Alex S. Polsky - Attorney at Law

Alexander S. Polsky, Esq.

Selected
Articles and Mediation Tips

Cost Effective Construction Defect Litigation

By: Alexander S. Polsky

OBJECTIVE OF THIS ARTICLE

Creation of a cost effective method to investigate and resolve construction defect cases through utilization of a special master/mediator.

THE REFEREE

The linchpin of this article is the use of a special master who will also serve as the mediator. The SM should be sufficiently aware of these issues to have a protocol designed to ensure consistent and cost effective case management.

STIPULATIONS/ORDERS

Ideally, all parties should sign a stipulation to appoint the SM. The SM will identify his/her priorities and responsibilities through the Case Management Order (CMO) which will be filed and served in all cases.

The SM shall preside over discovery. The SM should also serve as mediator. Discovery, where appropriate, should be staged so that the least costly discovery, against the most peripheral parties, is concluded first. Those parties should then participate in staged mediation conferences designed to remove them from the case via early settlement. Settlement proceeds may be escrowed or disbursed as agreed. Settlement may be contingent on a global resolution, or accompanied by an issues release.

The SM should implement a procedure for timely handling of discovery disputes. Right to appeal discovery rulings to the Court, within a tight time frame, should be preserved. Dispositive motions may be brought before the SM but the ultimate order should be reviewed by the Court. The cost of a discovery procedure should be paid in advance by the initiator of the procedure. Thereafter, the prevailing party rule should apply.

ORGANIZATIONAL MEETING

The goal is to: discuss the case; identify pleading and discovery issues; discuss insurance issues; and set a preliminary time line.

An organizational meeting (OM) should be set within 30 days following the order appointing the SM. The SM's handling guidelines and proposed CMO should be provided to all parties in advance.

The meeting should include plaintiff's counsel, the HOA representative, and counsel for the developer/general contractor (GC). Subcontractors need not participate. The goals:

Select the executive committee if appropriate;
Set a date for final service on all defendants/cross defendants;
Identify discovery protocol;
Set scope and timetable and cost allocation for inspection and destructive testing;
Set deposition timetable for implementation by EC (peripheral parties first where appropriate);
Set date for joint caucus with all parties;
Obtain agreement for distribution of defect matrix and distribution of homeowner questionnaire;
Agree on document depository;
Agree on CMO.

THE EXECUTIVE COMMITTEE (very large cases)

Orderly resolution of disputes during litigation requires an executive committee to serve as coordinator and liaison with the SM. Any party may request a meeting with the EC. The SM may call a meeting with the EC at any time. Notification of all meetings and all other calendar matters shall be handled by the document depository (DD).

PLEADINGS and PARTIES

The objective is simplification, and this starts at the pleading stage.

A date must be set by which all parties are in the action, and Doe amendments are cut off absent leave of Court (or the SM) for good cause. However, if new defects are discovered during the proceedings, any party shall have 30 days to file and serve new defendants. An order to take default of any party who has not filed an appearance within 45 days of service should be in the CMO. The CMO should be included with service on any newly discovered party. Notice Of Appearance should be filed with the EC.

After the CMO is served on a party, the notice of appearance shall result in the presumption of a general denial, and the assertion of all available affirmative defenses. No other document need be filed *. All parties shall be deemed to have filed cross complaints for Implied Equitable Indemnity and/or comparative fault against all other parties.

Express indemnity cross complaints must be specifically filed, served and answered.

DOCUMENT DEPOSITORY

The DD is key to orderly management of documents. Where possible, the depository should be a facility with conference rooms large enough to schedule the depositions. The ensures that documents are readily accessible throughout the litigation process.

The CMO should order that all relevant and non privileged documents in the possession or control of any party, pertaining in any manner to the property, be deposited. Privileged documents shall be identified by a list to all parties identifying the nature of the document by type, and the basis of the privilege asserted.

Document shall include any writing as defined in the Evidence Code. Documents shall include insurance policies/certificates, blueprints, plans, specifications. Documents are accompanied by a summary description and index which identifies the preparer. An insurance coverage chart shall be deposited by all parties identifying who is on the risk, and the dates and limits of coverage.

Parties without documents shall file a certification. Newly discovered documents shall be deposited within 10 days of discovery. New parties must deposit documents within 20 days of their appearance.

The DD shall establish a system for Bates stamping all documents (including initials of the depositing party). Document shall be available to any party for inspection and copying at the DD.

PLAINTIFF'S INITIAL DESTRUCTIVE TESTING

As soon as practical to ensure maximum attendance by developer and subcontractor experts, plaintiff should commence its destructive testing. Written notice should be provided which schedules the testing sites and activities.

DEFECT LIST PRODUCTION

Construction defect cases are economically managed through an open information policy. To properly assess damage claims, and determine insurance coverage available, claims must be identified with finality. It is therefore critical that the plaintiff serve on all parties, within 60 days of the initial destructive testing, a list of the claimed defects. This is often called a preliminary matrix. The list shall include:

description of each type of defect;
location of same;
current owner of each unit where each defect is alleged;
contentions re manifestation date;
contentions re cause;
repair cost estimate;
nature date and cost of any repairs already made or expenses incurred.

Objections to the list shall be lodged with the SM within 10 days. The parties shall first attempt to resolve and withdraw objections, or a hearing shall be scheduled within 20 days from service of the list. All objections shall be resolved at one hearing. The defect list will be deemed complete within:

10 days after service if no objections;
notice of the resolution of objections at the hearing;
as determined by the SM.

The list may be supplemented upon a showing of good cause.

INSURANCE

It is essential that all available coverage be identified early, and that all potential insurers be placed on notice. Any coverage disputes should be identified early.

The CMO shall order all parties to provide a statement of insurance (or answer attached insurance interrogatories) describing all insurance coverage, and certificates of insurance, which MAY provide coverage. The statement shall list the: insurer; policy number and type; limits; all named insureds; description of any disputes re coverage.

A separate mediation track shall be established to identify coverage and resolve, if possible, coverage issues. This track will include the meeting of the insurers.

MEETING OF INSURERS

This should take place between the SM and all insurance representatives within 60 days following the CMO. The goal:

negotiate defense sharing agreements;
determine participation level of insurers to assure that they have all relevant information;
identify declaratory relief, and exhaustion of aggregate limits of coverage risks;
determine tender of defense issues and force early tender;
identify financial institution participation in development - as the financial institution may be a co-developer and this should be addressed early.

CASE PRESENTATION

Within 30 days following the initial damage matrix, a meeting of all parties, insurers and experts should take place wherein plaintiff provides an overview and presentation of the case. This is often referred to as the 'show and tell'. Insurers should be present.

INITIAL EXPERT MEETING & TESTING SCHEDULE

Orderly management requires a testing schedule affording all interested parties an opportunity to engage in appropriate destructive testing. To do so, scope and needs must be identified.

Within 30 days following finality of the matrix, and after the show and tell show, a meeting of the defense experts and the SM should be scheduled. The purpose of the meeting is to discuss the nature and extent of the claimed damages, and coordinate the scope of necessary defense or joint inspections and destructive testing. All parties who intend to participate in testing should be present.

Using the demand set forth in the statement of claims, the parties should apportion the cost of destructive testing. Parties who do not share in the cost will be precluded from recording destructive testing, having an expert present, or using the product of the testing.

Within 10 days following this meeting, counsel for each party desiring destructive testing shall provide notice to plaintiff and developer's counsel advising of the nature and scope of testing desired. If there has been an agreement reached at the meeting, a single notice shall be prepared and submitted for review.

Site inspections and destructive testing should be completed within 75 days following finality of the matrix. (The executive committee shall coordinate the testing schedule).

As determined necessary by the mediator, meetings between plaintiff and defendant, cross-defendant experts and the mediator shall occur. The goal is to narrow the agreement/disagreement concerning scope and cost of repair.

STATEMENT OF DEMAND/PRELIMINARY MEDIATION

With the inspections complete, it is time to narrow issues and begin the mediation process.

Within 15 days following the final inspection, defendants should produce a response to plaintiff's statement of claim(s).

Within 30 days following completion of the final inspection counsel for the GC shall send written statement of settlement demands to each cross defendant. The demand shall set forth the basis for the amount requested.

Within 45 days following the final inspection, a preliminary mediation will occur between the GC and the subcontractors. All counsel, insurers and/or client representatives with settlement authority shall attend. This will provide an opportunity to settle out peripheral parties and discuss pertinent insurance coverage issues. A schedule should be set be the SM.

GENERAL MEDIATION

Discovery and testing is complete, the experts have met, and a pre-mediation has occurred. It is now time to resolve the case. The key to this process is order and communication.

A co-mediator might be appropriate. If so, this will have been agreed to by the EC in advance. Especially helpful if their are also insurance issues.
An initial meeting with the GC should occur to ascertain expected contribution levels.
Start with a group meeting, including experts, to provide a scheduled presentation of issues, costs. The experts should provide the initial presentation or be prepared to respond to questions..
Meet with plaintiff attorney and HOA to overview settlement possibilities and approaches.
Begin scheduled meeting with the subcontractors, and attempt to enforce a schedule.

The mediator cannot be everybody's friend. History shows that some parties delay, and attempt to avoid attendance at portions of the mediation. It is essential to have everybody with the ultimate settlement decision at the conference. Therefore, the mediation dates should be set at the initial meeting, and confirmed in the CMO. Deviation requests (which generally come just before the mediation is to start) should be frowned upon if there is the slightest possibility they will disrupt the flow of the mediation.

POST SETTLEMENT MEETING

Many mediators believe is setting a post settlement meeting. I am not one of them. I will call a meeting should any complications arise.

MEDIATOR/SPECIAL MASTER FEES

Different parties use different approaches to this issue. For example, a share equally policy has certain drawbacks. Peripheral parties generally will not want to bear an equal cost burden. As parties settle out or are dismissed, the share increases and allocation problems develop. Where possible, the allocation should be set once, and never changed -- except for motions. Therefore, fees should be based on an hourly or daily rate, to be paid 1/3 by the plaintiff, 1/3 by the general contractor, 1/3 amongst the cross defendants. However, all balances shall be the joint and several responsibility of all parties to the action.

A preliminary estimate may be set out in advance, and deposited with the SM as a retainer to be drawn down as events occur.

CONCLUSION

A skilled mediator is the thread that holds the tapestry of the construction defection case together. With his/her assistance, the case should proceed from selection to conclusion within 300 days. It should shrink in size as discovery is completed re defendants or groups of defendants. Following the SM's guidelines, the cost of litigation should be reduced considerably, and trial risks eliminated entirely

This site managed with Dynamic Website Technology from Mediate.com
Products and Services