All posts by Zachary A. Landes, Esq.

17DEC 2018

Recently, in Vanacore Construction, Inc. v. Osborn, 2018 Fla. App. LEXIS 18068, 2018 WL 6579205, the 5th District Court of Appeal determined that a homeowners’ claims against a builder for construction defects bore a significant relationship to the parties’ construction contracts. Therefore, the claims were arbitrable pursuant to the broadly worded arbitration provision of the contracts.

The builder, Vanacore Construction (“Builder”), was the developer of a subdivision located in Volusia County. Homeowners entered into respective contracts with Builder for the purchase of two homes within the subdivision. Each contract contained the following arbitration provision:

In the event of a dispute, which the parties cannot resolve, the parties agree to binding arbitration before a general BUILDER licensed to do business in the County of Volusia. The parties hereby stipulate and agree that the decision of the arbitrator shall be binding upon them and be submitted to a court of competent jurisdiction for enforcement…However BUILDER may, in lieu of arbitration, purchase the property back from the BUYER for the original contract price, plus the BUYER’S closing costs, plus any upgrades/change orders for which the BUYER has already paid BUILDER. This will be the total price paid. No other costs (real or implied), fees, or allowances will be paid by BUILDER.

Homeowners sued Builder to recover damages for alleged water intrusion into their homes and other various construction defects. The Complaint asserted claims for negligence, statutory violations of the Florida Building Code and violation of Florida’s Deceptive and Unfair Trade Practices Act. The trial court denied Builder’s Motion to Compel Arbitration, finding that the arbitration provision was invalid and the issues alleged by Homeowners were not arbitrable.

In its ruling, the 5th DCA found the arbitration provision in contracts to be broad in scope, suggesting that the parties intended to arbitrate any dispute that arises between them. The Court explained that while narrow arbitration provisions generally require arbitration for claims “arising out of” the subject contract, broad provisions require arbitration for claims “arising out of or relating to” the subject contract. Jackson v. Shakespeare Found., Inc., 108 So. 3d 587, 593 (Fla. 2013). Under the latter analysis, the court will enforce an arbitration provision where a party’s claims have a “significant relationship” to the contract. Id.

Here, the 5th DCA concluded that, while Homeowners presented their claims as torts, at their core, the allegations were directly related to the subject of their contracts with Builder – the construction of their homes. Thus, the claims raised in Homeowners’ complaint bore a significant relationship to the construction contracts and the 5th DCA concluded that the lower court erred in finding that Homeowners’ claims were not subject to the arbitration provision contained within those contracts.

The 5th DCA also reversed the trial court’s decision to deny Builder’s request to sever the buy-back provision in the arbitration provision. The Court found that, although the buy-back provision limits the damages Builder has to pay in the event it chooses to purchase the property, this limitation on damages does not go to the essence of the arbitration agreement or the construction contracts. In addition, if the buy-back provision is severed, a valid arbitration agreement still exists and the parties are still obligated to comply with the terms of the contract. See Hochbaum ex rel. Hochbaum v. Palm Garden of Winter Haven, LLC, 201 So. 3d 218, 223 (Fla. 2d DCA 2016) (holding provision which violates public policy severable from contract despite lack of severability clause in contract where offending provision did not go to essence of agreement). Accordingly, the Court concluded it was error for the lower court to refuse to sever the buy-back provision and compel arbitration.

On remand, the 5th DCA ordered the lower court to sever the buy-back provision and enter an order compelling arbitration. It further ordered that the trial court stay the litigation pending completion of arbitration.

Construction professionals must be cognizant of the precedent set by the 5th DCA in this decision. Where an arbitration provision is broad in scope, and the allegations at the heart of a dispute are directly related to the subject of the construction contract, courts should enforce an arbitration clause. When defending a claim for construction defects, even when those claims are presented in tort, it is imperative to always analyze contracts and any arbitration provisions before responding to a Complaint to determine whether the claim should be arbitrated. If you have any questions about this decision, or construction law in general, please contact Ryan Charlson at ryan.charlson@csklegal.com or 954-343-3919.

31AUG 2018

The Florida Supreme Court is grappling with a determination of jurisdiction on a matter that arises out of a construction and design deficiency claim from Palm Beach County, Florida. In the state court action, Inlet Marina of Palm Beach, LTD. (“Inlet”) filed suit against Sea Diversified, Inc. (“SDI”), the engineer of record for the design and construction of the Loggerhead Club & Marina Project. Inlet alleged that the concrete runway slab upon which forklifts transport boats at the marina developed cracks, spalling, and other deterioration that resulted in significant settlement.

SDI moved for summary judgment pursuant to Fla. Stat. § 95.11(3)(c), on the grounds that Inlet knew of the defects in the slab prior to August 2, 2009 – more than 4 years before it filed suit. The trial court granted the motion, but Florida’s Fourth District Court of Appeal (“4th DCA”) reversed and remanded because the 4th DCA determined that the cracks observed in the slab could have been due to causes other than an actionable defect, and that a genuine issue of material fact existed as to when Inlet discovered or should have discovered SDI’s alleged design defect. Now, SDI has sought discretionary review with the Florida Supreme Court because, it argues, the 4th DCA opinion conflicts with other Florida District Courts and the Florida Supreme Court.

The basis for SDI’s argument is that, on May 7, 2007, Inlet’s employee sent an email to SDI in which it held SDI responsible for the damage to the runway slab and threatened legal action. SDI relies on this email to establish that the alleged defect was patent and, further, even if Inlet lacked knowledge of a specific defect, it knew more than four years prior to filing suit that something was wrong with the runway slab, thereby meeting the discovery aspect of Fla. Stat. § 95.11(3)(c).

SDI argues that the 4th DCA’s opinion conflicts with the Supreme Court’s opinion in Kelley v. School Board of Seminole County, 435 So. 2d. 804 (Fla. 1983). In Kelley, the Florida Supreme Court concluded that the school board had knowledge of defective roofs sufficient to put it on notice that it had, or might have had, a cause of action, more than 4 years prior to suit being filed, thereby barring its claim. Kelley, 435 So. 2d at 806. The school board tried to correct the leaks from the beginning, and it handled, coordinated, and devised the repairs. Id. at 805. The court explained that, “regardless of Kelley’s attempt to repair the roofs, and regardless of the school board’s lack of knowledge of a specific defect, the school board knew more than 4 years prior to [the statute of limitations requirement] that something was wrong with the roofs of these three schools, which met the discovery aspect of §95.11(3)(c), Florida Statute.” Id. at 807. The court cited the general rule that a statute of limitations began to run where there had been notice of an invasion of legal rights or a person was put on notice of his right to a cause of action. Id. at 806. Thus, the court quashed the opinion of the appellate court, and reinstated the trial court judgment, granting summary judgment in favor of Kelley.

Inlet argues SDI’s reliance on Kelley is misplaced. The Supreme Court granted review in Kelley because district courts were in disagreement as to whether the continuous treatment doctrine or good faith repairs tolled the application of the statute of limitations in a construction case. The case at bar does not involve these issues or even address them. Instead, Inlet argues, the issue in the decision under review is whether there is a genuine issue of material fact as to when Inlet discovered or should have discovered SDI’s design defect since the cracks in the runway slab could have been due to causes other than an actionable defect.

SDI cites two legal principles which determine when the statute of limitations is triggered in a design or construction defect case and which, it argues, supports a finding that its claim is not time barred. First, where there is an obvious manifestation of a construction defect, e.g., roof leak, notice will be inferred at the time of manifestation regardless of whether the Plaintiff has knowledge of the exact nature of the defect. Kelley, 435 So. 2d at 806. On the other hand, where the manifestation is not obvious but could be due to causes other than an actionable defect, e.g., cracks in concrete, notice of a matter of law will not be inferred. Snyder v. Wernecke, 813 So. 2d 213 (Fla. 4th DCA 2002); see also Performing Arts Ctr. Auth. V. Clark Constr. Grp., Inc., 789 So. 2d 392 (Fla 4th DCA 2001) (mere cracks in stucco is not notice of an obvious defect).

If the Supreme Court accepts jurisdiction to review the appeal, and finds that the defect was patent, it will likely reverse the 4th DCA’s decision on the grounds that Inlet had sufficient notice a claim more than four years before it filed suit. However, if it determines that the defect was latent, it will likely uphold the 4th DCA’s findings on the grounds that there is an issue of fact as to whether the cracks in the runway slab could have been due to causes other than an actionable defect and when Inlet discovered or should have discovered the cracks were caused by SDI’s design defect.

Regardless of the Court’s ruling, parties to a construction dispute should heed the warnings echoed in this case. Identify all possible causes of a defect as early as possible, and do not wait more than 4 years to pursue a claim stemming from any such cause. When defending a claim filed years after the discovery of any defects, always consider whether the statute of limitations works to bar such a claim by identifying precisely when the Plaintiff knew or should have known of the existence of an error or omission in your client’s scope of work.

If you have any questions, please do not hesitate to contact Ryan Charlson, Esq., at 954-343-3919 or ryan.charlson@csklegal.com.