On
October 20, 2016, the Colorado Court of Appeals announced the Sopris
Lodging, LLC v. Schofield Excavation, Inc.[1] decision.
The Sopris decision significantly altered the potential pitfalls
awaiting a general contractor in pursuit of third-party claims as well as
potential defenses available for a subcontractor defending against third-party
claims.
By
way of background, the Sopris construction defect case arose out of the
following facts: TDC was the general contractor for the construction of a hotel
owned by Sopris Lodging. On March 11, 2011, Sopris Lodging sent TDC a notice of
claim regarding alleged construction defects. On May 24, 2013, Sopris Lodging
filed a complaint in district court asserting construction defect claims
against one of the subcontractors of the hotel, and against the general
contractor’s principals, but not the general contractor. Contemporaneous with
the filing of the suit, Sopris Lodging and TDC entered into an agreement to
toll the statute of limitations on Sopris Lodging’s potential claims against
TDC. In August 2013, Sopris Lodging
joined the general contractor to the suit. A year later, in 2014, the general
contractor joined a variety of subcontractors as third-party defendants.
In
response to the general contractor’s third-party claims, some of the
subcontractors moved for summary judgment, asserting that the general
contractor’s claims against them were barred by the two year-year statute of
limitations set forth in C.R.S. § 13-80-102. The subcontractors argued that the
claims against the subcontractors accrued when Sopris Lodging delivered its
notice of claim to TDC in March 2011. Because the general contractor did not
file its third-party claims until 2014, the subcontractors asserted that the
claims against them were time barred.
In
response to these arguments, the general contractor asserted that C.R.S. § 13-80-104(1)(b)(II) tolls the
statute of limitations for a defendant’s third-party claims until ninety days
after a settlement or final judgment on the plaintiffs’ claims against the
defendant. However, the trial court ruled that C.R.S. § 13-80-104(1)(b)(II) did not
apply and that the general contractor’s claims against the subcontractors were
time barred. After the trial court’s ruling, Sopris Lodging settled with TDC, which
assigned its claims against the subcontractors to Sopris Lodging. Thereafter, Sopris Lodging filed this appeal
asserting that C.R.S. §
13-80-104(1)(b)(II) did in fact toll TDC’s claims.
The
Court of Appeals ruled that if a third-party plaintiff brings third-party
claims in the underlying construction defect case, the third-party claims must
be timely pursuant to C.R.S. § 13-80-102 and that that the tolling provision
set forth in C.R.S. C.R.S. § 13-80-104(1)(b)(II) does not provide for a blanket
tolling of third-party construction claims. Rather, C.R.S. § 13-80-104(1)(b)(II) provides for
a discrete (ninety day) revival of third-party claims after resolution of the
underlying construction defect claims. The Colorado Court of Appeals
acknowledged that this analysis could lead to a “somewhat anomalous conclusion”
that the statute of limitations applicable to general contractors could expire
before the first-party plaintiff filed suit against a general contractor.
Nevertheless, the Court of Appeals recommended that where such an outcome is
possible, a general contractor has the following options to preserve its claims
against subcontractors: 1) when a general contractor receives a notice of
claim, the general contractor should send its own notices to subcontractors; 2)
in the alternative, where it is possible that third-party claims may expire,
the general contractor should enter into a tolling agreement with the
subcontractors; or 3) the general contractor could just wait until the
resolution of the underlying construction defect case and bring suit during
that ninety day revival period set forth in C.R.S. § 13-80-104(1)(b)(II). That said, if a contractor were to use this
third option, its claims would still need to be brought within Colorado’s
six-year statute of repose. Colorado courts,
however, will not entertain third-party claims against subcontractors that are
not timely.
In conclusion, before
a general contractor brings suit against a subcontractor, nuanced analysis is
necessary to preserve the timeliness of claims against subcontractors. To learn
more about the Sopris decision or to discuss best practices to avoid the
pitfalls of the Sopris case, you can reach Jean Meyer by telephone at
(303) 987-9815 or by e-mail at meyer@hhmrlaw.com.
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