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Multi-Party Construction Defect Litigation Managing Discovery, Allocating Liability and Damages, Avoiding Ethical Pitfalls
Today’s faculty features:
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TUESDAY, MARCH 6, 2012
Presenting a live 90-minute webinar with interactive Q&A
Eric A. Grasberger, Partner, The Development Law Group, Construction & Design Section, Stoel Rives, Portland, Ore. R. Douglas Rees, Shareholder, Cooper & Scully, Dallas
Russell Clinage, Goins Underkofler Crawford & Langdon, Dallas
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Multi-Party Construction Defect Litigation: Key Challenges in Plaintiffing the Multi-Party Defect Case Tuesday, March 6, 2012 • Por t land, Oregon
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Key Challenges in Plaintiffing The Multi-Party Defect Case
Presented By:
Eric A. Grasberger
Tuesday, March 6, 2012 • Portland, Oregon
MULTI-PARTY CONSTRUCTION DEFECT LITIGATION
(Webinar by Strafford Publications, Inc.)
Multi-Party Construction Defect Litigation: Key Challenges in Plaintiffing the Multi-Party Defect Case Tuesday, March 6, 2012 • Por t land, Oregon
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I. INTAKE
a. Initial analysis of merits i. Nature of defects (defects v. damages) (visibility) (actual or
theoretical) ii. Verification of defects and damages iii. Nature of Plaintiff litigant (business v. public agency v.
individual) iv. Likelihood of funds to pay damages (insurance, bond, deep
pockets) v. Dispositive defenses (statute of limitations, limitations of
liability, etc.) vi. Attorney fee recoverability
Multi-Party Construction Defect Litigation: Key Challenges in Plaintiffing the Multi-Party Defect Case Tuesday, March 6, 2012 • Por t land, Oregon
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I. INTAKE cont.
Alerts to Threats in Europe, 2011 ALERTS TO THREATS IN 2011 EUROPE : BY JOHN CLEESE
The English are feeling the pinch in relation to recent events in Libya and have therefore raised their security level from “Miffed” to “Peeved.” Soon, though, security levels may be raised yet again to “Irritated” or even “A Bit Cross.” The English have not been “A Bit Cross” since the blitz in 1940 when tea supplies nearly ran out. Terrorists have been re-categorized from “Tiresome” to “A Bloody Nuisance.” The last time the British issued a “Bloody Nuisance” warning level was in 1588, when threatened by the Spanish Armada.
The Scots have raised their threat level from “Pissed Off” to “Let’s get the Bastards.” They don’t have any other levels. This is the reason they have been used on the front line of the British army for the last 300 years.
The French government announced yesterday that it has raised its terror alert level from “Run” to “Hide.” The only two higher levels in France are “Collaborate” and “Surrender.” The rise was precipitated by a recent fire that destroyed France’s white flag factory, effectively paralyzing the country’s military capability.
Multi-Party Construction Defect Litigation: Key Challenges in Plaintiffing the Multi-Party Defect Case Tuesday, March 6, 2012 • Por t land, Oregon
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I. INTAKE cont.
Italy has increased the alert level from “Shout Loudly and Excitedly” to “Elaborate Military Posturing.” Two more levels remain: “Ineffective Combat Operations” and “Change Sides.”
The Germans have increased their alert state from “Disdainful Arrogance” to “Dress in Uniform and Sing Marching Songs.” They also have two higher levels: “Invade a Neighbor” and “Lose.”
Belgians, on the other hand, are all on holiday as usual; the only threat they are worried about is NATO pulling out of Brussels.
The Spanish are all excited to see their new submarines ready to deploy. These beautifully designed subs have glass bottoms so the new Spanish navy can get a really good look at the old Spanish navy.
Australia, meanwhile, has raised its security level from “No worries” to “She’ll be alright, Mate.” Two more escalation levels remain: “Crikey! I think we’ll need to cancel the barbie this weekend!” and “The barbie is canceled.” So far no situation has ever warranted use of the final escalation level.
– John Cleese – British writer, actor and tall person
Multi-Party Construction Defect Litigation: Key Challenges in Plaintiffing the Multi-Party Defect Case Tuesday, March 6, 2012 • Por t land, Oregon
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I. INTAKE cont.
b. Client expectations i. Funding the case (hourly fee, contingency fee or
other) ii. Duration of case iii. Net recovery scenarios
Multi-Party Construction Defect Litigation: Key Challenges in Plaintiffing the Multi-Party Defect Case Tuesday, March 6, 2012 • Por t land, Oregon
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II. IDENTIFYING DEFENDANTS
a. Scope issues – who did what? (Owner has a knowledge gap)
b. Statute of limitations issues c. Contractual limitation clauses – getting
around them d. Contract v. tort issues (economic loss
doctrine) e. Tolling v. suing
Multi-Party Construction Defect Litigation: Key Challenges in Plaintiffing the Multi-Party Defect Case Tuesday, March 6, 2012 • Por t land, Oregon
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III. INVESTIGATION
a. Know state rulings regarding extrapolation of evidence
b. Know state rulings on spoliation of evidence c. Selecting number and location of openings d. Notice to defendants (usually per Case
Management Order) e. Site visit agreements (Exhibit 1)
Multi-Party Construction Defect Litigation: Key Challenges in Plaintiffing the Multi-Party Defect Case Tuesday, March 6, 2012 • Por t land, Oregon
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III. INVESTIGATION cont.
a. Know local trends regarding extrapolation of evidence
b. Know local rulings on spoliation of evidence c. Selecting number and location of openings d. Notice to Defendants (per Case
Management Order) e. Site visit agreements (Exhibit 1) f. Sample evidence gathering plan (Exhibit 2)
Multi-Party Construction Defect Litigation: Key Challenges in Plaintiffing the Multi-Party Defect Case Tuesday, March 6, 2012 • Por t land, Oregon
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III. INVESTIGATION cont.
g. Multiple experts? i. Forensic architect (usually for envelope or general
expert lead) ii. Roofing consultant iii. Structural engineer iv. Mechanical engineer v. Geotechnical engineer vi. Civil engineer vii. Damages expert (accountant, real estate broker, etc.)
Multi-Party Construction Defect Litigation: Key Challenges in Plaintiffing the Multi-Party Defect Case Tuesday, March 6, 2012 • Por t land, Oregon
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IV. DISCOVERY
a. Electronic discovery i. Must be conservatively managed and budgeted ii. Effort and protocols must be reciprocal
b. Hard paper files c. Deposition issues d. Subpoenas e. Contacting ex-employees, laborers, etc.
Multi-Party Construction Defect Litigation: Key Challenges in Plaintiffing the Multi-Party Defect Case Tuesday, March 6, 2012 • Por t land, Oregon
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V. TRIAL a. Where’s the beef?
i. Juries, judges and arbitrators want photos and physical evidence first ii. Descriptions of how it happened come second iii. Blame comes third (see Section VI “Allocating Damages)
b. Show me the money! i. Repair costs: full v. partial repair ii. Repair costs: estimates v. hard bids iii. Lost revenues/profits/stigma/market value iv. Employee time v. Investigative v. expert time vi. Attorney fees
Multi-Party Construction Defect Litigation: Key Challenges in Plaintiffing the Multi-Party Defect Case Tuesday, March 6, 2012 • Por t land, Oregon
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V. TRIAL cont.
c. Embrace technology i. Demonstrative impact ii. Shortens learning curve iii. Electronic exhibits speed up trial time
Multi-Party Construction Defect Litigation: Key Challenges in Plaintiffing the Multi-Party Defect Case Tuesday, March 6, 2012 • Por t land, Oregon
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VI. ALLOCATING DAMAGES
a. Every case is different b. Allocation by plaintiff differs from prime
contractor or developer c. Allocation will never be perfect – always
debatable – just keep it reasonable
Multi-Party Construction Defect Litigation: Key Challenges in Plaintiffing the Multi-Party Defect Case Tuesday, March 6, 2012 • Por t land, Oregon
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VI. ALLOCATING DAMAGES cont.
d. Allocating is a group exercise
e. Samples (Exhibits 3 and 4)
Multi-Party Construction Defect Litigation: Key Challenges in Plaintiffing the Multi-Party Defect Case Tuesday, March 6, 2012 • Por t land, Oregon
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Questions?
Eric A. Grasberger, Partner Construction & Design Section | The Development Law Group
STOEL RIVES LLP 900 SW Fifth Avenue, Suite 2600
Portland, OR 97204 [email protected]
(503) 294-9439 | Cell: (503) 320-1970 | Fax: (503) 220-2480 www.stoel.com
Multi-Party Construction
Defect Litigation March 6, 2012
R. Douglas Rees Cooper & Scully, P.C.
900 Jackson Street, Ste. 100 Dallas, Texas 75202
214-712-9500 [email protected]
INVESTIGATE THE CLAIM Do your own investigation - Use others’ work to add to your own
investigation - Use common sense Get an expert or experts if necessary - Do not skimp Often multiple causes Consider others’ motivations 21
IDENTIFY PARTIES
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Design Construction
Manufacturers/Suppliers Repair/remediation contractors and experts
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NOTIFY PARTIES
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Be sensitive to relationships Be persistent - Notify carriers if necessary Danger in simply suing
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REVIEW CONTRACTS & DOCUMENTS
To find “real parties in interest”
Review indemnity agreements - Enforceable? Review AI provisions
Review other risk transfer provisions
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Theories of liability - Contribution - Indemnity (even if unenforceable) - Breach of contract - Breach of warranty
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Evaluate parties - Coverage - Solvency Limitations issues - Tort v. Contract - Can have dramatic effect on
contribution claims
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Share Information - Share more – prepare some reports - Particularly if seeking early resolution –
mediation, etc. Alliances - No one is true friend - Friends and foes can shift depending on issues
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ALLOCATION
Court’s Charge Broad form – as few questions as possible One or limited proportionment question(s)
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ALLOCATION (cont.)
Cannot submit multiple independent theories of liability in a single, broad-form question
Harmful because appellate court cannot determine whether jury based its verdict on improperly submitted, invalid theory
Construction defect cases present unique situation
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Broad Form Question No. 1
Do you find by a preponderance of the evidence that the negligence, if any, of any of those listed below proximately caused damage to the building?
Answer “Yes” or “No” for each:
Plaintiff(s)
GC, Inc.
Engineering, Inc.
John Engineer, P.E.
A-1 Foundations, Inc.
ABC Roofers, Inc.
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_______
_______
_______
_______
_______
_______
Segregated QUESTION NO. 1
Do you find by a preponderance of the evidence that: a. The negligence, if any, of any of those listed below in designing or constructing the foundation
proximately caused damage to the Plaintiffs’ building?
Answer “Yes” or “No” for each: GC, Inc. Engineering, Inc. John Engineer A-1 Foundations, Inc.
b. The negligence, if any, of any of those listed below in constructing or maintaining the building,
proximately caused damage to the Plaintiffs’ building?
Answer “Yes” or “No” for each: Plaintiff(s) GC, Inc.
c. The negligence, if any, of any of those listed below in constructing the roof proximately caused
damage to the Plaintiffs’ building?
Answer “Yes” or “No” for each: GC, Inc. ABC Roofing, Inc.
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_____ _____ _____ _____
_____ _____
_____ _____
SEGREGATED APPORTIONMENT QUESTION NO. 2
What percentage of the negligence do you find to be attributable to each of those found by you, in your answer to Question No. 1, to have been negligent? a. in designing or constructing the foundation of the building: GC, Inc. ________% Engineering, Inc. ________% John Engineer ________% A-1 Foundations, Inc. ________% TOTAL 100% b. in constructing or maintaining the building: Mr. Plaintiff ________% Mrs. Plaintiff ________% GC, Inc. ________% TOTAL 100% c. in constructing the roof at the building: GC, Inc. ________% ABC Roofing, Inc. ________% TOTAL 100%
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Pruning Damages Same segregation issues arise with
damages Which defendant caused which
damages Defendant can only be held liable for
damages he caused PJC does not fully address these
problems 35
SEGREGATED DAMAGES QUESTION NO. 3
What sum of money, if paid now in cash, would fairly and reasonably compensate Plaintiff for the damage, if any, found by you in response to Question No. 1?
Answer in dollars and cents, if any:
a. Reasonable and necessary cost of repairing the building for damages, if any, resulting from
negligent design or construction of the foundation: $___________ b. Reasonable and necessary cost of repairing the building for damages, if any, resulting from
negligent construction or maintenance of the building: $___________ c. Reasonable and necessary cost of repairing the building for damages, if any, resulting from
negligent construction of the roof at the building: $___________ d. Reasonable and necessary fees for consulting or engineering: $___________ e. The reasonable cost of move out and/or rental costs during any repairs: $___________
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NON-SEGREGATED DAMAGES QUESTION NO. 4
a. How do you apportion the damages awarded by you in Question 3(e) (cost of move out/temporary rental costs)?
Answer by stating a percentage for each person named below, but only if you have found that person negligent in answer to Question No. 1. The percentages you find must total 100 percent. Mr. Plaintiff ______% Mrs. Plaintiff ______% GC, Inc. ______% Engineering, Inc. ______% John Engineer ______% A-1 Foundations, Inc. ______% ABC Roofing, Inc. ______% TOTAL 100%
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Multi-Party Construction Defect Liability for Design
Professionals
Russell E. Clinage, Of Counsel Goins, Underkofler, Crawford & Langdon, L.L.P.
1201 Elm Street, Suite 4800 Dallas, Texas 75270 [email protected]
[email protected] 214.253.4019 – Dallas Office
817-473-0888 – Mansfield Office 38
THEORIES OF LIABILITY A. TORT LIABILITY COMMON LAW NEGLIGENCE
A duty owed to a foreseeable user of service or resulting construction, privity of contract is not necessarily required in order for liability to arise.
The existence of a duty is generally a question of law for the court to determine from the surrounding facts.
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COMMON LAW NEGLIGENCE
Whether or not a duty arises generally depends upon the provisions of the employment agreement between the design professional and the client.
If there is an employment agreement between the design professional and the Plaintiff seeking damages, the same act may constitute both negligence and a breach of contract.
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STANDARD OF CARE
A design professional’s duty is to exercise such care, skill, and diligence as a person engaged in the architect or engineering profession under the same or similar circumstances.
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DOES THE LOCALITY RULE APPLY?
The standard of care MAY be judged by the particular locality in which the services were rendered.
Do not forget Daubert to Challenge the experts opinions.
Think about filing a MSJ to draw out the opposing experts opinions before taking the experts deposition.
As a general rule…. An architect or engineer does not guarantee a satisfactory result; they are not insurers.
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TORT LIABILITY
COMMON LAW NEGLIGENCE NEGLIGENCE PER SE
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NEGLIGENCE PER SE
An unexcused violation of a statute or ordinance. Necessary to prove that the statute or ordinance was
designed to prevent injury to the class of persons to which the Plaintiff belongs. In addition to proving that he is within the protected class, the Plaintiff must also establish that the violation of the statute or ordinance was the proximate cause of his injury.
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TORT LIABILITY
COMMON LAW NEGLIGENCE NEGLIGENCE PER SE NEGLIGENT MISREPRESENTATION
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NEGLIGENT MISREPRESENTATION
Liable for negligent misrepresentations made in the preparation of contract documents, drawings, surveys, test data, and in the placement of survey monuments.
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N/M ELEMENTS OF PROOF
The representation is made by a defendant in the course of his business or in a transaction in which he has a pecuniary interest;
The defendant supplies “false information” for the guidance of others in their business;
The defendant did not exercise reasonable care or competence in obtaining or communicating the information; and
The plaintiff suffers pecuniary loss by justifiably relying on the representation.
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N/M- PRIVITY REQUIREMENT
Does your jurisdiction require privity or is it based “…on an independent duty to the non-client based on the professional’s manifest awareness of the non-client's reliance on the misrepresentation and the professional’s intention that the non-clients so rely.”
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CONTRACT LIABILITY
DIFFERENCES FROM TORT: DAMAGES COMPUTED DIFFERENTLY LIMITATIONS IN CONTRACT v. NEGLIGENCE EXCUSE SHOULD BE LIMITED TO CONTRACT
DAMAGES IS THIS THE ONLY VEHICLE TO RECOVER
ATTORNEYS’ FEES?
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BREACH OF CONTRACT STANDARD OF CARE
Usually, it is the context of the contract
language where the standard of care arises, and that standard is the same as that applied in establishing common law negligence, unless an express warranty is involved.
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TORTIOUS INTERFERENCE
ELEMENTS: EXISTENCE OF A CONTRACT WILLFUL INTERFERENCE PROXIMATE CAUSE OF DAMAGES USUALLY MUST HAVE ACTUAL DAMAGES OR
LOSS INCURRED TO RECOVER
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BREACH OF WARRANTY
DEFINED BY YOUR CONTRACT TERMS WATCH FOR LIABILITY FROM IMPLIED
WARRANTIES
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DTPA LIABILITY Check for Waiver Provision Exempting
Design Professionals.
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DEFENSES
LIMITATIONS STATUTE OF REPOSE CERTIFICATE OF MERIT ECONOMIC LOSS RULE
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DEFENSES
LIMITATIONS: NEGLIGENCE- ? YEARS/ DISCOVERY RULE CONTRACT- ? YEARS WARRANTY- SEPARATE FROM CONTRACT? NEGLIGENT MISREPRESENTATION- ? YEARS DTPA- ? YEARS
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DEFENSE TO LIMITATIONS Disability, that is some defect within the Plaintiff, which
prevents him from acting on information he knows concerning the design professionals negligence.
Discovery Rule, a legal principal which, when applied, provides that the applicable statute of limitations is calculated from the date the aggrieved party discovers, or should have discovered in the exercise of reasonable care and diligence, that an injury because of a wrongful act has been sustained.
Governmental entities and municipalities are not subject to statutes of limitation.
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DEFENSES
LIMITATIONS STATUTE OF REPOSE CERTIFICATE OF MERIT ECONOMIC LOSS RULE
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DEFENSES
STATUTES OF REPOSE Applies to suits for:
personal injury; wrongful death; contribution; indemnity; or injury, damage, or loss to real or personal
property.
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REPOSE Remember that Repose is not a Statue of Limitations A person must bring suit for damages for a claim listed
in Subsection (b) against a registered or licensed architect or engineer in this state, who designs, plans, or inspects the construction of an improvement to real property or equipment attached to real property, not later than 10 years after the substantial completion of the improvement, or the equipment.
Written claim for damages, contribution, or indemnity to the architect or engineer within the 10-year limitations period, the period is extended for two years from the day the claim is presented.
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DEFENSES
LIMITATIONS STATUTE OF REPOSE CERTIFICATE OF MERIT ECONOMIC LOSS RULE
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CERTIFICATE OF MERIT- 1 Some legislatures made it statutorily more difficult to
bring a cause of action for professional negligence against design professionals. Before bringing any such action, the plaintiff is required to file with his complaint a “certificate of merit.”
The certificate is an affidavit of a third party registered architect or professional engineer, who is licensed and actively engaged in the practice of architecture or engineering, that supports specifically at least one negligent fact, error, or omission claimed to exist and the factual basis for that claim.
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CERTIFICATE OF MERIT- 2 (a) In any action or arbitration proceeding for damages arising
out of the provision of professional services by a licensed or registered professional, the plaintiff shall be required to file with the complaint an affidavit…
(b) The affidavit shall set forth specifically for each theory of recovery for which damages are sought, the negligence, if any, or other action, error, or omission of the licensed or registered professional in providing the professional service, including any error or omission in providing advice, judgment, opinion, or a similar professional skill claimed to exist and the factual basis for each such claim.
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CERTIFICATE OF MERIT- 3
The plaintiff’s failure to file the affidavit in accordance with this section shall result in dismissal of the complaint against the defendant. This dismissal may be with prejudice.
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DEFENSES
LIMITATIONS STATUTE OF REPOSE CERTIFICATE OF MERIT ECONOMIC LOSS RULE
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ECONOMIC LOSS A party cannot recover economic damages from a
contractual stranger when there is no claim for damages to a person or to property other than those that are based on a contract to which the claimant is a party.
However, a plaintiff may still bring a claim, such as negligent misrepresentation, if he can establish that he suffered an injury that is distinct, separate, and independent from the economic losses recoverable under a breach of contract claim.
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LIMITING LIABILITY
Landmines: “Owner is entering into this Agreement in reliance on
Architect's special abilities with respect to performing the services. Architect accepts the relationship of trust and confidence established between it and the Owner by this Agreement and warrants to the Owner that Architect will use its best efforts, skill, judgment and abilities to perform the services in accordance with the highest professional standards and in a good and workmanlike manner.”
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CONSTRUCTION ADMINISTRATION
Landmines The AIA Document B101, § 3.6.2.1 provides that the
architect shall visit the site at intervals appropriate to the stage of construction, or as otherwise required in Section 4.3.3, to become generally familiar with the progress and quality of the portion of the Work completed, and to determine, in general, if the Work observed is being performed in a manner indicating that the Work, when fully completed, will be in accordance with the Contract Documents.
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REVIEW OF SUBMITTALS The standard design professional contract states that the
design professional shall review and approve or take other appropriate action upon the contractor's submittals, the process is intended only for the limited purpose of checking for conformance with information given and the design concept expressed in the contract documents, and that the review process is not conducted for the purpose of determining the accuracy and completeness of details such as dimensions and quantities, or for substantiating instructions for installation and/or performance of equipment.
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INSPECTIONS Execution and presentation of a Certificate of Substantial
Completion to the Owner is critical because under the terms of AIA Document B102, B201, and B101 the accrual of warranties and commencement of contractual limitations for acts occurring prior to substantial completion begin not later than the date of substantial completion. Without an executed certificate, contract provisions which tie the commencement of the running of applicable statutes of limitations to the date of substantial completion may not be enforceable, because the terms of the contract dealing with this completion have not been met.
Furthermore, statutes of repose are triggered by the date of substantial completion, and an executed certificate simplifies evidentiary problems encountered in establishing that date.
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DISCOVERY KEYS
Prepare your jury charge up front. Use technology, use technology, and USE
TECHNOLOGY!!!! (pdf’s, e-trans, tiffs, etc...and hyperlinks!)
Paper is DEAD and HEAVY! Create an electronic storage/access
system that works for you and can be understood by all staff and clients.
Make use of your down time.
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Jury Charge
Basics are basic… Everyone will do them. Let your charge guide your discovery and
your pleadings. Based upon alleged exposure prepare your
defenses and discovery.
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Electronic Document Depository
Decide early on to storage method for your files. Develop logic trees for your case specific needs. Obtain all documents in electronic formats
(know your equipments limitations and liabilities).
Start lists and groups early and keep up with the data organization.
Consider Hyperlinks for indexing - not for the faint at heart.
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Reach Agreements to save time and money
Like Bellybuttons, all of our clients have project files…agree to produce them up front to allow the parties to focus on the real issues.
Agree on exchange of common documents include the construction basics…contracts, change orders, RFI’s, e-mails, plans, specs, testing data, daily reports, inspection reports, submittals, etc.
Agree on consecutive numbering of exhibits and if possible common file name nomenclature
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Testing and Analysis Try to reach an agreement on testing parameters and a
window of opportunity to conduct them. By the time you are involved there is not a happy party
in the case and the earlier you can preserve your proper evidence the better.
Make sure you, your client and your expert agree on testing needed and the costs today and tomorrow… make sure you budget for rebuttal.
Remember that owners are in many cases already operational and do not tolerate interruptions.
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Necessary Discovery Rabbit Trails
Were contractually procedures followed… waived….modified?
How much on the job communications were either made or confirmed in writing?
Did on-site conditions effect the terms of the contract, i.e. equitable adjustments?
Were change orders, submissions and/or contractual inspections equitably or timely determined?
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"Normal people believe that if it ain't broke, don't fix it. Engineers [and Architects] believe that if it ain't broke, it doesn't have enough features yet."
– Scott Adams, The Dilbert Principle
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Special Thanks to: Richard E. Schellhammer; Lindsey Reinhardt; and Heather Woods for their contributions to this presentation.
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