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CR 2004-112 Nine Mile Cove Development Watermain Installation ( "\ : CITY Of: : . _I July 16, 2004 ~OPKINS I Council.Report 200#-112 Approve Settlement Agreement, Nine Mile Cove Development Watermain Installation Proposed Action. .. Staff recommends adoption of the following l11otion:. Move that Council approve the proposed ... · Settlement Aareement between City of Hopkins and Taurus Properties.. Westwood Professional Services. Inc. and Arcon Construction Company reaardina the installation of new watermain for the . Nine. Mile Cove development and authorize the Mayor and City Manager to sian. theaareement on behalf of the city; . Overview. In 1997, the City entered into a developn'entag~eement with Taurus Properties, Inc. for the construction of the 62-unit Nine MileCoVf~ townhome development. Included with that . developm~nt was the installation of newwatermain from 2nd Avenue South to the development site. The watermain developed several leaks over a four year period. , When the contractor ..refUsed to repair a leak in 2002 as warranty work the city filed a claim against the developer. This . claim was finallysettleda~ a February 6, 2004 .medlati~n session. The ~ettlementincludes a. .... $23,000 payment to the City and Taurus dropping a claim for $8,224.99.ln payments they felt was.' owed as Linpaid reimbursemenHor construction per the development agreement. Given all the factors inthis case, this appears to be afa.irsettlement for the city ~ourcostfor the water main repairWas $35,059.00. Had we gone to court with this case, the City Attorney estimated the City costs at $15":20,000. ... Wynn Curtis represented the city throughout this case and recommends' CoLincil.approve the settlementagreement. Supportina information. . · Settlement agreement .. May 2003 Wy Curtis memo .Steven J. Stadler, Public Works Director Financial Impact: $12 Budgeted: Y/N _n/a_ Source: .'. Related Documents (CIP, ERP, etc.): Notes: . J/ ;~:'pJ s(. t TO: STEVE STADLER, DIRECTOR OF PUBLIC WORKS . FROM: WYNN CURTISS, CITY ATTORNEY RE: NINE MILE COVE W A TERMAIN CLAIM " The purpose of this memorandum is to .discuss possible legal claims arising from the failure of the watermain constructed as part of the Nine Mile Cove development: .' BACKGROUND . On April 7, 1997, the City of Hopkins ("Hopkins") entered into a Development Agreement (the "Agreement") with Taurus Properties, Inc. ("Taurus") to permit construction of a 62-nit townhome development located at what was to be called Nine Mile Cove (hereafter, the "Project"). Included in the Project was the construction and installation of certain utilities, including a watermain (the "Watermain"). Taurus, pursuant to a contract dated August 19,1997, hired Arcon Construction Co. ("Arcon") to be the Project's general contractor. Pursuant to the Agreement, Taurus was requiredto obtain from Arcon a Maintenance Bond (the "Bond") to pay for repairs to the Project in the' event Arcon refused to do.so. There is no other language in the Agreementspecifically requiring Taurus to provide a warranty for the Project work. Instead, the. Bond was to cover all defects, deficiencies' and failures to. the . improvements discovered or arising within three years of the date Hopkins accepted the improvements. On November 3, 2000, Arcon provided Hopkins aBond that; by its terms, indicated the Project had been accepted effective October 21, 1998, the date from which the Bond's three-year coverage period ran. For reasons that are not clear, the Bond specifically . .' . , excluded a portion of the project thl:\.t included theWatermain; Due to soil conditions on the Project site, different options were.considered regarding the. manner in which to construct the Watermain. Based on the recommendations of an engineering firm, it was deCided that the Watermain would be supported by pilings driven into the soil. Construction 011 the Watermain was completed in 1998 and the first failure oftheWatermain occurred shortly thereafter. Between 1998 and April 2002, there were five breaks of the watermain. The .first four were repaired by Arcon without cost to Hopkins. In May 2001, following the fourth break., an investigation the Watermain was damaged by the pilings due to the fact a wood. support placed between the piling and the.Watermain itself, called the pile cap, was being crushed, with the result being that the Watermain itself was being forced down onto the piling and being damaged by the piling. Following the May2001 break, Hopkins contacted Taurus, Arcon and the Bond company, Liberty Mutual, regarding the ongoing problem. Taurus responded by referring to the lack of a specific warranty from it in the . Agreement. Arcon responded by claiming the work was not defective and even if it was, the remedy was to come from the Bond. Arcon noted, however, that the area of damaged '. Hopciv\9MileCoveCouncilMemo --. . Watermain was excluded from the Bond. Liberty Mutttal did not respond. No further action was PllXsued by Hopkins. In the spring of 2002, an new leak occurred and Hopkins again contacted Arcon . which replied that it would not repair the leak unless it was paid to do so. u Hopkins hired STS Consultants.("STS") to evaluate the ongoing problem with the Watermain to determine the cause of the problem. STSprovided ,a report dated December 3, 2002, that indicated the primary cause of the problem was the use by Arton.. of wood for the pile caps that was inadequate to support the expected weight. STS also indicated . the pileeap also should have been constructed with a "saddle area" and that the lack ofa "saddle area" likely contributed to the pile cap failUre. A new watermain section Will be constructed to replace the defective Watermain, at a cost to Hopkins in excess of$40,000.00. LEGAL ISSUES The question is whether Hopkins has a legal claim against Taurus, Areon or the Bond company, Liberty Mutual, for the cost of repairing the Watermain. Due to the circumstances in. this matter, claims against each of the possible defendants have significant obstacles. . . TAURUS CLAIMS . Hopkins' claims against Taurus would be for breach of warranty due tothe , defective work, breach of contract due to the defective work, breach of contract fof' failing to require Arcon to.provide the appropriate maintenance bond and negligent design of theW atennain system. Hopkins' breach of warranty and breach of contract claims due to the defective work are problematic due to the lack of a specific provision in the Agreement by which Taurus Warrants the quality of the work or is otherwise held to ,a specific performance standard. As Taurus rightly notes, the Agreement appeared designed to shift the risk for correcting defects from Taurus to Arcon and/or its bond company. Taurus itself did not agree to provide a separate warranty for the Project. A second problem with a warranty/contract claim against Taurus relates to the statute of limitation for claims involving improvements to real property. Minnesota law requires that alegal claim involving a defect to an improvement to real property be brought within two years of the time .the defect is or should have been discovered. In this case, the first break in the Watermain occurred in1998 and several subsequent breaks occurred through May 2001. In each case, the break related to the crushed pile caps. Any defendant, therefore, likely will claim Hopkins knew. or. should have known long ago that . the pile caps were the problem and brought suit within two years. In response, Hopkins could claim that because Areon fixed the problems, there was no claim to make. Hopciv\9MileCoveCounci lMemo ( . Alternatively, Hopkins could claim the Bond applies through October 2001 and any defects discovered during that time trigger the two-year limitations period, which would not completely run until October 2003. Because the May 2001 break clearly demonstrated the cause of the problem to be the pile caps, the c.ourt could take the position the two-year period began running at that time. '., A second possible claim against Taurus relates to the fact the Bond did not provide complete coverage for all aspects of the Project. Failure to provide the appropriate maintenance bond would be a breach of the Agreement and.Taurus would have to stand in where. the Bond does not apply. The biggest obstacle to thisc1aim is that Taurus itself did not procure the Bond or provide it to Hopkins. Ra.ther, Arcon provided the Bond, which clearly states an exclusion not permitted by the Agreement. Taurus undoubtedly would claim Hopkins waived any clairn due to the defective Bond because Hopkins accepted the Bond in the form provided by Areon. Hopkin's negligent design Claim against Taurus would be subject to the same limitations period defense as the warranty and contract claims' discussed above. Hopkins might also have a negligence claim against another Taurus subcontractor, Westwood Professional Services, Inc., which assisted Taurus in the Project. ARCON CLAIMS . Hopkins claims against Arcori likely would be limited to a negligent construction claim due to the . defective pile caps. Beca.use Hopkinsdid.not have a contract with Areon, there is no contract or wa.rranty claim to make by Hopkins against Areon. Any claim against Areon also would be subject to the statute oflimitations claim. If Hopkins were to pursue a claim against the Bond, the bonding company likely would sue Arcon pursuant to the terms of the agreement between Arcon .and the bonding company. BOND CLAIMS . Hopkins might bring a claim against the Bond itself. The Agreement language says the Bond applies to defects arising within three years of the date the Project is accepted. Clearly, the defects occurred within that time. The question, as before, is whether Hopkins had to bring the claim against the Bond within two years of discovering the defect. The Bond itself sets no procedure for making a claim and imposes no earlier deadline than the statutory two-year period. DISCUSSION The most important issue is the application of the statute of limitations. The best . documented cause of the problems comes from the May 14, 2001 break. If a claim is to .. be filed, it would, therefore, be prudent to file a claim before May 14, 2003, to limit the possible application of the statute of limitations defense. Hopciv\9MileCoveCouncilMemo . The second issue is cost. It is likely tl).at the defendants will, quite quickly in the litigation, file a motion with the Court seeking to dismiss the claims on the grounds the statute oflimitation precludes the claims. To get to this pointin the litigation it .likely will cost Hopkins between $3,000.00 and $5,000.00 in legal fees and costs. Tfthe caSe is dismissed follo'Wingsuch a motion, an appeal is possibleatld it would cost an additional " $2,500.00 to $3,000.00, if pursued. . The 'initial goal of the litigatiol1 would be to defeat the motion to dismiss: If the defendants are forced to proceed with the case, they will have an incentive to settle the case rather than incur the fees necessary to litigate to a conclusion. The more defendants that Can be included (Taurus, Arcon, Liberty Mutual, Westwood) thel110re pockets available to contribute to a settlement. lfthe motion to dismiss is denied, the possible cost . to Hopkins for atrial likely would be between $15,000.00 and $20,000.00. None of these attorney fees can be recovered, although some other costs l11ightbe. However, since each of the defendants also would likely incur this level offees, or higher given the relatively low rate Hopkins would pay compared to the rates the other parties would pay their attorneys, there would be a good chance the matter could be settled for an amouht that would cover the cost of the fees.paid by Hopkins plus an additional amount to defray some of the costs of moving the Watermain. Typically, settlements do not make a party whole. It is unlikely Hopkins could expect to receive a settlement that paidalLthe attorney fees and costs and 100% of the costs t6 replace the Watermain. . . The' issue for the Council, th~refore, is whether it wishes to risk $3,000.00 to $5,000.00 in attorney fees and costs to pursue the claims in the hope of recovering an amount greater than the co~ts to pay s0l11eof fheextra costs incurred to remedy the .' Watermain problem. RECOMMENDATION The position of the City Attorney's office is that a claim should be filed against at least Taurus and Arcon and possibly Westwood. A claim against the Bond company seems less appropriate since the Bond company only wrote the type of bond it was asked to write, it had no independent obligation to write a bond that met the terms 'of the Agreement. As for the claims against Taurus et aI, it is our opinion that the statute of limitations defense poses a significant, although not insurmountable, obstacle to recovery. Given the cost to repair the Watermain, the cost to pursue the claims at least through the inevitable motion to qismiss appear reasonable and justified. '. . Hopciv\9MileCoveCouncilMemo . MILLER, STEINER & CURTISS, P.A. ATTORNEYS AT LAW 400 WELLSF ARGO BANK BUILDING 1011 FIRST STREET SOUTH HOPKINS, MN 55343 JEREMY S. STEINER'" JERRE A. MILLER (RETIRED) WYNN CURTISS . '"Real Property Law Specialist, certified (952) 938-7635 by the Minnesota State Bar Association FAX (952) 938-7670 Writer's Direct Dial No. (952) 253-0071 TO: STEVE STADLER . FROM: WYNN CURTISS DATE: MAY 24, 2004 RE: TAURUS LITIGATION - SETTLEMENT . Enclosed please find the final version of the Settlement Agreement and Release and four signature pages. Please review the Agreement and let me know if you have any questions. If not, each of the signature pages needs to be signed and notarized and all returned to me. I will distribute them and when everyone has signed all copies, we will get executed copies back together with the money. I will leave it to you to provide copies of these documents to Steve Mielke for review. we . .. . . SETTLEMENT AGREEMENT AND RELEASE OF ALL CLAIMS TIllS AGREEMENT, dated and signed in counterparts and fully effective as of February 6, 2004 is made and entered into by and on behalf of the City of Hopkins, a Minnesota municipal corporation, for and on behalf of itself, its successors, assigns, subrogees, and persons or parties or entities identified in interest with all or any of the foregoing (hereinafter referred to jointly and severally as the "Releasing Parties"), and the Settling Parties hereafter identified, and witn~sses that: 1. . Taurus Properties, Inc. ("Taurus") was the Developer of a multi family residential development in the City of Hopkins (the "City") known as the Nine Mile Cove Development (the "Project"). 2. As a condition of issuing required approvals for the Project, the City required Taurus to provide and pay for certain publicimprovements. The understandings between the City and Taurus were set forth in a written Agreement For Construction And Maintenance Of Public Roads, Utilities, and Trails dated April 7, 1997 (the "Development Agreement"). . 3. To fulfill its obligations under the Development Agreement, TaUrus contracted with and paid for the services of Westwood Professional Services, Inc. ("Westwood") to provide engineering services in connection with the Project. 4. To further fulfill its obligations under the Development Agreement, Taurus contracted with Ar~on Construction Company, Inc. ("Arcon") to construct the public improvements pursuani to plans and specifications provided by Westwood and approved by the City. 5. The public improvements required under the Development Agreement were built and accepted by the City, which assumed ownership of the said improvements and issued a Certificate of Completion of the required improvements. 6. Defects in the public improvements constructed pursuant to the Development Agreement developed, including but not limited to leaks in a watermain. Arcon repaired several leaks to the City's satisfaction but refused to repair a.leak that developed in approximately March, 2002. The City effectuated repairs to the watermain and commenced an action iQ. Hennepin County District Court, File No. CT 03-014049 against Taurus, Westwood, and Arcon to recover the cost of repair of the watermain and other damages. 7. Taurus, Westwood, and Arcon all denied liability to the City for the claims alleged, and asserted crossclaims against each other for contribution and indemnity for any amounts . payable to the City. . 8. Additionally, Taurus asserted a counterclaim against the City for sums allegedly due Taurus pursuant to a final accounting. upon completion of the Project. 9. The parties to this Settlement Agreement now desire to settle all claims by and between them in the Action and arising or to arise out of all workperrormed an~ services rendered to the City under the Development Agreement and all agreements by and between Taurus, Westwood, and Arcon in connection with the Project. NOW THEREFORE, in consideration of the foregoing and the monetary payments and other consideration set forth below, the Releasing Parties hereto agree as follows: 1. RELEASE OF CLAIMS: For and in consideration of the sum of Twenty-three Thousand Dollars ($23,000.00) and other good and valuable. consideration, the receipt and sufficiency of which is hereby acknowledged, the Releasing Parties hereby absolutely and unconditionally release, acquit, and. forever discharge Taurus Properties, Inc., , . Westwood Professional Services, Inc., and Arcon Construction, Inc. and the insurers, officers, directors, . employees, agents,. successors, parents and subsidiaries, and assigns of each (hereinafter referred to jointly and severally as the "Settling Parties") from any and all claims, actions, causes of action, suits, demands, rights, and damages of whatever kind or nature including but not limited to property damages; bodily injury; personal injury; compensatory, consequential or punitive damages; costs; loss; expense;derivative claims; claims for breach of contract and breach of warranty, either express or implied; claims for subrogation;. Claims for attorney's fees; and claims for any compensation whatsoever, foreseen or unforeseen, arising out of orin anyway connected with the design; construction, materials, equipment, maintenance, repair, and other work or service provided by or on behalf of the Settling Parties with respect to the public improvements cOQ.structed pursuant to the Development Agreement and other agreements relating or pursuant thereto or any part or portion thereof, inCluding but not limited to claims which were asserted or which could have been asserted in the Action. . The Releasing Parties understand and e~pressly agree that this Release includes all unknown damage~, and consequences on account of or because of the public improvements designed and constructed pursuant to . the Development Agreement which may occur or be discovered in the future. The Releasing Parties further understand that the damages which have been claimed or which could have been claimed in the Action may be. more extensive than presently known,or contemplated and represent that they are therefore relying upon their. own informed judgment, belief, and knowledge as to the nature and. extent of their damages and potential damages and claims and potential claims against the Settling Parties and that they are not relying upon representations or statements by the Settling Parties or anyone retained ?y or representing them with regard to any such matters. 2. NO ADMISSION OF LIABILITY: The parties to this Agreement recognize and agree that this settlement is the compromise of disputed claims and that the consideration paid hereunder is not intended nor shall it be construed by anyone to be an admission ofliability by or on behalf of the Releasing Parties or any of the Settling Parties, by whom all such . liability is expressly denied, the parties hereto intending by this payment merely to avoid litigation and buy- their peace. \. 3. RELEASE OF CLAIMS BY AND AMONG SETTLING PARTIES: Each of the Settling Parties hereby settles, satisfies, releases, and discharges all counterclaims, cross . claims, and third party claims for contribution, indemnity, or other relief which each Settling Party asserted or could have asserted against the City or against any other Settling Party in the Action. 4. RELEASE OF TAURUS COUNTERCLAIM AGAINST CITY: Taurus hereby settles, satisfies, releases and discharges all claims and counterclaims against the City, including but not limited to claims for property damages; bodily injury; personal injury;. compensatory, consequential or punitive d~ges; costs; loss; expense; derivative claims; claims for breach of contract and breach of warranty, either express or implied; claims for subrogation; claims for attorney's fees; and claims . . . for any compensation whatsoever, foreseen or unforeseen, aris!ng out of or in any way connected with the design, construction, materials, equipment, maintenance, repair, and other work or service provided by or on . behalf of the City. with respect to the public improvements constructed pursuant to the Development Agreement and other agreements relating or pursuant thereto or any part or portion thereof which were " . asserted or which could have been asserted against the City in the Action. 5. LIABILITY OF SETTLING PARTIES EXTINGUISHED: INDEMNITY: It is understood and agreed. that the purpose and intent and legal effect of this document is to extinguish the entire liability of the Settling Parties to the Releasing Parties for any and all claims arising out ofthe design, construction, maintenance, repair, and use ofthe public improvements constructed pursuant to the Development Agreement, and to bar forever any recovery by way of subrogation, indemnity, contribution or any other claim or rightof reimbursement against the Settling Parties by any other party or source based upon any determination of any right to further damages, benefits, reimbursement, or other monetary payment which any other party or source has or which may hereafter accrue arising out of or in any way connected . with the public improvements constructed pursuant to the Development Agreement and all contracts, . agreements, understandings, and undertakings in connection therewith. 6. DISMISSAL OF SUIT: The Releasing Parties hereby authorize and direct thell: attorneys of record to dismiss all claims against the Settling Parties in the Action with prejudice, upon the merits, and without costs or disbursements in order to furthe~ the purposes of this Release and to bar further action against any of the Settling Parties relating to or arising by virtue of the Released Claims. Each of the Settling Parties hereby authorizes and directs their attorneys of record to dismiss all counterclaims, cross claims, and third party claims for contribution, indemnity, or other relief against the City or any of the other Settling Parties in the Action with prejudice, upon the merits, and without costs or disbursements in order to furtherthe purposes of this Release and to bar such claims by anyone Settling Party against the.City or any other Settling Party in the Action. . . 7. BINDING EFFECT: The terms of this Settlement Agreement and Release are intended to be and shall be binding upon and' shall inure to the benefit of the . parties hereto jointly and seveqllly and the successors, personal representatives, and assigns of each. '. 8. ENTIRE AGREEMENT: TheReleasing Parties further understand and agree that this document contains the entire agreement . between them and the Settling Parties with respect to the matters stated herein, and that the terms of this Settlement Agreement and Release are contractual and not amere'recital. By their signatures'below the Parties hereto each represent that they have carefully read this document, know and understand the terms and effect hereof, have fully discussed the terms and effect ofthis document with their attorneys, and have signed this Settlement Agreement and Release as their free and considered act. . DATED this day of , 2004. CITY OF HOPKINS By Its And By Its STATE OF MINNESOTA ) )s. ,COUNTY OF ) On this day of , 2004 before me personally appeared and , known to me to be the persons named above who executed the foregoing document, who acknowledged to me that the foregoing Settlement Agreement and Release was voluntarily executed. . Notary Public .. DATED this day of ,2004. " TAURUS PROPERTIES, INC. By Its STATE OF ) )ss. COUNTY OF ) On this _day of , 2004 before me personally appeared Duane . Dietrich, President of Taurus Properties, Inc., known to me to be the person named above who executed the foregoing document, who acknowledged to me that the foregoing Settlement Agreement and Release was voluntarily executed on behalf of Taurus Properties, Inc. . Notary Public This signature page applies, is effective, and isto be attached only to that certain Settlement Agreement and Release by and between the City of Hopkins as Releasing Party and the Settling Parties identified therein, consisting of 8' pages including signature pages and referencing the settlement of Claims asserted in that certain Action venued in Hennepin County District Court File No.CT 03-0,14049. . .. ... . DATED this day of , 2004. Westwood Professional Services, Inc. ., By Its STATE OF MINNESOTA ) )ss. COUNTY OF ) On this day of , 2004 before me personally appeared , known to me to be the person named above who executed the foregoing document, who acknowledged to .me that the foregoing Settlement Agreement and Release was voluntarily executed on behalf of Westwood Professional Services, Inc. . Notary Public This signature page applies, is effective, and isto be attached only to that certain Settlement Agreement and Release.by and between the City of Hopkins as Releasing Party and the Settling Parties identified therein, consisting of 8 pages including signature pages and referencing the settlement of Claims asserted in that . certain Action venued in Hennepin County District Court File No.CT 03-014049. . . 'I ~. . DATEDthis day of . 2004. Arcon Construction Company, Inc. ., By Its STATE OF MINNESOTA ) )ss. . COUNTY OF ) On this -c-- day of , 2004 before me personally appeared , known tome to be the person named above who executed the foregoing document, who acknowledged to me that the foregoing Settlement Agreement and Release was voluntarily executed' on behalf of Post Stucco, Inc. Notary Public . This signature page applies, is effective, and is to be attached only to that certain SettlementAgreement and Release by and between the City of Hopkins as Releasing Party and the Settling Parties identified therein, consisting of 8 pages including signature pages and referencing the settlement of Claims asserted in that certain Action venued in Hennepin County District Court File No.CT 03";014049. . DATED this . day of , 2004. 8