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Attorney’s Fees Arrangements In Construction Defect Litigation

3 Jan

Aside from taxes and death, paying the attorney may be the most disliked activity an Association Board undertakes.  But, like seeing a doctor to treat an ailment, attorneys are necessary in many cases for an Association to meet its goals of recovering money in construction defect cases.  How the Association pays the attorney in construction defect cases (this would also include cases against remodeling contractors) can be broken down into three general types of fee arrangements. 

The first and the most longstanding arrangement is the hourly fee arrangement.  In this arrangement, the Association is billed typically on a monthly basis for the actual hours spent by the attorney (including costs advanced by the attorney) in pursuit of the matter.  The Association pays as it goes, and when a recovery is made, the Association receives 100 percent of the recovery (assuming they paid their bills).

The second arrangement, which is suddenly popular, is the contingency fee arrangement.  The attorney is paid a percentage of any recovery that is made in the litigation.  Therefore, a 33 percent contingency fee arrangement means that the attorney is paid one-third (1/3) of any money that is recovered in the litigation and the Association receives two-thirds (2/3) of the money (minus any costs advanced by the law firm in the case).

The last arrangement is the flat fee arrangement.  This is not as popular as the previous two and sometimes is mixed with an hourly fee arrangement.  For example, the attorney may charge a flat fee to take the matter up to mediation and charge an hourly rate going through to trial.

The question most Associations have is which fee arrangement is the best?  As is expected when a lawyer is writing an article, the answer is “it depends.”  There are two primary goals the Association Board should seek to achieve in any fee arrangement.  First, to recover as much money as the Association needs to repair the conditions that exist at the Association after considering all the risks.  Second, that the Board be cognizant of its fiduciary obligations to the members to protect the Association’s finances and to keep as much money for the Association while advancing the first goal.

The contingency fee arrangement sounds attractive to some Boards because there is no monetary payment made as the litigation proceeds.  However, with contingency fee arrangements, the percentage amount paid to the attorney at the conclusion of the case may be much greater than the Association would have spent if it would have paid the attorney on an hourly basis.  For example, let’s assume that the Association has a $600,000 roof defect claim (cost of repair based on expert’s estimate) and has entered into a 33 percent contingency fee arrangement with a law firm.  Let’s assume further that the Association engages in mediation and based upon an evaluation of the risks and benefits and proceeding forward decides to resolve the matter for a $450,000 settlement at the mediation.  In this example, the law firm receives $150,000 in fees plus reimbursement for any costs that they advanced in the litigation (expert fees, filing fees, depositions, etc.).  For this example, let’s say that amount is $10,000.  This leaves the Association with $290,000 ($450,000 – $150,000 – $10,000 = $290,000) to fund a $600,000 repair.

The chief complaint with contingency fee arrangements is that the percentage taken by the law firm (one-third in my example) may not be based or related to actual time spent by the law firm for the work on the matter.  The law firm gets a windfall (they recover more money than they would have had the Association paid on an hourly basis).  This money is, therefore, not available for the Association to fully fund the repair.

The chief benefits of the contingency fee arrangement are the Association does not need to pay money on a monthly basis and if the Association’s claims get dismissed, the Association is not out any money in attorney’s fees (except the Association would still be liable for those costs advanced by the law firm).  In theory these benefits appear sound and advantageous to the Association. However, the Association needs to consider that most attorneys that are proceeding on a contingency fee basis have evaluated the case and generally do not take cases where the risk of getting nothing is present 

The concerns with the hourly fee arrangement are fairly obvious.  The Association may put money into a litigation and not recover enough to merit proceeding with the litigation (the money spent on the litigation surpasses the amount being recovered), or if the Association’s case is dismissed by the Court, the Association will have spent money on attorney’s fees which are not recoverable and a significant loss to the Association.  However, if the case is evaluated correctly and the risk of a zero recovery is not present the hourly fee arrangement is far more likely to net the Association more money as there is no windfall to the law firm. The law firm is compensated for the work they actually did.  This typically leaves the Association with more money to use towards the repairs.

This same concern with contingency fee arrangements can be seen in the flat fee arrangement.  There is one thing that can be said of lawyers, they do not suffer from a lack of concern for money.  The flat fee arrangement usually has a built in cushion for the attorney so they are not left working for free.  The flat fee arrangement, however, does help the Board in its budgeting so the Association knows exactly how much it is going to spend on the litigation. But like the contingency fee, the Association potentially pays the law firm more money then they actually earned.

As can be seen, there are benefits and risks to any fee arrangement.  It is critical that the Board consider all options and work with the lawyers to arrive at a fee arrangement which satisfies the two primary goals of recovering and keeping the most money to repair the conditions.

This post was authored by David J. McGee. David McGee’s practice is based in the litigation section at Thomsen & Nybeck, P.A.  Dave brings his 20 plus years of experience representing Community Associations in construction defects and insurance disputes.  Dave has recovered millions for Associations in disputes with developers, contractors and insurance companies, and heads up the firm’s “Property Insurance Claims” Group.  Dave has been named a “Top Lawyer” by Minnesota Law & Politics and Minneapolis/St. Paul Magazine for a number of years.  Dave has represented clients in numerous appellate cases including Chapman Place Ass’n, Inc. v. Prokasky, 507 N.W.2d 858 (Minn. Ct. App. 1993); Ly v. Nystrom, 615 N.W.2d 302 (Minn. 2000); and Peggy Rose Revocable Trust v. Eppich, 640 N.W.2d 601 (Minn. 2002).  Dave represents clients in arbitrations, mediations, court actions, trials, and appellate work.  Dave is a frequent lecturer and has written numerous articles in the area of Insurance, Construction, and Real Estate Law.  He is also a qualified neutral under Rule 114 of the Minnesota General Rules of Practice (mediation and arbitration).

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Ice Dams: Answers to Five Frequently Asked Questions

20 Dec

Ice dams are all too common during Minnesota winters. They may happen for a number of reasons, and there are debates about whether they should happen at all. When they occur, arguments frequently arise about how to take care of the problem. In common interest communities this also leads to disputes about who is responsible to perform the repair work and, more importantly, who should have to pay for it. Sadly, winter again is approaching, and for many, ice dams will follow. This article will review the causes of ice damming, the various parties who may have responsibility to pay for repairing the damage, and who might have the responsibility to correct the problem.

What Are Ice Dams?

Ice dams are characterized by a buildup of ice at the edge of a roof. They occur when snow accumulates on a roof and the surface of the roof is heated sufficiently to melt the snow, while the eaves (the portions of the roof more exposed to the elements) remain below freezing due to cooler outside temperatures. Icicles may form as a result of ice dams, but the presence of icicles does not necessarily signal the presence of ice dams. That said, it’s better to be safe than sorry, and if you’re in doubt you should react as though you have ice dams until you receive a credible confirmation that ice dams are not present.

What Causes Ice Dams and How Do They Cause Damage?

Sunny winter days, which are common in Minnesota, frequently contribute to ice dams. What many people don’t realize is that one or more other factors usually cause the ice dam. Some builders or their representatives will contribute to the confusion about the nature or cause of ice dams by attempting to excuse their presence. They may assure homeowners that ice dams are normal and unpreventable, or that the problem is caused by the homeowner’s or the association’s failure to maintain its roofs properly, or instead that the problem has arisen due to abnormal or extreme weather conditions that could not have been foreseen. In fact, ice dams should not occur and in most cases are preventable, though fault and financial responsibility may present some thorny issues.

The two most common causes for ice dams are found inside the structure. The first cause is “bypass air” from the dwelling that enters the attic, and the other is inadequate ventilation inside the attic space. In some ways the direction a building faces may contribute to the problem, as can certain architectural styles or features, but at least one of the two issues listed above are usually involved when an ice dam forms.

The term “bypass air” refers to warm air from the dwelling that finds its way into the attic and, during the winter, can start to warm the underside of the roof. This warm air may actually leak through light fixtures or other openings between the dwelling and the attic, or it can result from insufficient insulation in the attic, allowing ambient heat from the unit to rise into the attic. It is also possible that air ducts or other ventilation systems may leak or radiate heat into the attic. Service providers exist who can perform a “blower door” test that determines whether there is excessive air escaping from the living area into the attic space of a structure. Some even work through government-subsidized programs to make their services more affordable.

A ventilation issue arises when air flow in the attic itself is inadequate. Roofing systems are designed with vents near the peak and vents in the soffits. The soffit is the horizontal surface, usually made of painted metal, that you see when you look up at the underside of the eave of your roof. These vents exist to permit air to rise up through the soffit, flow along the underside of the roof deck, and escape out the vents near the roof peak. When this air flow occurs uninterrupted, the surface of the roof is more likely to say a relatively uniform temperature from top to bottom, limiting if not eliminating the temperature variations that can cause the upper areas of the roof to be warm while the lower areas of the roof remain cold (the cause of ice dams). If insulation blocks this ventilation because it is filled or packed against the underside of the roof, inconsistent roof temperatures characterized by warm upper roofs and cold lower roofs (the cause of ice dams) can result. Ironically, insulation intended to limit the amount of bypass air in the attic can cause ice dams by blocking needed ventilation.

Of course, water leaks need not occur just because there are ice dams. Proper roofing techniques can help protect against water damage even where ice dams might form. This primarily means proper installation of an “ice/water shield” a sufficient distance up the roof, and also protecting the bottom edge of the roof, where it meets the fascia. Ice/water shield can protect the roof edge, but some contractors will install a metal “drip edge” at this location to protect against voids between the roof deck and fascia where water can enter. Gaps or openings that allow water to enter when it backs up under the shingles should not exist at or near roof edges. Consider also that just because you haven’t seen water inside your home does not mean that water has not entered the structure. Water reaching the inside of a building violates building code and constitutes a major structural defect whether it enters the dwelling space or not.

How Should You Respond if You See Ice Dams?

If you see ice dams on your home or in your community, ensure the association’s board of directors and the property manager, if any, know about the ice dams and any resulting leaks. Provide the notice in writing as quickly as possible. The association and any affected unit owners should then cooperate for the purpose of making an inspection of the roof and attic —and the unit, if necessary— to investigate the cause of the ice dams and any damage arising from them.

If your community is less than 10 years old when you first notice the ice dams (or if the ice dams occur within 10 years of a renovation to the building) you should also provide written notice to the developer, builder or contractor, as applicable. Do this immediately. Failure to provide timely notice is just one of a number of pitfalls that await you if you hope to recover from those who might be responsible for any defects causing your ice dams. Keep in mind also that, to avoid an argument of spoliation (or destruction of evidence), you should be prepared to allow the builder or contractor to investigate the cause and effect of your ice dam problem. It would be wise to seek the assistance of an attorney familiar with these issues before potentially taking an action that compromises your ability to obtain a repair or recovery for your problem.

Whose Job Is it to Fix This?
Deciding who will be responsible to take steps to stop an ice damming problem becomes a challenging question. Conditions inside the structure usually cause the ice dams, but inside the structure does not necessarily mean inside an owner’s unit. The party responsible to perform the work may depend on the type of association involved (condominium or townhome). Moreover, both interior and exterior conditions may contribute to cause damage, and repairs may be necessary in both locations to prevent further problems.

A. Exterior.
The short term solution might be the easiest to identify. The association usually has the responsibility to maintain common elements and building exteriors. Frequently, this means the association should remove snow and ice from the roofs until a more permanent solution can be implemented. While it is a temporary solution to remove snow from the roof or to melt a channel in an ice dam, this should not be a permanent solution. Raking, shoveling, or even sweeping snow off of roofs, and especially efforts to chip ice away, are likely to damage the roof and should not be necessary if the roof system is performing properly. Moreover, depending upon the severity of the winter, clearing snow and ice from your roofs can quickly sap an association’s resources.

The association should examine the roof and fascia where an ice dam has formed to determine whether roofing materials were properly installed. If corrections are necessary to the shingles, underlayment, ice/water shield, or if a drip edge must be installed, the association should take steps to address these areas.

B. Interior.
A unit owner’s responsibility for making interior repairs or alterations to eliminate ice dams may depend on the type of community involved. In a condominium, unless the declaration states otherwise, the common elements include all portions of the association not contained within the unfinished interior surface of the owners’ units. This means the attics usually are part of the common elements. As such, the association will in most cases have the responsibility to maintain not only the roofs of a condominium, but also the attics. The association should, in such cases, evaluate and address any bypass air or ventilation issues.

In a townhome association, the attics usually are part of the unit. This means if a unit owner observes that he or she has ice dams, that owner may need to conduct his or her own investigation into any possible internal issues that are causing ice dams. If multiple owners have the same problems, however, it may be best to pursue the investigation and any alterations jointly, or with the association managing the process. This will maximize efficiency and perhaps lower the overall cost of the work. In addition, the association may have an interest in doing this work or ensuring that the alterations are consistent throughout all units because the building exterior will be affected if the ice dams return.

Who Gets the Bill?
Ice dams may generate several costs. First, there is the short-term need to remove the snow and ice that creates the ice dam itself, as well as the water that pools behind it. Longer term, the cause must be investigated. If leaks have occurred, the roof should be evaluated. Then there are the repairs that are necessary in light of this investigation. What follows are some thoughts about where to look for the money to pay for these things.

A. Insurance.
If an ice dam causes damage to the interior of a structure, this often will constitute an insured loss. Pursuant to most applicable policies, and certainly under Chapter 515B of Minnesota Statutes (also known as the Minnesota Common Interest Ownership Act, or MCIOA), the association’s insurance policy is to provide primary coverage for the loss. However, the association usually is entitled to allocate the deductible under its own policy against the owners whose units are involved in the claim or whose actions or inactions resulted in the loss. Ideally, owners will have HOA policies in place with loss assessment coverage, which will cover the association’s deductible if necessary. There may be reasons not to submit an insurance claim, however, such as avoiding an increase in insurance rates, or because the association intends to pursue the builder or contractor who is responsible for the conditions causing the ice dams.

B. Builder or Contractor.
If ice dams exist in a newer association, or if they began shortly after recent renovations or a re-roofing project, it is quite possible they’re a result of defective construction practices, and an express or implied warranty may cover the condition. As mentioned above, providing written notice to the builder and any applicable subcontractors is one step in preserving the right to obtain a recovery for the defect. However, there are several statutes of limitations that apply to claims for defective construction and breach of warranty. In addition, depending on the nature of your claims or the provisions of applicable purchase documents and governing documents, you may have to navigate potential restrictions or limitations on your ability to pursue a recovery. If you have any doubt whether you have a right to pursue a claim for recovery from your association’s builder or from your contractor, you should still pursue a full evaluation of the situation. Options may still exist even if you did not provide prompt written notice, or if the contractor has gone out of business or filed for bankruptcy, so you should never assume you have no chance at recovery. Of course, the earlier you pursue a complete evaluation, the better.

C. Common Expense: Shared vs. Allocated.
If insurance coverage is unavailable for performing necessary alterations or to correct deficiencies in the roof system, and recovery from the applicable builder is unavailable or unsuccessful, the association and the affected unit owner(s) must explore the proper solution. Associations may, and often do, choose to treat exterior work such as removing snow and ice, investigating the cause and fixing roofing issues, as a common expense borne equally by all owners. Note however, that if the association is governed by MCIOA, it is authorized by statute to allocate the cost of any work to fewer than all the units if only those units are benefitted by the work, as long as this is not prohibited by the declaration. Also, unless the association’s declaration requires otherwise, MCIOA associations that are performing work on limited common elements must allocate the cost of work on such areas to the unit(s) to which the limited common element is allocated. Note that, depending on your association’s declaration, limited common elements may include attics and/or roofs, meaning the cost of all necessary work might be allocated back to the benefited unit owner(s) if the association has reacted reasonably upon receiving notice of the problem.

This does not mean the association may pass along to owners the cost of obtaining an opinion regarding the association’s obligations, and the proper characterization of the area to be addressed (e.g., limited common element, common element, or a portion of a unit). This is not generally a cost directly attributable to maintenance, repair or replacement, and in most cases will not reasonably be considered a cost of enforcing the governing documents. There is no “one size fits all” approach, but this usually is a cost the association must bear as a common expense. Furthermore, if a party receives notice that snow on the roofs is turning into ice dams, that party risks liability for problems that it should have taken steps to avoid, but didn’t. For this reason, the association and its owners should cooperate as much as possible in diagnosing and eliminating the cause of ice dams, keeping in mind that both have something to lose if the problem is not promptly and permanently resolved.

Matt Drewes contributed this post, which is taken from an article appearing in the September/October issue of Minnesota Community Living magazine.  Matt is a Shareholder with Thomsen Nybeck.  He is the head of the firm’s nine-member Community Association Representation Group and the firm’s Creditors’ Remedies Group. and practices in the areas of business and real estate litigation and transactions, employment law, construction litigation, community association law, debtor/creditor law and insurance.  He has been included in Minneapolis/St. Paul Magazine’s list of Rising Stars for several years, and has been quoted on issues involving construction litigation, community associations and real property issues in the Minneapolis Star Tribune, Minnesota Lawyer, Habitat Magazine, Minnesota Community Living Magazine, Yahoo!Finance.com, MSN.com, Bankrate.com, and elsewhere.  He can be reached at mdrewes@tn-law.com or by phone at 952.835.7000.

Zoning and variances loosen up – 2011 Legislative change sets aside Krummenacher decision

17 May

In Minnesota, zoning and variance issues have been far more challenging for those seeking a variance since 2010, when the Minnesota Supreme Court (in Krummenacher v. City of Minnetonka) determined that zoning variances would only be allowed where the applicant has no other reasonable use of the property, without the variance.  Consequently fairly “routine’ requests for variances to improve a property through expansion, obtaining an exception from limitations on use, and the like were difficult to come by.

Since the Krummenacher case, cities and municipalities have effectively had their hands tied, with respect to what variances they could allow, and they have had little to no flexibility in considering case-by-case circumstances, as the standard articulated by the Supreme Court was quite onerous.  Prior to that case, the standard for variances was whether the proposed use was one which would be “reasonable”, even if such use was not allowed by the existing ordinance.  Obviously that offers far more flexibility.

The good news for those seeking variances and for the cities and municipalities managing the process is that flexibility has been interjected back into the process, via a new statute which was signed into law May 5th.  The new law (H.F. No. 52, final engrossment found here: https://www.revisor.mn.gov/laws/?id=19&year=2011&type=0) allows for variances when an applicant can demonstrate “practical difficulties” in  complying with the official control.  The “practical difficulties” standard requires that the owner proposes to use the proeprty in a reasonable manner, the plight of the landowner sis due to circumstances unique to the property not created by the landowner, and that the variance (if granted) will not alter the essential character of the locality.  (See Minn. Stat. Sec. 394.27, subd. 7, 2011).

A significant benefit of this new law, which went into effect immediately upon Governor Dayton signing it, is that real estate projects, construction efforts and developments that were halted due to the inability to obtain a variance may now be able to resume.  If you had placed your own development or construction project on hold, for fear of not being able to obtain a variance post Krummenacher, it may now be worth contacting your attorney to see if it is time to revisit that issue.

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This blog entry is written by Brad Boyd, a Shareholder at Thomsen Nybeck. Brad is the chair of the firm’s Transactional Group, and his practice focuses primarily in Real Estate, Real Estate Brokerage, Business and Corporate law, and Wind Energy Law.  Brad provides legal advice, guidance, and representation related to risk management in a wide variety of real estate and business law matters.  He is counsel to the Minnesota Association of Realtors, many individual Realtors and brokerages, business clients and individuals.

Minnesota Construction Warranty Claims: New Procedures for 2011

18 Jan

You may be familiar with (or at least aware of) the warranties provided to homeowners under Chapter 327A of Minnesota Statues.  These warranties include a one-year warranty on all workmanship and materials, a two-year warranty on plumbing, electrical or other mechanical systems, and a ten-year warranty against major construction defects.  These warranties apply to new or newly remodeled residential property (which can include single-family homes or community associations, such as condominiums or townhouses), and are binding against the builder (of a new home) or contractor (in the case of a remodeling project).  Throughout the rest of this article, I will refer to both as a “contractor”, though homeowners should appreciate there can be a difference.

For years, Chapter 327A has contained certain procedures that owners must follow to preserve a claim for a breach of one or more of these warranties.  Effective January 1, 2011, these procedures now have been revised, and new procedures have been added.  You can read the complete text of the new statute here.  The legislature’s goal in making these changes is to try to reduce the number of lawsuits that are necessary to resolve these warranty disputes, but as with any new process there will always be traps for the unwary and navigating the new procedures is bound to catch more than a few homeowners off guard.

The process still provides that written notice of an alleged defect must be provided to the contractor within six months of the discovery of the defect, with the new exception being where the owner can demonstrate the contractor had actual notice of the claimed defect. Of course, it’s best to provide timely written notice if you wish to rely on this statutory warranty.  Many owners falter by failing to provide this notice within six months of discovering the defect.

After this notice has been provided, the contractor has always been required to inspect the alleged defect within 30 days and propose a repair.  The new amendment now requires the owner to allow the contractor to conduct “invasive” testing to determine the extent of any damage or the proper type of repair, however.  Invasive testing may involve making test cuts in stucco or interior drywall and/or using a probe to test the moisture content of the wood framing members of the home, though the statute does not specify.  It is of course fair to permit the contractor a reasonable opportunity to understand fully the defect (if any) involved, and the contractor is required to place the property back into “pre-inspection condition” following any invasive procedures, but it is unclear how this restoration process will be measured or enforced in practice.

In the event the contractor inspects the property and the owner and contractor cannot agree on the proposed repair (and owners should carefully evaluate proposed repairs, preferably with the assistance of a trusted contractor, engineer or attorney), the homeowner must (yes, must) follow through with the new “home warranty dispute resolution process”.  The new dispute resolution process requires the selection of a “qualified neutral” from a list maintained by the Minnesota Department of Labor and Industry, which will charge aspiring neutrals a $200 fee to be listed.  There are rather short timeframes applicable to the steps for selecting a neutral, so homeowners should consult with an experienced member of the construction industry and/or their own construction attorney before submitting their claim to the commissioner of the Minnesota Department of Labor and Industry.  Otherwise they will find themselves with little time to make a decision about the neutrals from which they must choose to evaluate their case.

After a neutral has been selected, the parties must meet together with the neutral and each will submit its own reasons why its proposed repair is proper.  There is a fee of $25 per party for participation in the process, in addition to the hourly fees of the neutral third-party the parties select.  It also is possible the parties will use attorneys to represent them through this process, and contractors with insurance coverage almost certainly will have attorneys present to represent them, though homeowners presumably will not be required to do so.  According to the amendment, at the end of this process the neutral third party does not issue a binding decision (it simply is an evaluation). Moreover, this evaluation may not be used as evidence in any later litigation if the “unreasonable” party does not care to acknowledge that it is being unreasonable. The process does, however, provide the parties with perhaps some further understanding of the potential damages at stake and chances of a favorable (or unfavorable) result.

Barring certain exceptions, the parties must complete this process before litigation can be commenced.  However, there are four situations which owners may commence litigation earlier if the contractor is not engaging in the process in good faith:

1) The homeowner may sue the contractor immediately if:

a) the contractor fails to conduct an inspection within 30 days after the owner has provided written notice of the defect;

b) the contractor performs the inspection but fails to provide a written proposal to make a repair of the alleged defective condition within 15 days after the inspection is complete;

c) the contractor provides a proposed repair, to which the owner agrees, but the contractor does not perform the repair.

2) The homeowner may also sue the contractor following the expiration of 60 days from the owner’s receipt of the contractor’s repair proposal, whether or not the dispute resolution process is complete.

In the event the evaluation process is not successful in bringing the owner and contractor to a resolution, the new amendment also alters certain timing considerations applicable to a construction defect lawsuit. This is because there are numerous claims (or theories of recovery) applicable to construction defect cases. These can include not just a claim that the contractor breached one or more of the statutory warranties under Chapter 327A, but also that the contractor breached an applicable contract, or that the contractor was negligent. There are also other warranties that may apply, including warranties applicable to common interest communities (condominiums and townhouses) as well as warranties covering the sale of goods (such as windows, doors, shingles, etc.). Each of these claims has not only its own standards, but each also has an applicable limitations period (the period within which you must sue or your claim is barred) which may be different from the next. The amendments to 327A now provide that, for as long as an owner is following this statutory procedure, or for 180 days, whichever is longer, all of those claims will be “tolled” (meaning their expiration will be delayed). This is a useful provision for ensuring a homeowner does not lose the right to commence litigation as a result of participating in this mandatory dispute resolution process.

The new provisions of Chapter 327A certainly have created more opportunities for construction defect cases to reach resolution outside of court, in theory.  However, there is little likelihood that a contractor who was being unreasonable under the prior procedures failed to realize it was being unreasonable, and there is little consequence to a contractor that fails to reach a reasonable resolution even under this new scheme.  Therefore, until we have seen this process utilized a few times, we do not know whether it will provide aggrieved homeowners with a legitimate alternative to litigation, or just another hurdle to clear to obtain a recovery under Chapter 327A.  In the meantime, if you have any questions about whether this process applies to you and how to comply with its provisions, contact Matt Drewes or one of the other construction litigation attorneys at Thomsen Nybeck.

Matt Drewes contributed this post.  Matt is a Shareholder with Thomsen Nybeck.  He is the head of the firm’s 10-member Community Association Representation Group and co-leads the firm’s construction litigation group.  Matt practices in the areas of business and real estate litigation, construction litigation, community association law, debtor/creditor law, insurance and employment, has been included in Minneapolis/St. Paul Magazine’s list of Rising Stars for several years, and has been quoted on issues involving construction litigation, community associations and real property issues in the Minneapolis Star Tribune, Minnesota Lawyer, Yahoo!finance.com and Bankrate.com, and elsewhere.  He can be reached at mdrewes@tn-law.com or by phone at 952.835.7000.

Roofing Contractors and Homeowners Beware: New Restrictions Apply to Negotiating Storm Damage Claims

21 Dec

When a storm occurs, many homeowners may not understand the affect that the storm had on their property.  As a result, over the past several years roofing contractors have increasingly made themselves available to homeowners and sought to be a resource for them when negotiating property damage claims with a homeowner’s insurance company.  Sometimes, these roofing contractors will offer as a part of their contract with a homeowner to exclusively negotiate a claim settlement on behalf of the homeowner with the homeowner’s insurance company.  Such practices by roofing contractors are now subject to some new restrictions.  A recent law prevents roofing contractors, who will be paid by the homeowner from the proceeds of the homeowner’s insurance policy, from advertising or promising that they will pay or rebate all or part of the homeowner’s insurance deductible.  See Minn. Stat. § 325E.66.

Another recent law requires that roofing contractors give homeowners 72 hours to cancel a contract for roofing goods or services if the goods or services are to be paid by the homeowner from the proceeds of his insurance policy and the insurance company denies the homeowner’s claim.  Prior to entering into a contract with a homeowner, the contractor is now obligated to provide the homeowner with a statement advising the homeowner of this right.  If the homeowner chooses to cancel the contract, the homeowner must give written notice of cancellation to the roofing contractor at the address stated in the contract within the required 72 hour timeframe. The homeowner’s notice of cancellation does not need to be in any particular form, but it must express the homeowner’s intent to not be bound by the contract.  For further information on a roofing contractor’s obligation to provide notice of a right to cancel residential roofing contracts and the requirements related to a homeowner providing notice of cancellation of the contract, see Minn. Stat. § 326B.811.

One final change affecting roofing contractors is that they are now required to have a public adjuster’s license if they want to negotiate and act as a representative for a homeowner with the homeowner’s insurance company.  The Department of Commerce and the Department of Labor & Industry view such representation and actions by roofing contractors to constitute the contractor acting as a public adjuster, and therefore, under these circumstances, require that roofing contractors hold a public adjuster’s license. See Bulletin 2010-4 issued by the Minnesota Department of Labor & Industry and the Minnesota Department of Commerce.

Roofing contractors should be careful to make sure they are compliant with all these new requirements that apply to them.  Likewise, homeowners should be aware of these changes if they are approached by roofing contractors who wish to perform roofing goods or services for a homeowner after a storm.  If you are a roofing contractor or a homeowner who is approached by a roofing contractor, it may be beneficial to have an attorney review the roofing contract prior to entering into the contract so that you are aware of both your rights and obligations pursuant to these new law changes and under the proposed contract.  In addition, it is possible for an attorney or public adjuster to step in on behalf of a homeowner to conduct the negotiations with an insurance company while still receiving the input and expertise of the contractor to assist in obtaining a fair resolution to the homeowner’s claim.

This blog entry is written by Deb Newel, an Associate at Thomsen & Nybeck, P.A. Deb practices in the litigation area of the firm with primary focus on General Civil Litigation, Real Estate Litigation, Insurance Litigation, Construction Litigation and Townhome and Condominium Law.

Matt Drewes Quoted in Articles About Construction Defects Appearing at HOAleader.com

13 Mar

Matt Drewes recently contributed quotes for the following articles published at www.hoaleader.com, a national web-based publication focused on homeowners association and condominium board members and association management professionals: 

 

Matt Drewes is a Shareholder with Thomsen Nybeck.  He is the head of the firm’s 10-member Community Association Representation Group and co-leads the firm’s construction litigation group.  Matt practices in the areas of business and real estate litigation, construction litigation, community association law, debtor/creditor law, insurance and employment, and has been included in Minneapolis/St. Paul Magazine’s list of Rising Stars for several years.  He can be reached at mdrewes@tn-law.com.

Hard Lesson For Property Owner: Fixing Your Leak Risks Sinking Your Case.

25 Feb

The Minnesota Court of Appeals dealt a heavy blow to property owners on December 22, 2009. 

The case is Miller v. Lankow, 776 N.W.2d 731 (Minn. Ct. App. 2009).  In it, the Court of Appeals held that Miller’s claims of defective construction and fraudulent efforts to conceal those defects should be dismissed because he fixed the damage to his home. 

The issue is called spoliation (that’s not a typo, but the concept is akin to “spoiling” evidence).  The goal in preventing spoliation is to ensure that parties in litigation are not hindered in their ability to respond to someone else’s claims by being denied the ability to investigate evidence in another’s sole possession or control.  For example, in a construction defect case, such as Miller, spoliation can arise when the property owner repairs damage without first telling the responsible party about the potential claim the owner has against that party. 

At about the time this case was decided, I addressed this very subject in an interview with www.HOAleader.com when they called me to talk about construction defect issues in common interest communities.  It’s a pay site, but you can read a free version of the article here.  The rule is simple, if you’re going to fix your problem (a reasonable desire, especially when the problem is a water leak), you must first alert the parties allegedly responsible for the damage. 

The concept of providing notice to the defendants of the alleged defects is not new.  This actually happened in Miller, which is what makes the outcome so shocking.  The defendants in this case knew plaintiff’s allegations, and they knew they were likely to be sued.  But they were in fact rewarded for their apparent refusal to investigate Miller’s clear claims that there were defects, and that the defects were fraudulently concealed.  The notice of the owner’s claims has not historically required notice of the specific work to be performed or of the specific date the work would occur.  The Court of Appeals has now changed this. 

The Court of Appeals held that the owner’s failure to tell the parties of his plans to repair the mold and rot created by ongoing water leaks was cause to deny him the opportunity to present any evidence of those conditions at trial.  The decision to exclude photographs, testimony, and other evidence of the mold and rot present in the walls of Miller’s home was fatal to his claims, and the case was dismissed for lack of evidence.  The dissenting judge leveled a blistering criticism at the majority for enhancing the burden on plaintiffs, particularly under the facts of the Miller case, saying that the majority judges were “simply wrong.”

I do not know whether Miller could have proven his case even with all the evidence at his disposal.  There may have been no defects and no fraud.  The point, however, is that Miller was denied the opportunity to present his evidence.  This case stands now as the perfect example of why we continue to advise clients that a well-crafted letter should be provided to potential defendants in even the most simple construction dispute or case of alleged misrepresentation.  If you own or manage residential or commercial property, and you believe your property suffers from defective construction, faulty repairs, or your seller failed to disclose a problem with the property, contact Thomsen Nybeck to make sure you clear all the hurdles.

Entry by Matt Drewes.  Matt Drewes is a Shareholder with Thomsen Nybeck.  He is the head of the firm’s 10-member Community Association Representation Group and co-leads the firm’s construction litigation group.  Matt practices in the areas of business and real estate litigation, construction litigation, community association law, debtor/creditor law, insurance and employment, and has been included in Minneapolis/St. Paul Magazine’s list of Rising Stars for several years.  He can be reached at mdrewes@tn-law.com.

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