Mass Construction Defect Actions: How Trade Contractors can Fight Back

William L. Porter Founder & President Specializing in Construction Law, Business Law and Labor Law
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It has become much easier for trade contractors and their attorneys to follow the herd and plod along in a wasteful and costly construction defect matter. Challenging the norm is all too rare in this business. However, there can be great advantages to being the pot-stirrer. Trade contractors and their attorneys (insurance retained or private) should plan out a meaningful strategy at the outset of every case, including exploring motions challenging the pleadings. The outcome, if successful, can save the trade contractor (and its insurer where applicable) tens of thousands of dollars in defense costs owed to its own attorney, the attorneys for the general contractor, the Special Master, and others who feed at the trough of the mass defect actions.

Several years ago, my client, a carpet and flooring trade contractor in Northern California, was hired by a general contractor to install flooring in a county-owned community center being built by the contractor. A couple years after the project was completed, the county sued the general contractor exclusively for damages due to exterior stucco cracks, shrinkage, and damage to the exterior walls and fascia. The Complaint was three pages long and contained no defects outside of the stucco issues.

The County served the general contractor with the Complaint. The General Contractor filed a lengthy Cross-complaint, naming all trade contractors who had anything to do with the project. The Cross-complaint was the standard format we often see used by counsel for general contractors in alleging the general contractor is the innocent party and the complaints against them are allegedly due to the incredibly substandard work of the subcontractors. In this case, the general contractor demanded to be fully indemnified for the claims alleged against it in the underlying Complaint, and also demanded to be immediately defended against these claims. In addition, as with most Cross-complaints filed by general contractors, this one contained virtually no detailed allegations beyond merely incorporating the allegations against it in the underlying Complaint. The general contractor attached, as exhibits to its Cross-complaint, and incorporated into its Cross-complaint, the underlying Complaint and the subcontract with my client.

My client and its insurer spent nearly six months trying to convince counsel for the general contractor that they only installed carpet and flooring on the inside of the facility and had nothing to do with the stucco. Surely they could not be held responsible for any damages due to stucco cracks and shrinkage, the only claims Plaintiff was making according to the Complaint. My client and its insurer repeatedly asked for a dismissal with the understanding that if any claims within our scope of work ever arose, we would appear without the need for re-service of the Cross-complaint. Counsel for the general contractor merely responded stating that a site inspection was set to take place in June 2007 and that a defect list was forthcoming. He went on to say that this defect list may include claims related to my client’s scope of work. By November 2007, that defect list was still not completed.

In November 2007, counsel for the general contractor threatened to take my client’s default if an answer was not promptly filed. In the meantime, most of the other trade contractors had appeared in the case and a “Special Master” was selected and approved by the Court and the parties were heading down that all-too-familiar and all-too-expensive typical construction defect path, including extensive discovery, meetings with the Special Master, document depository expenses, and billings from counsel for the general contractor.

When I received the file in early November 2007, I again contacted counsel for the general contractor and asked him to dismiss my client as there were no claims pled within my client’s scope of work. Counsel for the general contractor did not have the courtesy to return my call. So, I filed a demurrer to the cross-complaint. In simple language, a demurrer says that even if everything in the Complaint/Cross-complaint is true, there still in no legal cause of action against the defendant. The Court cannot consider questions of fact, it can only look at whether the Complaint/Cross-complaint states a valid cause of action. My demurrer was premised upon the argument that the Cross-complaint did not and could not state a cause of action for indemnity against the flooring installer for claims to the exterior stucco. In addition, I requested the Court not allow the general contractor leave to amend the Cross-complaint as no amendment can create a valid indemnity obligation since the only claims pled against the general contractor in the underlying matter were for stucco issues. We argued there was no conceivable way in which the flooring installer could be ultimately held liable to defend or indemnify the general contractor on claims relating to the exterior stucco.

The general contractor opposed our demurrer on several grounds, including that the defect list was forthcoming and we should be forced to answer and hang around until the defect list was received. At the hearing, the Court looked closely at the pleadings and agreed that there was no plausible argument to support the claim that a flooring installer is liable to a general contractor seeking defense and indemnity for the only claims pled against it in the underlying Complaint, claims of stucco cracks and shrinkage. The Court refused to postpone the hearing or to force an answer and (wait and see if the defect list has any flooring claims as requested by counsel for the general contractor. The Court sustained (granted) our demurrer to the Cross-complaint and did not give the general contractor leave to amend. Because the contract contains an attorneys’ fees provision, we filed a cost bill for the filing costs and our attorneys’ fees.

The lesson here is for trade contractors to work closely with their attorneys before any answer or appearance is made. While this approach may not work with all trades or in all cases, because the facts of each case do differ, it is good practice to meet and explore all possible courses at the outset of each case.

By taking an aggressive stand at the outset of the case, we were able to save our client thousands of dollars in fees and costs which would have been incurred in sitting around for another six months to a year waiting for a defect list or some statement of claims within our client’s scope of work.

Ted Wood is an associate in Porter Law Group, Inc. in Sacramento, California.
He can be reached  at (916) 381-7868.

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