New Jersey Supreme Court Issue Important Decision for Homeowners and Contractors

The lack of insurance coverage for a contractor’s faulty workmanship is the bane of both homeowners looking to recover damage for defective work and contractors seeking to defend against such claims.  In many states, like Pennsylvania, courts hold that faulty workmanship is not an “occurrence” that is covered by a standard commercial general liability insurance policy.  In other words, courts hold that CGL policies cover damage to other property not part of the construction project itself.

This is problematic for both the homeowner and the insured.  For the homeowner, the lack of a policy providing indemnification sometimes means the homeowner is left trying to collect against a defendant, who is otherwise but has little to no assets against which to collect a judgment.  For the contractor, the lack of a policy providing coverage means that assets are at risk and it could be forced to spend significant sums in attorneys fees defending the case.

In Cypress Point Condominium Association, Inc. v. Adria Towers, LLC, the New Jersey Supreme Court held that a contractors standard CGL policy covers consequential damages caused by defective workmanship, even if the consequential damages are to the project itself.  At issue in Cypress Point Condominium Association, was language contained in a standard ISO CGL policy that is used in as the standard language in a majority of policies.  The case arose out of a dispute between the insured contractor and its insurer over whether damage caused by leaking windows and facades was covered under the contractor’s CGL policy.  The Court held that such damages are covered holding:

“because the result of the subcontractors’ faulty workmanship here—consequential water damage to the completed and nondefective portions of Cypress Point—was an “accident,” it is an “occurrence” under the policies and is therefore covered so long as the other parameters set by the policies are met.”

The importance of this holding is significant.  First, homeowners stand a much better chance of collecting on a damage claim against a contractor found liable for defective work.  Second, contractor’s can expect coverage from their carriers in almost all defective construction claims.

 

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AFFIRMED

Today, in a precedential opinion, the Third Circuit Court of Appeals, affirmed the District Court’s dismissal of a complaint against my client that alleged that a multi-family building was constructed in violation of the Federal Housing Administration’s (FHA) design and accessibility requirements for disabled persons.  A copy of the Opinion can be found here ( Opinion of 3rd Circuit. ) An adverse decision would have meant that my client could have been exposed to making several million dollars in alterations to its building.

A disabilities rights group filed a complaint against my client in the United States Federal District Court alleging that a multi-family (100+ units) building was constructed in violation of the FHA’s requirements for accessibility by disabled persons.  The project was a multi-million dollar renovation of an old abandoned warehouse into a state of the art apartment building.  The building was original constructed in 1912.  Although FHA and Department of Justice guidelines made clear that the FHA’s requirements did not apply to any building originally constructed before 1988, even if the property was original built and occupied for commercial purposes.  We filed a motion to dismiss the complaint which the District Court granted.  The rights group then appealed.

As the Third Circuit points out in the its opinion, there was no controlling case law on this issue, even though the FHA’s guidelines had existed for nearly 25 years.  The Third Circuit has now filed that void and issued a precedential opinion that says the FHA’s requirements indeed do not apply to building originally constructed before 1988 for any reason and then converted into residential use.

While the Court’s decision likely saved my client significant sums of money, it likely saved apartment developers and other building developers even more.

 

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City of Philadelphia Slapped for Unconstitutional Behavior

Sadly, the City that gave birth to the Constitution repeatedly runs rough shot over the liberties it affords individuals and businesses.  In the latest rebuke to the City of Philadelphia’s malfeasance towards the Constitution, the United States District Court for the Eastern District of Pennsylvania, has ruled that the City’s publicly owned gas utility, Philadelphia Gas Works, violated landlords’ due process rights by slapping liens against properties for unpaid gas service debts incurred by tenants.

In a Memorandum decision dated March 17, 2016, Judge Curtis Joyner ruled that PGW’s process of filing liens against residential and commercial properties did not afford landlords adequate process to challenge the liens before the lien was filed.  As Judge Joyner rightly pointed out, it is well settled that before the government can deprive an individual or business of property, it must afford an adequate opportunity for an individual or business to challenge the proposed property deprivation.  Simply put, the Court found that PGW had not done this when it placed liens on landlord’s properties.

In the past few years, the Eastern District has been a staunch defender of the Constitution from City’s assaults on it. The decision striking down PGW’s unconstitutional lien scheme follows several similar cases involving the City of Philadelphia, including:

  • Bullard v. City of Philadelphia, 847 F.Supp. 711 (E.D. Pa. 2012).  In a case handled by my firm, the Eastern District granted summary judgment to a real estate developer whose property was demolished without affording the developer to contest the decision to demolish the property.  The Court ruled, like in the PGW case, that the City had violated the developer’s due process rights.
  • Sourovelis v. City of Philadelphia, 103 F.Supp.3d 694 (E.D. Pa. 2015).  In this case the Eastern District allowed to proceed a claim that the Philadelphia District Attorneys Office’s civil asset forfeiture program violated the due process rights of individual property owners.
  • Cradle of Liberty Council, Inc. v. City of Philadelphia.  In this highly publicized case, a federal jury returned a unanimous verdict against the City for violating the freedom of association rights of the Boy Scouts.  The City was required to pay the attorneys fees that the Boy Scouts incurred and also damages to the Boy Scouts.

If violating the Constitution is not bad enough, the taxpayers of the City of Philadelphia (which is already broke) are left on the hook to pay the attorneys fees that the City incurs in defending these actions and in paying settlements. Maybe the City will eventually learn that following the Constitution is free.

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Is the Philadelphia Proposed Affordable Housing Impact Fee Constitional

WHYY is reporting that affordable housing advocated in the City of Philadelphia are demanding that City Council impose an impact fee of $4.80 a square foot on all new market rate developments and rentals that would go towards funding the City’s Housing Trust Fund.  The story reports that City Council members and Mayor Kenney have committed to considering the impact fee for expanding the Housing Trust Fund.

If City Council were actually foolish enough to pass such legislation, it would hopefully face a constitutional challenge.  Under established Supreme Court precedent, the demanded impact fee there has to be a nexus between the new construction and affordable housing.  In other words, the City would have to show that new construction is causing a decrease in affordable housing options in the City.  Moreover, the demanded fee would have to bear some proportionality to the impact it seeks to mitigate.

While leftist politicians and affordable housing advocates frequently complain that new developing is pricing long time residents out of certain neighborhoods,  like all straw man arguments, there is little to no empirical evidence to support such a claim.  Furthermore, the story does not mention how the affordable housing group arrived at the $4.80 figure it asks Council to impose and whether it bears any proportionality to the alleged impact on affordable housing that new development causes.

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Councilman Johnson Tries to Shut Down Skynet

terminatorIn the Terminator movie franchise, the government develops a software system called Skynet.  The purpose of Skynet is to prevent human error in starting a nuclear holocaust. Instead, Skynet becomes self-aware and when programmers try to shut it down it perceives the human race a threat and tries to exterminate us and then it creates a bad-ass cyborg that looks like Arnold Schwarzenegger to help do that.

Registered Community Organization (RCO’s) are like Skynet less cyborgs and actual intelligence (artificial or otherwise). Like Skynet, the government (Philly City Council) created RCO’s for altruistic purposes.  However, rather than preventing nuclear war, RCO’s were created to prevent real estate developers from developing projects inconsistent with the character of the surrounding neighborhood (which, ironically, many RCO’s often treat like a nuclear apocalypse). Just like Skynet, the originally well intended RCO’s have taken on a life of their own and often terminate many job creating construction projects.

The out of control nature of RCO’s was recently on full display at a community meeting in Point Breeze where members of the RCO hurled anti-Semitic remarks towards developers proposing a project in the neighborhood.  In response, Councilman Kenyatta Johnson, whose district covers Point Breeze, contacted the Human Relations Commission (which is a public body that handles complaints related to discrimination in housing and employment but who the Councilman — perhaps not surprisingly — thinks are the thought and speech police).  He also said he would be introducing a bill establishing an RCO “code of conduct.”   

Councilman Johnson’s decision to reign in RCO’s is ironic because he has been a chief antagonistic in stoking the anti-gentrification flames through the RCO’s.  Only now, those same RCO’s have gotten out of control and threaten to kill their creators.  In fact, he recently joined with the very RCO he is now chastising, Concerned Citizens of Point Breeze, in appealing a project located in Point Breeze.  Essentially, he wants to kill the monster he has created.

Irony aside, real estate developers should cheer Councilman Johnson’s bill, however probably not for the reasons he thinks.  Apparently, the Councilman has now gone on record that RCO’s “have an official relationship with the City of Philadelphia, so we must ensure that they operate with a level of decency and order.”  This is good to know because as state actors or agents of the government both the United States and Pennsylvania Constitutions would apply to them and so do fun things like procedural and substantive due process rights (to name a few).  (I note that if the Councilman reported a group for making anti-Semitic remarks to a Commonwealth agency, I doubt he spends much time thinking about the Constitution).  When those two minor documents apply, RCO’s can then be sued and held liable for violating the rights contained in those documents.

Alas, the Councilman’s bill might not get too far.  The problem – ironically – the pesky Constitution.  The same document that provides for procedural due process rights also prevents the government from regulating the speech related conduct of organizations like RCO’s.  Unless of course Councilman Johnson’s bill wants to clarify that RCO’s are indeed official government organizations.  In that case, regulate away.

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SOCIETY HILL PLAYHOUSE OF THE ABSURD

monorail-425x272The saga involving Toll Brothers’ Society Hill Playhouse project shows that something is rotten in the state of Philadelphia’s development process.  This rottenness has resulted in a project that is ultimately worse practically and aesthetically for the neighborhood.  Even worse, apparently the neighborhood is fine with this.

This story begins with Toll Brothers’ plans to demolish the Society Hill Playhouse and replace it with apartments.  The current zoning of the property allows Toll Brothers to build a four story multifamily building by right.  This means Toll Brothers does not have to request a variance from the Zoning Board of Adjustment to construct a four story building.  But, more on that later.  The economics of a four story building mean that it cannot have a dedicated on-site parking garage.  So, Toll Brothers sought to build a five story structure with indoor parking.  However, a five story structure would require a variance.  The process to request a variance is where the absurdity of this story unfolds.

Years ago, Philadelphia established a system that required developers to meet with neighbors to receive input on proposed development.  The reason for this was two-fold.  First, the City’s long outdated zoning code required almost all modern projects to obtain a zoning variance.  Rather than turning the ZBA hearing into even more of a circus than it already is, officials decided that it would be a good idea for developers to address concerns directly with neighbors before coming before the ZBA for a variance.  Second, in theory, it prevented developers from running rough shot over neighborhoods.  However, the road to hell is paved with good intentions.

A well intentioned process to have developers meet with neighbors about development has spawned a quasi-governmental leviathan known as “registered community organizations.”  RCO’s, as they are known, are the key to obtaining a zoning variance.  Many RCO’s are well-organized and come complete with their own zoning committees and zoning boards.  Many RCO’s require developers to present their projects before these zoning committees before it will support a project.  The problem with RCO’s is that they are beholden to no one and are not required to follow any established procedures.  RCO officials are not elected so they cannot be held accountable at the ballot box.  Moreover, RCO meetings are not required to follow any sort of established procedures.  If you feel you are treated unfairly or unequally before an RCO, too bad.

While the law does not explicitly require the support of a RCO in order to obtain a variance, economics does.  This is because our system allows anyone with an axe to grind to appeal a decision of the ZBA.  So, even if a developer is successful in obtaining a variance for a project from the ZBA, the RCO or any neighbor can file an appeal with the Court of Common Pleas which asks the Court to overturn the ZBA’s decision.  If the RCO is not successful at the trial court level, it can appeal it to the Commonwealth Court and from there the Pennsylvania Supreme Court.  This process can take years and a project is held in limbo while the matter works its way through the system.  Therefore, it is important for a developer to propose a project that the RCO agrees with.  This is where the problem lies.

Toll Brothers presented its five story project that included indoor parking to the Washington Square West RCO.  However, neighbors raised objections to the plan because of the height of the proposed structure.  Toll Brothers tried to work with the neighbors to ally their concerns, however, the neighbors (who are probably opposed to any development in any form)knowing the power they hold still objected.  So, rather than have its proposed five-story project held up on appeal for years, Toll Brothers decided to simply build what it was allowed to do by right.  The absurd mentality of the anti-development luddites is best summed up by this quote from Jared Brey’s story about the project:

“I support the city’s goal of reducing the cars, the congestion and the terrible expense of maintaining the roads and everything that goes with that,” she said. “Full disclosure: we have a parking space. But if we didn’t have a parking space we wouldn’t have a car.”

In other words, it’s ok for me to have parking and a car, but not you, so I will object to your project. (I bet this person also supports laws restricting “carbon emissions” but has Bigfoot sized carbon footprint.)  As a result, 80 new cars will be added to the on street parking in the community, which lies just North of already congested South Street.  Furthermore, the new project does away with a setback and more aesthetically pleasing brick façade cladding.

Ultimately the neighborhood fell victim to the runaway power of RCO’s and neighbors to arbitrarily stop a project they do not agree with for any reason.  Toll Brothers tail is not isolated and the result here will repeat itself unless the process is fixed.

So what can be done?  First, RCO officials must become elected officials who must answer at the ballot box for their decisions.  Second, the City must establish formal written rules of procedure that apply to RCO meetings regarding development project.  Third, the hurdle to appealing a ZBA variance needs to be raised substantially and we need to consider requiring an unsuccessful appellant to pay for a developer’s attorneys fees in defending the appeal.  Only then can some sanity be brought to the way properties are developed in the City.

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Is Philadelphia’s New (and Old) Ban the Box Ordinance Constitutional?

A twitter follower recently posted an interesting question “How is Philadelphia’s new ‘ban the box’ law constitutional?”  So called “ban the box” laws, prohibit employers from asking job applicants about criminal convictions during the job interview process.  In 2011, Philadelphia passed a “ban the box” law that prohibited private employers from asking applicants about or requiring applicants to disclose any criminal convictions in the application process or during the first job interview.  The law only applied to employers of 10 or more.

Last week, Mayor Nutter signed into law a bill expanding the breadth of Philadelphia’s “ban the box” law.  First, the new law applies to virtually all employers because it applies to any employer of “one or more” employees.  Second, in addition to banning an employer from asking questions about prior convictions during the initial interview, it bans employers from asking about convictions until after a conditional offer of employment is extended.  Moreover, employers must ignore convictions occurring more than seven years ago.  (So, say hello to the rapist in the next cubicle, just don’t ask him about his rape conviction!)  For a complete run down of the new rules, check out the blog post from employment law gurus Littler.

Philadelphia is one of several municipalities and states that have passed “ban the box” ordinances in the last few years.  However, I am not sure any go quite as far as Philadelphia’s new ordinance.  Proponents of these laws claim they are anti-poverty initiatives aimed at bringing felons into the workforce and offering them employment. Opponents believe that these rules are simply the by product of the left wing mindset that refuses to confront uncomfortable truths and refuses the see the world as it is.

But I digress, back to the constitutional question.  Employers have the same First Amendment right to free speech as individuals.  Prohibiting an employer from asking certain questions is a restriction on speech.  Whenever a law seeks to restrict a fundamental constitutional right, like free speech, Courts will apply a strict scrutiny test to the law. Under that test the law will survive only if it is narrowly tailored to advance a compelling state interest.  If the Philadelphia’s ban the box law were ever challenged, it may not survive strict scrutiny because the City would bear the burden of showing that its restrictions actually would advance its interest in gaining employment for criminals. Moreover, the law is not narrowly tailored in that it prohibits a wide range of speech during the application and interview process.

We will have to see if a brave employer challenges Philadelphia’s new law or if Philadelphia will be permitted to treat the Bill of Rights as a menu of rights it can choose from rather than a collection of rights guaranteed to all citizens.

 

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UPDATE – City Council Revises Bill Requiring Notification to RCO’s

In my previous post, I discussed proposed legislation that would require notification and meetings with RCO’s even when a “by-right” permit is issued.  I understand that the Bill has been amended.  (A copy of the revised bill is available here: Bill No. 15064301, As Amended (1).)  Under the amended Bill, developers will NOT be required to meet with an RCO even for by right permits.  However, the Bill still requires L&I to:

“Send by email to all Registered Community Organizations and
all councilmembers a notification of the zoning permit that
includes the date of issuance, the name of the permit holder, and
the address, zip code, and council district of the permitted
property.”

While this is significantly better than requiring a meeting with the RCO, the problem still remains that an RCO or City Councilmember can unnecessarily hold up a by right permit by filing an appeal with the Court of Common Pleas.  Therefore, the Bill remains superfluous.  The RCO and City Councilmember are still involved with the by right permit.  If so what is the purpose of the zoning code?  Does by right mean by right or just by not having to go to the ZBA?

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Philadelphia City Council Moves to Scrap Zoning Code and Private Property Rights

MarxAny developer unlucky enough to need a zoning variance in the City of Philadelphia knows it is an arduous process. Needing a zoning variance means your project is not in compliance with the zoning code and you essentially need an exemption.  One of the first steps in the process is presenting your project to the Socialist Registered Community Organization, which consists of a group of un-elected individuals who more or less tell you how to build your project – despite having no development experience themselves.  Moreover, if the RCO politburo simply doesn’t like the developer no amount of compromise will garner their support.

On the other hand, sometimes developers propose a project in full conformity with the zoning code (the law) and obtain what is known as a “by right” permit to build.  It is known as a by right permit because the zoning code grants you to the right to construct what you are proposing on your property.

The general purpose of zoning codes is to set out an overall plan for a community where most projects are built by right – and thus according to the plan – and projects by variance are the exception.  For many years, this was nearly impossible in Philadelphia because the zoning code had not changed since the 1950’s.  So, the plan that would have to be followed was one for an industrial city rather than the modern city we have become.  In 2012, after many years of hard work by a dedicated group of volunteers, Philadelphia overhauled its zoning code with an eye towards increasing by right building that suited the City’s 21st Century development plan.  However, City Council recently introduced legislation to scrap all of that hard work.

On Monday, City Council’s Rules Committee moved legislation to the floor of City Council that would require developers (or any property owner for that matter) to appear before the RCO cabal even when they have THE RIGHT under the zoning code to build what they are proposing on their property.  If this legislation passes, the zoning code is effectively rendered meaningless because a developer would still need to obtain the permission of the RCO before it could construct a project that the zoning code grants it a right to build.

How could an RCO be permitted to nullify the zoning code?  Because for $100 an individual or an RCO can appeal a building permit issued by the Department of License & Inspection even when that permit is issued by right.  In other words, the RCO can file an appeal with the Philadelphia Court of Common Pleas saying that L&I was wrong to issue the permit and that the Court should supplant its judgment for that of the plan inspector that issued the permit.  If the RCO is unsuccessful at the Court of Common Pleas, it can appeal the decision to the Commonwealth Court and, if it is unsuccessful there, it can file an appeal to the Supreme Court.  Then, if it is lucky, two years after it was issued a permit to build what it had the right to build on property that it owned, a developer can move forward with its project.

I appreciate – but do not entirely agree with – the process that requires a developer to present its project to the community when it is asking for an EXEMPTION from the zoning code.  But, requiring a developer to obtain permission from the “community” before it proceeds with developing its private property according to the law, leads me to wonder if the concept of private property even exists in the minds of some of our elected officials in Philadelphia.

 

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Pa. Senate votes to close loophole on union intimidation

The Philadelphia Business Journal reports, that Pennsylvania State Senate approved a measure that eliminates a loophole in Pennsylvania’s Crimes Code which prevents law enforcement from intervening in situations involving stalking, harassment and threatening someone with weapons of mass destruction if the perpetrator is a party to a labor dispute.

The Pennsylvania State Senate approved a measure that would eliminate a loophole in Pennsylvania’s Crimes Code that prevents law enforcement from intervening in situations involving stalking, harassment and threatening someone with weapons of mass destruction if the perpetrator is a party to a labor dispute.

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