Monday, June 28, 2021

Keep it Simple with Nunn-Agreements in Colorado

On May 24, 2021, the Colorado Supreme Court published its decision in Auto-Owners Ins. Co. v. Bolt Factory Lofts Owners Ass'n.[1] There, the Colorado Supreme Court was tasked with answering whether an insurer, who is defending its insured under a reservation of rights, is entitled to intervene as of right under C.R.C.P. 24(a)(2) where the insured enters into a Nunn agreement with a third-party claimant, but rather than entering into a stipulated judgment, agrees with the third party to proceed via an uncontested trial to determine liability and damages. Interestingly, however, while the Court ultimately answered the above question in the negative, the real lesson from the Colorado Supreme Court’s decision is that Colorado litigants should not seek a trial court’s blessing as to liability and damages through non-adversarial proceedings when using Nunn-Agreements. Or, as articulated in Justice Carlos Samour’s vociferous dissenting opinion, Colorado litigants desiring to enter into a Nunn-Agreement should not proceed with a non-adversarial hearing, as doing so is “offensive to the dignity of the courts,” constitutes a “bogus,” “faux,” “sham” and “counterfeit” proceeding, and the hearing provides “zero benefit.”

By way of background, the case arrived in front of the Colorado Supreme Court based on the following fact pattern. A homeowner association (Bolt Factory Lofts Owners Association, Inc.) (“Association”) brought construction defect claims against a variety of prime contractors and those contractors subsequently brought third-party construction defect claims against subcontractors. One of the prime contractors assigned their claims against a subcontractor by the name Sierra Glass Co., Inc. (“Sierra”) to the Association. The other claims between the additional parties settled. On the eve of trial involving only the Association’s assigned claims against Sierra, the Association made a settlement demand to Sierra for $1.9 million. Sierra asked its insurance carrier, Auto-Owners Insurance, Co. (“AOIC”), which had been defending Sierra under a reservation of rights letter, to settle the case for that amount, but AOIC refused. This prompted Sierra to enter into a “Nunn-Agreement” with the Association whereby the case would proceed to trial, Sierra would refrain from offering a defense at trial, the Association would not pursue any recovery against Sierra for the judgment, and Sierra would assign any insurance bad faith claims it may have had against AOIC to the Association.

Sierra informed AOIC about the existence of the Nunn-Agreement for the first time the Friday before the trial was set to commence. On the following Monday, AOIC petitioned the trial court to intervene in the lawsuit and continue the trial in the hopes of protecting its rights under its insurance policy pursuant to C.R.C.P. 24(a)(2). The trial court denied AOIC’s motion. The Colorado Court of Appeals upheld the trial court’s decision, AOIC petitioned for certiorari, and the Colorado Supreme Court granted certiorari.

In evaluating the above issues, the Colorado Supreme Court ultimately concluded that AOIC was not entitled to intervene under C.R.C.P. 24(a)(2) because AOIC’s interest was not impaired by the Nunn-Agreement. Namely, AOIC could “sufficiently protect its interests in a subsequent declaratory judgment action regarding coverage.” The Colorado Supreme Court further noted that AOIC could also protect its interest by raising its claims and defenses in any bad faith action that the Association may bring against AOIC pursuant to the assignment of claims under the Nunn-Agreement.

More interesting, though, the Colorado Supreme Court also held that the proceeding in which AOIC had attempted to intervene, in the first instance, was unnecessary. The trial court could have insisted that the parties simply proceed with a stipulated judgment instead of allowing the proceeding to take place. In the words of the Colorado Supreme Court: “It is not clear from the record, why, rather than stipulate to the amount of damages as permitted by Nunn[2], [the parties] chose to have the trial court determine those damages as well as [Sierra’s] liability. Doing so was not required under Nunn. . . Although the district court here agreed to this process, we note that courts are not required to do so. Faced with such an agreement, a court may instead require the parties to enter into a standard Nunn agreement – that is, a court may require the parties to agree to a stipulated judgment, rather than proceed to an uncontested trial. . .”

Considering this holding, Justice Samour noted in his dissenting opinion, that after the Supreme Court’s ruling, he “[could not] imagine that any attorney will be able to do what [Sierra and the Association] insisted upon here. Had the trial court in this case been aware that it didn’t have to agree to the pretend trial, it may have refused to do so. . .” because there is “no reason why [Sierra and the Association] would have opted for a trial to accomplish the same thing a simple signature would have.”

In summary, while the Colorado Supreme Court ultimately clarified the situations in which insurers may seek intervention pursuant  C.R.C.P. 24(a)(2), the real takeaway from the Colorado Supreme Court’s decision is three-fold: (1) it is entirely unnecessary to proceed with a non-adversarial proceeding to prove liability and damages when entering into a Nunn-Agreement; (2) Colorado courts have no obligation to allow such non-adversarial proceedings, and are unlikely to allow such hearings in the future; and (3) non-adversarial proceedings are looked upon by Colorado courts with extreme contempt.

For additional information regarding Nunn-Agreements or about construction defect litigation in Colorado, generally, you can reach Jean Meyer by telephone at (303) 987-9815 or by e-mail at meyer@hhmrlaw.com.



[1] Auto-Owners Ins. Co. v. Bolt Factory Lofts Owners Ass'n, 2021 CO 32, ¶ 1

[2] Nunn v. Mid-Century Ins. Co., 244 P.3d 116, 117 (Colo. 2010).

Thursday, May 20, 2021

HHMR is Looking for an Associate/Supporting Attorney (0-5 Years of Experience)

About Higgins, Hopkins, McLain & Roswell  

Founded in 2001, Higgins, Hopkins, McLain & Roswell (“HHMR”) exists to embody and exemplify the principles of service and stewardship. In everything we do, we focus on serving our clients selflessly and to the best of our ability. In doing so, we always have in the forefront of our minds our obligation to act as the stewards of our clients’ trust, confidences, and resources.
 
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. In addition to their construction law background, HHMR’s attorneys are well versed and experienced in tort, contract, property and general casualty litigation ranging from products liability to personal injury and premises liability claims.
 
Core Values

Shepherds - We are knowledgeable about our clients and their businesses and provide them selfless counsel and protection, putting their interests ahead of our own. We are thought leaders. We lead by exemplifying service, stewardship, integrity, and consistency. Client service above all else. Honesty, integrity, reputation. Think with sagacity.
 
Gladiators - When the fight cannot be avoided, we enter the arena. Our faces are marred by dust and sweat and blood; we strive valiantly; while we may come up short it is not for lack of knowledge or effort as we are tireless in the fight. We actually strive to do the deeds; we know great enthusiasms, the great devotions; we spend ourselves in a worthy cause; at the best we know in the end the triumph of high achievement, and at the worst, if we fail, at least fail while daring greatly, so that our place shall never be with those cold and timid souls who neither know victory nor defeat. Continually strive for perfection. Never stop learning and improving. Swagger. Passion and pride. We punch above our weight. Boldness. Act with alacrity.
 
Team Players – We are team players; with our clients, with our carriers, and with each other.  Always reliable and responsible. We communicate with confidence and radical candor; we do not stay in the shadows and actively listen. We do more than asked and are always ready to help. We adapt quickly and easily; we are flexible. We display genuine commitment and are supportive and respectful of others. We are problem solvers and quicky acknowledge errors and when we are wrong, seeking to correct them quickly and efficiently. No cynics. Positive and Optimistic. Humble (not thinking less about yourself, but thinking about yourself less) - Take your work seriously, but do not take yourself too seriously. We all row in the same direction.
 
Where We Are and Where We Are Going

Over the last year and a half, the founding members of HHMR have been working with a business coach to implement EOS, the Entrepreneurial Operating System, with the goal of successfully growing the firm and creating a second-generation firm that long outlasts its founders.  EOS is the basic set of practices, tools, and disciplines by which we have decided to manage HHMR.
 
EOS is designed to achieve three basic objectives:
 
1.   Vision - Get everyone on the same page as to where we are going as a company and how we will get there.
 
2.   Traction - Using effective meetings and tools, we will gain traction in executing on our Vision.
 
3.   Health - By working to be open and honest with one another, we will say what needs to be said with respect and confidence so that we become a healthier, more cohesive team so that we can better serve our clients and their insurance carriers. 
 
The firm’s core focus has been, and remains, to grow a sustainable law firm that is recognized as a premier legal service provider for the development and construction industry in Colorado.  To do this, we serve the legal needs of the industry, and their insurers, throughout the state.
 
Our ten-year goal is to maintain our positive firm culture within a highly collaborative team that is well structured and systematized to run efficiently.  The attorneys and staff are dedicated to our clients, carriers, and each other and working together to achieve the firm business goals.  The firm will have grown to 24-25 attorneys and include all areas of practice needed to be a “one-stop shop” for the development and construction industry in Colorado. 

Role of an Associate/Supporting Attorney at HHMR
 
If you are still reading, that’s a good sign.  In addition to sharing our core values and vision, we are looking for an attorney, licensed in Colorado, with 1-5 years of experience in civil litigation or a strong desire to litigate construction and general casualty cases. For the right candidate, we will consider someone with less than one year of experience.  Expectations of supporting attorneys include the following.
 
Case Related
 
·     Ensure that monthly case management meetings take place
·     Review calendar and appointment list daily for upcoming deadlines
·     Provide draft of all discovery responses to Handling Attorney one week before due date
·    Provide motions, responses to motions, and replies in support of motions to Handling Attorney three days before due date
·    Provide monthly status report to Handling Attorney three days before due date (internal HHMR deadlines)
·    Provide updated litigation plans, budgets, pre-mediation reports, and pre-trial reports to Handling Attorney one week before due date (external carrier deadlines)
·    Make certain every case deadline is met
·    Have substantive correspondence, reports, and budgets reviewed by Handling Attorney or Member before sending. Everything, other than simple e-mails, should be proofread by a Legal Assistant before going out – this includes substantive e-mails which replace written correspondence
 
Non-Case Related
 
·         Enter time contemporaneously with work and release time daily
·         Be familiar with and comply with carrier guidelines
·         Draft and publish one blog entry per quarter
·         Engage in business development, as appropriate
·         Perform or assist with any task or request from any person in this firm
 
The firm expects Associates/Supporting Attorneys to bill 450 hours per quarter, totaling 1,800 billed hours per year.
 
Benefits

First and foremost, you will have an opportunity to learn your craft.  We practice at a very high level and are frequently recognized as being among the best attorneys in our respective areas of practice.  For a small firm, we punch about our weight and frequently litigate construction cases against much larger local, regional, or national firms in cases that rank among the largest in the state.  Expectations of both members of the firm and handling attorneys include providing mentorship to associates and supporting attorneys.  If we want the highest level of support, we understand that it requires mentorship and nurturing of younger attorneys, and we are all in on providing that support.  Not only do we rely on the support of our younger attorneys, but as we move into the future, the younger attorneys will be the second generation of owners of the firm.  As we pass on the legacy of the firm, and the torch of ownership, it is in our best interest that our younger attorneys have every opportunity to achieve the level of success, recognition, and trust as have the founders.
 
In addition to a base salary, which varies depending on experience, the firm also offers quarterly and annual billable hour and origination incentives, along with discretionary year-end bonuses for exceptional performance.  Additional firm benefits include:
 
·    Health insurance, which is partially paid by the employee each pay period by payroll deduction.  At present, the firm pays 90% of the employee’s premium;
·    Dental, life, accidental death and dismemberment, and long-term disability insurance; and
·    The ability to participate in the firm 401(k) program after successfully completing six months of employment.  The benefit provides for a salary deferral with the firm matching up to four percent each pay period. 
·     The firm also presently makes a variety of other plans (e.g., accident, cancer, short term disability, and/or vision insurance) available to employees who wish to purchase such products at their own expense.
 
If you are still ready, and still interested, we would very much like to hear from you.  Please send a resume, references, and writing samples to our Legal Administrator, Lauren Parks, at parks@hhmrlaw.com.  Please No Calls or Agencies.

Wednesday, April 28, 2021

House Bill 21-1167 (5% Private Retention) Set for Second Reading in the Senate

A recent e-mail blast from the American Subcontractors Association Colorado regarding House Bill 21-1167 included a "Fact Sheet" on the bill states:
 
VOTE YES ON HB21-1167 PRIVATE CONSTRUCTION CONTRACT PAYMENTS
Representatives Monica Duran & Perry Will and Senators Julie Gonzales & Ray Scott 
PROTECT SMALL- & MEDIUM- SIZED BUSINESSES VIA CONSTRUCTION RETAINAGE CAPS 
 
BACKGROUND 
 
Retainage is part of a construction contractual arrangement where payment for a percentage of the value of completed work is withheld until completion. Typically, in Colorado, that amount is 10% of the total contract for private work. The practice is commonly perceived to provide a level of financial protection to the party withholding retainage as well as an added incentive for proper and timely performance of the work. However, in an industry where profit margins are thin and cash management is essential, withholding retainage can create a significant financial strain on contractors and subcontractors. 
 
IMPACTS & INFO
 
    Subcontractors commonly carry hundreds of thousands of dollars in retainage and wait on average more than five months, and often up to a couple years, for payment of retainage. During that time, those tied up funds result in a subcontractor being unable to take on new projects, hire new employees, buy new equipment and more. They must borrow money to make up for delayed capital while expending overhead resources on collection of the owed retainage.
 
    The subcontractor is responsible for 100% of project costs, including: wages, fringe benefits, health insurance, taxes, fuel, equipment, all materials and supplies, and any other sub labor that must be contracted. 
 
    Banks and annuities do not count retainage as an asset when calculating receivable assets which results in subcontractors being unable to access alternative cash flow to make up for funds held up in retainage.  
 
    The warranty under the contract provides assurances that the job is satisfactory, thereby making the practice of retainage withholding obsolete. Subcontractors can only bill for work that has been accepted by the owner and general contractor, if work is unacceptable the subcontractor cannot bill for it. 
 
    Businesses are required to pay taxes based on the percentage of their completed work, regardless of whether they have been fully compensated due to retainage withholding; effectively paying taxes on money they have not yet been paid. 
 
    In Colorado, public entities are only allowed to retain up to 5% of contract costs. 
 
    Reductions in retainage caps in other states have lowered construction costs (about 1-1.5% cost reduction based on a decrease in retainage from a 10% to a 5% cap). 
 
    Reducing retainage caps will free up funds for subcontractors to pay workers better wages and take on new projects more quickly. 
 
    13 other states have already instituted similar 5% (or less) caps on retainage for private contracts. 
 
SOLUTION 
 
Align the retainage cap for public and private entities – capping retainage at 5%. This would not require changes to the public retainage statutes and would only affect Title 38 - Real and Private Property (contracts between private entities).

Monday, April 26, 2021

Implied Warranty Claims–Not Just a Seller’s Risk: Builders Beware!

One of the thorns in the side of every construction defect defense litigator is the implied warranty claim.  The “implied warranty” is a promise that Colorado law is “implied” into every contract for a sale of a new home that the home was built in a workmanlike manner and is suitable for habitation. Defense attorneys dislike the implied warranty claim because it is akin to a strict liability standard.  All that is required to provide the claim is that an aspect of construction is found to be defective — i.e., inconsistent with the building code or manufacturer’s installation instructions — regardless of whether the work was performed to the standard of care. The implied warranty claim is therefore easier to prove than a negligence claim, where a claimant must prove that a construction professional’s work fell below a standard of reasonable care. Additionally, it is not a defense to an implied warranty claim that the homeowners or the HOA are, themselves, partially liable for the defects where damage is due in part to insufficient or deferred maintenance, as it is for negligence claims. The only redeeming aspect to the implied warranty claim was that, until recently, it was believed that it could only be asserted by a first purchaser against the seller of an improvement, because the implied warranty arises out of the sale contract.

Recently, the Colorado Court of Appeals opinion in Brooktree Village Homeowners Association v. Brooktree Village, LLC, 19CA1635, decided on November 19, 2020, extended the reach of the implied warranty — though just how far remains to be seen.  Specifically, a division of the Court of Appeals held that an HOA can assert implied warranty claims on behalf of its members for defects in common areas, even where there is no direct contractual relationship between the parties to base the warranty upon.

The facts of the Brooktree case are somewhat unique.  The original developer constructed the grading and 2 of 14 planned buildings at the development before filing for bankruptcy.  After the original developer filed for bankruptcy, the common areas were conveyed to the HOA.  Several years later, Brooktree Village, LLC, the developer defendant in the Brooktree case, acquired the undeveloped areas other than the common areas, and completed the development using a builder that was a related entity. The primary construction defect allegations in the case involved site grading and drainage in the common areas and the HOA sought damages of the cost to repair the common areas. Though the facts of the case are unique, the reasoning and holding of the Brooktree opinion could, nonetheless, significantly broaden the scope of implied warranty claims.

First, the Brooktree court held that the HOA could assert implied warranty claims against the builder, even though the developer, not the builder, was the entity that sold the homes to the owners.  The decision was based, in part, upon the fact that the builder had signed the purchase agreements, had provided express warranties to the purchases, and had created the developer entity primarily to market and sell the homes. The decision could therefore be interpreted to apply only in similar factual circumstances in which the developer and builder are related entities and both sign the purchase agreements.  There is language in the Brooktree opinion that could support a broader interpretation that would apply to nearly any builder of a home. The opinion states that, even if the builder had not been a party to the purchase agreements, it constructed the townhomes and knew they would be sold to individual owners and should not be permitted to “shirk its responsibilities under implied warranties” to the homeowners.  We anticipate this language will be used in the future by plaintiff’s attorneys to support arguments that homeowners can assert implied warranty claims against builders, regardless of whether the builder was also the seller of a home.

The second holding of the Brooktree is that the HOA can assert an implied warranty claim against the builder and second developer arising from defects in the common areas, even though neither the builder nor second developer ever owned the common areas or conveyed the common areas to the HOA.  As above, the fact that there was no contract between the HOA and the builder and developer for conveyance of the common areas for the warranty to be “implied” into did not deter the Court of Appeals from finding a way to allow the HOA to pursue the claim. Rather, the Brooktree court found that, because the sales of the individual homes included rights to use the common areas, and the builder completed the construction of the common areas after they were conveyed to the HOA, construction defects within the common areas fell within the implied warranty to the purchasers.  This holding, as did the first, indicates a willingness on the part of the Colorado Court to bend the rules—or simply create new ones—to permit homeowners to hold developers and builders to a strict liability standard regardless of the contractual relationship between the parties.

Additionally, the court held that, because some of the homes were owned by purchasers that purchased their units directly from the second developer, the HOA could assert implied warranty claims for defects in the common areas and seek the entire amount of repair costs from the builder and second developer — as opposed to a proportion of damages representing the portion of direct purchasers — because the repair of only a portion of the common areas would not provide a meaningful remedy to the direct purchasers.

Just how broadly the implied warranty claim will now apply remains to be seen.  However, we anticipate we will see the implied warranty claim asserted in more circumstances and against more parties, particularly builders, in the future. 

For additional information regarding the Brooktree case or Colorado construction law, you can reach out to Carin Ramirez by telephone at (303) 987-7140 or by e-mail at ramirez@hhmrlaw.com.

 

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.