June 16, 2019

Archives for February 2, 2015

Frederick Skillern: Real Estate Case Law — Construction Defects

Editor’s note: This is Part 9 of a series of posts in which Denver-area real estate attorney Frederick Skillern provides summaries of case law pertinent to real estate practitioners (click here for previous posts). These updates originally appeared as materials for the 32nd Annual Real Estate Symposium in July 2014.

frederick-b-skillernBy Frederick B. Skillern

Mid Valley Real Estate Solutions V, LLC v. Hepworth-Pawlak Geotechnical, Inc.
Colorado Court of Appeals, August 1, 2013.
2013 COA 119

Construction defects; economic loss rule; duties of builder-vendor run to commercial entity that purchases house built for residential purpose.

Alpine Bank was lender on a construction project. The builder-developer defaulted. The bank threatened foreclosure, and ultimately took a deed in lieu of foreclosure. Consistent with its usual practice, the property was conveyed to the bank’s REO subsidiary, which then sued for construction defects on the property.

The soils and structural engineers appeal an order denying their motion for summary judgment on the plaintiff’s negligence claim. Does a commercial entity — a wholly owned subsidiary of a construction lender — have the rights of a residential consumer to sue design professionals for negligence, under the claims set out in Cosmopolitan Homes v. Weller, or are such claims barred by the economic loss rule? The court of appeals affirms the district court’s ruling that the “independent duties” outlined in Cosmopolitan Homes and its progeny inure to the benefit of a commercial entity that buys a residential property, so that the claim is not barred by the economic loss rule.

The court reviews the economic loss rule and holds that there is an independent duty of care on the part of a builder in residential construction that renders the economic loss rule inapplicable in that context. Of course, the independent duty, which arises from the holding of our supreme court in Cosmopolitan Homes, would not apply to the typical commercial construction project.

The court then looks to whether Mid Valley — whose sole function is to hold foreclosure property for resale by the bank — falls within the class of plaintiffs who may enforce this independent duty of care. It concludes that the duty arises from the residential nature of a project, not from the characteristics of the owner of that property. While Mid Valley is not a traditional homeowner, the court reasons that allowing defendants to avoid liability for this reason would afford them a “windfall” resulting from the fortuity that the latent defect caused damage before Mid Valley sold the house. Accordingly, the denial of summary judgment was affirmed and the case was remanded for further proceedings. The Supreme Court has accepted the case for review:

Petition for Writ of Certiorari GRANTED, March 3, 2014, S K Peightal Engineers v. Mid Valley Real Estate Solutions V, LLC

Summary of the Issues:

  • Whether the economic loss rule bars a homeowner’s negligence claim against a construction professional when the owner is a commercial entity rather than a natural homebuyer.
  • Whether the interrelated contract doctrine as defined in BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d 66 (Colo. 2004), can apply to a wholly-owned subsidiary that did not exist when the initial contracts were drafted but instead was created after work on the relevant contracts had been completed.

Frederick B. Skillern, Esq., is a director and shareholder with Montgomery Little & Soran, P.C., practicing in real estate and related litigation and appeals. He serves as an expert witness in cases dealing with real estate, professional responsibility and attorney fees, and acts as a mediator and arbitrator in real estate cases. Before joining Montgomery Little in 2003, Fred was in private practice in Denver for 6 years with Carpenter & Klatskin and for 10 years with Isaacson Rosenbaum. He served as a district judge for Colorado’s Eighteenth Judicial District from 2000 through 2002. Fred is a graduate of Dartmouth College, and received his law degree at the University of Colorado in 1976, in another day and time in which the legal job market was simply awful.

SB 15-099: Eliminating Certain Duties for Probation Officers

On January 21, 2015, Sen. John Cooke introduced SB 15-099 – Concerning Eliminating Certain Duties for Probation OfficersThis summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

Several provisions of current law address the performance of certain duties by probation officers. The bill amends these provisions to eliminate these duties. Specifically, the bill so amends provisions concerning: The performance of supplemental evaluations concerning disputed issues in cases involving the allocation of parental responsibilities with respect to a child; The exercise of continuing supervision over a case to ensure that terms relating to an allocation of parental responsibilities or parenting time are carried out; The duty to make a social study and written report in all children’s cases under the “Colorado Children’s Code”; and The appointment of a probation officer as attendance officer of a school district.

The bill was assigned to the Senate Judiciary Committee.

SB 15-086: Repealing Requirement of Criminal Background Check Prior to Gun Sales

On January 14, 2015, Sen. Kent Lambert and Rep. Janak Joshi introduced SB 15-086 – Concerning Criminal Background Checks Performed Pursuant to Transfer of FirearmsThis summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill repeals the requirement that before any person who is not a licensed gun dealer transfers possession of a firearm to a transferee, he or she must require that a criminal background check be conducted of the prospective transferee and must obtain approval of the transfer from the Colorado bureau of investigation (CBI). The bill repeals the requirement that CBI impose a fee for performing an instant criminal background check pursuant to the transfer of a firearm. The bill makes conforming amendments.

The bill was assigned to the Senate Judiciary Committee.

SB 15-079: Increasing County Clerk Document Recording Surcharge

On January 14, 2015, Sen. Jessie Ulibarri introduced SB 15-079 – Concerning Modifications to the Document Recording Fee Imposed by Counties for the Purpose of Financing a Statewide Affordable Housing Investment FundThis summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

Section 1 of the bill raises to $2 the surcharge to be imposed by each county clerk and recorder (clerk) for each document received for recording or filing in his or her office on or after July 1, 2015. The surcharge is in addition to any other fees permitted by statute. Out of each $2 collected, the bill requires the clerk to retain one dollar to be used to defray the costs of an electronic or core filing system in accordance with existing law. The bill requires the clerk to transmit the other dollar collected to the state treasurer, who is to credit the same to the statewide affordable housing investment fund (fund). Section 2 of the bill creates the fund in the Colorado housing and finance authority (authority). The bill specifies the source of moneys to be deposited into the fund and that the authority is to administer the fund. Moneys in the fund are to be expended by the authority for the development and preservation of affordable housing on a statewide basis. Section 2 of the bill also requires the authority to submit a report, no later than June 1 of each year, specifying the use of the fund during the prior calendar year to the governor and to the senate and house finance committees.

The bill was assigned to the Senate State, Veterans, & Military Affairs Committee.

Tenth Circuit: Unpublished Opinions, 2/2/2015

On Monday, February 2, 2015, the Tenth Circuit Court of Appeals issued no published opinion and four unpublished opinions.

Shue v. Hargett

Parker v. Third District Juvenile Court

Payton v. State of Kansas

Pinson v. Berkebile

Case summaries are not provided for unpublished opinions. However, published opinions are summarized and provided by Legal Connection.

HB 15-1011: Narrowing Prohibition on Disclosing For Whom a Person Has Voted

On January 7, 2015, Rep. Paul Rosenthal introduced HB 15-1011 – Concerning the Disclosure of the Contents of an Elector’s Voted BallotThis summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

For elections conducted under the “Uniform Election Code of 1992”, current law, which applies to any person, makes disclosing how or for whom an elector has voted a misdemeanor. The bill narrows this provision to those persons who, in the course of performing any elections-related duty or function, obtain any knowledge as to how a person has voted. Additionally, both the “Uniform Election Code of 1992” and the “Municipal Election Code” prohibit a voter from showing to anyone else his or her ballot in such way as to reveal its contents. The bill repeals this provision.

The bill was assigned to the House State, Veterans, & Military Affairs committee, where it was postponed indefinitely on January 28.

HB 15-1035: Allowing Compensation for Certain Crime Victims and Their Families

On January 7, 2015, Rep. Rhonda Fields and Sen. John Cooke introduced HB 15-1035 – Concerning Changes to Crime Victim CompensationThis summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

Under current law, in an incident of hit and run or careless driving, crime victim compensation (compensation) is only available if a death results. The bill allows for compensation when an incident of hit and run or careless driving causes bodily injury. The bill allows compensation to a person who is a dependent of the accused if the accused provided support for the person or the person’s dependents. The bill expands compensable losses to include the cost of rekeying vehicles or other locks necessary to ensure a victim’s safety. The bill clarifies the confidentiality of records of a crime victim compensation board (board) by prohibiting the discovery of certain records in a civil or criminal case except: To the extent necessary for a judicial review of the board’s decision; or Upon a showing that the information is only in the records of the board, and, after review by the court, the court determines that the disclosure would not endanger the victim or another person. The bill increases the maximum compensation to $30,000 and emergency compensation to $2,000 and eliminates the requirement that losses be at least $25. The bill requires medical service providers to suspend collection proceedings for 90 days while a claim for compensation is considered. Finally, the bill specifies that a court shall include the amount of compensation requested by a crime victim compensation board in a restitution order and how the amount may be established.

The bill was assigned to the Judiciary and Appropriations committees.

HB 15-1053: Changing Mandatory Ages for Compulsory Education

On January 7, 2015, Rep. Kim Ransom introduced HB 15-1053 – Concerning the Ages at which Children Must Attend SchoolThis summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

Under current law, a child who is at least 6 years of age and under 17 years of age must attend school. The bill changes the ages of compulsory education to at least 7 years of age and under 16 years of age.

The bill was assigned to the House Education Committee, where it was postponed indefinitely on January 26.

HB 15-1063: Prohibiting Certain Communications Concerning Patents

On January 7, 2015, Rep. Dan Pabon and Sen. David Balmer introduced HB 15-1063 – Concerning Prohibited Communication Concerning PatentsThis summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill prohibits a person from making a written or electronic communication with another concerning a patent if: The communication falsely states that litigation has been commenced against the recipient or an affiliated party; The communication threatens litigation and there is a consistent pattern of such threats having been made but no litigation is filed; or The allegations in the communication lack a reasonable basis because of specified deficiencies. The bill contains specified exclusions from the prohibition. The bill authorizes only the attorney general to file an action to enforce the prohibition and authorizes specified damages.

The bill was assigned to the Business Affairs and Labor Committee, where it passed unamended. It was referred to the Appropriations Committee on January 29.

Tenth Circuit: Sex Offender Must Keep Registration Current Even When Residing in Non-SORNA Jurisdiction

The Tenth Circuit Court of Appeals issued its opinion in United States v. Nichols on Tuesday, December 30, 2014.

Lester Nichols is a convicted sex offender who moved from the United States to Manila, Philippines, without updating his information on the federal sex offender registry. He was arrested in the Philippines one month later and deported to the United States, where he was charged with and indicted for failure to update his registration information in violation of the Sex Offender Notification and Registration Act (SORNA). Mr. Nichols moved to dismiss the indictment, arguing that SORNA did not require him to register in a non-SORNA jurisdiction, and also contesting as unconstitutional SORNA’s delegation to the Attorney General to determine its application to sex offenders whose predicate offense occurred prior to SORNA’s enactment.

The district court relied on Tenth Circuit precedent in United States v. Murphy, 664 F.3d 798 (10th Cir. 2011), and rejected Nichols’ first argument. The district court also rejected Nichols’ nondelegation argument, noting that despite the lack of binding Tenth Circuit precedent, dicta from the Tenth Circuit and precedent from other circuits has upheld SORNA’s delegation of authority. Nichols appealed on both points.

The Tenth Circuit first addressed the requirement for sex offenders to register in non-SORNA jurisdictions. In Murphy, the defendant was released from prison in Utah and moved to Belize. The Tenth Circuit analyzed SORNA’s registration requirements and decided that leaving Utah triggered the requirement for the offender to register, even though he moved to a non-SORNA jurisdiction. Nichols contended that the dissent in Murphy should guide the Tenth Circuit in his case, but the court could not overturn its prior precedent without an intervening Supreme Court decision or en banc consideration, and affirmed the district court’s determination on this issue.

Nichols next argued that Congress’s delegation of authority to the Attorney General to determine its preenactment application was unconstitutional, and the Tenth Circuit should apply a heightened “meaningful constraint” standard in evaluating the constitutionality. The Tenth Circuit first determined that Congress clearly delineated the general policy on which SORNA is based, and the policy conveyed to the Attorney General intelligible guiding principles. Congress also clearly delineated the boundaries of the Attorney General’s authority, and the Tenth Circuit found that the delegation satisfied the Supreme Court’s “intelligible principles” test. As to Nichols’ argument that the court should apply the more stringent “meaningful constraint” test, since the delegation contemplated criminal sanctions, the Tenth Circuit disagreed. The meaningful constraint test has only been referenced in a handful of cases, and no specific factors or substantive analytical framework has been developed, making application nearly impossible, whereas the intelligible principles test is well established.

The Tenth Circuit affirmed Nichols’ conviction.

Tenth Circuit: Unpublished Opinions, 1/30/2015

On Friday, January 30, 2015, the Tenth Circuit Court of Appeals issued no published opinion and five unpublished opinions.

United States v. Valdez-Perea

United States v. Carpenter

United States v. Harrison

Rubin v. Jenkusky

Sampson v. Patton

Case summaries are not provided for unpublished opinions. However, published opinions are summarized and provided by Legal Connection.