Washington Construction Law Blog

Court of Appeals Reverses Summary Judgment on Warranty Limitations

Alan Middleton — Fri, 27 Aug 2010 09:13:51 -0800

On August 8, 2010, in Mattingly v. Palmer Ridge Homes LLC, Division II of the Washington Court of Appeals reversed summary judgment in favor of builder Palmer Ridge Homes. A copy of the decision may be found here: Download file The decision is significant for what it says about the enforceability of limitations contained in third-party warranties and by demonstrating the difference between "completion" and "substantial completion" -- and what consequences might follow.

The Mattinglys contracted with Palmer Ridge to build a custom home. The contract contained explicit undertakings that all systems would be in good working order, all work would be completed in a workmanlike manner and comply with applicable codes, and that Palmer Ridge would undertake repairs necessary to comply with the contract documents. The contract purported to restrict Mattinglys' ability to sue Palmer Ridge by stating that Palmer Ridge would extend a one-year warranty at completion, such warranty would prevail, and that no legal action could be brought by either party "after one year beyond the completion of the project or cessation of work."

After signing the contract, the Mattinglys signed an application for enrollment in the 2-10 Home Buyers Warranty New Home Warranty program. The application acknowledged falsely that the Mattinglys had received and read a booklet containing the terms of the warranty purporting to limit their ability to claim under the construction contract.

The Mattinglys signed a certificate of substantial completion on April 1, 2007, accepting the project "as is" except items included in a punchlist. The certificate acknowledged a one-year limitation on implied warranties from date of final payment or occupancy, whichever came first. It established the date of "substantial completion" as March 30, 2007.

The Mattinglys identified additional punchlist items on April 16, paid the balance on April 23, and obtained a final certificate of occupancy on May 14. Palmer Ridge continued at least until October 2007 to work on punchlist items.

The Mattinglys hired a civil engineer to inspect the home. The engineer reported that construction was not in compliance with the contract documents, was not done in a workmanlike manner, and failed to comply with codes. Because punchlist items remained, the engineer concluded that Palmer Ridge failed to "complete" the residence. The Mattinglys asserted a construction defect in February 2008 and arranged a joint inspection with Palmer Ridge's attorney in May 2008. On July 30, 2008, the Mattinglys submitted a claim to the warranty company, which denied the claim as untimely. (The warranty company first told the Mattinglys the one-year warranty would expire June 5, 2008, then changed the effective date to April 17, 2007.) The Mattinglys sued.

Palmer Ridge moved for summary judgment, arguing that the suit was untimely and that the third-party warranty excluded any remedy the Mattinglys had under the construction contract. The trial court granted the motion.

The Court of Appeals, citing authorities from California and Nevada, first held that the limitations stated in the third-party warranty agreement were procedurally unconscionable because the Mattinglys did not receive a copy of the warranty booklet until after they had signed the application and they had no notice that the third-party warranty would in fact limit their rights under the construction contract. Because these limitations thus were unenforceable, the court proceeded to consider what the Mattinglys' rights were under the construction contract.

The contract required suit to be brought within one year of "completion" or cessation of work. Despite the contract language, Palmer Ridge argued that the one-year limitation commenced at "substantial completion." The Court of Appeals found this argument to be meritless. Had Palmer Ridge intended "substantial completion," it should have used that term in the contract.

The Court found that although Palmer Ridge effectively disclaimed implied warranties, it did not effectively disclaim express warranties. As for implied warranties, because the certificate of substantial completion stated that the Mattinglys accepted the project "as is" and limited implied warranties to a period of one year from "date of final payment," the Mattinglys' implied warranty claims were barred by their failure to file by April 23, 2008, one year after final payment.

Although the Mattinglys' implied warranty claims were barred, their express warranty claims were not. An "as is" acceptance may bar implied warranties, but will not bar express warranties without explicit reference to them. Accordingly, Palmer Ridge continued to be liable for breach of the express undertakings in its construction contract -- e.g., workmanship, compliance with codes, compliance with plans/specifications, systems in good working order. A claim for breach of express warranties nonetheless had to be brought within a year of "completion" or cessation of work.

BIAW Sues To Block Parts of New Energy Code

Alan Middleton — Fri, 11 Jun 2010 14:56:37 -0800

Amendments to the Washington Energy Code were to go into effect July 1, 2010. On May 25, 2010, however, the Building Industry Association of Washington (BIAW) brought suit in federal court in Seattle, arguing that federal law preempts Code amendments that impose requirements that exceed those established by federal statutes. A copy of BIAW's complaint can be viewed here: Download file On June 8, 2010, Governor Gregoire asked the Washington State Building Code Council to delay implementation of the Code amendments for nine months. The Governor's request was not based upon the BIAW lawsuit, but upon a desire not to impose new burdens on the construction industry at a time of economic fragility. The SBCC posted the Governor's letter here: http://sbcc.wa.gov/File.ashx?cid=953 The SBCC must still act upon the request.

STITA Bid Protest Loss Underscores Need To Comply with Solicitation's Protest Procedures

Alan Middleton — Wed, 09 Jun 2010 14:58:53 -0800

On June 8, Division I of the Court of Appeals issued an unreported decision on the challenge by STITA, the incumbent provider of taxi services for Sea-Tac Airport, to a procurement by the Port of Seattle that led to an award to a competitor. The Court affirmed the trial court's denial of injunctive relief to STITA, based primarily on STITA's failure to comply with what the Court termed a "clear" process for handling protests stated in an addendum to the solicitation. Although the decision is unpublished, we address it here because of the case's notoriety. You can view it here: Download file.

STITA had been the exclusive provider of taxi services at Sea-Tac for many years. In 2009, the Port issued a request for proposal for a new five-year concession. The RFP changed the method of calculating the compensation to be paid to the Port, and revenue guaranteed to the Port accounted for 30% of the evaluative score. The Port held pre-proposal conferences and answered written questions in an addendum prior to the deadline for submitting a proposal.

A competitor of STITA (Yellow Cab) scored highest in evaluations; STITA placed third. STITA filed a written protest, which the Port rejected. STITA filed a complaint in King County Superior Court for declaratory and injunctive relief. It alleged that the new method for calculating the Port's compensation was unlawful. STITA obtained a temporary restraining order prohibiting the Port from entering into a contract with Yellow Cab. However, less than two weeks later, the trial court heard and denied STITA's motion for preliminary injunction. Although the trial court remarked that STITA had made a good case that the Port had not met certain statutory requirements, it found that STITA had waived its protest by proceeding through the RFP process and then objecting.

STITA immediately appealed, first obtaining injunctive relief prohibiting the Port from proceeding during the pendency of the appeal. Relief was granted because, once the Port signed a contract with Yellow Cab, STITA would lose its standing to protest.

The Court of Appeals first held that STITA had not filed a timely objection to the RFP, based upon the following written Q&A in Addendum 3 of the RFP:

2. Q: Does the Port have a deadline or process for challenging the RFP itself or any substantive or procedural requirement it sets forth?

A: The Port has yet to promulgate a formal bid protest procedure for non-public works. Nonetheless, a potential proposer who believes that there is a problem with the RFP (as opposed to any particular proposer's response) should bring the issue to the Port's attention, in the manner for written questions, prior to the deadline for questions. The Port may then address any such issue before proposers have submitted their proposals. The Port specifically reserves the right to deny any protest arising from the RFP or any substantive or procedural requirement it sets forth if such protest is not submitted in this manner. …

The Court held this provision provided a "clear process" for protesting the RFP. STITA failed to raise the issues it raised in its lawsuit prior to the deadline for questions and accordingly lost the right to protest.

Second, the Court held that STITA waived the right to protest by actually submitting a proposal and waiting to see whether it was awarded the contract.

Third and finally, the Court dismissed STITA's challenges to the legality of the RFP on the merits.

The lessons to be drawn? Bidders must strictly comply with protest requirements -- even if at first glance the "requirements" may seem vague, inconclusive, or permissive rather than mandatory -- and may lose their right to protest if they submit a proposal to an RFP they later challenge as unlawful.

No Race to Judgment on Bond Claims

Alan Middleton — Mon, 24 May 2010 13:16:43 -0800

On May 24, 2010, Division I of the Washington Court of Appeals held that where two claimants against a specialty contractor's bond have the same statutory priority, the first of the claimants does not gain priority by being the first to reduce the claim to judgment. The case, Hosea v. Toth, can be viewed here: Download file

In Hosea, two residential owners brought claims against the same specialty contractor, including claims against the contractor's bond. One owner obtained judgment before the other, and moved to have the entire bond of $6,000 distributed to him based upon the fact he had been the first to obtain judgment on his claim. The trial court agreed. In this decision, the Court of Appeals reversed, finding that the statutory scheme does not sanction such a "race to judgment." The Court of Appeals did not address how the bond sum should be distributed -- per capita or pro rata pursuant to the respective size of each claimant's claim.

Brightwater Lawsuit

John Parnass — Wed, 21 Apr 2010 11:25:49 -0800

On Monday, April 19, King County filed a $74 million default termination suit against one of its Brightwater contractors and its surety. A copy of the complaint is available here. Download file

One Policy Limit or More? Division 1 Interprets Anti-Stacking Clause

John Parnass — Wed, 21 Apr 2010 09:01:54 -0800

Here is Division 1's most recent analysis on the arcane but important issue of how many policy limits are available in a situation where a carrier issues multiple year-to-year CGL policies and the insured becomes legally obligated to pay for damage that occurs over those multiple year but results from the same continuous or repeated cause (i.e., water seepage).

The answer, at least in this case with this policy language was: 1 policy limit, under the clause known as the anti-stacking provision.

Copy of opinion also available here Download file

Construction Humor

Alan Middleton — Fri, 02 Apr 2010 06:05:14 -0800

We missed April 1 this year, and vow not to do so in future. To make up for that omission, in the "what were they thinking" department: http://blog.miragestudio7.com/wp-content/uploads2/2007/09/construction_errors_error_mistake_slope_steep.jpg We'd be curious to know how this ended up, if anyone knows.

AGC Posts Upcoming Projects Resource

Alan Middleton — Fri, 02 Apr 2010 06:02:47 -0800

Following our post about the drop in construction spending, it is nice to note that the AGC has posted a nifty resource (called "Where's the Work") to help track current and upcoming public works projects. The website can be accessed here: http://www.agcwa.com/NewsandInfo/WherestheWork/

Construction Spending Dismal

Alan Middleton — Fri, 02 Apr 2010 05:58:32 -0800

It will come as no shock to most that construction spending is at its lowest since 2002. http://www.djc.com/news/co/12016545.html?cgi=yes

Construction-Related Legislation Signed by Governor

Alan Middleton — Tue, 30 Mar 2010 04:24:53 -0800

Governor Gregoire has signed several bills expanding the subpoena authority of various state agencies. The new powers are intended to enable the agencies to investigate the underground economy, SHB 2789 (http://apps.leg.wa.gov/documents/billdocs/2009-10/Pdf/Bills/Session%20Law%202010/2789-S.SL.pdf), and for the Dept. of Labor & Industries to enforce RCW 19.28 (electricians and electrical installations), SHB 2555 (http://apps.leg.wa.gov/documents/billdocs/2009-10/Pdf/Bills/Session%20Law%202010/2555-S.SL.pdf). Both bills are effective June 10, 2010.

The Governor also signed ESSB 5529 (http://apps.leg.wa.gov/documents/billdocs/2009-10/Pdf/Bills/Session%20Law%202010/5529-S.SL.pdf), which rewrites the Architects Act (RCW 18.08) to modify qualification requirements for both in-state and out-of-state firms. The legislation becomes effective in phases, from June 10, 2010 through July 1, 2012.

SB 6401 (http://apps.leg.wa.gov/documents/billdocs/2009-10/Pdf/Bills/Session%20Law%202010/6401.SL.pdf) authorizes alternative selection methods for electrical and mechanical subcontractors on GC/CM projects. Effective June 10, 2010.

Architectural Demand Improves Modestly

Alan Middleton — Thu, 25 Mar 2010 13:21:42 -0800

The American Institute of Architects reports that architectural billings -- an indicator of future construction work -- have improved, but not by much. http://www.aia.org/press/releases/AIAB082556

Battle of the Lien Forms: Claims of Lien Must Strictly Comply with the Lien Statute

Alan Middleton — Thu, 25 Mar 2010 09:13:21 -0800

A recent decision by Division II of the Washington Court of Appeals underscores the need for all potential lien claimants to check their forms and comply with the lien statute, or risk losing their lien rights. A copy of the case, Williams v. Athletic Field, Inc., can be found here: Download file

Athletic Field claimed a lien under RCW 60.04. The claim of lien included an attestation by an employee of LienData USA, a corporate lien-filing service. The claim identified LienData as the agent of the claimant. The property owners moved for an order to show cause why the lien should not be quashed under the frivolous lien statute, RCW 60.04.081. They made two arguments: (a) that the lien statute required the claimant or its attorney to make the statutory attestation (i.e., attestation by an agent was not enough); and (b) that they owed no money to Athletic Field. The trial court entered an order releasing the lien because the lien was not attested by the claimant, an officer of the claimant, or its attorney, and awarded attorneys fees.

In its first opinion, Division II reversed. It held that attestation by an agent of the claimant (the lien-filing service) met the statutory requirement. The property owners moved for reconsideration, arguing that the form of attestation used by the lien-filing service was not proper -- the claim of lien identified LienData as the agent for Athletic Field, but the attestation was by an individual employee of LienData and not in corporate form.

Division II granted reconsideration, withdrew its first opinion, and issued the opinion attached. An agent may make the statutory attestation on behalf of a lien claimant, but must use the proper form of attestation and acknowledgment. The lien statute requires acknowledgment "pursuant to chapter 64.08 RCW." RCW 64.08 provides forms of acknowledgment for individuals and corporations. Because the claim of lien identified LienData, a corporation, as the agent for Athletic Field, a corporate acknowledgment should have been used. Because the LienData employee signed an individual form of acknowledgment, it did not comply with the lien statute. Lien statutes, being in derogation of the common law, are strictly construed. The Court therefore held that the LienData employee's failure to use a corporate form of acknowledgment meant that the lien was invalid.

On a happier note for Athletic Field (and LienData USA), the Court reversed the award of attorneys fees.

Needless to say, lien claimants, filers, and owners should check their lien forms. If the statutory attestation/acknowledgment is not being used, it should be, and questionable filings should be amended immediately as a precaution.

Who Gives the Implied Warranty of Habitability?

Alan Middleton — Mon, 22 Mar 2010 10:18:09 -0800

In a recent but unpublished opinion, the Court of Appeals reversed summary judgment in favor of a builder and remanded for further proceedings a residential buyer's claims that the builder had breached the implied warranty of habitability. The decision contains a useful discussion of the implied warranty. The decision, Haas v. Kartashev, can be accessed here. Download file We rarely discuss unpublished opinions here, but as DWT represented the buyer in the case, we thought it worthy of note.

In 2005, plaintiff John Haas purchased a residence in Camas, Washington, from Valery Kartashev. Kartashev had acted as the general contractor on the house, although claimed he was simply a plumber. Kartashev lived in the home for nearly two years (the exact duration is disputed) before selling to Haas.

Under Washington law, a “vendor-builder” is “a person regularly engaged in building, so that the sale is commercial rather than casual or personal in nature.” Klos v. Gockel, 87 Wn.2d 567, 570, 554 P.2d 1349 (1976). When a vendor-builder sells a new house to its first intended occupant, there is an implied warranty “that the foundations supporting it are firm and secure and that the house is structurally safe for the buyer’s intended purpose of living in it.” House v. Thornton, 76 Wn.2d 428, 436, 457 P.2d 199 (1969). “[T]he sale must be fairly contemporaneous with completion and not interrupted by an intervening tenancy unless the builder-vendor created such an intervening tenancy for the primary purpose of promoting the sale of the property.” Klos, 87 Wn.2d at 571. An implied warranty does not attach merely because “the [vendor] contemplated an eventual sale.” Klos, 87 Wn.2d at 570. What constitutes a “new house” is a question of fact; while the passage of time will “cancel [implied warranty] liability, ... just how much time need pass varies with each case.” Klos, 87 Wn.2d at 571.

The trial court dismissed Haas’s claims against Kartashev on summary judgment, holding as a matter of law that Kartashev was merely a casual builder and that his intervening tenancy immunized him from liability to Haas.

The Court of Appeals disagreed, holding that there were genuine issues of material fact requiring trial on these issues. A pattern of home-building suggested that Kartashev was more than a “casual” builder. Further, the facts also suggested that Kartashev resided in the Camas house primarily to gain favorable tax treatment on resale, and continued to work on the residence while living there, permitting a fact finder to conclude that the house was still “new” when sold to Haas and that the Kartashev tenancy was primarily to promote the sale of the property.

The opinion also addresses what defects may violate the implied warranty and Haas’s claims for breach of contract, violation of the Consumer Protection Act, and fraudulent inducement. On each claim, the Court of Appeals found sufficient facts to merit a trial.

AGC Perspective on 2010 Legislature

Alan Middleton — Wed, 17 Mar 2010 08:04:55 -0800

The Washington Associated General Contractors reports on the state of the 2010 Legislative session. http://www.agcwa.com/index.php/ListingItem/1381 The budget and taxes take center stage in the Special Session begun March 15, including a proposed three-year increase in the sales tax of 0.3%.

Legislation already passed includes:

EHB 2805, which requires contractors to disclose information concerning off-site prefabrication; a violation would render a contractor non-responsible for future public work. The AGC has asked Governor Gregoire to veto the bill.

ESSB 6381 updates the 2009-11 transportation budget to reflect receipt of ARRA funds.

ESSB 5529 effects various relatively modest changes to architectural licensing law.

SSSB 6578 allows concurrent processing of environmental permits to speed approve of WSDOT projects.

SHB 2758 extends reseller permits to a term of two years from date of issuance.

SSSB 6575 seeks to strengthen education and penalties for unregistered contractors.

King County Executive Moves To Simplify Small Contracting

Alan Middleton — Wed, 17 Mar 2010 07:56:53 -0800

King County Executive Dow Constantine has issued an executive order with the intent of simplifying County procurement. Download file

I.C.C. Releases Green Construction Code

Alan Middleton — Wed, 17 Mar 2010 07:50:15 -0800

http://www.dwtrealestatelawnw.com/2010/03/articles/construction-law/icc-releases-green-construction-code/

Bullitt Foundation Announces Ultimate Green Building

Alan Middleton — Tue, 16 Mar 2010 08:25:35 -0800

The Bullitt Foundation announced plans to build a six-story structure at 15th Avenue and East Madison Street in Seattle, to be known as the Cascadia Center for Sustainable Design and Construction, that will house the Foundation's headquarters and serve as a showplace for cutting-edge green engineering and architecture. http://seattletimes.nwsource.com/html/businesstechnology/2011354845_bullitt16.html

Housing Starts Fall But Beat Expectations

Alan Middleton — Tue, 16 Mar 2010 07:16:20 -0800

New home construction and building permits fell in February, but both readings beat economists' expectations. http://money.cnn.com/2010/03/16/news/economy/housing_starts/index.htm

Supreme Court Holds Condo Defect Claims Subject to Arbitration

Alan Middleton — Wed, 20 Jan 2010 08:27:58 -0800

In an important decision, on December 24, 2009, the Washington Supreme Court held that claims under the Washington Condominium Act (WCA) are subject to arbitration despite provisions in the Act requiring judicial resolution of claims where condominium owners agree to arbitrate disputes in their purchase and sale agreements. The case is Satomi Owners Ass'n v. Satomi, LLC. www.courts.wa.gov/opinions/pdf/804800.opn.pdf

In Satomi, purchasers of individual condominium units had agreed in their purchase and sale agreements to arbitrate claims they might have against the seller/developer. Satomi gathered three separate cases in which trial courts had denied motions to compel arbitration of claims under the WCA. The WCA historically prevented parties from opting out of judicial resolution of disputes. In 2005, the Legislature amended the WCA to permit arbitration of at least some disputes pursuant to RCW 64.55.100 through .160, but allowed any aggrieved party to demand a new trial in superior court at the end of arbitration proceedings – in other words, the arbitration was not binding. In Satomi, the Court concluded that the statute’s requirement of a judicial resolution (and the amended statute’s resort to trial de novo) was preempted by the Federal Arbitration Act (FAA).

First, the Court held that the FAA applied to the transactions, at least where arbitration provisions were clearly tied to purchase and sale agreements relating to purchase and sale of the condominiums at issue. The Court rejected the argument that the “transaction” at issue involved only warranties and therefore did not involve interstate commerce. It held instead that the “transaction” included the purchase and sale of the condominium. Based upon this broader view of the “transaction” at issue, the Court held that the transactions “involve commerce” so as to be subject to preemption by the FAA based on (1) the use of out-of-state materials in constructing the condos; (2) a substantial number of purchasers were not Washington residents; (3) a substantial number of mortgages obtained by Washington and non-Washington residents were obtained from out-of-state mortgage companies.

Second, the Court concluded that the WCA's provisions conflicted with the FAA. To begin with, the earlier statutory enforcement clause - dictating judicial resolution and not permitting the parties to agree to arbitration - clearly conflicted with the FAA. Further, the amended statute, although it permitted arbitration of at least some issues, nonetheless required trial de novo where one party was disappointed in the result. The Court held that declaring arbitration to be non-binding conflicted with the FAA.

Third, the Court concluded that the associations were bound by the arbitration clauses to which their members had agreed in purchasing their units. The associations claimed no property interest of their own; they were suing entirely on behalf of their members (members owned undivided percentages of common and limited common areas). Consequently, the associations were bound.

Finally, the Court held that the arbitration clauses were not unconscionable or lacking in mutuality of obligation, despite the fact that the developers retained the sole right to have disputes heard in arbitration.

The WCA therefore no longer stands as a barrier to parties who wish to require arbitration of disputes under the WCA. They should nevertheless assure that their contracts are written with the Satomi decision in mind.

Northwest Hub

John Parnass — Tue, 18 Aug 2009 15:01:54 -0800

Congrats to the Buck Law Group and its affiliated partners on the recent launch of Northwest Hub, an excellent online newspaper for the land use, real estate and environmental community.