July 21, 2019

Colorado Court of Appeals: Regardless of Homeowner Protection Act’s Application to Commercial Entities, Retrospective Application Not Allowed

The Colorado Court of Appeals issued its opinion in Taylor Morrison of Colorado, Inc. v. Bemas Construction, Inc. on Thursday, January 30, 2014.

Construction Defect—Homeowner Protection Act of 2007.

Taylor Morrison of Colorado, Inc. (Taylor) was the developer of a residential subdivision known as Homestead Hills (Project). Pursuant to written contracts with Taylor, Terracon Consultants, Inc. (Terracon) performed geotechnical engineering and construction material testing services at the Project. Bemas Construction, Inc. (Bemas) performed site grading.

After many of the homes were constructed, Taylor began receiving complaints about cracks in the drywall of homes. Taylor remedied the defective conditions, and then sued Terracon and Bemas for breach of contract and negligence, among other things.

Ten months after the deadline to amend pleadings, Taylor moved for leave to add claims against Terracon for gross negligence, negligent misrepresentation, and fraudulent misrepresentation/concealment, as well as a demand for exemplary damages. These claims were based, in part, on allegations that Terracon had willfully and wantonly breached duties to Taylor when it ignored or concealed inadequate subsurface soil conditions at the Project. The trial court denied the motion to amend the pleadings.

Taylor also moved for determination as to whether the Homeowner Protection Act of 2007 (HPA) invalidated the limitation of liability clauses in the contracts with Terracon. The trial court denied the motion on the ground that the HPA applies to residential property owners but not to commercial entities.

Terracon moved for leave to deposit into the court’s registry $550,000, representing the maximum amount that Taylor could recover from Terracon under the contractual limitation of liability clauses and the court order. It also requested that upon acceptance of such deposit, the court should declare Taylor’s claims against Terracon moot and dismiss them with prejudice. The trial court ruled in favor of Terracon. The money was deposited and the claims were dismissed with prejudice.

Taylor then went to trial against Bemas. The jury returned a verdict in Bemas’s favor on all of Taylor’s claims against it. Taylor appealed.

Taylor argued that it was error to rule that the HPA did not invalidate the limitation of liability clauses in Taylor’s contracts with Terracon. The Court of Appeals affirmed the trial court’s judgment, but for different reasons. The Court held that regardless of whether the HPA applies to commercial entities, retroactive application of the HPA to these facts would be unconstitutionally retrospective. The Courtconcluded, however, that further proceedings were necessary to determine whether Taylor should have been permitted to introduce evidence of Terracon’s willful and wanton conduct to attempt to overcome Terracon’s assertion of the limitation of liability clauses.

Taylor also argued that if a new trial is ordered against Terracon, a new trial as to Bemas also should be granted. The Court held that the Bemas’s liability was distinct and separable from Terracon’s liability and there would be no injustice or unfairness to Taylor in allowing the verdict for Bemas to stand. The judgment was affirmed and the case was remanded to the trial court to determine whether Taylor should have been permitted to introduce evidence of Terracon’s willful and wanton conduct for the sole purpose of attempting to overcome Terracon’s assertion of the limitation of liability clauses at issue.

Summary and full case available here.

Colorado Court of Appeals: Construction Contract Undeniably for Public Works Project and Bond Required

The Colorado Court of Appeals issued its opinion in Tarco, Inc. v. Conifer Metropolitan District on Thursday, April 25, 2013.

Breach of Contract—Summary Judgment—CRS § 38-26-106.

In this breach of contract action, plaintiff Tarco, Inc., a construction contractor, appealed the district court’s grant of summary judgment for defendant Conifer Metropolitan District (CMD). The judgment was affirmed in part and reversed in part, and the case was remanded with directions.

In 2005, Tarco and CMD entered into a series of contracts for construction projects related to the development of a shopping center. Tarco alleged that the work on two of the contracts was substantially complete and that CMD wrongfully withheld payment on them.

Tarco sued, based on nonpayment, and CMD counterclaimed, alleging material breach by Tarco. After two years of litigation, CMD moved for partial summary judgment, asserting that Tarco couldn’t recover under the contracts because it did not satisfy CRS § 38-26-106 (the bond statute). The district court granted the motion. Tarco did not dispute that it did not provide a bond, and the district court concluded that the bond statute barred recovery by contractors failing to post bond.

On appeal, Tarco argued that the court erred by granting summary judgment. Tarco contended that there was a genuine disputed issue of material fact as to whether the contracts at issue were for “public works” projects. If they were not, they were not subject to the bond statute. The Court of Appeals found there was no disputed issue that the projects were public works. The bond statute applies to “any building, road, bridge, viaduct, tunnel, excavation, or other public works for any . . . political subdivision of the state.” The Supreme Court has interpreted “public works” extremely broadly. The contracts at issue were for the construction of a highway overpass and infrastructure components around the shopping center, including sewers, fire hydrants, retaining walls, paving, and roadways. The Court found these clearly to be public works subject to the bond statute, noting that there was no disputed issue of material fact in this regard.

CMD asserted that the bond statute is a “nonclaim statute” that creates an absolute bar to recovery or destroys the claim for relief itself, thus precluding Tarco’s equitable claims of waiver and estoppel. The Court disagreed. Nonclaim statutes deprive a court of subject matter jurisdiction. The Colorado Governmental Immunity Act (CGIA) is a nonclaim statute. CRS § 15-12-803 in the Colorado Probate Code is another. They are rare. The bond claim statute merely provides that unless a bond is provided, “no claim in favor of the contractor arising under the contract shall be audited, allowed, or paid.” It is not a nonclaim statute, and therefore Tarco’s noncompliance does not preclude its assertion of equitable defenses.

Tarco claimed there was a genuine and material factual dispute as to whether CMD affirmatively waived the bond requirement. CMD countered that, as a special district, it did not possess the power to waive the requirement. The Court agreed that a special district does not possess the power to waive the requirement of the bond statute. CRS § 32-1-1001 provides the express common powers of special districts, but does not include the power to waive the bond requirement. The Court will not imply such a power. Therefore, there was no genuine issue of material fact as to whether CMD waived its rights under the bond statute, because it could not.

The Court concluded that there was such an issue of material fact as to whether the doctrine of equitable estoppel applied to CMD’s conduct. A party asserting equitable estoppel must establish that the party to be estopped knew the facts and either intended the conduct to be acted on or so acted that the party asserting estoppel must have been ignorant of the true facts, and the party asserting estoppel must have reasonably relied on the other party’s conduct with resulting injury. Based on the evidence presented, the Court concluded that Tarco had demonstrated a genuine issue of material fact as to whether the foregoing facts were established. Therefore, CMD was equitably estopped by its conduct from asserting the bond statute as a defense to Tarco’s contract claims. The judgment was reversed as to the determination that the bond statute is a nonclaim statute and as to the dismissal of Tarco’s equitable estoppel claim, and the case was remanded for further proceedings.

Summary and full case available here.

HB 13-1090: Setting Payment Requirements for Private and Public Construction Projects

On January 17, 2013, Rep. Randy Fischer and Sen. Lois Tochtrop introduced HB 13-1090 – Concerning Payment of Amounts Due Under a Construction AgreementThis summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill sets the following requirements for both private and public construction contracts:

  • The owner and contractor must make regular progress payments approximately every 30 days to contractors and subcontractors for work actually performed.
  • To receive the progress payments, the contractor and subcontractor must submit a progress payment invoice plus any required documents.
  • A contractor must pass on the progress payment to the subcontractor within five days or by the end of the billing cycle.
  • Interest accrues on unpaid progress payments.
  • A contract may extend a billing cycle to 60 days, but the contract must duly warn of this.
  • An owner or contractor may only retain five percent of each progress payment to ensure work is done properly.
  • If a subcontractor’s work is done before the whole project is done, the subcontractor may apply to be paid the retained five percent. The owner and contractor must pay the retainage if the work is done correctly and the subcontractor gives waivers and the proper documents.
  • A person who retains from a payment must give the contractor or subcontractor a chance to cure the default.
  • The owner and contractor must pay for changes made to the contract. If they cannot agree on the price, the person doing the work may bill monthly at cost plus 15 percent or terminate performance.
  • A contractor or subcontractor is authorized to suspend performance after 15 days notice if the owner or contractor fails to make progress payments.
  • After suspending performance, the contractor or subcontractor is obliged to resume work after being paid for the work and reasonable costs and interest.
  • A contractor or subcontractor may not suspend performance if the failure to make a payment is due to a failure of the contractor or subcontractor or a dispute about the construction.

The bill voids any provision in a construction contract that does not comply with these requirements. The bill is assigned to the Business, Labor, Economic, & Workforce Development Committee.