Articles Posted in Construction Law

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One of the things I love about being a Texas real estate and development lawyer is that Texans are so open to innovative real estate developments. Practicing real estate and development law in Texas is great fun and very satisfying for this reason. A recent real estate development in Texas illustrates the point: co-housing, while not invented in Texas, has come to Texas. As a recent article by Bob Moos in the Dallas Morning News online entitled “Co-Housing Catching On in U.S.” explains, the first elder co-housing development in Texas is being built in Duncanville, Texas, called Wildflower Village.

839408_some_old_men_in_a_place.jpg The members of the Village have been meeting together over the past two years to get to know one another, and to design their community. Some arguments have occurred, but they also meet socially to have fun as well. They like to arrive at decisions by consensus, rather than a “majority rules” vote. The development is limited to adults over 50 years of age. They plan to individually own their own single-story home. However, they will collectively own a common building that will have a gourmet kitchen, dining room, living area, home theater, craft room and two guest bedrooms.

This is an incredible concept and I wish them all the best of luck. They have gotten to know each other before they even hired a builder or an architect, and so have created a community for themselves, meaning “community” in the sense of a village with neighbors and friends, not just buildings. For more information, visit their website.

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I have represented developers and investors in Texas real estate developments for over thirty years. I have been blessed with clients who are fabulous people to work with, and Texas development law is always challenging and interesting. There is one thing that is guaranteed to make both my clients and I tear our hair out however: arbitrary and capricious municipal governments and code enforcement personnel. They are not all that way, by any means: most Texas city government officials and personnel are highly professional. However, if you practice development law in Texas long enough, you will find that the few bad apples cause you more effort than all the others combined.

There is a game some municipal governments play called “Yes, that’s what we promised then, but it’s different now”. The case of Continental Homes of Texas, L.P. v. City of San Antonio, decided recently by the Texas Fourth Court of Civil Appeals in San Antonio, illustrates what I mean. In 2002, the owners of a ranch, (located outside the San Antonio city limits but within its extra-territorial jurisdiction), received a “Vested Rights Permit” in return for giving the City a parcel of land for a gas metering station. The Permit had an effective date of 1991 and basically said that the ranch would be subject only to City ordinances and rules as of 1991, and not any passed thereafter. Importantly, the Permit had no expiration date.

1001814_meadow.jpg In 2003, the City passed a Tree Preservation Ordinance, which required developers to, among other things, request a permit from the City Arborist before cutting trees, and to perform mitigation (i.e., plant new trees) if trees were going to be removed. In 2005, Continental bought part of the original ranch, and submitted a Master Development Plan to the City. The Plan was approved, but in a side letter, the City told Continental that Continental’s Master Tree Stand Delineation was rejected, and further noted that the project will be subject to the City’s Tree Preservation ordinance. In 2006, while Continental was clearing at the site, it was served with a temporary restraining order obtained by the City, stopping all work on the grounds that Continental was violating the Tree Preservation Ordinance.

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As a Texas real estate lawyer representing developers, builders and investors in Texas, I have found that my clients benefit from the availability of “alternate dispute resolution” remedies in their contracts. These remedies, such as mediation and arbitration, can result in satisfactory outcomes to disputes, without the cost of extended litigation. A recent Texas Supreme Court case illustrates that the contract remedy of arbitration can be waived, however.

In the case of Perry Homes, Inc. v. Robert and Jane Cull, the Culls sued their homebuilder for structural and drainage defects in the home built by Perry Homes. Initially, Perry Homes requested that the dispute be submitted to arbitration, but the Culls resisted. A ruling was never obtained by either party from the trial court on whether the case must be submitted to arbitration. The Culls then engaged in a course of extended (and expensive) discovery for 14 months. Four days before trial, the Culls requested that arbitration be ordered. The trial court ordered arbitration, and the arbitration resulted in an $800,000.00 award to the Culls.

871142_house_under_construction_2.jpg The Texas Supreme Court states that: “(the Culls) got extensive discovery under one set of rules and then sought to arbitrate the case under another. They delayed disposition by switching to arbitration when trial was imminent and arbitration was not. They got the court to order discovery for them and then limited their opponents’ rights to appellate review. Such manipulation of litigation for one party’s advantage and another’s detriment is precisely the kind of inherent unfairness that constitutes prejudice under federal and state law.” As a result,the Texas Supreme Court set aside the award, and sent the case back to the trial court for a trial, on the grounds that the Culls had waived their right to arbitrate this dispute.

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As a Texas attorney representing both builders and construction companies in Texas on one hand, and Texas consumers of construction services on the other, I have had occasion to litigate a number of cases in which construction defects were the central issue in the case. I learned long ago (because I had some great mentors when I was a new lawyer), that when I represented a Plaintiff in a suit to recover damages for a construction defect, the claim should be characterized as both a breach of contract as well as breach of warranty. It always seemed redundant to me, but a recent case illustrates that it may not be. Consider the case of Medical City Dallas Ltd. v. Carlisle Corporation, decided recently by the Dallas Court of Appeals and subsequently heard by the Texas Supreme Court.

Medical City purchased a membrane type roofing system from Carlisle Corporation. Within a short time, the roof began to leak. Initially, Carlisle performed repairs. When the repairs appeared not to cure the leaks, Medical City obtained the advice of a roofing expert, who examined the membrane and determined that it was failing. Medical City requested that the roof be replaced, and when Carlisle failed to respond, this litigation ensued.

915887_two_buildings.jpg The opinion of the Dallas Court of Appeals held that a breach of warranty was different than a breach of contract, and in particular, a breach of warranty did not support an award of attorneys fees to the damaged party, even though the Texas Civil Practices and Remedies Code Section 38.001 clearly allows the injured party in a breach of contract case to recover attorneys fees. Since Medical City’s pleadings contained only a claim for breach a warranty, the Dallas Court of Appeals held that it could not recover attorneys fees, only its damages.

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In a previous post, I discussed the implications for Texas contractors and insurance companies and their attorneys of the decision of the Texas Supreme Court in Lamar Homes, Inc. v. Mid-Continent Casualty Company. The Court’s decision had a second element that is notable, and will be helpful to attorneys who are trying to collect an insurance claim from a carrier.

Texas has what is commonly referred to as the “prompt payment” statute (Texas Insurance Code § 542.051 ) which provides for additional damages against an insurer who wrongfully refuses or delays payment of a claim. A “claim” is defined as a first party claim “made by an insured or policyholder under an insurance policy or contract or by a beneficiary named in the policy or contract [that] must be paid by the insurer directly to the insured or beneficiary.” The problem has been that the Texas Insurance Code does not separately define “a first-party claim,” and Texas court decisions have been divided as to what it means. Some Texas Courts have defined a first party claim as a claim paid under a first party insurance policy, such a life insurance policy or an auto policy, where the insured is buying insurance to cover their own life or property. The reasoning here is that third party insurance, where the insured is purchasing insurance to cover a loss to others (such as the other guy in a car wreck) is not a first party claim and is therefore not covered by the prompt payment statute.

The Texas Supreme Court in the Lamar Homes case decided that the insurance company’s duty to defend Lamar Homes, even though the payment of attorney’s fees for defense would go to a third party (Lamar’s attorneys) was covered by the prompt payment statute. This part of the decision is, in my opinion, a good thing, because it requires insurance carriers to whom the statute applies to promptly review the claim, do their research and make a decision on the claim, rather than dragging their feet.

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A decision by the Texas Supreme Court either delighted or horrified Texas attorneys, depending on whether they represented consumers of construction services, construction companies or insurance companies. In Lamar Homes, Inc. v. Mid-Continent Casualty Company, an opinion delivered on August 31, 2007 and which became final in December 2007, the Texas Supreme Court held that unintended construction defects constitute property damage under a commercial general liability policy (“CGL” policy), triggering a duty by the insurer to defend the home builder and to pay damages on behalf of the builder when a home owner sued the builder for construction defects.

919054_home_construction_real_estate_development_4.jpg This is a surprising decision in some ways because, in general, CGL policies in Texas cover claims for bodily injury, property damage, personal injury, and advertising injury (damage from slander or false advertising). A damage claim because something has been built defectively is usually not covered by a CGL policy. The CGL policy is intended to cover tort claims. A claim that something was built defectively is a breach of contract claim, As the dissent in this case so ably points out, this decision turns the construction industry and the CGL insurance industry on its head.

Attorneys representing home owners may smile at this decision, and think they have been handed another source from which to collect damages when a builder’s construction (or the work of the builder’s subcontractors) turns out to be defective. However, the real loser because of this decision may be the very person that this decision appeared to benefit: the consumer! If CGL insurers are now obligated to cover every real or imagined, major or minor, defect in new construction, then the premiums for those policies will most certainly rise. Those increased premiums paid by the contractor will be passed on to the consumer in both residential and commercial construction. Rents will ultimately increase. What this decision really does is spread the cost of construction defects among all of us. In addition, this decision really shields the bad builders in the short run: they can pass these costs on to their CGL carrier, rather than being liable themselves for shoddy work.

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As I indicated in a previous post, a recent decision by the Texas Supreme Court contains an important lesson for Texas attorneys who represent Texas real estate owners, general contractors or subcontractors. Texas attorneys who practice construction law should be aware that, because of this decision, claims by a temporary labor service are covered by the Texas mechanic’s lien statutes, and that service can file a mechanic’s lien claim, just as an individual laborer can. As a result, when using a contractor who uses workers from a temporary labor service, an owner and/or general contractor must comply with the mechanic’s lien statutes, including the portions of those statutes regarding the timing of payment and the withholding of payment to a contractor who has been using temporary workers. The Texas mechanic’s lien statutes are complex, and not for the faint of heart. If you are a property owner or contractor, you would be well served by retaining an attorney who is experienced in construction law to review your contracts and explain the time limits in the statutes to you. This is one area where an ounce of preventive legal advice can save you a lot of money later!

It might seem obvious that workers from a temporary labor service should be considered as “labor” under the Texas mechanic’s lien statutes. However, this issue does not seem to have been decided until recently by the Texas Supreme Court. In Reliance National Indemnity Co., L&T Joint Venture and Lamar Construction Inc. v. Advance’d Temporaries, Inc. the Texas Supreme Court decided that a temporary staffing agency could, indeed, file a mechanic’s lien for unpaid labor services.

The case arose from the construction of an apartment building in Corpus Christi, Texas. L&T Joint Venture, the general contractor, hired Gonzalez, an individual, to do the framing, drywall and roofing at the project. Gonzalez supplemented his crew with additional workers from Advance’d. A written agreement between Gonzalez and Advance’d specified that the workers were employees of Advance’d, not Gonzalez. Reliance was the surety on the job.

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A recent decision by the Texas Supreme Court contains some very specific lessons for attorneys who represent temporary labor services who supply workers for Texas construction projects.

Temporary staffing agencies or temporary labor services have become a popular and often cost effective way for a property owner or contractor to supplement a work crew or even to staff an entire construction job. According to the U.S. Bureau of Labor Statistics, in 2005 there were 5.7 million temporary workers, or approximately 4% of the labor force in the United States, with the construction industry accounting for about 13% of that number. Such an arrangement has many advantages for the owner or contractor: the labor service recruits the workers, and is responsible for workers’ compensation and liability insurance, payroll and payroll taxes. The labor service simply presents an invoice for the use of the workers to the owner or contractor on a periodic (usually weekly) basis.

construction%20workers.jpg It might seem obvious that workers from a temporary labor service should be considered as “labor” under the Texas mechanic’s lien statutes. Interestingly, however, this issue does not seem to have been decided by the Texas Supreme Court until recently. In Reliance National Indemnity Co., L&T Joint Venture and Lamar Construction Inc. v. Advance’d Temporaries, Inc., the Texas Supreme Court decided that a temporary staffing agency could indeed file a mechanic’s lien for unpaid labor invoices.

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Texas real estate law generally provides that a property owner in Texas is not required to ensure that an independent contractor perform its work in a safe and non-negligent manner. In the recent case of Central Ready Mix Concrete Company, Inc. v. Luciano Islas, the Texas Supreme Court reaffirmed that principle, and refused to accept some apparently novel arguments in support of changing that law. The Plaintiff was clearly trying to find the “deep pocket” here, and was making some pretty tenuous arguments to try to get there. The Court’s decision in this case makes sense.

Central, the property owner, was a ready-mix concrete company who hired an individual, Taylor, to come to the property owner’s business premises to clean out concrete trucks. All parties agreed that Taylor was an independent contractor, and was not an employee of the property owner. Islas, the Plaintiff, was injured when another of Taylor’s employee’s turned on a concrete truck’s drum while Islas was inside, severely injuring him. The Texas Supreme Court refused to extend premises liability law to cover this situation.

concrete%20mixer.jpg It was important to the Court’s decision that the property owner had neither contractual nor actual control over the independent contractor’s employees. In ruling in favor of the property owner, the Court disagreed with the following arguments: