Source: http://www.coloradoconstructionlitigation.com/2012_06_01_archive.html
Timestamp: 2017-10-24 07:24:21
Document Index: 709502731

Matched Legal Cases: ['§ 1446', '§ 523', '§ 523', '§ 523', '§ 523', '§ 523', '§ 523']

Colorado Construction Litigation: June 2012
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E-mail: bronner@hhmrlaw.com
Posted by David M. McLain at 4:25 PM 0 comments Links to this post
Joinder vs. Misjoinder in Colorado Construction Claims: Roche Constructors v. One Beacon.
Often, those practicing in the construction defect field have faced questions concerning the joinder of a party. Recently, the U.S. District Court for the District of Colorado weighed in on the requirements for joinder under the Colorado Rules of Civil Procedure. See Roche Constructors, Inc. v. One Beacon America Ins. Co., 2012 WL 1060000 (D. Colo. 2012). Roche secured a construction contract to build a detention facility for the Lincoln County Sheriff’s Office in Lincoln County, Nebraska. In turn, Roche entered into a subcontract with Dobberstein Roofing Company, Inc. in October 2009 to install the roofing system and other related work at the detention facility. The subcontract agreement required Dobberstein to maintain adequate commercial general liability insurance and to add Roche as an additional insured under the policy. Roche maintained a builder’s risk policy issued by OneBeacon America Insurance Company and Dobberstein secured a certificate of liability insurance underwritten by Transportation Insurance Company (“TIC”). Id. at *1.
Roche alleged that Dobberstein constructed the roofing system in a negligent manner in violation of the subcontract. Roche claims it incurred additional costs to repair structural damage to the roofing system as a result of Dobberstein’s negligent work. In order to cover said damage, Roche tendered insurance claims to OneBeacon and TIC. According to Roche, OneBeacon denied coverage and TIC failed to respond to Roche’s claims. In June 2011, Roche brought claims against all three, Dobberstein, OneBeacon, and TIC in the Weld County District Court. Id. at *2. Roche brought claims for breach of an insurance contract, insurance bad faith, statutory damages for insurance bad faith, and declaratory judgment against OneBeacon and TIC. Roche claimed breach of contract, breach of implied warranty and express warranty, and negligence against Dobberstein.
About a month later, OneBeacon removed the case to the U.S. District Court for the District of Colorado pursuant to federal subject matter jurisdiction based on diversity. All of the defendants consented to removal. On August 22, 2011, Roche filed a motion to remand the case and an amended motion to remand on August 23, 2011. In its motions to remand, Roche argued removal was improper because Dobberstein had contractually waived its right to remove the case pursuant to the forum selection clauses in the subcontract agreement. As such, Roche argued Dobberstein is estopped from consenting to removal and that the resulting lack of unanimous consent precludes removal pursuant to 28 U.S.C. § 1446(b). Id. at *3. After finding that Roche’s amended motion to remand timely, the court turned to the merits of said amended motion.
The court acknowledged that the forum selection clause in the subcontract agreement between Roche and Dobberstein expressly gave Roche the right to choose the forum to have any matters arising out of litigation to be heard. Neither OneBeacon nor TIC disputed that Roche had the right to choose the forum in litigation or that the forum selection clause was unenforceable. The court found Dobberstein violated the forum selection clause by consenting to remove the case to federal court, which was not the forum selected by Roche. Id. Because Dobberstein could not properly consent to removal, not all defendants consented to removal from the Weld County Court. OneBeacon and TIC argued that the court should sever the two sets of claims and only remand the claims against Dobberstein. In its motion to sever, OneBeacon argued that Roche had engaged in a fraudulent misjoinder by suing diverse defendants in state court. TIC argued that Roche waived its ability to remand by choosing to combine its claims against defendants not subject to the forum selection clause in one action.
While acknowledging when procedural misjoinder generally occurs[1] in its opinion, the U.S. District Court for the District of Colorado indicated that the application of procedural misjoinder was not necessary to resolve Roche’s amended motion to remand.[2] According to the court, the joinder of claims against multiple defendants in a single action is governed by Colorado Rule of Civil Procedure 20, which provides:
Id. at *4 (quoting C.R.C.P. 20(a)). Under Colorado law, Rule 20 is given the “broadest possible reading.” Id.; see City of Aurora ex rel. Utility Enterprise v. Colorado State Eng’r, 105 P.3d 595, 623 (Colo. 2005). The U.S. District Court for the District of Colorado found that Roche’s complaint met the requirements for a Rule 20 joinder. More specifically, the court found that all claims arise from the construction of the detention facility, meaning the case will involve a significant amount of overlapping evidence. Additionally, the court found common questions of fact and/or law exist concerning the claims, such as Dobberstein’s alleged negligent construction, the extent to which the OneBeacon policy covers negligent construction, the subcontract terms as it relates to Roche’s coverage under Dobberstein’s policy with TIC, and whether TIC waived its right to assert certain policy provisions. Id. at *5. Accordingly, the court granted Roche’s amended motion to remand, and remanded the case back to the Weld County District Court.
While you may enjoy success in seeking to join additional parties to one action if you can demonstrate that your claims arise out of the same transaction or occurrence, and will involve a significant amount of overlapping evidence, your success may be limited and/or precluded if the pertinent contract documents contain enforceable forum selection clauses.
[1] According to the U.S. District Court for the District of Colorado, procedural misjoinder generally occurs “when a plaintiff sues a diverse defendant in state court and joins a non-diverse or in-state defendant even though the plaintiff has no reasonable procedural basis to join such defendants in one action.” Id. at *4.
[2] The U.S. District Court for the District of Colorado also acknowledged that the Tenth Circuit had not adopted the doctrine of procedural misjoinder, and the court declined to resolve this issue since the application of the procedural misjoinder was not necessary to resolve Roche’s amended motion.
Labels: additional insured coverage in Colorado, Colorado construction attorneys, Colorado construction litigation, construction insurance, Denver construction attorneys
Now comes another cautionary tale for builders and developers, especially those using single purpose business entities to handle individual construction projects. The United States Bankruptcy Court in Denver, Colorado, through the Honorable Michael Romero, provided an order regarding plaintiffs’ problems with a home they purchased from an entity controlled or represented by defendants. Plaintiffs, Kelvin and Holly Knaub (the “Knaubs”) filed adversary proceedings against debtor Robert Golba in his bankruptcy proceeding and against debtor Greg Rollison in his separate bankruptcy proceeding. The adversary proceedings were partially consolidated to proceed in parallel but not substantively.
The Knaubs purchased a home from Gemm Homes (“Gemm”) in May 2003. Problems stemming from the foundation caused the Knaubs to seek an explanation and ultimately a solution from Gemm and then from Avalon Homes (“Avalon”), which the Knaubs claim is just a continuation of Gemm. Through their complaint, the Knaubs seek relief for 1) damages caused by fraudulent representations and false pretenses under 11 U.S.C. § 523(a)(2)(A), based on Golba's misrepresentation that Gemm and Rollison were not involved in Avalon; 2) damages caused by actual fraud under § 523(a)(2)(A), based on Golba's and Rollison's alleged conspiracy fraudulently to convey the assets of Gemm to the Avalon entities; and 3) damages caused by breach of fiduciary duty under § 523(a)(4), alleging Gemm was an insolvent company which owed a fiduciary duty to its creditors, and alleging Golba participated in transferring Gemm's assets to Avalon for no consideration. In the Golba action, the third claim for relief was dismissed.
The facts of the case are important and somewhat convoluted. In an effort to make the cases clear, the evidence, allegations, and facts will be laid out in detail below. The Knaubs’ house was purchased from Gemm and soon after both Gemm and Rollison had an engineering company perform an analysis which discovered the foundation was not laid on stable ground. Thereafter, Gemm, Golba, and Rollison agreed with the Knaubs to construct a new home for them. Around this time, Golba formed Avalon and, according to the Knaubs, assumed the responsibility of building a new home for them.
The Knaubs allege that Rollison was a principal of Gemm and when Gemm was in financial trouble, Avalon was formed. They further allege Avalon was just a continuation of Gemm and all employees of Gemm became employees of Avalon, all assets of Gemm became assets of Avalon, and the transfers of Gemm's assets were for no consideration. Despite Rollison’s and Golba’s protestations that Rollison was not in any way involved with Avalon, the Knaubs allege they met with Rollison at Avalon’s office, Rollison represented to them he was capable of buying a lot and building a home for them, and the Knaubs allege Rollison signed documents as a manager of Avalon, further strengthening his representation of being involved with the company.
According to both Golba and Rollison, Avalon was formed because of Gemm’s problems with creditors and to take over Gemm’s contracts and finish Gemm’s projects. According to Golba, even though he knew Gemm had no money, he believed Rollison had other lines of credit with which they could resolve the Knaubs’ issues. Shortly after Golba found that Rollison was having trouble obtaining financing and after exhausting other avenues of resolution, he instructed the Knaubs that they should retain counsel. Rollison admitted that at the time he failed to obtain financing for the Knaubs’ home, funds for the value of $465,000.00 were transferred from Gemm to Avalon. Ultimately, both Golba and Rollison filed for bankruptcy and the Knaubs’ home was still not repaired, nor were they provided a new home as had been agreed.
Reviewing the testimony of the parties as well as former employees of Gemm and Avalon, the court came to the conclusion that the claims against Golba must fail while the claims against Rollison are valid and the debt will be non-dischargeable. In coming to its conclusion, the court found that Rollison represented Gemm and Avalon were one and the same or that Avalon was at least continuing Gemm’s business and that it was prosperous and able to complete the Knaubs’ replacement home. From Rollison’s testimony, the court concluded he knew or should have known, regardless of his optimistic outlook, the serious financial issues in which he and his businesses were. Because Rollison held himself out as a controlling person of Gemm, Avalon, and perhaps other entities with the capabilities of funding the project, and he represented he possessed the ability, through other projects, to build the Knaubs a new home, the court found Rollison made false representations.
Accordingly, the court found Rollison made false representations under § 523(a)(2)(A) to the Knaubs, knowing such representations to be false, with the intent to deceive the Knaubs into believing their replacement house would be built. The court also found that, Mrs. Knaub's testimony indicated the Knaubs justifiably relied on Rollison’s representations because their previous experience had shown willingness by Gemm or Avalon, to fix their home’s problems, and offer them a replacement home. The Knaubs suffered damages, in an amount the court decided would be determined later, arising from problems with a defective home. Thus, as to Rollison, the Knaubs’ debt was found nondischargeable under § 523(a)(2)(A).
As stated above, all claims against Golba failed and the Knaubs’ claim against Rollison under § 523(a)(4) also failed. In the end, Golba was spared any ruling of non-dischargeable debt while Rollison took a pretty hefty hit. Whether Rollison was using single purpose entities or was just a bit careless with his business ventures, does not bear on the lesson: keep each entity separate and apart, making sure there is nothing that even hints at spillover from one entity to another. Otherwise, Rollison’s nondischargeable fate could be repeated.
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