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Developers got a significant win in California last week when the California Supreme Court held that an arbitration provision contained in a recorded instrument bound a homeowners association, despite the fact that the homeowners association did not exist when the instrument was recorded and thus had no opportunity to negotiate the provision. The opinion can be found here.

In Pinnacle Museum Tower Association v. Pinnacle Market Development (US), LLC (August 16, 2012) 2012 Cal. LEXIS 7665, a homeowners’ association (“HOA”) sued the developer of a mixed-use residential and commercial common interest community, alleging construction defects. Prior to selling any units, the developer had recorded a declaration of covenants, conditions, and restrictions (“CC&R’s”), which provided that the developer, each individual homeowner, and the HOA, all consented to arbitration under the FAA of any construction-related disputes. Each individual homeowner’s purchase agreement specifically noted the homeowner’s acceptance of the CC&R’s, and the arbitration provision in particular. However, pursuant to California law, the HOA was not actually created until the sale of the first unit.

The HOA sued the developer, alleging construction defects, and the developer moved to compel arbitration. The trial court found that the arbitration agreement was substantively and procedurally unconscionable, and refused to enforce it. The appellate court affirmed, concluding that the arbitration provision in the CC&R’s was not sufficient to waive the HOA’s right to a jury trial, and further that it was unconscionable and unenforceable.

The California Supreme Court reversed, holding the arbitration provision enforceable against the HOA. The court found that the CC&R’s were in the nature of a contract, and that since an HOA is bound by law to other provisions in the CC&R’s, to treat the arbitration provision differently would run afoul of U.S. Supreme Court precedent prohibiting the application by states of more onerous requirements to arbitration clauses than are otherwise generally applicable to contract provisions. And, since the HOA’s membership consisted entirely of the individual condominium owners, each of whom agreed to arbitration of construction disputes by agreeing to the CC&R’s, it was not unreasonable to bind the HOA to arbitration to prevent the individual owners from circumventing the CC&R’s by acting through the HOA. Further, although the HOA argued that the arbitration provision was unconscionable because the HOA had no meaningful opportunity to negotiate the provision because it did not yet exist, the court disagreed. The court found that inclusion of the provision was permissible under the applicable statutes, and that the lack of opportunity to negotiate the provision represented a legislative policy choice.

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One of John F. Kennedy’s best quotes was noting that “Washington is a city of Southern efficiency and Northern charm.” When it comes to Public Private Partnerships, things have turned around in the last 50 years. The South leads the way in P3’s with Virginia, Florida and Texas being notable standouts. The conventional wisdom has been that strong unions in northern states would continue to fight against more private involvement in state infrastructure. But the pressures of constrained state budgets are proving too strong.

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The Olympics are in full swing, with the world’s attention on the playing fields and pools dotting the United Kingdom. But how about the venues themselves, how green are they? The London Organizing Committee planned the Games with a green tint, focusing on sustainable principles for everything from stadium construction, food service, and the use of public transportation. Plus, the large number of preexisting venues around the city (tennis at Wimbledon, for example) made some additional construction unnecessary.

Planning for Green – The Organizing Committee took the forward-thinking step of setting up the London Legacy Development Corporation three years ahead of the Games, which has focused on long-term uses of the Olympic venues after the torch is passed to Russia’s winter Olympics. The Development Corporation’s plans for housing and parks were developed with an eye to rebuilding parts of London, particularly East London. The Organizing Committee even took the extra step of working with the Independent Standards Organization to develop a global standard for sustainable event management, now known as ISO 20121:2012.

Green Building – Venues constructed for the games include a number of innovative green features. The roof of Olympic Stadium, for example, was constructed from unwanted gas pipes from the North Sea and over 40% of the concrete used for construction is made of recycled materials. While the question remains as to whether this much new construction can ever be considered truly sustainable when developed for a single mega-event, the Organizing Committee took great steps to reduce waste. Many Olympic venues that do not have long-term uses were built only to be used for the Games and will then be taken apart and their materials will be reused.

Looks like a tough act to follow for Sochi and Rio.

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Illinois and California appellate courts recently issued two policy-holder favorable decisions. In both cases, the trial court had granted summary judgment in favor of the insurance company and denying coverage, and in both cases the trial court decisions were reversed.

In the Illinois case, Patrick Engineering, Inc. v. Old Republic General Insurance Co. — N.E.2d —, 2012 WL 3010344, Ill.App.2 Dist, July 20, 2012 [not yet released for publication], an engineering firm entered into a consulting agreement with an electric utility. As required by the agreement, the engineer procured a CGL policy naming the utility as an additional insured. The policy’s professional services exclusion excluded coverage for property damage “arising out of the rendering or failure to render” engineering services.

While working on a project designed by the engineer, the utility damaged the sewers of a local municipality, which then sued the utility on a negligence theory. The utility tendered its defense to the insurer, which rejected the tender, denying coverage based on the policy’s professional services exclusion. In a subsequent lawsuit filed by the engineer and utility to determine coverage, the insurer argued that because the damage arose out of the engineer’s services, the professional services exclusion operated to bar coverage both for the named insured engineer and the additional insured utility–even though all parties agreed that the utility did not perform any engineering services. The trial court granted summary judgment in favor of the insurer.

On appeal, the court found coverage by analyzing the interplay of the policy’s additional insured endorsement, professional services exclusion, and separation-of-insureds clause. The additional insured endorsement provided that an “Insured” included the listed additional insured if liability arose in whole or in part out of the engineer’s work. The separation-of-insureds clause provided that the insurance applied separately to each insured. The appellate court agreed with the utility that it could rely on the “arising out of” language in the additional insured endorsement to claim status as an additional insured, and that the separation-of-insureds clause then provided coverage to the utility despite the professional services exclusion because the utility had not performed professional services. In other words, the fact that the named insured performed professional services did not trigger that exclusion for the additional insured.

In the California case, Travelers Property Casualty Co. of America v. Charlotte Russe Holdings, Inc. — Cal.Rptr.3d —, 2012 WL 2356477, 2d App. Dist., June 21, 2012 [ordered published July 13, 2012], a manufacturer of high-end apparel entered into an exclusive sales agreement with a clothing store. The manufacturer subsequently sued the store, alleging that the store’s sale of the high-end apparel at deeply discounted prices harmed the apparel brand.

The store tendered its defense to its insurer under its CGL policy, which provided coverage for both personal and advertising injury, and required defense of any suit seeking damages for those injuries. The personal injury coverage extended to offenses arising out of the business (but not advertising). The advertising injury coverage extended to offense committed in the course of advertising the business, but excluded injuries arising from breach of contract. The personal injury coverage contained no such exclusion. Both provided coverage for claims alleging injury from disparagement of goods.

The insurer declined to either indemnify or defend, on the basis that a reduction in price of a good is not disparagement of that good. The insurer filed a declaratory relief action to determine that it owed no duty to defend or indemnify. In support of its motion for summary judgment, the insurer argued that California law equated disparagement with trade libel, requiring a false statement and resulting loss of business. The trial court found for the insurer.

On appeal, the court found that the allegations of injury to the apparel brand by offering the brand at a low price could reasonably be interpreted as disparagement of that brand, and that therefore the claims were potentially covered by the personal injury coverage of the policy. The court reached this result by noting that California law permitted disparagement by implication, and that disparagement claims were not required to be expressly stated as disparagement or trade libel. The court disagreed with the insurer that a disparagement claim required the allegation of trade libel, but noted that even if it did, the selling of a high-end product at discounted prices could be construed as an implied false statement by the seller that the high-end product was not, in fact, high-end.

Because the court found coverage under personal injury, it avoided deciding whether coverage would have been available under advertising injury, and thus did not reach the potentially thornier issue of whether the breach of contract exclusion would have excluded coverage when no breach of contract was proven since the underlying litigation had settled.

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  • What ever happened to tough love? Report shows that members of DOJ staff manipulated hiring process to get their kids jobs.
  • Sustainable cities beneath the sea? The “highly imaginary concept” of seascrapers is segmented into garbage collection units at the bottom, recycling plants in the middle, and housing and recreational zones at the top.

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Throughout the world, the popularity of “green roofs” is on the rise. ENR.com reports that green roofs are being used to mitigate various environmental problems facing urban areas, most notably, storm water management. According to the EPA, green roofs also help combat a problem known as “Heat Island Effect” by removing heat from the air through evapotranspiration. This process reduces temperatures of both the roof surface and the surrounding air, allowing the surface temperature of a green roof to be lower than the surrounding air temperature on a hot day. Other benefits of green roofs include corrosion protection, noise reduction, energy efficiency, and improved air quality. And the uses for green roofs vary widely from practical to pure entertainment. The ENR.com article notes that the largest green roof project currently underway in the United States – the Croton Water Filtration Plant in Bronx County, New York City – will include a 36,512-sq-m golf driving range.

Green Roofs for Healthy Cities, one of a number of groups advocating for the increased use of green roofs in construction, defines a green roofing system as an “extension of the existing roof which involves a high quality water proofing and root repellant system, a drainage system, filter cloth, a lightweight growing medium and plants.” Green roofing systems may be modular (with drainage layers, filter cloth, and growing plants already prepared in movable, interlocking sections), or the elements of the system may be installed separately. Green roofs can be used on a wide variety of buiildings, from private residences to industrial complexes, and the vegetation sustained thereon can range from simple groundcover to tall trees.

While typically more expensive to install than a traditional roofing system, proponents say that green roofs pay for themselves in terms of increased property value, aesthetic appeal, reduced heating and cooling costs, and extended life of the roofing materials. Many cities throughout the U.S. and abroad (particularly in Europe) already promote the use of green roofs – either through mandates or incentives. And the use of green roofs is only expected to increase as green infrastructure continues to gain political support.

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It is the rule in many jurisdictions that an insurer which assumes defense of its insured without issuing a reservation of rights can be estopped from later denying coverage based on rights or defenses in the insurance contract. This general rule was rejected by the Supreme Court of Wisconsin in Maxwell v. Hartford Union High School District, 814 N.W.2d 484 (Wis. 2012). The court in Maxwell held that an insurer which defends without reserving the right to deny coverage has not waived its ability to rely on coverage clauses in the policy allowing for such a denial.

In Maxwell, the policyholder – a school district facing a wrongful termination suit from an ex-employee – tendered a claim to its liability insurer which defended the school district in the ensuing litigation without issuing a reservation of rights letter. It was not until a judgment in excess of $100,000 was awarded against the school district that the insurer denied coverage based on language in the policy excluding liability for damages due under the employment agreement and for lost benefits or lost wages. That the policy indeed excluded coverage for the damages at issue was not in dispute. The issue presented to the court was whether, because the insurer failed to issue a reservation of rights, it had waived or could be estopped from asserting its defense of no coverage. In rendering its decision, the court held that waiver or estopped could not supply coverage to an insured that was not provided in the policy itself. Ruling otherwise, the court stated, would force an insured to pay for a loss for which it had not received a premium.

The court clarified that waiver or estoppel did not apply to the present case because it involved a coverage clause, as opposed to a forfeiture clause (such as a notice or cooperation clause). It noted that an insurer must act timely on a forfeiture defense and stated that providing a defense may be grounds for establishing waiver or estoppel regarding a forfeiture clause where the insurer fails to issue a reservation of rights. The court also made clear that its decision did not limit the damages applicable to an insurer which breaches its duty of good faith toward its insured. Such an insurer is liable for all damages resulting from its breach, and is not limited to damages contemplated by the contract.

The Maxwell court emphasized the importance of communication between insurers and insureds. Indeed, after Maxwell, policyholders should have increased motivation to engage in clear, detailed communications with their insurer regarding the insurer’s coverage position prior to entrusting the insurer with defense of a claim. If a policyholder cannot rely on a reservation of rights letter to explain the scope and limits of an insurer’s coverage position, it must seek such information through other means.

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On July 6, the California State Senate narrowly approved the use of $4.5 billion in proceeds from state Proposition 1A bonds for transportation projects. Governor Jerry Brown is expected to sign the bill into law. Full text of the bill can be found here. Senate Bill 1029 is intended to preserve California’s rights to about $3.3 billion of federal American Recovery and Reinvestment Act (ARRA) funds for the long-awaited California High Speed Rail.

About $2.6 billion of the state bond proceeds is now dedicated to High Speed Rail, intended to match the $3.3 billion of ARRA funds for a total of about $5.9 billion in funding for the early rail projects. (The remaining $1.9 billion is earmarked for local transit improvements, such as $140 million for new BART cars, $705 million for Caltrain electrification, $61 million for the SF Muni Central Subway, and $500 million for Metrolink and related systems.)

The early High Speed Rail funding focus is on the Initial Operating Section (IOS), which runs down the Central Valley from Merced to the San Fernando Valley (about 130 miles of initial segments and about 300 miles in total). Design-build package HSR11-16 has already been shortlisted to five bidders; this is for 23-29 miles of infrastructure around Fresno (including a major river crossing and many grade crossings) and is estimated at $1.2-1.8 billion. According to the Request for Proposal, award is scheduled for December of this year.

Further design-build packages for infrastructure connecting Fresno with Bakersfield, and for stations and track along all of these segments, would be expected to follow. There would also be associated architect/engineer and construction management contracts, and two design-bid-build contracts for multiple-use crossings. Additional design-build packages for infrastructure, stations and track connecting Merced with Fresno, and Bakersfield with the San Fernando Valley, are expected in the future. A procurement package for the trains would then ensue.

The contracts for these later segments face some additional significant hurdles. They are conditioned on additional agency signoffs, completion of the environmental impact review process, and negotiations with scores of landowners, cities and counties. Furthermore, more funds would have to be released by state and federal legislators. US congressmen have already announced their intention to audit how the High Speed Rail Authority has spent existing funds, and it is possible that Congress will limit or defer funding for the future segments. Some observers remain doubtful that all of these approvals will be obtained (let alone obtained on schedule).

All of the initial packages are expected to make use of public funds. Opportunities for public-private partnerships (PPPs), such as DBFOM contracts and concessions, are expected to be available for the urban sections closer to San Francisco, LA and San Diego, and for operating phases. However, the High Speed Rail Authority says unsolicited proposals for private financing may be considered.

The rail projects receiving ARRA funds are subject to the Buy America mandates of 49 U.S.C. 24405(a), requiring steel, iron and manufactured components to be of US origin. http://www.fra.dot.gov/Pages/11.shtml Bidders have already been warned that no waivers should be assumed (see page 13 of the RFP).

This legislation is intended to preserve California’s claim on the ARRA funds, and indicates a significant step forward for initial segments of High Speed Rail. Because more approvals and money are required for the overall project (now estimated to cost $69 billion in 2011 dollars), stakeholders will have to make many more strides before opening day.