Real Estate & Construction Blog

Real Estate

Three Biggest Tips for Realtors Facing Tricky Transactions

Real estate professionals oftentimes find themselves fielding a variety of difficult questions and facing some tricky transactions. Having partnered with realtors for decades, our team compiled our top three tips for realtors to reduce their potential liability and better serve their clients. 1. Put It in Writing Documentation is key for any transaction, but it does not only apply to agreements and contracts. Document all communications throughout the buying and selling process – including emails and texts. By putting everything in writing, realtors can increase clarity and help protect themselves and their clients should an issue arise. Advice for Implementation: Save your emails. Keep a dedicated folder for each client. Develop the habit of summarizing verbal discussions in a follow-up email or text message. This not only provides a record but gives all parties an opportunity to confirm they are on the same page. 2. Stay in Your Lane Real estate professionals are oftentimes asked to do a variety of tasks that do not fall under their job description. This can potentially open them up to liability down the line. Avoid providing services and advice outside your scope. For example, never perform electrical work, provide legal advice or give opinions regarding a property survey. Instead, act as a referral source to professionals who can provide these services. Advice for Implementation: It is important to build a network of trusted professionals, such as attorneys, licensed contractors, professional surveyors and lenders. This not only helps protect you from liability but enhances your credibility and your client’s overall experience. 3. Acknowledge, Don’t Admit Handling complaints is an inevitable part of the real estate business. While it is important to acknowledge concerns, agents should be cautious not to admit wrongdoing. This approach allows you to address perceived issues while protecting yourself from potential legal repercussions. Advice for Implementation: If representing a buyer who later complains about a possible property defect, acknowledge receipt of the correspondence but try to avoid apologizing or saying anything that could be construed as an admission of fault or liability. Serious complaints should be sent to your broker to decide if an attorney or the broker’s insurance carrier should be notified. Implementing these tips can help you reduce your risk of legal issues as a real estate professional. They can also elevate the standard of service you offer your clients.

April 15, 2025

Planning and Development

Golf Course Redevelopment Continues to Spur Litigation

This blog has previously observed how golf course redevelopment commonly leads to land use disputes between, on one hand, those seeking to redevelop the former course, and on the other hand, neighboring landowners benefiting from the status quo.[1] These disputes may find their way to court even when every government regulator has approved the redevelopment. This was true in recent litigation concerning proposed residential redevelopment of the former Mississippi Dunes golf course in the City of Cottage Grove. This case is instructive that even though securing all necessary approvals is no guarantee against litigation, attentiveness and thoroughness in the approval process can prove decisive in court. The proposed housing development, known as Mississippi Landing, received full approvals from local, state, and federal regulators. As part of project due diligence, the development team, in coordination with federal regulators, analyzed what impact, if any, the project would have on numerous protected plant and animal species, including the Rusty Patched Bumble Bee (“RPBB”). Incorporated into the project were several efforts to preserve the limited area containing suitable habitat for the RPBB; for example, the developer conveyed land to the Minnesota Department of Natural Resources and agreed to seed roughly eight acres with native seed mixes. During the city review process, a vigorous opposition formed arguing, among other things, that the project would have deleterious effects on natural resources. The developer argued that it had complied with all applicable state and federal regulatory criteria. The City Council unanimously approved a preliminary plat and planned unit development. The opponents then organized a fundraising campaign to challenge the approvals in court. Under the banner of a nonprofit named “Friends of Grey Cloud,” the opposition filed suit against the developer and the City of Cottage Grove asserting state environmental protection claims and requesting injunctive relief to stop the project. The initial court filing was done in coordination with the news media, which gave the filing prominent coverage. A district court judge administratively denied the opponents’ request for “ex parte” emergency relief (viz., the opposition sought an injunction without the developer or the city first being heard). A hearing was later scheduled on the opponents’ request for a court order stopping all site work pending trial. A stay of construction would have had severe economic consequences—the developer presented evidence that an injunction would cause over $3 million in damages. The opponents argued that injunctive relief was appropriate under the Minnesota Environmental Rights Act, also known as “MERA.” The opponents suggested that the project would harm protected plant and biological species, including the RPBB. The opponents emphasized that the project area is considered highly probable for RPBB. The developer argued in response that the golf course had, during its operation, extensively damaged the native habitat; that federal regulators had determined the project was not likely to harm the RPBB; that a habitat study showed that most of the Mississippi Landing site was not suitable for RPBB—except for the land being conveyed to DNR; and that any claim of harm to the RPBB was speculative, unsubstantiated, and contrary to the record. The district court agreed with the developer, opining that the opponents had failed to prove the presence of protected species on the project site, and furthermore, had failed to show how the protective measures the developer had implemented were inadequate. As the district court observed: “‘[A]most every human activity has some kind of adverse impact on a natural resource,’ but MERA is not construed as ‘prohibiting virtually all human enterprise.’” The district court ruled that the opponents had not shown entitlement to injunctive relief. The district court’s ruling had an immediate, powerful impact. Two weeks later, the opponents dismissed their case with prejudice. What ultimately carried the day for the developer? Perhaps most important was the substantial work of the development team during due diligence to study the property and consult with regulators. The developer argued to the district court that the opponents were asking the court to second guess professional regulators, an argument the court adopted in concluding that public policy did not support an injunction. Furthermore, that the developer had carved out certain land from the development to protect natural resources placed a difficult burden on the opponents to show inadequacy of those measures. Finally, the developer successfully argued that, in contrast to the speculative environmental harms argued by the opponents, an injunction would cause considerable economic damage. Larkin Hoffman attorneys Peter Coyle, Bryan Huntington, and Rob Stefonowicz represented the Mississippi Landing developer in connection with its land use application and related litigation. [1] https://www.larkinhoffman.com/real-estate-construction-blog/hollydale-golf-course-the-complex-road-to-redevelopment-approval.

September 11, 2024

The Legal Fundamentals Series

The Legal Fundamentals Series: Challenging a Local Government’s Decision on a Land Use Application

For most controversies relating to a proposed use of land, the local government permitting process will be the initial battleground between the project proponent and opposing persons. Whether the government body grants or denies the land use application(s), many such battles find their way to court. The judicial process can take years to reach a final resolution, during which time the status of the development can be in doubt. The type of judicial review will vary depending on what subdivision of government is involved (e.g., city, township, or county) and the type of land use application at issue. Some cases go to district court. Others go to the court of appeals. Failure to bring suit in the right court can be fatal. Sometimes a strict statute of limitations controls the deadline for judicial review. In other instances, the deadline is looser and more subjective. This is the fourth article in a series explaining the fundamentals of the most critical aspects of real estate law. In this piece, I focus on judicial review of local land use decisions. The article is divided into three parts. Part one explains the meaning of key terminology in this area. Part two describes the process to obtain judicial review. Finally, the article addresses the practicalities (e.g., time investment, procedure) once the matter is in court. I. Terminology Below, I explain the most common land use applications and legal terms frequently used in the context of land use appeals. A “conditional use permit” or “CUP” is applied for when the zoning ordinance allows a particular use of land so long as it conforms with certain zoning criteria. The government body will consider evidence and make findings regarding whether the use meets the express criteria stipulated in the ordinance. By law, if the proposed use meets the ordinance criteria, it must be approved. The government may impose reasonable conditions on the use of property. A CUP will run with the land and therefore benefit subsequent property owners. Once issued, a CUP becomes a property right that can exist into perpetuity. Circumstances when a CUP become ineffective include when the use ceases for an extended period of time, or when the government exercises eminent domain to acquire the CUP. A “variance” application requests the government’s permission to deviate from the express requirements of the zoning ordinance. “Area variances,” such as requests to deviate from setback requirements, height limits, or density maximums, may be appropriate. By contrast, a “use variance,” which would allow a use of land otherwise not permitted by the zoning code, are illegal. A variance may issue only where the landowner demonstrates a “practical difficulty.” There are three elements to the practical difficulty test: (1) the property owner proposes to use the property in a reasonable manner not permitted by the zoning ordinance; (2) the plight of the landowner is due to circumstances unique to the property not created by the landowner; and (3) the variance, if granted, will not alter the essential character of the locality. A “rezoning” application requests that the government change the zoning classification assigned to the subject property. A rezoning application involves a broader inquiry than a CUP or variance application and is considered a “legislative” decision to which the courts afford more deference. A “declaratory judgment” is an action created by statute that allows the court to decide disputed questions of law. This mechanism is frequently used in land use disputes relating to real property in state district court. “Mandamus” is a remedy that a court can award ordering a local level of government or government agency to take some action. The local government must have violated a clear legal duty imposed by law. Mandamus claims are sometimes joined with claims for declaratory judgment. A “quasi-judicial decision” requires the government decisionmaker to apply evidence in the record to adopted ordinance criteria. CUP and variance decisions are considered quasi-judicial. A “legislative” decision is considered a policy-making decision of the government. For example, a decision to permit or prohibit a certain land use in a zoning district would be considered legislative. Courts apply the most deferential standard of review to legislative decisions. “Certiorari” is a form of judicial review that applies only to quasi-judicial decisions. Certiorari is used where no other mechanism of judicial review is available to challenge a government’s or agency’s quasi-judicial decision. Writs of certiorari are directed to the court of appeals. II. Securing Judicial Review of Local Land Use Decisions. A land use attorney will first consider which government entity was the decisionmaker and second, whether the decision is quasi-judicial or legislative. If a municipal decision is at issue, regardless of whether the decision is quasi-judicial or legislative, review will be obtained through a declaratory judgment action in the state district court. If challenging a permit denial, the challenger may include a request for mandamus with the claim for declaratory judgment. The statute of limitations governing quasi-judicial and legislative municipal decision is six years. Principles of equity (e.g., discretionary principles of fairness) will apply. A challenger who sits on his hands for an unreasonable period of time before bringing suit may be barred from doing so if another person changes their position in reasonable reliance on the approvals. If a county quasi-judicial decision is concerned, judicial review will normally be sought in the court of appeals by certiorari. There is an exceptionally short period of time in which to seek review. Counsel should be consulted immediately after notice of the adverse decision to ensure that all necessary steps are timely taken. Failure to timely bring an appeal may result in a court declining review. On the other hand, review of a county’s legislative decision will lie in the district court by declaratory judgment. In the vast majority of cases there is no basis to seek federal jurisdiction of a land use decision. Exceptions include where the landowner is a religious entity or place of worship or where the denial arguably results in a constitutional taking of the real property. III. What Happens When a Land Use Decision is Properly Appealed. For a land use decision venued in state district court, the case will be adjudicated after the parties’ exchange of written arguments and a hearing where the lawyers will present oral argument. There is not a trial, witnesses are not called, and with a few exceptions, new evidence is inadmissible. The briefing period lasts for a couple months and in all, it can take 4-6 months to get a hearing date before the judge. After the oral argument, the judge will have 90 days to rule on the appeal. Many state district court judges come from the criminal bar and lack background in land use/zoning matters. It is therefore common for judges to take most, or all, of the time they have to render a decision in such cases. A district court can issue a ruling declaring a land use approval illegal and void or, alternatively, can order the government to issue a land use entitlement. After the district court renders a decision, the decision can be further appealed by either side to the Minnesota Court of Appeals. An appeal will add substantially more time (often around 6-8 months) and expense to the litigation. A decision of the court of appeals can be further appealed to the Minnesota Supreme Court. Review before the state supreme court is discretionary and the overwhelming number of petitions for review to the state supreme court are denied. For certiorari appeals to the court of appeals, the parties will exchange appellate briefs arguing the evidence in the record. The party appealing the decision (the appellant) will file the first brief, the defendant/respondent (normally the government) will file a response brief, and the appellant will then file a final reply brief. The court of appeals will normally hold oral argument at which time the matter is taken under advisement pending decision. The court of appeals also follows a 90-day deadline schedule.

July 8, 2021

Construction

The Legal Fundamentals Series: The Mechanic’s Lien

The mechanic’s lien is one of the most powerful remedies available under the law. A mechanic’s lien is a right afforded to general contractors, subcontractors, and suppliers that, when preserved by following certain steps, grants the right to record a lien against benefited real property, foreclose on that property by action, be compensated out of the sale proceeds, and recover the attorneys’ fees and costs incurred in the action. A mechanic’s lien is a strong incentive for landowners to ensure that contractors and suppliers are promptly and fully compensated for their services. This is the third article in a series explaining the fundamentals of the most critical aspects of real estate law. In this piece, I focus on the mechanic’s lien remedy under Minnesota law.[1] Three distinct topics are considered below. First, what are the threshold criteria necessary to have a mechanic’s lien. Second, what are the three steps that must be followed to preserve a mechanic’s lien. Third, what court process governs a mechanic’s lien foreclosure. Essential Elements of a Mechanic’s Lien Minnesota statute provides a comprehensive and lengthy statement of the circumstances that create a mechanic’s lien.[2] Most critically, there must be a “contribut[ion] to the improvement of real estate by performing labor, or furnishing skill, material or machinery . . . whether under contract with the owner . . . or at the instance of any agent, trustee, contractor or subcontractor of such owner[.]” Mechanic’s liens may be created by, among other things, alterations or repairs to land, fixtures, or buildings. The person asserting the lien must show that the services rendered, or material furnished, relates to one of the criteria recognized by statute. Provision of supplies or equipment for one of the improvements identified in the statute may be lienable. For example, furnishing petroleum to a contractor for use in construction would be lienable. On the other hand, furnishing services necessary to the continued operation of a business is likely not lienable (e.g., the regular removal of waste from a business is not lienable). The Three Steps Required to Preserve a Mechanic’s Lien Step 1: The Pre-Lien Notice The general rule is that every person who enters into a contract with an owner of real property, or who has contracted with a subcontractor or material supplier to provide labor, skill, or material to improve real property, must provide a pre-lien notice to the landowner. Subcontractors and suppliers must generally provide this notice within 45 days after first furnishing labor, skill, or materials for the improvement. The language to be included in the notice is provided by statute.[3] The notice must be served by personal delivery or certified mail. There are certain exceptions to the pre-lien notice requirement. Exceptions to the notice requirement include, but are not limited to, (a) where the general contractor is managed or controlled by substantially the same person as the owner, (b) for certain multi-family developments, and (c) for certain improvements to nonagricultural land. Caution should be exercised in relying upon these exceptions. The exceptions have been construed by judicial decision(s) and they are interpreted narrowly. Moreover, there is no penalty for providing more notice than is required by law. The cost and expense of providing unnecessary notice pales in comparison to the expense and time required to litigate the applicability of an exception. Step 2: Recording the Mechanic’s Lien Statement After the last item of work on the project is complete, the subcontractor or supplier must prepare and record what is known as a “mechanic’s lien statement.” This must be recorded with either the county recorder or registrar of titles (depending upon whether the real estate is abstract or Torrens) and served within 120 days of the last item of work. The statement must be served personally or by certified mail on the owner or the owner’s authorized agent. The mechanic’s lien statement must include numerous items of information, including the first and last date of work, and the amount due to the subcontractor or supplier. The lien will cease to exist if the lien statement is not properly and timely recorded and served. Step 3: Initiating the Foreclosure Action The third and final requirement to preserve a mechanic’s lien is to file a foreclosure complaint with the district court within one year of furnishing the last item of work (as identified on the mechanic’s lien statement). The complaint should identify all parties having an interest in the land. Shortly after the complaint is filed, a lis pendens must be recorded in the county land records. This document provides notice to the world that there is a pending action in which the ownership of the property is contested. Failure to take any of the three steps identified above may result in invalidity of the lien. If a step is missed, the subcontractor or supplier would still have a claim against the general contractor for breach of contract, but there will likely be no recourse against the landowner or the land itself. The Lien Foreclosure Action The defense most frequently raised in a lien foreclosure action is that the work or material was defective and that there should be offsets to the amount of the lien. There will be a phase of the lien litigation where the contractor or supplier can conduct discovery on any defenses raised by the owner. A judge will hold a trial and determine the amount due and whether offsets are appropriate. There is no right to a jury trial in a lien foreclosure case. If the court determines that there is an amount due on the lien, the court will direct a sale of the real estate and a distribution of proceeds to satisfy the amount of the lien. If there are multiple liens on the property, the Court will determine the priority of payment of the liens. A contractor or supplier that successfully prosecutes a mechanic’s lien action is entitled to recover reasonable attorneys’ fees. By contrast, a landowner that defeats a mechanic’s lien is ordinarily not entitled to recover its attorneys’ fees. This difference gives contractors and suppliers substantial leverage in settlement negotiations. [1] Requirements governing mechanic’s liens vary among the States. States require different forms of notice and/or allow a shorter or longer period to sue to foreclose a mechanic’s lien. [2] SeeMinn. Stat. § 514.01. [3] SeeMinn. Stat. § 514.011, Subd. 2.

April 23, 2021

The Legal Fundamentals Series

The Legal Fundamentals Series: Municipal Special Assessments

Special assessments are used to fund all manner of local improvement projects, including road, sewer, and water improvements. Any private landowner—residential, commercial, and even the religious—may someday receive a notice advising of a contemplated assessment against their property. A special assessment notice is not something to be ignored. If left unpaid, a special assessment ultimately becomes a lien against the property that may considerably drag down the land’s marketability. Additionally, special assessments may carry significant interest that will increase the amount of the lien. This is the second article in a series explaining the fundamentals of the most critical aspects of real estate law. In this piece, I focus on the special assessment adoption process; the manner of preserving and perfecting an appeal of a special assessment; and the district court review process. Limitations on the Special Assessment Power A special assessment is a form of tax levied against land to fund an improvement. To be legal, a special assessment must satisfy three criteria: The specific land being assessed must receive a special benefit from the improvement being constructed; The assessment must be uniform upon the same class of property; and The assessment may not exceed the special benefit. That an improvement specially benefits a particular piece of property means that it increases its market value. Local governments use a variety of ways to determine who benefits from a particular improvement project. Street frontage and/or the assessed property’s proximity to the improvement project are just a few ways this determination might be made. Although a city or town may choose to hire an appraiser to determine the extent to which a particular property has specially benefitted by an improvement, there is no obligation to do so. Filing Objections with the City and the Deadline to Appeal to District Court A landowner is entitled to notice of a hearing at which a special assessment directed toward his or her property will be considered. The landowner also has a right—and in most cases, if an issue is to be preserved for later court review, an obligation—to submit any objections to the special assessment prior to, or during the municipal hearing. Written objections are generally preferred as landowners will often have only a few minutes to present objections at the municipal hearing. If a special assessment is approved, a landowner must take prompt action to preserve the right to have a judge review the validity of the assessment.[1] When the city adopts the assessment, to have a judge review the legality of the assessment, the landowner must do the following: Within thirty days, serve an appeal notice on the mayor or the clerk of the city; and Then, within ten days, file the notice of appeal with the district court. Failure to take either of these actions may result in a court concluding that it lacks the ability to hear an appeal.[2] Assuming that an appeal to the district court is properly made, the court process will proceed just as with any other civil action (e.g., experts are retained, motions are heard, and a trial may occur). Unlike an appeal in an eminent domain case, there is no right to have a jury trial in a special assessment appeal. Landowner’s Burden of Proof and the Legal Remedy Courts will apply a legal presumption that the special assessment is valid. The burden of proof is therefore on the landowner to show that the assessment exceeds the special benefit to the property. The landowner may prove this by using standard appraisal techniques, such as a comparable sales analysis considering the property in the before and after condition (before and after the project is complete). The city may also submit additional evidence in support of the assessment. The court will then weigh the evidence and, if it agrees with the landowner that the assessment exceeds the special benefit, nullify the assessment and order a reassessment of the property. [1] Judicial review of a municipal special assessment is referred to as an “assessment appeal.” [2] The author strongly recommends consultation with a real estate lawyer to confirm that all applicable time limits are strictly followed.

March 15, 2021

Real Estate

The Legal Fundamentals Series: Takings Law

This is the first in a series of articles that will describe the fundamentals of the most consequential topics falling under the umbrella of real estate law. As a real estate trial lawyer with personal experience handling disputes in each of the areas that will be considered, my goal is to explain in plain language key legal concepts and terms commonly used in real estate law, identify issues that regularly lead to disputes, and describe how controversies in each area are resolved. The first subject matter to be considered in this series is the law of eminent domain, also known as the law of takings. Takings Terminology Takings law can be a confusing subject matter. A single piece may alternatively discuss takings, eminent domain, condemnation, and inverse condemnation, all without ever defining the meaning of these terms. “Eminent domain” refers to the government’s authority to seize land. The land is taken for a number of purposes, such as transportation projects, public improvements, to address a blighted area, etc. The government is generally required to first attempt to negotiate with a landowner regarding the land sought to be taken. If that fails, the government will resort to the courts to obtain ownership of the land. The power of eminent domain is incidental to a government’s sovereignty, thus explaining why no provision in the Constitution of the United States expressly grants the federal government authority to take land. The power of eminent domain extends beyond the federal government to state governments, state agencies, local governments, and even, in certain circumstances, private corporations acting with authority delegated by the government. “Condemnation” has been given various meanings, but frequently refers to the proceedings by which the power of eminent domain is executed. Eminent domain may only be exercised for a “public use” or a “public purpose.” What comprises a “public use” in Minnesota is whether the land will be possessed, occupied, owned and/or enjoyed by the general public, or by public agencies. A taking must also be “necessary,” meaning that it is reasonably necessary or convenient to further the goal sought to be achieved by the government. When the government exercises its eminent domain power to effectuate a “taking,” a property owner is entitled, under both the United States and Minnesota Constitutions, to “just compensation.” In Minnesota, a “taking” is broadly defined to include “every interference, under the power of eminent domain, with the possession, enjoyment, or value of private property.” When the government damages or destroys the value of a property that it has not physically appropriated, such as by regulation, it may be liable for a “regulatory taking.” “Just compensation” is the fair market value of the property at the time of the taking. It is the price that a willing buyer would pay a willing seller, taking into consideration the highest and best use of the property. A property’s highest and best use is not necessarily the current use of the property. Instead, it is the use that is physically possible, legally permissible, financially feasible, and maximally productive. Whether a particular potential use meets all of these criteria is a common point of contention in court. In some cases, a landowner may also recover other financial losses, such as loss of going concern of a business and relocation costs. An “inverse condemnation” proceeding occurs when the property owner, and not the government, initiates a lawsuit to recover just compensation. Property owners and businesses start these lawsuits when their property has been damaged or destroyed as a result of governmental action, but the government will not admit it. In this case, the owner brings a lawsuit alleging that his or her private property has been taken without compensation. A landowner only recovers damages if a court holds there has been a taking and then orders the government to start a condemnation proceeding. Thus, inverse condemnation cases might require not one but two trials: the first trial concerns whether there was, in fact, a taking; the second concerns the amount of damages if there was a taking. Often the issue of whether there has been a taking is resolved on a pre-trial motion (request to the court) known as “summary judgment.” This spares the parties the cost, time, and expense of two trials. The government will often take only part of a property owner’s land. “Severance damages” are those damages that occur when only part of an owner’s land is taken and as a result the rest of the land is damaged. Severance damages are determined using the “before and after” rule: compare the market value of the land before the taking with the market value of the land after the taking. Ordinary Condemnation Proceedings A takings case will begin by the condemnation authority filing a petition with the local county district court describing the land desired to be taken and stating the purpose for the taking. All affected property owners must be served with the petition. The court will hold a hearing and at that time, determine whether the taking satisfies a public use/public purpose and is necessary. In certain circumstances, Minnesota law allows the government to take the title to a property before a hearing has taken place to determine its value. This is appropriate when the government can demonstrate that it requires immediate ownership of the property. Such proceedings are referred to as “quick take” condemnation proceedings. The government’s use of the quick take procedure is the norm in Minnesota. Assuming the judge concludes that the taking satisfies the above-stated criteria, the court will appoint a panel of three commissioners to determine the damages caused by the taking. Commissioners are real estate professionals such as attorneys, appraisers, and brokers who have agreed to serve on such panels. The commissioners will hold a hearing at which valuation evidence is presented by both the landowner and the government. The commissioners will then decide the just compensation (damages) owing to the landowner. The property owner has a limited period of time to appeal the commissioners’ award to the district court. A property owner appealing to district court has the right to demand a jury trial on the amount of damages suffered by the taking. Although jury trials have become rare in most areas of the law, they continue to occur with regularity in eminent domain cases. Of critical significance to landowners is that, under Minnesota statute, in certain circumstances they may recover their attorneys’ fees if they can prove damages sufficiently in excess of what was previously offered by the condemning authority. The next article in this series addresses the government’s use of special assessments to fund public improvement projects. Find it here.

January 11, 2021

Construction

The Top Five Misperceptions About Use of Electronic Logging Devices For Businesses

This post is co-written by Bryan Huntington and Justin Gillette. Transporting supplies and equipment is an essential part of the construction industry. Electronic logging devices (ELDs) have made it possible for a business to monitor nearly all aspects of a truck’s daily activities. These technological guardians monitor a truck’s speed, location, sudden braking and even the sharpness of turns for review. For businesses using commercial trucks, having access to an ELD’s record is not just prudent, it is mandatory. Having a clear understanding of what an ELD does can save your construction site time and money in the future. Businesses required to use ELDs or those thinking of voluntarily using ELDs have two broad choices in systems. To meet the minimum requirements of the FMCSR, “location data must be recorded by an ELD at 60-minute intervals when the vehicle is in motion, and when the driver powers up and shuts down the engine, changes duty status, and indicates personal use or yard moves.”[i] A number of ELD manufacturers sell systems that track and record only the minimum data required. Conversely, many manufacturers sell systems that track and record a much wider array of location, engine and driver behavior data at intervals of seconds. This data can be used to provide feedback to drivers and improve driver behavior. The potential to improve driver behavior and reduce what, in many cases, is the largest safety-related risk is incredibly attractive to many businesses. However, some businesses are hesitant to adopt these systems because of the perceived legal risk. In litigation involving a commercial truck, a shrewd personal injury lawyer will cite an employer’s failure to maintain ELD data and/or failure to take prompt action against hazardous drivers as evidence of negligence. Confusion exists regarding when ELD devices must be implemented, how the electronic data must be retained, and the liability exposure that possession of ELD data creates for the business. This article addresses the five most common points of confusion. Common Misunderstanding No. 1: ELD is Permissive, Not Mandatory. Commercial drivers have long been required to keep and retain handwritten logs regarding their daily driving activities. Some businesses that transport goods have failed to implement ELDs, believing that the logs are sufficient to comply with federal requirements. The truth, however, is that federal law generally requires “motor carrier[s] operating commercial motor vehicles . . . [to] install and require each of its drivers to use an ELD to record the driver’s duty status[.]”[ii] “Motor carrier” is defined to include both “for-hire motor carrier[s]” and “private motor carriers [.]”[iii] A “for-hire motor carrier” is a “person engaged in the transportation of goods or passengers for compensation.”[iv] A “private motor carrier” is “a person who provides transportation of property or passengers, by commercial motor vehicle, and is not a for-hire motor carrier.”[v] A “Commercial motor vehicle” means either: “a gross combination weight rating or gross combination weight of . . . 26,001 pounds or more, whichever is greater, inclusive of a towed unit(s) with a gross vehicle weight rating or gross vehicle weight of more than . . . 10,000 pounds, whichever is greater; or “a gross vehicle weight rating or gross vehicle weight of . . . 26,001 pounds or more, whichever is greater.”[vi] A notable exception to the mandatory ELD requirement is if a driver is required to complete a “record of duty status [ROD] on not more than 8 days within any 30-day period.”[vii] A driver must generally complete a ROD for each 24-hour period.[viii] The purpose of this exception is to “provide relief for drivers who intermittently needed to use RODS, for example, drivers in short-haul operations who usually use time cards or occasional CMV drivers.”[ix] It is sufficient for these drivers to record their driving activities manually, rather than using ELD.[x] Common Misunderstanding No. 2:Federal Regulations do not apply if drivers never leave the state. It is a mistake to presume that, just because a particular driver travels exclusively in a single state, he or she is not subject to the FMCSR. On the contrary, if a driver is transporting a product or material that is itself in the “interstate commerce stream,” a court may conclude the FMCSR applies to that driver.[xi] The FMCSR broadly define interstate commerce to mean “trade, traffic, or transportation in the United States:” Between a place in a State and a place outside of such State (including a place outside of the United States); Between two places in a State through another State or a place outside of the United States; or Between two places in a State as part of trade, traffic, or transportation originating or terminating outside the State or the United States.[xii] Thus, the FMCSR may apply—and installation and use of ELD may be obligatory—regardless of whether a given truck or driver crosses state lines. If the cargo or property being transported has or will cross state lines, that is likely sufficient to require the use of ELD. Common Misunderstanding No. 3:There is no duty to preserve ELD data. If the above prerequisites are satisfied and no other exception applies, businesses have a duty to preserve ELD data. At a minimum, the FMCSR requires that ELD data must be preserved and stored for six months.[xiii] The Federal Motor Carrier Safety Administration rejected the assertion that a six-month retention obligation was overly burdensome based upon evidence that six months of data from a single device totaled only 10MB of data.[xiv] If the business has reason to know litigation involving a truck with ELD is likely, failure to preserve the data beyond six months may lead to judicial sanctions for the spoliation of evidence. Courts will look at the specific facts of the accident to analyze whether the carrier had reason to believe litigation was likely.[xv] Relevant facts include whether a traffic citation was issued, whether any person involved had physical injuries, the extent of property damage and who the carrier believed was responsible for the accident.[xvi] Common Misunderstanding No. 4:ELD data cannot be discovered or used in civil litigation. The FMCSR is silent about the use of ELD data in civil litigation. No statute or rule specifically discusses the subject. One erroneous inference from this omission is that ELD data has no place in private litigation. Courts that have considered use of ELD data in civil litigation have uniformly rejected that idea. Courts have permitted discovery into ELD data.[xvii] Installation of ELD on a truck, though required by federal law, may be cited by a judge as evidence of a carrier’s control over a driver supporting the carrier’s vicarious liability or negligent supervision.[xviii] Experts have been allowed to offer testimony in court premised upon ELD data.[xix] Put simply, businesses should presume that ELD data may be discovered and used in court to the same extent as any other documents or record. Common Misunderstanding No. 5: There is no duty to audit ELD data. Although the FMCSR does not impose auditing requirements for ELD data, it is a significant mistake to conclude that a business cannot be punished for failing to do so. Neglect of ELD data may be used as evidence of the carrier’s indifference supporting a claim for punitive damages. At a minimum, the absence of ELD audits may create an issue that must be resolved at trial—necessitating substantial time and expense and subjecting the carrier to the risk of a major damages award.[xx] ELD Implementation and Ongoing Management For businesses currently utilizing ELDs or that have an interest in implementing a system to take advantage of the safety and compliance-related benefits, there are steps businesses can take to mitigate the legal risk related to recording and preserving ELD data. As discussed in misconception number five above, choosing not to audit ELD data presents a legal risk to an organization. It is common for leadership at a business using ELDs to be apprehensive about adopting a system that tracks more than the most rudimentary data required to meet federal regulations. In the construction industry, it is common for the foreman of a construction crew to be the assigned driver for their crew. Leadership may worry that the ELD data might reveal that a foreman, who is a top performer, is an aggressive driver. There are a number of ways to deal with this and other similar issues that may arise from tracking detailed ELD data. Many companies navigating these issues are starting to rethink their internal policies to strike a balance between the safety-related benefits of these systems and the legal risk of tracking extensive information. In the construction company example above, many companies are starting to ask themselves, “If our foreman is an aggressive driver, why can’t another member of the crew be the driver?” If the employer typically has three to four people traveling in a truck every day, it might choose to assign the second most senior person on the crew to be the driver. A foreman is typically on the phone or needed to respond to emails and texts regularly, which can lead to distracted driving. In this example, it is probably best to have someone other than the foreman do the driving. Conclusion With a better understanding of the requirements related to ELDs and associated legal risks, the options businesses have when selecting ELDs, and the potential ELDs have to improve driver behavior and significantly reduce the safety-related risk for commercial vehicle fleets, corporate leadership should take time to analyze their current ELD strategy. Reach out to your Hays representative or to the article authors with questions or to begin facilitating internal discussions about ELD. Most businesses can craft an ELD strategy that strikes a balance between gaining the safety-related benefits of ELDs while minimizing the legal risk they present. About the Authors Bryan Huntington is a member of the construction and surety team at Larkin Hoffman. Contact Bryan at bhuntington@larkinhoffman.com. Justin Gillette is the Hays Companies Vice President and Construction Practice Leader at the Minneapolis office. Contact Justin at jgillette@hayscompanies.com. [i] https://www.fmcsa.dot.gov/hours-service/elds/eld-functions. [ii] 49 C.F.R. 395.8(a)(1)(i). [iii] 49 C.F.R. 390.5. [iv] 49 C.F.R. 390.5T. [v] Id. [vi] 49 C.F.R. § 383.5. [vii] 49 C.F.R. 395.8(a)(1)(iii)(A)(1). [viii] 49 C.F.R. 395.8(a)(1). [ix] Electronic Logging Devices and Hours of Service Supporting Documents, 80 FR 78292-01, 2015 WL 8773414, (Dec. 16, 2015) pg. 78308. [x] 49 C.F.R. 395.8(a)(1)(iii)(A)(1). [xi] Thoms v. ABF Freight System, Inc., 31 F.Supp.2d 1119, 1125 (E.D. Wis. 1998) (examining whether the transportation of property is “part of the interstate commerce stream.”) (citation omitted); Baez v. Wells Fargo Armored Service Corp., 938 F.2d 180, 182 (11th Cir. 1991) (concluding that armed security guards transporting financial instruments were engaged in interstate commerce, despite the fact the drivers never crossed state lines). [xii] 49 C.F.R. § 390.5. [xiii] 49 C.F.R. § 395.22(i) (“A motor carrier must retain for 6 months a back-up copy of the ELD records on a device separate from that on which the original data are stored.”). [xiv] Electronic Logging Devices and Hours of Service Supporting Documents, 80 FR 78292-01, 2015 WL 8773414, (Dec. 16, 2015) pg. 78328. [xv] Lee v. Horton, No. 2:17-cv-2766, 2018 WL 4600303, at **2-3(W.D. Tenn. September 25, 2018). [xvi] Id. [xvii] Cabarris v. Knight Transportation, Inc., No. 17-CV-6259, 2018 WL 5650012, at *1 (W.D.N.Y. Oct. 31, 2018) (permitting discovery of ELD data). [xviii] See generally Soto v. Shealey, 331 F.Supp.3d 879 (D. Minn. 2018). [xix] See Ferguson v. Nat’l Freight, Inc., No. 7:14-CV-00702, 2016 WL 1192702, at *4 (W.D. Va. Mar. 22, 2016) (”[T]he court has no difficulty finding that EDR data allows an expert to opine as to a vehicle’s speed at any given point in time.”). [xx] See Pracht v. Saga Freight Logistics, LLC, No. 3:13-CV-529-RJC-DCK, 2015 WL 5918037, at *7 (W.D.N.C. Oct. 9, 2015).

September 3, 2020

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Bryan J. Huntington