South Carolina Construction Law - Discussion of mechanic's liens, delay claims, coverage, and constr

Limited Home Warranty Waived Implied Warranty of Habitability

2011-12-12T20:52:17Z

Jones v. Centex Homes, 189 Ohio App. 3d 668 (2010).

The Joneses entered into a sales agreement with Centex Homes for the construction of a new home. The agreement included a Limited Home Warranty provision covering defects in materials and workmanship. The provision also contained a clause purporting to waive any and all express or implied warranties of habitability or fitness.

Under the law in most states, a new homebuilder impliedly warrants to a purchaser that the home is structurally safe and free from defects. In some states, it is incredibly difficult if not impossible to disclaim this warranty. However, both the trial court and court of appeals in this Ohio case found that the buyers contractually waived their claims by virtue of the Limited Home Warranty.

The court of appeals seemed to place great emphasis on the fact that the Joneses were in their 30s and 40s and made the conscious decision to enter into this agreement without the aid of an attorney. The court relied on basic contract principles of freedom of contract and the presumption that a party reads what he signs. The court also noted that although the Limited Home Warranty provision was not emphasized in the contract, it was also not hidden or in small font. Because the language was clear and unambiguous and because the parties voluntarily entered into the agreement, the court upheld the waiver as the homebuyers' exclusive remedy.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

SC Court of Appeals Reduces Punitive Damages Award in Construction Case

2011-12-12T20:42:24Z

Hollis v. Stonington Dev. LLC, No. 4869, 2011 S.C. Ct. App. LEXIS 215 (Aug. 17, 2011).

Two families sued a development company for damages to their jointly owned property. The Plaintiffs' land includes two man made ponds built by family members over 50 years ago. Stonington purchased land upstream from the property to build a residential subdivision. The Plaintiffs alleged that as a result of the project, they experienced severe flooding, were hindered from accessing their homes, and their ponds were raised four feet due to sediment deposits. The cost to restore the Plaintiffs' property was estimated at $250,000.

The Plaintiffs further claimed that the Defendant Stonington violated state and local laws concerning erosion control and runoff, disregarded engineer recommendations, and misled them about its remediation plans.

At trial, the jury returned a verdict for the Plaintiffs in the amount of $400,000 in actual damages and $3.5 million in punitive damages. Punitive damages are awarded when the conduct of the defendant is particularly egregious. Stonington appealed this verdict to the SC Court of Appeals, where the punitive damages amount was reduced to $2 million.

The appellate court noted that it has the authority to set an upper limit range for punitive damages while still giving deference to the jury's determination. In determining whether a punitive damage award is excessive, courts look to the degree of reprehensibility of the defendant's conduct, the ratio of compensatory damages awarded, and a comparison of the punitive damages awarded for similar misconduct.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

LLC Members are not Protected from all Liability

2011-07-22T15:05:55Z

Sturm v. Harb Development, 298 Conn. 124, 2 A.3d 859 (2010).

Members of limited liability companies may be surprised to know that they can be sued individually when they personally direct or participate in tortious conduct. This is not the same as piercing the corporate veil, and does not require the plaintiff to allege facts to show that the corporate veil should be pierced.

In this case, a homeowner sued a contractor for breach of contract, negligence, fraud, and negligent misrepresentation in connection with the construction of a new home. The trial court held that the plaintiff failed to allege facts sufficient to pierce the corporate veil, so the contractor could not be held personally liable. On appeal, the plaintiff homeowner argued that piercing the veil was unnecessary because he was asserting liability against the defendant based on his individual actions, not trying to hold the contractor vicariously liable for the actions of the LLC. The court determined that a member of an LLC is not liable for the actions of the LLC merely because of his position within the company. However, when the member personally directs or participates in tortious conduct, he cannot hide behind the corporate shield.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

Sub Lulled into Believing Contractor Would Pay

2011-07-22T15:05:05Z

Cleveland Construction, Inc. v. Ellis-Don Construction, Inc., 2011 N.C. App. LEXIS 641 (April 5, 2011).

The statute of limitations tolled on a subcontractor awaiting payment from a general contractor. Usually this would bar the sub's claims, however, the court in this case held that the GC made promises to the sub that payment was forthcoming from the owner. The GC also encouraged the sub to hold off on filing suit so the two could assert a united front against the owner. The court held that under these circumstances, it was reasonable for the sub to rely on the GC's promises of payment and the statute of limitations should not bar the sub's recovery.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

Liquidated Damages Upheld Unless Extraordinarily Disproportionate

2011-07-22T14:58:00Z

Weis Builders, Inc., 2010 ASBCA No. 56306, LEXIS 13 (Feb. 17, 2010).

The U.S. Army Corps of Engineers awarded Weis Builders, Inc. a design/build contract for family housing at Minot AFB in North Dakota valued at $350 million. The liquidated damages provision of the contract and both disputed task orders stated that failure to complete the work on schedule would result in $2,400/day until the work was completed or accepted plus $35/day for each incomplete house.

Weis failed to complete both task orders on time, which resulted in a total $1.3 million in liquidated damages. Weis argued that the provision was unenforceable because the government's actual damages were less than $1.3 million and that the late turnover requirement was ambiguous. Both the contracting officer and the Armed Services Board of Appeals denied Weis's claim.

Liquidated damages provisions will be upheld unless they are extraordinarily disproportionate to the actual damages suffered, thus penalizing the breaching party. The difficulty lies in actually proving that the liquidated damages are extraordinarily disproportionate, especially in government contracts where it is hard to predict at the outset what damages the government will suffer if the contract is breached.

In this case, the liquidated damages were tied to reasonable estimates of the government's predicted losses in the event that the construction was not completed on time. $2,400/day was an adequate measure of the administrative costs and personnel costs that the government could have been expected to spend, and the $35/day was based on the need for housing military families in hotels until the construction was complete. The Appeals Board also determined that the government need not prove the exact measure of calculation of liquidated damages so long as they were based on reasonable estimates.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

Negligent Bid Recommendation

2011-07-22T14:07:12Z

Sunland Constr. Co. v. Wilbur Smith, Inc., 387 F. App'x 361 (4th Cir. 2010).

In this recent Fourth Circuit case, a construction company sued the city of Myrtle Beach for breach of contract after the City terminated its contract to install rainwater pipes. The construction company also sued the project's design engineer. The City filed a counterclaim against the construction company and the engineer. The district court held that the design engineer was liable to the City, but dismissed the other claims. The design engineer appealed this judgment to the circuit court of appeals.

The facts of this case are simple: the engineer was to recommend a contractor for the job following a competitive bidding. The engineer recommended a contractor that bid drastically less than the other bidders. The court held that the City had a right to rely on the engineer's recommendation, which the engineer should have foreseen. Likewise, the engineer should have foreseen that the contractor bidding substantially less than its competitors would not reasonably be able to perform under the contract.

The court determined that the engineer was liable to the City for its negligent recommendation because the engineer had a duty to make a reasonable recommendation, breached that duty by negligently recommending the dramatically low bidder, and this recommendation was a foreseeable contributing cause of the City's injuries. Based on this finding, the court affirmed the district court's holding.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

DOL Heat Illness Campaign

2011-07-13T13:19:36Z

As another sweltering South Carolina summer drags on, it is important for construction owners and employees to keep safety in mind. The Department of Labor started a Heat Illness Campaign to inform workers on heat illness prevention. This on the job hazard injures and kills thousands of workers each year, but is preventable. DOL recommends workers frequently drink water, rest in the shade, and report heat symptoms early on. Check out the link above for more information on the heat illness outreach campaign including worksite posters.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

North Myrtle Beach Condo Scam

2011-06-04T01:51:09Z

Prison time and restitution await the players involved in two proposed Myrtle Beach condo projects. The developers, a mortgage broker, a real estate agent and a loan officer were all involved in this real estate scheme that defrauded more than 50 victims.

Here's a link to TheSunNews.com article for the full story:

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

Back Charges Must be Reasonable

2011-05-10T15:25:00Z

Younger-Holmes Electrical Contractors, Inc. v. BE&K Building Group, LLC,
2010 U.S. Dist. Lexis 128559 (D. Okla. Dec. 3, 2010).

In this case, BE&K (GC) hired Younger-Holmes (Sub) to provide electrical work on a medical center construction project. Sub fell behind schedule in performing its contracted duties, so GC provided it with notification of default and three days time to cure. GC eventually hired another subcontractor to work with Sub to finish the project on time.

Sub later filed suit against GC after receiving $277,000 in back charges for the supplemental subcontractor. Sub claimed GC breached the parties' contract by failing to act reasonably and in good faith in declaring default and back-charging Sub.

The court determined that GC's actions in issuing the default letter were proper because Sub failed to provide adequate manpower to keep up with the construction schedule and finish the job on time. GC was only required by the subcontract to grant two days to cure after issuing the default letter, but GC actually gave Sub additional time before calling in the supplemental subcontractor.

However, the court did find that GC acted in bad faith in regard to the back charges. The court found that $82,000 of the $277,000 charges were unreasonable and often inexplicable. Some of these charges included charges for miscellaneous fees, personal items, equipment not expendable on the job, first-class airfare, and per diem charges for in state workers. In addition, many charges were unexplained or duplicated. Because GC had a duty of good faith and fair dealing based on its contract with Sub, it impliedly owed Sub a duty to minimize costs.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

Equal Employment Provisions of the Americans with Disabilities Act

2011-04-18T13:15:00Z

On March 25, 2011, the Equal Employment Commission issued a final rule to implement the Americans with Disabilities Act Amendments Act of 2008 (ADAAA). The Equal Employment Commission is responsible for enforcing Title I of the Americans with Disabilities Act (ADA), which prohibits employment discrimination based on disability. The ADAAA will revise the ADA to more broadly define disability as:

A physical or mental impairment that substantially limits a major life activity;
A record of physical or mental impairment that substantially limits a major life activity; or
Being regarded as having such an impairment.

Small businesses should also be aware of Title III regulations to the ADA. Title III is promulgated by the Department of Justices and covers public accommodations, commercial facilities, and private entities that offer certain examinations and courses related to educational and occupational certification. The Department of Justice ADA Update: A Primer for Small Business is a good source for maintaining compliance with these new provisions.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

Legislature Responds to Crossman Case

2011-04-04T03:38:00Z

In a previous blog I discussed the court's holdings in L-J, Inc. v. Bituminous Fire & Marine Ins. Co. and Auto Owners Ins. Co., Inc. v. Newman. In L-J, the court held that damage to a roadway caused by faulty workmanship did not constitute an occurrence and was not covered under the CGL policy. In Newman, the court ruled that damage to walls and exterior sheathing did constitute an occurrence because the damage went beyond the defective work product itself (stucco). Specifically, the continued repeated exposure to moisture caused by the defective stucco was both unexpected and unintended, therefore coverage could be found for those damages, but not for the defective stucco itself.

The court took another look at it's insurance jurisprudence in Crossman Communities of North Carolina, Inc., v. Harleysville Mutual Ins. Co.. In this case, defective construction on a condominium project resulted in homeowners filing claims against the developer. The developer settled with the homeowners for $16.8 million, and in turn sought coverage from Harleysville, the issuer of the developer's CGL policy. Harleysville refused to provide coverage and this declaratory judgment followed. The issue before the court was: when faulty workmanship directly causes further damage to non-defective components of an insured's project, does this necessarily constitute an occurrence?

Occurrence is defined in the policy as an "accident including continuous or repeated exposure to substantially the same general harmful conditions." "Accident" is defined by the court as "an unexpected happening or event, which occurs by chance and usually suddenly, with harmful results, not intended or designed by the person suffering the harm or hurt."

The court then took the opportunity to review both the majority and minority rules in other jurisdictions as to what constitutes an occurrence in faulty workmanship cases. Under the majority rule, faulty workmanship alone does not trigger coverage under a CGL policy. Under the minority rule, however, damages caused by faulty workmanship do constitute an occurrence as long as they are unintended or unexpected from the standpoint of the insured. Critics of the minority rule argue that it is more of a performance bond than an insurance policy.

In analyzing whether a claim for faulty workmanship is covered, the court first must determine whether there has been an occurrence. This means the damages must arise from a fortuitous event and must not be the natural and probable consequences of the faulty workmanship. Second, the court must address whether there has been property damage according to the specific CGL policy.

The court overruled its decision in Newman "to the extent it permitted coverage for faulty workmanship that directly causes further damage to property in the absence of an 'occurrence' with its fortuity underpinnings." The error in Newman lies in the fact that the court found coverage for property damage without the necessary finding of an occurrence.

Under the above analysis, the court held that there was no occurrence in the present case because the damage caused "was a direct result and the natural and expected consequence of faulty workmanship...."

In response to this case, the South Carolina Senate proposed S. 431, a bill to amend the South Carolina Code of Laws to define an occurrence as an "accident" or "continuous or repeated exposure to substantially the same general harmful condition or substance." The bill specifically adds that "No additional requirement of a fortuitous event is needed to constitute an occurrence." On March 31, S. 431 was referred to the House Committee on Labor, Commerce and Industry.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

Labor Groups Sue Governor Haley

2011-04-01T20:38:00Z

On January 20, 2010, the International Association of Machinists and AFL-CIO filed suit against Governor Nikki Haley and Catherine Templeton, newly appointed Director of the state's Department of Labor Licensing and Regulation, for a declaratory judgment and injunction based on their actions opposing labor unions in South Carolina.

The suit was filed in Federal District Court in Charleston by Armand Derfner, a local attorney and adjunct professor of Advanced Constitutional Law at the Charleston School of Law, on behalf of the Plaintiff Labor Groups. According to the complaint, the Governor and Director acted under color of state law to implement a policy opposing labor unionization in the state in violation of the Labor Relations Act and the First and Fourteenth Amendments to the United States Constitution.

The lawsuit was spurred by comments Haley made at a press conference when nominating Templeton Director of LLR. Specifically, Haley referred to potential issues with unionization at Boeing: "We are going to fight the unions, and I needed a partner to do it; [Templeton is] the right person to help me do it."

South Carolina is a right-to-work state, meaning the law secures the right for employees to choose whether or not they will participate in labor unions. Many suggest that South Carolina's stance on labor unions played a determinative role in Boeing's selection of North Charleston for its new plant.

No matter what your opinion on labor unionization is, this case has the attention of South Carolinians and could have important ramifications for the state's construction industry.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

NLRB Memo: Effective Remedies in Organizing Campaigns

2011-01-14T00:16:00Z

The National Labor Relations Board ("NLRB") General Counsel Lafe Solomon released a memo on December 20, outlining the NLRB's commitment to protecting employee free choice in unionization.

Solomon emphasized the importance of remedial efforts after NLRA violations. One such remedial measure may be to require employers to read NLRB remedial notices to employees and to give unions access to employee bulletin boards. Notice reading is said to have a greater "psychological impact" on employees during a union organizing drive than merely posting notices.

Another suggested remedial measure is ordering an employer to disclose employee names and addresses to a union during a campaign.

This site and any information contained herein is for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

Construction Layoffs on the Rise

2011-01-14T00:13:00Z

The Bureau of Labor Statistics reported on December 22, 2010, that mass layoffs in the construction industry continued to increase since September. 26,767 construction workers filed initial unemployment claims in November after construction firms initiated 325 mass layoffs that month.

The highest specialty groups affected were highway, street and bridge construction. Workers in these categories filed 12,964 initial unemployment claims in November, up from 2,564 in October.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

NLRB Proposes New Notice Requirement

2010-12-28T02:08:00Z

The National Labor Relations Board ("NLRB") proposed a new notice requirement on December 20, 2010, which affects all employers subject to the National Labor Relations Act ("NLRA"). If the Board passes this proposed rule, employers will be required to post a notice in the workplace informing employees of their rights under the NLRA. Among these rights are the rights to organize or join a union, bargain collectively, discuss wages and terms of employment with co-workers or a union, and picket.

Failure to comply with this regulation can result in severe sanctions including charges of unfair labor practices, extension of time limits in which to file charges of unfair labor practices, and consideration of the failure to comply as evidence of unlawful motive.

The NLRB notice poster will likely mimic the language found in the Department of Labor (DOL) poster released in May of this year.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

New Rule Affecting all Federal Subcontractors

2010-12-22T03:03:00Z

http://edocket.access.gpo.gov/2010/pdf/2010-30565.pdf

Effective December 13, 2010, contractors on all federal projects “shall not enter into any subcontract in excess of $30,000” with contractors at any tier who have been suspended or disbarred. Previously this rule, which exists to protect the government’s interest, only applied to first tier contractors.

Contractors must provide a “compelling reason” in writing to the contracting officer to avoid this prohibition. If the contract is for the “acquisition of commercial items, the notification requirement applies only for first-tier subcontracts.”

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

Faulty Workmanship is not an Occurrence

2010-12-18T02:36:00Z

The South Carolina Supreme Court determined in L-J Inc. v. Bituminous Fire and Marine Ins. Co., that faulty workmanship, standing alone, could not constitute an occurrence. However, if the faulty workmanship causes an accident it would be an occurrence because it is neither expected nor anticipated from the standpoint of the insured.

In Auto Owners Insurance Co., Inc., v. Newman, the court took this decision one step further and declared that if the defect causes injury to other property there is coverage in the policy. In Newman, improperly installed stucco caused damage to both the stucco itself and to the building’s substrate. The court found coverage for the damaged substrate, but not for the actual defective stucco. The insured’s only recourse as to the faulty workmanship was against the contractor.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

When is Insurance Coverage Triggered in Construction Defects?

2010-12-18T01:08:00Z

An occurrence is an event unexpected or unanticipated from the standpoint of the insured. In terms of construction defects, it is also important to determine which insurance policy an occurrence triggers. Construction defects often do not manifest themselves for many years, thus the insurer may have changed several times over. Naturally, the insured wants to collect on all these policies in order to fully compensate his losses. The South Carolina Supreme Court has struggled over the issue of when coverage is triggered for many years.

Prior to 1997, the court utilized the manifestation theory, which triggered insurance coverage at the time the insurable issue was first discovered. In 1997, the Supreme Court handed down its decision in Joe Harden Builders v. Aetna Casualty & Surety Co., which changed the prevailing theory of coverage. In that case, a concrete company misaligned concrete columns in a building, which allowed water intrusion to occur causing serious damage to the building.

The court declined to adopt the manifestation theory, and instead went with a hybrid theory. This theory holds that coverage is triggered at the time of the injury in fact, and continuously triggers all policies from that point forward. Expert testimony is used to determine when, to a reasonable degree of professional certainty, the damage first occurred. This theory is pro-insured because it allows the insured to find more coverage than prior theories would have allowed.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

What is Standing to Sue?

2010-12-18T00:46:00Z

In order to successfully bring a lawsuit, the plaintiff must have standing to sue. Standing means the plaintiff is the right person to bring a particular claim before the court for adjudication. There are three requirements for standing: injury, causation, and redress.

First, the Plaintiff must have directly and personally sustained an injury, or there is immediate danger that the Plaintiff will sustain a direct injury. It is improper to sue for an injury that is of a general nature common to all members of the public. Likewise, it is generally improper to sue for the rights of a third party. However, parties with standing to sue will often assign their rights to another party to sue on their behalf. This is frequently seen in construction defect cases where individual homeowners assign the homeowners' association or regime the right to sue on behalf of all members collectively.

Second, causation requires that the injury be fairly traceable to the Defendant's conduct. This element ensures that the Plaintiff is suing the correct Defendant.

Finally, redress means that a favorable court decision will likely rectify the Plaintiff's injury. If the court determines that a party lacks standing to bring a claim, the court will typically grant summary judgment in favor of the opposing party.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

Court Finds for Landscaper Based on Quantum Meruit

2010-12-18T00:44:00Z

A South Carolina landscape company agreed to perform landscaping and install an irrigation system for a Bluffton homeowner for $30,000. The arrangement was sealed with a handshake and was never reduced to writing.

After the landscaping began, the homeowner requested additional labor not included in the original proposal. Upon completion of the project, the company presented the homeowner with a bill for $32,677.89. When the homeowner refused to pay, the landscape company served him with a mechanic's lien and subsequently filed suit to foreclose the lien. The company's suit alleged breach of contract and, in the alternative, judgment under quantum meruit.

The court determined that although the landscape company's claim was not based on an express written contract, it was entitled recovery under a quantum meruit, or unjust enrichment claim.

There are three elements to a quantum meruit claim: (1) a benefit conferred upon the defendant by the plaintiff; (2) realization of that benefit by the defendant; and (3) retention by the defendant of the benefit under conditions that make it unjust for him to retain it without paying its value.

Because the company conferred a benefit of its services to the homeowner, which was realized by the homeowner, the court held that under these circumstances it would be unjust for the homeowner to retain this benefit without reasonably compensating the landscape company. For the full text of the SC Supreme Court's Opinion click here .

This site and any information contained herein is intended for information purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.