Shownotes
Butler Snow is one of the best law firms that is committed to help and provide value and client satisfaction with over twenty offices nationwide. Dave Mayhan and Sarah O’ Brien are attorneys in Butler Snow specializing in litigation, particularly in defense of real estate and construction professionals. They share the typical challenges their clients face and how they are engaging with them, as well as walk us through their expertise in real estate and construction legalities.
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Butler Snow: Your Guide To Legal Matters with Dave Mayhan, Sarah O’ Brien, and Guest Co-Host Meranda Vieyra
We have Dave Mayhan and Sarah O’Brien. They’re with Butler Snow. I have my co-host, Meranda Vieyra. She’s with Denver Legal Marketing. Welcome to the show.
Hello, Bob and Meranda.
Tell us a little bit about Butler Snow and what you do?
Butler Snow is the law firm with over twenty offices and way over 40 specialty areas of law. Sarah and I have been in Denver for our entire careers. We’ve got a combination of nearly 50 years of practice. We specialize in litigation and in particular the defense of real estate and construction professionals.
I think about driving into Denver and driving over here. It’s like cranes are sprouting from every nook and cranny. I would imagine given the pace of construction, not only in Denver but across the nation that you guys are busy. What does your typical client look like?
I don’t know if there’s a typical client. The construction industry involves a broader range of professionals from those involved in the development, design and contractor professionals to inspectors. It provided a lot of employment here in town and it will continue to do so as people move here. Every client is unique and every subspecialty has different issues. We were all collectively trying to figure out how we can best plan and develop proper construction both in residential and commercial real estate as this town grows. We’ve seen growth in the past, but this is just the tip of the iceberg.
As you guys look out across your client base and the typical challenges that your clients face, we were talking about being proactive to start with. When you guys are either engaged or retained for somebody for business, what are some of the proactive things that you could advise somebody in the trades that you represent that they might consider?
One of the first things we would recommend is that you need to own your contracts, which is more than keeping the paper. Often somebody will hand you a contract that’s a standard agreement that is going to immediately be bent toward their benefit. We recommend that those be reviewed and modified and negotiated so that your contracts are to your benefit. From things all the way from limitations of liability to insurance issues, indemnity language up front. That’s a very important thing to address before you even start the project.
For me, if I was to read a contract and I’m not a contract attorney, I may not see the nuance. There may be a piece that sticks out at you when you first look at it and go, “I wouldn’t sign it that way.” Do you find that given the pace of construction in Denver, that there are a lot of contracts that are signed quickly? If so, what would you advise if people are going down that road?
We’re better than some. Smart people don’t read all their contracts. There’s an assumption or maybe a trust in someone. When you develop a team and you’re in a construction project, there needs to be that trust. Oftentimes, even smart people don’t read their entire contract and they take things for granted. When you do read that, you need legal expertise to know how your dispute resolution process is handled. Whether you’re going to be handling that upfront, how well you need to document your work. Even in the post-construction phrase, how do the warranty and resolution process work? All those are details that we’ve experienced both on the backend in terms of the litigation over those, so we can provide clients with valuable insight to be proactive, deal with those issues up front, iron out those problems. If and when you get into a dispute, it doesn’t turn into a disaster in the litigation or arbitration. Maybe sometimes you can even avoid that.
You cover the broad range and the construction side. Are there top one, two or three problems that you see repetitively that a business owner could easily avoid if they would pay attention to what you tell them?
One that we were discussing that you see a lot when you get to the point of litigation, construction projects, especially big ones is that there’s a lot of documentation. When you get to litigation, everybody goes back to the plans and specifications and the project built pursuant to them. What we have noticed a lot of changes are made as the project moves forward, but they’re not always documented well. If you end up in litigation and you’ve made a change to the drawing but the architect didn’t sign off on it or you don’t have a change order in the file, you can bet that by the time they get to litigation there’s going to be a dispute about whether that change was approved, who approved it, did it get paid for? One that I would put out there is document your file well, making sure that your design professionals are signing off on changes to the design because we see that issue come up a lot that in our world, the “design defect” then it wasn’t built for the design. That’s a big mess when you get to litigation. That could probably be at least lessen if you better documented what changes are made, who’s approving them, why they’re being made.
If you can solve the problem, go in there and do whatever it is you have to do to fix that problem.
Another common mistake is to kick the can down the road. These projects are time-sensitive and time is money. Just about every business, we have that situation but imagine the contracting. You got to get the thing built. You want to have the owner have access. You have a thousand different people involved from the planning, development, building inspectors and whatnot. Sometimes the pressure is so great to get that project done that these project disputes that arise during the construction or even in the plan can get kicked down the road. It’s not a good idea. You want to address those promptly and resolve them. The longer you wait, the worse it gets. It’s often the case.
It sounds to me that you are partners in the construction trades without being an employee and trying to do. I would think that would be optimum if I was the business owner. How do we get you on board and make sure you don’t make a mistake if somebody is pushing me to finish and do a change of work without documentation and being signed off? Do you want to be a bad guy or do you want to make sure that you preserve your business? That’s what it would seem like to me.
That’s a good way to look at it. I gave this example to Meranda once. My uncle was a dentist. We all think that preventative health care dentistry is important. You wouldn’t think about waiting to go to the dentist for years until your mouth hurts. If you do, sometimes it’s too late. In litigation, if we’re brought in after the dispute goes to a summons, a complaint or somebody notices arbitration with AAA or some other forum, there’s only so much you can do at that stage. The facts are let out. The contracts were signed. The disputes have developed without enough background and documentation as Sarah said. Bringing somebody in a proactive or preventive measure does cost money and time up front, but sometimes it can save your dividends later on.
My father’s advice is you only floss the teeth you want to keep.
Focusing a little bit on housing and the building demand that’s going on here in Colorado, we’re seeing a trend of low inventory. I wanted to focus on how has that lack of inventory impacted new construction in Colorado?
I don’t know the low inventory is impacting construction. There are a lot of things going on. The population is rising fast. It’s hard to keep up with that pace. We’ve noticed over a number of years multifamily for sale construction lessened in the metro area. There are a lot more apartments. It could be many reasons. Maybe Millennials don’t want to buy. They want to rent. We’ve heard from construction professionals a lot that finding skilled labor has become much harder. There’s very low unemployment in Colorado, so if you can’t find the right people to build, the building slows down. Probably those things affect what inventory is out there, where maybe what we’re seeing a lot of is already built inventory going back and forth. There’s always new construction in Colorado. It’s a matter of finding where it’s being built.
What we’ve experienced is the balance of inventory has been skewed. We have a huge amount of apartment construction in the last several years and not a very significant amount of condominium or townhome development. One of the big impacts of that is we’ve had a very aggressive plaintiff’s bar and very skewed laws that favor the lawsuits and plaintiffs’ bar versus the development and construction industry. It’s gotten hugely expensive to get insurance. The litigation over the condo in townhomes has been so great that it’s scared people away from that market. We are seeing people trying to step into that. There’ve been some measures in the legislature to limit appropriately construction defects in order to provide a remedy to people who have a problem, but at the same time treating builders, contractors, and developers fairly. We’ve had a difficult time here. There’s a disincentive for builders in this town and on this state to build ownership-based work, meaning condominium or townhome development because it’s gotten so costly from the litigation side.
Do you think they’re trying to fill a little bit of that gap with restoration work from the perspective of a construction litigator? What kind of legal issues are you saying?
We see legal issues in restoration, but primarily we’ve seen litigation over large size, multifamily townhome, and condominium development. One of the ways of the plaintiffs’ bar is trying to take advantage of that. If you have a hundred-unit complex and they claimed that all the windows have problems even though some of them have and not all. They want to claim that all of them need to be replaced. It ratchets up exponentially the expected costs. The difficulty of going into litigation is most jurors are homeowners or they want to be homeowners. How do you sell on the defense side a legitimate restricted repair when most of those people give the benefit of the doubt to the homeowner? I’m a homeowner myself, and I’ve had issues with a new house that I had built many years ago.
I understand that there’s a difference between real damages and something that’s a figment of some lawyer’s imagination trying to get a big claim. We’ve had various high damage awards given in cases. It winds up on the back end that the actual repair and reconstruction work has been a fraction of what they claimed they needed. What the result is it has fattened the wallets of a lot of plaintiffs lawyers to the expense of the builders and contractors and even the homeowners later on. They have to pay for higher insurance premiums because we’ve had a slew of litigation.
Are there any legal preventative measures that new construction and reconstruction focused companies should be taking when we’re looking at the growth continuing in Colorado?
Sarah has touched on that too and she can add to this. Being proactive right up front in terms of the contracts is one of the most fundamental areas. If you line up your dispute resolution process, the proper insurance, and proper planning to coordinate with all your teams who are building, developing, designing, and ultimately producing this product for sale, those are important first steps.
Butler Snow: There’s a difference between real damages and something that’s a figment of some lawyer’s imagination trying to get a big claim.
We were discussing that sequencing is an important element of building a big construction project and oftentimes that’s not documented well. It’s pretty easy nowadays to take pictures of what things look like at different phases of construction. If it ends up in litigation, you’re not questioning who did, what works, when. We’ve seen the success that people have had with bringing in inspections during construction. You know the elements of construction that are most likely to get raised for big money, windows, stucco wrap. If you bring in someone to inspect and/or your design professional in to inspect the installation while it’s being done and sign off and approve it, that’s very helpful in avoiding a significant lawsuit over that. Also, we talked about warranty work. If you can solve the problem, if you have a hundred units and two of them have a window leak, they make a warranty claim. You go in there and do whatever it is you have to do to fix that problem. You avoid the HOA calling in a plaintiffs’ lawyer and an expert who’s going to come in and nitpick every single thing in that building. Now you’ve gone from a couple of windows leaking to a $10 million defect suit.
Documentation takes on an interesting standpoint. The practice of law has changed and so was construction. There are creative ways to do this. Documentation, we learned that as lawyers. We read cases. We live in the paper world, but now it’s all electronic. What’s fun in this day and age is you can take an iPad, take a picture, draw on it, send it to a project manager who’s in another state, or maybe even in another country to get clarification or a change or an RFI. You can use drones to examine buildings that are going up at high rises. It’s an exciting time to be in the field. For those people who are on the cutting edge of technology, both on the legal side and on the building side, it creates great economies, great fun.
I think about the technology we have here. My partner in the practice races. Every car has to have a 360 GoPro on top. If there’s a wreck, they can assign who did it and who’s paying for it. If you were a construction supervisor with a GoPro walking through the site and say, “Here’s where we are and here’s what we did,” it would seem that would be better than zero.
I liked the idea of utilizing technology. I know insurance companies are using drones in a very different way to change the claim process for lots of different commercial industries. I like the idea of using technology to protect your interests and being proactive about it. It takes two seconds to take a photo. That’s an idea for litigators in general of helping their clients.
You were talking too when you go in front of the judge. The judge may or may not be familiar with a defined point of construction perhaps, but the imagery, it would seem like to me from technology, “This is what it should be. Here’s the drawing. Can you see the disparity?” The visuals would be compelling.
I always liked the famous Aristotle quote “The soul does not think without an image.” If you have a presentation, an image, a cracked window or a damaged foundation, it’s very compelling, but similarly, what limits there are to those damages and what’s not needing to be repaired are also similarly needing to be shown. I’ll never forget I broke my foot. I was about ready to try a five-week construction arbitration case. I had about a dozen banker’s boxes around me on my couch in my house. My son, who’s going to high school, he looks at me and he said, “Dad, you could put that all on your iPad.” I said, “What? I don’t have time.” He said, “I’ll show you.”
Within about an hour and an hour and a half, I learned how to use this pad. Four weeks later, I tried a case using it. After that, there were about a dozen lawyers involved and at least half of them came up to me after my opening and said, “How can you that? Can you show me how to use that?” I did. I’ve given presentations. I’ve written a chapter in the Colorado Trial Handbook on technology in the courtroom. I’ve found that I even struggled to keep up, even though I’m active in this because there are such changes. This is valuable from not just the law but even in the construction world. I’ve learned from construction managers on site who take pictures and used PDF Expert or other programs to send questions to their lawyers or back to their office. Also, to use in the presentation scale when you can show select documents to a jury or a judge from a pad or from other similar technology. It brings home a complex topic. You can image in your mind what somebody is talking about.
I have a property manager the same way. You have this side on your property, so send me a picture. You give me the picture, and I’ll say, “I see what you’re saying. Let’s go ahead and do it.”
We’ve used that for document review. We’ve used that for onsite project connectivity, so it’s wonderful.
I’m going to turn it over to Bob on construction contracts.
I’m the construction company owner. I’m busy and excited about the pace of everything. There’s probably a modest opportunity that I might overlook something given my particular behavior. For creating a contract where there’s warranties, insurance, attorney’s fees, what advice might you offer to me as that construction company owner?
Hire a lawyer and make sure that you own your documents. To play on what Sarah had mentioned, the need is to not accept something that somebody gives you. These projects are multifaceted. They involve a lot of detail from the planning, the development, the building permitting stage. You’re dealing with multiple subcontractors and contracts.
You only floss the teeth you want to keep.
I have an attorney that wrote my will.
I bet that attorney, if he or she is worth their salt, he or she listened and talked to you and found out your needs. Getting back to...
