Tag Archives: contractor

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 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.

A Guide to Mechanic’s Liens for Property Owners, Subcontractors and Material Suppliers.

22 Feb

Mechanic’s liens in Minnesota exist to protect contractors, subcontractors and materials suppliers from going unpaid by giving them a lien on the property they helped improve.  Liens give the power to foreclose on property to ensure they are paid, and can provide protection against the bankruptcy of the person obligated to pay for the work.  In exchange for this powerful remedy, a potential mechanic’s lien claimant must comply with extremely technical requirements.  This posting will focus primarily on the rights of subcontractors, but they’re not the only ones who need to know what their lien rights may be.  Property owners may care about this as well.  You should understand when a subcontractor may place a lien on your home and when and how that mechanic’s lien can be foreclosed.  The rights of a general contractor are similar, but there are important differences that we will cover in a later post.

Subcontractors (the trades) and materials suppliers arguably face the greatest risk of nonpayment on a construction or remodeling project.  They rely on the owner to pay the prime contractor (or general contractor) and for the general contractor to use that money to pay them.  For them, the right to a mechanic’s lien is extremely important.  If you’ve been burned by non-payment one too many times, consider the following and talk to an attorney about getting a procedure in place to protect your lien rights.  Your collection costs can usually be recovered so there is no reason not to seek all possible protections even on relatively small claims.

Here are the steps to preserving and enforcing mechanic’s lien rights:

1.  When you start a project, gather the information you will need to protect and enforce your lien rights.  It is much easier to do this at the start of a project than after you’re not getting paid and people have become guarded and stop communicating.  Some things you will need to know are: the interest in the property held by the person or party arranging for the work to be performed (if it is a tenant this will be important); the Property owner’s name; and the street address of the property (as well as the legal description, if available). 

2.  Provide a “pre-lien” notice to the owner within 45 days from the date you start work.  A sub-contractor or material supplier who does not have a contract with the property owner may not claim a lien if it doesn’t give the appropriate notice to the property owner within 45 days of the date it first provided its service or materials.  There are certain exceptions, generally relating to large commercial projects, but it never hurts to provide the notice even when it’s not necessary.  The notice must be delivered to the property owner by personal service or by certified mail, and there is very specific statutory language that must be used.  There are even requirements about the size of print used. 

3.  Record or file the lien within 120 days after you complete your work.  A sub-contractor or supplier has 120 days from the last item of labor, skill or material contributed to the improvement.  To be safe, start counting from the last day you provided a significant amount or component of the work or materials required under your original contract.  Don’t assume tightening a screw, re-attaching some siding or even newly-added work will extend your rights.

4.  The devil is in the details.  The lien itself must contain certain information.  Also, it must not only be recorded in the real property records, but it must also be served on the property owner either by personal service or by certified mail.

5.  Do not delay.  If you serve and record your lien, but you still don’t get paid, you will have to bring a lawsuit to enforce the mechanic’s lien within one year from the date you contributed your last item of work or materials.  Before you start the suit, make sure you include all the parties who have a right to be included.  This will include the property owner, as well as all the other contractors, subcontractors, material suppliers and any others who have mechanic’s liens of their own, as well as any other party with an actual or claimed interest in the property.  

6.  It would be best to involve a competent attorney at the earliest step.  Mechanic’s lien law in Minnesota permits the recovery of attorneys’ fees spent enforcing the lien rights.

If you are owed money, but you don’t think you may have the right to a mechanic’s lien, you should still consider contacting an attorney.  You may fall into an exception for the required pre-lien notice.  You may also have certain other claims, and even small amounts, taken as a whole, may be worth pursuing.  If you own a home or property and are worried about how to handle mechanic’s liens or mechanic’s lien notices, there may be ways to resolve the issues and reduce your stress.  Regardless of your role or situation, if you have questions about a mechanic’s lien or other construction-related issue, contact Thomsen Nybeck.

Entry by Matt Drewes.

Few Actual Changes to Minnesota’s Residential Warranty Statute

1 Jun

A slate of bills recently moved through the Minnesota House and Senate to the desk of Governor Tim Pawlenty which related to the State’s residential construction warranty laws.  They included:

 

  • House File 239, Senate File 6, which provided a remedy to homeowners to recover from the contractor for the homeowner’s short-term housing costs when there is a breach of the statutory warranty, such as in a construction defect case (hereinafter “Temporary Housing Cost Bill”);

 

  • House File 412, Senate File 470, which allowed homeowners 12 years after the warranty date to file a claim (though if more than 10 years, only one year after discovering the breach) and thereby increasing the current period by 2 years (hereinafter “Statute of Limitations Bill”);

 

  • House File 211, Senate File 170, which allowed a judge to award attorneys’ fees should a homeowner prevail in its claims to enforce statutory residential warranties (hereinafter “Attorneys’ Fees Bill”);

 

  • House File 362, Senate File 362, which eliminated the requirement that homeowners provide written notice of major structural defects within 6 months of discovery when, in incidents where the contractor had knowledge of the loss or the damage (hereinafter “Elimination of Notice Requirement Bill”); and

 

  • House File 420, Senate File 776, which required contractors to provide to homeowners, copies of the state’s home warranty laws within the construction contract and prohibited either the contractor or the homeowner from modifying that warranty (hereinafter “Warranty Disclosure Bill”). 

 

Between May 19 and May 21, 2009, Governor Pawlenty vetoed the Temporary Housing Cost Bill, the Statute of Limitations bill, the Attorneys’ Fees Bill, and the Elimination of Notice Requirement Bill.  Governor Pawlenty signed into law only the Warranty Disclosure Bill.  Governor Pawlenty stated that his reason for vetoing the majority of these bills is a concern that those bills would create “burdens on the housing sector during [a] historic recession.”  While many in the construction defect area kept a close watch on these bills, as they had the potential to greatly change the landscape of the construction defect practice area, the end of the day held very little change due to the vetoes by Governor Pawlenty.

 

Chris Renz is a shareholder practicing in the Litigation Practice group at Thomsen & Nybeck, P.A., a law firm in Edina. Thomsen & Nybeck, P.A. has a number of professionals dedicated to meeting the legal needs of individuals, businesses, and associations, both big and small.  Chris concentrates his practice in the areas of Construction Litigation, General Civil Litigation, Home Owners Association Law, Real Estate Litigation, Criminal Law, Employment Law and Real Estate Law. He can be reached at crenz@tn-law.com; (952) 835-7000.

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