In Beacon Residential Community Association v. Skidmore, Owings & Merrill LLP et al, the California Court of Appeal recently held that an association can sue an architect and engineer (hereinafter referred to as “design professionals”) as a direct defendant in a construction defect lawsuit. Prior to the Beacon decision, it was a common belief that an association (or any property owner) could not directly sue a design professional in a construction defect because typically the association did not hire the design professional (the developer hired the design professional). As a result, there was no duty of care owed by the design professional to the association. In fact, the trial Court in the Beacon case sustained the design professional’s demurrer to the construction defect claims asserted by the association (based upon this common understanding).
The Court of Appeal reversed and held that design professionals do owe residential property owners (including associations) a duty of care because SB 800 (Civil Code Section 896 et seq) specifically states that “in any action seeking recovery of damages arising out of, or related to deficiencies in, the residential construction design, specifications,….a builder…a general contractor, subcontractor….or design professional shall….be liable for violations of…..[the building standards set forth in SB 800].” The Court of Appeal further held that “the plain language of SB 800 provides that a design professional who “as the result of a negligent act or omission” causes, in whole or in part, a violation of the standards set for in [Civil Code 896 et seq] for residential housing may be liable to the ultimate purchasers for damages.”
The Beacon case is a big step forward in construction defect litigation because now the association can rectify design defects by asserting claims against the responsible design professional. The association is no longer limited to filing a lawsuit against the developer as its sole recourse. If you have any questions concerning construction defects related to conditions caused by architects or engineers, please do not hesitate to contact the Law Offices of Michael A. Hearn for a free consultation.
The Law Offices of Michael A. Hearn will be providing educational seminars for the National Board of Certification for Community Association Managers (NBC-CAM). The upcoming events will deal with protecting the manager and preserving the evidence when association property damage occurs or is discovered. If you would like to directly schedule this presentation for your office or trade association event, please do not hesitate to contact the Law Offices of Michael A. Hearn. These presentations are free of charge.
The Water’s Edge at Lake Ray Hubbard Homeowners Association has recovered over $10 million dollars in damages because of construction defects found in the community’s original construction. Homeowners first noticed water damage in late 2008, but it became a significant problem by 2010. As a result, the Homeowners Association hired Michael Hearn’s firm to assist them in a claim against the Developers.
The first sign of damage arose during the development of the project when the board of directors, comprised of the Developers appointed members, managed the community. They were aware of numerous construction defects and attempted to silently fix them. They did not inform HOA owners of the issues. In June, 2008, LRH Waters Edge, LP turned over the management of the HOA to an owner-represented board.
Unaware of any defects, the new Board responded to complaints of several homeowners. The Board immediately saw significant damage and was forced to assess owners for emergency repairs. It was during the repairs that construction defects became apparent, which prompted the lawsuit.
Mr. Hearn’s firm was then retained and filed the lawsuit on June 9, 2010. There were 19 defendants initially named, which would grow to over 40 defendants before the case was resolved.
Through their investigation, the Association learned the stucco, windows, doors, and decks had not been properly installed. The investigation also found significant dry rot and mold throughout the project. Patio decks had so much damage that emergency safety repairs were done during litigation.
Preparation for the case pressed forward towards a trial date of November 5th. In August, mediation began and ongoing settlement discussions continued through September and October. The insurance company for Centerpoint (the general contractor for about 60% of the project) offered $1 million on November 2nd, but on advice of counsel, the Association’s board rejected the offer. On the Friday before the trial, Centerpoint and their subs met the Association’s demand of nearly $4.0 million.
Statistically, settlements pay about 60% of Plaintiff’s initial demand. The settlement from this case yielded 82% of the demand as to the Centerpoint buildings.
The trial date was then continued for one month to allow the settling parties to complete discovery. On December 7, 2012, the Association went back to Court to proceed against the non-settling parties. The Association obtained a judgment for another $7.0 million, totaling an award of over $10.0 million.
The worst thing a homeowner association can do is assume that because they have not observed any construction defects on their property, that none exist. Serious defects commonly remain undetected until after the statute of limitations for seeking compensation from the builder has expired.
In which case, the property owners will have no choice but to pay for the repairs on their own. Special assessments are usually required to fix the defects; which causes a variety of disputes between the homeowner association and its members.
Your homeowner association clients need to know whether construction defects exist before the statute of limitations expires. The Law Offices of Michael A. Hearn can help. We will provide your clients with a complimentary property assessment that will enable them to make informed decisions about their property before it is too late
Our complimentary property assessment includes the following: an inspection of the property, a report that will identify the observed defects (if any), an assessment of the legal options, and an approximate cost of repair. Since the report is prepared by an attorney, it is generally privileged and non-discoverable.
Our complimentary property assessment will assist your homeowner association clients in determining how to budget for future repairs and whether they can afford to make repairs without obtaining compensation from the builder.
Please do not hesitate to contact the Law Offices of Michael A. Hearn to schedule a complimentary property assessment.
This past year has been incredible for the law firm. While facing numerous challenges with new case law, new legislative laws and more aggressive positions being taken by many of the developers, we have still successfully closed several cases. Some of these cases include the following:
1. High Rises: Over the past year, our firm has been retained by several new high rises, both in California and Colorado. Additionally, the high rise case that had a significant number of legal challenges was settled for several million dollars just before trial. Currently, Mike Hearn is representing several high rises with issues spanning from water intrusion, balcony failures, mechanical issues, and structural failures.
2. Commercial: This year we were able to successfully resolve a large construction defect claim dealing with 10 commercial buildings in Irvine, California. The issues in that case had to do with expansive soils, inadequate slab on grade conditions, and water intrusion issues through both the windows and the roofs. After the litigation was resolved, our firm was retained to continue to work with the Association to assist in designing and overseeing repairs.
3. Condominiums: Several condominium projects were resolved this year, both through trial and settlement. We are pleased to advise you that all of the trial work was highly successful. Due to the fact that all settlement agreements are now considered confidential, specifics are unavailable, however, our Associations and the Boards of Directors are extremely pleased with the work we performed and the results we obtained.
4. New cases: Our firm has been retained on numerous cases in Pasadena, Orange County and San Diego this past year. The cases include condominium projects, high rises, mid rises and we are currently being interviewed concerning a hotel. We are truly excited about the next year and look forward to the challenges it brings.
Robert A. von Esch IV is an experienced construction and real estate attorney and we are pleased to announce that he has joined the firm as a junior partner. Mr. von Esch has been a litigation attorney for the past 10 years. He has represented numerous homeowners associations, homeowners, and other property owners concerning allegations of construction defects. Some of the more difficult cases in which he has been involved include La Costa de Marbella v. City of Carlsbad, Tingzon v. City of Oceanside, and Colony Hill HOA v. City of San Diego. Mr. von Esch has published numerous articles with the Orange County Bar Association and has lead presentations on real estate and construction topics for the Orange County Bar Association and National Association of Subrogation Professionals. We look forward to you working with Mr. von Esch.
Copper water lines have been in use for decades. Most likely, your home or project has copper water lines. Over the past few years, we have noticed an increase in reports of leaks associated with copper water lines. Some experts contend that chloramine is to blame. Chloramine is used by water districts to disinfect water. Chloramine has also been known to be corrosive to copper pipes and cause leaks. The presence of sulfate in the water may also be to blame. Sulfate is known to be corrosive and cause leaks. These leaks can be very destructive and if you have had more than one copper line leak, you may find it difficult to obtain insurance coverage for your property. We are currently investigating whether water districts that use chloramines and/or have sulfate in their water are responsible for premature copper line failure. If you or your clients have experienced copper water line failure, please do not hesitate to contact us. Compensation for the damage caused by the leak, as well as the cost to replace the copper water lines may be available.
On August 16, 2012, the California Supreme Court upheld the enforcement of arbitration provisions contained within associations CC&R’s for construction defect claims. The case is Pinnacle Museum Tower Association v. Pinnacle Market Development LLC, Case No. S186149, 2012 California Lexis 7665. Pinnacle Museum Tower Association alleged construction defects caused damage to the property and sought recovery not only for damage to its own property but also for damage to the interest held by its individual members. Pinnacle Market Development filed a motion to compel arbitration based on a clause in the CC&R’s, which provided that the association and the individual owners agree to resolve any construction dispute through binding arbitration in accordance with the Federal Arbitration Act (FAA). The trial court determined that the FAA is applicable and that Article XVIII of the CC&R’s embodies an agreement to arbitration between Pinnacle and the association. However, the trial court invalidated the agreement, finding a slight substantive unconscionability and a high degree of procedural unconscionability. The Fourth District Court of Appeal affirmed. The California Supreme Court granted review to determine whether the arbitration clause is binding on the association and whether it must be invalidated as unconscionable. The majority of the California Supreme Court held that “Article XVIII’s covenant to arbitration is not unconscionable and is properly enforced against the Association.” The California Supreme Court stated, “Even when strict privity of contract is lacking, the Davis-Sterling Act ensures that the covenants, conditions, and restrictions of a recorded declaration which manifest the intent and expectations of the developer and those who take title to property in a community interest development…will be honored and enforced unless proven unreasonable.” The California Supreme Court also stated, “Here, the expectation of all concerned is that construction disputes involving the developer must be resolved by the expeditious and judicially favored method of binding arbitration.” The California Supreme Court further stated, “Because the Legislature has elected to permit developers [to unilaterally impose arbitration on the association by recording a mandatory arbitration provision within the CC&R’s], the arbitration clause at issue is enforceable.” The California Supreme Court further concluded that “Civil Code Section 1356 flatly prohibits a court from approving any amendment to a declaration that would eliminate any special rights, preferences, or privileges designated in the declaration as belonging to the declarant, without the consent of the declarant.” Thus, an arbitration clause of this nature cannot be amended without the consent of the developer (declarant). As a result of the above, homeowner associations that have a CC&R clause requiring arbitration of construction defect claims, most likely will be subject to arbitration, and cannot avoid arbitration by voting to remove the arbitration clause from the CC&R’s if the CC&Rs require the Declarant’s approval.
When a landslide destroyed one upscale home and damaged three others in Dana Point, California, the owners turned to the Law Offices of Michael A. Hearn. Local authorities blamed heavy rains, which was not covered by the homeowners’ insurance. The firm’s investigation revealed a leaking water line that had gone unrepaired slowly weakened the hillside overtime. The Law Offices of Michael A. Hearn filed a law suit on behalf of its clients against South Coast Water District, and won.
With Headquarters in Orange County and an affiliated law firm in Denver, the Law Offices of Michael A. Hearn is one of the leading Southern California law firms practicing construction defect law on behalf of homeowners and homeowner associations. Before accepting a case, the firm conducts a multi-phase investigation at no charge to the homeowner. This thorough initial investigation and aggressive client advocacy result in resolution of virtually all cases in the client’s favor.
The firm is one of the few that accepts cases involving residential high-rises and mid-rises, bringing expertise in the complicated structural, electrical, and construction issues common to these building types.
“We have been at the forefront of changing the construction industry for the better,” shares Michael A. Hearn, the firm’s Managing Partner. “One of the indirect benefits of these claims is the construction industry has improved the quality of their work.”
Read the entire story, as seen in Forbes, Here