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Monthly Archives: May 2013

31MAY 2013

Earlier this month, the Florida Legislature wrapped up its 2013 Regular Session. With its close on May 3, 2013, came the demise of legislation intended to make changes to Florida’s construction lien laws.  The legislation sought to:

  • Revise the mandatory notice provision in contracts between owners and contractors [F.S. § 713.015 (1)];
  • Revise notice requirements relating to liens of persons not in privity [F.S. § 713.06 (2)(a)];
  • Delete a provision classifying certain payments as improper payments [F.S. § 713.13 (1)(c)]; and
  • Revise the notice of commencement form and building permit card and application to conform to changes made by act and to provide additional warning [F.S. § 713.13 (1)(d) and F.S. § 713.135 (1)(a)].

The proposed changes were first introduced on the House side in the form of HB 0889 by State Representative Mike Fasano (R) of District 36 (in Pasco County). An identical bill, SB 1136, was introduced days later on the Senate side by State Senator Arthenia Joyner (D) of District 19 (comprising parts of Pinellas, Hillsborough, and Manatee counties). Both bills were referred to their respective judiciary subcommittees where they remained through the close of the Regular Session.

The changes contemplated by the now-deceased bills were small but significant. Currently contracts for construction of 1 to 4 residential units and over $2,500.00, are required to contain a notice provision that states, among other things, that an Owner should, as part of the contract, stipulate that, “before any payment is made [the] Contractor is required to provide [Owner] with a written release of lien from any person or company that has provided a ‘Notice to Owner’” as contemplated by F.S. 713.06(2)(a). The proposed legislation would have revised the notice provision to advise an owner to stipulate that the Contractor provide the Owner and Owner’s Lender with a written release prior to each payment along with a notarized list of persons or companies owed money for the payment being made, along with their respective addresses and phone

F.S. § 713.06 (2)(a) requires all lienors, except laborers to serve a notice on the owner with certain basic information about the lienor and the work it being performed. In the case of sub-subcontractors and materialman to a subcontractors or sub-subcontractors the notice must also be served upon the contractor. In addition, for the lien to be perfected, F.S. § 713.06 (2)(a) currently requires the notice be served “before commencing [work] or not later than 45 days after commencing [work], and … before the date of the owner’s disbursement of the final payment after the contractor has furnished his [final payment affidavit demonstrating that all lienors have either been paid or identifying those who have not]”. The proposed revisions would have altered the deadline for service on the notice to before commencing work or before the date on which payment is due to the materialman for his services and/or materials.  Interestingly, the proposed change by its terms, would have apparently tied the deadline for service all notices to the date payments become due to the materialman, regardless of the identity of the ultimate lienor or the services which would be the subject of the lien.

Perhaps the most significant proposed change is the deletion of the provision within F.S. § 713.13 (1)(c) which currently classifies payments made by an owner on a direct contract after expiration of the notice of commencement as “improper payments.” The effect of such a change, had it become law, would have likely been the expansion of the “proper payments defense” which allows the owner to escape liability in excess of the contract price as properly paid, even though the lieonor had properly followed the lien procedure.

The final set of proposed changes in F.S. § 713.13 (1)(d) and F.S. § 713.135 (1)(a) would have altered the notice to the owner within the Notice of Commencement form and Permit form to eliminate all reference to the potential for an Owner to “pay twice” due to improper payments. This change was necessitated as a result of the changes to F.S. § 713.13 (1)(c) eliminating “improper payments.”  The proposed revisions also added language to the notice so as to advise Owners of their continuing responsibility to record the Notice of Commencement and any amendments thereto, insure the Notice of Commencement has correct contact information for all parties, and, in the case of a change of contractor to record a new Notice of Commencement.

The proposed changes would have been favorable to an Owner seeking to make improvements to real property. The changes, had they been adopted into law would have given Owners (assuming the notice was followed) additional tool to prevent overpayment to an unscrupulous contractor that fails to pay subs and suppliers, and potentially limit the amounts a subcontractor or materialman can recover if an Owner makes payment on the direct contract. However, to accomplish it would place an additional administrative burden on a contractor to affirmatively demonstrate that potential lienors are being satisfied, introduce ambiguity into the deadlines for service of the notice for liens not involving a materialman, and could leave subcontractors and materialmen holding the bag for unpaid materials and services.

16MAY 2013

It has long been the law in Florida that a Plaintiff alleging faulty design or construction is entitled only to the reasonable cost of bringing the structure back to its “original condition,” plus costs of business interruption and/or loss of use – i.e. “delay damages.”  See e.g. Grossman v. Sea Air Towers, Ltd., 513 So. 2d 686, 688 (Fla. 3d DCA 1987); Grossman Holdings Limited v. Hourihan, 414 So.2d 1037, 1039 (Fla. 1982).  This doctrine, which is closely related to the basic precept of contract law that a person should be entitled to the benefit of their bargain – no more, no less – essentially holds that a construction Plaintiff may not view litigation as an opportunity to obtain a “free upgrade” over and above the quality of the construction for which they originally contracted.  This issue was recently revisited by the Florida 4th District Court of Appeals in Kritikos v. Anderen, et al., 38 Fla. Law. Weekly D931a (Fla. 4th DCA 2013).

In Kritikos, the 4th District Court undertook the review of a trial court order granting a partial directed verdict on the issue of damages against a property owner and in favor of a construction superintendent, reasoning that because the property owner had failed to introduce evidence of “actual costs of repairs,” but rather relied upon estimates, then the property owner Plaintiff had failed to prove damages.  See id.  The 4th District Court reversed the trial court, holding that the use of estimates of costs to repair were perfectly acceptable evidence and could be used to support a jury verdict for this measure of damages.  See id.  Accordingly, a Defendant in cases such as these cannot rely solely upon the fact that a Plaintiff has not gone “out of pocket” to anticipatorily make repairs in order to avoid damages measured by the costs of bringing a structure back to its original – or perhaps more accurately, its originally designed – condition.

However, the 4th District Court also discussed in detail the application of the “betterment” defense.  As noted initially above, the Courts of Florida have repeatedly recognized that a construction Plaintiff is entitled to that for which they bargained, and not an upgraded version, so long as the costs of bringing the property back up to its originally designed and contemplated condition does not involve “unreasonable economic waste.”  See Grossman Holdings, 414 So.2d at 1039.  In Kritikos, the 4th District Court reinforces this position and incorporates the 2nd District Court decision in Temple Beth Shalom v. Thyne Construction Corp., holding that:

The proper measure of damages for construction defects is the cost of correcting the defects, except in certain instances where the corrections involved an unreasonable destruction of the structure and a cost which is grossly disproportionate with the results to be obtained.  If in the course of making repairs the owner elects to adopt a more expensive design, the recovery should be limited to what would have been the reasonable cost of repair according to the original design.  38 Fla. Law. Weekly D931a, quoting Temple Beth Shalom, 399 So.2d 525, 526 (Fla. 2d DCA 1981).

This holding, coupled with the relatively well developed case law in this area, should provide a construction Defendant with a ready defense, should a Plaintiff seek compensation for costs incurred in designing and/or “repairing” a structure which purports to “correct” deficiencies, but rather provides an upgraded structure or design.  Counsel should be vigilant to recognize when a construction Plaintiff seeks to essentially obtain a “free improvement” to their property, and demonstrate to the court that such an effort is inappropriate and contrary to well-established doctrine in this body of law.

03MAY 2013

For years, Florida has been one of only 10 states that follow the “Frye” standard relating to the admission of expert testimony at trial. This may be changing, as a Florida Senate Panel recently advanced Senate Bill 1412 that would change the standards by which Florida judges admit expert testimony. The proposed bill, which is heading to the House of Representatives after an amendment in the Senate, would impose the “Daubert” standard for expert testimony instead of the “Frye” standard currently used in Florida state courts. This is the third year in a row where such a bill was introduced, but it has never advanced this far in previous years.

The “Frye” standard, comes from a 1923 Federal case, Frye v. United States, discussing the admissibility of a polygraph test as evidence.  Under the “Frye” standard, the trial judge must determine whether the expert’s testimony is based on a scientific principle that is “sufficiently established to have gained general acceptance in the particular field in which it belongs.”  However, the Florida Supreme Court has carved out a “pure opinion” exception to the “Frye” standard, which allows an expert witness to give testimony that would not otherwise meet the “Frye” standard, so long as the expert is merely offering an opinion, as opposed to a scientific fact.

In the 1993 case of Daubert v. Merrell Dow Pharmaceuticals, the United States Supreme Court implicitly overturned the “Frye” standard in Federal Court, and adopted what is known as the “Daubert” standard.  This standard, after which the proposed bill is modeled, allows a trial court to admit expert testimony so long as the court finds it to be based on scientifically sound principles.

Proponents of the proposed bill argue that the current “Frye” standard, in conjunction with the “pure opinion” exception, allows unfettered expert opinions based on questionable scientific principles. They believe that the proposed bill would ensure the scientific validity of expert testimony and prevent “junk science” from ever reaching a jury’s ears. Opponents of the bill argue that it will drive up litigation costs due to the resources needed to educate the trial court on a particular scientific principle, so that the court can rule on whether the proffered testimony is based on a sound scientific theory.  Additionally, they argue that this time consuming process will create an additional and unnecessary backlog in the courts’ dockets throughout Florida.

This hotly contested debate is nearing an end, as the Senate passed the bill on Friday, sending it back to the House of Representatives for review of the amendments.  Should the bill ultimately reach Governor Scott for ratification, it is expected that he will support the bill.

This is important to our clients because there are generally many expert witnesses that are engaged to and participate in construction litigation.  In addition to sometimes educating counsel on scientifically specialized topics, these expert witnesses – who range from architects to civil/structural/MEP engineers to Division I/Division II/Specialty Contractors, among others – provide opinions or “scientific facts” upon which a case may turn.  Accordingly, given the importance (and expense) of these experts, this is a hot-button issue we will watch with great interest.