Recent Decisions Clarify Statute of Repose

A statute of repose bars claims against a defendant for a given period of time after completion of project. These statutes are stronger than statutes of limitation because tolling is not permitted. Clients including architects, engineers, builders, and contractors should understand their state’s statute of repose to effectively manage and mitigate risk.  Courts continue to interpret many of the most important aspects of their state’s statute of repose. Some of the most litigated issues remain:

1. What constitutes substantial completion sufficient to trigger the statute?
2. To which claims does the statute apply?

 Multi-Phase Construction in Massachusetts
Large projects often involve multiple phases. In D’Allesandro v. Lennar Hingham Holdings, LLC, 2019 WL 5550629, at *3 (D. Mass. 2019), a 150-unit condominium project in Massachusetts was completed over 24 phases. Several owners brought a suit for construction deficiencies and code violations involving the common areas of their buildings. The suit was filed two and half years after completion of the project.

The United States District Court for the District of Massachusetts agreed with plaintiff’s argument that the statute did not run from the time the architect signed off on substantial completion. Instead, it held Massachusetts’s six-year statute of repose was triggered only after the entire project was completed.

The court determined that while plaintiff’s claims for negligence and breach of implied warranty were subject to the statute, it did not apply to claims for intentional misrepresentation, negligent misrepresentation, violation of Massachusetts’ unfair business practices statute, and breach of fiduciary duty.

Ambiguity in Georgia

A recent decision by the Georgia Court of Appeals has left the local construction industry with more questions than answers. In Southern States Chemical, Inc. v. Tampa Tank & Welding, Inc., 836 S.E.2d 617 (Ga. App. 2019),  the enforceability of long-term warranties appears to have been significantly impaired. The court applied the statute of repose against a warranty-contract claim. The court surprised many by holding Georgia’s eight-year statute applied to claims arising from a contractor’s forty-year warranty against defective work.

The improvement in question was a chemical tank and the purported warranty was drafted after it began to leak. To further complicate matters, the court also determined the warranty only covered one year.

This case may be on its way to the Georgia Supreme Court for clarification. All parties to existing warranty agreements are watching closely to determine whether their contracts remain enforceable.

Building owners are concerned because the long-term warranties they bargained for suddenly appear in jeopardy. Contractors are apprehensive because they may no longer have the ability to incentivize construction of high-quality long-term improvements.

Contracts Covered in Ohio
The Supreme Court of Ohio confirmed the Buckeye State’s 10-year statute of repose applies to both tort and contract claims. In New Riegel Local School District Board of Education vs. Buehrer Group Architecture and Engineering, Inc.,157 Ohio St.3d 164 (Ohio 2019), the court clarified any lingering questions about the scope of the law.

In New Riegel, the Supreme Court of Ohio found the statute applies to “all causes of action,” that seek “to recover damages for bodily injury, an injury to real or personal property, or wrongful death, that arises out of a defective and unsafe condition of an improvement to real property *** against a person who performed services for the improvement to real property or a person who furnished the design, planning, supervision of construction, or construction of the improvement to real property.”

Conclusion
Regardless of how broadly these rulings are interpreted, clients contemplating claims involving improvements to real property should avoid unnecessary delay in bringing those claims. Although the broad contours of the statute of repose may seem consistent, essential details continue to be clarified in state courts.
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Patrick McKnight is a January 2020 graduate of Rutgers University earning both his JD and MBA.  Mr. McKnight can be contacted at patrick.joseph.mcknight@gmail.com

No Flow-Down of a Waiver of the Statute of Limitations to Subcontractor

In the matter Hensel Phelps Construction Company v. Thompson Masonry Contractor, Inc. et al. the Supreme Court of Virginia considered whether a subcontract waived the applicable statute of limitations--meaning there was no time restriction to filing a lawsuit--by incorporating by reference the prime contract between the general contractor and the Commonwealth. The Court held that there was no waiver and therefore the general contractor's lawsuit against the subcontractors was time barred by the applicable statute of limitation.

The underlying project was for the construction of a health and fitness center at the Virginia Tech campus in Blacksburg, Virginia. The general contractor entered into the $15 million contract with Virginia Tech, a Commonwealth agency. By law, no statute of limitations period can run against Virginia Tech. Va. Code section 8.01-231. By contract, the prime contract stated that: Except

as otherwise specified, all work shall be guaranteed by the [general contractor] against defects resulting from the use of inferior materials, equipment or workmanship for one (1) year from the date of final acceptance of the entire project by [Virginia Tech] in writing[.]

Nothing in this section shall be construed to establish a period of limitation with respect to any other obligation which the [general contractor] might have under the Contract Documents, including liability for defective work under [the Warranty provisions].

In sum, besides the 1-year warranty, there was no statute of limitations applicable to claims or disputes under the prime contract.
The project undisputedly was finished in 2000. Twelve years later in April 2012, Virginia Tech found variety of construction defects, repaired them, and then brought a claim against the general contractor to recover over $7 million. The general contractor looked to its subcontractors for these repair costs. When they refused, the general contractor settled with Virginia Tech for $3 million, and then sued all its implicated subcontractors. The subcontractors invoked the statute of limitations, which in Virginia, is five years for an action on a written contract. Va. Code § 8.01-246(2).

In turn, the general contractor pointed to its subcontracts' flow-down provision, which stated that "[t]he subcontractor is bound to the [general contractor] by the same terms and conditions by which [the general contractor] is bound to [Virginia Tech] under the [prime] contract," and that the subcontractor's warranty period covers any time "prior to [the general contractor's] release from responsibility to [Virginia Tech] therefor as required by the Contract Documents." The general contractor argued that because the general contractor was obligated to Virginia Tech on its claims brought 12 years after the project concluded, the subcontractors too were subject to claims from the general contractor.

Virginia's highest court sided with the subcontractors holding that any waiver of a known right must be "express" in that it reflects both knowledge of the right and the clear intent to relinquish the right. It need not be in writing. Here, the Court continued, the subcontract incorporation by reference neither acknowledged the 5-year statute of limitation nor the clear intent to waive the benefit of the statute. Moreover, just because the prime contract was silent on the statute of limitations, the subcontract could not be held to incorporate a statute that existed outside the prime contract. As a result, the Court held that the statutory waiver of the statute of limitations was not incorporated into the subcontracts, the 5-year period had run, and therefore the general contractor had no claim against the subcontractors.

As an alternate argument, the general contractor focused on the accrual date for the claim. It argued that its claims against the subcontractors, which sounded in indemnification, did not accrue until it settled with Virginia Tech. But because Va. Code § 8.01-246(2) states that the accrual is "when the breach of contract occurs in actions ex contractu and not when the resulting damage is discovered," this too was a dead end for the general contractor. Another statute Va. Code § 8.01-249(5) for "actions for contribution or indemnification," established accrual when "the contributee or the indemnitee has paid or discharged the obligation." But, here, the indemnification provision in the subcontract was rendered void because it could be read as requiring indemnification for the general contractor's own negligence. The Court disagreed that other parts of the subcontract, cobbled together, could give rise to independent cause of action for indemnification. So again, the general contractor could not proceed with its lawsuit.

The lesson learned is that explicitness in a follow-down provision is necessary if a waiver of rights is involved.
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The author, Katharine Kohm, is a committee member for The Dispute Resolver. Katharine practices construction law and commercial litigation in Rhode Island and Massachusetts. She is an associate at Pierce Atwood, LLP in Providence, Rhode Island. She may be contacted at 401-490-3407 or kkohm@PierceAtwood.com.