More on HomeAdvisor (ANGI)

If you’re a residential contractor, you’ve probably been solicited by HomeAdvisor, better known as Angi or Angi’s List. HomeAdvisor was back in the news last week. A federal court certified a class of “service providers” authorized to bring suit against HomeAdvisor. If you’ve paid HomeAdvisor for annual membership or leads in the last 20 years, you may have skin in this game. But don’t expect a windfall from the suit. I’ll explain.

Angi’s business is connecting contractors with owners who need home services – “selling leads” in the vernacular. Angi is a big fish in this business – sales of over $100 million a month – with an advertising budget to match. Call centers in 6 states cover the nation. Some home improvement contractors get several calls a month.

HomeAdvisor’s contract includes an annual membership fee (typically several hundred dollars), a fee for each lead (up to $100), a monthly “help desk” charge of $60 and a cancellation charge (as much as 35% of the annual fee). According to the plaintiffs, HomeAdvisor’s “brand promise” is that these leads are from legitimate, real homeowners serious about getting work done. Plaintiffs claim many HomeAdvisor leads had no value: wrong or disconnected phone numbers, wrong contact information, people who never heard of HomeAdvisor, didn’t own a home or completed their project months or even years ago.

According to plaintiffs, HomeAdvisor knew it was deceiving subscribers:

(1)  HomeAdvisor's call tracking system could connect with only 14% to 30% of leads.

(2)  64% of members tried to stop auto payments to HomeAdvisor.

(3)  80% of HomeAdvisor members dropped out annually.

(4)  HomeAdvisor's top management admitted that many leads were “garbage.”

(5)  HomeAdvisor retained profile pages of former members on its website and falsely represented that the member was no longer in business or not accepting new clients.

Under the first four points (“deceptive practices”), plaintiffs claimed money damages for fraud, presumably at least a partial refund. For the fifth point (“misappropriation”), plaintiffs asked for an injunction to stop the practice but no money damages.

The Upshot

The court refused to certify a class for the deceptive practice claims. Fraud statutes in each member’s home-state had to govern any decision. And fraud statutes vary too much from state to state. Claims made about HomeAdvisor sales practice might be fraud in some states and not in others. A class action suit was a poor way to resolve these claims.

The court certified a class for the misappropriation claims. That litigation will go forward. But there won’t be a payout to former members. That’s a big win for HomeAdvisor.

Still, HomeAdvisor has been under pressure to change their sales pitch. Last April, HomeAdvisor reached an agreement with the Federal Trade Commission to refund over $3 million to 110,372 businesses who bought HomeAdvisor memberships. The FTC complaint charged HomeAdvisor with making false, misleading or unsubstantiated claims about the quality and source of their leads. If you signed a HomeAdvisor contract and have a claim number, use this link to apply for a refund. The application deadline is February 24, 2024.

My Advice

HomeAdvisor has plenty of competition: Houzz, Porch, Thumbtack, Yelp, Bark and Google. Before making any commitment to buy leads, consider the options. No matter the choice, you’ll have to sign the vendor’s “standard contract”. You can’t write that agreement. But you can draft the contract for any of your construction projects. Use Construction Contract Writer to draft letter perfect agreements for any type of work in any state. The trial version is free.

Every Contract Requires a Meeting of the Minds

Dr. Julie Clark, a Tennessee veterinarian, wanted to fix up her home before selling. After a meeting on site, Dr. Clark selected Jeffrey Givens, a handyman, to do the work.

According to Dr. Clark, she agreed to pay Givens $9,775 for a total of four tasks:

• $8,500 to paint the house,
• $400 to remove and repair kitchen cabinets,
• $675 to strip, prime and paint those cabinets, and
• $200 to replace the bathroom countertops.

Givens didn’t remember it that way. He remembered bidding $11,575 for the entire job, including work on the driveway and garage floor, painting and replacing handrails on the porch. Dr. Clark admitted asking for a quote on that extra work. But Dr. Clark insisted none of this extra work was authorized.

Dr. Clark hoped the work would be finished in two weeks. But she didn’t specify a deadline or completion date. Givens estimated six-weeks would be needed just for painting the inside of the house. But his understanding was he could take as much time as necessary to do a good job.

Dr. Clark kept detailed notes on their conversation and the bid price. But there was no written contract. You know what’s going to happen next. When the job ran off the rails, Dr. Clark and Givens launched a 7-year court battle. Here’s how it happened.

Dr. Clark advanced Givens $2,500 to start work. That was January 2016. Two weeks later, she checked on the job and was disappointed. Not much progress. Givens assured her he would pick up the pace. Givens asked for and got another $2,000.

Dr. Clark returned to the job site a week later. Still little progress. According to Dr. Clark, she gave Givens a deadline. She would hire someone else if he didn’t do better in the coming week. Two weeks later, she hired a new painter.

Now What?

Dr. Clark demanded return of $3,700, part of the $4,500 she had paid Givens. When Givens didn’t pay, she filed suit for breach of an oral contract. In court, Givens claimed he was actually due more than the $4,500 he had already been paid. The trial court found there was a “mutual mistake” in an oral contract and entered a $5,075 judgment in favor of Givens. Both Dr. Clark and Givens appealed.

The appellate court reversed the trial court decision and remanded the case back to the trial court for another decision. After an attempt at mediation, the second trial court decision awarded Givens $4,500, the amount he had already been paid. This time, the trial court ruled there was no oral contract. Givens could collect for his time and materials and nothing more. Every contract requires a “meeting of the minds”. Dr. Clark and Givens had never agreed on the cost, contract terms or the work to be done. Again, both Dr. Clark and Givens appealed the trial court decision.

Last month (November 2023) the appellate court affirmed the second trial court decision. “The oral contract contemplated by the parties was not sufficiently definite to be enforceable because the parties did not agree on essential terms.”

After seven years, including two trials, mediation and two appellate decisions, the case of Clark v. Givens may finally be resolved. My advice. It’s easy to avoid legal nightmares like this. Take a few minutes to write a good, enforceable contract, even for simple jobs. There’s no better tool for creating a meeting of the minds than Construction Contract Writer. The trial version is free.

Note for Tennessee contractors: Anyone can work for wages. But Tennessee is one of 31 states that requires a written contract for home improvement work. Tennessee’s Home Improvement Contractor Act prohibits oral contracts on home improvement jobs.

 

Working Without a Written Subcontract

Do you write contracts for work assigned to subs? Many prime contractors don’t. And for good reasons, as I’ll explain later. But first, consider a Kansas case decided last month. Lux Building v. Prof’l Mech. Contractors.

Lux, the building owner, selected Farah Construction to turn a former Wichita office building into a mixed-use Leadership in Energy and Environmental Design (LEED) certified property. Farha subcontracted with PMC to install the chilled water Daikin VRV HVAC system. Unfortunately, there were problems. After doing call-backs for several years, PMC refused to do any more repair work. Lux and Farha had to hire another sub to keep the HVAC system working – at a cost of over $2 million. Farah sued PMC, claiming breach of their subcontract. But there was a problem. The PMC subcontract was in Farah’s file. But the subcontract had never been signed! How did that happen?

Farah and PMC had drafted and re-drafted the written agreement. It was ready for signature. And PMC started work. But PMC never signed the final draft of the agreement. Not a problem. For commercial work, Kansas does not require a signed written agreement. An oral contract is enough. Except for one little issue.

Under Kansas law, the statute of limitations on oral contracts is three years. Three years after breach, Kansas courts don’t permit suit on oral contracts. In the Lux case, more than three years had passed since the claimed breach. OK. But there’s a five-year statute of limitations on written contracts. PMC would still be on the hook for contract claims if the agreement had been signed. But a written agreement requires that all material terms be in writing, including a signature. The trial court’s ruling: A contract which is partly in writing and partly oral is an oral contract. The three-year statute applies.

Ted Farah explained why he didn’t always get written subcontracts:

“Depends on the sub and the scope of work. There are subs I have worked with for 20-plus years and, you know, have relationships and we often don't have -- we go to work without subcontracts, written subcontracts on I would say on-not today, but used to on a regular basis. I have worked with trusted [subcontractors] on small jobs in the past without a written subcontract. I would never work on a job of this size [the Lux job] with a party with whom I had not worked before without a written subcontract."

In essence, Ted admitted it was his mistake. He should have insisted on a signed contract before PMC started work.

The Kansas appellate court upheld the trial court decision. Farah Construction’s unsigned agreement was no longer an enforceable contract. PMC wasn’t liable for the extra $2,000,000 in repair work.

Word to the wise: Don’t get stuck like Farah Construction. On larger and more complex jobs, get a written and signed agreement with your subs. It’s easy. Construction Contract Writer drafts letter-perfect agreements for both prime contracts and subcontracts – no matter the state and no matter the type of work. The trial version is free.

Non-disparagement Construction Contracts

 Owners start most residential jobs with a Web search. Yelp and Angi and Thumbtack and a few others offer lists of local contractors categorized by construction specialty. Some include reviews volunteered by owners claiming to be former clients. Contractors can buy good placement and solicit kind words on these bulletin boards. That’s not cheap or easy and there’s plenty of competition.

Still, good reviews are like a magnet. They attract potential clients. But one angry customer with access to the Web can do plenty of damage to your reputation. A single one-star review carries more weight than a half-dozen five-star reviews. And getting bad reviews deleted, even fake bad reviews, takes time and effort – even when possible.

Unfavorable comments are called disparagement. They’re perfectly legal. Defamation is different and isn’t legal. Defamation is saying or writing something false with intent to do damage. So, what can you do to keep negative comments off the Web?

Non-disparagement contracts are common in many business situations. Most agreements that settle a lawsuit include a non-disparagement clause. Major employers commonly require a non-disparagement agreement before cutting an employee’s severance check.

In construction, disparagement wasn’t a high-profile issue until recently. The Web has changed that. Contractors who live off favorable Web listings recognize the importance of five-star ratings. When a job runs off the rails, dissatisfaction can run deep. That’s when disparagement becomes a hot topic.

Any time a business relationship ends on other than favorable terms, it’s best to have a non-disparagement agreement. Of course, the easiest time to get that agreement is before work starts. In construction, that’s when the owner signs the contract. For example:

Owner agrees not to disparage contractor by making any statement that would impugn the character, integrity, reputation or professionalism of contractor. Any evaluation of contractor provided by owner for distribution on public media will give contractor a neutral or better rating. Nothing in this agreement prevents owner from making truthful statements reasonably necessary to comply with law or regulation.

Notice that the sample clause above is unilateral. Only the owner is restricted. The clause works about as well if it were mutual. Both owner and contractor could agree not to make disparaging comments. Little harm in that. I don’t know any contractor who tried to destroy an owner’s business reputation.

Can You Enforce Non-disparagement?

It depends. First, understand that every negative comment isn’t disparagement. Suppose an owner posted on some Web site:

Case 1. “Their work was terrible. I’ll never call them again.”

Case 2: “They left the gate open and the dog got out.”

Both statements could be true. And both are likely to discourage potential clients. But the first is a hatchet job based on impressions. The second is not an attack on the contractor’s character, integrity, reputation or professionalism. It’s a legitimate caution. Anyone with a dog in the back yard might want to know.

Second, nothing can prevent an owner from responding truthfully to an inquiry from government (such as a building inspector) or legal process (such as a deposition).

If you have a non-disparagement contract and true disparagement (such as Case 1 above), the remedy is money damages, the value of your lost reputation. Proving that is mostly smoke and mirrors. But collecting money damages isn’t the purpose of non-disparagement clauses. Instead, non-disparagement forces an owner to think twice before making careless accusations.

Construction Contract Writer makes it easy to include non-disparagement in your agreements. The trial version is free.

Play by the Rules in Minnesota

Warranties come in two flavors, express (written in the contract) and implied, either by court decision or by state law. Forty-six states and the District of Columbia enforce an “implied” warranty on nearly every construction project. All states enforce the terms of any express warranty in the contract.

In Minnesota, nearly every residential contract has to include three paragraphs of express warranty: a one year guarantee on materials and workmanship, two years on plumbing, electrical and HVAC and ten years on any "major construction defect". Minnesota also implies a guarantee that work will comply with the building code. Minnesota’s Housing Statutory Warranties Act also:

• Prohibits waiving or disclaiming these warranties.
• Covers both the first owner and subsequent owners for a period of the warranty.
• Any contractor who ignores the law can be assessed a penalty of up to $10,000.
• Claims for breach of warranty must be made in writing within six months of discovery.
• Breach of warranty entitles the owner to sue for repair or collect the cost of repair.
• On home improvement jobs, the warranty begins running when work is completed.

With that background, consider the case of Liberte Construction v. Dustin Smith, decided last month by the Minnesota Court of Appeals.

Wind and hail damaged Dustin Smith’s Brooklyn Park home, including roofing, siding and gutters. Liberte bid $62,755 to make repairs. The contract included a warranty. You decide. Does this warranty comply with Minnesota’s Housing Statutory Warranties Act?

LIBERTE DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, EXCEPT AS SPECIFICALLY EXPRESSED HEREIN. Liberte warrants that for the one-year period from and after the substantial completion of the Scope of Work, the home improvement shall be free from defects caused by faulty workmanship or defective materials due to noncompliance with building standards. This Agreement and warranty shall not be assigned except by or with the written permission of Liberte.

Smith signed the agreement and made a $19,000 initial payment. Liberte started work.

A month into the job, Smith and the owner of Liberte did a walk-around inspection. Smith found some problems with siding and roof tiles. A month later, the City of Brooklyn Park did its first inspection. Cardboard shims under siding corners had to be replaced with proper shims. A second inspection a month later found no correction. A month later, a third inspection found proper shims. But a section of siding was loose.

Over ten months after the contract completion date, a city inspector returned to the property for the fourth time. This inspector found siding had been installed with drywall screws, not siding screws. One corner of the siding was loose. The inspector also found more cardboard shims. Again, the job failed inspection.

Liberte agreed to start repairs that month and asked for payment upon satisfactory completion. Smith wouldn’t agree to let Liberte do any more work on his home. Liberte filed to foreclose on its $35,719.18 mechanic's lien and for breach of contract. Smith counterclaimed, citing breaches of contract, statutory warranty, express warranty, and implied warranty.

At trial, Smith's expert testified that work Liberte did was so defective that the only proper repair was to start over. The trial court (1) awarded $12,000 to Liberte for breach of contract; (2) denied recovery on the express warranty because the job never got to substantial completion; (3) awarded Smith $28,697.75 in damages for Liberte's breach of implied warranty; (4) awarded Smith nothing for breach of an express warranty and (5) quashed Liberte's mechanic's lien.

What’s Wrong with this Case?

I don’t question the result. Smith got what he paid for. A defective roofing and siding job at a $60,000 discount. My complaint: Neither Liberte nor Smith played by the rules. Minnesota’s Housing Statutory Warranties Act lays out a set of procedures designed to avoid disputes like this. From the court’s report, neither Liberte nor Smith did what the law requires: (1) Liberte’s contract omitted the required warranty terms. (2) Smith didn’t give written notice when he discovered defects. (3) Liberte didn’t inspect those defects within 30 days. (4) The dispute wasn’t referred to Minnesota’s list of qualified neutrals for resolution. (5) Smith kicked Liberte off the job before substantial completion.

My advice: To avoid headaches and unnecessary expense, follow the rules. That begins with a good contract. The best resource is Construction Contract Writer. The trial version is free.

 

Mistake in the Plans

 Most surprises on a construction site fall into one of three categories:

• Differing site conditions – hidden or highly unusual conditions no one would have anticipated.
• Change in scope of the work – something discovered later, such as by the inspector.
• Mistake or omission in the plans – something the designer got wrong or didn’t consider.

I’ve covered differing site conditions and changes in the scope of work elsewhere. Mistake in the plans is different.

Earlier this month, a perfect example came across my desk. When it came time to connect the building sewer line to the sewer main, the plumbing sub discovered two mistakes -- both the diameter and location of the sewer main were wrong on the site plan. As with every surprise, the question was, “Who pays?”

Of course, construction contractors have to follow the plans. But it’s not that simple. Courts usually put it this way: A contractor has an implied duty to give notice when something in the plans either isn’t clear or seems defective. If the plans or specs seem inconsistent or wrong, take it up with the designer, engineer and owner before work starts.

But that wasn’t the issue with the plumbing contract on my desk. Nothing on the site plan was either missing or obviously wrong. Work was nearly done when the mistake was discovered. The civil engineer either made an error or didn’t bother to check district records.

What Should the Contractor Do?

1. Make the connection. Settle up on costs later.
2. Complete the job as shown in the plans. Leave the sewer line connected to nothing.
3. Stop work until the owner and prime contractor write a change order.

Before you answer, consider a case from the Wyoming Supreme Court (Hogan v. Postin).

The millwork sub, Hogan, agreed to make and install windows for restoration of the historic Tivoli Building in downtown Cheyenne. Postin was the architect and supervised Hogan’s work. When Hogan got started, he discovered a problem. The ceiling height on the plans wasn’t the same as the actual ceiling height. Hogan notified Postin of the mistake in his plans. Postin told Hogan to make the windows the size shown on the plans. To do that, the sill height had to be raised to 39 inches, not 27 inches as shown on the plans. Hogan built the storefront in his shop exactly as shown on the plans.

When Hogan installed the windows, Postin had a beef. He didn’t like the sill height. Postin wanted the sill height one foot lower (27 inches). Hogan agreed to re-do the windows and offered to keep track of the extra time and materials. The general contractor agreed that a 39” sill height was wrong and told Hogan to make the change. When Hogan tried to collect for the extra work, both the City of Cheyenne and the general contractor had a defense. There was no written change order, as required by both the prime and subcontracts.

So Hogan sued the architect, Postin. His plans were wrong. The trial court found in favor of Hogan, ruling the architect had to pay. Postin appealed. The district court reversed, ruling the architect was not personally liable for his mistake. Hogan appealed to the Wyoming Supreme Court. A majority of the supreme court affirmed the district court’s decision. Postin was not personally liable for his mistake in the plans. According to the majority, Postin was speaking for the City when he told Hogan to re-do the windows. As an agent of the City, Postin was not personally liable for a commitment made to benefit the City. But Hogan couldn’t collect from the City. There was no written change order. Pure Catch 22.

I prefer the dissent by Justices Rooney and Cardine. In directing Hogan to do the extra work, Postin waived the requirement for a written change order. Let Hogan collect from the City.

My Point

Mistakes in the plans can be a minefield. Tread carefully. The best protection is a well-written contract. In my sewer connection case, the plumber had an agreement drafted with Construction Contract Writer, including plenty of good language covering mistakes .Problem solved.

 

Get Reimbursed for Your Attorney Fees

Dianne Lee bought a new home in Contra Costs County, just east of San Francisco Bay. Her new house didn’t have a pool. And she wanted some exterior improvements. Dianne selected David Cardiff of Advantage Pools Bay Area to do the work: a pool and spa for $88,400, a pavilion with outdoor kitchen, fireplace and landscaping for $143,000.

It didn’t go well. After a dispute, Cardiff stopped work and walked off the job.

Dianne filed suit, claiming Cardiff’s work was defective. The trial court rejected most of Dianne's claims about the pool but agreed with some of her claims about the pavilion and landscaping. The court also agreed that Cardiff had violated state law by hiring workers as unlicensed independent contractors and not employees. The court ordered Cardiff to refund $238,470 plus contract and tort damages of $236,634. Of that, $35,000 was for defects in the pool.

Dianne won the case. But the court didn’t award reimbursement of her attorney fees. That was a surprise. California Business and Professions Code § 7168 authorizes an award of attorney fees to the “prevailing party” on swimming pool claims. Claims on other types of construction don’t qualify for an award of attorney fees -- absent specific language in the contract. Dianne’s contract with Cardiff didn’t say anything about attorney fees.

Dianne appealed the trial court decision, asking for an award of attorney fees. The appellate court had to decide:

• Was Dianne’s suit a swimming pool claim?
• Was she the prevailing party?
• Should the trial court have awarded Dianne her attorney fees?

The decision (Lee v. Cardiff, July 13, 2023): Reimbursement of attorney fees under § 7168 applies only to pools. Not spas. And not to Dianne’s other home improvements. Moreover, Dianne was not the “prevailing party” on the pool claim. True, pool plaster, tile and coping were defective. The trial court awarded Dianne $35,000 for that. But Cardiff had already offered to fix those problems before Dianne filed suit. So, on the pool issue, Dianne wasn’t the “prevailing party”. Her legal fees would not be reimbursed.

What About Your Contracts?

Should your contracts include the statement: Any judgment enforcing terms of this agreement shall include an award of court costs and reasonable attorney's fees to the successful party.

A clause like this raises the stakes. An owner with frivolous claims or weak defenses has an incentive to settle. But law on awards of attorney fees is different in every state. For example:

California -- The right to collect attorney's fees is reciprocal. If a contractor can collect attorney's fees after winning a contract dispute, an owner has the same right. California Civil Code § 1717.

Arizona -- Courts can award "reasonable" attorney's fees to the successful party in any contract dispute. Arizona Revised Statutes § 12-341.01

Connecticut -- If a contractor has the right to collect attorney’s fees, a home owner is given the same right. Connecticut General Statutes § 42-150bb.

Georgia – Better to leave attorney’s fees out of the contract. Official Code of Georgia Annotated § 13-11-8 gives contractors the right to collect attorney's fees if the dispute is over delinquent payment.

Most states won't award attorney's fees if the contract omits that subject. All states will enforce a contract clause awarding attorney’s fees to the prevailing party. But some states will enforce a one-sided clause – an award of attorney’s fees only if suit is necessary to collect what’s due. That always favors the contractor. 

To see what your state allows, have a look at Construction Contract Writer. The trial version is free.