Admissibility of Expert Witness Testimony

In Washington, the admissibility of expert opinions at trial is governed by a legal standard known as the Frye test. As relates to Life Sciences, this may arise when a patient claims to have suffered serious side effects from a drug under study. Expert medical testimony is required under Washington law in these types of cases to prove causation. Not all expert opinion testimony is admissible under Frye. While courts will go a long way in admitting expert testimony deduced from a well-recognized scientific principle or discovery, the thing from which the deduction is made must be sufficiently established to have gained general acceptance in the particular field in which it belongs. If the theory underlying a proffered opinion has not gained general acceptance in the medical community, it will not be admissible.

For instance, in February of this year the Washington Court of Appeals rejected a novel theory that insertion of a stainless steel stent could cause a severe and long lasting allergic reaction in a patient allergic to nickel. Eakins v. Huber, 154 Wash. App. 592 (2010).

Enforceability of Limited Warranties by Contractor

Home Buyers Warranty / New Home Warranty
2-10 HBW Warranty found unconscionable

A recent Washington Court of Appeals case invalidated a Home Buyers Warranty offered by a home builder to a customer in Pierce County. The homeowners had purchased a 5 acre plot of land in Roy, Washington and hired Palmer Ridge Homes, LLC to build them a home. Palmer Ridge Homes had enrolled with a third party company called “Home Buyers Warranty” that basically provides limited insurance for the builder for construction defects if the contractor uses a standard “2-10 Home Buyers Warranty. This warranty requires arbitration and that claims be brought within one year of substantial completion.

The court observed that the homeowners

-did not receive the booklet to review before signing an enrollment application;
-they believed the 2-10 HBW warranty would afford them greater protection than offered by the construction contract (it was in fact less protection)
-there was no indication that the 2-10 HBW was explained to them;
-did not receive a copy of the booklet containing the warranty terms until after they had moved into their home;
-the provision waiving implied and express warranties was on page 7 of a 32 page booklet

The court found this to be patently unfair the homeowner, even though typically any party to a contract has a duty to read the contracts they sign.

What lessons can be construed from this? If you are a contractor, take the time to explain the terms of your warranty. It may be wise to have your customer initial the pages. Use larger font or bold text for important provisions such as warranties, indemnification obligations, and time limitations for bring claims.

If you are a homeowner, be sure you read what you sign before you sign it. If you feel like you have been wronged by your contractor, contact an attorney.

The case can be found at http://www.courts.wa.gov/opinions/index.cfm?fa=opinions.showOpinion&filename=389819MAJ

Business Formation -- Choice of Entity

The entrepreneur has a choice of several different choices in which to run a business.

1) Sole proprietorships. On the plus side, these are the least expensive form, but on the minus side, they expose the proprietor with personal liability.

2) Divisions of an existing corporation, LLC, partnership, etc.;

3) general partnerships, that is, two or more people working together. Again, although inexpensive, these face the partners to unlimited personal liability;

4) Limited Liabilty Partnerships;

5) General partnerships in which all of the partners are limited liability
entities;

6) Simple limited partnerships—that is, limited partnerships that have
not registered as limited liability limited partnerships (“LLLPs”) and
whose general partners are not limited liability entities;

7) Limited partnership that have registered as LLLPs;

8) Limited partnerships whose general partners are limited liability entities;

9) Corporations;

10) "S" Corporations that allow certain tax benefits to the owners;

11) Limited Liability Companies, or LLCs. This includes Professional Limited Liability Companies, referred to as PLLCs.

The choice of which entity to select to run your business depends on a variety of factors, which coalesce into to basic steps: First, non-tax considerations. That is, what is the most efficient way to run the company and limit the owners' personal liability. Second is the implication of federal income tax and social security taxes on the entity. In nearly all situations involving small to medium sized businesses, the LLC is the preferred entity selection.

An LLC's operating agreement can be tailor drafted to fit the needs of the LLC's members to address nearly any situation. The LLC is by far the most versatile and protective form of business entity.

For more detaile information, contact me or refer to this very informative website:

http://www.cunninghamonoperatingagreements.com/

Stigma Damages in Construction Defect Litigation

A recent Division III Court of Appeals upheld "stigma damages" in a lawsuit by a homeowner against the contractor that built his home. Although not reported (and therefore cannot be used as binding authority in legal briefs), it reinforces my observation over the last fifteen years that (a) homeowners will get what they ask for from judge or jury, and (b) contractors face an uphill battle in construction defect litigation.

Mr. Khalighi purchased a home built by Mr. Harvey, and problems arise with several aspects of the construction. Trial was a bench trial, meaning no jury. The Court of Appeals affirmed a rather substantial judgment including:


-$106,000 cost to repair improper drainage, adding slope to a garage, and improperly poured footings;
-a 25% contingency ($26K) for unforeseen problems that might be uncovered (rejecting the defense argument that this was speculative);
-stigma damages of $148,000; and
-attorneys’ fees of $135,000.


The trial court judge apparently disregarded entirely the defense expert’s opinion that repair costs were $13,000 and stigma damages no more than $38,000. There was no middle ground; the homeowner got everything he wanted.

I was also surprised to see the Court disregarded the homeowners’ obligation to provide notice of defect under RCW 64.50. It was undisputed that the homeowner failed to give any notice of defect or opportunity to cure. But because the contractor did not point out the homeowners’ obligation, the Court determined he had waived that defense.

http://www.courts.wa.gov/opinions/index.cfm?fa=opinions.showOpinion&filename=280772MAJ

Limiting liability through contract negotiation

A recent, but unpublished, Washington appellate case upheld a contractual provision limiting the time in which suit must be filed. The case is titled Pedowitz v. Above all Roofing. Normally, the statute of limitations for bringing a claim for breach of a written contract is six years. In a roof repair contract, however, the contractor inserted a provision requiring suit to be filed within 18 months of substantial completion. Although having notice of defects in the work performed, the owner did not file suit until after 18 months of substantial completion. The appellate court held that the trial court correctly dismissed the action as untimely.

In support of its holding, the Court of Appeals relied on Southcenter View Condominium Owners Association v. Condominium Builders, 47 Wash. App. 767 (1986). Whether or not the shortened statute of limitations period would be upheld in the case of latent defects not discovered within 18 months is an open question, but there are two lessons to be learned.

First, if you are a contractor, you should consider language limiting the time in which suit must be filed.

Second, if you are a homeowner, you should read the contract carefully to ensure you are not limiting your recourse.

If you would like a copy of the case, you can email me at jim@jwtalbotlaw.com. Full text of the case can be found at:


http://www.courts.wa.gov/opinions/index.cfm?fa=opinions.showOpinion&filename=636511MAJ

Be careful what you sign!

A recent court of appeals case affirmed the proposition that you must be careful what you sign. It involves imposition of personal liability to the members of an LLC who ignored language in a contract to their detriment.

The members of the LLC were husband and wife. Several times in a contract, the contract referred to them as “William and Teresa Grover, d/b/a Grover International, LLC.” On the signature line, however, Mr. Grover clearly signed his name “Grover International, LLC, by William Grover, Member.”

The opposing side sued for breach of contract and sought personal liability against William and Teresa Grover. The court of appeals determined that personal liability was appropriate, even though the signature block clearly referred to the LLC as the contracting party. By failing to object to the description of the individuals doing business as an LLC, the Grovers were personally liable.

Lesson learned: be very careful in what you sign! Be sure when you are acting on behalf of the business that all paragraphs consistently refer to you as a business.

For questions or advice on other legal matters, email me at jim@jwtalbotlaw.com