Construction Legal Update

Large construction cases rarely come before a jury due to their complexity and the cost of litigation. It is even rarer for the Washington Supreme Court to weigh in. But the Supreme Court did so on September 2 in Lake Hills Investments, LLC v. Rushforth Construction Co., Inc., when it affirmed the jury's award of $9 million in favor of the contractor, ruling that a jury instruction was "potentially misleading," but not prejudicial. The Court's ruling reaffirmed application of the "Spearin Doctrine" affirmative defense and articulated an apportionment theory for its application.

What is the Spearin Doctrine?

Under the widely accepted Spearin Doctrine, a project owner on a traditional fixed sum contract (often called design-bid-build) impliedly warrants to a contractor that the plans and specifications for a particular project (i.e., the design documents) are accurate and suitable for construction. If the contractor builds the project according to owner-provided design documents, then the contractor will not be responsible for failures caused by any defects.

This implied warranty has been a cornerstone of construction law in the U.S. for nearly 100 years. It got its name from the historic Supreme Court decision in U.S. v. Spearin, 248 U.S. 132 (1918), often considered to be the most significant construction law case. While much has changed in the construction world since the Spearin holding - including the introduction of multiple alternative delivery methods such as Design-Build (DB), General Contractor/Construction Manager (GC/CM), and Public-Private Partnership (PPP or P3) - application of the doctrine outside these alternative delivery methods, in the traditional design-bid-build context remains alive and well in most state and federal courts, including Washington. Contractors sued for breach of contract for defects will often assert Spearin as an affirmative defense to liability, as was the case in Lake Hills.

The Lake Hills Dispute

The Lake Hills litigation involved a large development project in Bellevue, outside of Seattle, Washington called Lake Hills Village. The "Village" consists of multiple buildings constructed over several years - a public library, two mixed-use residential/retail buildings, three commercial buildings, and townhouses. Connecting the library and an adjacent commercial building is an elevator tower and a pedestrian bridge.

Disputes arose during construction, resulting in the owner notifying the contractor that it was in breach of the contract schedule and identifying work it considered to be defective. The contractor responded in part that the construction defects were the result of the owner's bad design or lack of a complete design, and not due to failures of the contractor. The relationship between the parties deteriorated with the owner withholding multi-millions in progress payments. Lake Hills filed a breach of contract lawsuit, and the contractor filed its own breach claim.

At trial, the owner argued that the contractor was responsible for more than $16 million in defective work and delays. The contractor argued it was entitled to more than $5 million in improperly withheld payments. In response to the owner's claims for defective work, the contractor asserted multiple affirmative defenses, including Spearin, arguing that the Spearin Doctrine shielded it from liability for the defects, based on deficient plans and specifications supplied by the owner. After a costly two-month jury trial, in which the jury heard from more than two dozen witnesses, the jury returned a mixed verdict with a net judgment award of more than $9 million in favor of the contractor.

The Appeal and the Court's Apportionment Theory

On appeal, the owner argued that multiple jury instructions were erroneous, including the instruction on the contractor's burden under Spearin. The owner argued that, to rely on the Spearin defense as a shield to liability, a contractor must establish the defect resulted "solely" from the defective or insufficient design, not from another contractor-created cause. The owner argued that when the jury instructions did not use the word "solely," the instruction was so erroneous that a new trial was needed. A division of the Washington Court of Appeals agreed reversing the jury verdict and remanding for a new trial.

On review by the Supreme Court, the Court disagreed, in part, with the Court of Appeals. After a comprehensive review of the history and development of the Spearin defense, the Court explained that "there does appear to be some tension" in Washington's caselaw, and agreed that the jury instruction was "potentially misleading." Nonetheless, the Court found the error to be harmless and no new trial necessary. In other words, since the owner did not establish it was prejudiced by the error, the Supreme Court reversed the lower court's remand for a new trial.

The Court explained that the rationale for the Spearin Doctrine defense is "based on control," or lack thereof - i.e., if an owner provides a defective design, then a contractor should not be responsible for damage caused by that defective design because the contractor "was not the source of the defects." The Court went on, explaining that the Spearin Doctrine is a "complete defense" to design defect claims only if the damage is "solely due" to the defective design. If it is not, then it is not a complete defense, and the jury must instead calculate and attribute proportionate liability between the owner (for its defective design) and the contractor (for its deficient performance). As with all affirmative defenses, the party asserting the defense bears the burden of proving both defective design, causation, and that it followed the design documents during construction.

The case now goes back to the Court of Appeals for consideration of arguments regarding the trial court's award of $6 million in attorney fees and costs to the contractor.

The Takeaway

This is an important ruling as the Spearin Doctrine is a fundamental tenet of construction law and, although it was established almost 100 years ago, it is still regularly used by litigants. The Supreme Court struck a balance in the Lake Hills ruling - on the one hand, reaffirming the widely-accepted Spearin Doctrine defense while, on the other hand, finding no prejudice, thus keeping a costly jury verdict intact and no remand necessary.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.