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.
[1] Sopris Lodging, LLC v. Schofield Excavation, Inc., 2016 COA 158, reh’g denied (Nov. 23, 2016).
