BREAKING: MassDEP Announces Proposed Revisions to the Massachusetts Contingency Plan, Including a Reportable Concentration for PFAS at 20 ppt

This image has an empty alt attribute; its file name is firefighter-484540_960_720.jpg

The Massachusetts Department of Environmental Protection (MassDEP) announced proposed revisions to the Massachusetts Contingency Plan (310 CMR 40.0000).  This begins a 3-month public comment period that will end July 19, 2019, and will include four public hearings.

According to MassDEP, the proposals include:

  • clarification and modification of provisions related to notification, Imminent Hazards, Tier Classification and Extensions, Remedial Additives, Status Reports, Remedial Monitoring Reports, Temporary Solutions, Active Exposure Pathway Mitigation Measures, Exposure Point Concentrations, Activity and Use Limitations, and public involvement;
  • new adequately regulated provisions for disposal sites with Radioactive Materials;
  • updates to Reportable Concentrations (RCs) and numerical cleanup standards (Method 1) for a limited number of chemicals; and
  • the addition of RCs and Method 1 standards for six perfluoroalkyl substances—Perfluoroheptanoic Acid (PFHpA), Perfluorohexanesulfonic Acid (PFHxS), Perfluorooctanoic Acid (PFOA), Perfluorooctane Sulfonate (PFOS), Perfluorononanoic Acid (PFNA) and Perfluorodecanoic Acid (PFDA)—emerging contaminants of concern for exposure in drinking water.

Perhaps the most meaningful and groundbreaking revision is the last – a proposed RC for PFAS.  PFAS are a family of emerging contaminants best known for their widespread use in firefighting foam and waterproofing and “non-stick” coatings.  Some observers have called PFAS a “coming tsunami” in environmental law.  Massachusetts’ experience with PFAS is not uncommon – according to MassDEP, at least 14 Massachusetts public water sources have had PFAS detections to date.  Expect more detections as standards are set and testing becomes more widespread.

A further primer on PFAS will have to wait for another post, but the takeaway is that MassDEP has set an aggressive RC of 20 parts per trillion (0.02 ug/L, or ppt) for six PFAS chemicals combined.  By way of comparison, in May 2016, the U.S. Environmental Protection Agency (EPA) issued a lifetime Health Advisory of 70 ppt for the combination of two PFAS chemicals, PFOS and PFOA, in drinking water.  More than two dozen other states have proposed rules addressing PFAS in various forms, although only New Jersey has set a binding drinking water standard of 13 ppt for PFNA.  Massachusetts will shortly join that list.  In addition to establishing an RC for PFAS under the MCP, expect a revised drinking water guideline to follow from MassDEP shortly.

Follow these pages for more updates as this story and public comment and hearing process unfolds.

Posted in Environmental, Hazardous Materials, Uncategorized | Tagged , , , , | Leave a comment

EPA Issues Interpretive Statement: Groundwater Discharges are Not Subject to the Clean Water Act

In a not-so-stunning development, the EPA on Monday issued an Interpretive Statement putting to rest speculation on EPA’s position as to whether groundwater discharges are subject to federal jurisdiction under the Clean Water Act (CWA).  The answer:  “No.” 

EPA’s 57-page Interpretive Statement carefully details the agency’s position.  EPA relies on the text of the CWA (focusing on broad review of the statute and the distinction it draws between navigable waters and groundwater, rather than a narrow reading of any particular provision), the legislative history of the CWA, and rulings from Fifth, Sixth and Seventh Circuits in Rice v. Harken Exploration Co., 250 F.3d 264 (5th Cir. 2001), Village of Oconomowoc Lake v. Dayton Hudson Corp., 24 F.3d 962 (7th Cir. 1994), and Kentucky Waterways Alliance v. Kentucky Utilities Co., 905 F.3d 925 (6th Cir. 2018). 

I think EPA has the better side of this argument and offers a more faithful reading of the CWA and its legislative history.  While the distinction between navigable waters and groundwater might appear arbitrary from a regulatory standpoint, there’s little doubt the CWA makes and Congress intended that distinction.  The Interpretive Statement, not surprisingly, also reflects the strong emphasis that EPA Administrator Wheeler has placed on “cooperative federalism” – that certain issues are the appropriate subject of federal regulation while others are purposely left to the states. 

While EPA’s Interpretative Statement is important in setting guidance for the regulated community, it is notably limited and does not apply in the Fourth and Ninth Circuits, where those circuit courts of appeal have ruled that “hydrologically connected” groundwater can be subject to federal jurisdiction under the CWA.  Of course, the real test will come in the U.S. Supreme Court in the pending Hawai’i Wildlife Fund v. County of Maui case.  It will be fascinating to see how the Maui case unfolds, and whether the Court will be able to muster a majority to draw a bright line as EPA has done, or whether its ruling will be more narrowly tailored to the facts in that case.  Stay tuned… 

Posted in Clean Water Act, Environmental, Hazardous Materials | Tagged , , , , , , | Leave a comment

Third Party Beneficiary Rights in Construction Contracts

Last week the United States District Court in Massachusetts issued an important decision concerning third party beneficiary rights in construction contracts.  In Arco Ingenieros, S.A. de C.V. v. CDM International Inc., Civil Action No. 18-12348-PBS, a design-builder incurred damages due to delays and other issues, and it sued one of the project engineers alleging several counts, including breach of contract.  Facing a motion to dismiss, the design-builder argued that it had standing to bring the claim as a third party beneficiary of the contract between the project owner and the engineer.  The Court disagreed.

Massachusetts generally follows the Restatement (Second) of Contracts for determining whether a third party may recover on a contract, which is that only intended third parties who derive a benefit from a contract can sue to enforce that contract.  The right is not extended to parties that incidentally benefit from or rely on the contract.  Whether a third party is an intended beneficiary is determined by looking at the contract terms.  If the terms are ambiguous, courts will look at extrinsic evidence, such as other documents or exchanges between the parties.

In this case, a federal agency was undertaking rebuilding efforts in El Salvador following a tropical storm.  The project owner hired CDM International Inc. (“CDM”) to provide initial site analysis and prepare a preliminary design, among other services.  The owner then hired Arco Ingenieros, S.A. de C.V. (“Arco”) through a competitive bid process as the project design-builder.  Arco relied in part on the preliminary design by CDM in preparing its bid and performing the work.  Arco alleged the project was delayed because of errors and omissions in the preliminary design prepared by CDM.  Arco sued CDM alleging several counts, including breach of contract, tortious interference, and misrepresentation.

CDM filed a motion to dismiss the breach of contract claim on the grounds that Arco was not an intended beneficiary of the contract between CDM and the owner.  The court looked at the particular contract language and held that the contract did not reflect any intent to benefit the design-builder.  Rather, the contract listed the services to be provided by CDM, all of which served to benefit the owner and its reconstruction project.  The Court held that Arco was an incidental beneficiary and did not have standing to sue on the contract.

This decision is consistent with other jurisdictions which generally do not support third party beneficiary status in the construction context without a clear indication of intent.  As the Court states, “[t]his is because significant construction projects generally involve multiple contracts that are ‘inevitably intertwined’ to ensure the project is completed in a timely manner according to the agreed-upon specifications.”

This decision is important for two reasons.  First, it reinforces significant and necessary risk protections for construction project participants.  In order to successfully deliver a project, several parties need to work intricately and collaboratively, and need to be able to rely on one another in a dynamic working environment.  If each was exposed to the others’ contract requirements, the level of risk would be untenable.  Second, it reinforces that contract drafting and due diligence is imperative in order to identify and mitigate this type of exposure.  Had the contract between CDM and the owner been drafted differently, for example with specific flow down clauses or third party beneficiary clauses, the Court may well have denied the motion to dismiss, and CDM may have been left exposed.

Posted in Construction, Contracts | Tagged ,

Title Defect? Here’s How to Keep Your Deal on Track

Law: Title Deeds and KeysYou are under contract to sell a commercial or residential property and your attorney tells you two weeks prior to closing that the buyer’s title search has revealed a title defect. While there is a large array of issues that could affect the title, we will use the most common title defect of an “Unreleased Mortgage” as an example here.

In most circumstances, an Unreleased Mortgage simply means that a Release of Mortgage (also known as Discharge or Satisfaction of Mortgage) was never recorded with the Registry of Deeds to put the world on notice that a borrower’s obligations under the note secured by the mortgage have been satisfied and that the mortgage is no longer a lien on the property. In the rarer of circumstances, an Unreleased Mortgage will actually have a balance that needs to be paid prior to the lender recording a Release. In either circumstance, you a have a few options to keep your deal on track so that the buyer doesn’t walk away.

  • File a Claim – if you have a title insurance policy, file a claim with your title insurance company. If your title defect is covered under the policy, the title company will issue a letter of indemnity to your purchaser’s title insurance company so that your sale can proceed. The letter of indemnity will indemnify the buyer’s title insurer from any losses incurred due to the title defect and will typically also contain an “undertaking clause” which means that your title insurance company will resolve the title defect after your closing.
  • Hire a Curative Vendor – if you don’t have title insurance, ask your attorney to contact the lender directly to obtain a Release, or in the alternative, have your attorney hire a curative vendor who specializes in obtaining Mortgage Releases. Curative vendors typically have direct contacts at most lending institutions thus making the turnaround time a lot quicker than trying to obtain the Release on your own.
  • Offer a Holdback – while this option is not always the most desirable, it may be one of your last options to keep the buyer in the deal. If the title defect cannot be resolved prior to closing but the resolution is nearing, you could agree to holdback a portion of the seller’s proceeds until the title defect is resolved. The release of the holdback funds will be conditioned upon you curing the title defect which will give the buyer some reassurance that you are not simply forgetting about them or the title defect the second you hand the keys over.

While these are not the only three options, they are certainly the most efficient options that can help keep your deal on track so that you close on time. It’s not uncommon for a title defect to hinder the sale of a property, and sometimes the resolution is not as simple as everyone hopes, but your willingness to work with the buyer can help keep the deal on track.

Posted in Mortgage, Title | Tagged , , | Leave a comment

Short-Term Rental Law Takes Effect July 1st

aribnbGovernor Baker recently signed “An Act Regulating and Insuring Short-Term Rentals”, imposing new taxes, registration and inspection requirements, and other rules governing the short-term rental of homes and residential units through Airbnb, VRBO, and similar platforms.

Overview:

The new law (Chapter 337 of the Acts of 2018) takes effect July 1, 2019, and applies to rentals for not more than 31 consecutive days.  The highlights of the law are as follows:

  • State excise tax of 5%, plus a .7% surtax on the total amount of rent.
  • Optional local excise tax of up to 6% (additional amounts in Boston and the Cape & Islands).
  • Optional local impact fee of up to 3% on certain units (up to 35% of revenue from the fee must be dedicated to affordable housing or local infrastructure projects).
  • Mandatory state-wide registration system.
  • Optional local registration programs and inspection requirements.
  • Mandatory insurance requirements.
  • Operators renting for 14 days or less each year are exempt from excise taxes and impact fees, but are subject to registration, inspection, insurance, and other requirements.

Local Regulations:

While all short-term rental operators must comply with the new state regulations, local requirements will vary town by town. Communities may impose additional local taxes and fees, but are not required to do so. However, the local tax automatically applies to short-term rentals as of July 1 in communities that previously adopted a room occupancy tax. Not sure of your community’s status? Check the Department of Revenue’s database.

In addition to taxes and fees, the new law provides specific authorization for local bylaws and ordinances to regulate short-term rentals with respect to:

  • Regulating the existence and location of short-term rentals, including the number of local licenses or permits that may be issued to operators and the number of days a person may operate and rent out an accommodation in a calendar year.
  • Establishing a local licensing or registration system.
  • Requiring zoning and code compliance for any short-term rental.
  • Requiring health and safety inspections and inspectional fees.
  • Imposing penalties for violations of local requirements.
Posted in Uncategorized | Leave a comment

Recovery of Attorney’s Fees and Costs in Construction Disputes

When construction projects become construction disputes, contractors and suppliers start thinking about how to recover their attorney’s fees and other legal costs.  Massachusetts follows the “American Rule” for recovery of legal expenses that states each party must pay their own attorney’s fees.  There are a few exceptions within the American Rule:  where a law or Court rule awards legal fees to a prevailing party or the parties’ contract provides for the recovery of legal fees.  Here are the most common circumstances in which parties who prevail in construction disputes can recover their attorney’s fees and other legal costs.

  • Prevailing on a claim for payment on a payment bond required for public construction projects under M.G.L. c. 149, § 29.  Pursuant to the statute, a judgment for a payment bond claimant “shall include reasonable legal fees based on the time spent and the results accomplished…”   A Massachusetts Appeals Court decision from 2016 confirmed that an award of fees is mandatory and not subject to a court’s discretion.  (Unlike a payment bond claim, a party cannot recover their attorneys’ fees for prevailing on a mechanic’s lien claim under M.G.L. c. 254.)
  • Prevailing on a claim for unfair and deceptive trade practices under M.G.L. c. 93A.  The bar is set high for unfair and deceptive practices between two businesses, but if a business obtains a judgment on its M.G.L. c. 93A claim, the Court shall award reasonable attorneys’ fees and costs, notwithstanding the amount of the judgment.
  • Where the parties’ contract provides for the recovery of legal fees.  The contract language does not need to be elaborate.  It is sufficient to state that a party “is entitled to recover its legal fees, including attorneys’ fees and costs, arising from a breach of this contract.”  What is necessary is that this agreement is in place as part of the parties’ contract and not simply added to documents sent by the parties later, such as an invoice or statement.

If these circumstances do not apply, you may still be able to recover some amounts over your principal damages if you win your claim.  Massachusetts statutory interest applies if the contract does not set the rate of interest that accrues on past due amount.  By law, interest will accrue at 12% per year (1% per month) from the date the debt was due until it is paid in full.  Additionally, Massachusetts law allows a party that prevails in court to recover limited out-of-pocket costs, such as filing and service fees and certain trial costs.  While this does not allow recovery of attorney’s fees, it gives a prevailing party some recoupment of their legal costs.

Construction disputes can be complex and pursing your rights is difficult without a solid understanding of the law.  For questions or assistance with your Massachusetts construction dispute, contact Jessica Murphy at (508) 791-8500 or another member of Mirick O’Connell’s experienced Construction Group.

Posted in Construction | Tagged , , | Leave a comment

Construction Insurance: Game of Risk

Steel Silhouette Explosion

Construction work is risky by nature.  Common risks include natural disasters, inclement weather, flood or fire, accidents t

hat cause property damage or bodily injury, and the failure of one or more parties to perform their designated responsibilities, resulting in defective work, negligent design, missed schedules, regulatory investigations, or the failure to make payment, among other things.  It is impossible for construction industry participants to avoid all of these risks.  Rather, prudence dictates a risk management portfolio that identifies risks and assigns a mechanism to reduce or eliminate the consequences of those risks, if they occur.  A primary mechanism is to maintain appropriate insurance coverages.

Natural Disasters, Weather, Theft, Fire

If your business or house is damaged by a natural disaster such as flood or wind, or by theft or fire, you logically look to a property insurance policy or business loss policy for coverage.  Most property policies, however, exclude damage to property under construction.  As a result, damage to the owner’s property, existing construction work, or the contractor’s materials or equipment is generally covered not by property insurance but rather by builder’s risk or all risk insurance, which is a niche property insurance product developed specifically for the construction industry.

Generally, builder’s risk insurance covers the out-of-pocket costs of repairing or replacing work damaged during construction.  These policies can vary significantly in terms of the scope of coverage and the types of allowable damages.  For example, some builder’s risk policies will cover not only direct damages but also indirect costs of delayed completion, such as lost overhead, additional fees incurred, and other similar costs.  Other policies will carve particular exclusions for types of losses, depending on the state of the work at the time of the loss.  For example, water damage may be excluded unless the building was weather tight.

Bodily Injury, Property Damage

Third-party claims of bodily injury or property damage are common risks associated with construction work.  These are the types of claims for which commercial general liability is intended to mitigate against.  However, whether your insurance policy will trigger defense or indemnity (i.e., payment) of a claim depends on several factors, including the timing and nature of the injury.

CGL policies are “occurrence-based” policies, meaning the policy will cover the claim as long as it was in effect at the time the event causing the injury occurred.  This analysis can become complicated, particularly in the case of latent or lingering property damage, or damage covered by subsequent work.

Some jurisdictions count the date of occurrence as the date when the damage is discovered or becomes apparent; others look for the date when the defective work is incorporated into the project; and others identify when the property is actually damaged.  Massachusetts uses a fact-based approach where the date of occurrence depends on the nature of the injury and the damage claimed.

Where the insurer agrees there has been an occurrence, within the meaning of the general liability policy, the insurer may still reject coverage if the claim falls within an exclusion.  A common exclusion in the construction context is the so-called “your work” exclusion, which states that the policy will not cover damage to faulty workmanship performed by the insured contractor.  Another example is the “contractual liability exclusion” which bars coverage for damages incurred by reason of assumption of liability in a contract.  The analysis does not end there, with exceptions to the exclusions, and endorsements that can restore or eliminate coverage.

Negligent Design, Errors, Omissions

Architects and engineers may design elements of a project in a way that might be deemed negligent, if the instruments of service are missing information, fail in their ultimate purpose, or result in nonconforming or noncompliant work.  Claims alleging negligent design are generally covered by professional liability insurance policies, sometimes referred to as “errors and omissions” coverage.  Unlike commercial general liability policies, professional liability policies are “claims-made” policies, meaning that they will cover claims made or asserted during the policy period, or within a designated time after the effective dates of the policy.  It is therefore important to notify the insurer of claims or potential claims as soon as the insured becomes aware of their existence.  Late notice which causes prejudice to the carrier’s ability to investigate a claim is a common ground for denial of a professional liability claim.

Posted in Construction, Hazardous Materials | Tagged , , , , , | Leave a comment

A Landfill Is Not a “Point Source” Under the Clean Water Act, So Says the 4th Circuit and D.Mass.

Two recent rulings address the issue of whether a landfill is a “point source” under the Clean Water Act, 33 U.S.C. § 1251 et seq. (CWA), Sierra Club v. Virginia Electric et al and Toxics Action Center et al v. Casella Waste Systems et al.  While much of the attention in CWA litigation recently has focused on the scope of CWA jurisdiction over groundwater as “Waters of the United States,” the “point source” question is not one to be overlooked.

A little background:  the CWA generally prohibits the “addition of any pollutant to navigable waters from any point source” without a permit.  33 U.S.C. § 1362(12) (emphasis added).  “Navigable waters” are “the waters of the United States, including the territorial seas.”  33 U.S.C. § 1362(7).  A “point source” includes “any discernible, confined and discrete conveyance, including but not limited to any pipe, ditch, channel, tunnel, conduit, well, discrete fissure, container, rolling stock, concentrated animal feeding operation, or vessel or other floating craft, from which pollutants are or may be discharged.”  33 U.S.C. § 1362(14).

In September, the 4th Circuit in Sierra Club v. Virginia Electric et al ruled that a landfill and settling pond was not a “point source,” and therefore, not subject to CWA jurisdiction.  Focusing on the plain language of the CWA, the Court found that “the landfill and ponds were not created to convey anything and did not function in that manner … Indeed, the actual means of conveyance of the arsenic was the rainwater and groundwater flowing diffusely through the soil … Thus, the landfill and settling ponds could not be characterized as discrete ‘points,’ nor did they function as conveyances.”

More recently and closer to home, the U.S. District Court for the District of Massachusetts (Hillman, J.) came to the same conclusion concerning the Southbridge Landfill in Toxics Action Center et al v. Casella Waste Systems et al.  Like the Fourth Circuit, Judge Hillman did not decide whether a “hydrological connection” between groundwater and Waters of the U.S. is sufficient for CWA jurisdiction.  Instead, citing the 4th Circuit’s decision in Sierra Club, the Court found CWA jurisdiction lacking because the landfill is not a discrete point source within the meaning of the CWA.  Under the Court’s analysis, generalized diffusion through groundwater is insufficient to satisfy the requirement under the CWA that the discharge be from a discrete point source.

There is no doubt that litigants will continue to test the limits of CWA jurisdiction, both on the issues of Waters of the U.S. and the point source requirement.  Sierra Club and Toxics Action Center signal a growing trend that alleged, non-discrete discharges from a landfill to groundwater are insufficient to satisfy the point source requirement for CWA jurisdiction.

NOTE:  My firm and your humble author were counsel to the Town of Southbridge, a defendant in the Toxics Action Center case.

Posted in Clean Water Act, Hazardous Materials, Municipal, Uncategorized | Tagged , , , , , , , , | Leave a comment

The New Massachusetts Clean Energy Bill: Solar Advocates Left Waiting for the Next Installment

solar photo for blog (A5585845x7A575)

On July 31, 2018, the final day of its formal session, the Massachusetts legislature passed H. 4857, An Act to Advance Clean Energy, which Governor Baker signed into law on August 9.

The bill represents several important steps forward in the Commonwealth’s path toward a clean energy future. Highlights of the bill include the following:

  • Renewable Portfolio Standards.  From 2020 through the end of 2029, retail electricity suppliers must increase the amount of energy procured from renewables by 2% per year, resulting in a requirement that retail electricity suppliers procure 35% of their energy from renewables by 2030.  (Previously, there was a 1% increase per year, resulting in a 25% standard for 2030.)
  • Clean Peak Standard. Massachusetts will become the first state in the nation to implement a so-called “clean peak standard,” which will provide incentives for the use of clean energy during periods of peak energy consumption. Beginning in 2019, and pursuant to standards and processes yet-to-be developed by the Department of Energy Resources (“DOER”), retail electricity suppliers will be required to “provide a minimum percentage of kilowatt-hour sales to end-use customers… from clean peak resources,” meaning resources that are not only “clean” but also delivered during peak consumption periods.
  • Storage Target Goal. Through policy-making authority granted to DOER, Massachusetts will attempt to store 1,000 megawatt-hours (“MWh”) of energy by 2025.
  • Mobile Battery Research. The bill charges DOER with studying “the feasibility of a mobile battery storage system to serve as a mobile emergency relief system that can respond to extreme weather events or power outages.”
  • Offshore Wind. DOER has the authority to require electric distribution companies to procure 1,600 MWh of offshore wind energy in addition to the 1,600 MWh previously prescribed in 2016 legislation.
  • Qualifying Technologies for Incentive Programs. Additional types of technologies, “including energy storage and other active demand management technologies and strategic electrification,” are eligible for energy efficiency incentive programs.

Despite these advances, many clean energy stakeholders, especially those in the solar industry, are judging the bill more by what was left out than by what made it in. Most notably, the bill does not increase the caps on “net metering,” the mechanism by which solar facility owners receive credit for electricity sent to the grid in excess of the electricity used on site.  The current caps have hindered the solar industry in continuing to make a compelling case for customers to install solar facilities on their buildings in non-residential settings.  The absence of any increase to net metering caps stands in stark contrast to the Senate version of the bill, which would have eliminated the caps altogether.

The final bill fell short of its Senate-passed predecessor in two other respects concerning solar. (It should be noted that the Senate version provided more ambitious clean energy policies in almost every area, not just solar.)  First, the final bill dropped provisions that would have delayed the imposition of a new charge on solar net metering customers known as a “minimum monthly reliability contribution,” settling instead for restrictions concerning customer notification of the charge.  Second, the final bill eliminated language that would have helped expand solar access to lower-income households by providing public housing residents with net metering reimbursements at full retail rates and removing limitations on the sharing of net metering credits by geographic “load zones.”

For clean energy advocates, there is little dispute that the recent bill is a step in the right direction, although the size and boldness of that step is subject to varying characterizations.

Posted in Uncategorized | Leave a comment

Zoning Appeal Plaintiff Must Prove Standing, Even if Defendant Town Does Not Contest Issue at Trial

On Tuesday, the Appeals Court issued its opinion in Talmo v. Zoning Board of Appeals of Framingham.  Massachusetts suffers no shortage of case law on standing (the right to file suit) in zoning appeals.  In this case, the issue was whether the abutter’s “injury” was sufficient to create “standing” to appeal Framingham’s issuance of a building permit to his neighbor to convert a barn into “additional” living space.  This otherwise routine standing case is notable for two reasons.

First, it’s a useful reminder that a fatally flawed case can remain fatally flawed, even if the opponent doesn’t press the issue at trial. Here, Land Court Judge Howard Speicher found sua sponte (without being asked to do so by the parties) that Talmo lacked standing to bring his appeal.  Although Framingham had asserted a lack of standing as an affirmative defense, it never contested Talmo’s standing at trial.  Nevertheless, Judge Speicher found Talmo had no injury sufficient to confer standing.  Concluding that standing was a “jurisdictional prerequisite” to proceeding with the case, the Appeals Court affirmed.

Second, Talmo’s “presumptive” standing as an abutter was just that, a presumption. To have standing, the abutter’s injury must be more than speculative, and it must be different than the concerns of the rest of the community.  In this instance, Talmo’s home was more than 250 feet from the offending barn and buffered by trees, boulders and other landscaping.  The Court also rejected Talmo’s suggestion that his drinking water well was contaminated by the barn’s septic system.  Based on those facts, Judge Speicher concluded, and the Appeals Court affirmed, that Talmo’s presumptive standing was rebutted by the facts, including Talmo’s own testimony.

Now, if I could only get Elton John’s “I’m Still Standing” from replaying in my head. Over and over again…

Posted in MetroWest, Uncategorized, Zoning | Tagged , , , | Leave a comment

(Reluctantly) Open for Business: Momentum Gathering for Expanded Use of Continuous Operations Clauses

Two recent court decisions may embolden commercial landlords to use a familiar lease provision in an unusual way when responding to tenants seeking to close their business operations before the end of the lease term.

Continuous operations clauses are common features of commercial leases. Such a provision will often require a tenant to operate its business on certain days and during certain hours. Landlords use these clauses as a means of ensuring that their properties stay active, attractive, and profitable. Landlords do not, with rare exceptions relating to “anchor tenants,” use these clauses as the basis of a suit for injunctive relief to compel a tenant to operate a failing store throughout the remainder of the lease term, at a loss, and against its will.

But that’s just what two landlords have successfully done.

In Simon Property Group L.P. v. Starbucks Corporation, Case No. 49D01-1708-PL-032170 (Indiana Superior Court), the tenant, Starbucks Corporation, announced that it intended to close all of its Teavana stores across the country, including seventy-seven mall locations leased from Simon. The leases at issue contained various forms of continuous operations clauses, many of which expressly provided that Simon could seek specific performance to require Starbucks to continuously operate its Teavana stores. So instead of taking the well-worn path to remedies — recovering future rent and finding new tenants — Simon went to court demanding that Starbucks stay put. An Indiana judge issued a preliminary injunction preventing the closures despite conceding that “no court has ever entered preliminary or permanent injunctive relief to specifically enforce a continuous operations covenant against a non-anchor tenant extending nationwide.” Just a month later, in Bellevue Square, LLC v. Whole Foods Market Pacific Northwest, Inc., Case No. 17-2-27617-1 SEA (Washington Superior Court), a Washington judge granted the landlord’s request for a preliminary injunction requiring a Whole Foods concept grocery store branded “365 by Whole Foods Market” to remain open after Whole Foods announced that the store would close.

In the Whole Foods case, as in the Starbucks case, not at issue was whether the tenant would be breaching the lease by closing — that much was clear. The question in both cases, rather, was whether the landlord had available to it an adequate legal remedy, namely the recovery of monetary damages, that made the issuance of injunctive relief inappropriate. The judge in the Whole Foods case found that the grocery store’s closure would cause irreparable harm to the landlord, including negative effects on the landlord’s ability to secure financing on the property, on its lease negotiations with other tenants, and on the general reputation of the shopping center.

The limits of this reasoning — how small can the ripple effect of a closure be to justify an injunction? — remain unclear, but these two decisions represent a striking sensitivity to landlords’ efforts to create balanced, successful commercial centers. Just take the following excerpt in the Starbucks decision, in which the judge approvingly cites Simon’s expert witness as explaining, “[A] mall is not a random collection of stores, but rather is a co-dependent ecosystem that derives its success from the curation of a particular tenant mix, commonalities, externalities and cross-promotion.” Think about that the next time you’re trying to orient yourself on a mall directory map.

For tenants, these decisions should serve as a cautionary tale. If a tenant expects that it will be allowed to perform an “efficient breach” of the lease to close a failing location, that expectation should be factored into the drafting of any continuous operations clause.

Landlords should also give additional attention to the wording of these clauses. To improve its chances of succeeding in an action for injunctive relief, a landlord should include in the lease a right to obtain specific performance for breach of the clause and an acknowledgment by tenant that such a breach would cause the landlord irreparable harm that makes the right of specific performance necessary.

But before respectively fretting and celebrating over these two decisions, tenants and landlords should consider some matters of context. Starbucks and Whole Foods are especially large and financially strong companies, ones able to survive the requirement to keep open unprofitable locations. Prior to succeeding against Starbucks, Simon had failed in its attempts for injunctive relief to keep open Kenneth Cole stores as well as stores owned by Wolverine World Wide (including Stride Rite and Sperry) because the harm to the tenants of continuing to operate was deemed more detrimental than the imbalance that would befall the landlord’s “ecosystem” due to the tenants leaving.

Regardless of whether or not the Starbucks and Whole Foods decisions portend a larger shift in the courts, landlords and tenants should give continuous operations clauses careful consideration.

Posted in Uncategorized | Leave a comment

Construction Defect Claims and the Often Misunderstood Application of Express and Implied Warranties

excavators-800996_1920A claim for breach of construction warranty must be filed within the time allowed by the applicable statutes of limitation or repose.  Most jurisdictions, including Massachusetts, allow parties to modify that period by agreement.  The agreement must be particular and leave no question as to the intent of the parties to alter the period of limitations for breach of warranty claims.  A poorly drafted or ambiguous provision is likely to be construed as a separate promise by a contractor to return and address defective workmanship, in addition to other warranty obligations.  The owner and contractor equally benefit from clarity in understanding their respective rights and obligations when it comes to warranty requirements.

The statute of limitations for a breach of express warranty claim is generally determined by the statute of limitations for breach of contract.  The time of accrual of the statute of limitations will vary depending on the state.  For example, some states’ statutes of limitations accrue at substantial completion, while others accrue upon discovery of the disputed defect.  A breach of implied warranty claim is generally regarded as a claim sounding in negligence, and is therefore subject to state statutes of limitations for negligence.  In most jurisdictions, including Massachusetts, this means that implied warranty claims must be brought within three years of the time that the claim was discovered or reasonably should have been discovered.

For breach of warranty claims involving the sale of goods, the UCC provides a four-year statute of limitations.  The UCC allows parties to reduce the period to no less than one year, but the period may not be extended.  Subject to certain exceptions, UCC warranties, express or implied, commence upon the tender of the goods, without regard to whether the tender was of conforming or conforming goods.  This is a drastic limitation because the breach is deemed to occur at the tender of delivery and not when the defect is discovered.  This concept excludes claims for latent defects and claims under warranties that are by their nature explicitly extend to future performance.

Regardless of the time of discovery of the breach of warranty, a statute of repose may well prevent an untimely claim.  In Massachusetts, M.G.L. c. 260, § 2B contains a six-year statute of repose in which time any action of tort for damages arising out of any deficiency or neglect in the design, planning construction or general administration of an improvement to real property.  Unlike a statute of limitations, a statute of repose is inflexible, regardless of the date of discovery.

Contract language is paramount and will in most instances, dictate the extent of warranty obligations.  The relevant language in the American Institute of Architects (AIA) A201 General Conditions of the Contract for Construction, commonly referred to as the “quality standard,” reads as follows:

A claim for breach of construction warranty must be filed within the time allowed by the applicable statutes of limitation or repose.  Most jurisdictions, including Massachusetts, allow parties to modify that period by agreement.  The agreement must be particular and leave no question as to the intent of the parties to alter the period of limitations for breach of warranty claims.  A poorly drafted or ambiguous provision is likely to be construed as a separate promise by a contractor to return and address defective workmanship, in addition to other warranty obligations.  The owner and contractor equally benefit from clarity in understanding their respective rights and obligations when it comes to warranty requirements.

The statute of limitations for a breach of express warranty claim is generally determined by the statute of limitations for breach of contract.  The time of accrual of the statute of limitations will vary depending on the state.  For example, some states’ statutes of limitations accrue at substantial completion, while others accrue upon discovery of the disputed defect.  A breach of implied warranty claim is generally regarded as a claim sounding in negligence, and is therefore subject to state statutes of limitations for negligence.  In most jurisdictions, including Massachusetts, this means that implied warranty claims must be brought within three years of the time that the claim was discovered or reasonably should have been discovered.

For breach of warranty claims involving the sale of goods, the UCC provides a four-year statute of limitations.  The UCC allows parties to reduce the period to no less than one year, but the period may not be extended.  Subject to certain exceptions, UCC warranties, express or implied, commence upon the tender of the goods, without regard to whether the tender was of conforming or conforming goods.  This is a drastic limitation because the breach is deemed to occur at the tender of delivery and not when the defect is discovered.  This concept excludes claims for latent defects and claims under warranties that are by their nature explicitly extend to future performance.

Regardless of the time of discovery of the breach of warranty, a statute of repose may well prevent an untimely claim.  In Massachusetts, M.G.L. c. 260, § 2B contains a six-year statute of repose in which time any action of tort for damages arising out of any deficiency or neglect in the design, planning construction or general administration of an improvement to real property.  Unlike a statute of limitations, a statute of repose is inflexible, regardless of the date of discovery.

Contract language is paramount and will in most instances, dictate the extent of warranty obligations.  The relevant language in the American Institute of Architects (AIA) A201 General Conditions of the Contract for Construction, commonly referred to as the “quality standard,” reads as follows:

§3.5 WARRANTY

The Contractor warrants to the Owner and Architect that materials and equipment furnished under the Contract will be of good quality and new unless the Contract Documents require or permit otherwise. The Contractor further warrants that the Work will conform to the requirements of the Contract Documents and will be free from defects, except for those inherent in the quality of the Work the Contract Documents require or permit. Work, materials, or equipment not conforming to these requirements may be considered defective. The Contractor’s warranty excludes remedy for damage or defect caused by abuse, alterations to the Work not executed by the Contractor, improper or insufficient maintenance, improper operation, or normal wear and tear and normal usage. If required by the Architect, the Contractor shall furnish satisfactory evidence as to the kind and quality of materials and equipment.

The contractor therefore warrants (1) that materials and equipment used by the contractor will be new and of good quality unless otherwise required; (2) the work will be free from defects other than those inherent in the work as specified; and (3) the work will conform to the requirements of the contract documents.  This is a relatively unremarkable, vanilla promise on the part of the contractor.  Notably, there is no time limitation.

The A201 also contains a one-year “call-back period,” which reads as follows:

§12.2.2.1 In addition to the Contractor’s obligations under Section 3.5, if, within one year after the date of Substantial Completion of the Work or designated portion thereof or after the date for commencement of warranties established under Section 9.9.1, or by terms of an applicable special warranty required by the Contract Documents, any of the Work is found to be not in accordance with the requirements of the Contract Documents, the Contractor shall correct it promptly after receipt of written notice from the Owner to do so unless the Owner has previously given the Contractor a written acceptance of such condition.

This language is generally construed by the courts as a separate promise by the contractor to return and address defects when properly notified by the owner, for a one-year period following substantial completion.  Therefore, it does not represent or constitute a one-year contractual warranty period.

A contractor wishing to eliminate warranty obligations beyond a designated, contractual period must clearly state as much in its written contract with the owner.  The written term must explicitly state the intent of the parties is to limit all warranty obligations, express or implied, except for that which is specifically contained in the subject clause.  Any language that falls short of this standard may well fail to accomplish the type and extent of limitation intended or expected by the contractor.

In this author’s experience, most contractual warranties fall short of this standard, and therefore most contractors operate under a false sense of security that their warranty obligations are so limited.  In fact, these obligations can extend for several years out, depending on the nature of the defect and how and when the defect is ultimately discovered.  As a result, the contractor (and the surety) may well be exposed to extended liability until the state statute of limitations or statute of repose has run.  The risk to the contractor is substantial.  Large-scale construction defect claims often lay hidden in the weeds for years before the true extent of the damage manifests.  When the risk does occur, years have passed making investigatory and analysis functions more difficult and sometimes impossible, if witnesses have died, companies have folded, or landscapes have changed.  Front-end due diligence and contract preparedness will go a long way towards mitigating against this risk.

Posted in Construction, Contracts | Tagged , | Leave a comment