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A decision by the Texas Supreme Court either delighted or horrified Texas attorneys, depending on whether they represented consumers of construction services, construction companies or insurance companies. In Lamar Homes, Inc. v. Mid-Continent Casualty Company, an opinion delivered on August 31, 2007 and which became final in December 2007, the Texas Supreme Court held that unintended construction defects constitute property damage under a commercial general liability policy (“CGL” policy), triggering a duty by the insurer to defend the home builder and to pay damages on behalf of the builder when a home owner sued the builder for construction defects.This is a surprising decision in some ways because, in general, CGL policies in Texas cover claims for bodily injury, property damage, personal injury, and advertising injury (damage from slander or false advertising). A damage claim because something has been built defectively is usually not covered by a CGL policy. The CGL policy is intended to cover tort claims. A claim that something was built defectively is a breach of contract claim, As the dissent in this case so ably points out, this decision turns the construction industry and the CGL insurance industry on its head.

Attorneys representing home owners may smile at this decision, and think they have been handed another source from which to collect damages when a builder’s construction (or the work of the builder’s subcontractors) turns out to be defective. However, the real loser because of this decision may be the very person that this decision appeared to benefit: the consumer! If CGL insurers are now obligated to cover every real or imagined, major or minor, defect in new construction, then the premiums for those policies will most certainly rise. Those increased premiums paid by the contractor will be passed on to the consumer in both residential and commercial construction. Rents will ultimately increase. What this decision really does is spread the cost of construction defects among all of us. In addition, this decision really shields the bad builders in the short run: they can pass these costs on to their CGL carrier, rather than being liable themselves for shoddy work.

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As an attorney, I have represented rural water companies in Texas for years. I have prepared their corporate documents, assisted with government grant and loan applications, and negotiated non-standard and subdivision service contracts, among other things. I have also served as an officer and as a director on the board of a rural water company. Based on my experiences, I believe that many of Texas rural water utilities are struggling, and in some cases, may be headed for a crisis.

Rural water companies (also called community water systems) are, along with rural electric co-operatives, the backbone of American rural life. The U.S. Congressional Budget Office estimates that nationally, as of 1999, roughly 54,000 publicly or privately owned community drinking water systems provided drinking water to some 250 million people. Here in Texas, water companies are regulated by the Texas Commission on Environmental Quality (the “TCEQ”), and through the TCEQ, the Environmental Protection Agency, under the authority of the federal Safe Drinking Water Act. The problem begins with the fact that many of the rural water companies in Texas are so small. In many cases, the board of directors consists of a small group of farmers or ranchers or local residents, who are almost always great people, but who do not always have the tools or the background to deal with the increasingly complex technological and regulatory requirements imposed on all water companies, regardless of size.Here in Texas, rural water companies get tremendous technical and legal assistance from our state association, the nonprofit Texas Rural Water Association (“TRWA”). Notwithstanding this help, the diseconomies of scale and the increasing cost and complexity of complying with all the state and federal regulations are taking their toll on rural water companies.

The answer, I believe, is going to be in smaller companies banding together to create county-wide or even regional co-operatives. Initially, these co-operatives could use their buying power to save their members money on chemicals and other supplies. Ultimately, the co-operatives would jointly invest in treatment plants and other infrastructure needed to produce water.

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As I indicated in a previous post, a recent decision by the Texas Supreme Court contains an important lesson for Texas attorneys who represent Texas real estate owners, general contractors or subcontractors. Texas attorneys who practice construction law should be aware that, because of this decision, claims by a temporary labor service are covered by the Texas mechanic’s lien statutes, and that service can file a mechanic’s lien claim, just as an individual laborer can. As a result, when using a contractor who uses workers from a temporary labor service, an owner and/or general contractor must comply with the mechanic’s lien statutes, including the portions of those statutes regarding the timing of payment and the withholding of payment to a contractor who has been using temporary workers. The Texas mechanic’s lien statutes are complex, and not for the faint of heart. If you are a property owner or contractor, you would be well served by retaining an attorney who is experienced in construction law to review your contracts and explain the time limits in the statutes to you. This is one area where an ounce of preventive legal advice can save you a lot of money later!

It might seem obvious that workers from a temporary labor service should be considered as “labor” under the Texas mechanic’s lien statutes. However, this issue does not seem to have been decided until recently by the Texas Supreme Court. In Reliance National Indemnity Co., L&T Joint Venture and Lamar Construction Inc. v. Advance’d Temporaries, Inc. the Texas Supreme Court decided that a temporary staffing agency could, indeed, file a mechanic’s lien for unpaid labor services.

The case arose from the construction of an apartment building in Corpus Christi, Texas. L&T Joint Venture, the general contractor, hired Gonzalez, an individual, to do the framing, drywall and roofing at the project. Gonzalez supplemented his crew with additional workers from Advance’d. A written agreement between Gonzalez and Advance’d specified that the workers were employees of Advance’d, not Gonzalez. Reliance was the surety on the job.At some point, L&T terminated Gonzalez, and paid him through the date of termination. Unfortunately, Gonzalez did not pay Advance’d. Advance’d gave a statutory mechanic’s lien notice that it had not been paid to the owner, the general contractor and the surety .

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A recent decision by the Texas Supreme Court contains some very specific lessons for attorneys who represent temporary labor services who supply workers for Texas construction projects.

Temporary staffing agencies or temporary labor services have become a popular and often cost effective way for a property owner or contractor to supplement a work crew or even to staff an entire construction job. According to the U.S. Bureau of Labor Statistics, in 2005 there were 5.7 million temporary workers, or approximately 4% of the labor force in the United States, with the construction industry accounting for about 13% of that number. Such an arrangement has many advantages for the owner or contractor: the labor service recruits the workers, and is responsible for workers’ compensation and liability insurance, payroll and payroll taxes. The labor service simply presents an invoice for the use of the workers to the owner or contractor on a periodic (usually weekly) basis.It might seem obvious that workers from a temporary labor service should be considered as “labor” under the Texas mechanic’s lien statutes. Interestingly, however, this issue does not seem to have been decided by the Texas Supreme Court until recently. In Reliance National Indemnity Co., L&T Joint Venture and Lamar Construction Inc. v. Advance’d Temporaries, Inc., the Texas Supreme Court decided that a temporary staffing agency could indeed file a mechanic’s lien for unpaid labor invoices.

In this case, the general contractor and the surety on an apartment construction project in Corpus Christi, Texas, refused to pay the claim of a temporary labor agency (Advance’d) that had supplied labor to one of the subcontractors. The general contractor and surety argued that Advance’d did not actually furnish the labor to the apartment project because, in their view, the workers were really employees of the subcontractor, and not Advance’d. The Texas Supreme Court looked to the written contract signed by the subcontractor and Advance’d, noted that the parties had agreed in the contract that the workers were employees of Advance’d, even though the subcontractor directed their work, and decided that the Advance’d claim really was a claim for the furnishing of labor under the mechanic’s lien statutes.

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Texas real estate law generally provides that a property owner in Texas is not required to ensure that an independent contractor perform its work in a safe and non-negligent manner. In the recent case of Central Ready Mix Concrete Company, Inc. v. Luciano Islas, the Texas Supreme Court reaffirmed that principle, and refused to accept some apparently novel arguments in support of changing that law. The Plaintiff was clearly trying to find the “deep pocket” here, and was making some pretty tenuous arguments to try to get there. The Court’s decision in this case makes sense.

Central, the property owner, was a ready-mix concrete company who hired an individual, Taylor, to come to the property owner’s business premises to clean out concrete trucks. All parties agreed that Taylor was an independent contractor, and was not an employee of the property owner. Islas, the Plaintiff, was injured when another of Taylor’s employee’s turned on a concrete truck’s drum while Islas was inside, severely injuring him. The Texas Supreme Court refused to extend premises liability law to cover this situation.It was important to the Court’s decision that the property owner had neither contractual nor actual control over the independent contractor’s employees. In ruling in favor of the property owner, the Court disagreed with the following arguments:

1. Islas claimed that the concrete truck contained a “concealed hazard”, and that the property owner had a duty to warn him of this hazard. The Court said that while a property owner does have a duty to warn an independent contractor of concealed and hazardous conditions on its real property, a property owner does not have a duty to warn an independent contractor about the hazards of the contractor’s own work.

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The digital age has profoundly impacted the way real estate attorneys and real estate brokers do business. For example, in the case of my real estate law practice, I recently represented the seller in connection with the sale of a shopping center. The property, the title company and the seller’s attorney (i.e., me) were located in Texas, the seller was in Arizona, the buyer was in New York City and the buyer’s attorney was in Atlanta, Georgia. We used email or ftp sites to transmit and review title commitments and surveys and to send drafts of conveyance documents and closing statements back and forth until closing. The closing was done by the title company via Federal Express. Current federal legislation, the Digital Signatures in Global and National Commerce Act (E-Sign), will allow even the closing to take place electronically, and Texas title companies are beginning to move in this direction. However, despite the ease and swiftness of the Internet, nothing, in my opinion, can replace that personal connection between an attorney and their client, and the trust, professionalism and camaraderie that flows from that relationship.Real estate brokers have also realized great efficiencies in using the Internet as part of their service to their clients. First, of course, they use the Multiple Listing Service to list and identify properties for clients, and they use email to keep in touch with often far-flung clients. However, as in the case of real estate lawyers, there are limits. A recent news story illustrates these limits.

A Newsday story by James Bernstein chronicled the demise of Foxtons, a New Jersey based residential broker. Based on Mr. Bernstein’s story and other news reports, it appears that Foxtons entered the brokerage market in the New York City/New Jersey area in a big way in 1999, introducing themselves with an expensive advertising campaign. They used Internet listings and a paid staff to sell property, instead of commission-based brokers or agents. They paid commissions to buyers’ brokers (according to Bethany Marten with the Home Buyer’s Resource Center, quoted in Newsday) of only 1 to 2%, compared with the somewhat standard commission of 6%. Once a house was listed with Foxtons, while it was entered into the Foxtons database on the Internet, Foxtons clients complained that there was little or no personal contact with the staff, and that the house they were trying to sell was not even shown to prospective buyers. There were reports that buyers’ brokers did not like to show houses listed with Foxtons to their clients, because the commission was such a pittance.

I have worked with many real estate brokers over the years, and there are many good ones out there. A good real estate broker is invaluable in buying or selling either commercial or residential real estate. A good broker assists their client with proper pricing, with the best timing for the sale, with packaging the property so it will bring the best return, and with addressing buyers’ concerns. On the buyer’s side, a good broker helps a client not only find the property, but can assist with appraisers, inspectors, engineers and financing. I have bought and sold many properties of my own over the years, and even though Texas law allows me to act as a broker for myself or for a client, I do not. In fact, I have used a broker each time, not only because they are an invaluable partner in any transaction, but also because I can count on them to be objective.

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The recent media attention to the problems in the subprime mortgage market, both in Texas and nationally, may hide the fact that subprime mortgage loans serve a valuable purpose: they are loans to low-credit households that could not previously afford to own a home.

First, it is important to put this situation in perspective. Subprimes make up 13% of all Texas residential mortgages, and only 4.3% of those mortgages were in default by the end of 2006. Nationally, subprime loans make up only 14% of all mortgages, and the national foreclosure rate on subprime mortgages at the end of 2006 was approximately 14.3%. (Statistics courtesy of Texas A&M Real Estate Center). Market Pulse reports in its June 2007 issue that nationally the subprime foreclosure rate as of June 2007 is 10.11%.

Despite the issues with subprimes, real estate markets are generally healthy throughout the country. For example, U.S. office vacancy rates are declining and commercial real estate investment reached record levels in 2006, according to the National Association of Realtors. Commercial rents nationally for the first half of 2007 recorded their largest increase in six years, according to a recent report by CNNMoney.com. Delinquencies among commercial borrowers continue to fall, according to Fitch Ratings U.S. CMBS loan delinquency index. According to Housing Intelligence, new home sales remain healthy, even though they may be down from the feverish pace of 2002 to 2006. Finally, the Mortgage Bankers Association reports that, while residential foreclosures are up, national residential delinquency and foreclosure rates are being driven by what is happening in four states: California, Florida, Nevada and Arizona. If the rates in these states were not considered, national residential delinquencies and foreclosures would be down.The issues in the subprime mortgage market are serious, of course. The National Real Estate Investor estimates that hedge fund investors could lose up to $125 million, that there could be almost 12,000 layoffs due to bankruptcies of subprime lenders, and indicates that by August, 2007, there was a backlog of $35.2 billion in unsold commercial mortgage-backed securities. These statistics, however, should not cause us to lose sight of the importance of subprime mortgage lending.

Dr. James Gaines, a research economist with the Texas A&M Real Estate Center, tackles this issue head-on in a recent issue of Tierra Grande. He notes that “(t)here is no reason to overreact and kill something that has served, and could continue to serve, a useful purpose”. Dr. Gaines goes on to say that “(t)he private sector found a way to make loans to low credit, previously unfinanceable, households so that they could own homes. While this effort was spurred by profit, not altruism, the effect on home ownership throughout the country was nevertheless profound”.
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Congress may soon get a chance to approve the creation of a new national park in the Waco, Texas, area. This development may prove a real boon to the local real estate market. A new park will generate the need for tourist related facilities, such as gas stations, motels and restaurants. Expect an increase in land prices in the area surrounding the proposed five acre national park. Local attorneys who practice real estate and construction law may find themselves in the midst of some interesting negotiations between the big city gas station and motel franchisors and the local landowners.

The possible new park centers on the discovery and excavation of the bones of 25 Columbian mammoths. The Columbian mammoth is a warm weather cousin to the woolly mammoth, with which some of us are more familiar.

Baylor University and the City of Waco are preparing to allow the public to have their first look at the “Waco Mammoth Site”, after several decades of clandestine work uncovering the remains. The National Park Service has indicated that the site meets its criteria for a national park, although the final decision will be made by Congress, and funding for a park may be hard to find.It is hard to overestimate the significance of this site. The Waco Mammoth Site, along the Bosque River, was first discovered in 1978, but has been kept quiet until now due to fears of theft or vandalism. The site is believed to be the largest known concentration of prehistoric mammoths perishing from a single event. It appears that the animals may have been caught in a flash flood and then a mudslide that killed them all at one time. The first fifteen mammoths uncovered were grouped in a circle, facing outward, protecting young mammoths in the center. Two adults were found with juvenile mammoths in their tusks, as if they were trying to raise the youngsters above the mud.

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