U.S. Court of Appeals for 9th Circuit Holds Release in Defect Case Does Not Bar Claims for Indemnity in Delay / Disruption Case

Turnberry Pavillon Partners, L.P. v. M.J. Dean Construction, Inc.
2010 U.S. App. Lexis 9832 (9th Cir. May 13, 2010)

Developer built a luxury condominium tower and hired contractor to serve as both the construction manager and concrete subcontractor. A separate interior drywall and site wall subcontractor was also hired for the Project. A series of lawsuits arose. In the first lawsuit, construction manager was found liable for causing “lost production” and “uncompensated overtime” to site wall subcontractor due to its negligent concrete work as well as negligent construction management. While cross-appeals were pending on the matter Developer paid $2.1 to settle the site wall subcontractor’s claim. In a second case, condominium association sued Developer for construction defects. In turn, Developer filed a third-party complaint against construction manager as well as other subcontractors alleging that their negligence caused defects in the Project. Ultimately, the parties to the second suit reached a settlement whereby Developer and construction manager paid the condominium association $2 million and $600,000 respectively.

Following settlement, Developer sought indemnity and contribution from construction manager for the settlement payment it made to site wall contractor on “lost production” and “uncompensated overtime” claims that it alleged was due in part to construction manager’s negligent work.

The district court held that the plain meaning of the settlement agreement in the second case, which involved the condominium association, clearly and unambiguously released Developer’s indemnity and contribution claim. However, the Ninth Circuit reversed and held that the district court erred in holding that the claims were released by settlement agreement. Noting that contract law governs the interpretation of settlement agreements in Nevada, the Ninth Circuit turned to the language of the settlement, focusing on release language. The settlement language released claims now known in litigation and defined litigation only to include those claims associated with the condominium association, not those associated with the “lost production” and “uncompensated overtime” claim brought by the site wall subcontractor against the construction manager. Because there was no claim in the construction defect cases for indemnity and contribution based on the assertions of the first litigation – lost production and uncompensated overtime due to negligent construction management and negligent concrete work — the Ninth Circuit held that the settlement agreement did not release the instant action. Accordingly, the Developer was allowed to pursue the claim.

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