Saturday, May 30, 2015

Speak now or forever hold your peace

Stratton Corp. v. Engelberth Construction, Inc., 2015 VT 75

By Andrew Delaney

It’s always important to object to something you don’t want to happen in a timely manner. This is true for weddings and business litigation, among other things.

This is the second case with these primary parties issued in the past few weeks. The first one is here. Like the first case, Stratton was the developer and Engelberth was the general contractor for a condominium construction project. Even the catalyst for the litigation is similar—leaky roofs. This case appears to involve a different project, however, and the result and appellant are different—that’s for sure.

Let’s take a look. In 1998, developer hired general contractor “to build a 143-unit condominium complex.” Construction began in 1998 and was substantially completed by 2000. “The complex began showing signs of water leakage as early as November 1998, and leakage problems persisted throughout the remainder of the construction.” In 2007, developer settled with the condo association for approximately $7M. I assume developer wasn't too happy about that.

So developer went after general contractor for “negligence, breach of contract, and breach of warranty based on construction defects and faulty workmanship.” General contractor raised the statute of limitations as a defense and filed a bunch of claims against its subcontractors, seeking indemnification for any liability to developer.

Eventually, general contractor moved for summary judgment on statute-of-limitations grounds. The trial court went for it, reasoning that developer was on notice for more than six years before filing. A week later, the trial court issued an entry order noting that because it had granted general contractor summary judgment, the third-party claims were probably moot, and it would dismiss those unless somebody filed an objection. Nobody filed an objection, and the trial court dismissed the third-party claims.

Meanwhile, developer appealed the summary judgment decision and general contractor eventually (months after the dismissals first issued) asked the trial court to make the third-party-claim dismissals without prejudice in case developer won the appeal and general contractor ended up on the hook again.

The primary parties asked the court to stay all pending matters while they talked settlement, and the trial court obliged. The parties settled and the trial court issued an entry order “dismissing all claims of whatever sort asserted by any party in this matter.”

General contractor moved to clarify the dismissal order, arguing that the claims against the third-party defendants weren’t dependent on the success of developer’s claims, but existed independently, and that the fact that it settled with developer was a damage that justified invoking indemnification. The third-party defendants opposed the motion.

The trial court denied general contractor’s motion. It had first dismissed the claims shortly after granting summary judgment and that was that. There’s a rule of civil procedure (41(b)(3)) that says a dismissal is an adjudication on the merits. General contractor took its sweet time before asking for the “without prejudice” clarification, so the dismissals should stand. The basis for the motion to amend—that developer might prevail in its appeal—also no longer existed. The court declined to get into whether or not the claims against the third-party defendants were independently viable.

The trial court was not swayed by general contractor’s but-we-settled-the-claim-and-that-cost-us-money-so-we-want-those-claims-back line of reasoning. General contractor made a choice to settle the case rather than wait for a decision on a ruling entirely in its favor. Choices have consequences.

Finally, the trial court reasoned that the law of the case was that general contractor had no predicate liability because the predicate claims were barred by the statute of limitations. The court had invited general contractor to object when it first indicated it would dismiss the third-party claims as moot, and though general contractor had declined to do so, now general contractor wanted to play takes-backsies and make the but-they’re-independent-claims-argument that it could’ve made back when the initial dismissals were indicated. The trial court wasn’t interested.

So, general contractor appeals, arguing that “there were no grounds to dismiss its third-party claims with prejudice”; the dismissal just had to be under a different rule of procedure (14) and that even if it wasn’t, a dismissal as moot is a dismissal for lack of jurisdiction, and thus can’t be an adjudication on the merits; and “that it has ‘independent’ viable claims that it should be able to bring against the third-party defendants.”

The SCOV notes that its review is for abuse of discretion, and finds “no abuse of discretion here. The court acted fairly and reasonably in denying [general contractor’s] belated motions to amend and clarify.”

First, the SCOV points out that general contractor’s claims were clearly derivative of developer’s claims against general contractor. If general contractor had viable independent claims against the third-party defendants, it could’ve brought them, but it didn’t. General contractor only sought indemnification in its complaints to the extent it had any liability for damages to developer imposed on it.

Second, the SCOV reasons that the trial court gave general contractor plenty of notice that it was going to toss the third-party claims before it did it, and gave general contractor an opportunity to object. “You snooze, you lose,” says the SCOV, more or less.

The SCOV doesn’t find general contractor’s assumptions (that the dismissal would be without prejudice, or that the claims were being dismissed under V.R.C.P. 14) about the dismissals reasonable. Unless otherwise specified, a dismissal is with prejudice. The rule that general contractor insists applies deals with preventing delay and prejudice, which was not the case here. (This might be a good place to use the “when you assume it makes an . . . out of you and me” adage, but I’ve never felt that saying makes sense.)

The SCOV reasons that the trial courts dismissals were proper, made with advance notice and an opportunity to be heard, and that general contractor’s choice to settle doesn’t revive general contractor’s third-party claims from the dead.

So, what have we learned today, boys and girls? “Speak now or forever hold your peace” applies to litigation as well as weddings.


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