By Deborah Goonan, Independent American Communities
A legal team from Becker & Poliakoff recently announced a $10 million award for the Grandview 1 at Port Imperial Condominium Association, located along the shores of the Hudson Bay in New Jersey.
A jury award included $9 million from Hovnanian Enterprises, one of the country’s largest real estate developers, plus an additional $1 million from RTKL New Jersey Architects. The case is notable, according to attorneys John Cottle and Matt Meyers, because the Plaintiffs were able to “pierce the corporate veil,” preventing Hovnanian from shielding itself from liability by way of its many subsidiaries.
The circumstances surrounding this case are quite remarkable.
According to court records and news releases made on behalf of Becker & Poliakoff, when construction for Grandview 1 was planned, the 6-story building was required by code to have concrete floors. However, the architect’s (RTKL) plans called for plywood floors instead. The error was not noted by local planning authorities. Halfway through construction, the error was discovered.
But rather than halt construction and rebuilding the floors as required by fire safety code, Hovnanian decided to continue construction, hoping to convince West New York officials to approve a new plan that would allow for plywood floors. That attempt was not successful. Nevertheless, Grandview 1 was completed with plywood floors, in violation of local fire safety codes for buildings of its class and size.
(The structure was also built with a steel frame and brick veneer, rather than solid brick.)
Condo units were then sold to unsuspecting buyers. Owners of the 132-unit structure discovered the error shortly following developer turnover of the association in 2007.
A lawsuit was filed, and, ultimately, the association was awarded punitive damages from Hovnanian, tripling their $3 million award to $9 million.
After attorney fees are awarded, the grand total could reach $20 million.
History of trouble on the Hudson
But there is more litigation history for Port Imperial condominiums.
Back in 2011, Hovananian and Port Imperial Condo Association 2 (PICA2) lost an appeal with regard to a separate construction defect lawsuit involving improper soil preparation for building structures on the water front.
Court records explain that, due to shifting soil and improper foundation support, concrete slabs for the Grandview 2 condominiums cracked and settled, creating structural hazards for unit owners. An engineer for the Plaintiffs concluded in his report that the only remedy to the problem would be to completely demolish the structure and rebuild, using appropriately constructed pilings.
As is typical with most construction defect litigation against a developer, Hovnanian filed lawsuits against many of the building contractors that played a role in construction of Grandview 2. Three of those contractors – U.S. WICK DRAIN, INC., NEW JERSEY DRILLING CO., and DRAINAGE AND GROUND IMPROVEMENT, INC. – were responsible for preparing the soil onsite, creating a stable foundation for construction of Grandview 2.
Even though the court acknowledged an obvious safety hazard, it also granted dismissal of liability for the 3 contractors responsible for site and soil preparation. Why? Because the legal claim was brought later than the “statute of repose.” NJ law limits the period of time in which a condo association can sue a contractor for construction defects. That time limit is 10 years, and the clock started ticking as soon as the contractors completed their work, even though the condominium project was not completed until several years later.
The construction defect case involving Hovnanian and Grandview 2 condominium association is still pending, with trial scheduled for January 2018.
What do these cases mean to housing consumers, particularly condominium buyers?
Consumer claims of serious construction defects in new construction are astonishingly common, especially in multistory buildings that require complex architectural plans.
Unfortunately, home buyers cannot rely upon city or county planning officials or construction inspectors to catch errors in planning or inproper construction on the part of home and condo builders.
What’s worse, once a project is completed and the developer hands over unknown problems to its owners, it may already be too late to recover damages from contractors responsible for poor workmanship. Furthermore, at least in New Jersey, even with the obvious presence of a health and safety hazard, developers and the many contractors that work for them may be able to completely avoid liability for their role in creating the situation.
It’s a numbers game
For the reader who thinks $20 million is a huge legal award, consider that K Hovnanian Homes generated $2.8 billion in revenue in 2016 from the sale of more than 6,700 homes. (The homebuilding giant also sells mortgage loans and title insurance to buyers.)
So $20 million is barely noticeable. And Hovnanian’s insurance provider will foot the bill.
With that kind of sales volume, large developers know that even if 10% result in construction defect claims, they will still turn a healthy profit that is enough to satisfy their investors.
What about homeowners of ordinary or affordable housing?
And, once again, we see headlines for multimillion dollar legal awards involving association governed communities with unit prices starting at half a million dollars.
We rarely see similar news releases involving homeowners or condo associations of median priced homes or affordable condo units. Frankly, owners of luxury condos can afford to fight developers in court. Most homeowners cannot, unless attorneys are willing to take a case on contingency.
And in lower-value condo or homeowners associations, lawfirms are less willing to take cases on contingency, and more likely to settle in arbitration or out of court. Usually that means the developer gets to keep the construction defect claim and resolution confidential, and homebuyers are blissfully unaware of a history of defects.
All the more reason for policymakers to stop putting developers in control of entire communities and housing projects.
$10M Construction Defect Verdict in Fire Code Case
Celia Ampel, Daily Business Review (reprint with permission)
Condo owners awarded $9M in suit against Hovnanian
Updated on June 20, 2017 at 4:07 PM Posted on June 19, 2017 at 9:00 AM
BY STEVE STRUNSKY email@example.com,
NJ Advance Media for NJ.com
WEST NEW YORK — A group of condominium owners has been awarded $9 million in a lawsuit against builder Hovnanian over construction problems at a six-story building on the Hudson Riverfront.
Lawyers representing the condo owners said jury verdict against Red Bank-based Hovnanian Enterprises, one of the nation’s largest home builders, was particularly gratifying because the company was unable to hide behind the complex ownership structure for the Grandview I building.
The 132 condos in Grandview I are within the sprawling Port Imperial waterfront development complex.
“A key point making this landmark case particularly unique is that Hovnanian Enterprises was found guilty despite the massive network of subsidiaries that it used to try to shield itself from liability,” said attorney John Cottle of Becker & Poliakoff. “This is a rare instance in which the ‘corporate veil’ was pierced.”
Case law: PORT IMPERIAL CONDOMINIUM ASSOCIATION, INC v. K. HOVNANIAN
On appeal, K. Hovnanian and PICA2 contend that the trial court wrongly applied the statute of repose, made an impermissible finding of fact and rendered a premature decision. We disagree.
The statute of repose, N.J.S.A. 2A:14-1.1, precludes certain actions arising out of the defective and unsafe condition of an improvement to real property. As pertinent, the statute provides:
No action, whether in contract, in tort, or otherwise, to recover damages for any deficiency in the design, planning, surveying, supervision or construction of an improvement to real property, or for any injury to property, real or personal, or for an injury to the person, or for bodily injury or wrongful death, arising out of the defective and unsafe condition of an improvement to real property, nor any action for contribution or indemnity for damages sustained on account of such injury, shall be brought against any person performing or furnishing the design, planning, surveying, supervision of construction or construction of such improvement to real property, more than 10 years after the performance or furnishing of such services and construction.
[N.J.S.A. 2A:14-1.1a (emphasis added).]
Thus, when a plaintiff asserts damages arising from an improvement to real property, the statute of repose may restrict liability of a builder or contractor. Dennis A. Drazin, New Jersey Premises Liability 23:1 at 521 (2010).
Unlike a conventional statute of limitations, the statute of repose does not bar a remedy but rather prevents the cause of action from ever arising. Rosenberg, supra, 61 N.J. at 199. The significant distinction is “[t]he time within which suit may be brought under this statute is entirely unrelated to the accrual of any cause of action.” Ibid. Therefore, “injury occurring more than ten years after the negligent act allegedly responsible for the harm, forms no basis for recovery. The injured party literally has no cause of action.” Ibid.; see also E.A. Williams, Inc. v. Russo Dev. Corp., 82 N.J. 160, 167 (1980). Regardless of whether the injury occurs within the ten year statute of repose period, a claim is barred unless the plaintiff’s complaint is filed within the statutory period, measured from when the performance or furnishing of construction-related services has been “completed.” Richards v. Union Bldg. & Constr. Corp., 130 N.J. Super. 127, 130 (App. Div. 1974).
The essence of appellants’ argument on appeal is that an “unsafe” condition did not exist at Port Imperial.3 The motion judge soundly rejected this contention, noting that PICA’s complaint sufficiently alleged, and the Pillori expert reports provided an adequate basis on which to find, that the work completed by all three defendants rendered the buildings at issue unsafe.
As to the former, the court focused on three counts of PICA’s amended complaint, which alleged negligence, strict liability and “willful and wanton disregard for human safety.” Specifically, the latter count alleged that defendants, including DGI and U.S. Wick, “negligently construct[ed] and erect[ed] the condominium [and] exhibited willful and wanton disregard for the safety of [PICA] and its members. At all times, the defendants recklessly disregarded the likelihood of the potential serious harm resulting from the negligent construction and erection of the condominium” (emphasis added). Moreover, in count five alleging strict liability, PICA asserted that the units “were defective and deficient, and were unreasonably dangerous to unit owners and to personal property” (emphasis added).
As to the record evidence in support of these allegations, the court referred to the second Pillori report issued in December 2009, to conclude that because of improper wick drain installation, “a settlement continued . . . after the buildings had been constructed,” the magnitude of which “could be very significant, largely unpredictable,” and remediable only by “first demolish[ing] the existing buildings, then drill[ing] in new foundation piles through the fill and organic deposits, terminating within the underlying glacial soil or bedrock.” The motion court thus concluded:
that the record is replete with evidence alleging sufficient evidence that the alleged faulty workmanship of these defendants has participated and led to the creation of this defective and unsafe condition for these subject properties which allows the application of the statute of repose.