Wednesday, March 22, 2017

Homeowner Protection Act of 2007 Not Just for Individual Homeowners Anymore?

On March 9, 2017, the Colorado Court of Appeals announced its decision in Broomfield Senior Living Owner, LLC v. R.G. Brinkmann Company, No. 16CA0101, 2017 COA 31 (Colo. App. Mar. 9, 2017).  As a matter of first impression, the Court evaluated whether a senior living facility constitutes “residential property” protected by the Homeowner Protection Act of 2007 ("HPA") provision of the Construction Defect Reform Act (CDARA).

In 2007, Plaintiff Broomfield entered into a contract with Defendant Brinkmann for construction of a senior assisted and independent living facility. The contract contained warranty provisions related to the quality of construction and cautioned that Plaintiff’s failure to provide Defendant with prompt notice of any defects would result in waiver of any claim for breach. The contract also limited Defendant Brinkmann’s liability by identifying three separate accrual provisions that would determine the time period in which Plaintiff could bring a claim. The project was completed in 2009.
In the fall of 2012, Plaintiff Broomfield observed the presence of sewer flies in the building and decided to conduct further investigation into potential causes. In November 2013, Plaintiff presented Defendant Brinkmann with a notice of claim identifying numerous construction defects at the facility. A lawsuit ensued.

Brinkmann successfully defeated Plaintiff’s claims at the trial court level by relying on the accrual period and the notice requirement delineated in the parties’ contract. Under the terms of the contract, Plaintiff’s claims began to accrue in 2009 and would have expired in 2011 (even though Plaintiff did not observe the sewer flies until the following year). In addition, application of the contract meant that, by failing to provide Brinkmann with prompt notice or an adequate opportunity to conduct repairs, Plaintiff had waived its right to assert claims for latent defects.

On appeal, Plaintiff argued that the contractual provisions relied upon by Brinkmann and were void as against public policy under the HPA. The HPA renders a contract’s limitation or waiver of CDARA’s rights and remedies void as against public policy in claims arising from “residential property.” It provides in relevant part:

In order to preserve Colorado residential property owners’ legal rights and remedies, in any civil action or arbitration proceeding described in section 13-20-802.5(1), any express waiver of, or limitation on, the legal rights, remedies, or damages provided by the “Construction Defect Action Reform Act” ... or on the ability to enforce such legal rights, remedies, or damages within the time provided by applicable statutes of limitation or repose are void as against public policy.
C.R.S. § 13-20-806(7)(a).

The HPA was traditionally understood to safeguard individual homeowners making the most expensive purchase of their lives from more sophisticated, knowledgeable commercial builders and sellers. See The American Heritage Dictionary of the English Language 840 (2000) (a homeowner is a person who owns the house in which he or she lives); see also Webster's Third New International Dictionary 1082 (2002) (a home is a house occupied by a family). Plaintiff Broomfield was not an individual homeowner, however. Instead, it was a sophisticated business entity that profited by collecting rental income from its senior residents. There was no apparent disparity of bargaining power in the sale of the subject property. Would the HPA nevertheless apply to protect plaintiff from effect of its contract with Defendant Broomfield? The appellate court determined that it would.

Without delving into the legislative history of the HPA, the Colorado Court of Appeals held that a senior living facility constitutes a “residential property” within the meaning of the enactment.  The Court looked at the dictionary definition of “residence” (a place where people live) and the fact that the property was zoned for residential use. The court also examined the treatment of “residential real property” in the context of property tax law, insinuating that its application to the HPA might stop short of hotels and motels. Broomfield Senior Living Owner, LLC v. R.G. Brinkmann Co., 2017 COA 31, ¶ 21 (“[I]n the context of property tax law, the legislature and the Colorado Constitution define “residential real property” as all residential dwelling units and the land they are situated upon, excluding hotels and motels.”)

The court rejected Defendant Brinkmann’s argument that the term “residential property” was ambiguous because it was not defined in the statute itself.  Likewise, the fact that Plaintiff was a sophisticated legal entity that collected rental income - not an individual homeowner - did not render the property commercial.  The Court clarified that the term “residential” in the HPA is used to describe the property owned, not to limit its applicability to any specific type of owner, whether an entity or a natural person.

As a result of the appellate court’s analysis, the HPA’s protection extended to Plaintiff Broomfield, the limitation of the accrual of claims contained in the parties’ contract was void as a matter of public policy, and the longer statutory accrual of claims periods applied.[1]  The suit was no longer time barred and Plaintiff had not waived any claims.

By focusing on the nature of the property owned, as opposed to who owns the property, the Court’s decision appears to stray from the HPA’s original purpose - the need to protect individual homeowners from more sophisticated, knowledgeable commercial builders and sellers.  In a special concurrence, Judge Davidson analyzed the HPA’s legislative history and acknowledged that “the overwhelming impetus for the bill was the plight of the individual homeowner—the problem was that homeowners were being forced to waive important rights in order to enter into a contract to buy a house.”  Even so, Judge Davidson went on to opine that the lack of any discussion or voiced concerns in the legislature indicated that it was “assumed as a given that a purchaser of ‘residential property’ included not just an individual homeowner, but also the (more sophisticated and far less vulnerable) purchaser of mixed-use and multi-family properties.”

Unless and until the Colorado Supreme Court addresses this issue, the appellate court has opened the door for big businesses to use a special protection meant for individual homeowners as a loophole in contracts for the purchase of any property that may be considered “residential.” And this, of course, invites further questions as to what other types of properties could potentially fall under that definition.


For more information regarding the Broomfield Senior Living case or construction law in Colorado, you can reach Maggie Stewart by telephone at (303) 987-9814 or by e-mail at stewart@hhmrlaw.com.  


[1] CDARA links the accrual of construction defect claims to the date of discovery. See C.R.S. § 13-80-104(2)(b)(I) (…“a claim for relief arises under this section at the time the claimant or the claimant's predecessor in interest discovers or in the exercise of reasonable diligence should have discovered the physical manifestations of a defect in the improvement which ultimately causes the injury.”)  It was uncontested that the “physical manifestations of the defect” or flies in the plumbing were discovered in the fall of 2012.  Thus, in contrast to the shortened accrual provisions described in the parties’ contract, under CDARA, Plaintiff’s claims would be considered timely because it would have had until 2014 to bring suit. See C.R.S. § 13-80-104(1)(a) (incorporating the two-year statute of limitations for tort actions).

Tuesday, March 14, 2017

Colorado Supreme Court Weighs in on Timeliness of Claims Against Subcontractors in Construction Defect Actions

On February 27, 2017, the Colorado Supreme Court announced its decision in the Goodman v. Heritage Builders, No. 16SA193, 2017 CO 13 (Colo. February 27, 2017) case.  In ten short pages, the Colorado Supreme Court completely reshuffled Colorado construction law with respect to application of the statutes of limitation and repose on third-party claims in construction defect cases.  Specifically, the Colorado Supreme Court overruled a series of earlier Court of Appeals' decisions that found C.R.S. § 13-80-104(1)(b)(II) (“104(1)(b)(II)”) had no effect on the six-year statute of repose.  For context, 104(1)(b)(II) permitted third-party actions for indemnity and contribution to toll until ninety days after the claims in the underlying action were resolved by settlement or judgment. In the construction context, 104(1)(b)(II) was intended to allow a general contractor’s claims against liable subcontractors to toll for the statutorily defined period.  This allowed the general contractor to first focus its attention on defending the claims against and thereafter to pursue its claims against the subcontractors.

However, beginning in 2008, in the Thermo Dev., Inc. v. Cent. Masonry Corp., 195 P.3d 1166 (Colo. App. 2008) case, the Colorado Court of Appeals began chipping away at the force of 104(1)(b)(II).  This trend continued in the Shaw Constr., LLC v. United Builder Servs., Inc., 2012 COA 24, 296 P.3d 145 decision, the Sierra Pac. Indus., v. Bradbury, 2016 COA 132, ­_ P.3d_ decision, and culminating in the Sopris Lodging, LLC v. Schofield Excavation, Inc., 2016 COA 158, reh'g denied (Nov. 23, 2016) decision.  Effectively, in these decisions, the Colorado Court of Appeals determined that third-party claims could not be brought beyond Colorado’s six-year statute of repose, regardless if they were brought within the ninety day tolling provision set forth in 104(1)(b)(II).

From a general contractor’s perspective, these decisions were considered particularly disconcerting in that they expressly stood for the proposition that a general contractor could be faced with the possibility of having a homeowner’s claims against the general contractor found to be timely, yet the general contractor would be left with no recourse against the implicated trades responsible for the alleged damages.  Such a situation could hypothetically arise if the homeowner brought suit on the last day before the expiration of the six-year statute of repose and the general contractor, despite acting expeditiously in its pursuit against the subcontractors by bringing suit against the subcontractors the very next day, would be left with no recourse owing to the fact its claims were time barred.  

Fortunately for general contractors, and unfortunately for subcontractors, the Colorado Supreme Court insisted that 104(1)(b)(II) not be rendered “superfluous.”  In this vein, as a result of the Goodman decision, a general contractor’s claims against subcontractors may now be tolled beyond the period of the statute of repose as long as the claims are brought during the construction defect litigation or within ninety days following the date of judgment or settlement.

For more information about the Goodman decision, or construction defect litigation in Colorado, you have reach Jean Meyer by telephone at (303) 987-9815 or by e-mail at meyer@hhmrlaw.com.

Saturday, March 4, 2017

Mid-Session Overview of Colorado’s 2017 Construction Defect Legislation

As the 2017 Colorado legislative session reaches the halfway point, I thought it an opportune time to provide a quick overview of the construction defect bills introduced so far this session.

Senate Bill 17-045, “Concerning a Requirement for Equitable Allocation of the Costs of Defending a Construction Defect Claim,” sponsored by Senators Grantham and Angela Williams and Representatives Duran and Wist, was introduced on January 11th and assigned to the Senate Business, Labor, and Technology Committee.  This bill affects construction defect actions in which more than one insurer has a duty to defend a party by providing that if the carriers cannot agree regarding how to allocate defense costs within 45 days of the filing of a contribution action, a court must conduct a hearing regarding the apportionment of the costs of defense, including reasonable attorneys’ fees, among all carriers sharing in the duty to defend within 60 days after an insurer files its claim for contribution, unless the carriers agree to resolve the issue through a mutually agreeable, alternative process.  The bill further provides that the court must make a final apportionment of costs after entry of a final judgment resolving all of the underlying claims against the insured.  The bill also makes clear that an insurer seeking contribution may also make a claim against an insured or additional insured who chose not to procure liability insurance during any period of time relevant to the underlying action.  Finally, the bill states that a claim for contribution may be assigned and that bringing such a claim does not affect any insurer’s duty to defend.  The Senate Business, Labor, and Technology Committee heard SB 17-045 on February 8th and referred the bill, as amended, to the Senate Appropriations Committee.

Senate Bill 17-155, “Concerning the Statutory Definition of a Construction Defect for Purposes of the ‘Construction Defect Action Reform Act,” sponsored by Senator Tate and Representative Saine, was introduced on February 3rd and assigned to the Senate Business, Labor & Technology Committee.  The bill defines construction defect to mean “a defect in the design or construction of any improvement to real property that causes: (a) any damages to, or the loss of use of, real or personal property; or (b) personal injury.”  SB 17-155 has not yet been heard in committee.

Senate Bill 17-156, “Concerning Prerequisites to the Authority of a Unit Owners’ Association to Pursue Resolution of Disputes Involving Construction Defects,” sponsored by Senator Hill and Representatives Wist and Saine, was introduced on February 1st and assigned to the Senate Business, Labor & Technology Committee.  The bill provides that when an association’s governing documents require mediation or arbitration of a construction defect claim, which is later amended or removed, mediation or arbitration is still required, and provides certain requirements for such mediation or arbitration.  With respect to arbitration, the bill provides that the arbitrator is required to follow the substantive law of Colorado with regard to any claim or defense, and that failure to do so is grounds for a district court to vacate or refuse to confirm the arbitrator’s award.  Finally, the bill provides that before an association may file a construction defect action, the parties must mediate the dispute and the association must obtain the informed written consent of the owners of units to which at least a majority of the votes in the association are allocated.  The Senate Business, Labor, and Technology Committee heard SB 17-156 on February 27th and referred the bill, as amended, to the Committee of the Whole.


Senate Bill 17-157, “Concerning Prerequisites for the Authority of a Unit Owners’ Association to Pursue Litigation Involving Alleged Construction Defects, and, in Connection Therewith, Imposing Notification, Disclosure, and Voting Requirements Prior to Commencement of an Action,” sponsored by Senator Angela Williams and Representative Melton, was introduced on February 17th and Assigned to the Senate Business, Labor & Technology Committee.  The bill requires that, before the executive board of an association in a common interest community brings suit against a developer or builder on behalf of unit owners, the board must notify all unit owners and, except when the association contracted with the developer or builder for the work complained of or the amount in controversy is less than $100,000, obtain the approval of a majority of the unit owners after giving them detailed disclosures about the lawsuit and its potential costs and benefits.  The bill also limits the amount and type of contact that a developer or builder that is potentially subject to a lawsuit may have with individual unit owners while the association is seeking their approval for the lawsuit.  SB 17-157 has not yet been heard in committee.

House Bill 17-1169, “Concerning a Construction Professional’s Statutory Right to Repair Under the ‘Construction Defect Action Reform Act,” sponsored by Representative Leonard and Senator Tate, was introduced on February 6th and assigned to the House State, Veterans, and Military Affairs Committee.  The bill altered Colorado’s notice of claim process by providing that a construction professional could either offer to settle a claim by payment of a sum certain or by actually repairing the defect.  The bill also provided certain requirements in the event that the construction professional undertakes repairs.  The House State, Veterans, and Military Affairs Committee heard, and postponed indefinitely, HB 17-1169 on March 1st.  


To learn more about this year’s construction defect legislation, you can reach David McLain by telephone at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.  Also, you can track the progress of any legislation at the Colorado Legislature’s website.  

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.