Mind The (Procedural) Gap – Third-Party Claims Lost

Owner sued contractor, who filed third-party claims against subs seeking only indemnity from them if the contractor was found liable to the owner. Contractor then moved to dismiss the owner’s claim as barred by the statute of limitations. The court allowed that motion, and then noted that it would dismiss the third-party claims as moot unless any party took action; no one did (remember this fact!). The owner filed an appeal, and the owner and contractor later settled as between them. The contractor sought sub participation in the settlement kitty, but realized that the third-party claims had been dismissed, and under Vermont law this dismissal was with prejudice. The contractor’s belated efforts to resurrect the third-party claims have been turned down by the Vermont Supreme Court. The contractor initially sought to have dismissal of the third-party claims re-characterized as without prejudice. It argued (prior to the owner-contractor settlement) that, should the owner’s appeal be successful, it would need to be able to reinstate the third-party claims. But it did not argue that there was any independent basis for its claims against the subs. And the contractor and owner asked the court to stay all other action in light of settlement discussions. Several months later the contractor and owner reported the case settled between them, and the court dismissed the entire case. At which point the contractor discovered it was in a procedural pickle. Now the contractor argued that its third-party claims were based on express indemnity obligations of the subs, independent of the claims the owner had made against it. The subs noted in response that the original third-party claims as alleged were only derivative of the owner’s claims. The lower court agreed, and the VT Supreme Court reviewed that decision on an “abuse of discretion” standard. The high court held that the contractor failed to alter the “law of the case” in terms of the basis of the third-party claims and how they would be addressed, and the lower court was within its discretion to refuse to let the contractor take that step after the fact. So the contractor was left to fund the settlement on its own. A good reminder to pay attention to the procedural issues even when a settlement is pending. The case is Stratton Corp. v. Engelberth Construction, Inc., 2015 VT 75, 2015 Vt. LEXIS 55 (May 29, 2015).