Getting sued can be frustrating, but in construction defect litigation it can be doubly frustrating for a defendant when the plaintiff still owes it money. This article describes common issues a business should consider when deciding whether to file a counterclaim.

A Strong Counterclaim Can Lead to Better Outcomes

A strong, well documented counterclaim can provide negotiating leverage as well as a compelling argument to reduce an opposing party’s potential award at trial. A counterclaim puts the plaintiff on the defensive, forcing them to justify failing to pay at the time work was substantially complete.

In addition, a counterclaim can bolster defenses. After all, the most common defense to a construction defect claim is that work was performed in a good and workmanlike manner. If that is the case, why not demand payment for that work?

Use It or Lose It – Claim Preclusion

In litigation, a party must speak or forever hold its peace. The doctrine of res judiciata prevents a party from re-litigating issues that arise out of the same subject matter of the suit. See Citizens Ins. Co. of Am. v. Daccach, 217 S.W.3d 430, 449 (Tex. 2007). For example, if a plaintiff claims a construction defect, but failed to pay for the work itself, failing to assert a counterclaim could cause the defendant to lose its right to collect past due balances, even if it wins the lawsuit.

Time Limitations May Bar a Counterclaim Down the Line

Claims have time limits. The Texas statute of limitations requires that tort claims (e.g. negligence) must be asserted in the two years after it accrues, and contract debt actions must be asserted in the four years after it accrues. Tex. Civ. Prac. & Rem. Code § 16.003, 004. However, the statute of limitations on construction defects can be up to ten years! Id at §16.009. This means a plaintiff can bring a construction defect claim after the time limit for debt collection expires. If a counterclaim is not time-barred, waiting too long can result in an inability to file a counterclaim.

The Costs and Benefits of a Counterclaim

Like all business decisions, a construction business must carefully consider the costs and benefits of the counterclaim. On one hand, a counterclaim makes litigation more contentious, which can drive up defense costs. In addition, if a claim is defended by an insurance carrier, a counterclaim is usually not covered by the policy. On the other hand, a defendant is already incurring attorney’s fees to defend itself, so the marginal cost of adding a counterclaim is much lower than the cost of initiating litigation. For example, a counterclaim does not need to be served, and documents reviewed to support the counterclaim are often the same documents used to defend against a claim.

Defending Business Interests

Lastly, consider the interests of the business. Even though many construction businesses have the right to file a counterclaim for past due payments, many with good claims never consider fighting back for the money they are owed.