Letter from the Editor
Welcome to our summer 2012 issue. Hope you are keeping cool!
The first article discusses Colorado’s statute of repose for construction defect claims, and a recent Colorado opinion addressing these issues. The next article discusses an important Arizona construction case regarding attorneys’ fees that will have a significant effect on settlement tactics and settlement offers in future Arizona contract cases. The third article addresses preserving owner claims against subcontractors and design consultants under Utah law when the owner does not have a direct contract with these parties. Finally, this issue concludes with a timely article about the new California mechanics' lien statutes that become effective July 1, 2012.
If you have any questions or comments about any of these articles, you can feel free to e-mail them to me.
Sincerely,
Jim Sienicki
Colorado Court of Appeals Clarifies the Application of the Statute of Repose in Contractor v. Subcontractor Claims Arising from Multi-Phase Projects
On February 2, 2012, the Colorado Court of Appeals addressed issues of first impression arising under Colorado’s statute of repose for construction defect claims, which imposes an absolute deadline of six years from substantial completion of an improvement to assert defect claims against construction professionals.
In Shaw Construction v. United Builder Services, an HOA sued the general contractor of a multi-phase condominium project. The general contractor then sued its subcontractors, but those claims were dismissed under the statute of repose. The contractor appealed, arguing that (1) in multi-phase projects “improvement” means the entire project; (2) the “substantial completion” triggering the statute did not occur until the project architect certified completion (after a certificate of occupancy was issued); and (3) the statute of repose was tolled by the HOA’s service of a Construction Defect Action Reform Act (CDARA) notice. The subcontractors argued that (1) the “improvement” was limited to their specific work; (2) “substantial completion” occurred when each subcontractor completed its work; and (3) a CDARA notice of claim served on other parties does not toll the statute of repose for the subcontractors.
The Court of Appeals sided with the subcontractors.
First, the court ruled that an improvement “may be a discrete component of an entire project,” meaning completing one phase of a multi-phase project may constitute completion of the “improvement” and the six-year clock may start ticking before project completion. Whether a project component constitutes an improvement depends on whether the component is permanent and essential to the project’s function. But the court did not decide whether an improvement triggering the statute of repose can be determined on a trade-by-trade basis.
Second, the court ruled that, because the project components that encompassed the subcontractors’ work were completed more than six years before the contractor filed its lawsuit, the statute of repose barred the contractor’s claims. But the court did not decide whether substantial completion occurs when a certificate of occupancy is issued or when the architect certifies completion.
Finally, the court ruled that CDARA’s notice of claim process does not toll the statute of repose unless the subcontractor is served with a notice of claim. So, the contractor could not rely on the HOA’s notice of claim to toll the statute of repose for the contractor’s claims against the subcontractors.
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Arizona Court of Appeals Clarifies Who Is The “Successful Party” in Litigation for Purposes of Awarding Attorneys’ Fees and Holds that a Subsequent Homeowner Cannot Rescind Its Purchase With Respect to the Original Builder
A recent Arizona case will significantly impact settlement tactics, settlement offers and which party will be awarded its attorneys’ fees in contract-based disputes. This was a case where the attorneys’ fees drove the case and far exceeded the value of the underlying dispute. Its effect should ripple through many attorneys’ fees disputes in construction cases, since “successful party” is a term used in A.R.S. § 12-341.01, which governs disputes arising out of contract. The facts in the case are summarized below. In 1999, Jane Hall purchased a previously owned house. Soon thereafter, Hall experienced various structural problems with the house. In 2004, Hall filed suit against the original contractor, alleging breach of the implied warranty of habitability and requesting “rescission of the purchase,” or damages for the cost of repair in the alternative.
The trial court ruled that Hall was not entitled to rescission because, as a subsequent purchaser, Hall did not have a direct contract with the original contractor. Later, the jury found in favor of Hall on her breach of implied warranty claim and awarded $30,000 in damages. Both parties then requested their attorneys’ fees pursuant to A.R.S. § 12.341.01(A). Hall cited the court’s discretionary ability, in absence of a contractual provision addressing attorneys’ fees, to award the “successful party” its reasonable attorneys’ fees in any action arising out of contract. The original contractor, citing past settlement offers, based its request for fees on the statutory provision stating “if a written settlement offer is rejected and judgment finally obtained is…more favorable to the offeror…, the offeror is deemed to be the successful party from the date of the offer and the court may award [that party] reasonable attorney fees.” Hall countered that the original contractor’s prior $40,000 and $126,000 settlement offers did not exceed the “judgment finally obtained,” because the judgment finally obtained consisted of the $30,000 verdict plus Hall’s attorneys’ fees and costs. The trial court agreed: since Hall would be awarded $225,000 in fees and $10,757.79 in costs as the “successful party,” the aggregate amount, including the $30,000 in damages awarded by the jury, exceeded the contractor’s prior settlement offers.
The Arizona Court of Appeals upheld the trial court’s decision to include attorneys’ fees and costs in the “judgment finally obtained,” but on different grounds. As a preliminary matter, the court agreed there can be two competing “successful parties” in a contract-related case—(1) the overall successful party in the litigation, based on the jury’s verdict, and (2) the party whose offer was rejected and never beaten by the “judgment finally obtained,” but that party is deemed “successful” only from the date of the offer forward. (If this analysis results in there being competing “successful” parties, the trial court should offset these amounts when awarding fees and costs—for example, if plaintiff is the overall successful party and incurred $100,000 in...
