On November 7, 2011 the Colorado Supreme Court made its ruling in the matter of Averyt v. Wal-Mart Stores, Inc., 2011 WL 5325525 (full citation not yet available). This is an important case in Colorado as it dealt with two litigation issues present in most cases, including construction defect matters. Specifically, the Averyt Court reviewed the trial Court’s order granting Wal-Mart a new trial based on an alleged untimely disclosure, and also the jury verdict itself, which was purportedly not supported by the evidence. The Court found that the trial court abused its discretion in granting a new trial, and that the jury verdict was supported by the evidence. The Supreme Court’s analysis of the disclosure issue is germane to almost every construction defect case, and is discussed further below. 

Undoubtedly, the Greystone decision is not the last word on the issue, but it reiterates the importance of pleading and establishing evidence of consequential property damage to increase the odds of finding coverage in construction defect claims. 

“As a general rule, in the absence of any contractual or statutory liability therefore, attorney fees and expenses of litigation of a plaintiff's claim are not recoverable as an item of damages either in a contract or a tort action.”  Lawry v. Palm, 192 P.3d 550 (Colo. Ct. App. 2008).  For this reason, most business professionals and those who use contracts as commonplace in their scopes of work are familiar with contract clauses that grant attorney fees to the prevailing party.  This is especially true in the construction industry.

The American Bar Association states on its website newsletter that “this type of provision furthers efficient, cost-effective arbitration because (a) it discourages frivolous claims and counterclaims, and (b) it reduces the chances of scorched-earth discovery and hearing tactics.”  However, these specific “prevailing party” clauses can have drastic affects on any litigation, and should be carefully considered by any party before agreeing to the term.  A typical mutual prevailing party clause includes language such as:

In the event of any litigation arising from breach of this agreement, or the services provided under this agreement, the prevailing party shall be entitled to recover from the non-prevailing party all reasonable costs incurred including staff time, court costs, attorney fees, and all other related expenses incurred in such litigation.

Prevailing party clauses present several issues before, during, and after litigation. For example, questions arise as to whether or not attorney fees owed due to a prevailing party clause are covered by insurance.  According to a September 2010 article published by Cavignac & Associates, professional liability insurance covers legal liability arising out of negligent acts, errors or omissions.  However, it does not generally cover contractual assumptions of liability unless the insured would be legally liable in the absence of the contract clause.  Because of this, the insurance industry remains divided on its opinion regarding the use of prevailing party clauses.  The article further states that insurers who are firmly against the prevailing party provision take the position that if the insured were in fact the loser in a claim, then the defense costs incurred by the plaintiff would be excluded as contractual liabilities and uninsured as such.  A liability assumed by contract that would not otherwise be a liability, they argue, would not be covered.

Consequently, the specific position of a general contractor’s or subcontractor’s insurance company in relation to this issue should be known when considering a construction contract with a prevailing party provision.

Also of concern with these types of provisions – especially in large construction defect litigations with a multitude of issues – is determining who the prevailing party is.  Of note, in Colorado the decision of who the prevailing party is, is left entirely to the court.  In Wheeler v. T.L. Roofing, Inc., 74 P.3d 499 (Colo. Ct. App. 2003), the court ruled, “In context of applying contractual provision allowing award of attorney fees to prevailing party, determination of which party prevailed is committed to discretion of trial court and is subject to abuse-of-discretion standard of review on appeal.”  Because the trial court is in the best position to determine which party prevailed for purposes of an attorney fee award, its ruling is disturbed only for an abuse of discretion; an abuse of discretion occurs if the ruling was manifestly arbitrary, unfair, or unreasonable.  Regency Realty Investors, LLC v. Cleary Fire Prot., Inc., 08CA1650, 2009 WL 2782228 (Colo. Ct. App. Sept. 3, 2009).

The court has broad discretion for determining the prevailing party.  The number of claims upon which a party prevails and the amount awarded for such claims is not determinative of who the prevailing party is for purposes of a discretionary award of costs to a party prevailing in part; rather, the “prevailing party” is one that has succeeded on a significant issue and has achieved some of the benefits sought in the lawsuit. Grynberg v. Agri Tech, Inc., 985 P.2d 59 (Colo. Ct. App. 1999) aff'd, 10 P.3d 1267 (Colo. 2000).  When each party prevails in part, the trial court generally must select one party as the overall winner for purposes of the fee-shifting agreement; however, in a proper case, the trial court may rule that neither party prevailed and award no fees.  Lawry at 569.  Consequently, in the context of a construction defect case, the plaintiff may not be deemed the prevailing party as it relates to being awarded attorney fees despite winning issues regarding building envelope defects if it also loses on issues related to alleged grading and drainage defects.  In that scenario, there is Colorado precedent for the court to decide either for the plaintiff, the defendant, or neither.

In sum, general contractors and subcontractors should know the issues surrounding prevailing party clauses prior to ratifying one in a contract agreement. Specifically, what the related insurance company’s position is with regard to the clause should be known, and also what potential issues and claims may arise out of the work performed under the contract that could determine who a prevailing party might be.

In a recent Court of Appeals Decision, the Court in Hildebrand v. New Vista Homes II, LLC, 08CA2645, 2010 WL 4492356 (Colo. Ct. App. Nov. 10, 2010) concluded that the plain language of CDARA permits recovery of damages for inconvenience, and that the trial court did not err by allowing inconvenience damages to go to the jury. This is an important decision which will affect construction defect litigation.

The Plaintiffs in the case, Mark A. Hildebrand (Jr.) and Mark L. Hildebrand (Sr.), purchased a home built by one of the Defendants, New Vista Homes II, LLC (New Vista). Soon after purchasing the home, Mr. Hildebrand (Jr.) noticed that the basement floor was damaged from ground (or “slab”) movement, prohibiting him from enjoying his basement and also from finishing it. Both Mr. Hildebrand Jr. and Sr. sued New Vista and Richard Reeves, a manager of New Vista, for a variety of issues pursuant to the Construction Defect Action Reform Act (CDARA), which governs legal actions against professional builders and manufacturers.

In addition to the damaged basement floor, Mr. Hildebrand Jr. claimed he was inconvenienced because the home in its current condition was no longer his “sanctuary.”   Mr. Hildebrand Jr. claimed this was a serious issue given his profession as a police officer. He claimed that the condition of his home caused him to be angry and sleepless, and more importantly, prevented him from allowing his children near the stairs.

The Defendants argued that such inconvenience damages were noneconomic damages that do not fall within the scope of allowable actual damages under the CDARA. In Colorado, CDARA limits the liability of “[a] construction professional [to no] more than actual damages.” § 13-20-806(1). “Actual damages” for “personal injury” are defined as “those damages recoverable by law, except as limited by the provisions of section 13-20-806(4).” § 13-20-802.5(2). In turn, section 13-20-806(4)(a) provides:

In an action asserting personal injury or bodily injury as a result of a construction defect in which damages for noneconomic loss or injury or derivative noneconomic loss or injury may be awarded, such damages shall not exceed the sum of two hundred fifty thousand dollars.

The Hildebrand Court found that personal injury damages under CDARA are subject to section 13-20-806(4)(a), which defines “noneconomic loss or injury” by adopting section 13-21-102.5(2)(b), C.R.S.2010. That section provides that a “Noneconomic loss or injury” means nonpecuniary harm for which damages are recoverable by the person suffering the direct or primary loss or injury, including pain and suffering, inconvenience, emotional stress, and impairment of the quality of life. See Hildebrand at *13.

The Hildebrand decision is important because it provides Construction Defect Plaintiffs with a foothold for collecting emotional damages. While several questions of law remain as to who or under exactly what circumstances a Plaintiff may recover these types of damages, the Hildebrand case has clearly set forth that emotional damages may be considered as part of actual damages pursuant to CDARA.
 

The Colorado Supreme Court today reversed the Court of Appeals decision in Ferrellgas, Inc. v. Yeiser. Yeiser’s homeowner insurance carrier had settled its subrogation claim for less than the amount it had paid to Yeiser. The Court of Appeals had held that Yeiser was authorized to pursue a claim for difference between the amount she had received from the carrier and the amount the carrier had received at the time of settlement. The Supreme Court [Justice Rice] held that, under the collateral source rule, the carrier’s settlement extinguished the claim; Ferrellgas was to receive a setoff for the full amount paid by the carrier; and that the claim belonged to the homeowner insurance carrier under the subrogation doctrine.

While this case discussed the common law collateral source rule as it was a contract claim, its ruling would appear to equally affect with regards to the collateral source statute, C.R.S. § 13-21-111.6. The Court held that in effect, the amounts paid by an insurance carrier to an insured are not a collateral source at all, but truly a payment on defendant’s behalf. Though the case’s resulting effect on and applicability to C.R.S. § 13-21-111.6 will need to be fleshed out in future cases, it would appear such a ruling would carry the same weight for both contract claims involving the common law collateral source rule and tort claims governed by the collateral source statute. This represents a significant shift in offsets allowed to defendants who have settled insurance carrier subrogation claims. 

The full opinion is attached.

http://www.codla.org/attachments/yeiser.pdf

Should trial counsel be looking for social media posts by jurors during a trial? Recently, Reuters Legal checked Westlaw for challenges related to jurors’ Internet conduct and found 90 verdicts called into question since 1999. More than half the cases are from the last two years. In 28 of the cases, 21 of them since January 2009, judges granted new trials or overturned verdicts.

As an example, in People v. Wadle, 77 P.3d 764 (Colo. App. 2003), aff'd, 97 P.3d 932 (Colo. 2004), a juror in a criminal trial had done research online about the drug Paxil, a drug taken by the defendant accused of murdering her step-grandson, and the juror shared that research with other jurors.  The trial court denied a motion for a new trial, but the appeals court reversed, holding that:

Although the Internet has made information more accessible for the average person, the information obtained thereby may be misleading, taken out of context, outdated, or simply inaccurate. . . In view of the problems and dangers associated with the unsupervised use of the Internet, trial courts should emphasize that jurors should not consult the Internet, or any other extraneous materials, at any time during the trial, including during deliberations. Id. at 771.

At the start of almost every jury trial throughout the United States, the Court usually reads general instructions to jurors about how the trial will proceed. These instructions tell jurors how they should behave during the trial, including the admonition that they should not discuss the case with others, including both trial participants and outsiders. However, Courts are increasingly becoming aware of jurors using social media and other Internet tools to communicate to or from the courthouse during trial and / or deliberations. 

According to Eric P. Robertson of Blog Law Online, Colorado's Jury System Standing Committee is currently considering the adoption of rules regarding juror use of social media. See Minutes of Feb. 18, 2010 meeting. 

The draft rules, to be read to all potential jurors, are as follows:

• If you have a cell phone, pager or personal digital assistant, please turn it off while in the courtroom and during jury deliberations. Remember you are not allowed to communicate with anyone via any means about what is happening in the trial for the duration of the proceeding until a verdict is announced in court.
• During the course of the trial do not conduct independent research, view or listen to media reports, or access any information via the Internet or using any electronic tool, regarding this case, its participants, this type of case, or any related subject matter. 

These rules, if adopted, would be some of the first of their kind in Colorado. However, it is unknown what effect, if any, they will actually have on Internet usage by jurors during trials. This problem seems to be a growing concern not only for Colorado Courts, but for courts throughout the country. Trial counsel should consider whether to research social networks during the course of trial to determine if sitting jurors are posting information or comments related to their trial experience, and be prepared to bring any such postings to the court’s attention. 

Because of MMSEA and possible amendments, it is wise to include language in releases and settlement agreements that require plaintiffs to affirm that no exposure occurred on or after Dec. 5, 1980, as well as some indemnity language.  While indemnity language is often resisted, in this circumstance it is particularly proper and should be included with minimal resistance, since this language merely restates plaintiff’s obligation to pay Medicare any reimbursement that would be required.  The following language is an example:

Plaintiff affirms that on or subsequent to Dec. 5, 1980, neither he/she nor Plaintiff’s decedent was exposed to any asbestos-containing product manufactured by Defendant and that no such claim was part of this lawsuit.  In the event Medicare seeks any reimbursement from Defendant, Defendant’s insurance carriers, and/or Defendant’s legal counsel for benefits provided to Plaintiff, Plaintiff hereby agrees to indemnify and hold harmless Defendant, Defendant’s insurance carriers, and/or Defendant’s legal counsel for any payments, costs, fees or penalties incurred relating to any such Medicare claim.

Here are some suggestions for interrogatories that secure basic Medicare information and seek to confirm that no exposure took place on or after Dec. 5, 1980.

Defending Subcontractors in construction defect lawsuits in Colorado typically means representing one of many third party defendants. The plethora of parties can lead to confusion and frustration when it comes to the issue of damages to your specific client.