August 2019: Ask A Lawyer: Joseph Turner

QUESTION: : I own a construction company and several years ago I built a neighborhood of 12 houses on two streets. While my company provided most of the work on the site, we hired a subcontractor to apply stucco to the houses. In the last year, half of the homeowners have reached out to me about the stucco on their houses. Its cracking and peeling. I admit, it looks bad. I suspect the other homeowners who have not yet had an issue with their stucco probably will soon. I hear rumblings the home owners are considering teaming up to sue my company… all 6 of them! I simply can’t afford to re-stucco a dozen houses I built half a decade ago. I don’t feel like I should have to. Do I have any recourse with the stucco company?

ANSWER: First, it is important that you are proactive in this situation, and asking questions is always a good first step. Most businesses want nothing to do with a legal dispute, and far too often this translates to a ‘head-in-the-sand’ technique where nothing is done to resolve a problem until a full blown lawsuit arrives on their doorstep. One of the easiest and most straightforward ways to head off a situation like the one you described is to have a strong contract with everyone involved. A clear indemnification provision in your agreement with your subcontractors would take a lot of the guesswork out of what your next steps should be in your current situation.

If the homeowners do decide to sue you, there are several ways to ensure everyone responsible for the poor stucco is involved in the legal action. People and businesses in your position will commonly file a “third-party complaint” or “impleader action” against another party, which essentially ensures all persons who may have caused an injury will be properly be responsible for their part of the harm.

My last piece of advice is you should not wait! It is never too early to get a lawyer involved on your behalf. The situation you are describing may be resolvable through some clear lines of communication with the subcontractor and the homeowners. It is very possible the subcontractor would prefer the costs associated with fixing some of their mistakes rather than being brought into a full-blown lawsuit.

QUESTION:I am a Partner in a Dental Practice. There are 4 Partners Total. In our Operating Agreement we required that when it came to decision making, everyone would have “equal participation”. I feel like “equal participation” means that we all participate in decision making- as in we discuss topics with all of the Partners. I don’t feel like “equal participation” means we all have to agree to get something done. Isn’t that the point of having a “managing partner” to act as sort of a tie breaker? This “equal participation” wording has been a real problem and is causing discord among the Partners. Can you please define the terms?

ANSWER:Absent language to the contrary in your Operating Agreement, “equal participation” means you all have equal rights and authority to participate in managing your business. This means each of you has one equal vote which it comes to making a decision. Obviously, this can get tricky when you have an equal number of partners, as is the case here. So, what do you do when you have a deadlock between the partners?

This really does get down to the terms you’ve set out in your operating agreement. In some circumstances, having a “managing partner” designated does mean that partner has the ability to act as a tie-breaker, as you suggested above. However, that title can be more related to that partner being the “hands-on partner” with the day to day operation of your business and the agreement does not actually give that person the power to break a tie.

Let’s assume the language in your agreement isn’t clear on this point. There are still several ways you can resolve a tied vote. You can all agree to go to an arbitration, amend the operating agreement itself, dissolve the partnership altogether, or even flip a coin! Regardless, the best way to resolve an issue like this is to ensure your operating agreement is clear from the outset. For example, there could be a provision which defines the terms you’ve asked about above. Having an attorney help you draft an operating agreement before any issues arise may seem unnecessary at the time, but, more often than not, it will save you a great deal of headache and expense down the road.