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FOR IMMEDIATE RELEASE
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Jury Finds Subsidiary of National Developer Hovnanian Enterprises Inc. Liable for Breach of Contract and Violation of the New Jersey Consumer Fraud Act

MORRISTOWN, NJ & FORT LAUDERDALE, Fla. – June 5, 2017 – Becker & Poliakoff secured a landmark $9 million-plus jury verdict Thursday against a subsidiary of Hovnanian Enterprises, Inc. (NYSE: HOV). The award includes punitive (treble) damages for violation of the New Jersey Consumer Fraud Act and also entitles the plaintiff to recover attorneys’ fees, costs and prejudgment interest. The jury found that Hovnanian Enterprises used the subsidiary as an instrument to commit a fraud or injustice on purchasers of condominium units. The ultimate recovery against all parties, including the project architect and geotechnical engineer, could exceed $20 million.

After a six-week trial in New Jersey Superior Court (Docket No. HUD-L-2560-13), the jury agreed that Hovnanian, after learning that the condominium building was being improperly constructed with plywood flooring in violation of the building code, chose to nevertheless continue construction. Hovnanian then sought to reclassify the building type. The jury agreed with the plaintiff’s position that the reclassification was never approved by governmental authorities. The units were then sold without disclosing the code violations or the lack of approval to the buyers. The claim arose out of construction problems with the six-story, 132-unit residential and commercial building in Port Imperial, West New York, NJ.

Matthew Meyers, a Shareholder in Becker & Poliakoff’s Morristown office, represented the homeowners and initiated the suit against Hovnanian. “Hovnanian knew that the use of combustible materials in the flooring was in violation of the building code, and instead of fixing the mistake, attempted to change the building’s classification. They then sold units knowing that the change in classification had never been approved. They continued to arrogantly defend their conduct at trial but the jury would have none of it. Hopefully, after this verdict, Hovnanian will get the message.”

“A key point making this landmark case particularly unique is that the parent company, Hovnanian Enterprises, was found to have used its shell subsidiary to perpetrate an injustice on the condominium unit buyers,” said Becker & Poliakoff shareholder John Cottle, who was first chair/lead trial counsel in the case representing the homeowners. “This is a rare instance in which the ‘corporate veil’ was pierced, and we expect the result of this will be that Hovnanian Enterprises will ultimately be held responsible for the judgment.”

In addition to Cottle, the Becker & Poliakoff trial team from Florida included: Perry M. Adair, Miami managing shareholder and a board-certified construction law attorney; and Sanjay Kurian, a shareholder and board-certified construction law attorney. The New Jersey team included Vincenzo Mogavero, a shareholder and litigation Chair and Martin Cabalar, in addition to Mr. Meyers.

About Becker & Poliakoff
Becker & Poliakoff, with headquarters in Fort Lauderdale, Fla., is a multi-practice commercial law firm with attorneys, lobbyists and other professionals at offices across the United States. More information is available at www.bplegal.com.

cea_william_20170118Becker & Poliakoff attorneys, led by shareholder William Cea, have secured a significant court ruling in favor of their client, Premier Parks, ending this case and providing for open competition to bid on a future water park planned for 65 acres in Fort Lauderdale (Premier Parks v. City of Fort Lauderdale).

Premier Parks, the parent company of Rapids Water Park in Riviera Beach, filed suit in October 2015 after the City tried to allow Schlitterbahn, a waterpark operator, to build on a 65-acre property owned by the City, including the existing Ft. Lauderdale and Lockhart Stadium facilities. After buying out the Federal Government’s interest in the land in 2015, the City agreed to enter into a 30-year lease with Schlitterbahn. Premier Parks argued that the City should have been required to obtain competitive bids for the project and the court agreed.

Gary Rosen, managing shareholder of Becker & Poliakoff, said: “This was a challenging case and we believed in our client’s right to compete for an opportunity to develop the property. We are extremely pleased for our client and are very gratified that the court has agreed with our view that the city should have submitted this to public bid.”

Media inquiries should be directed to Andi Phillips, Media Director, andi@roarmedia.com, (305) 403-2080, Ext. 128.

In this 2 part blog post I wanted to touch on some basics of the typical “multifamily” construction defect case. Whether the project is a condominium, apartment, assisted living facility or hotel they share many of the same issues.  There are six primary considerations in bringing these claims but each of those has many subparts which depend on specific facts of the project.  Considerations 1 to 3 are here.

The fourth consideration is the type of recovery available.  Generally the cost of repairing the defective condition is the damage that can be recovered.  In the event that such repair would be economically wasteful courts may consider diminution of value to be a valid damage.  In addition, depending on the type of property there may also be lost rents, lost profits claims for the time that the property was not able to be used for its intended purpose or for partial loss of use.  Attorney’s fees are often not recoverable in defect claims in most jurisdictions. The exception to the “American Rule” is where the fees are awarded to the prevailing party through contract or statute or what is called a “proposal for settlement” or “Offer of Judgment.”  The question of recovery is maybe the most important one for owners because no one wants to spend money on experts and lawyers where the damages do not warrant such claims.

The fifth consideration is the defenses available.  I have never handled a defect claim where there was no claimed defense by one of the parties identified above.  The typical defenses are that the owner failed to maintain the condition, that the damages were not mitigated, lack of notice of the condition, failure to comply with a statutory notice procedure, the repair is a betterment, the repaired items consist of first costs that the owner would have incurred anyways.  The determination as to the validity of a given defect claim or defense rests with the trier of fact, whether that be a judge, jury or arbitrator.  The applicability of a defense is based upon the specific facts of each case.

The sixth consideration is the cost in moving forward with such claims and the prospects of recovery. Given the complicated nature of these cases they often settle.  Driving settlement is the cost of moving forward in the litigation as well as likelihood of recovery from the named defendants or their sureties or insurance carriers. Not evaluating these items at each step of a case is a trap for the unwary client or counsel.

I have represented numerous owners, condominium associations, contractors and developers in these types of cases and I can guarantee that none of them wanted to be in this type of litigation.  However, sometimes construction projects go wrong and everyone bears some of that eventual cost.

In this 2 part blog post I wanted to touch on some basics of the typical “multifamily” construction defect case. Whether the project is a condominium, apartment, assisted living facility or hotel they share many of the same issues.  There are six primary considerations in bringing these claims but each of those has many subparts which depend on specific facts of the project.

The first consideration is who is the true owner and is that entity able to recover for the defective construction.  Is there a condominium association or building owner? Maybe it is the hotel or facility operator that is the aggrieved party or is the developer of the building?  Knowing who has the rights to make the defect claims is a critical first step.

The second consideration is to determine against whom any claims may be asserted.  Is there a claim against the developer of real property who designed, built and sold the units or buildings in questions? Or maybe there are claims against the general contractor and subcontractors who coordinated and performed the work?  What about the design professionals who designed the building improvements?  The reality is that all of these entities could be responsible for defects in the improvements.  How much each of them is responsible for is dependent upon the warranties, contracts and legal theories at play where the property is located as well as any contracts that may exist between the parties.

The third consideration is what types of claims available depend greatly on the jurisdiction you are in.  There may be contractual express warranties which would arise out of the contracts negotiated between parties. There are implied warranties pursuant to the common law that may be at play.  In some jurisdictions and depending on the type of property, Florida condominiums for example, statutory implied warranties may exist that protect the owner.  Most states still allow claims for negligence in the construction or design of the structures.  An important note is that not every claim can be made against every party. Careful consideration is needed as to what parties should be asserted against whom.

Part 2 next week.

Let me start with the caveat that I am not getting into the political or race issues at the heart of recent events in Baltimore. However, from the point-of-view of someone working in construction and insurance law, the insurance and rebuilding questions created by the protests/riots in these cities is of great interest. Although the specific article here references insurance issues and struggles to rebuild in Maryland, similar concerns and analyses would apply anywhere that such events take place.

As the article from Insurance Business America notes, many small businesses have been unable to reopen post damage as they are caught in a web of what is and is not covered under their applicable policies. Many questions loom: does the property insurance policy afford coverage; what about the Business Interruption policy; what are the applicable deductibles?

As is typical of any insurance coverage the devil is in the details of the specific policy at issue. Insurance policies can cover almost anything but the more a policy covers the more expensive it likely is and thus cost prohibitive to many small business owners. As a result many business owners reduce coverage, or increase deductibles, in order to afford the policy premium.

Unfortunately, many owners are now finding out that:
– They are underinsured;
– Older buildings need to be brought up to code and their policies do not include such “Law & Ordinance” coverage;
– The storefront glass is not a covered loss;
– Depending on the characterization of the event, “riot” as opposed to “rebellion”, may impact coverage;
– The deductible period for a business loss may cover the time frame when the majority of the damage occurred;

Unfortunately for these business owners it is too late and they are stuck with the insurance policy they bought or did not buy as the case may be. However, it is beneficial for all business and property owners to review their existing policies and sit down with the professionals to hammer out any changes that may need to be made. For those that believe that they are not “at risk” for such casualties such as in Baltimore, that is the narrow and short view of insurance. Reviewing the policies would be beneficial for all other risks including fire, flood, hurricanes, etc. In the long run that may be one of the best invested couple hours of a business or property owner’s life.

Thursday, the Florida Supreme Court issued its opinion in Citizens Property Insurance Corp., v. Perdido Sun Condominium Association, Inc., considering the issue as to whether Citizens Property Insurance could be liable for First Party Bad Faith Claims.  The Supreme Court determined that Citizens was not liable for such claims and that no exception for such claims existed from Citizens statutory immunity.  This places Citizens in a different position, in regard to insureds, than other insurance carriers who may be offering similar property policies.

The issue in was whether the Legislature intended CitizensProperty Insurance Corporation, a state-created entity that provides property insurance, to be liable for statutory first-party bad faith claims as an exception to its statutory immunity from suit.  The issue had come before the Supreme Court from the First District’s decision in Perdido Sun Condominium Ass’n v. Citizens Property Insurance Corp., 129 So. 3d 1210 (Fla. 1st DCA 2014), which had determined that the “willful tort” statutory exception to Citizens’ immunity applied to statutory first-party bad faith claims.  The First District opinion was at odds with the Fifth District’s opinion in Citizens Property Insurance Corp. v. Garfinkel, 25 So. 3d 62 (Fla. 5th DCA 2009) which held that Citizens was statutorily immune.  The First District certified a conflict between Districts and the Supreme Court took up the issue.

Additionally, the First District passed the following question, which it certified to be of great public importance, to the Supreme Court:

WHETHER THE IMMUNITY OF CITIZENS PROPERTY INSURANCE CORPORATION, AS PROVIDED IN SECTION 627.351(6)(s), FLORIDA STATUTES, SHIELDS THE CORPORATION FROM SUIT UNDER THE CAUSE OF ACTION CREATED BY SECTION 624.155(1)(b), FLORIDA STATUTES[,] FOR NOT ATTEMPTING IN GOOD FAITH TO SETTLE CLAIMS?

As noted above, the Supreme Court answered this question in the affirmative.  The basis for the opinion was a review of the statutory exceptions to Citizens’ immunity.  The Supreme Court found no support for the proposition “that the Legislature intended for Citizens to be liable for a breach of the duty to act in good faith by allowing its policyholders to bring a statutory first-party bad faith cause of action.”  The Supreme Court then reviewed the listed exceptions.  The Court noted that an exception to immunity was not provided and for  the contrary, “the Legislature chose to immunize Citizens for ‘any action taken by [it] in theperformance of [its] duties or responsibilities under . . . subsection [627.351(6)(s)],’ which necessarily includes a breach of the duty of good faith.”

The opinion is not yet final as there could be motions for rehearing.

Interesting opinion issued last week by the Florida’s Fifth District Court of Appeal on the statute of repose.  The opinion can be found here.  It is not yet final.

The Cypress Fairway Condominium was a conversion condominium.  The suit was brought by the Association “individually” and also as assignee of claims by the general contractor.  Suit was filed against parties involved in the original construction and also the conversion.

Suit was filed on February 2, 2011. There is no reference to when the certificate of occupancy was issued.  Rather, the last non-settling defendant argued that the statute of repose period began when application for final payment was made on January 31, 2001, which was they argued was the completion date of construction.  The Association argued that the repose period did not begin until February 2, 2001, when final payment was actually made.  The trial court granted summary judgment to the defendant on this basis.

The 5th DCA reversed based on the fact that final payment had not been made until February 2, 2001.  The 5th DCA reasoned that under the plain meaning of Section 95.11(3)(c), the last act for completion of the contract was the final payment not when the application for payment was made.  There was no discussion of the certificate of occupancy or whether the Association’s legal standing came from the assignation of the general contractor or arose under Rule 1.221.

The opinion may be modified before becoming final.  However, as it stands, the opinion makes less clear when the statute of repose actually begins to run for condominium defect cases and potentially creates significant factual issues precluding summary judgment on the statute of repose.

The regular Florida legislative session is almost concluded.  The House adjourned on Tuesday and the Senate is in session until Friday.  A special session to address the state budget is expected but not yet set.  I previously addressed two construction related bills being considered this year: HB 87/SB418 related to construction defects, as noted here, and HB 501/SB 1158 related to shortening the statute of repose from 10 years to 7 years, as noted here.

The Chapter 558 bill, HB 87, was amended to address many of the concerns raised in my prior blog post.  The amended bill passed the House on a vote of 112 to 0. The House bill was substituted for the “companion” Senate bill, SB 418, and passed 35-4.  The bill will be sent to the Governor for his consideration. The Governor will have 7 days to veto, sign or allow the bill to become law without his signature, IF his office officially receives it during session (by May 1); if not sent to him until after May 1st, he will have 15 days to act.  It is expected that the governor will not veto this legislation and that the changes to Chapter 558 will take effect on July 1, 2015.  Although not perfect, the Chapter 558 bill, is significantly better than it was.  The text of the final bill can be found here.

The other pending construction bill, HB 501/SB 1158 regarding Statute of Repose, appears to be done for the year as it was not considered and passed in either chamber.  Although the bills could be considered as part of the special session, that is not likely.  The good news is that this legislation appears to be dead for this year.  The bad news is that this type of anti-owner legislation will come back, in the near future if not next year.  It will be important for all owners, public or private, in construction projects to watch for such legislation and oppose vigorously.

HB 501 to reduce the statute of repose in construction cases was heard by the House Civil Justice subcommittee.  There was an amendment to the bill to allow any claims that are currently over 7 years, but less than 10 years, to have until July 1, 2016, to file suit.  This “savings clause” is similar to the one used in 2006 when the statute of repose was then reduced from 15 years to 10 years.  The bill passed the subcommittee on a vote by 8-6.  For those interested in watching the hearing you can do so here beginning at the 7:18 mark.  Special recognition to Ronald Woods, P.E. of Woods Engineering and Tom Miller, P.E. of Structural Engineering and Inspections, Inc. for appearing and speaking out against the bill.

In addition to the proposed legislation to substantially change Chapter 558, link here, the Legislature is considering other legislation that will materially impact owners and taxpayers.  HB501 proposes to reduce the time owners have to pursue construction defect claims from 10 after completion to 7 years after completion.  Specifically, the proposed legislation reduces the time frame within which a claim can be brought for latent defects (a defect you did not know about or had no reason to know about) in the design, planning or construction of improvements to real property from the current 10 years to 7 years.  This reduction of time to pursue claims apply to claims where the building code was violated.  Why should Florida provide less protection to owners when historically, and now again, the biggest building booms have been occurring in Florida.  Even the AIA Form Agreements, not always owner friendly, provide for a 10 year statute of repose. More time should be provided because significant defects cannot often be discovered earlier.

In the Firm’s practice some of the most frequent defects which evidence themselves more than 7 years after completion:

  • the failure to properly treat post tension cables in high rise projects. The ends are not capped or treated with grout and waterproofing;
  • improper concrete cover over reinforcing steel on balconies;
  • stucco delamination;
  • bursting condenser sensor water pipes behind walls that have seams or improper fitting that fail;
  • roof membranes improperly installed and leaking into structural deck and trusses causing structural damage;
  • roof tiles improperly fastened and not compliant with wind codes;
  • a roof that appears new yet it is discovered it covers and old existing roof and has not adhered;
  • window frames with a useful life in excess of 20 years fail in year 10 by pitting and blistering;
  • sink hole issues that all should be familiar with in Florida;
  • poorly compacted soil;
  • concrete that is of less than the required compressive strength starts to crumble impacting structural members;
  • columns and beams with insufficient steel that is not apparent until a failure occurs ;

The attempt to reduce the time frame for the Statute of Repose for latent defects affects owners in existing buildings as the clock is running on those buildings already.  It is important that every condominium owner realize that this bill is a further stripping away of the rights of condominium unit owners and deserves to be soundly defeated.  Repair of significant defects will be solely on the owners rather than the parties that created the defective situation. However, not only are condominiums impacted but public construction such as schools, hospitals, roadways and public facilities such as stadiums. If deficiencies exist where the statute has expired, the public will pay for the corrective work as opposed to those that created the condition through faulty workmanship and design. The burden to pay should be borne by those accountable for the issue.

Why in this climate is legislation helping shoddy construction being pushed?  The only beneficiaries are construction professionals that perform lousy work that can avoid liability for their poor performance by waiting out the clock. The bottom line is that it is the consumer and taxpayer that are impacted by this legislation designed to help contractors, design professionals, subcontractors and suppliers.