Construction Claims and Catch 22: Spoliation vs. Remediation
It is one thing to assert construction claims; it is another thing to prove your case with admissible evidence. Therefore, those who intend to litigate construction claims must keep Steven Covey's advice in mind: Begin with the end in mind. This mindfulness must begin prior to the commencement of the project. Systems must be put in place to manage, sort, and preserve potential evidence. If you wait until a lawsuit is filed to get your ducks in order, it may be too late. At that point, the more appropriate aphorism has something to do with cats, not ducks, because organizing admissible evidence at that juncture is like herding cats. With enough time and money, you may get most of what you want organized and ready for trial, but something is bound to get away from you-or taken away from you by the court.
The reality of being precluded from using evidence at the trial of a construction defect case was aptly demonstrated in a recent decision of the New Jersey Supreme Court in the Tri-Form Construction case (August 2010). To read the entire opinion click here. This case is a useful primer on a number of levels. First, it deals with the issue of spoliation, meaning, the destruction of evidence. What happens when evidence is destroyed in the remediation process so that the defendant no longer has the evidence to defend itself in court? The New Jersey Supreme Court also does a good job summarizing the competing interests and corresponding difficulties of parties involved in construction litigation.
How Courts Perceive Construction Claims
Commercial construction projects often present unique challenges to the courts, in part because when an argument erupts over a claimed construction defect, it is inevitably complicated by the conflicting interests of the parties. The project owner wants the building to be free of defects, while other parties to the project, including the general contractor, its subcontractors and suppliers, the construction manager, if any, the architect and other design professionals, each may dispute the existence of, the extent of, and the responsibility for, any claimed defects. Moreover, each of them may seek to shift the blame for any conceded defect to others and each will likely assert that it has the right to investigate the claim and to attempt to cure any defects that are identified.
Further compounding those competing interests, time itself may create overriding considerations for the building's owner. Particularly if the claimed defect threatens the building's integrity or the owner's ability to conduct its business, the owner will view the time within which to remedy a defect in a building's construction as being constrained. The building's owner, fearing that existing, identified defects, if not cured promptly, will worsen or adversely affect other parts of the structure, may have limited patience with a contractor who does not resolve a problem quickly. The owner may lose confidence in the contractor's ability to remedy a defect if that contractor's response is slow or if proposed resolutions are inadequate. In either situation, the building owner may hasten to seek solutions from experts, consultants, or contractors in an effort to prevent a relatively minor problem from turning into a major failure of one of the building's systems.
Nor is the building's owner the only party whose interests complicate the dispute. A contractor who is being blamed for a problem may conclude that there is no defect to be cured and, if the complaints persist, may come to regard the owner as unreasonable or as seeking perfection when the work was performed in an adequate, acceptable, and workmanlike manner. Alternatively, the contractor may recognize that there is a defect and try to resolve it, or it may decide that the problem was caused by a supplier, laborer, or another contractor outside of its control, or has resulted from faulty plans or specifications.
Other parties to a large construction project will also have their own unique perspectives on the owner's claim that there is a problem to be addressed. General contractors, construction managers, architects, and engineers each have a role to play in the project and interests to protect in the event that a claimed defect is identified. Questions about whether the defect arose because of faulty plans and specifications, improper design, poor workmanship, defective materials, insufficiently skilled subcontractors, or inadequate supervision may divide the participants and confound the ability to reach a workable solution.
As complicated as the relationships inherently are, they are compounded when they play out in the shadow of threatened or actual litigation. The reality of how project owners, contractors, and related professionals behave, each with distinct and often inconsistent goals and motivations, frequently leads one or more of them to act in ways that impact on the eventual conduct of that litigation.
The building owner who only wants to solve a problem and prevent it from getting worse may undertake testing and repairs without waiting for a resolution by the contractor whose work the owner believes is the cause. The contractor called back to the building for a repair may make suggestions or corrections without undertaking a thorough investigation or fully documenting the alleged defect or identifying other potential causes. Even if the parties act with the purest motives, evidence of the extent or the cause of any claimed defect may be compromised or destroyed as testing and investigations are undertaken and as repair, retrofitting, or replacement of affected building systems or components is completed.
It is preferable, of course, to have an orderly procedure for identifying a defect, alerting the allegedly culpable party, conducting an investigation and testing that is observed and documented by representatives for all potentially responsible parties, identifying a cause, and achieving a solution. In the real world of construction projects, however, the parties do not always behave that way and may proceed to develop a solution without preserving all of the evidence that is needed to determine liability or prove damages.
Owner's Catch 22: Remediation vs. Spoliation
Catch 22 has come to be known as a situation in which a desired outcome is impossible to achieve because of a set of illogical rules or conditions. As will be shown, the owner in the Tri-Com Construction case was in a Catch 22 situation. The curtain wall system in the owner's large new commercial building leaked, and the subcontractor that installed it eventually stopped responding to the owner's request for help. What is an owner to do? On the one hand, he must take action to protect his building and the health and safety of those who work there. On the other hand, if litigation is contemplated, remediation could destroy evidence that may be necessary to prosecute or defend the claims.
In this case, after the owner fixed the problems with the window system, the company sued its construction manager, its consultant Tri-Form Construction, and the installation subcontractor, Academy Glass. The defendants filed motions to exclude all evidence regarding the curtain wall system on the grounds of spoliation of evidence. The New Jersey Supreme Court summarized the proceedings as follows:
On March 21 and 22, 2006, the trial court separately granted defendants' motions to exclude evidence relating to the window system installation. In reaching that conclusion, the court found that plaintiff had never given notice to defendants about the proposed remediation prior to the commencement of the work; had failed to respond to defendants' initial requests to conduct an inspection; had first notified defendants of the remediation work on January 24, 2003, when there was insufficient time to permit them to perform an independent investigation; and had completed the repairs when there was no real emergency.
The trial court concluded that plaintiff had engaged in spoliation of the evidence and that there was clear prejudice to defendants because their expert had not been given an opportunity to fully investigate the leaks and their cause. The court also concluded that the expert's photographs and his records about his visual observations were not sufficient[ to permit defendants to secure an expert opinion contrary to that offered on plaintiff's behalf.
Shortly thereafter, the trial court granted summary judgment to one defendant and partial summary judgment to another on the grounds plaintiff owner could not no longer prove its claims following the order excluding evidence. The plaintiff owner appealed and the appellate division reversed the order of dismissal, holding that the preclusion of evidence was unreasonably harsh under the circumstances. The defendants then appealed to the New Jersey Supreme Court, and that court held:
In this dispute, plaintiff has already lost claims as a result of the spoliation and its claim relating to the strip-window system has been limited significantly. There remains, however, one further step in our analysis, because defendants are not similarly situated. As to defendant Academy Glass, we agree with the Appellate Division that there is a sufficient basis on which to permit plaintiff to proceed, limiting its claims to the conditions that were observable prior to remediation and its experts to a review of only those conditions.
However, we reach a different result as to defendants Tri-Form and Karabinchak. In spite of the fact that the wealth of evidence ordinarily generated during construction projects lends itself to leveling the playing field, in this case the opportunity to inspect the leaking windows before remediation was critical. Because plaintiff deprived defendants Tri-Form and Karabinchak of that opportunity, and because we therefore perceive them to have no independent source of evidence or testimony sufficient to permit them to mount a defense, the claims as to those defendants cannot proceed at all. As to defendants Tri-Form and Karabinchak, the only fair remedy for plaintiff's spoliation is to impose the sanction of dismissal.
The Tri-Form Construction case shows the rationale of courts trying to fashion a just remedy when evidence has been destroyed. Each state will have different factors to consider. In New Jersey, the courts consider the following factors:
In summary, courts confronted with spoliation in the context of commercial construction litigation should recognize that a variety of factors bear on the appropriate remedy. In particular, courts should consider all of the following: the identity of the spoliator; the manner in which the spoliation occurred, including the reason for and timing of its occurrence; the prejudice to the non-spoliating party, including whether the non-spoliating party bears any responsibility for the loss of the spoliated evidence; and the alternate sources of information that are, or are likely to be, available to the non-spoliator from its own records and personnel, from contemporaneous documentation or recordings made by or on behalf of the spoliator, and from others as a result of the usual and customary business practices in the construction industry. Courts should then balance all of those considerations in crafting the appropriate remedy with an appreciation for the ways in which the construction industry itself provides them with unique tools with which to "level the playing field" and achieve an appropriate remedy for spoliation.
Suggestions
Owners are faced with this kind of Catch 22 situation ail of the time. Here are a few suggestions to prepare for the next time it happens:
- Draft contract language that addresses this issue. State the address where notices can be sent to advise the other side of defective conditions. Include reasonable time frames within which inspections and repairs are to be performed.
- Before taking corrective measures, advise the other side in writing of the date, time and place of the remediation efforts, giving the other side ample time and warning about the remediation efforts that are to take place, and invite them to be there to observe, take pictures, take notes, etc.
- Make sure to establish an unassailable record of your efforts to get the contractors to (1) take corrective action, (2) the contractors refusal to do so, and (3) that the contractors had actual notice of the time and place of your remediation efforts.
- During the remediation process take pictures and video of the work; handle with care any portion of the work that is removed; take special efforts to preserve the materials; keep a log of the chain of custody in case someone alleges that the materials have been tampered with.
As was mentioned at the beginning of this article, the success of the prosecution or defense of construction claims begins before the project begins: contract language, systems and controls to preserve evidence, diligence in ensuring the other side is on notice of plans for remediation, and so much more, all have a role in being prepared for potential litigation. The Tri Form Construction case is a perfect example of the uncertainty of litigation, that evidence matters, that courts have tremendous power and influence over what the jury will ultimately hear and see during trial
The right to arbitrate a dispute can be waived. One way to waive arbitration rights is to sit on them, figuratively speaking, of course. By sit on them, I mean delay enforcement of the right or take steps that leads the other side to believe you do not intend to arbitrate the dispute. In a recent unpublished opinion (meaning, the case can't be cited in legal pleadings or used in oral argument as persuasive authority), the California Court of Appeal addressed the waiver issue. The case is important to the The Critical Path because the facts present a common set of circumstances that can result in a waiver. Therefore, even though the opinion is unpublished, it is instructive, and it is helpful in that it refers to most of the published California opinions on the subject. Click 
Luke: Soon I’ll be dead and you with me. Translated: We’re spending a boatload of money litigating this case but you will run out of money before we do.
Since jurors wield such great power, jury dynamics should be carefully considered by anyone wanting a jury trial. This is especially true for members of the construction industry because delay claims, defect cases, and most other types of construction disputes take longer, involve more witnesses, require more exhibits, and are generally more complex than the average case pending in civil courts.