SETTLING WITH SOME, BUT NOT ALL, OF THE DEFENDANTS IN A CONSTRUCTION DEFECT CASE

shutterstock_510239200Construction defect lawsuits can be complex multi-party disputes, especially when the plaintiff is doing what is necessary to maximize recovery.  This means the plaintiff may sue multiple defendants associated with the defects and damage.  For example, the owner (e.g., plaintiff) may sue the contractor, subcontractors, design professionals, etc. due to the magnitude of the damages.  In many instances, the plaintiff is suing multiple defendants for overlapping damages.  The law prohibits a plaintiff from double-recovering for the same damages prohibiting the windfall of a plaintiff recovering twice for the same damages.  Perhaps this sentiment is straight common sense, but this sentiment is a very important consideration when it comes to settling with one or more of the defendants, while potentially trying the construction defect case as to remaining defendants.  Analysis and strategy is involved when settling with some but not all of the defendants in a construction defect case (and, really, for any type of case).  Time must be devoted to crafting specific language in the settlement agreements to deal with this issue. Otherwise, the settlement(s) could be set-off from the damage awarded against the remaining defendants.

 

The recent decision in Addison Construction Corp. v. Vecellio, 43 Fla.L.Weekly D625(a) (Fla. 4th DCA 2018) details the analysis and strategy required when settling with some but not all of the defendants in a construction defect case, and the concern associated with a trial court setting-off the settlement amount from the damage awarded against the remaining defendants.   

 

This dispute involved the sale of a high-end residential home where the buyer of the home sued numerous parties due to construction defects—the sellers, the developer, the general contractor, and subcontractors.   Before trial, the buyer settled the dispute with certain subcontractors for a sum total of $2,725,000.  The buyer then proceeded to trial with remaining defendants.  Prior to trial, the buyer filed a motion in limine to exclude the remaining defendants from mentioning these subcontractor settlements.  The trial court granted the motion.  After trial, the plaintiff was awarded approximately $3.5 Million in damages associated with the construction defects.  However, smartly, remaining defendants moved the trial court to set-off the sum total of the subcontractor settlements from the approximate $3.5 Million to reduce the overall principal judgment amount.  The trial court granted the motion in most respects reducing the judgment amount finding that that the settlements covered the same damage.  Remember, a party cannot recover double damages for the same issue.

 

An appellate issue dealt with this set-off of the subcontractor settlements from the total judgment awarded against the remaining defendants.  This is a critical strategic  legal issue, not to be taken loosely, when settling with defendants in a multi-party construction defect dispute, particularly when you may try the case against non-settling defendants. 

  

The purpose of the setoff statutes is to prevent a windfall to a plaintiff by way of double recovery. Thus, any “settlement recovery sought to be set off must be ‘in partial satisfaction for the damages sued for.’ ”  Accordingly, “[i]f 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.”  In the same vein, “[w]hen a settlement recovery is allocated between claims with different and distinctive damage elements, set-off should only be allowed to co-defendants jointly and severally liable for the same claims.” 

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Although the same-damages-sued-for prerequisite seems simple enough in theory, because settlement agreements are often so broadly worded, in practice it is not always easy to determine whether damages paid as part of a settlement overlap with damages awarded against a remaining co-defendant. To that end, the law provides that if settlement proceeds are “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.”  This is the case even where some of the settlement amount may have been for different damages and the settlement amount exceeded the damages it setoff. 

Addison Construction Corp., supra, (internal citations omitted).

 

 

Clearly, while this law seems simple, it is not.  And it certainly is not in a multi-party construction defect case which is why—again—settling with some but not all defendants in a construction defect case requires analysis and strategy. Otherwise, what could happen is a trial court setting-off the total sum of the settlements from the principal damages awarded at trial.  Probably not what the plaintiff had in mind! This is what the trial court did in this case based on otherwise broad language in the respective settlement agreements.  Guess what?  The appellate court agreed:

 

In sum, because the subcontractor settlement agreements failed to differentiate the damages settled for, it is simply “impossible to know whether [Buyers] would be receiving a duplicate payment” for their breach of contract based claims. If Buyers wanted to prevent this problem, they should have allocated the damages encompassed in each subcontractor settlement. Buyers made a strategic and understandable decision not to do so, and this is the end result. We acknowledge that this may seem harsh, but it is the only pragmatic result. If courts were required to delve into the scope of undifferentiated settlement agreements for the purposes of making a setoff determination, then post-judgment proceedings would turn into a second trial. Principles of judicial economy prohibit this result.

Addison Construction Corp., supra, (internal citations omitted).

 

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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