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Insight
When You Can’t Sue – Limits on Contractor Liability
Louisiana law protects building contractors from liability for past projects that otherwise could extend for an indefinite period of time. La. R.S. 9:2772 prohibits any lawsuit against a contractor for damages arising from a construction project five years after: (1) the date project acceptance was filed into the public records; or, if no acceptance was filed, (2) the date of occupancy. This five-year period is referred to as the "peremptive" period.
This law is broad enough to bar untimely claims of breach of contract and negligence, as well as failure to warn of dangerous conditions. It also covers all conceivable building activities: design, construction, consultation, planning, evaluation, construction administration, and land surveying. It applies both to residential and commercial construction. It also covers claims of property damage, personal injury, and wrongful death brought by any person. The only noted exception is where a contractor’s fraud caused the damages.
The law is meant to establish a specific date to cut off the contractor’s liability. Under the law, nothing can interfere with the running of a peremptive period. After it expires, the claim no longer exists.
Construction litigation in this area often focuses on commencement of the peremptive period. For instance, in Celebration Church, Inc. v. Church Mutual Insurance Company, 16-245 (La.App. 5 Cir. 12/14/16), the owner of a shopping center sued its property insurer for roof damage related to Hurricane Isaac. The insurer prevailed in defending the claim based on defective roof repairs made following Hurricane Katrina. The owner then filed suit against the roofer who made the repairs after Hurricane Katrina. To avoid the peremptive defense, the owner argued that peremption did not begin to run until substantial completion of the entire shopping center. The court rejected this argument and held that the law is specific in defining the date of commencement of the peremptive period. It began to run when the tenants first occupied the space. By the time suit was filed, the owner’s claim no longer existed.
Because construction defects may not surface for years, a claim may be barred before the owner even discovers the problem.
Contractors
Insight
Risky Business : "Foreseeable" Damages in Commercial Transactions
Intuitively, contracting parties in commercial transactions understand that legal consequences follow a breach of contract: If a party fails to deliver a product as promised, the breaching party can be liable for the cost to correct the breach; but what is that cost?
Say, for example, a business cancels an order to provide parts to a long-time customer because the relationship has gone sour. Legally, the liability for that breach of contract may extend beyond the cost of the order. A breaching party is liable for damages that are a direct consequence of the failure to perform and that were foreseeable at the time the contract was made, which may include lost profit. If the breach was intentional or malicious, the party's liability may extend even to direct damages that were not foreseeable.
The business that cancelled the order now faces a jury’s decision to identify the direct and foreseeable losses, a decision that, by its nature, is vague. However, the law imposes a limit on the jury’s prerogative to decide the damages. Even for a bad faith breach of contract, liability arises only for the direct, immediate consequences of the breach and there should be no liability for damages determined to be remote, indirect, or that have no necessary relation to the breach.
In a recent case, a jury found that a defendant boat engine manufacturer breached its contract with plaintiff boat manufacturer by cancelling a purchase order for engines, and further, that the engine manufacturer was in bad faith. The jury awarded $1.8 million in foreseeable lost revenues and $1.3 million in unforeseeable lost profits. The trial court threw out the “unforeseen” portion of the award because it was not a direct damage, and emphasized that a breaching party does not “become the insurer for all misfortunes that may arise from the breach.”
The boat manufacturer had argued that the cash flow expected from the sale of the boats rendered engine-less by the breach would have been invested in more personnel and capital to grow its northwest division. But, because of depleted cash flow from lost sales, that opportunity was lost. The court found, as a matter of law, that this loss was not a direct consequence of the breach, and thus, regardless of the bad faith, was not a recoverable contract damage. Simply, loss of cash flow in one part of the business that had a ripple effect in a separate division was too indirect to be a recoverable damage. See Marine Power Holding, LLC v. Malibu Boats, LLC, 2016 WL 7241560 (E.D. La. 12/15/2016).
By contrast, courts have found that loss of cash flow is recoverable where directly related to the damages suffered, such as where breach of a contract to deliver chickens to a chicken farmer caused the forced sale of the chicken farm. See Volentine v. Raeford Farms of La., 50-698 (La.App. 2 Cir. 8/15/16), 201 So.3d 325.
Failure to perform on a contract exposes a business to more than it may realize. Understanding this risk allows for smarter decisions before the breach.
Contracts
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CONSTITUTIONALITY AND RETROACTIVITY
The Louisiana Supreme Court has again addressed what impact a new law can have upon activities which pre-date the law's passage in Dana Johno v. John Doe, et. al., 2016-CA-0087 (La. 12/3/16). LSA-R.S. 9:2800.17 provides immunity to a state or political subdivision and its contractors who make operational decisions or conduct clean-up activities on the behalf of the state or political subdivision following a hurricane. In Dana, the plaintiff asserted that the immunities provided by LSA-R.S. 9:2800.17 should not be applied retroactively.
Plaintiff, Dana Johno, owned a house that was lifted and moved by the flood waters that occurred during Hurricane Katrina. Sometime after the hurricane, contractors for the state demolished the house. Plaintiff sued for property damage, and the defendant contractors claimed statutory immunity under LSA-R.S. 9:2800.17.
LSA-R.S. 9:2800.17 went into effect on June 15, 2006. The statute provides that the immunities it bestows are to be applied both prospectively and retroactively to August 29, 2005 – the date of Hurricane Katrina. Plaintiff’s house was destroyed prior to June 15, 2006. Plaintiff challenged the constitutionality of the "retroactivity clause" of the statute.
The Supreme Court agreed with Plaintiff. It held that the retroactivity clause stripped Plaintiff of his vested right for property damage against the state and its representatives. “When a party acquires a right to assert a cause of action prior to a change in the law, that right is a vested property right which is protected by due process. Thus, a cause of action, once accrued, cannot be divested by subsequent legislation.” Therefore, the Supreme Court found the retroactivity clause unconstitutional.
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LEGAL INTEREST
After six years with no adjustment, the legal interest rate in Louisiana is going up to 4.25% effective January 1, 2017. Under Louisiana law, the Commissioner of Financial Institutions is to ascertain the Federal Reserve’s approved "discount rate" published daily in the Wall Street Journal on the first day of each October; the judicial interest rate is then set at three and one-quarter percentage points above the discount rate.
Legal interest is designed to compensate a plaintiff for his loss of the use of the money to which he is entitled, the use of which the defendant had during the pendency of the litigation. Therefore, if a tort suit is filed and verdict is thereafter entered for the plaintiff, the plaintiff is entitled to legal interest on the entire judgment from the date of judicial demand (the date the suit is filed) until the judgment is paid.
Insurers should note that, regardless of the provisions in their policy, LSA-R.S. 13:4203 provides that all insurance policies providing coverage for a loss in this state are deemed to include a provision that provides pre-judgment interest on any amount awarded within the policy limits from the date the original petition was filed. Any provision to the contrary is deemed null and void. Also, some authority exists to require an insurer to consider pre-judgment interest in settlement, if a "limits" demand is at issue.
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Insight
The New Home Warranty Act: How Does It Work?
Whether you are building a new home, buying a new home, or a residential construction contractor, there is one Louisiana law that you should know: The New Home Warranty Act (“NHWA”).The NHWA provides the exclusive remedies, warranties, and peremptive periods between a builder and owner relative to home construction. The NHWA provides a warranty for new home purchases and defines the responsibilities of the builder during the warranty periods.What warranties are provided?
- 1 year: For one year following the warranty commencement date, the builder warrants that the home will be free from defects due to noncompliance with the building standards or other defects not regulated by building standards;
- 2 years: For two years after the warranty commences, the builder warrants the plumbing, electrical, heating, cooling, and ventilation systems or other defects not regulated by building standards; and,
- 5 years: For five years following the warranty commencement, the builder warrants that the home will be free from major structural defects, including foundation systems, or other defects not regulated by building standards.
However, the builder’s warranty will exclude certain items, including, but not limited to: fencing, landscaping, insect damage, bodily injury, and mold damage.The homeowner is also required under the NHWA to give written notice to the builder by registered or certified mail within one year of knowledge of the defect. Failure to give this required notice may forfeit any claims the homeowner may possess against the builder.Once notice is given to the builder, if the builder fails to perform as required by the warranties, the owner may bring a claim against the builder for damages, including a claim for attorney fees. This cause of action must be brought within 30 days of the expiration of the applicable warranty period. The damages available to a homeowner cannot exceed the reasonable cost of the repair of the defect, and cannot exceed the original purchase price of the home.While the NHWA provides certain “bright-line” rules and clarifies the rights and remedies available when a problem arises with new construction, litigation of these claims and the defenses provided to builders can present difficult issues. When an issue arises, you should consult an attorney experienced in this area of practice.
Contractors
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SPOLIATION/EVIDENCE
"Spoliation" occurs when a party destroys evidence in order to disadvantage another party. In Louisiana, the rule is that a claim of spoliation is only recognized when there is intentional, as opposed to negligent, spoliation of evidence. However, the 2016 decision in Sayre v. PHK (Lake Charles), LLC, No. 15-859 (La. App 3 Cir. 2016); 188 So. 3d 428 calls into question the true impact of this rule.
In Sayre, a casino guest tripped and fell. The fall and part of the subsequent investigation were recorded on video surveillance by the casino. The video revealed that the post-incident investigation was not performed in accordance with the casino's formal, written policies and procedures. Although four witnesses could be seen in the video, their identity and statements were not obtained or preserved, contrary to policy. Similarly, the defendant failed to preserve the video of the investigation as required.
During discovery, several witnesses denied any independent recollection of the incident. The plaintiff argued that their version of events would have been available had the casino followed its normal protocol. Claiming prejudice as a result of the casino's actions, the plaintiff asked the trial court to give the jury an instruction that an adverse presumption should be made against the casino that the witnesses' testimony would have been unfavorable to the defense. The trial court refused, noting that all of the cases cited by the plaintiff involved situations where evidence had actually been collected, but was not available for use at trial. In Sayre, the witness statements had never been taken.
Without the adverse presumption, the jury ruled against the plaintiff. On appeal, the Third Circuit held that the instruction should have been given. Even though there was no evidence that the casino intentionally acted to spoliate evidence, Sayre concluded that the actions of the casino impermissibly impaired the plaintiff’s ability to present her claim. Instead of remanding the case, the Sayre court reversed and rendered a verdict for the plaintiff.
While the decision in Sayre did not overtly create a tort claim for negligent spoliation, it exemplifies how a mishandled investigation can lead to the same consequences as spoliation. Nevertheless, the impact of Sayre may ultimately prove to be limited to situations where a party violates its own very specific accident investigation protocol which results in the other party not being able to obtain evidence which was ultimately needed to prove their case at trial.
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INTENTIONAL SPOLIATION OR NEGLIGENT SPOLIATION
"OPEN AND OBVIOUS DEFENSE" - is water tracked into a building during a rainy day "open and obvious" so as to eliminate any potential duty owed by the building's owner? The answer to that question is no, under the specific facts in Kadlec v. Louisiana Tech University, - - - So.3d- - - (2016), 50-841 (La. App. 2 Cir. 11/16/16).
In Kadlec, it was move in day at the dormitories of Louisiana Tech University. The plaintiff, mother to an incoming student, was assisting in moving items into the dorm. It began to rain, increasingly so as the mother made trips in and out of the building.
After it began to pour, the plaintiff carried a box and a garbage bag towards the building, over the outside door mat, and fell, approximately four steps into the building; she was wearing flip-flops at the time. In her deposition, Kadlec stated that she was aware it was raining, but did not see any water on the floor.
Louisiana Tech filed a Motion for Summary Judgment, asserting that there was no duty to protect or warn because the hazard, if there was one, was open and obvious to all. This motion was originally denied, but ultimately remanded after appeal by the Louisiana Supreme Court “in light of Bufkin.” Bufkin was a Louisiana Supreme Court decision which concluded that the defendant had no duty to warn about the presence of a large, visible dumpster.
Following remand, the trial court ruled in favor of Louisiana Tech finding that the presence of the water at the entrance of a building during a significant rain fall presented an open and obvious hazard. On appeal, the Louisiana Second Circuit found that the trial court’s determination went a step too far.
While acknowledging that the duty owed by a non-merchant defendant, such as a university, is lower than that owed by a store keeper, the court found that material issues of fact existed concerning whether, given the heavy rain and the high traffic volume, Louisiana Tech should have taken additional measures. Summary judgment was therefore reversed.
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Insight
Arbitration: Losing Your Day in Court with a Click of the Mouse?
Almost everyone has signed a phone contract, home-repair agreement, or other contract filled with terms and provisions they might not fully understand, or navigated a website only to receive a prompt to “accept these terms and conditions” before continuing. Most, and hopefully all attorneys, have that moment of hesitation- right before they click "yes."
If you clicked "yes" or signed the contract, and the contract included an “arbitration clause,” you may have just signed away your right to access the court system; and you didn’t even know it. But are such arbitration agreements enforceable? Generally, these clauses are enforceable and found to be consistent with a strong public policy in favor of arbitration. However, a recent decision from the Louisiana Supreme Court places arbitration clauses in consumer transactions under scrutiny and may render arbitration provisions unenforceable in some cases.
In Duhon v. Activelaf, LLC, 2016-0818 (La. 10/19/16), the plaintiff brought a negligence suit against an indoor trampoline park. In an effort to prevent a formal trial, the defendants attempted to enforce the arbitration clause found in the Participant Agreement, Release, and Assumption of Risk document that was electronically signed by plaintiff to gain entry into the trampoline park. In this setting, the Court applied a "contract of adhesion" analysis to test the validity of the arbitration clause.
The Court set forth the following factors to gauge the enforceability of the arbitration clause: (1) the physical characteristics of the arbitration clause; (2) the distinguishing features of the arbitration clause; (3) the mutuality of the arbitration clause; and (4) the relative bargaining strength of the parties.
Under the facts in Duhon, the Court found that the lack of distinguishing features and the specific placement of the text served to conceal the arbitration clause from the plaintiff. While the arbitration language was consistent in size and font with the other contractual provisions, the clause was located in the eleventh line of a paragraph that covered multiple topics. The arbitration agreement also required only the plaintiff to arbitrate any dispute. Further, it required the plaintiff to pay $5,000 if he ignored the arbitration clause and instead filed a lawsuit. According to the Court, this “lack of mutuality” supported its conclusion that the arbitration clause was adhesionary.
Ultimately, the Duhon Court struck down the arbitration clause. While courts generally uphold arbitration clauses, especially in a commercial setting, Duhon shows that arbitration clauses are not per se valid and that the consumer, in some cases, still may have their day in court.
Arbitration
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WORKER'S COMP IMMUNITY/ SCHOOL BOARD LIABILITY
Does the responsibility placed upon a school for the actions of its students eliminate worker's compensation tort immunity when a student injures a teacher? The answer is no, according to the recent decision in the Field v. Lafayette Parish School Board, 2016 WL 6609839 (La. App. 3 Cir. 11/9/16).In Field, a pregnant teacher was injured when she attempted to halt an altercation between two students. When one of her students attempted to go out into the hallway to fight, the plaintiff/teacher blocked the classroom door and was struck multiple times by the student.In defending the suit, the school board argued that the plaintiff's exclusive remedy was worker's compensation and that the school’s conduct did not constitute the "intentional act" needed to evade immunity. In turn, the plaintiff claimed that, pursuant to Civil Code article 2320, the school system was vicariously liable for the student’s conduct and therefore responsible, even if the school board’s own conduct was not “intentional.” Rejecting the plaintiff’s argument, the Third Circuit determined that the school board could not be held liable without the requisite finding of an intentional act.According to the Field court, the school’s knowledge of prior disciplinary issues with the student and its decision to re-admit the student did not amount to an “intentional act" sufficient to vitiate the worker's compensation immunity. Citing to cases such as Reeves v. Structural Preservation Systems, 731 So. 2d 208 (La. 1999), the court found that “believing someone may, or even probably will, eventually get hurt if a workplace practice is continued does not rise to the level of an intentional act.” To quote the trial judge, "there's a big gap between … not following their procedures, negligence, even gross negligence, and intentional act.”
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Insight
One More Reason: Louisiana’s “Drunk Driving” Immunity
A conviction for DWI brings the consequences you might expect, such as the loss of driving privileges, expensive attorneys’ fees, and public embarrassment. However, there is one additional, less-obvious consequence of which many are unaware; Louisiana provides immunity from claims brought by a drunk driver who was at least 25% at fault in the accident which caused his injuries, no matter how severe the injuries.
Generally stated, if you are driving drunk and are in an accident that is mostly someone else’s fault, you will not be able to recover for the injuries you sustain. Similarly, if your fault injures a drunk driver, the statute may shield you from liability. The “drunk driving” immunity is found in La. R.S. 9:2798.4. The statute provides immunity against the claims of a driver with a blood alcohol level of .08 or higher.
The immunity may even apply to defendants who were not directly involved in the accident. In Stewart v. Daiquiri Affair, Inc., 20 So.3d 1041 (La. App. 1st Cir. 2009), writ denied, 19 So.3d 477 (La. 2009), the immunity was found to apply to claims brought by an 18-year-old employee who consumed alcohol on the premises and was subsequently injured in a motor vehicle accident. Rejecting the argument that immunity should not apply when the employer arguably contributed to the under-age plaintiff’s consumption of alcohol, the appellate court in Stewart concluded that the statute’s language required immunity because the employee was more than 25% at fault and her blood alcohol content was over the legal limit.
Because the “drunk driving” immunity statute is supported by the legislature’s strong and long-standing interest in protecting citizens against drunk driving, it has been upheld and applied in many instances. Although you should not need another reason to not drive drunk, you now have one.
Louisiana
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SPOLIATION
A recent Fourth circuit decision raises doubts regarding whether a claim for spoliation of evidence can be dismissed through summary judgment. In Fiveash v. Pat O’Brien’s Bar, Inc., 2015-1230 (La. App. 4 Cir. 9/14/16), — So.3d —, 2016 WL 4820387, the plaintiff fell on a step in the entrance to the piano bar at the popular Pat O’Brien’s on Bourbon Street. Plaintiff’s counsel requested to inspect the step with his expert. However, before the scheduled inspection date, the step was damaged when a garbage can hit the face of the step and knocked loose the metal threshold.
The defendant informed the plaintiff and assured that the step would be repaired to the same condition as before the garbage can incident. In reaction, the plaintiff raised a spoliation claim which contended that the defendant intentionally destroyed the step to impair her liability claim. In response, the defendant filed a motion for summary judgment.
The defendant argued that the step was not repaired with an intent to deprive plaintiff of its use at trial and that plaintiff possessed no evidence to establish a wrongful intent. The defendant produced two affidavits to demonstrate that the step was repaired to eliminate a safety risk and not to intentionally destroy evidence. The trial court found this evidence “persuasive” and granted the motion for summary judgment.
The Fourth Circuit reversed, reasoning that it is “rarely appropriate” to grant summary judgement when questions of intent are in dispute. The Fourth Circuit also found that the trial court inappropriately “weighed” evidence when it deemed defendant’s affidavits to be “persuasive.” Because the affidavits were the only evidence used to establish the defendant’s intent, the court held that the veracity of the affidavits presented a question to be decided by the trier of fact.
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PREMISES LIABILITY: Chatman v. S. Univ. at New Orleans
Can a university be held liable in a dorm-room fight involving two adult students?
Yes, according to the court in Chatman v. S. Univ. at New Orleans, 2015-1179 (La. App. 4 Cir. 7/6/16), — So.3d —, 2016 WL 3613265. The decision provides an interesting analysis of legal causation, the “scope of protection” element of a Louisiana negligence action.The plaintiff and her roommate lived together for about one week before the incident but had been best friends for several years. The roommate allowed her 16-year-old cousin to stay at the apartment. Concerned that this may violate Southern University (New Orleans) campus rules, plaintiff attempted to discuss the issue with the resident “Community Assistant.” The “CA” was a student/employee who lived in the building and whose role included enforcement of school policies. However, the CA was not available. The CA was similarly unavailable to address the resident’s safety concern after the roommate’s boyfriend ran around the apartment, banging on doors and demanding entry.On the first Thursday they lived together, plaintiff, her roommate, and the roommate’s cousin went to the store together to buy food for the apartment. Plaintiff went home for the weekend and returned only to find that her roommate, the cousin, and other guests had eaten most of the food she had purchased. Tensions escalated, and later, the roommate and her cousin entered plaintiff’s bedroom and attacked her. Plaintiff testified the roommate stomped on her head while wearing high-heel shoes. Plaintiff eventually lost her eye as a result of the incident. The roommate was convicted of second degree battery and imprisoned.Under these facts, the jury allocated 70% fault to the roommate, 15% to the cousin, and 15% to the university. In affirming the trial court’s decision, the Fourth Circuit found that legal causation was established because the plaintiff’s injury, which resulted from an intentional, violent attack from a roommate, fell within the “scope of protection” the university owed its student. While the court acknowledged that “a risk may be found not within the scope of a duty where the circumstances of that injury to the plaintiff could not reasonably be foreseen or anticipated,” the court found the plaintiff’s injuries were compensable against the school. Previously, in Veazey v. Elmwood Plantation Associates, Ltd., 93-2818 (La. 11/30/94), 650 So. 2d 712, an argument that the “scope of the duty” of a negligent actor included responsibility for intentional conduct was successfully used to disregard the fault of an intentional actor in a similar setting, resulting in the full allocation of fault to a negligent apartment complex owner. However, after Veazey, the law was amended to clarify that the fault of all actors, including intentional actors, must be considered.In Chatman, the court found that the university was “unreasonably lax in the enforcement of its written policies” because it did not provide sufficient access to its CA’s and failed to prevent the roommate’s minor, non-student cousin from staying in the apartment. As such, it appears the court found this evidence sufficiently created an “ease of association” between plaintiff’s injury and the duty owed under the facts of this case. However, two judges dissented to this ruling on grounds that the jurors were not properly instructed to examine whether the incident was reasonably foreseeable or, stated differently, whether legal causation was properly established.
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