Under the principles of issue and claim preclusion, subcontractors are generally bound by the outcome of litigation between the general contractor and owner with respect to the same question. But what about the inverse situation? Does a ruling in favor of the owner against a subcontractor’s claim have a preclusive effect on the general contractor in subsequent litigation? In Strazza Bldg. & Construction, Inc. v. Harris, the Connecticut Supreme Court held that the answer is “no.”
In that case, an owner (Harris) hired a general contractor (Strazza) to perform substantial renovations to the Harris’ home. Strazza then hired a subcontractor (Rozmus) to complete the plumbing and heating scope of work. After a dispute arose over the cost and quality of the work, Harris terminated Strazza’s contract. Both Strazza and Rozmus filed mechanic’s liens against the owner’s property, claiming unpaid balances.
Harris first initiated a lawsuit against Rozmus seeking to discharge or reduce the subcontractor’s mechanic’s lien (the “Rozmus action”). In the Rozmus action, the court reduced the subcontractor’s lien claim from $97,469.86 to $62,040.36. The court also determined that Rozmus could recover the sum it claimed to be owed only to the extent that Strazza, the general contractor, was still owed money. After reviewing both Rozmus’ and Strazza’s lien claims and credits due from Strazza to Harris, the court ultimately concluded that Harris did not owe any money to Strazza. Because the lienable fund for Strazza’s contract was completely exhausted, the trial court found the lien held by Rozmus was invalid and ordered it discharged.
Shortly thereafter, Strazza filed suit to foreclose its mechanic’s liens against Harris (the “Strazza action”). Harris, however, sought summary judgment, arguing that the trial court should give preclusive effect to the trial court’s decision in the Rozmus action that no lienable funds existed. The trial court denied Harris’ summary judgment motion, stating that a genuine issue of material fact existed regarding whether there was sufficient privity between Strazza and Rozmus to preclude Strazza from pursuing its claims against Harris. The court of appeals and the Connecticut Supreme Court agreed.
When an owner and a general contractor litigate disputes or enter into a binding arbitration, the subcontractors are presumptively in privity with the general contractor with respect to the preclusive effects. The court in Strazza Building determined that there was no basis for concluding that this presumption of privity arises in the opposite situation, that is, when the prior adjudication is between the owner and the subcontractor. First, Rozmus had less money at stake in the Rozmus action, and therefore less of an incentive to litigate. Second, the court in the Rozmus action decided broad issues related to the renovation yet did not allow Strazza to sufficiently represent itself in the trial. Lastly, Strazza did not reasonably expect to be bound by judgment that considered only a portion of the work completed on the home renovation. Therefore, the court concluded that it would be inappropriate to apply a presumption of privity in the Strazza action.
Strazza Building affords an important protection for general contractors against the powerful effects of preclusion. In the (somewhat unlikely) event the owner and a subcontractor litigate construction disputes in the absence of the general contractor, the contractor will not be bound by the outcome in Connecticut. However, the argument by the Owner here was a creative one, worthy of a ruling from the Connecticut Supreme Court. Parties in the construction industry in other states should be aware of it as it is always possible another court in another state could reach a different conclusion.