Three recent California appellate court decisions handed mixed results to California construction contractors. In most instances, subcontractors found their rights diminished and obligations increased as to general contractors.
Clarifying Crawford
The scope of the landmark 2008 Crawford v. Weather Shield Mfg. decision is still being understood in construction litigation. Crawford requires a contractually obligated subcontractor to defend a developer from a defect lawsuit, regardless of the subcontractor's ultimate finding of fault, so long as the subcontractor's work was alleged by plaintiff to be negligent. In the most recent appellate court decision, UDC-Universal Development, L.P. v. CH2M Hill, the court addressed how specific the allegation of a subcontractor's defect needs to be to trigger the defense obligation. In that decision, a homeowner's association sued a developer for defects, and the developer in turn sought defense of the lawsuit by an engineer on the project who had agreed to defend the developer. Even though the HOA did not specify the work of the engineer as defective in its complaint, the court of appeal held that the subcontract language was broad enough to trigger the defense obligation even if the alleged damages did not specifically identify the engineer's work. This decision will likely embolden developers and their carriers to hold out for settlement funding dollars from subcontractors, under threat of seeking a finding that the subcontractors work is implicated by the allegations in the complaint.
Settlement Offsets Make Trial Losers Winners
In the second appellate court decision, Goodman v. Lozano, the California Supreme Court held that a plaintiff is not a "prevailing party" in multi-party litigation where the value of offsets from settling contractors exceeds the award against the remaining contractor who goes to trial. In that decision, although the jury awarded plaintiff monetary damages against the contractor, since the amount awarded was exceeded by the value of settlements paid by other contractors, that plaintiff had not "prevailed" against the remaining party. This decision makes it less daunting to be the lone man standing in litigation when plaintiff has funded a war chest of settlements and the contractor has viable defenses to liability. The contractor now has an incentive to take its chances with trial if it thinks it can keep a plaintiff's award low, as it may be entitled to costs or even attorney's fees at the conclusion of trial. The war chest that the plaintiff has built up may actually be a detriment to plaintiff when it comes to determining if it prevailed against the remaining defendant.
No Offset Defense For Unlicensed Contractors
In the third decision, White v. Cridlebaugh, an appellate court held that an unlicensed contractor being sued for disgorgement under Business & Professions Code section 7031(b) could not assert offsets for the value of work performed or materials used. Since enactment of the disgorgement statute in 2001, parties have tried to understand how case law preceding the enactment of the disgorgement remedy should be interpreted. Prior case precedent held that contractors could assert an equitable offset even if they were unlicensed. This is the second appellate court case since the enactment of 7031(b) to find that no right to offset exists. The decision further signals that no matter how beneficial the work provided, if the contractor has licensing issues during a job, it will be forced to refund any money earned on the job and eat the cost of any materials supplied if it is sued by the homeowner.
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