A contractor sued for breach of contract for construction defects will often assert an affirmative defense that the owner supplied deficient plans or specifications. Because that defense operates to completely shield the contractor from liability for alleged defects, Division One of the Washington Court of Appeals has reaffirmed the rule that the alleged breaches must be caused solely by the allegedly deficient plans and specifications. That rule is based on the 102-year old U.S. Supreme Court case, United States v. Spearin. The most recent expression by our court of appeals in Lake Hills Investments, LLC v. Rushforth Construction Co., Inc. illustrates how the Spearin Doctrine remains a viable defense for contractors in limited circumstances.
The Lake Hills decision, issued September 14, 2020, by the Washington State Court of Appeals, involved a development project in Bellevue. The owner (Lake Hills) sued the general contractor (AP Rushforth) for breach of contract. AP Rushforth counterclaimed, alleging that Lake Hills materially breached first, and AP Rushforth asserted multiple affirmative defenses to excuse AP Rushforth’s various breaches. The case involved tens of millions of dollars in disputed claims, including about $20M at issue during trial.
Generally, when an owner like Lake Hills provides building plans and specifications as part of a contract, the owner impliedly warrants that the plans and specifications will be workable and sufficient for the contractor to build the project. An alleged breach of that warranty can be the basis of a contractor’s affirmative defense where the owner is seeking damages from the contractor.
In the Lake Hills case, AP Rushforth alleged an affirmative defense based upon Lake Hills’ implied warranty and claimed that Lake Hills’ plans and specifications were deficient. AP Rushforth argued the allegedly defective plans and specifications caused all of the defects in AP Rushforth’s work. During the two-month jury trial in King County Superior Court, the jury returned a mixed verdict. One of the jury instructions directed the jury to consider whether “AP breached the contract by failing to construct certain areas of work in compliance with the contract documents,” and whether “Lake Hills was damaged as a result of AP Rushforth’s breach.” The jury found in favor of Lake Hills and held AP Rushforth liable for multiple breaches of contract.
AP Rushforth asserted an affirmative defense, however, claiming that Lake Hills’ defective plans and specifications caused the construction breaches and should shield AP Rushforth from liability or damages. An affirmative defense is an absolute bar to liability, even where a plaintiff establishes its prima facie case. A successful affirmative defense denies the plaintiff’s right to recover, even if all the allegations against the defendant are proven true. During trial, AP Rushforth carried the burden of proof to establish that its various construction breaches were a result of the allegedly deficient plans and specifications.
On appeal, Lake Hills argued the trial court erred as a matter of law because AP Rushforth’s burden of proof should have been that the construction breaches resulted solely from the defective or insufficient plans or specifications. The trial judge did not include the word “solely” in the jury instructions, which permitted AP Rushforth to argue that any alleged defect in the plans and specifications, regardless of how minor, served as an absolute bar to AP Rushforth’s contractual liability. Lake Hills argued that jury instruction was a misstatement of law. The Court of Appeals agreed, reversed, and remanded for a new trial.
Synthesizing several prior decisions, the Court of Appeals held that a contractor can be relieved from liability only by proving the alternate proximate cause of the allegedly defective plans and specifications solely caused the contractor’s breach. AP Rushforth’s affirmative defense rested on the theory that Lake Hills’ allegedly defective plans and specifications caused AP Rushforth’s various construction defects and the damages to Lake Hills. The court held: “To be relieved of all liability for its breaches, AP Rushforth had to prove Lake Hills’ defective designs ‘solely’ caused the plaintiff’s damages.” The court found that this holding most closely aligned with Washington case law and the standards acknowledged by commentators on construction law.
Owners and developers for both public and private projects should be aware of the issues highlighted in this case. Designs and specifications must be workable and sufficient, but the standard is not perfection. Contractors often try to claim that a defect in the designs or specifications serves as a complete defense to their potential liability. Our courts disagree, and Lake Hills reaffirmed the long-standing rule: It remains the law that a contractor may be shielded from liability only by proving that an alleged defect in the plans and specifications was the sole cause of the contractor’s construction breaches.
Finally, the court also denied AP Rushforth’s cross-appeal and vacated the trial court’s award of nearly $6M of attorneys’ fees in favor of AP Rushforth. Lake Hills contended that it should have been awarded attorneys’ fees for the issues upon which it prevailed at trial under the apportionment rule stated in Marassai v. Lau, 71 Wn. App. 912, 859 P.2d 605 (1993), abrogated on other grounds by Wachovia SBA Lending, Inc. v. Kraft, 165 Wn.2d 481, 200 P.3d 683 (2009). After trial, the court awarded AP Rushforth essentially all of its requested attorneys’ fees, expert fees, and litigation costs, despite the fact that Lake Hills had prevailed on many of the contractual issues. The court of appeals declined to rule on the merits of Lake Hills’ argument. Instead, the court vacated the award of attorneys’ fees consistent with its reversal and instructed the trial court to determine “the ultimate prevailing party or appropriate proportional amount of attorney fees.”