Florida Community Association Construction Law Blog : Sarasota Construction Lawyer & Attorney : Tannenbaum Scro Law Firm : Florida, Tampa Bay

Most owners hire a general contractor for major repair projects based upon the track record of that contractor on similar projects.  But the reality for most general contractors is that performance varies from job to job.  Although there are a variety of possible causes for this variability, perhaps the most significant is the fact that different project superintendents and subcontractor crews show up to undertake one project versus another.  In essence, although your contract is with the "company", the odds of securing peak performance on your job is highly dependent on the particular superintendent and subcontractor crews who are assigned to your job.

In one job our firm was involved in (after the fact), it was disclosed in the course of discovery that the superintendent involved had been hired by the general contractor a week before the job began and was fired at the conclusion of the job.  In the end, the job in question ended up being the "tryout" with the company for this superintendent, a "tryout" that did not fare well, much to the detriment of the owner.

An owner can leave it to the discretion of the general contractor to assign the project superintendent and subcontractors for their job, hoping that the general contractor will assign their best superintendent and subcontractors.  But there is an option.  As part of the bid process, an owner can require that the bidders provide the resumes of the superintendents on their staff, as well as the subcontractors anticipated to be utilized for the job.  In inquiring of references, the owner can ask the references who the assigned superintendent and subcontractors were for their job.  If the owner wants to be even more in depth, it can inquire about who the crew chiefs were for the subcontractors on the other jobs.

Having vetted the available superintendents and subcontractors, it then becomes possible in the negotiation of the general contract to designate a particular project superintendent and particular subcontractors whom the general contractor must utilize for the performance of the work.  A provision could be added to the effect that if the general contractor due to exigencies outside of its control is required to replace that superintendent or certain subcontractors, the general contractor be obligated to find suitable replacements subject to the approval of the owner.  The result - - the owner has greater assurance that the best team the general contractor has to offer shows up to perform their job.

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On July 1, 2011, a new law took effect in regards to persons who provide mold related services.

The law provides a distinction between persons who provide mold assessment services and mold remediation services.

With the intent to protect the safety and welfare of the public the legislature has determined that persons who provide these services must be regulated by the state.

It is now law, with limited exceptions, that a person may not perform a mold assessment or mold remediation unless the person has among other things received substantial training in water, mold and respiratory protection, possess good moral character and pay a fee.

Because of the potential for a conflict of interest between these two types of services the law now provides several restrictions on providing these types of services. As an example the law states that persons who provide mold assessment services may not within a period of 12 months perform or offer to perform mold remediation on the same structure. The law further states that mold assessors may not accept or offer compensation to or from a mold remediator for the referral of business.

These restrictions are also provided in the reverse such that a mold remediator may not offer or perform assessment services on a property which they have provided remediation services within the last 12 months.  Further, a mold remediator may not offer or accept compensation or reward from a mold assessor for the referral of business.

As far as advertising, a person providing these services may not use the title "certified, registered, licensed or professional assessor or remediator" without complying with the new restrictions on qualification.

Persons who violate provisions of this law potentially face criminal charges for each violation up to and including a third degree felony.

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In 2004, Phillip Coon, the Vice-President of Lending for Coast Bank of Bradenton, and John Miller of American Mortgage Link, a Tampa mortgage brokerage firm, hatched a scheme which they marketed nationwide through 2006 to entice investors to purchase Southwest Florida single-family home flip deals.  Eventually over 600 investors from 40 states signed on to the program.  Coon and Miller recruited small homebuilders, including CCI of St. Petersburg, to provide the lots and build the homes.  Coast Bank was to reap high interest rates on the construction loans and American Mortgage Link earned millions in mortgage brokerage fees and arguably illegal "finder's fees."  The selling points on the deal were no money down (other than the arguably illegal "finder's fees"), no out-of-pocket closing costs and interest payments during the life of the construction loan and the delivery of a home at 90% of appraised value.

Of course, the deal in actuality was far from what was represented.  The builders chosen, primarily CCI, were not capable of delivering homes at the pace the deals were being sold.  Building departments in the counties where the homes were supposed to be built often took six months or more at the height of the boom to even issue building permits.  Closing costs and interest carry eroded the loan in progress balances to the point where there was not enough money left to build the homes.  Coon and Miller knew by 2005 that builders like CCI as a result were losing millions on these contracts.  Jesse Battle of CCI admitted in his bankruptcy proceeding that as of January of 2006 his company was over six million dollars in the red.  Yet, Coon and Miller continued to actively and aggressively market these deals and collect huge fees for their companies well into 2006.  Only a small percentage of homes were completed.  Some were left half-finished.  Most borrowers ended up with bare lots with mortgage balances of $80,000 or more.

The other problem with the deals is that the appraisals were "cooked."  Expert testimony in federal court revealed that rather than the homes being priced at 90% of appraised value, they were actually priced at 110% or more of appraised value.  John Miller had secured the services of an appraiser who is currently in line to lose his license who magically produced appraisals at exactly 10% above contract price on each deal.  Consequently, for the few borrowers to whom homes were actually delivered, what they got was a home that was upside down loan to value from the get go.

Of course, Coon and Miller were not satisfied with the huge fees and interest payments the bank and the brokerage company were receiving on these deals (in Coon's case, he was heavily bonused by the bank for the loan volume generated).  So they decided to bump the mortgage brokerage fee on each new loan by a point and split that point between them.  Overall, 1.5 million dollars was skimmed from the loans by them.  The FBI caught wind of the scam and eventually Miller agreed to wear a wire and implicate Coon.  Despite the fraudulent nature of the overall scheme, the feds in charging Miller and Coon focused solely upon the skimmed point.  More astounding to the borrowers from whose mortgages the point was skimmed was the fact that the feds and Coon and Miller agreed in their plea agreements that Coast Bank and not the borrowers was the victim of the skimming scheme.  This despite the skimmed point having been funded from the construction loans which Coast Bank ended up declaring in default and pursuing the borrowers for.  What was convenient for the government in structuring the plea agreements in this manner is that Coast Bank was defunct and thus the government was in line to keep the full 1.5 million dollars being forfeited as part of the plea deal by Coon and Miller.  What was convenient for Coon and Miller is that by pleading to a crime with only one victim (Coast Bank) they escaped the enhanced sentencing guidelines which would have been in place for a crime with multiple victims (ie: the 600 plus borrowers whose loans they looted).

The borrowers learned of the plea deals through a press conference held by the federal prosecutor in Tampa.  Our firm quickly intervened, eventually on behalf of 150 of the borrowers, to establish the borrowers' status as victims of the skimming scheme and to seek restitution of the point skimmed from each of their construction loans.  The district court denied victim status to the borrowers.  This was appealed to the 11th Circuit Court of Appeals.  The 11th Circuit Court of Appeals in In re Stewart, 552 F.3d 1285 (11th Cir. 2008) reversed the district court and declared the borrowers to be victims of the crime entitled to rights under the federal Crime Victims' Rights Act (CVRA).  The district court in the Coon prosecution then held a trial to determine the borrowers' right to restitution of the point skimmed.  The district court a year ago decided against the borrowers.  This was in turn appealed to the 11th Circuit.  On May 25th, the 11th Circuit issued its ruling affirming the district court finding that the borrowers' gripe was with the builders not the bank and thus they were not entitled to restitution.

What is totally ignored in the new opinion is that Coon and Miller solicited CCI and the other builders (not the borrowers who were scattered across the country), conceived and executed the marketing plan to bring customers to the builders, cooked the appraisals to support loans exceeding the value of the properties and continued to have Coast Bank fund these deals well after it was apparent that CCI and the other builders could never perform.

An appeal to the U.S. Supreme Court is not being considered.  However, the borrowers are exploring the possibility of petitioning the U.S. Attorney General to be awarded a portion of the assets being forfeited to the government as part of the plea deal.

The district judge in the Miller prosecution has stated that he would follow the lead of the 11th Circuit in the Coon matter in determining the course of the borrowers' restitution claims in the Miller prosecution.  As a consequence, the 11th Circuit's decision in the Coon case for all intents and purposes forecloses the borrowers' restitution claims in the Miller prosecution too.

Sentencing of Phil Coon and John Miller will now be set.  The borrowers are entitled to a say at the sentencing hearings.  They intend to argue for the maximum sentences for Coon and Miller.

Contact us if you would like copies of either of the opinions issued by the 11th Circuit.

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The Florida Supreme Court on April 20th agreed to hear the case of Maronda Homes, Inc. v. Lakeview Reserve Homeowners Association, Inc., an appeal from an October, 2010 decision of the Fifth District Court of Appeal.  In the decision under appeal (48 So.3d 902), the Fifth District determined that Lakeview Reserve could pursue the project developer, Maronda Homes, under an implied warranty theory for defects and deficiencies in the roads, drainage systems, retention ponds and underground piping of the subdivision.  At issue was the interpretation of the Supreme Court's decision in Conklin v. Hurley, 428 So.2d 654 (1983) in which the Supreme Court determined that implied warranties extended only to the construction of a residence and "improvements immediately supporting the residence" such as water wells and septic tanks.  The Fourth District Court of Appeal, in 1985, interpreted Conklin as precluding recovery by a homeowner's association under an implied warranty theory for defects in subdivision roads and drainage improvements.  Port Seawall Harbor and Tennis Club Owners Ass'n., Inc. v. First Federal Savings and Loan Association of Martin County, 463 So.2d 530.

Acknowledging its disagreement with the Fourth District, the Fifth District determined that when the Supreme Court used the phrase "improvements immediately supporting the residence," it did not intend the definition to be literal.  Consequently, the Fifth District developed a  new test for which improvements qualify as "supportive of the residence."  The new test is whether the improvement is providing a service essential to the habitability of the home.  The Fifth District reasoned that when the Supreme Court utilized water wells and septic tanks as examples, it did not intend these "services" to be the sole ones that would qualify.  The conclusion reached by the Fifth District Court on the applicability of implied warranties to the roads, drainage systems, retention ponds and underground piping of the Lakeview Reserve subdivision:  Since the services provided by these improvements are essential to the habitability of the homes, they do "support the residences" and thus carry implied warranties under Conklin.

The Florida Supreme Court will now decide whether the Fourth District (no implied warranties for site improvements)  or the Fifth District (implied warranties for site improvements) is the law in the State of Florida for homeowner's associations.  The other issue to be decided by the Supreme Court is whether the Association itself has standing to pursue the claim or whether a class action on behalf of the homeowners is necessary.  The Fifth District ruled that the Association had standing to bring the action.

Note to owners of new condominiums: statutory warranties under Florida Statute 718.203 extend to the owners from the developer and contractors for site improvements, so the Maronda decision should not affect condominium warranties.

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In 2009, as a response to severe droughts in the state, the Florida Legislature passed Senate Bill
2080. The Bill is now codified in Florida Statutes 720.3075(4).

The new law states that homeowner association documents "may not prohibit or be enforced so
as to prohibit any property owner from implementing Florida-friendly landscaping …"
Florida-friendly landscaping is defined in Florida Statute 373.185 as "quality landscapes that
conserve water, protect the environment, are adaptable to local conditions, and are drought
tolerant."

Further, the statute lays out the nine principles of Florida-friendly landscaping. The nine
principles are:

1. planting the right plant in the right place;
2. efficient watering;
3. appropriate fertilization;
4. mulching;
5. attraction of wildlife;
6. responsible management of yard pests;
7. recycling yard waste;
8. reduction of storm water runoff;
9. waterfront protection.

This law has a profound effect on the enforcement of homeowner association covenants, articles
and by-laws. The plain meaning of the statute is that restrictions which predate the law may now
be unenforceable.

In response to this new legislation, the Florida Extension Service has created numerous
publications written specifically for homeowner associations. The publications detail the law and
its implications. Visit http://fyn.ifas.ufl.edu/community_association_kit.htm

The publications include:

Florida-Friendly Landscaping Model Covenants, Conditions and Restrictions for New and Existing Community Associations.  fyn.ifas.ufl.edu/professionals/services.htm

A list of considerations for Florida-Friendly Landscaping™ guidelines for architectural review boards.  fyn.ifas.ufl.edu/materials/ARB_FFL_consideration_guidelines03_23_2011.pdf

Handbook—provides the basics of Florida-Friendly Landscaping™ with a summary of the nine principles; checklist for homeowner recognition of a Florida-Friendly Landscape.  fyn.ifas.ufl.edu/homeowners/publications.htm

The Florida-Friendly Landscaping™ Guide to Plant Selection and Landscape Design.  fyn.ifas.ufl.edu/pdf/FYN_Plant_Selection_Guide_v090110.pdf

Guidelines: What To Look For In A Landscape Maintenance Contract.  sarasota.extension.ufl.edu/fyn/Pubs/FYNCommunityGuidelines-Broc.pdf

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In Florida, under the "economic loss rule", a party is precluded from suing a party with whom it has contracted for negligence absent personal injury or property damage.  One exception carved out by the Florida Supreme Court has been for the negligence of "professionals", although the court did not specifically define what a "professional" is.  In the construction context, there has been no doubt that architects and engineers are "professionals."  Claims against them are not subject to the economic loss rule.  But what about land surveyors?

The issue of whether land surveyors are "professionals" excluded from the economic loss rule was decided by the Florida Fourth District Court of Appeal in Estate of Joanne Rocks v. McLaughlin Engineering Company, 49 So. 2d 823 (Fla. 4th DCA 2010).   They are.  In deciding this, the appellate court cited state statutes referring to land surveyors as professionals and relied in addition on the following attributes:

1.    surveyors are engaged by clients to perform a skilled service solely under their control and competence;

2.    the service performed by a surveyor is one requiring special education, training, experience and skill;

3.    the typical client is not competent to perform surveying personally nor direct that it be performed in a particular way; and

4.    the client/surveyor contract gives the client no power of direction and leaves performance up to the skill and expertise of the surveyor.
 

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Florida Statute 489.128 provides that contracts entered into by an unlicensed contractor are not enforceable by the unlicensed contractor. Importantly, this statute was amended in 2009 to clarify that the term "unlicensed" means the failure to secure a state license (as opposed to a local license). Florida Statute 489.532(1)(a) further clarifies that if a state license is not required for a scope of work to be performed under a contract, the individual performing the work is not considered unlicensed.

Three recent appellate decisions addressed the application of F.S. 489.128.

In MGM Construction Services Coro. v. Travelers, 36 Fla. L. Weekly D462a, (3d DCA 2011), the trial court denied relief to a stucco sub-contractor who liened a project for non-payment. The trial court dismissed the sub-contractor's suit on the basis that the sub-contractor could not enforce its contract with the general contractor because it did not possess a specialty contractor's license as required by county ordinance. The appellate court ruled that F.S. 489.128 did not render the contract unenforceable because there was no state licensing requirement for stucco sub-contractors. The appellate court then looked at whether the trial court could nonetheless deny contract enforcement because of the lack of the county license. The county ordinance in question did not render contracts unenforceable if licensing was not secured. Despite this, the appellate court determined that the trial court on remand could still rule the contract unenforceable, but had to weigh public policy concerns against possible inequities in reaching its determination.

In Earth Trade, Inc. v. T & G Corporation, 42 So.3d 929 (Fla. 5th DCA 2010), a site contractor without the required state license performed site work for a parking garage. The work was defective and the general contractor sued the site contractor for breach of contract. The general contractor prevailed at trial. On appeal, the site contractor and its surety contended that the general contractor could not enforce the contract because it knew that the site contractor was unlicensed. The appellate court rejected this argument citing the clear language of F.S. 489.128 rendering a contract by an unlicensed contractor unenforceable only where the unlicensed contractor is attempting to enforce the contract.

Finally, in MMII, Inc. v. Silvester, 42 So.2d 876 (Fla. 4th DCA 2010), the trial court rejected a breach of contract claim by a seller/installer of audio entertainment systems on the basis that the seller/installer did not have a state general contractor nor state electrical sub-contractor license. The appellate court reversed, finding that electrical work was only incidental to the installation of audio entertainment systems and thus the installation of such systems did not require a state license.

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by Alan E. Tannenbaum and Salvatore Scro as co-authors with Felix Martin, PE

In the marketplace today there are many people who call themselves "construction experts." Some of them are highly experienced and knowledgeable, while some are little more than talking heads with little substantive expertise. How is one to know who truly is an expert and who is not?

First consideration should be given to the matter of qualifications. What is the expert's education and experience? Does the expert have a resume available for review? How long has he/she been an expert? Does the expert have repeat clients, recommendations? Does the expert have demonstrable experience in the area he/she will be retained to investigate?

1.      Could the expert have a conflict of interest? If an expert's firm performs a substantial percentage of work for a type of clients, it's possible that their views may be influenced to the benefit of that group of clients. A firm who works mostly for large developers should be carefully considered if your potential claim will be against large developers.

2.      Is your expert able to explain complex issues in a succinct and readily understandable manner? There is nothing worse than an expert so enamored of his/her expertise that no one else can understand what he/she is saying. Or one so lacking in expertise that he/she cannot explain the issues in an easy-to-understand manner. If you have a hard time understanding an expert, so will a jury of your peers.

3.      Does the expert follow an objective analysis, with replicable results, verifiable by others? Experts who make claims based solely on non-standard, non-replicable test methods are not following a scientific method and any results thus obtained will always be subject to question. Beware of the expert who is loath to share his/her methodology or data.

4.      Are all the claims made by you're the expert supported by building code sections, product specifications or published standards? An "expert" who cannot present claims backed by published regulations is only an expert in his/her own mind.

5.      Finally, is the expert capable of acting impartially, and not as an advocate of your emotions? This is always a tough one, because we want the expert to be our advocate, to fight our battles. But an expert who is not independent, who fails to act impartially and who acts solely as an advocate for the client's emotionally charged opinions will only do his/her client a disservice, because he/she will not be able to approach the problems objectively. The client needs to know that there is always a possibility that not all of an expert's findings may be beneficial to the client, and the client must be ready to support the expert and his/her objectivity. Clients should not retain an expert as a mouthpiece for one's own grievances, clients should retain an expert to provide an honest and unbiased opinion.

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The United States Supreme Court just published its opinion in Stolt-Nielson S.A., et al v. Animalfeeds International Corp., 22 Fla. L. Weekly Fed. S269A.  In its holding, the Supreme Court determined that absent the express agreement of the parties or a state or federal law mandating it, a defending party cannot be forced to arbitrate separate contract disputes on a class basis.  The plaintiffs in the case had attempted to file a class action in federal court.  The class action was rejected on the basis that the individual contracts required arbitration.  The plaintiffs sought to pursue their claims in arbitration on a class basis.  The arbitrator approved the class action and the Federal Second Circuit Court of Appeals affirmed.

In Florida, there are rules of procedure allowing class actions in the condominium and homeowner association settings.  Consequently, this holding by the Supreme Court is not likely to affect the ability of residents of condominium and homeowner associations to proceed on a class basis even where individual contracts call for arbitration.  Who the decision will affect are home buyers whose homes are not part of a community association.

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HIRING TWO LAW FIRMS

Every condominium association should have a general counsel under retainer to advise on day-to-day operations and ongoing legal issues.  During the transition period, general counsel can be of great assistance to a new Board in getting acclimated to the varied requirements:

‚    Documents

‚    State Statutes

‚    State Administrative Rules & Regulations

‚    Common Law (court-created law) Governing Condominium Operations

The transition period is also the time for the construction quality of the building and improvements to be evaluated and for Association financial operation during the period of developer control to be scrutinized.  The type of law firm best suited to assist in the evaluation and to negotiate a resolution of possible claims is a trial firm experienced in negotiating and litigating condominium construction and accounting claims.

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THE CASE OF THE SMELLY DRYWALL - "CHINESE DRYWALL"

We have been visited by several prospective clients concerning drywall in their home that is causing bad odors, has damaged copper air-conditioning and electrical components and may be making their family members ill.

We represent one of the affected Lennar owners and they are working things out with Lennar. Lennar is gutting their house, repairing all damaged electrical and air-conditioning components and putting it all back together.

Lawyer Challenges How Builders Are Handling Chinese Drywall

Is Chinese Class Action Suit The Best Way To Go, No, Says Sarasota Construction Lawyer, Alan Tannenbaum

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AIA contract forms are popular for major community association repair contracts. Unfortunately, the AIA (American Institute of Architects), presumeably to shield architects from liability, long ago created an arbitration glitch in instances where the Owner/Architect and Owner/General Contractor Contract forms are being utilized for a given project. The glitch is that the Owner/Architect form prohibits the architect (absent the architect's agreement) from being joined in an arbitration proceeding between the owner and general contractor.

Where defects in the work are a result of both design and construction flaws, this glitch can create a major dispute resolution headache.

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Every remedial project has the potential of causing damage to building components and personal property. It is typical to charge back the contractor for such damage. Remedial projects requiring work on both the common elements and unit interiors present special challenges in documenting such damage. Balcony slab rehab work on a hi-rise where the slab deterioration extends into the unit is a classic example. In order to complete the job, sliders may have to be removed, carpets or tile pulled up, draperies and window coverings removed and furniture moved. At the end of the job, all this needs to be replaced or reinstalled.

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