BP appeals a BEL award of $967,393.04, pre-RTP to this residential construction contractor in Hoover, Alabama (Zone D). Policy 495 criteria were triggered and the Construction Methodology was used to achieve sufficient matching. On appeal, BP asserts two assignments of error, only one of which requires discussion.
BP forcefully argues that the Claimant is an excluded Real Estate Developer thereby requiring that the award be vacated. The basis of BP’s argument is that the substantive nature of Claimant’s business includes residential and subdivision real estate development. BP points out that the exclusion in Section 2.2.4 of the Settlement Agreement applies regardless of the degree to which the Claimant may engage in other revenue producing activities. BP’s description of Claimant’s activities goes like this:
Claimant has developed over 50 residential communities in Louisiana, Tennessee and Alabama. It places
these developments in separate LLCs of which Claimant is the sole member. These single asset
LLCs, according to BP, are merely the vehicles through which Claimant conducts its real estate
Claimant responds that exclusions are determined at the entity level and that it merely acts as the homebuilder for communities that have already been developed by other entities. Thus, the entity level analysis renders the affiliate LLCs irrelevant in applying the Real Estate Developer exclusion according to Claimant. “BP is simply wrong when it asserts that Claimant must be classified as a developer because of the activity of separate related LLCs.”
Claimant also relies on Policy 468, arguing that residential homebuilders are excluded from the provisions of Section 220.127.116.11.
De novo review reflects that the Claims Administrator assigned NAICS Code 236117 – New Housing Operative Builders, a classification that comprises single – family home customer builders. This classification is not an NAICS Code that would clearly apply to a Real Estate Developer. There are other classifications in the NAICS Code that would more accurately encompass real estate development activities.
Turning to Policy 468, the Administrator has carved out an exception for homebuilders who do not engage in excluded real estate development activity:
2. Construction Contractors and Builders: Notwithstanding any of the foregoing, an Entity engaged in construction, including
speculative and operative (“for sale”) building, that also acquires land solely for the purposes of erecting residential dwellings
for sale on a dwelling by dwelling basis, rather than as part of a subdivision or other development by the Entity, will not be considered
to be an Excluded Real Estate Developer. In deciding whether an Entity was a construction contractor or builder, or an excluded
Real Estate Developer, the Claims Administrator will consider whether the Entityengaged in 2010 in any or all of the following activities
that may indicate Real Estate Development Activity:
(a) Zoning, platting, subdivision or re-subdivision of unimproved land;
(b) Development of any infrastructure outside the ordinary construction of single dwellings, including roads, sidewalks, curbs,
sewer access, or other common use or public property; and/or
(c) Speculative or operative (“for sale”) building of commercial,industrial, or any other non-residential properties.
With this criteria in mind, de novo review fails to disclose evidence that Claimant engaged in any zoning, platting or subdivision of unimproved land. Nor is there evidence that it was involved in infrastructure development such as roads, sidewalks, curbs, etc. outside the construction of single dwellings. There is likewise no evidence that Claimant was involved in the speculative or operative building of commercial, industrial or other non-residential properties.
Policy 468 also makes clear that the Real Estate Developer determination is focused on the entity level. Thus, the exclusion would apply even though Claimant’s business model involves the creation of other entities that actually engage in the traditional real estate development activities. The Claims Administrator was correct in the application of Policy 468 and its exclusion for homebuilders. No basis for disturbing that determination has been demonstrated. Accordingly, Claimant’s Final Proposal reflecting the amount of the award is the correct choice and is selected.