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March 2013

Quarterly Construction Law Insight

First Quarter 2013

Gordon & Rees's Construction Group consists of more than 80 lawyers covering the nation in our 28 offices. Indeed, last month we launched an office in Philadelphia, Pennsylvania. Our Construction attorneys focus their practice on the comprehensive range of legal service required by all participants in the construction industry -- architects, engineers, design professionals, design joint ventures, owners, developers, property managers, general contractors, subcontractors, material suppliers, product manufacturers, lenders, investors, state agencies, municipalities, and other affiliated consultants and service providers.

We serve clients who design, develop, or build all types of structures, including commercial buildings, single and multifamily residential projects, industrial facilities, universities, hospitals, museums, observatories, amusement parks, hotels, shopping centers, high-rise urban complexes, jails, airports, bridges, dams, and power plants. We also have been involved in projects for tunnels, freeways, light rail, railway stations, marinas, telecom systems, and earth-retention systems. Our experience includes private, public, and P3 construction projects.

On a quarterly basis, we provide important nationwide information about the latest construction industry news and legal developments.  Our national construction practice platform allows us to provide insight into developing trends and legal changes throughout the country.  This edition of the newsletter is intended to provide information for those concerned about managing construction-related risks and disputes.

If you have questions about this issue of the Construction Quarterly newsletter or our nationwide construction practice, click here to visit our practice group page or contact Mark Russell or George Milionis.

  1.  Disclosure of Commercial Building Energy Use 

  2. New Lien Laws for California Design Professionals

  3. Construction Law Developments and Perspectives

    A.    California Court of Appeals Expands and Clarifies Architect’s Duty of Care to Third-Party Purchasers/HOAs

    B.    Nevada Supreme Court Holds that Equitable Subrogation Doctrine Cannot Subordinate Other Lien Claims After Construction Begins

    C.    California’s “Completed and Accepted” Doctrine Expanded to Protect Architects

    D.    Be Efficient – California Law Places Time Limits on Certain Depositions

  4. Speaking Engagements and Other Important Events

  5. About Gordon & Rees's New Transactions & Construction Counsel

I. Disclosure of Commercial Building Energy Use

 Andrew Wallace



New Laws for Disclosure of Commercial Building Energy Use

By Eric Young - San Diego Office

The California Energy Commission (CEC) recently adopted regulations implementing the Nonresidential Building Energy Use Disclosure Program (California Code of Regulations, Title 20, §§1680-1684), which will (i) require the owners of nonresidential buildings to benchmark and disclose the building’s energy use prior to any “major financial transaction” — i.e., prior to a sale or refinancing of the building or a lease of the entire building and (ii) require public utilities and other energy service providers to release energy use data to enable building owners to comply with the disclosure requirements. The regulations are intended to further the stated purposes of AB 531 and AB 1103 (codified in §25402.10 of the California Public Resources Code) to promote energy efficiency in the use and operation of commercial buildings throughout the state. The law is similar to a regulation applicable to commercial buildings in New York City — where 80 percent of total carbon dioxide emissions come from the heating and cooling of buildings — that now requires full public disclosure of building energy use data.

Prior to any sale, refinancing or lease of an entire building in California, the owner (or its agent) will be required to establish and disclose a baseline for the building’s energy use over the preceding 12-month period using the online “ENERGY STAR® Portfolio Manager” program established by the U.S. Environmental Protection Agency (EPA) through the following process:

1. Not less than 30 days prior to the date on which the applicable disclosure is required, the building owner must establish an ENERGY STAR® account on the EPA website and upload applicable energy consumption and efficiency data — such as operating hours, the number of computers operated within certain premises, occupancy numbers and the percentage of floor areas cooled and/or heated.

2. The building owner will then need to request that the applicable utilities and service providers upload energy use data for the preceding 12-month period directly to the ENERGY STAR® account.

3. After the utilities and service providers provide the usage data, the owner will need to access the CEC website to (a) obtain a Disclosure Summary Sheet and (b) use a link from the site to access the compliance section of the EPA website to prepare an electronic Compliance Verification Report (which is retained by the CEC).

4. The owner will then need to generate a Data Checklist, a Statement of Energy Performance and a Facility Summary (from the ENERGY STAR® account) to be delivered, together with the Disclosure Summary Sheet (from the CEC website), to the prospective purchaser, lender or tenant.

To read a full, expanded version of this article, click here.

For a step-by-step summary of the disclosure process prepared by the CEC, click here.

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 Thorsten J. Pray


A Novel Solution to a Common Problem

By Jessie Blyth - San Diego Office

The state of California has enacted several important changes to mechanic’s lien laws, with significant application to the practice of design professionals throughout the state.  Case law interpreting the former code sections will continue to apply, but there are several important substantive changes to the pre-existing lien statutes.  Former California Civil Code §§ 3082 through 3267 have been renumbered beginning at Civil Code § 8000, including new payment enforcement remedies that replace the design professional lien provisions previously enacted.  The new laws became effective on July 1, 2012.   
At the outset, the law includes an expanded definition of “design professional.”  Consistent with the prior statute, architects, engineers, and land surveyors are designated as "design professionals," but now, landscape architects also are included in that definition.
Under the new law, there will no longer be a "design professional lien" in a literal sense.  Instead, design professionals will be permitted to record a mechanic’s lien prior to commencement of actual construction of a planned work of improvement.  Recording a lien only when construction has actually commenced is not always sufficient for design professionals who frequently provide services for projects that never actually begin due to financing issues or municipal delays.  However, the new law creates a feasible means by which the designer can record a mechanic's lien for professional services before "the first shovel hits the dirt."  The ability of the design professional to record a pre-construction mechanic’s lien is subject to the same requirements as the previous lien laws (i.e. a building permit or other governmental approval of the work of improvement has been obtained and the person contracting with the design professional is the owner of the property to be improved).
 To read a full, expanded version of this article, click here.

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III. Construction Law Developments and Perspectives  

  Christine D. Barker

Christine D. Barker

A.   California Court of Appeals Expands and Clarifies Architect’s Duty of Care to Third-Party Purchasers/HOAs

By Mark Russell and Candice Macario - San Francisco Office 

In Beacon Residential Community Association v. Skidmore, Owings & Merrill, LLP, the First District of the California Court of Appeals held that architects can be held liable to condominium owners for negligently prepared plans.  In doing so, the court enlarged the scope of duty owed by design professionals to third-party purchasers, distinguishing the prior duty limitations for design professionals established in Weseloh Family Ltd. Partnership v. K.L. Wessell Construction Co., Inc. (2004) 125 Cal. App. 4th 152.

In Beacon, plaintiff Beacon Residential Community Association alleged multiple construction defects including “solar heat gain,” a condition causing the condominium units to be uninhabitable due to excessively high temperatures.  The association alleged the defendant architect should be held liable to the condominium owners for negligence arising from its substitution of less expensive, non-operational windows in conjunction with a design that lacked adequate ventilation.  The architect demurred to the association’s complaint arguing it owed no duty to the association or the condominium owners.  The lower court sustained the architect’s demurrer finding that under Weseloh the architect owed no duty of care to the association or its condominium owners.  The lower court held that absent such a duty, liability could not be imposed for negligent design.  The lower court also held that the owners had the burden to show the architect had control in the construction process beyond providing recommendations to the developer.

The appellate court, in overruling the trial court and finding that the architect owed a duty of care to the condominium owners even though it had no direct connection to the owners, applied the six prong Biakanja factor analysis widely used in California courts for deciding construction defect scope of duty disputes.  The six prongs are: (1) the extent to which the transaction was intended to affect the plaintiff; (2) foreseeability of harm to the plaintiff; (3) degree of certainty that the plaintiff suffered injury; (4) the closeness of connection between defendant’s conduct and the injury suffered; (5) the moral blame attached to the defendant’s conduct, and (6) the policy of preventing future harm.

To read a full, expanded version of this article, please click here.

 Julie Haddon







B. Nevada Supreme Court Holds that Equitable Subrogation Doctrine Cannot Subordinate Other Lien Claims After Construction Begins

By Michael J. Davidson - Las Vegas Office

In a case of first impression, the Nevada Supreme Court recently held that the doctrine of equitable subrogation cannot be used to subordinate mechanic’s lien claims to the liens, mortgages or other claims of lenders that attach to the subject property after the commencement of the construction.  The court further held that rights of mechanic’s lien claimants can only be subrogated in a manner harmonious with Nevada’s mechanic’s lien statute.  As we will see, this is not easily done.
This case provides a compelling reminder that very real differences exist between states with regard to mechanic’s liens.  Industry stakeholders should seek out advisors, such as Gordon & Rees, which have national reach and experience for advice on state-specific laws and their impact on transactions and potential litigation.  Even though this case is one of first impression, the outcome was not surprising to this author and many who practice in this area.

 To read a full, expanded version of this article, please click here.


 Julie Haddon












C. California “Completed and Accepted” Doctrine Expanded to Protect Architects

By Candice Macario – San Francisco office

In  Neiman v. Daly 2012 DJDAR 15073, the Second District Court of Appeal ruled on a plaintiff’s personal-injury action against an architect for sustaining injuries after falling on the stairs at a theater designed by the architect on a community college campus.  In its ruling, the court applied the “completed and accepted” doctrine in affirming the lower court’s granting of summary judgment.

The completed and accepted doctrine was formally adopted into California law in Sanchez v. Swinerton (1996) 47 Cal. App 1461.  In Sanchez, the court defined the defense.  The “completed and accepted doctrine” functions so that once an owner accepts a contractor’s work, the contractor’s liability for injuries resulting from alleged patent defects in the construction ends.

In Neiman, the plaintiff alleged that the architect’s plans and specification called for contrast marking stripes to be placed on the stairs.  The stripes were not placed per the plans, and the plaintiff alleges that the architect owed a duty of care to the injured plaintiff.  She further argued that since the plans and specifications were not strictly complied with, as the stripes were missing, the work was not technically, “completed.”  The court, unpersuaded by the plaintiff’s argument, found that once the owner took control and opened the theater to the public, the architect’s services were no longer in question.

Most importantly, the missing stripes were a patent defect obvious and visible to the owner.  The court held that if the owner had conducted a reasonable inspection to ensure the project complied with the plans and specifications, the owner would have noticed the contrast marking stripes called for in the plans were missing.  The court used the standard of patent defined in Sanchez as “obvious and apparent to any reasonably observant person.” 

In Neiman, it is important to note that not only is the Second District upholding and further establishing the application of the completed and accepted doctrine, but it is extending the doctrine to the work of architects.  Traditionally, the completed and accepted doctrine served as a defense to contractors to shift liability to the owners.  The owners by acceptance of the contractor’s work and subsequent use triggered their assumption of responsibility to third parties.  Now, this defense applies to architects for work that owners have inspected and accepted.  The only exception is if the defect and the danger are latent.

 Julie Haddon







D.   Be Efficient – California Law Places Time Limits on Certain Depositions

By Candice Macario – San Francisco office

Effective January 1, 2013, California depositions will be limited to seven (7) hours.  The time limit applies to examination by all counsel, other than the witness’ counsel of record.  The new rule is set forth in Code of Civil Procedure section 2025.290.      

Certain types of witnesses are exempt.  The time limit does not apply to expert depositions, or to depositions of persons designated most qualified to testify (“Person Most Knowledgeable”) under Code of Civil Procedure section 2025.230.

Certain types of cases are exempt.  The time limit does not apply to complex civil cases (but if there exists significant doubt a deponent will survive beyond six (6) months, the time limit is extended to two days of no more than seven hours each).  The time limit does not apply to cases brought by an employee or applicant for employment against an employer for acts or omissions relating to an employment relationship.

Section 2025.290 provides the court shall allow additional time if needed to fairly examine the deponent, or if the deponent, another person, or any other circumstance impedes or delays the examination.  The parties may stipulate the time limit does not apply to any particular deposition, or to the entire proceeding.  Any party who appears in an action after a deposition has concluded may notice a deposition of the previously deposed witnesses. 

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IV. Speaking Engagements and Other Important Events

Gordon & Rees Provides the Arizona Home Builders of Central Arizona with Donation

On Nov. 15, 2012, the Phoenix office donated a Color Nook door prize to the Arizona Home Builders of Central Arizona 39th Annual Sticks & Bricks Golf Tournament  at the Ocotillo Golf Resort

Gordon & Rees Sponsors Home Builders Association’s Uncorked Wine Tasting Fundraiser

On March 2, 2013, our Phoenix office sponsored the Home Builders Association’s Uncorked wine tasting fundraiser to benefit the Home Builders Care Workforce Development, a program to train individuals seeking employment with the necessary skills to fill needs within the home building workforce.

Gordon & Rees Presenting at "Fundamentals of Construction Contracts" Seminar

San Francisco partner Ernie Isola presented two full-day seminars on "Fundamentals of Construction Contracts: Understanding the Issues," in San Francisco and San Jose, Calif., on Feb. 5 and 6, through Lorman Education Services.  The seminar covered emerging issues in California construction contracts and their impact on all construction participants.  If you'd like to speak with Mr. Isola about the presentation or receive materials about the presentation, please email him at

Gordon & Rees Presented at U.S. Women’s Chamber of Commerce Spring Conference

Cecily McLeod and Carl Gebo presented at the U.S. Women's Chamber of Commerce Spring Conference in Orlando, Fla., on Jan. 23 and 24.  They spoke on “Drafting Subcontractor Agreements That Protect Your Business.”  The audience included government construction contracting companies.

Gordon & Rees Continues National Expansion With New Philadelphia Office

On Feb. 1, 2013, Gordon & Rees LLP opened a Philadelphia office with the addition of eight new lateral partners who joined the firm from Cozen O’Connor. William P. Shelley, who previously served on Cozen’s board of directors and Management Committee as well as chairman of the firm’s Global Insurance Group, now serves as the Philadelphia office Managing Partner for Gordon & Rees. 

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V. About Gordon & Rees's New Transactions & Construction Counsel

Gordon & Rees LLP is now pleased to offer Transaction and Construction Counsel 

Contract drafting, review, preparation, counseling and other transactional work forms a large part of the Construction Group practice. As construction is being planned, every project develops distinct specifications and requirements, and ideas and interests to protect. After a comprehensive analysis of each client's business goals and project objectives, we draft the full spectrum of construction-related contracts, such as prime, construction, design-build, teaming, and joint venture. Our lawyers are well versed with standard form agreements produced by the American Institute of Architects, Associated General Contractors, and the Design-Build Institute of America. We also review contract documents prepared by others and, when we sit down at the negotiating table, we are well equipped to achieve the best result possible for our clients.

Construction projects are multidisciplinary collectives. Our Construction Group mirrors that approach, involving lawyers from Gordon & Rees's Employment, Real Estate, Insurance, Intellectual Property, and Business Transactions Groups.

Business Transactions & Real Estate: Choice of corporate entity in construction projects is often a key driver in the profitability of projects. Consequently, we advise clients in forming the most appropriate corporate entity for the specific project, whether it is a corporation, partnership, limited liability company, or joint venture. For efficiency and cost-effectiveness, we use standard form documents whenever possible, turning to custom drafting only when necessary. We will not waste our clients' money, or run up bills.

Insurance: Over the last decade, the construction insurance landscape has changed dramatically due to the increased costs of general liability policies and defending claims under them. Many projects provide for project specific coverage commonly referred to as Owner Controlled Insurance Policies (OCIPs), which are designed to limit defense of claims to one attorney for all insureds. Our lawyers provide counseling and litigation prevention seminars to owners, developers and general contractors regarding insurance planning and the benefits, common pitfalls and management of Owner Controlled Insurance Policies, "wrap ups," stop loss coverage, and risk management throughout the entirety of a project.

Labor & Employment: Employment matters also frequently arise on construction sites. We draft project labor agreements, provide wage and hour advice, and advise on hiring and termination matters.

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