progress payments.
• After suspending performance, the contractor or subcontractor is obliged to resume work after being paid for the work and reasonable costs and interest.
• A contractor or subcontractor may not suspend performance if the failure to make a payment is due to a failure of the contractor or subcontractor or a dispute about the construction.
• The bill voids any provision in a construction contract that does not comply with these requirements.

There is a lot of opposition to the bill from within the construction industry, mostly framed as a dispute between general contractors, developers, and owners on one side and subcontractors on the other. The bill was originally scheduled for hearing this afternoon, but has been given late bill status and taken off of the calendar. It is my understanding that it was taken off the calendar so that an amendment could be drafted to remove public projects, with the hope of reducing the opposition to the bill.