February 22, 2012

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SB 12-038: Protecting Consumers by Preventing Fraud by Roofing Contractors

February 10, 2012 By Leave a Comment

On January 11, 2012, Sen. Lois Tochtrop and Rep. Glenn Vaad introduced SB 12-038 – Concerning Measures to Protect Consumers Who Engage a Roofing Contractor to Perform Roofing Services on Residential Property. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill requires residential roofing contractors to sign a written contract with customers that details the following:

  • The scope of roofing services and materials to be provided;
  • The approximate dates of service;
  • The costs of the services;
  • The roofing contractor’s contact information;
  • Identification of the roofing contractor’s surety and liability coverage insurer and their contact information, if applicable;
  • The roofing contractor’s policy regarding cancellation of the contract and refund of any deposit, including a rescission clause allowing the client to rescind the contract and obtain a full refund of any deposit within 72 hours after entering the contract; and
  • A written statement that if the client plans to use the proceeds of a property or casualty insurance policy to pay for the roofing work, the roofing contractor cannot pay, waive, rebate, or promise to pay, waive, or rebate all or part of any deductible applicable to the claim for payment for roofing work on the covered residential property.

A person who enters into a contract with a roofing contractor to perform roofing work on his or her residential property and who submits a claim to his or her property and casualty insurer for payment for the roofing work may rescind the contract for the roofing work if the insurer denies the claim in whole or in part, as long as the person notifies the roofing contractor within 72 hours after the claim is denied. The roofing contractor must refund any moneys paid by the customer within 10 days after receipt of the cancellation notice.

When residential roofing work will be paid from the proceeds of a property and casualty insurance policy covering the residential property, the roofing contractor is prohibited from paying, waiving, rebating, or offering or promising to pay, waive, or rebate all or part of any deductible that applies to the claim.

Assigned to the Business, Labor and Technology Committee.

Summaries of other featured bills can be found here.

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Colorado Court of Appeals: Interlocutory Appeal — Claims Barred by Statute of Repose; Dispute Regarding “Substantial Completion” to Be Resolved as Question of Law

February 8, 2012 By Leave a Comment

The Colorado Court of Appeals issued its opinion in Shaw Construction, LLC v. United Builder Services, Inc. on February 2, 2012.

Interlocutory Appeal—Construction Defect Action Reform Act—Tolling—Substantial Completion—Summary Judgment—Statute of Repose

In this interlocutory appeal, the Court of Appeals affirmed the trial court’s summary judgments for third-party defendants United Builder Services, Inc. and MB Roofing, Inc. (collectively, subcontractors), and against third-party plaintiff Shaw Construction, LLC (Shaw). The Court held that Shaw’s claims were barred by the statute of repose.

Plaintiff Roslyn Court at Stapleton Homeowners Association (HOA), not a party to this appeal, alleged construction defects in the Roslyn Court condominium complex, for which Shaw had been the general contractor. The project was built in three phases and included eighty residential units in thirty-three buildings, fifteen garage structures, and additional elements such as sidewalks, alleys, benches, courtyards, and landscaping.

Shaw hired subcontractors to hang drywall and install roofs, gutters, and downspouts. The City and County of Denver issued certificates of occupancy (COs) for each residential building (between September 24, 2003 and October 28, 2003 for Phase I; October 31, 2003 and January 29, 2004 for Phase II; and January 22, 2004 and March 10, 2004 for Phase III). The project’s architect did not certify completion of all known architectural items until June 8, 2004.

On May 15, 2007, Shaw received a notice of claim letter from the HOA under the Construction Defect Action Reform Act (CDARA). On January 21, 2009, the HOA filed this action against the developers of the property but did not add Shaw as a defendant until January 28, 2010. On March 29, 2010, Shaw filed its answer and third-party complaint, naming subcontractors, among others, as third-party defendants. Shaw sent its only notice of claim to subcontractors the following day.

Subcontractors moved for summary judgment on the basis that the six-year statute of repose had run. They argued that substantial completion had occurred not later than the date the final CO was issued, March 10, 2004. Shaw argued that substantial completion was June 8, 2004, when the architect certified completion. Shaw did not include any evidence that subcontractors’ work continued after the date of the CO on the last building. Alternatively, Shaw argued that under § 805, the HOA’s notice of claim had tolled all claims associated with the project, including those against subcontractors, even though they had not received actual notice of the claim.

The trial court granted subcontractors’ motions, finding that the last CO indicated substantial completion. The trial court also held that the plain language of the statute required actual notice to a party to toll a claim as to that party. The Court accepted an interlocutory appeal due to the unresolved questions regarding tolling and substantial completion under Colorado law.

The Court first addressed whether the determination of when substantial completion under CDARA occurs is a question of fact or a question of law. The Court agreed with the trial court that it is a question of law. CDARA does not contain a definition of “substantial completion.” The interpretation of when a claim accrues under a statute of limitations is an issue of law.

The Court then considered and rejected Shaw’s contention that its claims against subcontractors were tolled by the HOA’s notice of claim to Shaw under § 805. The statute does not say whether claims against participants in a project without notice of a claim are tolled, so the Court looked to the legislative intent behind CDARA and concluded that such an interpretation would not further that intent.

The Court also rejected Shaw’s argument that its claims were timely, because substantial completion did not occur until the architect’s certificate was issued. Shaw argued, without authority, that in a multi-stage project, improvement means the entire project. Subcontractors responded that the statute of repose is triggered “when the subcontractor completed its own work and not when the entire project was completed.” The Court concluded that an improvement may be a discrete component of an entire project, such as the last of multiple residential buildings. Accordingly, the summary judgments were affirmed.

This summary is published here courtesy of The Colorado Lawyer. Other summaries for the Colorado Court of Appeals on February 2, 2012, can be found here.

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Colorado Court of Appeals: Piercing the Corporate Veil of Single-Member LLC; Three-Prong Test

February 8, 2012 By Leave a Comment

The Colorado Court of Appeals issued its opinion in Martin v. Freeman on February 2, 2012.

Limited Liability Company—Veil Piercing

In this limited liability company (LLC) veil-piercing case, defendants Dean C.B. Freeman and Tradewinds Group, LLC appealed the trial court’s judgment in favor of plaintiff Robert C. Martin. The judgment was affirmed.

Freeman managed Tradewinds Group, LLC as a single-member LLC. Tradewinds contracted to have Martin construct an airplane hangar. In 2006, Tradewinds sued Martin for breaching the construction agreement. In 2007, while the litigation was pending, Tradewinds sold its only meaningful asset, an airplane, for $300,000 and the proceeds were diverted to Freeman, who paid Tradewinds’ litigation expenses. In 2008, a judgment was entered in favor of Tradewinds. Martin appealed. Another division of the Court of Appeals found that Tradewinds’ damages were speculative, and remanded the case with directions to enter judgment in Martin’s favor. On remand, Martin was awarded $36,645.60 in costs. The LLC had no assets and Martin instituted this action to pierce the LLC veil. Following a bench trial in 2010, the court pierced the veil and found Freeman personally liable for the cost award against Tradewinds. Tradewinds appealed, arguing it was error to pierce the LLC veil. The Court of Appeals disagreed and affirmed the judgment.

To pierce the LLC veil, the court must conclude (1) the corporate entity is an alter ego or mere instrumentality; (2) the corporate form was used to perpetrate a fraud or defeat a rightful claim; and (3) an equitable result would be achieved by disregarding the corporate form. Tradewinds challenged whether the first and second prongs were met.

As to the alter ego prong, the trial court found that: assets were commingled; negligible corporate records were kept; the records concerning substantive transactions were inadequate; there was a single-member/manager-facilitated misuse; the entity was thinly capitalized; undocumented infusions of cash were required to pay all operating expenses; Tradewinds was never operated as an active business; corporate formalities were disregarded; Freeman paid its debts without characterizing the transactions; assets were used for non-entity purposes; and Tradewinds was operated as a mere assetless shell. The Court held that these findings fully supported a conclusion that Tradewinds was Freeman’s alter ego.

Tradewinds argued that the second prong was not met because the trial court did not find wrongful intent or bad faith. The Court found no case, and defendant cited none, requiring a showing of wrongful intent. Therefore, it concluded that a showing that the corporate form was used to defeat a creditor’s rightful claim is sufficient. Here, Tradewinds sold its only asset and diverted the proceeds to Martin during the litigation. Transferring all of the assets to defeat a rightful creditor’s potential claim is sufficient to support piercing the corporate veil.

Tradewinds also argued that Martin waived the ability to collect litigation costs by not contesting the amount of the cost bond filed. The Court disagreed, concluding that Martin’s failure to contest the cost bond did not constitute an unequivocal act manifesting intent to relinquish the right to collect costs. The judgment was affirmed.

This summary is published here courtesy of The Colorado Lawyer. Other summaries for the Colorado Court of Appeals on February 2, 2012, can be found here.

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Colorado Court of Appeals: Court Erred in Finding that Mechanic’s Lien Had Priority Senior to Lien Claimants

December 27, 2011 By Leave a Comment

The Colorado Court of Appeals issued its opinion in Ferguson Enterprises, Inc. v. Keybuild Solutions, Inc. on December 22, 2011.

Mechanics Lien—Foreclosure—Priority—Deed of Trust—Construction.

In this mechanics’ lien foreclosure action involving the priority of liens relative to a deed of trust, defendant Colorado Community Bank (CCB) appealed the summary judgment in favor of the following lien claimants: plaintiff Ferguson Enterprises, Inc. and defendants Keybuild Solutions, Inc., Carpenters Service Inc., Autumn Landscaping, Inc., Premier Glass Solutions, Inc., SC Design, Inc., Systems Plumbing, LLC, and Colorado Counter-Tops, Inc. (collectively, lien claimants). The judgment was reversed and the case was remanded.

Zion Development, LLC (Zion) borrowed money from FlatIron Bank (FlatIron) to become the owner of the real property involved in this action. Zion hired architects to prepare a master plan, and later defaulted on the FlatIron loan and lost the property through a foreclosure action. Thereafter, FlatIron conveyed the property to Water Tower Builders, LLC (Water Tower), which financed the purchase of the property and construction activities through two loans obtained from CCB. Water Tower hired subcontractors to perform work on the property and later defaulted on the loan to CCB and lost the property to a foreclosure sale. The court granted the lien claimants’ motion, which claimed that its mechanics’ lien had priority over CCB’s deed of trust because it was entitled to relate its lien back to the date when work performed by the architects for Zion was filed as a master plan.

CCB contended that the trial court erred in determining that the mechanics’ liens involved here had a priority senior to its deed of trust. Mechanics’ liens are not entitled to priority under CRS § 38-22-103(2) over a pre-existing deed of trust expressly intended to secure a loan for construction if (1) the deed is recorded before attachment of the mechanics’ liens; and (2) the loan proceeds are used for construction purposes. Here, CCB’s recorded deed of trust was expressly intended to secure a loan for construction, and the lien claimants had notice of such deed of trust. Further, CCB presented evidence that it disbursed loan proceeds of $1.6 million for construction purposes. Thus, CCB’s pre-existing deed of trust was entitled to priority over that of the lien claimants.

Lien claimants contended that their liens “attached” as of October 23, 2007, because their work relates back to work performed by the architects for Zion. If the architects did not actually file a lien or if any architects’ lien were junior to FlatIron’s lien on any structure or improvements, the foreclosure would have extinguished it, and the lien claimants could not relate their work back to the master plan filing. Because the record does not provide the facts necessary to determine this issue for summary judgment purposes, the case was remanded to determine whether the relation-back doctrine applies in this case.

This summary is published here courtesy of The Colorado Lawyer. Other summaries for the Colorado Court of Appeals on December 22, 2011, can be found here.

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Colorado Court of Appeals: Constitutional Claims Sufficiently Substantial to Warrant Award of Attorney Fees

December 12, 2011 By Leave a Comment

The Colorado Court of Appeals issued its opinion in Beaver Creek Property Owners Ass’n, Inc. v. Bachelor Gulch Metro. Dist. on December 8, 2011.

42 U.S.C. § 1988—Attorney Fees—State Law Claims—Relation Back Doctrine.

Defendant Bachelor Gulch Metropolitan District (Bachelor Gulch) appealed the district court’s orders awarding attorney fees and costs under 42 U.S.C. § 1988 to two groups of plaintiffs, namely, Beaver Creek Property Owners Association, Inc. (Beaver Creek) and Strawberry Park at Beaver Creek Property Owners Association, Inc. and certain of its owners (collectively, Strawberry Park). The order was affirmed in part and reversed in part.

When Vail/Arrowhead, Inc. (Vail) began developing the Strawberry Park subdivision, it agreed not to route any of its construction traffic through the Beaver Creek subdivision. Instead, Vail sent all of its construction traffic over a road in the neighboring community of Bachelor Gulch. In April 2006, Bachelor Gulch enacted a road regulation that effectively banned Strawberry Park subdivision construction traffic from its roads.

On appeal, Bachelor Gulch argued that the district court erred in awarding Strawberry Park its attorney fees, because Strawberry Park’s constitutional claims were not sufficiently “substantial.” When a party joins state law and constitutional claims but prevails only on the state law claims without deciding the constitutional claims, a court still may award attorney fees under 42 U.S.C. § 1988 if the constitutional claim was substantial and the state law claim arose from a common nucleus of operative facts. Here, Strawberry Park was required to establish that the traffic regulation at issue and the classification that it allegedly established lacked a rational relationship to a legitimate governmental purpose. There was a substantial evidentiary record in which both sides presented evidence tending to support their respective positions. In light of this record, and fully recognizing that a plaintiff seeking to invalidate a regulation on rational basis grounds faces an uphill battle, it is not apparent that Strawberry Park’s constitutional claims were “obviously without merit,” as Bachelor Gulch contended. Accordingly, Strawberry Park’s constitutional claims were sufficiently substantial to warrant an award of attorney fees under § 1988.

Bachelor Gulch also contended that the district court erred in awarding attorney fees to Beaver Creek because Beaver Creek did not add its § 1983 claims until after the district court had granted partial summary judgment for plaintiffs. The relation back doctrine may not be used to create a post hoc basis for an award of attorney fees under § 1988. Therefore, Beaver Creek improperly relied on the relation back doctrine to establish, after the fact, a basis for seeking attorney fees. Accordingly, the district court erred in awarding Beaver Creek attorney fees in connection with constitutional claims that were filed after the court granted partial summary judgment for plaintiffs. This judgment was reversed.

This summary is published here courtesy of The Colorado Lawyer. Other summaries for the Colorado Court of Appeals on December 8, 2011, can be found here.

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Tenth Circuit: No Contest Plea Does Not Foreclose Due Process Challenge to the Knowing Use of Perjured Affidavit to Defeat Defense of Selective Prosecution

November 16, 2011 By Leave a Comment

The Tenth Circuit Court of Appeals issued its opinion in Klen v. City of Loveland on Tuesday, November 15, 2011.

The Tenth Circuit affirmed in part and reversed in part the district court’s decision. Petitioners brought this civil rights action against Respondent City of Loveland, Colorado (City) and various City employees, alleging many constitutional violations. The district court granted summary judgment in favor of Respondent on the federal claims and declined to exercise supplemental jurisdiction over the state-law claims. Petitioners appeal from the district court’s award of summary judgment to Respondent.

The Court determined that the district court only considered the first element of the test for Petitioners’ First Amendment retaliation claim, “that the plaintiff was engaged in constitutionally protected activity;” because the analysis of that element was insufficient, the issue was remanded. In Petitioners’ substantive due process claim, they allege that Respondent “engaged in a continuous campaign of harassment, deceit, and delay . . .  intended to injure . . .  in a way unjustifiable by any government interest.” The Court found that an arbitrary deprivation of a property right may violate the substantive component of the Due Process Clause if the arbitrariness is extreme, but that extremity was not present here.

Additionally, the Court found that Petitioners have produced sufficient evidence to survive summary judgment regarding an alleged Fourth Amendment violation by ordering an unauthorized “special inspection” of the premises. Lastly, Petitioner’s “no contest plea does not foreclose his due process challenge to the knowing use of a perjured affidavit to defeat his defense of selective prosecution.”

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Team CBA-CLE Scores a “Hat Trick” with Three International Awards, Including One for Legal Connection

September 26, 2011 By Leave a Comment

The staff of Colorado Bar Association Continuing Legal Education (CBA-CLE) has so many enthusiastic hockey fans (including recreational players, coaches, referees, and those who just watch) that we thought it appropriate to have a hockey theme to celebrate when we won three awards in 2011. The “Hat Trick” from the international organization, the Association for Continuing Legal Education (ACLEA), included awards in the categories of Publications, Technology (for this blog!), and Public Interest.

Dawn McKnight, Assistant Executive Director of CBA-CLE says, “Our staff does an incredible job and we could not have won the awards without the help of the hundreds of attorneys and legal professionals in Colorado who contribute their time and resources to the projects.  There are too many people to name that volunteer countless hours for us, but we are extremely grateful and lucky to work with such talented and dedicated people. It’s very rewarding to be recognized by this international organization for the work we do and especially to win three in one year!  We’ll continue to work hard to achieve our ‘goals’ of providing quality legal education programs and publications for our legal community.”

2011 ACLEA AWARDS

  • Public Service Category:   Senior Law Day Project
  • Senior Law Day is an annual event for the public, held in several different locations each year around the state and offers workshops taught by attorneys and other professionals on critical topics  to seniors including Medicare, Medicaid, Social Security, Estate Planning and many other issues.
  • Publications Category:   Residential Construction Law in Colorado, Third Edition
  • Written by noted attorneys Ronald M. Sandgrund, Scott F. Sullan, and Leslie A. Tuft, this timely and well-written book reviews critical issues with homeowners’ legal rights and remedies arising from the design, construction, marketing, and sale of single-family homes and multi-family communities.
  • Technology Category:   CBA-CLE Legal Connection Blog – www.cbaclelegalconnection.com
  • A free resource for the Colorado legal community to get the latest Colorado legal news easier and faster from one centralized, searchable resource.

DEFINITION OF A HAT TRICK: Three goals scored by one player in a single game.

ABOUT ACLEA: Established in 1964, ACLEA is an international association providing educational opportunities and professional interaction for its members.  The organization includes members in the United States, Canada, the United Kingdom, Australia, New Zealand, Africa, and Mexico. Administrators, trainers, managers, educators, publishers, programmers and meeting professionals are all members of ACLEA.

ABOUT CBA-CLE:  Colorado Bar Association CLE [CBA-CLE] is the nonprofit education arm of the Colorado Bar Association and the Denver Bar Association. We produce high-quality continuing legal education programs and legal publications for attorneys and legal professionals in Colorado and the Rocky Mountain Region.

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James Gilbert: Industrial Art’s Impact on Scenic Colorado Prompts Citizens’ Lawsuit

September 7, 2011 By Leave a Comment

Artist Christo Vladimirov Javacheff, “Christo”, famous for suspending huge curtains of orange fabric over bridges, buildings and other public spaces throughout the world, has embarked on yet another art project. Christo and his wife Jeanne-Claude have targeted Colorado for a second time (the first time being in 1972) with plans to hang silvery, translucent fabric over the Arkansas River for two weeks in August 2014 for their “Over the River” project. Their original plan entailed a 42-mile stretch of river, however the Bureau of Land Management (BLM) agreed to an approximately 6 mile area.

Unfortunately for Christo, his vision has been met with opposition as the citizens group “Rags Over the Arkansas River” (ROAR) and two fly-fishing businesses, The Arkansas River Fly Shop and ArkAnglers, filed a lawsuit July 22, 2011 in Denver District Court. They are opposing the artist’s project pointing out the possible adverse impact on park values and requirement of a state permit.

The feared environmental harms would potentially impact wildlife including the bighorn sheep population, birds and elk, not to mention an unfavorable impact to fishing, rafting and other popular activities along this scenic river.

ROAR claims that in order to support the cables and fabric, Over the River would have to use heavy industrial equipment to drive thousands of industrial rock bolts into the canyon walls all the while damaging public lands and resources, not to mention creating noise, dust and causing hundreds of highway closures.

In June, an agreement with park officials was approved pending the Bureau of Land Management granting a federal permit. In exchange, Christo’s team would pay $550,000 in fees and expenses. The Colorado Wildlife Commission initially opposed the project before legislation married the two agencies.

While the BLM was analyzing the project over the last several years, it received thousands of public comments prompting an $11million dollar study paid for by Christo out of his approximately $50 million dollar budget. The BLM’s final Environmental Impact Statement addresses the various wildlife and traffic concerns over the narrow 2-lane canyon highway during the five year project’s construction and demolition.

Opponents state that they will continue to fight the project because of the devastation they foresee occurring to this area.

To read the BLM’s Environmental Impact Statement go to: http://www.blm.gov/co/st/en/fo/rgfo/planning/otr/otr_final_eis/otr_final_eis_documents.html

Jim Gilbert is founding and senior partner at The Gilbert Law Group. He has over thirty years of experience litigating complex cases against major auto manufacturers and other large corporations. He writes for his firm’s Colorado Business Litigation Lawyer Blog, where this post originally appeared on August 31, 2011.
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Chad Johnson: Is There a Conflict of Interest When a Construction Defect Defense Attorney Becomes Coverage Counsel Post-Litigation?

August 23, 2011 By Leave a Comment

In Weitz Co., LLC v. Ohio Cas. Ins. Co., the U.S. District Court for the District of Colorado was asked to rule on a motion to disqualify counsel in an insurance coverage action. 11-CV-00694-REB-BNB, 2011 WL 2535040 (D. Colo. June 27, 2011). Motions to disqualify counsel are viewed with suspicion, as courts “must guard against the possibility that disqualification is sought to ‘secure a tactical advantage in the proceedings.’” Id. at *2 (citing Religious Technology Center v. F.A.C.T. Net, Inc., 945 F. Supp. 1470, 1473 (D. Colo. 1996).

Weitz Company, LLC (“Weitz”) is a general contractor and defendant in an underlying construction defect suit which had concluded before the action bringing rise to this order. In the underlying action, Weitz made third-party claims against subcontractors, including NPW Contracting (“NPW”). Weitz was listed as an additional insured under NPW’s policies with both Ohio Casualty Insurance Company and Mountain States Mutual Casualty Company (collectively “the Carriers”). The Carriers accepted Weitz’s tender of defense under a reservation of rights. However, neither insurance carrier actually contributed to Weitz’s defense costs in the underlying action. At the conclusion of the construction defect action, the parties unsuccessfully attempted to apportion the attorney’s fees and costs. Eventually, Weitz brought suit against the recalcitrant carriers. The Lottner firm, which had previously represented Weitz in the underlying construction defect action, continued to represent Weitz in this coverage action. The Carriers moved to disqualify the Lottner firm, alleging the firm had a conflict of interest and that the attorneys were necessary witnesses.

Conflict of Interest Claim

As the basis for its conflict of interest claims, the Carriers claimed that the Lottner firm had violated Rule 1.7 of the Colorado Rules of Professional Conduct (“RPC”). Rule 1.7 addresses concurrent conflicts of interest. The Carriers first argued that the Lottner firm had an attorney-client relationship not only with the Weitz, but also with the Carriers. The court was not persuaded. Citing Colorado Ethics Opinions 91 and 43, and other Colorado courts’ interpretations of them, the Weitz Court held that there is no attorney-client relationship with the insurance carrier, only the insured.

The Carriers also argued that the Lottner firm could not represent Weitz in both the underlying construction defect action and this coverage action because of Colorado Ethics Opinion 91 states:

One area where significant problems may arise is when a lawyer is asked to both render a coverage opinion and to defend an insured in the tort case. The lawyer cannot ethically perform both services at the same time, since the insured’s representation may be materially limited by the lawyer’s responsibility to the carrier.

Again, the court was not persuaded. Whether a coverage question creates a conflict of interest creates a conflict of interest depends on an assessment of the facts of each particular case.” Id. at *5 (citing Colorado Ethics Opinion 91). The court explained that although it is not permissible for a lawyer to analyze coverage and simultaneously or later defend an insured in a tort case; that is not the same situation here. Because the Lottner firm had defended the construction defect action before analyzing coverage, and had not acted to “exploit the attorney-client privilege in order to build a case for non-coverage,” the firm had no conflict of interest. Id.

Necessary Witness Claim

The Carriers’ last argument for disqualification of the Lottner firm was that the lawyers of the firm were necessary witnesses at trial. Colorado Rule of Professional Conduct 3.7 (“Rule 3.7”) prohibits a lawyer from serving as both advocate and witness. To be called at trial, the calling party has the burden to prove that the proposed attorney testimony is “necessary” at trial. “A lawyer is likely to be necessary where the proposed testimony is relevant, material, not merely cumulative, and unobtainable elsewhere.” Id. at *6 (quoting World Youth Day, Inc. v. Famous Artists Merchandising Exchange, Inc., 866 F. Supp. 1297, 1302 (D. Colo. 1994). The Carriers argued that all lawyers at the Lottner firm were necessary because they “are the only fact witnesses who can testify regarding [Weitz’s] demands for coverage, their pursuit of coverage, and Mountain States’ and Ohio Casualty’s response to such demands and pursuit.”

The court was not persuaded that other fact witnesses could not testify regarding the proposed testimony. The court found that the Lottner firm’s associate counsel, the Carriers, and the Carriers’ coverage counsel could testify to Weitz’s demands. Therefore, at the time of the order, the attorneys at the Lottner firm were not necessary witnesses. The court then added:

Of course, the continued participation of the Lottner firm in this action as trial counsel precludes its later participation as witnesses. Thus, although I find the Lottner firm lawyers are not necessary witnesses, if there is any possibility that Weitz will call them to testify, they must step aside now as trial counsel.

Although not an issue here, unfortunately, several Colorado attorneys have sought to improperly call themselves as factual or expert witnesses for which they are also acting trial counsel in recent years. The underlying reasons that gave rise to Rule 3.7’s bar on this type of testimony are numerous and beyond the scope of this blog post.[1] Hopefully this recent case further clarifies this issue.

Chad Johnson is an associate at Higgins, Hopkins, McLain & Roswell who focuses his practice on construction litigation. He contributes to the firm’s Colorado Construction Litigation Blog, where this post originally appeared on August 19, 2011.
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Tenth Circuit: Subcontract Interpretation Should Produce Harmony Between Clauses and Avoid Rendering a Provision Meaningless

August 16, 2011 By Leave a Comment

The Tenth Circuit Court of Appeals issued its opinion in Larry Snyder and Co. v. Miller on Monday, August 15, 2011.

The Tenth Circuit affirmed the district court’s decision. Petitioner and Respondent entered into a subcontract agreement, under which Respondent would install utility trenches underneath what would become a parking lot for an apartment complex. Respondent performed the work, but once the asphalt for the parking lot was installed, the trenches settled and the parking lot was damaged. Petitioner requested that Respondent repair the entire parking lot, but Respondent refused, arguing that the subcontract only required it to repair the areas of the parking lot that actually settled. On appeal, Petitioner alleges that the district court erred by granting summary judgment to Respondent.

The Tenth Circuit agreed with the district court that the subcontract unambiguously governed the extent of the repair required of Respondent. In interpreting the subcontract, the Court seeks to avoid any interpretation that renders a provision meaningless. The provisions at issue in this case were “interpreted to produce harmony and meaningfulness between the repair, full-satisfaction, and flow-through clauses”; if the Court “gave controlling effect to the flow-through clause but not the repair clause as Snyder desires, then [it] would render the repair clause meaningless.” “Accordingly, no genuine issue of material fact exists concerning [Respondent]’s liability for repair work that exceeded the requirements of the subcontract and summary judgment was appropriate.”

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Timothy Gordon: Including Accrued Interest in Lien Statement Does Not Render it Void as Excessive

August 11, 2011 By Leave a Comment

Editor’s Note: The Colorado Court of Appeals’ opinion in Honnen Equipment Co. v. Never Summer Backhoe Service, Inc. can be read here.

In Honnen Equipment Company, Inc. v. Never Summer Backhoe Service, Inc. (Colo. App. July 7, 2011), a division of the Colorado Court of Appeals held that the inclusion of interest in a lien statement does not render the lien void as an excessive lien.  In doing so, the Court had to distinguish prior Supreme Court precedent holding that a mechanics’ lien may not include late charges.

Generally, the Colorado mechanics’ lien statute provides that a lien claimant is entitled to a lien in the amount of the value of the services rendered or labor performed and materials furnished for the improvement of real property.  C.R.S. § 38-22-101(1).  When recording a mechanics’ lien, one must be careful not to overstate the amount.  The reason is that anyone who knowingly records an overstated lien not only forfeits their lien rights but also can be liable to the owner for costs and fees.  C.R.S. § 38-22-128.

In Honnen Equipment Co., the lien claimant included accrued interest in its mechanics’ lien.  The owner argued that interest may not be included in a lien because interest does not represent the value of the work performed to benefit the property.  Therefore, according to the owner, the inclusion of accrued interest in a lien statement renders it excessive and therefore invalid pursuant to C.R.S. § 38-22-128.

The Court of Appeals disagreed.  In its holding, the Court of Appeals distinguished the Colorado Supreme Court’s holding in Independent Trust Corp. v. Stan Miller, Inc., 796 P.2d 483 (Colo. 1990).  In Independent Trust Corp., the Supreme Court held that late charges recoverable by contract were not lienable.  While the Court of Appeals acknowledge that interest, like late charges, does not represent the value of the work performed, the Court of Appeals held that interest is lienable because it is specifically mentioned in the mechanics’ lien statute as being recoverable.  See C.R.S. § 38-22-101(5).  According to the Court, “[t]he intent of section 38-22-128 is to punish and deter those who abuse the mechanic’s lien statute by knowingly and intentionally claiming excess amounts that are totally unrelated to the construction project.”

Timothy Gordon is a partner at Holland & Hart who focuses his practice on the construction and commercial real estate industries. He is the author of the firm’s Construction Law in Colorado blog, where this post originally appeared on August 9, 2011.He is also one of the managing editors for CBA-CLE’s Practitioner’s Guide to Colorado Construction Law.

Click here for more Construction Law Updates.
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Timothy Gordon: Arbitrator Decides Amount of Lien while Court Decides its Procedural Validity

June 27, 2011 By Leave a Comment

In Sure-Shock Electric v. Diamond Lofts Venture (Colo. App. June 23, 2011), a division of the Court of Appeals held that, on confirmation of an arbitration award, the district court retains jurisdiction to decide the procedural validity of a mechanic’s lien even after the arbitration award confirms the claimant’s right to a lien under the mechanic’s lien statute.

The contract between Sure-Shock and Diamond Loft Venture (“DLV”) included an agreement to arbitrate any claim arising out of or related to the parties’ contract.  After Sure-Shock filed a lawsuit for breach of contract, unjust enrichment, and foreclosure of its mechanic’s lien, DLV moved to stay the proceedings and to compel arbitration, which was granted.

The arbitrator found in Sure-Shock’s favor, and made detailed findings of fact regarding the recording of the lien, the amount, and the date that it was recorded, and awarded Sure-Shock the principal amount of its claim plus interest at 12% (the interest rate found in the mechanic’s lien statute).  Upon motion, the district court confirmed the arbitration award, confirmed the amount of Sure-Shock’s lien, and ruled that Sure-Shock will be entitled to participate in the foreclosure of its lien.

DLV appealed, arguing that the district court did not have jurisdiction to determine the validity, amount, and enforceability of the lien.  DLV further argued that Sure-Shock failed to “affirmatively raise the argument that the lien was procedurally valid in arbitration” and was therefore barred from raising the issue.  The Court of Appeals did not agree.

The Court of Appeals notes that the amount of the lien was properly submitted to arbitration.  According to the Court, “we read the arbitrator’s award to conclude that Sure-Shock had established the right to a lien or claim under the mechanic’s lien statute.”  The Court of Appeals also notes in its opinion that “the arbitration award clearly noted the filing of the lien, the amount listed on the lien statement, and the date it was recorded . . . .”  Yet the Court of Appeals “assume[s] that Sure-Shock did not provide copies of the notice of intent and lien statement to the arbitrator” because it “ha[s] on appeal no record of the arbitration” and “because Sure-Shock does not dispute that the procedural validity issue was not arbitrated . . . .”

The Court of Appeals then went on to address “whether the procedural validity issue may be properly decided by the court as part of the foreclosure proceedings, or whether either [the parties were] required to raise it in arbitration under their agreement requiring all claims and disputes to be submitted to arbitration.”  The Court of Appeals ultimately held that the issue of procedural validity may be properly determined by the Court, but that it holds this power concurrently with the arbitrator.

We conclude that, here, the issue of procedural validity may be properly determined by the court. Given that only a court is vested with the authority to foreclose a mechanic’s lien, it may concurrently determine any procedural validity issues connected with that foreclosure even when the underlying contract includes a broad arbitration clause, at least where, as here, neither party raised the issue in arbitration.

Part of the Court’s reasoning is the fact that the in rem action to foreclose a mechanic’s lien will often involve additional parties beyond those involved in the arbitration.  And in the case at issue, there were additional owners who would be defendants to the foreclosure action who were not parties to the arbitration, and who may challenge the validity of the notice and filing of the lien.

Ed. Note: The Colorado Court of Appeals’ opinion in Sure-Shock Electric, Inc. v. Diamond Lofts Venture, LLC can be read here.

Timothy Gordon blogs at Holland & Hart’s Construction Law in Colorado and this post originally appeared here on June 23, 2011. Gordon is one of the managing editors for CBA-CLE’s Practitioner’s Guide to Colorado Construction Law. Click hereto read all posts by this author.Click here for more Construction Law Updates.
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