Nevada’s Clarification Regarding a HOA’s Representational Standing

By on November 8, 2017
Leave a comment

On September 27, 2017, the Nevada Supreme Court issued a decision clarifying the prior version of NRS 116.3102(1)(d)1, under which numerous construction defect cases are pending in Nevada. NRS 116.3102(1)(d), at the time the Complaint was filed, allowed homeowners associations to pursue construction defect claims on behalf of their members. In High Noon2, the Nevada Supreme Court considered whether a homeowners’ association has such standing to represent (1) unit owners who purchase their units after the commencement of litigation, and (2) unit owners that sell their units after the commencement of the litigation.

High Noon at Arlington Ranch Homeowners Association (“High Noon”) filed a complaint against D.R. Horton in 2007, “in its own name on behalf of itself and all of the High Noon unit owners.” D.R. Horton filed a motion for partial summary judgment contending that, since only 112 of High Noon’s 342 members were unit owners at the time the complaint was filed, High Noon’s standing should be reduced to those 112 units and the District Court agreed.

On appeal, High Noon argued the district court erred when it found that the association could only maintain an action for those owners who have owned their units continuously since High Noon first filed its complaint. D.R. Horton also argued that the district court erred when it found that High Noon had standing to pursue the claims of former unit owners.

Under NRCP 17(a), a party with statutory authorization before it can assert a third party’s claims. A homeowners’ association’s standing rights are statutorily granted pursuant to NRS 116.3102(1)(d). However, NRS 116.3102(1)(d) does not expressly indicate what happens if a unit owner sells his unit and another person purchases the unit during the time the homeowners’ association is litigating on behalf of its members. The Nevada Supreme Court felt it was prudent to address this issue of first impression by way of this decision.

Since NRS 116.3102(1)(d) does not restrict a homeowners’ association from representing subsequent unit owners if ownership changed, the Nevada Supreme Court held that NRS 116.3102(1)(d) permitted homeowners’ associations to represent current unit owners, even if a unit’s owner changed during the litigation. A contrary result would have undermined a homeowners’ association’s ability to represent the entire community the Legislature’s intent for NRS 116.3102(1)(d), which was to provide a mechanism for associations to represent all of its members.

In its argument regarding the second issue on appeal, D.R. Horton claimed that the district court erred when it found High Noon has standing to pursue claims of former unit owners. The Nevada Supreme Court held that representational standing does not permit a homeowners’ association to represent former unit owners because those owners are no longer members of the association. The benefit of the association’s representative litigation under NRS 116.3102(1)(d) is contingent upon membership in the association. However, membership within High Noon is automatically terminated upon sale of the unit and transferred to the new unit owner. Since the membership is transferred to the new unit owner upon sale, High Noon cannot represent prior unit owners via its representational standing.

To recap, homeowners’ associations do have representational standing to represent unit owners who purchase their units after the litigation commences. However, homeowners’ associations may only represent their members. As such, a homeowners’ association does not have standing to bring, or continue to pursue, claims for unit owners who sell their units after the litigation commences.

_______________________________________________________________________

1 NRS 116.3102(1)(d) was amended by the 2015 Legislature’s enactment of A.B. 125 and the Governor’s subsequent approval on February 24, 2015. The amended statute explicitly provides that a homeowners’ association does not have standing to represent individual units in construction defect actions unless the action pertains exclusively to common elements. All further references to the NRS are based on the statutes in effect at the commencement of this litigation in 2007.
2 High Noon at Arlington Ranch Homeowners Ass’n v. Eighth Judicial Dist. Court, 133 Nev. Adv. Op. 66 (Sept. 27, 2017) (en banc).

Filed under Homeowners Association (HOA)

Colorado Court Rules Developers in Common Interest Communities Can Require Arbitration of Defect Claims Even After They Sell Last Interest

By on May 28, 2015
Leave a comment

Condo developers in Colorado scored a victory this month in a decision from the Colorado Court of Appeals. In Vallagio at Inverness Residential Condominium Association, Inc. v. Metropolitan Homes, Inc., et al, the court held that a clause contained in a homeowner association’s declaration requiring arbitration of construction defects claims cannot be amended without consent of the developer/declarant if the declaration requires its consent. This is the case even if the declarant no longer owns any units, provided the declaration reserves the right to declarant after it sells its last interest in the community.

In Vallagio, the declaration required the developer/declarant’s consent to any change in the declaration’s requirement that construction defects be tried in arbitration. After the homeowner’s association gained control, it amended the declaration to eliminate the arbitration requirement. It then file suit in court against the developer. The trial court held the association’s vote eliminating the arbitration requirement was valid, but the Colorado Court of Appeals reversed finding the amendment invalid because it did not first obtain the developer/declarant’s consent to the change.

The Vallagio decision is good news in the wake of the failure of state legislative efforts to encourage further condo development in Colorado. This spring, the Colorado house rejected legislation, passed by the state senate, that stated when the governing documents of a common interest community require mediation or arbitration of a construction defect claim and the requirement is later amended or removed, mediation or arbitration is still required for a construction defect claim.

Filed under Condominiums, Construction Defect, Homeowners Association (HOA)

Recent Amendments (AB 125) to NRS Chapter 40 Even the Playing Field for Builders and Contractors

By and on April 6, 2015
Leave a comment

On February 24, 2015, Governor Brian Sandoval signed Assembly Bill 125 (“AB 125”) into law. Dubbed the “Homeowner Protections Act of 2015,” AB 125 makes substantial changes to Nevada’s construction defect laws, particularly regarding the burdens placed on homeowners and their counsel during pre-litigation NRS Chapter 40 proceedings. The changes set forth in AB 125 are effective immediately (and in some instances, retroactively). Highlights of relevant revisions are as follows:

  • Contractual Indemnity. Contractual indemnity provisions are now void and unenforceable if they require a subcontractor to defend and indemnify a “controlling party” from liability resulting from: (1) the intentional act or omission of the controlling party; or (2) another trade’s modification of the subcontractor’s work.
  • OCIP Disclosures. Developers must now disclose certain information regarding Owner Controlled Insurance Policies in a subcontractor’s contract documents.
  • Offers of Judgment. Parties may now serve Offers of Judgment (“OOJ”) at any time after a homeowner serves his NRS Chapter 40 Notice. If the homeowner reject the OOJ and fails to obtain a more favorable judgment during trial, he will be precluded from recovering his attorneys’ fees and costs from the date of service of the OOJ to the date of entry of judgment. He may also be required to pay for the offering party’s reasonable fees and costs.
  • Definition of a Constructional Defect. AB 125 limits the definition of a constructional defect to a defect which: (1) presents an unreasonable risk of injury to a person or property; or (2) is not completed in a good and workmanlike manner and proximately causes physical damage to the residence, appurtenance, or real property to which the appurtenance is affixed.
  • NRS Chapter 40 Notices. Homeowners are now required to identify in specific detail each defect that is the subject of their claim, including its exact location. They must also describe the cause of the defect, and the nature and extent of any damage or injury resulting from the defect. Additionally, homeowners must include a signed statement verifying the existence of each defect listed in the notice. If a notice is sent by an HOA, the statement must be signed by a member of the HOA’s executive board or an officer under penalty of perjury.
  • Visual Inspections. Homeowners must be present during visual inspection of their properties, and must identify the exact location of each alleged defect verified in their NRS Chapter 40 Notice. AB 125 imposes the same requirements on experts if the NRS Chapter 40 Notice was based upon an expert opinion.
  • Homeowners’ Warranties. Before serving a NRS Chapter 40 Notice, homeowners must submit their claim under their homeowners’ warranty, and may only include claims in the NRS Chapter 40 Notice that were denied by their insurer.
  • Removal of Attorneys’ Fees. AB 125 eliminates attorneys’ fees as recoverable damages under section 40.655.
  • Changes to the Statute of Limitation. The statute of limitation for constructional defect claims is now six years after substantial completion of the improvement. Additionally, the statute of limitations tolls from the time a NRS Chapter 40 Notice is given until: (1) one year after the notice of claim; or (2) thirty days after NRS Chapter 40 mediation is concluded or waived. Statutes of limitation and repose may be tolled for longer than one year only if a claimant demonstrates “good cause.”
  • Standing of Homeowners’ Associations to Sue. Homeowners’ Associations may not bring actions in its own name or on behalf of its unit owners’ for any constructional defect unless the action pertains exclusively to common elements.

While the full implications of AB 125 will not be known until it is put into practice, it is clear that the law creates new obligations for almost every party involved in a constructional defect lawsuit. It is essential that companies review AB 125 carefully to determine the impact on their business practices. To discuss how this law will impact your construction practice, please contact Robert E. Schumacher at rschumacher@gordonrees.com.

For a complete text of all revisions, click here.

For a comparative analysis of the new and old versions of NRS Chapter 40, click here.

Filed under Assembly Bill 125 (AB 125), Construction Defect, Contractual Indemnity, Homeowner Protections Act of 2015, Homeowners Association (HOA), NRS Chapter 40 Notice, Statute of Limitations

HOA Does Not Own Cause of Action for Alleged Solar Heat-Gain-Related Defects

By on October 21, 2014
Leave a comment

Over six years following the plaintiff HOA’s initial 2008 construction and design defect complaint, Beacon Residential v. Catellus Third and King, LLC, et al. continues to generate new law and to address legal issues of import and interest to those in the construction defect community.

In its latest ruling, a California Superior Court found that the plaintiff HOA does not own claims related to alleged solar heat-gain as they belong to the former owner(s) of the project. In reaching its decision, the court relied heavily upon the findings in Krusi v. Amoroso Construction Co., Inc., 81 Cal. App.4th, 995 (2000), in which the court found that subsequent owners of property do not own claims for known defects that arose and caused damage prior to their ownership.

ICON BLOG_neighborhoodn its complaint, the HOA alleged causes of action for design and construction liability related to solar heat-gain and ventilation. Members of the HOA asserted their units were becoming too hot due to the alleged defects.  The HOA suit named the two developers, the general contractor and its subcontractors, and the two project architects, HKS and SOM.
Of particular importance to the court’s ruling was the fact that the project was sold by the first developer to the second developer, who then sold the units as condominiums and formed the plaintiff HOA.  The plaintiff’s complaint alleged that both developers knew of the alleged solar heat-gain-related claims, which the court considered a judicial admission by the plaintiff.  Given this admission regarding prior knowledge by the developers, and the fact that the developers had previously suffered damages, the court found that the heat-gain-related causes of action were owned by one or both of the developers, but certainly not the HOA.

On October 1, 2014, the court issued an order sustaining both architects’ motions to strike.  In making its ruling, the court relied upon the following language from Krusi:

[A] duty may run from an architect, engineer, or contractor to a subsequent owner of real property.  It does not mean that, in a case implicating damage to such property, once a cause of action in favor of a prior owner accrues, another cause of action against the same defendant or defendants can accrue to a subsequent property owner – unless, of course, the damage suffered by that subsequent owner is fundamentally different from the earlier type.

In short, the court ruled that when alleged defects of the same type cause damages to a prior owner or owners of a building, the subsequent owner (herein, the HOA) does not own the cause of action for damages caused by the same alleged defects. The plaintiff has verbally noted its intent to take a writ regarding the subject ruling, and we await the plaintiff’s next move.  For now, however, the ruling that a subsequent owner of a property does not own a cause of action if the prior owner knew of the alleged defects and suffered damages therefrom, has implications for all who practice law in the arena of construction defect litigation, and their respective clients.

Image courtesy of Flickr by Lauren Wellicome

Filed under Construction Defect, Homeowners Association (HOA), Solar Heat-Gain Defects

California Supreme Court to Address Design Professionals and Duty of Care to Third-Party Purchasers

By on June 5, 2014

On May 7, the California Supreme Court heard oral arguments in Beacon Residential Community Assn. v. Skidmore, Owings, & Merrill LLP, a case that will have a huge impact on design professional liability in California when third-party purchasers sue a designer alleging defective designs.

The Beacon is a mixed-use project consisting of 595 condominium units and some commercial and office space.  Plaintiff Beacon Residential Community Association (the HOA) sued the initial developer, a subsequent developer, the architects, the general contractor and subcontractors asserting SB 800 and common-law causes of action.  The architects demurred to the HOA’s Third Amended Complaint asserting they owed no duty of care to the HOA.

The trial court sustained the demurrer, reasoning that the architects had not asserted direct “control” over construction decisions, and thus, under the Biakanja ((1958) 49 Cal. 2nd647), Bily ((1992) 3 Cal. 4th 370) and Weseloh ((2004) 125 Cal. App. 4th, 152) line of decisions, ruled the architects owed no duty to the HOA.

The HOA appealed and in December 2012, the California Court of Appeal, First Appellate District, reversed the trial court ruling in Beacon (2012) 211 Cal.App.4th 1301. The Court of Appeal reasoned that in analyzing the various factors elucidated in Biakanja and Bily, and distinguishing those and the Weseloh facts from those in Beacon, design professionals do owe a duty of care to eventual third-party purchasers.  The architects appealed to the California Supreme Court asserting that the rulings in Weseloh and Beacon are inapposite.

During the Supreme Court oral arguments, the justices focused on: 1)  the foreseeability of harm to the plaintiff; 2) the closeness of connection between the defendant’s conduct and the injury suffered; and 3) the potential imposition of liability out of proportion to fault.  The court distinguished Beacon from the former line of cases in that: 1) it was imminently foreseeable that a defective design of residential units would affect eventual purchasers of the units; 2) the architects were directly responsible for the alleged design defects given their “intimate involvement” with construction value-engineering decisions and project observation (i.e., they did not simply draw plans, hand them over, then leave the project); and 3) unlike Weseloh, where the retaining-wall designers provided only $2,000 in services relative to a $6 million claim, Beacon architects provided $5 million worth of services in a $45 million claim.

The Supreme Court has 90 days from May 7 to issue an opinion.  Given the Supreme Court’s comments and analysis at oral argument, it looks like it may agree with the Court of Appeal and rule that in the context of residential-unit design, design professionals do owe a duty of care to eventual third-party purchasers regardless of lack of privity.

Filed under Design Professionals, Duty of Care, Homeowners Association (HOA), Privity, Third-Party Purchasers

Anti-SLAPP Statute Does Not Apply to Statements Made to HOA During Board Meetings

By on June 2, 2014

In an April 15 opinion, the California Court of Appeal decided that a builder cannot use the anti-SLAPP statute to circumvent fraud-based claims where there were misrepresentations by the builder to the homeowners association regarding repairs for defects at the project.

According to the opinion in Talega Maintenance Corp. v. Standard Pacific Corp., two builders developed a planned community in San Clemente, Calif., that included several hiking trails adjacent to the project.  After heavy rains, the trails failed in 2005 and in 2010.

CON BLOG_HOAThe HOA sued three former employees of the developers. These employees were appointed by the developers to be members of the HOA board of directors at various times since 2003.  The HOA claimed that these employee-defendants committed fraud and negligence and that they breached their fiduciary duties as board members.

After the trails failed in 2005, the employee-defendants represented in board meetings that the HOA, rather than the builders, was responsible for making and paying for the repairs.  The HOA submitted evidence that the builders’ representations were accepted without question and that HOA funds were used to effectuate repairs.  When the trails failed again in 2010, the board formed an independent board without any builder board members, and hired its own consultants to investigate the causes. That investigation revealed that the builders never completed the trails and that the builders were bound to perform the repairs forever, based on relevant documentation.

In response to the HOA claims, the defendants filed anti-SLAPP motions to target the causes of action for fraud, negligence, and breach of fiduciary duty.  The defense took the position that the statements at the HOA meetings were made in a public place or forum in connection with an issue of public interest, which protects them from suit under California Code of Civil Procedure § 425.16(d)(3).  The trial court denied the motions stating, “[Defendants] failed to establish that any statements were an exercise of free speech. Additionally, [defendants] failed to establish that statements at issue were made before, or in connection with, an official proceeding authorized by law.  Moreover, even if the statements were made in a public forum via a [homeowners association] open board meeting, [defendants] have not demonstrated that they involved a matter of sufficient public interest or an exercise of a free speech right.”

The case did not discuss whether the HOA could rely on the builders’ representations, but rather focused on the applicability of the anti-SLAPP statute.

Filed under Anti-SLAPP Statute, Homeowners Association (HOA)