A little self-promotion from the Texas Construction Law Blogger:
On Thursday, February 5th at 12:00 noon, Walker M. Duke will be presenting the Continuing Legal Education program "Three Payment Statutes Every Construction Lawyer Should Know" to the Construction Law Section of the Dallas Bar Association at the Belo Mansion, 2101 Ross Avenue, Dallas, Texas.
The presentation will discuss three statutes that relate to payment issues in the construction industry. First is the Texas Prompt Payment to Contractors and Subcontractors Act. This Act is useful for attorneys to know because it provides some guidance to a common scenario—a subcontractor has not been paid on a job and does not know whether to walk off the job for nonpayment or continue and hope for the best.
The second statute is the Texas Construction Trust Fund Act. This statute covers how construction funds and loan receipts should be handled. Construction law attorneys should be aware of the requirements of this statute because failure to meet its requirements can result in criminal penalties, in addition to civil liability.
The third topic is Texas lien laws. Liens can be a powerful tool for builders and contractors to encourage payment for services rendered and goods provided. However, they are fairly technical and must meet the strict requirements of the Texas Property Code. Failure to comply with these requirements, including deadlines (that are often blown by contractors before they call their lawyer), prevents proper perfection of the lien, and could result in a sizeable liability for wrongfully filing a lien.
For more information, contact Walker Duke at (214) 891-8040 or the Dallas Bar Association at (214) 220-7400.
Wednesday, January 21, 2009
Wednesday, November 26, 2008
Green Tax Relief
The Energy Policy Act of 2005 (26 U.S.C. § 179D) created a tax incentive to improve energy efficiency of commercial buildings (this tax incentive was extended through 2013 as part of the Emergency Economic Stabilization Act of 2008, a/k/a "The Banking Bailout"). The "Commercial Building Tax Deduction" established a tax deduction for expenses incurred for energy efficient building expenditures made by the building owner. The deduction is equal to energy-efficient commercial building expenditures made by the taxpayer, subject to a cap of $1.80 per square foot.
The tax credit applies to "energy efficient commercial building property." But what exactly does that term mean? It means property–
1) for which depreciation is allowable;
2) installed on or in any building in the US and within the scope of ASHRAE Standard 90.1-2001;
3) which is installed as part of the interior lighting systems; the heating, cooling, ventilation, and hot water systems; or the building envelope; and
4) which is certified as being installed as part of a plan designed to reduce the total annual energy and power costs with respect to the aforementioned building systems by 50% or more (in comparison to a reference building which meets the minimum requirements of ASHRAE .Standard 90.1-2001.
Certification requirements must be met to qualify for these deductions. The secretary of the treasury, in consultation with the secretary of the secretary of energy, provided guidance in Notice 2006-52 that describes methods of calculating and verifying energy and power costs, using qualified computer software based on provisions of the 2005 California Nonresidential Alternative Calculation Method Approval Manual and the 2005 California Residential Alternative Method Approval Manual. Inspections must be performed by engineers or licensed contractors, and they must meet the guidelines of the National Renewable Energy Laboratory.
Partial deductions are available for buildings that do not meet the whole building requirement of 50% energy savings. The deduction is allowed with respect to each separate building system that comprises the energy-efficient property. For these "component deductions," the requirements are as follows: 20% savings for interior lighting, 20% savings for HVAC and hot water, and 10% savings for building envelope. The maximum allowable deduction for the separate systems is $.60 per square foot.
Other notable features about the Commercial Building Tax Deduction:
The tax credit applies to "energy efficient commercial building property." But what exactly does that term mean? It means property–
1) for which depreciation is allowable;
2) installed on or in any building in the US and within the scope of ASHRAE Standard 90.1-2001;
3) which is installed as part of the interior lighting systems; the heating, cooling, ventilation, and hot water systems; or the building envelope; and
4) which is certified as being installed as part of a plan designed to reduce the total annual energy and power costs with respect to the aforementioned building systems by 50% or more (in comparison to a reference building which meets the minimum requirements of ASHRAE .Standard 90.1-2001.
Certification requirements must be met to qualify for these deductions. The secretary of the treasury, in consultation with the secretary of the secretary of energy, provided guidance in Notice 2006-52 that describes methods of calculating and verifying energy and power costs, using qualified computer software based on provisions of the 2005 California Nonresidential Alternative Calculation Method Approval Manual and the 2005 California Residential Alternative Method Approval Manual. Inspections must be performed by engineers or licensed contractors, and they must meet the guidelines of the National Renewable Energy Laboratory.
Partial deductions are available for buildings that do not meet the whole building requirement of 50% energy savings. The deduction is allowed with respect to each separate building system that comprises the energy-efficient property. For these "component deductions," the requirements are as follows: 20% savings for interior lighting, 20% savings for HVAC and hot water, and 10% savings for building envelope. The maximum allowable deduction for the separate systems is $.60 per square foot.
Other notable features about the Commercial Building Tax Deduction:
- Churches are not eligible for the deduction.
- Portions of buildings (e.g. common areas, portions of common areas, etc.) can be retrofitted and the associated square footage considered for the deduction.
- Screw-in compact fluorescent lamps (CFLs) cannot be used to reduce wattage for purposes of the deduction. ASHRAE 90.1-2001 lighting power calculations require maximum labeled wattage of incandescent luminaire be used.
Anyone who has even considered designing or constructing a "green" building knows that the associated costs are much higher than a traditional build. However, the Commercial Building Tax Deduction at least mitigates some of that cost and makes it a little easier to be green.
Friday, November 21, 2008
LEED To Be Upgraded in 2009
In 2000, the US Green Building Council (USGBC) introduced the LEED Green Building Rating System. For the last 8 years, the LEED system has established a set of integrated, measurable goals that guided how eco-conscious buildings were to be designed and constructed.
LEED v3, which will go into effect in 2009, will bring about several significant changes to the green building rating system, and it will have several components. The updated technical standards will be codified in LEED 2009. This was not intended to be a "tear down and rebuilt" of the current LEED system, but rather, a reorganization of the existing system. The USGBC has characterized LEED 2009 as the sum of four parts:
1. LEED prerequisite/credit alignment and harmonization
2. Predictable development cycle
3. Transparent environmental/human impact credit weighting
4. Regionalization
The second part of LEED v3 is an expanded third-party certification program. Currently, all LEED project submissions are reviewed by USGBC with the support of independently contracted reviewers. Beginning in January 2009, however, the USGBC will move administration of the LEED certification process to the Green Building Certification Institute, a non-profit organization established in 2007. This reorganization was done to improve the overall certification process in way that can grow with the demand for green building certification. The other goal was to establish third-party certification that can be audited to determine effectiveness and fairness.
The third part of LEED v3 is the LEED Online management system, which should hopefully make the legwork part of all-things-LEED a little easier.
With 8 years of growing pains out of the way, and over 7,000 comments on LEED 2009, hopefully the USGBC has developed a good sense of what works and what doesn’t. All in all, LEED v3 should be an enhanced, more workable version of what was started in 2000.
LEED v3, which will go into effect in 2009, will bring about several significant changes to the green building rating system, and it will have several components. The updated technical standards will be codified in LEED 2009. This was not intended to be a "tear down and rebuilt" of the current LEED system, but rather, a reorganization of the existing system. The USGBC has characterized LEED 2009 as the sum of four parts:
1. LEED prerequisite/credit alignment and harmonization
2. Predictable development cycle
3. Transparent environmental/human impact credit weighting
4. Regionalization
The second part of LEED v3 is an expanded third-party certification program. Currently, all LEED project submissions are reviewed by USGBC with the support of independently contracted reviewers. Beginning in January 2009, however, the USGBC will move administration of the LEED certification process to the Green Building Certification Institute, a non-profit organization established in 2007. This reorganization was done to improve the overall certification process in way that can grow with the demand for green building certification. The other goal was to establish third-party certification that can be audited to determine effectiveness and fairness.
The third part of LEED v3 is the LEED Online management system, which should hopefully make the legwork part of all-things-LEED a little easier.
With 8 years of growing pains out of the way, and over 7,000 comments on LEED 2009, hopefully the USGBC has developed a good sense of what works and what doesn’t. All in all, LEED v3 should be an enhanced, more workable version of what was started in 2000.
Monday, November 3, 2008
Liquidated Damages: Be Sure You Get What You Bargained For
At some point in the life of every construction business, a project will not go as planned. For whatever reason, the project just does not unfold as it was originally designed. Maybe it was because another contractor had to repair its own mistake, maybe it was bad weather, or maybe the work was just slower than what was initially estimated. Despite best efforts, the original schedules become a thing of distant memory.
Anyone who has been in this situation knows that it does not take long before the finger pointing begins, which is quickly followed by damage claims related to the delays. However, delay damages can be very difficult to quantify and calculate. Some elements may be fairly concrete, such as rents lost due to a building opening 90 days late. Other elements are more nebulous, like the value of the extra time office employees spent working on the project (extended home office overhead), lost opportunities of other projects, etc.
One solution to some of the uncertainty of delay damages is the inclusion of a liquidated damages clause in the construction contract. In a nutshell, liquidated damages clauses provide that the non-breaching party is entitled to a certain amount of damages if specified conditions are not met. Probably the most common example is a provision that awards one party a certain dollar figure per day a project is late in completion.
Like so many other provisions, liquidated damages clauses are deal points that are negotiated. If you worked to get a liquidated damage clause included in your contract, you certainly want to be sure it is enforceable.
To be valid, a liquidated damages clause must satisfy a two-part test. First, the damages covered by the clause should be incapable or difficult to estimate at the time of the contracting. Second, the liquidated amount must be a reasonable calculation of expected damages. The key is that a liquidated damages clause must not be a penalty. For example, a provision that provides $5,000 per day that a project is late, when the actual amount of damages relating to the delay is closer to $500, is likely to be struck down. The clause does not provide a reasonable substitute for actual damages but rather, it acts as a penalty.
A liquidated damages clause that is considered a penalty is not enforceable. In other words, that heavy handed damages clause that you traded some deal points to have included in the contract may be worthless.
These clauses can be particularly powerful when used in combination with a provision that specifically states that liquidated damages are the exclusive remedy available for breach of the contract. This essentially eliminates the possibility of recovering consequential damages. From the owner’s perspective, this could create a higher per day amount. From the contractor’s perspective, it provides some limitation on potential liability.
In any event, liquidated damages clauses should be as specific as possible to prevent confusion down the road. If damages are to accrue on workdays only, language to that effect should be included. Conversely, if weekends and holidays are to be included in the damage calculation, that should be explicitly stated. Ambiguity can cost you. Considering the fact that there are around 100 weekend days in a year, not to mention holidays, a twelve month delay could potentially increase (or decrease) damages by almost a third.
Liquidated damages clauses are an effective way to remove some of the uncertainty related to construction delay claims. The specific details are negotiable, but they need to be a reasonable estimate of difficult-to-calculate damages. Should the dispute go to litigation, these clauses can lower expenses incurred in determining the exact amount of damages related to the delay. However, these clauses may also be the sole remedy should a construction project go bad. The specifics of each contract will determine whether a liquidated damages provision is appropriate, but it is always a good item to have in your negotiation toolbox.
Anyone who has been in this situation knows that it does not take long before the finger pointing begins, which is quickly followed by damage claims related to the delays. However, delay damages can be very difficult to quantify and calculate. Some elements may be fairly concrete, such as rents lost due to a building opening 90 days late. Other elements are more nebulous, like the value of the extra time office employees spent working on the project (extended home office overhead), lost opportunities of other projects, etc.
One solution to some of the uncertainty of delay damages is the inclusion of a liquidated damages clause in the construction contract. In a nutshell, liquidated damages clauses provide that the non-breaching party is entitled to a certain amount of damages if specified conditions are not met. Probably the most common example is a provision that awards one party a certain dollar figure per day a project is late in completion.
Like so many other provisions, liquidated damages clauses are deal points that are negotiated. If you worked to get a liquidated damage clause included in your contract, you certainly want to be sure it is enforceable.
To be valid, a liquidated damages clause must satisfy a two-part test. First, the damages covered by the clause should be incapable or difficult to estimate at the time of the contracting. Second, the liquidated amount must be a reasonable calculation of expected damages. The key is that a liquidated damages clause must not be a penalty. For example, a provision that provides $5,000 per day that a project is late, when the actual amount of damages relating to the delay is closer to $500, is likely to be struck down. The clause does not provide a reasonable substitute for actual damages but rather, it acts as a penalty.
A liquidated damages clause that is considered a penalty is not enforceable. In other words, that heavy handed damages clause that you traded some deal points to have included in the contract may be worthless.
These clauses can be particularly powerful when used in combination with a provision that specifically states that liquidated damages are the exclusive remedy available for breach of the contract. This essentially eliminates the possibility of recovering consequential damages. From the owner’s perspective, this could create a higher per day amount. From the contractor’s perspective, it provides some limitation on potential liability.
In any event, liquidated damages clauses should be as specific as possible to prevent confusion down the road. If damages are to accrue on workdays only, language to that effect should be included. Conversely, if weekends and holidays are to be included in the damage calculation, that should be explicitly stated. Ambiguity can cost you. Considering the fact that there are around 100 weekend days in a year, not to mention holidays, a twelve month delay could potentially increase (or decrease) damages by almost a third.
Liquidated damages clauses are an effective way to remove some of the uncertainty related to construction delay claims. The specific details are negotiable, but they need to be a reasonable estimate of difficult-to-calculate damages. Should the dispute go to litigation, these clauses can lower expenses incurred in determining the exact amount of damages related to the delay. However, these clauses may also be the sole remedy should a construction project go bad. The specifics of each contract will determine whether a liquidated damages provision is appropriate, but it is always a good item to have in your negotiation toolbox.
Thursday, October 23, 2008
Catastrophe Struck--Now What?
We all know that construction can be a dangerous business. Safety is one of the biggest issues any construction business deals with, and rightfully so. Unfortunately, in spite of the best safety programs, training, and precautionary measures, accidents still do happen. And sometimes, they are catastrophic. What do you do when you get the call that one of your employees has been badly injured or, even worse, killed?
First and foremost, the immediate welfare of your employee should take priority. Get them the immediate medical attention they need; when in doubt, error on the side of caution. Then alert their family so that the employee’s loved ones can get involved in the medical decision-making.
"Ok," you say, "my team member has been taken to the hospital. What do I need to be doing back at the job site?" Make sure that the site does not pose a continuing threat to anyone else. You’ve already had one injury, you certainly don’t want more. If it may take some time to determine whether the premises remains hazardous, limit access to the area until you’ve determined the threat is gone.
At this point of the situation, assuming that the employees health is being tended to and the job site no longer poses a danger, it is important to start documenting what happened. Find witnesses, get their account of what happened, and write down their contact information. Take photos of the accident scene; this is the only chance you will have to capture the image of what it looked like at the time of the accident. If your company has a policy in place about creating incident/accident reports, work through that protocol. Memories fade, and no one will ever have a better account of what happened than immediately after the event. Keep in mind, however, that the products of your investigation may be discoverable if litigation ensues.
Hopefully, your documentation began long before the accident. Your company should have a safety plan in effect, and you should have been following it. You also should have some documentation that your employees followed the safety protocol.
"Whew, I’ve taken the immediate response actions, and now I’m gong to head back to the office to catch my breath," you utter after a long day (or night). You plop down in your chair at your desk and then it hits you – things have only just begun. Time to start making phone calls. If the injured person was an employee, your workers comp carrier should be immediately notified of the accident. You should also call your commercial general liability (CGL) carrier as well and advise them of the incident. Depending on the nature of the accident, you may be required to notify OSHA as well.
You should also contact your legal counsel as soon as possible. If there is a fatality, they should be one of the first calls you make. The reality of today’s business climate is that there is a good chance that catastrophic (and even some non-catastrophic) accidents will result in litigation, particularly if the injured person is a non-employee (workers comp statutes provides some relief from lawsuits for employers when their own employees are injured). Because of this fact, you have certain duties to preserve evidence. You should preserve photos, witness statements, accident reports, documentation done surrounding the accident, written policies and procedures...the list could go on. In a nutshell, if the materials (including computer files and e-mails) have any relevance, they should be preserved. This may sound like common sense, but the penalties can be stiff if litigation arises and relevant materials have been altered or destroyed.
The best way to handle catastrophic accidents is to prevent them. The reality, however, is that at some point you will probably have to deal with one. This doesn’t represent an exhaustive list of everything that needs to be done, but it is a good start. By taking the proper steps, both before and after the incident, hopefully you will be able to keep the catastrophic accident from becoming a catastrophic liability for your company.
First and foremost, the immediate welfare of your employee should take priority. Get them the immediate medical attention they need; when in doubt, error on the side of caution. Then alert their family so that the employee’s loved ones can get involved in the medical decision-making.
"Ok," you say, "my team member has been taken to the hospital. What do I need to be doing back at the job site?" Make sure that the site does not pose a continuing threat to anyone else. You’ve already had one injury, you certainly don’t want more. If it may take some time to determine whether the premises remains hazardous, limit access to the area until you’ve determined the threat is gone.
At this point of the situation, assuming that the employees health is being tended to and the job site no longer poses a danger, it is important to start documenting what happened. Find witnesses, get their account of what happened, and write down their contact information. Take photos of the accident scene; this is the only chance you will have to capture the image of what it looked like at the time of the accident. If your company has a policy in place about creating incident/accident reports, work through that protocol. Memories fade, and no one will ever have a better account of what happened than immediately after the event. Keep in mind, however, that the products of your investigation may be discoverable if litigation ensues.
Hopefully, your documentation began long before the accident. Your company should have a safety plan in effect, and you should have been following it. You also should have some documentation that your employees followed the safety protocol.
"Whew, I’ve taken the immediate response actions, and now I’m gong to head back to the office to catch my breath," you utter after a long day (or night). You plop down in your chair at your desk and then it hits you – things have only just begun. Time to start making phone calls. If the injured person was an employee, your workers comp carrier should be immediately notified of the accident. You should also call your commercial general liability (CGL) carrier as well and advise them of the incident. Depending on the nature of the accident, you may be required to notify OSHA as well.
You should also contact your legal counsel as soon as possible. If there is a fatality, they should be one of the first calls you make. The reality of today’s business climate is that there is a good chance that catastrophic (and even some non-catastrophic) accidents will result in litigation, particularly if the injured person is a non-employee (workers comp statutes provides some relief from lawsuits for employers when their own employees are injured). Because of this fact, you have certain duties to preserve evidence. You should preserve photos, witness statements, accident reports, documentation done surrounding the accident, written policies and procedures...the list could go on. In a nutshell, if the materials (including computer files and e-mails) have any relevance, they should be preserved. This may sound like common sense, but the penalties can be stiff if litigation arises and relevant materials have been altered or destroyed.
The best way to handle catastrophic accidents is to prevent them. The reality, however, is that at some point you will probably have to deal with one. This doesn’t represent an exhaustive list of everything that needs to be done, but it is a good start. By taking the proper steps, both before and after the incident, hopefully you will be able to keep the catastrophic accident from becoming a catastrophic liability for your company.
Monday, October 6, 2008
Indemnity Agreements: What you see (and say) isn’t always what you get
During construction contract negotiations, indemnity agreements tend to be viewed one of two ways. One approach is that they are a critical component that serves to protect the indemnitee and limit liability related to the contract. The other approach is, "eeh, whatever."
The attitudes towards indemnity agreements change drastically on the back end, though. I can tell you that, as an attorney, the first thing I look at when analyzing a construction dispute is the contract that governs the relationship between the parties. And within the contract, I go straight to the indemnity agreement (if there is one) to see if someone else is going to be financially responsible for my client’s liability, including any settlement or judgment.
Like so many other items, indemnity agreements are deal points to be negotiated. However, I personally believe that if you can receive indemnity protection without having to give up too much in return, it is a good idea to ask for it because it can serve as an effective limitation of your liability. In some instances, it may even be worth giving up quite a bit to receive that protection.
Indemnity clauses are a little tricky, though, and if you don’t word yours properly, it can be worthless. A simple, yet important, general rule of contract law is that contracts should be interpreted consistent with a plain reading of the text. In other words, a contract says what it means and means what it says. Indemnity clauses are an exception to this general rule. What may look like a valid, clear indemnity provision may not satisfy the requirements imposed by Texas law.
Texas (among many other states) has adopted the "express negligence doctrine." See Ethyl Corp. v. Daniel Constr. Co., 725 S.W.2d 705 (Tex. 1987). The express negligence doctrine provides that parties seeking to indemnify the indemnitee from the consequences of its own negligence must express that intent in specific terms. Under the doctrine of express negligence, the intent of the parties must be specifically stated within the four corners of the contract.
"Great," you say, "but what does that actually mean?" In a nutshell, it means that to be covered by an indemnity agreement, that provision must explicitly state that it includes indemnification for the indemnitee’s own negligence.
Let me illustrate by showing you what not to do. In Ethyl, the owner was sued by an employee of a contractor for injuries related to the owner’s and the contractor’s negligence. The owner sought indemnity from the contractor pursuant to the following provision in their contract:
So how do you create a valid indemnity agreement? First, I would recommend working with an attorney on your specific contract, as the difference between a valid and invalid indemnity clause could be thousands, and even millions of dollars. Second, be sure your contract can pass the express negligence test. Include explicit wording that the indemnity extends to cover the negligence of indemnitee. This language may be a harder sell in contract negotiations, but without it, your indemnity agreement may be unenforceable.
The attitudes towards indemnity agreements change drastically on the back end, though. I can tell you that, as an attorney, the first thing I look at when analyzing a construction dispute is the contract that governs the relationship between the parties. And within the contract, I go straight to the indemnity agreement (if there is one) to see if someone else is going to be financially responsible for my client’s liability, including any settlement or judgment.
Like so many other items, indemnity agreements are deal points to be negotiated. However, I personally believe that if you can receive indemnity protection without having to give up too much in return, it is a good idea to ask for it because it can serve as an effective limitation of your liability. In some instances, it may even be worth giving up quite a bit to receive that protection.
Indemnity clauses are a little tricky, though, and if you don’t word yours properly, it can be worthless. A simple, yet important, general rule of contract law is that contracts should be interpreted consistent with a plain reading of the text. In other words, a contract says what it means and means what it says. Indemnity clauses are an exception to this general rule. What may look like a valid, clear indemnity provision may not satisfy the requirements imposed by Texas law.
Texas (among many other states) has adopted the "express negligence doctrine." See Ethyl Corp. v. Daniel Constr. Co., 725 S.W.2d 705 (Tex. 1987). The express negligence doctrine provides that parties seeking to indemnify the indemnitee from the consequences of its own negligence must express that intent in specific terms. Under the doctrine of express negligence, the intent of the parties must be specifically stated within the four corners of the contract.
"Great," you say, "but what does that actually mean?" In a nutshell, it means that to be covered by an indemnity agreement, that provision must explicitly state that it includes indemnification for the indemnitee’s own negligence.
Let me illustrate by showing you what not to do. In Ethyl, the owner was sued by an employee of a contractor for injuries related to the owner’s and the contractor’s negligence. The owner sought indemnity from the contractor pursuant to the following provision in their contract:
Contractor shall indemnify and hold Owner harmless against any loss or damage to persons or property as a result of operations growing out of the performance of this contract and caused by the negligence or carelessness of Contractor, Contractor’s employees, Subcontractors, and agents or licensees.The Texas Supreme Court ruled that this provision did not provide indemnity to the owner for the owner’s own negligence. Because the injured employee asserted negligence against both the owner and the contractor, and the indemnity provision did not provide indemnity to the owner for its own negligence, the owner was not entitled to indemnity from the contractor. The Court stated that "indemnitees seeking indemnity for the consequences of their own negligence which proximately causes injury jointly and concurrently with the indemnitor’s negligence must also meet the express negligence test."
So how do you create a valid indemnity agreement? First, I would recommend working with an attorney on your specific contract, as the difference between a valid and invalid indemnity clause could be thousands, and even millions of dollars. Second, be sure your contract can pass the express negligence test. Include explicit wording that the indemnity extends to cover the negligence of indemnitee. This language may be a harder sell in contract negotiations, but without it, your indemnity agreement may be unenforceable.
Thursday, September 25, 2008
Warranty Claims, Attorney’s Fees, and You
Most transactions have some sort of cost associated with them. The bank charges $2 to use its ATM. Your financial advisor charges his fee to execute your stock trade. Your lender charges interest for the immediate use of its capital to fund your project.
When it comes to breach of warranty claims, those transaction costs often appear in the form of attorney’s fees, and they can frequently be the tail that wags the dog. Texas has strict limitations on when attorney’s fees are recoverable. Generally speaking, they are only recoverable when specifically allowed by statute or if the claim falls into one of eight defined categories:
1) rendered services;
2) performed labor;
3) furnished material;
4) freight or express overcharges;
5) lost or damaged freight or express;
6) killed or injured stock;
7) a sworn account
8) an oral or written contract
Noticeably missing from this list is breach of warranty. "Are you telling me," you ask, "that if I have to file a lawsuit because the widgets I bought and installed into the Taj Mahal II failed, and I WIN, I’m still going to be out my attorney’s fees???" Maybe, but you’re in a better position than you would have been a year ago.
Attorney’s fees have typically been non-recoverable in breach of warranty claims, so lawyers got creative to find other bases to receive them. One of the more common ways has been to bring claims based on consumer protection statutes (most notably, the Deceptive Trade Practices Act, or "DTPA"). The DTPA, which includes breaches of warranty within its scope, does allow for recovery of attorney’s fees.
Not every would-be plaintiff, however, qualifies for the protections created by the DTPA. For example, businesses with assets greater than $25 million are excluded. Does that mean that larger companies cannot recover their attorney’s fees while smaller companies can, even under the same facts? Until recently, that was probably the case.
Earlier this year, the Texas Supreme Court shook things up with the Medical City Dallas, Ltd. v. Carlisle Corporation case. 251 S.W.3d 55 (Tex. 2008). The court ruled that attorney’s fees are recoverable for claims of breach of an express warranty. The reasoning behind this decision was that breaches of express warranties sound in contract, and attorney’s fees are recoverable for a breach of contract. The court did not address whether attorney’s fees were recoverable for breach of implied warranties.
What does all this mean for you? First, it means that your transaction costs for bringing a claim for breach of warranty may have just gone down. But it also means that best practices dictate that you get that warranty written down. The law is still fuzzy on whether attorneys’ fees are recoverable for implied warranties, so make sure the warranty you get is express.
When it comes to breach of warranty claims, those transaction costs often appear in the form of attorney’s fees, and they can frequently be the tail that wags the dog. Texas has strict limitations on when attorney’s fees are recoverable. Generally speaking, they are only recoverable when specifically allowed by statute or if the claim falls into one of eight defined categories:
1) rendered services;
2) performed labor;
3) furnished material;
4) freight or express overcharges;
5) lost or damaged freight or express;
6) killed or injured stock;
7) a sworn account
8) an oral or written contract
Noticeably missing from this list is breach of warranty. "Are you telling me," you ask, "that if I have to file a lawsuit because the widgets I bought and installed into the Taj Mahal II failed, and I WIN, I’m still going to be out my attorney’s fees???" Maybe, but you’re in a better position than you would have been a year ago.
Attorney’s fees have typically been non-recoverable in breach of warranty claims, so lawyers got creative to find other bases to receive them. One of the more common ways has been to bring claims based on consumer protection statutes (most notably, the Deceptive Trade Practices Act, or "DTPA"). The DTPA, which includes breaches of warranty within its scope, does allow for recovery of attorney’s fees.
Not every would-be plaintiff, however, qualifies for the protections created by the DTPA. For example, businesses with assets greater than $25 million are excluded. Does that mean that larger companies cannot recover their attorney’s fees while smaller companies can, even under the same facts? Until recently, that was probably the case.
Earlier this year, the Texas Supreme Court shook things up with the Medical City Dallas, Ltd. v. Carlisle Corporation case. 251 S.W.3d 55 (Tex. 2008). The court ruled that attorney’s fees are recoverable for claims of breach of an express warranty. The reasoning behind this decision was that breaches of express warranties sound in contract, and attorney’s fees are recoverable for a breach of contract. The court did not address whether attorney’s fees were recoverable for breach of implied warranties.
What does all this mean for you? First, it means that your transaction costs for bringing a claim for breach of warranty may have just gone down. But it also means that best practices dictate that you get that warranty written down. The law is still fuzzy on whether attorneys’ fees are recoverable for implied warranties, so make sure the warranty you get is express.
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