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Appellate Court Tackles Issue of Joint and Several Liability of Construction Subcontractors

The California Court of Appeal for the Fourth Appellate District in Expressions at Rancho Niguel Association v. Ahmanson Developments Inc., (February 5, 2001) 2001 D.A.R. 1369, handed down a decision regarding joint and several liability issues in the context of construction defect litigation. The holding limits the use of joint and several liability concepts with regard to non-settling defendants. The decision may remove a significant incentive that defendant subcontractors had to settle these cases.

FACTUAL BACKGROUND
      Expressions at Rancho Niguel Association is a homeowners association for a 266-unit project in Laguna Niguel. The Association filed a construction defect suit against the owner, Ahmanson Developments and the developer of the project, McKeller Communities, for a variety of defects including leaking roofs. The developer and owner cross-complained against a number of subcontractors for indemnity.
      Eventually, the owner and developer settled with the Association. As part of the settlement, the owner and developer agreed to assign the proceeds from any settlements made with the subcontractors to the Association. The Association and the owner then jointly pursued indemnity claims against the remaining subcontractors. Eventually, all of the subcontractors settled except for Monier, the maker of roof tiles used at the project. The claims involving Monier went to a judge trial. The judge found that the owner and developer had paid the Association $343,553 in damages for roofing issues and that the owner and developer had received $154,577 from other settling roof subcontractors as indemnity. This left $188,976 in roofing damages that had been paid by the owner and developer to the Association and for which they had not already received indemnification.
       The trial court found Monier liable. The key issue then became whether Monier was liable for the remaining $188,976 under a joint and several liability theory, or for a smaller amount of damages, based only upon that portion of the amount paid to the Association for roofing damages that were attributable to Monier's work. The trial court ruled for the Association and for the owners, holding that Monier, as a joint tortfeasor of an indivisible injury, was jointly and severally liable for all of the roofing damages (minus those amounts already collected from the settled subcontractors). Thus, the judgment against Monier was for $188,976.

THE LEGAL ISSUE
       The legal issue on appeal was whether the developer and owner, as settling defendants who were strictly liable for the underlying damages, essentially step into the shoes of the Association and thus are entitled to recover, on a joint and several basis, all of the amounts they paid for the Association's injuries from other joint tortfeasors whose negligence was a proximate cause of those injuries.
      A quick review of joint and several liability may be in order. When a plaintiff suffers injuries from more than one person (two or more "tortfeasors"), and the injury is "indivisible" (meaning, essentially, that there is no way to tell which tortfeasor caused what part of the injury), the law allows the plaintiff to collect his damages from one or the other defendant, or both. Thus, if one tortfeasor has assets and the other does not, the law will allow the plaintiff to collect his entire award from the one who has money even though that party may have been less than one hundred percent responsible for the injury. The policy is simply that, if possible, we want the plaintiff to be "made whole." So even if one of the defendants was not totally responsible for the injury, he may still have to pay the full award (or at least more than his share) because in a sense he is still "guilty." More simply, the law would rather have a wrongdoing defendant have to pay more than his share than have an innocent injured plaintiff not be fully compensated.
      Now, back to the Expressions case. The owners and developers are the "manufacturers" of the homes. Under the law, manufacturers of defective products are "strictly liable" for any injuries they may cause to consumers. This means that the injured parties only have to show an injury and the "manufacturer" has to pay up; negligence or any wrongdoing does not have to be shown. That's why the owners and developers settled and paid the plaintiffs.
      However, (one last legal doctrine before you fall asleep), the law allows those parties who are "strictly liable" to pursue other parties who through their negligence or wrongdoing really were the cause of the injury. This is called "equitable indemnity." Thus, the owners and developers cross-complained against Monier to try to collect the monies that they paid the plaintiffs for the defective roofs. Finally, the owners are in a way "blameless" (at least that's their argument) as to the roofing issues because it was Monier's negligence that caused the damage that the owners and developers had to pay for out of their pocket (or their insurer's pocket). But, in seeking indemnity against Monier, are developers treated just like the plaintiff, meaning, do they get to use the theory of joint and several liability to collect all of the money that they had to pay the plaintiffs for bad roofs, or may they only be indemnified to the extent of the percentage of fault attributed to Monier? Also, because the owners and developers have now joined the plaintiffs in a joint prosecution of Monier, do the owners and developers get to piggy-back onto the plaintiffs' joint and several liability rights and, thus, get to use this theory against Monier? Whew. Well, the short answer that the Court of Appeal gave was simply "No."
      The Court distinguished between a party who seeks indemnity because he was strictly liable versus a truly innocent plaintiff seeking compensation for all of his injuries. Here, the plaintiffs have been fully compensated (by the developer and owner). The policy considerations that give rise to joint and several liability in these types of jointfeasor situations are no longer applicable. Here, the plaintiff has been "made whole."
      The owners/developers/plaintiffs argued that joint and several liability principles should apply to promote settlement. The rationale is simply that non-settling parties, like Monier, will have an incentive to settle if they know that they may be on the hook for more than just their own faulty work. This is the argument that may most affect how construction defect cases are handled. The Court of Appeal rejected the argument. Thus, it appears that non-settling subcontractors may be more likely to take their case into a courtroom because they know that their damages will be limited to their own negligence, at least when it comes to indemnifying the owners and developers.
      More generally, the Court noted the inherent tension between the concepts of "equitable indemnity" and "comparative fault." "Equitable indemnity" has traditionally been an "all or nothing" concept. Thus, Monier would have been either totally responsible to the owners and developer for the monies they paid to plaintiffs for the roofs that Monier worked on, or would not have been responsible at all. The Court noted that in California the concept of "comparative fault", when combined with the indemnity principle, means that in these cases "equitable indemnity" may not be an "all or nothing" concept. For example, even though the owners may seem blameless, they may have been negligent in hiring Monier, or been negligent by not acting more quickly in making repairs to the roofs, or been somehow otherwise responsible. The result would be that Monier may not have to fully indemnify the owners and developers even for all of the monies paid for Monier's faulty work, if a Court finds that the owners or developers themselves are partially to blame because of the negligent hiring or lack of supervision of Monier. Thus, the Court creates a flexible standard.
      In the future, subcontractors or suppliers like Monier may be required to indemnify the owners and developers of a tract of homes, but not to the full extent which those owners and developers had to pay to plaintiffs. The trial court may use principles of equity and fairness to tailor a partial award.

CONCLUSION
      Subcontractors in construction defect cases have been given two new and significant protections by the Court of Appeal for the Fourth District. First, when developers or builders seek indemnity against them for monies paid to plaintiff homeowners, their liability will extend only to that percentage of damages they are responsible for, no more. Second, under those same circumstances, they may not even be liable for that full amount. Using a flexible standard, and considering the level of fault attributable to the developer or builder, the Court may find a subcontractor is liable for less than the full indemnity amount, or, perhaps, for nothing at all. The ruling makes it all the more important for community associations to select experienced legal counsel when confronted with construction problems.

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