Tag Archives: construction defect

Repose Revised: A change in the statute establishing limitations and repose periods for construction defect cases

23 May

A significant amendment to Minnesota’s statute establishing time limitations applicable to construction defect lawsuits will take effect on August 1, 2013. The statute, Minn. Stat. § 541.051, governs not only how long a person may have to sue for many claims “arising out of the defective and unsafe condition of an improvement to real property” once an injury is discovered, but also has contained a “repose” provision that provides no such cause of action shall accrue more than 10 years after substantial completion. There have been a couple of exceptions to this repose period, however, one of which was for the benefit of parties who may have been sued already and who want to add new parties to the case.

The bill, which Governor Dayton approved on April 24, 2013, does not change the limitations of time within which a person may bring an action once the injury is discovered (two years) or the original plaintiff’s repose period (10 years). Rather, it clarifies what has been a source of some confusion and concern among the parties who may be sued in such cases.

Frequently, when a person commences a construction defect lawsuit, that person sues the primary contractor or builder with whom the person may have signed a contract and with whom that person may have dealt during the construction process. Even where the current property owner or manager didn’t deal with the prime contractor or builder, that party is usually easier to find than the various subcontractors or materials suppliers who may have contributed to the project. Once the contractor or builder is sued, it may argue that one or more of the parties to whom it delegated a portion of its work (i.e., a subcontractor) is fully or partially responsible for the alleged defect(s). To ensure proper allocation of the plaintiff’s damages to the parties truly responsible for the defect(s), the prime contractor or builder usually will add these subcontractors (and sometimes suppliers) to the case under the theories of contribution and indemnity.

For some additional insight into the current development, it’s useful to mention that this same statute was amended in 2007. Before the 2007 amendment, it used to be that a contractor or builder that was sued had a somewhat indeterminate amount of time within which to add other parties under its claim for contribution or indemnity. Pursuant to the statute a cause of action for contribution or indemnity historically did not arise until the party seeking contribution or indemnification had paid on a final judgment, arbitration award, or settlement. Thus, if the builder was sued in year 10 after substantial completion, and the case for some reason didn’t go to trial or settle until year 15, and payment wasn’t made until year 16 its subcontractors would still be on the hook 18 years after the work was complete. In that time, memories fade, witnesses disappear, and records may be destroyed. The 2007 amendment then provided that the cause of action for contribution or indemnity arises upon the earlier of such a payment on the original settlement or judgment, or when the party seeking contribution or indemnity is sued. This meant a prime contractor or builder that was sued couldn’t delay in adding any other parties it may believe were responsible for the defect(s).

But the 2007 amendment appeared to leave a loophole that there was no end date for claims against subcontractors that may not have been placed into suit against the prime contractor or builder, and instead were settled out of court. This is what happened in connection with the 35W bridge collapse case. The contractor involved in performing the work was threatened with suit, but instead settled out of court; its claim for contribution or indemnity was only triggered by its settlement payment, meaning it then had a legitimate argument that the designer of the bridge that completed its work decades earlier could still be sued for contribution or indemnity, even though none of the people injured by the collapse could have asserted their own claims directly against that same designer.

This new amendment to 541.051  now provides that even claims for contribution or indemnity may be barred from accruing. These claims must now be discovered within 14 years of substantial completion of the improvement or they will be deemed not to have accrued, and will be barred. This now gives certainty to all parties involved in construction projects that may go bad. Subcontractors and contractors alike will benefit from the certainty, and while the 35W bridge collapse was an exception, in most cases this new limitation will not affect the people claiming to be injured by a defective or unsafe condition arising out of an improvement to real property.

Matt Drewes contributed this post.  Matt is a Shareholder with Thomsen Nybeck.  He is the head of the firm’s eight-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 the annual list of Minnesota’s Rising Stars for several years, and has been quoted in the Minneapolis StarTribune, Minnesota Lawyer, Habitat Magazine, Yahoo!Finance.com, Bankrate.com, MSN.com, HOALeader.com, and elsewhere on issues involving construction litigation, community associations and real property issues. He can be reached at mdrewes@tn-law.com or by phone at 952.835.7000.

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Minnesota Supreme Court Reverses Court of Appeals; Gives Advice On How to Preserve Claims and Avoid Spoliation (An Update on Miller v. Lankow)

4 Aug

On February 25, 2010, I first wrote about the case of Miller v. Lankow.  At the time, I explained why the Minnesota Court of Court of Appeals’ decision that upheld the district court’s dismissal of the plaintiff’s case seemed extreme and inconsistent with existing law.  (Read that post here).  The Minnesota Supreme Court apparently agreed, and on August 3, 2011 it reversed the dismissal and sent the case back to the district court for further proceedings.  (Read the Minnesota Supreme Court’s Opinion here).

Without going into too much detail, the facts of the case involve a property owner who discovered water intrusion problems, which the seller claimed to have fixed, were still causing problems and resulted in mold and other damage.  The buyer provided notice to the seller and the contractors who were involved that he had discovered these defects and that he would pursue legal action if the parties did not reach a resolution.  Several parties attended an inspection at the property where they had the opportunity to view some of the damage.   The contractors and former owners knew they might be sued, but they did not request the ability to conduct further investigation into the cause or extent of the damage.  The owner later repaired the damage without telling the defendants exactly when he planned to start.

After the owner sued the property sellers and contractors for construction defects, water intrusion, fraud and a seller’s failure to disclose defects, the defendants claimed they were not given a sufficient opportunity to inspect the cause and extent of the damage.  They asked the district court to exclude the evidence the plaintiff gathered because they claimed they did not have a similar opportunity to review the same evidence before it was removed and destroyed.  The district court agreed, ordering that the plaintiff may not use any evidence of the defects and damage that the defendants did not see, which was a sanction for “spoliation” (i.e., destroying evidence).  Without this evidence, the plaintiff had no case, and the district court concluded that the case must be dismissed.  The plaintiff appealed to the Minnesota Court of Appeals, which held that the district court had not abused its discretion by sanctioning the plaintiff and dismissing the case.

The concern the Court of Appeals’ decision raised for me was the notion that, even if the defendants have notice of the claim of damage and the potential for litigation, the plaintiff might still have to wait to make repairs to his home while the defendants seemed to be in no particular hurry to investigate the claims against them.  Sometimes, particularly where water intrusion is at issue, prompt repairs are necessary to avoid further property damage and even personal injury.

The Minnesota Supreme Court agreed that legitimate concerns about destroying evidence before others have had a chance to inspect it must be weighed against the reasonableness of asking the party in control of the evidence to maintain it.  The Supreme Court held that, as has always been the case, the party with custody of evidence has a “duty” to preserve relevant evidence to permit other parties to inspect the evidence for use in litigation.  It also remains true that  party who breaches this duty may be sanctioned for spoliation, whether or not the breach was committed intentionally or in bad faith.

But a custodial party’s duty to preserve evidence is not boundless.

*     *     *

[T]he duty to preserve evidence must be tempered by allowing custodial parties to dispose of or remediate evidence when the situation reasonably requires it.

The Court identified a three-factor test for evaluating a case of spoliation:

“(1) the degree of fault of the party who altered or destroyed the evidence; (2) the degree of prejudice suffered by the opposing party; and (3) whether there is a lesser sanction that will avoid substantial unfairness to the opposing party and, where the offending party is seriously at fault, will serve to deter such conduct by others in the future.”

(citing Schmid v. Milwaukee Electric Tool Corp., 13 F.3d 76, 79 (3d Cir. 1994)).  “[S]anctions are not appropriate when the custodial party has a legitimate need to destroy evidence, and it appears from the totality of the circumstances that noncustodial parties have received sufficient notice to protect themselves by taking steps to inspect or preserve the evidence and nevertheless do nothing.”

The Court went on to offer recommendations to avoid a sanction for spoliation.  Ideally, an owner will call a meeting or send a letter “indicating the time and nature of any action likely to lead to destruction of the evidence, and offering a full and fair opportunity to inspect.”  Obviously, any notice of the meeting or of an offer to inspect should be in writing.

People might be amazed to realize that this issue is just one hurdle to sustaining a successful case for construction defects.  There also are notice requirements under certain statutory warranties (as well as other requirements to satisfy prior to commencing suit), as well as statutes of limitation which differ from claim to claim and the little-known statute of repose.  There also are agreements by which a party may have reduced the time during which it has to raise a claim for construction defects.  To help navigate the issues that exist, parties should consult with an attorney knowledgeable in the area of construction and construction defects.  At Thomsen Nybeck, we know these issues, and we can help.  Find out more at www.tn-law.com or call us at 952.835.7000.

Entry by Matt Drewes.  Matt Drewes is a Shareholder with Thomsen Nybeck.  He is the head of the firm’s nine-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.  He has been quoted in articles appearing in the Minneapolis StarTribune, Minnesota Lawyer, and on websites such as Yahoo!Finance.com, Bankrate.com and HOALeader.com, 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.

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.

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.

The Ice Dams Cometh: A Fact of Life in Minnesota or Construction Concern?

22 Feb

With the anticipation of warmer weather in the late winter and early spring, there is the frequent occurrence of warm sun followed by sub-freezing nighttime temperatures.  These weather conditions, which are not unusual in Minnesota, create a habitat for the frequently misunderstood (and too often dismissed) ice dam.  To find out more about what an ice dam is and what causes it to form, read this article by several current and former professors and/or educators.  Although addressing some complex issues regarding building science, the article contains a handy diagram of an ice dam, its causes, and the damage it can mean to your home or building.

As an attorney who has successfully handled numerous construction defect cases regarding numerous issues (including ice dams), I cannot recall a developer, particularly in the common interest community context (townhomes and condominiums) that did not contend that ice dams are:  1) the result of “abnormal” or “extreme” weather conditions; 2) the result of the homeowner’s and/or the association’s failure to maintain its roofs properly; or 3) are completely normal and unpreventable in Minnesota.

As you can see from the article, each of these justifications is invalid:

            Ice dams can be prevented by controlling the heat loss from the home.

*     *     *

The proper new construction practices to prevent ice dams begin with following or exceeding the state code requirements for ceiling/roof insulation levels.

(my emphasis above).  In addition, as the authors note, there are homes in virtually every community that do not suffer from ice dams.  These conditions are predictable and preventable at the time of construction or renovation of a home and its roofing system, as well as after the fact.  In addition, heavy snowfall that plugs the vents on the roof should not result in ice dams in most situations.  While it is considered a temporary solution to remove snow from the roof, it should not be necessary on an ongoing basis.

If you have experienced ice damming in your home or in your common interest community, you should immediately advise your builder or the roofing contractor who installed your roof.  Do so in writing.  If they give you one of the above “explanations”, contact an attorney right away.  Also, you should never perform any repairs or try to address ice dams on your own, and especially without first giving notice to your builder or contractor.  Although it is beyond the scope of this article to list them all, there are several statutes of limitations, warranty periods and other timing considerations that can cause you to lose your rights if you do not act right away.  You can also hurt your chances at recovering for your damaged roof if you repair or alter the conditions or damage without letting your builder or contractor see it first.  Your attorney can help you understand and navigate them.

Entry by Matt Drewes.

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