APPLICATION OF SET-OFF WHEN DETERMINING PREVAILING PARTY FOR PURPOSES OF ATTORNEY’S FEES

Posted on January 9, 2021January 9, 2021 by Edward Garber

The recent opinion from the Second District Court of Appeal in Hayward Baker, Inc. v. Westfield Ins. Co., 2020 WL 7767859 (2^nd DCA 2020) demonstrates that the significant issues test for determining the prevailing party for purposes of attorney’s fees applies to disputes involving payment bonds under Florida’s Lien Law (Florida Statutes Chapter 713). The significant issues test is more or less a subjective test where the party that is deemed to have prevailed on the significant issues in the case is the prevailing party for purposes of attorney’s fees in the case. A trial court has discretion to determine the prevailing party which will not be disturbed absent an appellate court finding the trial court abused that discretion. This significant issues test is an important consideration so that parties understand just because money ends up going their way does not necessarily mean they prevailed on the significant issues in the case. It could mean that. But it may not based on the claims and moneys involved in the dispute.

In Hayward Baker, the subcontractor recovered a final judgment of $290,000 against the general contractor and payment bond surety. Both the subcontractor and general contractor moved for attorney’s fees as the party that prevailed on the significant issues in the dispute. The subcontractor was awarded the full amount due under the subcontract; however, there was a set-off issue. The general contractor asserted a claim against the subcontractor for property damage associated with the subcontractor’s work and received $450,000 from an insurance carrier relative to that claim in a settled dispute. The subcontractor was able to set-off this recovered amount from the property damages the general contractor sought against the subcontractor. Thus, the issue was when factoring in the set-off, which party prevailed on the significant issues. The Second District held it was the subcontractor that recovered the final judgment in its favor:

[T]he ruling on [the subcontractor’s] motion to set off the $450,000 [the general contractor] had received from the [insurance carrier] in the 2012 [settled] Case against the damages award entered against [the subcontractor] was pivotal to the prevailing party determination. The result of applying the setoff against [the general contractor’s] damages award was that [the general contractor] received none of the benefit it sought in the litigation: a judgment was not entered against [the subcontractor] for any of the damage caused to the hospital property. On the other hand, [the subcontractor] received all of the benefit it sought in the litigation, as it obtained $290,000 plus prejudgment interest for the work it performed under the subcontract and it was relieved from paying any damages to [the general contractor]. [The subcontractor], therefore, was the prevailing party in the underlying litigation and entitled to an award of attorneys’ fees

Hayward Baker, 2020 WL at *2.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

SETTLING WITH SOME, BUT NOT ALL, OF THE DEFENDANTS IN A CONSTRUCTION DEFECT CASE

Posted on March 25, 2018March 25, 2018 by Edward Garber

Construction defect lawsuits can be complex multi-party disputes, especially when the plaintiff is doing what is necessary to maximize recovery. This means the plaintiff may sue multiple defendants associated with the defects and damage. For example, the owner (e.g., plaintiff) may sue the contractor, subcontractors, design professionals, etc. due to the magnitude of the damages. In many instances, the plaintiff is suing multiple defendants for overlapping damages. The law prohibits a plaintiff from double-recovering for the same damages prohibiting the windfall of a plaintiff recovering twice for the same damages. Perhaps this sentiment is straight common sense, but this sentiment is a very important consideration when it comes to settling with one or more of the defendants, while potentially trying the construction defect case as to remaining defendants. Analysis and strategy is involved when settling with some but not all of the defendants in a construction defect case (and, really, for any type of case). Time must be devoted to crafting specific language in the settlement agreements to deal with this issue. Otherwise, the settlement(s) could be set-off from the damage awarded against the remaining defendants.

The recent decision in Addison Construction Corp. v. Vecellio, 43 Fla.L.Weekly D625(a) (Fla. 4^th DCA 2018) details the analysis and strategy required when settling with some but not all of the defendants in a construction defect case, and the concern associated with a trial court setting-off the settlement amount from the damage awarded against the remaining defendants.

This dispute involved the sale of a high-end residential home where the buyer of the home sued numerous parties due to construction defects—the sellers, the developer, the general contractor, and subcontractors. Before trial, the buyer settled the dispute with certain subcontractors for a sum total of $2,725,000. The buyer then proceeded to trial with remaining defendants. Prior to trial, the buyer filed a motion in limine to exclude the remaining defendants from mentioning these subcontractor settlements. The trial court granted the motion. After trial, the plaintiff was awarded approximately $3.5 Million in damages associated with the construction defects. However, smartly, remaining defendants moved the trial court to set-off the sum total of the subcontractor settlements from the approximate $3.5 Million to reduce the overall principal judgment amount. The trial court granted the motion in most respects reducing the judgment amount finding that that the settlements covered the same damage. Remember, a party cannot recover double damages for the same issue.

An appellate issue dealt with this set-off of the subcontractor settlements from the total judgment awarded against the remaining defendants. This is a critical strategic legal issue, not to be taken loosely, when settling with defendants in a multi-party construction defect dispute, particularly when you may try the case against non-settling defendants.

The purpose of the setoff statutes is to prevent a windfall to a plaintiff by way of double recovery. Thus, any “settlement recovery sought to be set off must be ‘in partial satisfaction for the damages sued for.’ ” Accordingly, “[i]f the settlement funds are applicable to a claim asserted only against the settling co-defendant, the non-settling co-defendants are not eligible for a set-off in the amount of the settlement.” In the same vein, “[w]hen a settlement recovery is allocated between claims with different and distinctive damage elements, set-off should only be allowed to co-defendants jointly and severally liable for the same claims.”

***

Although the same-damages-sued-for prerequisite seems simple enough in theory, because settlement agreements are often so broadly worded, in practice it is not always easy to determine whether damages paid as part of a settlement overlap with damages awarded against a remaining co-defendant. To that end, the law provides that if settlement proceeds are “not apportioned between (a) claims for which co-defendants are jointly and severally liable with the settling co-defendant, and (b) claims which were only asserted against the settling co-defendant, the entire amount of the undifferentiated recovery is allowable as a set-off.” This is the case even where some of the settlement amount may have been for different damages and the settlement amount exceeded the damages it setoff.

Addison Construction Corp., supra, (internal citations omitted).

Clearly, while this law seems simple, it is not. And it certainly is not in a multi-party construction defect case which is why—again—settling with some but not all defendants in a construction defect case requires analysis and strategy. Otherwise, what could happen is a trial court setting-off the total sum of the settlements from the principal damages awarded at trial. Probably not what the plaintiff had in mind! This is what the trial court did in this case based on otherwise broad language in the respective settlement agreements. Guess what? The appellate court agreed:

In sum, because the subcontractor settlement agreements failed to differentiate the damages settled for, it is simply “impossible to know whether [Buyers] would be receiving a duplicate payment” for their breach of contract based claims. If Buyers wanted to prevent this problem, they should have allocated the damages encompassed in each subcontractor settlement. Buyers made a strategic and understandable decision not to do so, and this is the end result. We acknowledge that this may seem harsh, but it is the only pragmatic result. If courts were required to delve into the scope of undifferentiated settlement agreements for the purposes of making a setoff determination, then post-judgment proceedings would turn into a second trial. Principles of judicial economy prohibit this result.

Addison Construction Corp., supra, (internal citations omitted).

APPLICATION OF SET-OFF WHEN A DEFENDANT SETTLES IN MULTIPARTY CONSTRUCTION DISPUTE

Posted on December 23, 2016December 23, 2016 by Edward Garber

The defense of set-off is an important defense in construction disputes, particularly multiparty disputes. For more information on this defense, please check out this article as it explains the application of set-off in civil disputes in detail.

The issue of set-off will come up in a multiparty dispute when a plaintiff settles with one or more of the defendants. The remaining defendant(s) wants the benefit of that settlement to set-off and reduce any judgment against it. An example of this scenario can be found in Escadote I Corp. v. Ocean Three Limited Partnership, 42 Fla. L. Weekly D23a (Fla. 3d DCA 2016).

In this case, an owner of a condominium unit sued the condominium association, the developer, and the general contractor for water intrusion and mold infestation. The claim against the condominium association was the only claim that entitled the owner to attorney’s fees pursuant to its lawsuit (thus, attorney’s fees were isolated to only that claim against the association). During trial, the owner settled with the association. In entering a settlement, the owner smartly allocated the settlement amount such that $500 was allocated to its principal damages and $374,500 was allocated to its attorney’s fees. The owner then obtained a jury verdict against the contractor and developer for approximately $2M, jointly and severally, and the contractor and developer wanted the entire $375,000 settlement amount with the association to be set-off from the $2M verdict. The trial court set-off the entire $375,000 from the jury verdict when entering judgment. The appellate court reversed.

Because $374,500 in the settlement agreement was smartly allocated to attorney’s fees, even if self-serving, this was not a proper set-off that the contractor or developer could benefit from. The reason being was that attorney’s fees were only sought against the association, not the developer or contractor, so they could not benefit from these separately allocable damages. They could only benefit from the $500 allocated in principal damages since that was a principal damages component that applied to all of the defendants. See Escadote I Corp., supra (“If the settlement funds are applicable to a claim asserted only against the settling co-defendant, the non-settling co-defendants are not eligible for a set-off in the amount of the settlement. Expressed another way, the [set-off] statutes presuppose the existence of multiple defendants jointly and severally liable for the same damages.”) (internal quotations and citations omitted).

The apportionment / allocation in the settlement between the owner and association was very smart and the correct thing to do, again, even if the allocation was self-serving to the plaintiff. If the owner did not include this allocation, then the developer and contractor would have reaped the benefit of the entire $375,000 as a set-off against the jury’s verdict. See Escadote I Corp., supra (“[I]n a case in which a settlement recovery is not apportioned between (a) claims for which co-defendants are jointly and severally liable with the settling co-defendant, and (b) claims which were only asserted against the settling co-defendant, the entire amount of the undifferentiated recovery is allowable as a set-off.”).