"Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often the real loser—in fees, expenses, and waste of time. As a peacemaker the lawyer has a superior opportunity of being a good man. There will still be business enough." ~Abraham Lincoln
Claims and disputes in the construction industry are commonplace. Unless you successfully avoid or resolve project disputes as they arise, you may find yourself embroiled in litigation and headed to court. If you are sued, the actions that you take when you first learn of the lawsuit can determine whether you obtain a quick and inexpensive resolution of the dispute or whether you get stuck in a prolonged and expensive legal battle.
If you are sued, the actions that you take should include the following:
- Hire a seasoned Construction Lawyer. Claims and disputes involving construction projects tend to be technically complex and factually intensive. If sued, it is very important to hire a lawyer who knows the construction trade. I encourage you to read the following article: “Does Your Lawyer Know the Difference Between Cement and Concrete? Points to Consider When Selecting and Hiring a Construction Lawyer.” In both state and federal courts, the deadline for filing your written answer to a lawsuit is relatively short. You will need to act quickly to retain a lawyer to represent you in the litigation. Ideally, you should work on developing a professional relationship with a good construction lawyer long before you are sued.
- Contain the conflict, don’t inflame it. Filing of a lawsuit should not signal that it is time to take off the gloves and commence with a knock-down, drag-out, bare-knuckled fight. Frequently, lawsuits are filed before a project is completed and involve multiple defendants. You may find yourself in a situation where you have to continue to work together with the plaintiff and co-defendants in order to complete the project. Keep in mind that the filing of a lawsuit is simply one step along the way in resolving a dispute. Ultimately, the dispute will be resolved whether by agreement, by a judge, or by a jury of your peers. Recognize that it is prudent to quickly identify how best to contain the conflict, resolve the dispute cost-effectively, and minimize its impact on the project, on your business and on your personal life.
- Make sure that the plaintiff has complied with all contractual alternative dispute resolution (ADR) procedures. Has the plaintiff signed a contract that requires mandatory mediation or arbitration or incorporates by reference any other document that requires mediation or arbitration? If ADR is required by the contract, was the contractual ADR process followed? If not, you will need to move quickly to ask the court to stay the litigation (temporarily or permanently stop the litigation) to allow the ADR process to be completed. If you engage in litigation activities without asserting your right to arbitrate the dispute, you will risk having the court find that you have waived your right to arbitrate.
- Identify, calendar and meet all deadlines. When a lawsuit is filed, there will be a relatively short deadline for filing an answer. Sometimes discovery requests are served together with the complaint, such as requests for the production of documents, requests for admissions, or interrogatories (written questions that require written responses under oath). Make sure to calendar all deadlines for responding to discovery requests. Note that a failure to provide timely responses to requests for admissions can severely impact your case. Also, consider whether there are other deadlines that need to be calendared and met. Have deadlines for claims on bonds (check both the bond and any relevant statute) or filing mechanic’s liens been met? Are there time limits for tendering the case to others for indemnification, defense or insurance coverage? Are there statutes which limit the time for you to join others who may be responsible for the damages alleged by the plaintiff?
- Get organized and preserve evidence. Once you learn of the lawsuit, you should quickly establish protocols for preserving all potentially relevant evidence. Immediately put a hold on the routine destruction of paper documents or the automatic deletion of electronic files, including email messages. If you are using any software that automatically deletes electronically stored information, shut it down. The destruction of relevant electronically stored information can result in the court imposing very severe sanctions.
- Identify and gather all key documents and identify key witnesses. Identify and gather copies of all relevant documents. The contractual agreement and all related contract documents are often the most important documents in litigating a construction dispute. Make sure that you have identified and gathered all relevant documents that may be incorporated by reference into the contract. Other important documents include correspondence, email communications, notices of claims, lien waivers and releases, surety bonds, change orders, change order requests, daily reports, requests for information, progress photos, job diaries, and project schedules. In addition to marshaling the documents, you should identify key witnesses and consider coordinating early witness interviews by the construction lawyer when the facts are fresh on the minds of those individuals with the most knowledge of the underlying dispute.
- Engage experts. If the dispute involves a project site condition or physical evidence that may be altered or destroyed, then consider engaging an expert immediately. An expert who is given an opportunity to conduct a timely site visit and fact investigation and examine the evidence when things are fresh will be much more credible at trial than an expert who has only had the opportunity to review a cold record. The expert can also assist the construction lawyer in the preservation of evidence and in the early identification of key facts and issues that may otherwise be overlooked.
- Identify others who may be potentially responsible for the alleged damages. Assist your construction lawyer in the fact investigation. You may find it helpful to outline the respective rights, responsibilities and scope of work of all parties involved in the litigation as well as any non-parties who may be responsible for the damages that are alleged in the lawsuit. By doing so, you may conclude that there are co-defendants involved whose interests are aligned with yours. If so, you may be able to agree on a joint defense and coordinate your efforts to be more efficient and effective. In addition, because there are so many participants on a construction project, the fact investigation may reveal that there are other potential defendants who are responsible for some or all of the alleged damages. You may conclude that you need to join non-parties in the litigation.
- Tender Claims for Indemnification and Defense. Construction contracts and subcontracts oftentimes contain detailed indemnification and defense provisions that may be implicated by the events leading up to the lawsuit as well as by the filing of a lawsuit. Insurance and bond coverage may be implicated as well. Review all relevant contractual agreements, insurance policies, payment bonds and performance bonds to make sure that any required notices have been given. Determine whether there are insurance policies provided by others that name you as an additional insured. If another individual or business entity is required to defend the lawsuit, make sure that you provide a timely tender or demand that a defense be provided. A timely tender or demand is important because your right to recover defense costs and attorneys’ fees could be limited to costs and attorneys’ fees incurred after the tender or demand is made.
- Understand your BATNA and develop a parallel settlement strategy early. Engage in settlement discussions early and often. Contrary to popular belief, seeking to settle a dispute amicably is not a sign of weakness. A negotiated settlement based on a principled negotiation is oftentimes the best business solution for a construction dispute. From the time that litigation is threatened or commenced you should ask yourself what is your Best Alternative to a Negotiated Agreement. The answer to this question is called your BATNA. Discuss your BATNA with your construction lawyer. Once you and your lawyer understand your BATNA, you can then develop a sound settlement strategy that can be pursued to resolve the dispute early, thereby avoiding much of the expense of litigation or arbitration. If you understand your BATNA early on, you can develop and confidently pursue your “settlement strategy” in parallel with developing and executing your “litigation strategy.”
On a construction project of any complexity, disputes are often the rule–not the exception. During the lifetime of most construction companies, it is likely that the company will become embroiled in a claim or dispute that cannot be resolved outside a courtroom. The above list of actions to take when sued is not exhaustive, but will provide a good starting point for your initial discussions with your construction lawyer. Remember that it is best to avoid construction claims and disputes from the beginning of a project and prudent to resolve claims quickly and efficiently if and when they do arise. Every seasoned construction professional should understand that avoidance or a quick resolution of disputes is often crucial to the economic success of the project. To avoid the courthouse, consider including an experienced construction lawyer on your project team at the front end of a project. Otherwise, get an experienced construction lawyer involved at the very first sign of trouble to help you manage and contain the dispute and avoid the courthouse.
This article was originally published in the Construction Connection Newsletter.