APPLICATION OF SET-OFF WHEN A DEFENDANT SETTLES IN MULTIPARTY CONSTRUCTION DISPUTE

imagesThe defense of set-off is an important defense in construction disputes, particularly multiparty disputes.  For more information on this defense, please check out this article as it explains the application of set-off in civil disputes in detail.

 

The issue of set-off will come up in a multiparty dispute when a plaintiff settles with one or more of the defendants.  The remaining defendant(s) wants the benefit of that settlement to set-off and reduce any judgment against it.  An example of this scenario can be found in Escadote I Corp. v. Ocean Three Limited Partnership, 42 Fla. L. Weekly D23a (Fla. 3d DCA 2016).  

 

In this case, an owner of a condominium unit sued the condominium association, the developer, and the general contractor for water intrusion and mold infestation. The claim against the condominium association was the only claim that entitled the owner to attorney’s fees pursuant to its lawsuit (thus, attorney’s fees were isolated to only that claim against the association).  During trial, the owner settled with the association. In entering a settlement, the owner smartly allocated the settlement amount such that $500 was allocated to its principal damages and $374,500 was allocated to its attorney’s fees.  The owner then obtained a jury verdict against the contractor and developer for approximately $2M, jointly and severally, and the contractor and developer wanted the entire $375,000 settlement amount with the association to be set-off from the $2M verdict.  The trial court set-off the entire $375,000 from the jury verdict when entering judgment.  The appellate court reversed.

 

Because $374,500 in the settlement agreement was smartly allocated to attorney’s fees, even if self-serving, this was not a proper set-off that the contractor or developer could benefit from.  The reason being was that attorney’s fees were only sought against the association, not the developer or contractor, so they could not benefit from these separately allocable damages.  They could only benefit from the $500 allocated in principal damages since that was a principal damages component that applied to all of the defendants.  See Escadote I Corp., supra (“If the settlement funds are applicable to a claim asserted only against the settling co-defendant, the non-settling co-defendants are not eligible for a set-off in the amount of the settlement. Expressed another way, the [set-off] statutes presuppose the existence of multiple defendants jointly and severally liable for the same damages.”) (internal quotations and citations omitted).

 

The apportionment / allocation in the settlement between the owner and association was very smart and the correct thing to do, again, even if the allocation was self-serving to the plaintiff.  If the owner did not include this allocation, then the developer and contractor would have reaped the benefit of the entire $375,000 as a set-off against the jury’s verdict.  See Escadote I Corp., supra (“[I]n a case in which a settlement recovery is not apportioned between (a) claims for which co-defendants are jointly and severally liable with the settling co-defendant, and (b) claims which were only asserted against the settling co-defendant, the entire amount of the undifferentiated recovery is allowable as a set-off.”).

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

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