Appeals court to determine subcontractor liability in using defective product

The Indiana Court of Appeals will hear oral arguments next week to determine whether a subcontractor can be found liable under Indiana law for breach of contract for product defects even when the contract requires a specific product from a specific manufacturer.

The argument will be held in the Court of Appeals Courtroom at the Indiana Statehouse on Tuesday, July 14. The scheduled panelists are Judges Rudolph Pyle, Dana Kenworthy and Mary DeBoer.

The interlocutory appeal arises from the Vanderburgh Superior Court, after Judge Jillian Kratochvil granted judgment in favor of two general contractors and against the subcontractor, Tri-State Painting Co., an Evansville-based commercial and industrial painting company.

Tri-State filed its appeal in September, questioning whether Indiana law holds a subcontractor liable for breach of contract or breach of implied or express warranty caused by latent defects in a product when the contract requires the subcontractor to use a specific product.

“The Spearin doctrine, as expressed by the Supreme Court of the United States, states that when detailed specifications are provided and there is a latent defect in the materials specified, the contractor will not be liable for any implied warranty,” Tri-State argued in its brief, referencing the 1918 case United States v. Spearin.

However, the general contractors, Newburgh-based River Town Construction LLC and Evansville-based ARC Construction Co., assert that Tri-State has misapplied the Spearin doctrine.

“Tri-State was not passively following specifications designated by some other party, but actively orchestrated the product selection process,” the contractors wrote in their appellee brief.

According to court documents, in May 2020, Tri-State entered into a subcontract with River Town, the general contractor, to provide labor and materials to refinish bleachers at Francis Joseph Reitz High School’s football stadium on Evansville’s west side. Tri-State also entered into a subcontract with general contractor ARC Construction Co. to provide labor and materials to refinish bleachers at Bosse High School’s football stadium near downtown Evansville.

In both projects, the plan was to coat the schools’ stadium steps, walkways and seating.

In its 2024 complaint, Tri-State asserted it then contacted Wisconsin-based Oak Ridge Foam & Coating Systems Inc. to inquire whether it manufactured a product better suited to the project than the one originally specified.

Tri-State said Oak Ridge recommended its product, OR42D, to suit the projects.

Tri-State relied on Oak Ridge’s recommendation and obtained change orders from the architect to use the OR42D product instead of the originally specified product, which was not one of Oak Ridge’s.

But Tri-State said it received two different products: the OR42D and OR42.

Tri-State notified Oak Ridge of the issue, but Oak Ridge indicated to Tri-State that the newly supplied product would perform in a superior manner to the one the company had originally ordered, according to the complaint.

So Tri-State relied on Oak Ridge’s advice and applied the OR42 product as specified.

However, both products “completely failed.”

After it was applied, the coating cracked, its color bleached when exposed to the sun and it bled onto visitors’ clothes.

Tri-State was left to incur labor and material expenses to try to remove the product; it faced reputational damage and was unable to collect its contract price.

Tri-State then sued Oak Ridge for breach of express warranties for recommending the products.

Tri-State also included a separate count against the school corporation and the general contractors, specifically asking the court to declare that it did not breach either of its contracts with River Town or ARC and that it is entitled to payment for the projects. But Tri-State also included an interpleader for those entities to answer for any interest they may have in Tri-State’s recovery of damages against Oak Ridge.

But in August last year, a Vanderburgh judge granted judgment in favor of the general contractors.

No decision has been made yet as to the allegations against Oak Ridge.

Tri-State then appealed the judgments in favor of the contractors.

Tri-State now argues that the trial court failed to apply the contractors’ motions for judgment as motions for summary judgment, noting that there are still disputed facts.

Tri-State also questions whether Indiana law permits it to be found liable under the circumstances.

According to Tri-State’s brief, since the Evansville Vanderburgh School Corp.’s architect approved the change order in the product to be used, the change was incorporated into the sub-contract.

“This revised sub-contract required Tri-State use the specified product from a specific manufacturer, and created an implied warranty from the owner to Tri-State that if the product was used, it would be suitable for the Project,” the brief stated.

But the ARC and River Town say Tri-State is misunderstanding the contract.

“Tri-State seems to make the argument that, because a change order to the Subcontracts subsequently identified OR 42D as the product to be used, it was obligated to use only that product,” the contractors argued in their brief. “Tri-State ignores the fact, as admitted in its Complaint, that it selected Oak Ridge and that the change order was the result of Tri-State’s recommendation that OR 42D be used. Nothing prevented Tri-State from going to a different manufacturer, recommending a different product and having that product approved by (Evansville Vanderburgh School Corp.)’s architect.”

The case is Tri-State Painting Co., Inc. v. Oak Ridge Foam & Coating Systems, Inc., et al., 25A-PL-02410 and 82D06-2402-PL-000856.