Perils of Third Party Practice in Construction Litigation

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Avoiding Substantive and Procedural Pitfalls to Preserve and Assert Your Rights

THIS article highlights some of the substantive and procedural issues and pitfalls that may arise in construction litigation where an owner seeks to recover economic losses and/or other damages from some (but not all) of the entities that were involved in a construction project, but who may not be solely responsible for the owner's alleged damages. Numerous contractual and quasi-contractual relationships exist in this type of litigation and practitioners must decide early in the litigation what third parties should be brought into the litigation, what type of claim should be asserted, and when that claim should be asserted. Although the decision that practitioners reach will necessarily depend upon the forum in which suit is brought and the substantive law that applies, this article intends to alert practitioners to anticipate issues to consider early in litigation and to avoid potential pitfalls.

Who Can Be a Third-Party Defendant?

A defendant can file a third-party complaint against any person who is not a party to the action and who is or may be liable to the third-party plaintiff for all or part of the plaintiffs claim against the thirdparty plaintiff.1 Depending upon where the lawsuit is brought, a defendant need not obtain leave of court to file a third-party complaint so long as the third-party complaint is filed within the time the defendant is required to answer the complaint.2

What Type of Claims Can Be Asserted?

Generally, the only claims that may be brought in a third-party complaint are those claims that are derivative in nature, i.e., the claim must seek to pass some or all of the defendant's liability to the plaintiff or to the third-party defendant.3 Where the claim is not derivative in nature, it is not properly asserted as a third-party claim. One type of derivative claim is a right of indemnity. Indemnity is a common-law doctrine that shifts responsibility for a loss from a party who has been compelled to pay a loss to another party who was actually at fault. The right to indemnity may be expressed or implied in law based upon the parties' relationship. Examples of quasi-contractual relationships that give rise to a duty to indemnify include: lessor and lessee, employer and employee, owner and lessee, and master and servant.

An example of express indemnity is where A (architect) and O (owner) expressly agree that A will indemnify O for any damages O incurs that are caused by A's design errors or omissions. An example of implied indemnity is where A contracts with E (engineer) to prepare structural drawings to be incorporated into A's design for O. After construction is completed, O discovers numerous structural defects in the building and demands that A pay the cost to repair the defects. A makes payment to O and then files suit against E for indemnity. The term indemnity used here contemplates the situation where E's breach of its contract with A caused A to breach its contract with O. A's claim against E is for breach of con-tract seeking indemnity for any damages A had to pay O that resulted from E's breach of its contract with A.

Another derivative claim that is frequently raised via a third-party complaint is a right of contribution. A direct defendant who is sued in tort may be able to assert a claim for contribution against a third party who the plaintiff did not (or could not) file suit against, seeking to have a judge or jury apportion liability among the defendant and third party based upon the pro rata fault of each party.4 A claim for contribution can generally only be asserted against a third party if the defendant/third-party plaintiff and the third-party defendant are "subject to liability in tort" for the plaintiffs alleged injuries or damages.5 Consequently, where the plaintiff is seeking to recover solely economic losses, a contribution claim is unavailable. …