Tag Archives: lawsuit

Review your Deed Before you Build (Tue Tip)

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(Or, Reason # 529 why you need a lawyer)

A recent North Carolina case shows why you really need to consult with a lawyer before you build.  Deed of TrustIn the swanky Myers Park section of Charlotte, setback requirements were contained within property deeds, a hold over from the pre-zoning days of the early 20th century.   A $500,000 addition to a residence was built that violated the setback, and the Court of Appeals held that the neighbors were not enjoined from suing to force compliance even though they waited over two months (during which construction was substantially completed) to bring suit.

 The case is Irby v. Freese.  Of note, the homeowners built the addition without benefit of an attorney or architect, so the deed restriction was not noticed.

The Court of Appeals was only addressing the issue of undue delay in bringing the lawsuit, because a two month delay occurred during which significant sums were spent by the homeowners to dry in the building.  The Court held that, under the specific facts of the case, a two month delay was not fatal to the claim.  Stay tuned for further details, as the case is far from over.  It has been remanded to the trial court for a full trial.

And, be glad that this isn’t you.  This could prove to be a very costly mistake, in which the entire addition may have to be demolished because of the violation of the setback requirement contained in the property deed.

Read your deed.  Read your covenants. When in doubt, hire real estate counsel before you pick up the shovel.

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Photo “February 5, 2010- Paperwork” via Caitlin Childs via Flickr- Creative Commons license.

Joint & Several Liability in NC (law note)

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British pennies & poundsIf a client has been sued, he wants to know how much is at risk if he loses at trial.  This is especially true where more than one person or company have been sued.  How is any damage award apportioned?

 The answer is not one clients generally like to hear:  your company can be on the hook for 100% of any damages.  This is true even if your company is really only liable for a tiny fraction of what caused the damages in the first place.  You can thank “joint and several liability” for that.

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For example, in a fairly typical construction dispute, an owner sues a contractor and the architect for construction defects. The contractor uses unsuitable substitutions, and the architect approves the unsuitable substitutes.   Both contractor and architect may be held liable for the resulting damages.  If a jury awards the owner $500,000, then both contractor and architect are liable for the entire $500,000 to owner.  That’s the “severability” part of the law.  As between the two, of course, they both share in the damages, and if the owner executes on the entire judgment against the architect (perhaps due to the architect’s insurance coverage), the architect can then go after the contractor for an equal share and get paid back $250,000 in “contribution.”  (That’s the “joint” nature of such an award).  This is, however, assuming the contractor has those funds.  Essentially, whoever has the funds when a judgment hits might end up paying for the entire award.  If the contractor doesn’t have $250,000 for the architect to be paid back, the architect is out of luck.

Does the result change if the jury finds the architect was only 5% liable for the damages and 95% were attributed to the contractor? Nope.  In North Carolina, where the parties’ actions together contribute to one indivisible injury, there is no apportionment.  “In for a penny, in for a pound” as the old saying goes.

Exceptions to the Rule?

Are there exceptions? But of course!  If the owner is also negligent, he can get no recovery at all since North Carolina is a pure contributory negligence state.  If one party is actively negligent and one passive, than the passively negligent party can seek indemnity from the active party.  If one party settles before trial, things become more complicated.  More on these subjects in future posts.  I’m also told that in other states apportionment is more the rule, so you may have better luck with your out of state projects in a similar situation.

As a general rule of thumb, however, for your North Carolina project, just assume that the entire amount of claimed damages may be presented to you for payment.  Unfair? Many times, yes.   That’s the nature of the beast.  It is also one of many, many good reasons to make sure you are doing business with people you trust and, more importantly, that other professionals are appropriately insured or bonded on any project you are working on.

If you have any questions about joint and several liability, drop me a line or a comment below.

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Photo “Shiny pennies” by David Pillbro (Flickr Creative Commons license)

 

Tolling the Statutes of Limitation & Repose? (Law note)

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Lowe's Motor Speedway

A blog reader recently raised the question of to how to handle construction defect claims while repair attempts are being made on a defective building.  In part, the answer to this question will depend on how close you are to the statute of limitations or the statue of repose from running.  The closer you are, the more you need to be concerned about this issue.  Just because all parties are working together to solve construction issues does not mean that the statutes are not running.  They can.  [There are, as usual, exceptions for equitable reasons.]  And once statues run, there’s no getting them back.

One prudent approach to dealing with the statutes is to have all parties involved enter into a “Tolling Agreement.”  What a properly drafted tolling agreement can do is to stop the running of the statue of limitations and/or repose while the parties attempt to fix the defects or otherwise settle their issues with one another.  Note that the tolling agreement does not give a party any greater rights than they would have at the time it is signed– that is, if the statute has *already* run, then it would be of no use.  But the tolling agreement can act as a “time out” on the running of the clock.

A good example of a tolling agreements is found in the Court of Appeals opinion in Charlotte Motor Speedway, Inc. v. Tindall Corporation, 195 N.C. App. 296, 672 S.E.2d 691 (2009).  The Speedway case involved the infamous collapse of a pedestrian walkway during the NASCAR Winston Cup.  The walkway which collapsed had been substantially completed by October 1995, and the collapse occurred in May 2000.  Speedway (the project owner) and Tindall (which constructed the walkway) entered into a tolling agreement:

“to toll and suspend any applicable statute of limitations, repose or time, whether created by statute, contract, laches or otherwise, within which any cause, claim action, cause of action, or suit must be made, or commenced by the parties against any one of them concerning the [pedestrian] claims, including any and all claims for indemnification and contribution.”  Id. at 298, 672 S.E.2d at 693.

Tindall attempted to argue that the statute of limitations barred Speedway’s claim for indemnification of monies paid prior to three years before it filed its complaint, but the Court found that the Tolling Agreement, which remained effective “through and including January 1, 2006” tolled the action, and Speedway brought suit on July 17, 2007, less than two years after the Tolling Agreement expired.  Likewise, the Court held that the statute of repose did not bar the action, because the Tolling Agreement was entered into less than six years after substantial completion, and the lawsuit was brought during the pendency of a second funding [tolling] agreement between the parties.

If you are considering a tolling agreement (or think you don’t need one because you “have time”), it is always smart to get a professional opinion on the matter.

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Comments? Let me know.  I welcome the opportunity to discuss how the statute of limitations and repose may be tolled in your specific situation.

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Photo “Trucks” by JMLeedy (Justin Leedy) via Flickr via Creative Commons License.

 

The Sticky Statute of Limitations in NC

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sticky notesIf you are not a lawyer, but you play one on TV, you may have a passing understanding of the legal concept of a statute of limitations.  This is post is to provide you just a little more information about the concept, and how it applies to your North Carolina construction project.

What is a statute of limitations, and why is it important?

The Statute of Limitations is a time-barring statute which gives you a set time within which to bring an action (i.e., lawsuit) against another party.  If you do not bring your lawsuit within that period of time, the court will kick it to the curb.  The reasoning behind the statute of limitation (often, ironically, abbreviated as “SOL” in legal circles) is that people need to have some certainty in how long they can be sued for an event that happened in the past.  Witnesses die or forget, papers are destroyed, and in general it is extremely difficult to try a case years after the fact.  The law has, therefore, established a somewhat arbitrary deadline for when you can sue or be sued, and it is vital that you do not go past that deadline if you hope to bring a lawsuit.

What is the statute of limitations on a construction project?

The answer, as always, is:  it depends.  The statue of limitations is governed by whatever state’s law will apply to your case—usually, but not always, the state the project was built in.  The statute of limitations is also determined by what type of lawsuit you are trying to bring (or defend against).

 In North Carolina, the statute of limitations for most construction disputes (breach of contract, professional negligence, implied warranty of plans) is generally 3 years from the date time when you knew or should have known about the issue.   N.C. Gen. Stat §1-52.1  ABL Plumbing and Heating Corp. v.  Bladen Co  Board of Education, N.C. App. 623 S.E.2d 57 (2005). See also AIA A201 para. 13.7.   As always, there are exceptions.  If a contract is “under seal”, a claim can be brought for up to 10 years. (N.C. Gen. Stat. §1-47).

 If the contract involves merchandise and falls under the Uniform Commercial Code, the statute of limitations is 4 years. N.C. Gen. Stat §25-2-725.  However, where a defect in merchandise results in bodily injury or damage to real property, the shorter 3 year statute still applies.  Hanover Ins Co. v. Amana Refrigeration, Inc., 106 N.C. App. 79, 415 S.E.2d 99 (1992). In Hanover, a defective HVAC unit caused a fire, which destroyed a building. The court held that the shorter 3 year statute of limitations applied because the defective merchandise caused damage to the real property.

Therefore, it is best practice to assume that the Courts will find that the statute starts running at the first inkling of a problem, and bring your action accordingly. Also, regardless of the length of any warranty period, contractors can still be liable until the statute of limitations period expires.

What happens to claims after the owner accepts the project?

Once a project has been accepted by an owner, the owner waives his right to claim damages for all but latent defects. Acceptance by the owner with knowledge of a defective performance may be deemed a waiver of the defective performance.

Where, however, the defect is unknown (or “latent”), the owner’s acceptance does not waive the defective performance. Tisdale v. Elliott, 13 N.C. App. 598, 186 S.E.2d 685 (1972).   If a defect is a “latent” defect, hidden or not readily discoverable, the statute of limitations starts running from the date of discovery. Under AIA A201 para 13.7, any statute of limitations is deemed to have accrued in any and all events not later than the date of Substantial Completion.   This section may shorten the statute of limitations in some cases of latent defects.

Can the Statute of Limitations be lengthened or shortened?

Yes.  But, as they say on television, “don’t try this at home.”  Carefully drafted agreements for a shorter or longer period of time can be executed.  Consult your attorney before you do so, however.  You may also want to check with your insurance carrier to make sure you have sufficient insurance coverage for a longer warranty period.

What if the parties are working together to fix construction problems?

If the parties are working to fix problems, but the statute of limitations is fast approaching– run, don’t walk, to your attorney to discuss a tolling agreement to stop the running of the statute, or otherwise enter into legally enforceable agreements concerning the statute of limitations.  Just because the parties are all working together to solve a construction issue now doesn’t mean that the finger-pointing won’t begin once the bill is presented.

Have a question about the statute of limitations?

Comment below, drop me an email, or find me on twitter @melissabrumback .

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Photo (Public Domain):  “brightly coloured sticky notes and tags” by Adrian van Leen via OpenPhoto.


How to Smartly Handle Project Documents

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mountain of construction paperwork

Paperwork by luxomedia via Flickr

In the Contract Risks Management Group on LinkedIn, L.H. Chin wrote an article about file keeping for contract risk management.  Basically, his premise is that if you cannot keep your Project files orderly, you have exponentially increased your chances of a problem later.   His particular example dealt with originals versus reproduced copies, which is only somewhat germane to North Carolina contracts.  (Here, copies can be used as evidence most of the time—though not always).  His main point, however, about the ability to minimize future risks by having good document control policies in place, is something every project manager should think about.

 Here are a few tips of my own in that regard:

1.   File all communications in one place.  Don’t keep faxes in one file, email in another, and letters in a third.  Don’t keep incoming and outgoing correspondence separated by vendor.  Keep it all in one chronological file.  If you ever find yourself needing legal assistance, this will save many hours and untold stress for everybody.

1.b.  Caveat:  don’t feel like you need to print out every email.  Do, however, maintain a separate email e-folder for the Project, and go ahead and print those really crucial, smoking gun emails.

2.  If you insist on violating Rule 1 (and I know those of you who read this blog would never consider such a thing, right?):  Have all the files, categories, and such you want, but please also make a “master” chronological file of all correspondence.   Just do it.

3.  If you have any communications with your lawyer, an insurance representative (outside of the normal bonding paperwork), or otherwise have documents relating to potential claims, do keep them separate.  Put all such correspondence, in a folder marked “legal,” away from the Project file to prevent inadvertent disclosure to anyone else if there is ever litigation on the matter.

3.b  If in doubt whether something should be in “legal” or “correspondence”, err on the side of “legal.”  Your attorney can always change the classification later, but she can’t put the genie back in the bottle if something that is privileged is mistakenly given to a party suing you.

If you have any questions about these tips, or want to discuss your current procedure for record management, shoot me an email.  My contact information can be found on my Firm bio or at the Footer of the Blog.  Or, you can simply leave me a note in the comments. 
 

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Photo: “Paperwork” by luxomedia via Flickr/CC license.