Nevada Legislative Update: August 2019

Edward Garcia and Brittany Walker | Holland & Hart | August 30, 2019

CONSTRUCTION

AB 421 amends the laws governing residential construction defects. Key changes include extending the statute of repose from six to ten years and no longer requiring an expert to be present at an inspection concerning an alleged construction defect. Proponents of this legislation stated that it will protect Nevada’s homebuyers and encourage homebuilders to build to a higher standard. Opponents of this legislation stated that it will increase costs to new homebuyers and exacerbate the affordable housing issues facing Nevada.

AB 440 requires contractors who build new, single family residences to provide a disclosure of the purchaser’s rights and a one-year warranty from punch list completion that guarantees all home systems, workmanship, materials, plumbing, electrical and mechanical systems, appliances installed by the contractor, fixtures, equipment, and structural components.

SB 397 authorizes a licensed contractor to perform work in other license classifications which he or she does not have a license for when: (1) the value of the work is less than $1,000 and does not require a permit; and (2) the work is not of a type performed by a plumbing, electrical, refrigeration, or air-conditioning contractor. Essentially, this bill provides a handyman exception for contractors to perform work outside the scope of their license, which will help consumers by allowing a contractor to complete a small project which he or she does not typically perform.

“Slow and Steady Doesn’t Always Win the Race” – Applicability of a Statute of Repose on Indemnity/Contribution Claims in New Hampshire

Rahul Gogineni | White and Williams | September 3, 2019

In Rankin v. South Street Downtown Holdings, Inc.2019 N.H. LEXIS 165, the Supreme Court of New Hampshire considered, pursuant to a question transferred by the trial court, whether RSA 508:4-b, the statute of repose for improvements to real property, applies to indemnity and contribution claims. The court concluded that based upon the plain reading of the statute, it applies to indemnity and contribution claims. As noted by the court, a holding to the contrary would violate the intent of a statute of repose, which is to establish a time limit for when a party is exposed to liability.

In Rankin, after falling and injuring himself while leaving a building, John Rankin and his wife brought an action against the property owner, South Street Downtown Holding, Inc. (South Street) in 2017. South Street subsequently filed a third-party complaint against multiple parties including an architectural company, Wagner Hodgson, Inc. (Wagner), who was involved in a renovation project at the property. The project was substantially complete in 2009. Wagner responded by moving to dismiss the action, arguing that South Street’s indemnification and contribution claims were barred by the applicable statute of repose.

RSA 508:4-b specifically states,

Except as otherwise provided in this section, all actions to recover damages for injury to property, injury to the person, wrongful death or economic loss arising out of any deficiency in the creation of an improvement to real property, including without limitation the design, labor, materials, engineering, planning, surveying, construction, observation, supervision or inspection of that improvement, shall be brought within 8 years from the date of substantial completion of the improvement, and not thereafter. (Emphasis added).

After reviewing the basis of South Street’s claims against Wagner, the court concluded that South Street’s indemnification and contribution claims specifically fell within the statute of repose. In so doing, the court reaffirmed its prior holdings that indemnity and contribution actions are actions to recover economic loss. It then concluded that because there was no exception in the section for indemnity and contribution actions, they both fell squarely within the meaning of the phrase “all actions.” Having found that the statute of repose was applicable to South Street’s claims, the court answered the transferred question in the affirmative.

This case serves as a good reminder that contribution and/or indemnification claims may be governed not only by a different subset of laws within respective jurisdictions but also by the terms of any applicable time limitation statutes. As such, practitioners should be aware that merely because an indemnity or contribution statute does not discuss either a statute of limitation or a statute of repose, such limitations may still apply to their claims. Moreover, just because a statute of limitations and/or repose does not specifically mention indemnity or contribution claims, does not mean they are exempt from the statute.

A Milestone Construction-Defect Case at New Hampshire Supreme Court

Boston Real Estate Times | August 16, 2019

Morrison Mahoney LLP, one of the northeast region’s leading litigation firms, announced that William A. Staar, a Partner in the firm’s Construction Litigation Practice, prevailed in a case before the New Hampshire Supreme Court (NHSC) on behalf of landscape architect, Wagner Hodgson, Inc.

At issue was whether New Hampshire’s eight-year statute of repose, which protects building professionals from direct claims, also protects those professionals from contribution and indemnity claims. Staar argued that the statute does offer that additional protection. The NHSC agreed, and this landmark decision will provide additional protection for building professionals operating within the state of New Hampshire.

Background

John C. Rankin & A. v. South Street Downtown Holdings, Inc.

South Street Downtown Holdings, Inc. v. Truexcullins and Partners Architects, et al.

The plaintiff is an older man who allegedly fell on a short set of exterior stairs and ramp that are part of a commercial property in Hanover, New Hampshire.  As a result, he purportedly suffered severe facial injuries.  The plaintiff sued the property owner, i.e., South Street, arguing that a defective design plagued the stairs and ramp and that such design caused him to fall.  South Street filed contribution and indemnity claims against several building professionals, including Wagner Hodgson, Inc., that allegedly designed and/or constructed the stairs and ramp approximately a decade before the subject accident.

Legal Argument

The Morrison Mahoney legal team, including Staar and firm associate Nicholas D. Meunier, moved to dismiss, arguing the following:

  1. A New Hampshire statute of repose, i.e., RSA 508:4-b (1990), bars all claims against building professionals “arising out of” allegedly defective construction that are over eight years post the date of substantial completion of a project, and
  2. South Street brought its third-party claims against Wagner Hodgson 8.5 years after the Town of Hanover issued a certificate of substantial completion.

South Street conceded that the third-party claims were late, but argued that the statute of repose (1) only barred direct claims against building professionals and (2) did not bar indemnity nor contribution claims.  It principally relied on the fact that the pre-1990 version of the statute did specifically bar indemnity and contribution claims and that the current version of the statute does not.  The trial court did not rule on the motion and, instead, passed the issue to the NHSC.

NHSC Ruling

The NHSC found that the current version of the statute bars both indemnity and contribution claims.  Its principal reasons were as follows:

  1. Although the current version of the statute does not explicitly bar indemnity and contribution claims as the prior one did, it contains broader language that does encompass such claims.  Specifically, the current statute bars “all actions” older than eight years against building professionals “to recover damages for . . . economic loss arising out of any deficiency in the creation of an improvement to real property.”  The Court found that a successful claim by the plaintiff against South Street would constitute an “economic loss” that “arose out of” such an alleged deficiency; and
  2. Excepting contribution and indemnity claims from the statute fundamentally would frustrate the central purpose of the statute, i.e., to allow building professionals to be free and clear from lawsuits pertaining to their work on a particular project eight years after the completion of such work.  As made clear by the legislative record for the statute, the goal of the statute was to protect such professionals from all claims arising out of their work.  The genesis of the statute was that, prior to its enactment, many building professionals operating in New Hampshire suffered severe financial strain by having to maintain liability insurance for their work sometimes decades after they had completed such work, including well into retirement.

The case was argued in the chamber of the New Hampshire House of Representatives on Tuesday, June 4, 2019, in celebration of the bicentennial anniversary of the state house, and the Court decision was released on August 6, 2019. The Court videotaped both oral argument and the Q&A, which is available here.

Contractor Liable Thirteen Years After the Fact??

Earl K. Messer | Taft Stettinius & Hollister | June 28, 2019

Imagine you built a school back in 2005. Years go by. Many employees who worked on the project are gone. Their emails are no longer available to review. Most other records are buried somewhere, maybe. The owner has handled maintenance year after year without your input. The building has aged and felt the effects of changing weather. And then, you are sued, thirteen years after the job is complete—for moisture intrusion. What a nightmare.

The Ohio Court of Appeals for Stark County has just considered such a case and affirmed the trial court’s application of the ten-year statute of repose to bar the claim. Unfortunately, it’s not over yet. The appellate court ruled on May 6, 2019, and the local school district has filed motions to have that ruling reversed. There is probably plenty more litigation to come in this case. Stay tuned.

In the meantime, though, it is constructive to consider what issues are at stake, for both contractors and owners. Ohio has a statute of repose. This is different from a statute of limitations. Most people understand that a statute of limitations sets a time within which a lawsuit must be filed or the claim is lost. The thing that fewer fully understand is that the clock for the statute of limitations may not start to tick until the injured party has reason to believe it has been damaged. In other words, defective construction that a reasonable person would not detect for a while does not start the statute of limitations clock ticking until something occurs to give the owner reason to believe there may be defective work. Think a slow leak inside a building wall that causes wood to rot and mold to grow, but otherwise does not become evident to the owner for five years. Typically, the statute of limitations clock would not begin to tick during those five years. Since the current statute of limitations for breach of contract in Ohio is eight years, the contractor would be exposed to suit for defective work for at least thirteen years.

That would only be the case, though, if the statute of limitations was the only time cut off for construction claims. It is not. Ohio, as well as many other states, also has a statute of repose. The statute of repose in Ohio basically cuts off any ability to sue after ten years following substantial completion. There is an exception if the owner discovers the defects in the final two years of the ten-year period. If the owner does discover defects in those last two years, it gets two more years before it no longer has a claim against the contractor.

So, what does the Stark County case have to do with this? In that case, the contractor, the architect and the contractor’s bonding company were sued for moisture intrusion related issues over thirteen years after the project had been completed. The owner alleged that the Ohio School Design Manual required the defendants to warranty their work for forty years for minor repairs and, astoundingly, one hundred years for major structural or exterior enclosure repairs. The defendants filed motions to dismiss arguing that the statute of repose barred the school district’s claims because it was filed thirteen years after substantial completion, three years beyond the expiration of the statute of repose. On appeal, the appellate court, so far, has affirmed the trial court’s dismissal.

The school district made several arguments as to why the appellate court should have reversed the trial court. The most troublesome for contractors was that when the contractor and the architect agreed in their contracts to be bound by the Ohio School Design Manual, they were more or less agreeing that the school district could make claims against them for up to one hundred years despite the statute of repose. The appellate court did not reject that argument. Instead, it avoided it on a technicality. The school district had not raised that argument with the trial court, and an appellate court will not consider any argument on appeal that a party failed to make first to the trial court. So, contractors can expect owners in the future to test that argument in another case.

Having said that, it seems fairly clear that if the argument had been made to the trial court, the appellate court would have rejected it. The school district’s warranty claim is nothing more than another kind of breach of contract claim. The appellate court affirmed all the good reasons why a breach of contract claim cannot be brought after ten years. All those reasons would apply just as well to a breach of warranty claim, since the warranty was part of the written contract between the parties. Those reasons were that the architect and contractor had no control over the building or its maintenance for all those intervening years. They had no control over extreme weather events that may well have affected the building over thirteen years. Much of the relevant evidence would simply be gone after thirteen years.

So, what is the practical import of all of this?

  1. Both the contractor and the owner should hang on to their written records, including electronic records, for at least ten years, and possibly up to twelve, following project completion.
  2. Owners need to keep their eye on the clock up to ten years after the project is complete in case they may have any viable claims.
  3. Remember that the longer it takes to litigate a matter, the more unclear many things become. For example: what really caused the moisture problems—was it defective work, poor maintenance, natural wear and tear? The owner has the burden of proof to show that it was defective work that caused the problem.
  4. And the longer it takes to litigate, the fewer witnesses that will remain available and the more distant and foggy the memories will be.

Say What? Statutes of Repose/Limitation May Not Be Defenses in Arbitration?

David K. Taylor and Kyle M. Doiron | Bradley Arant Boult Cummings LLP | May 2, 2019

Most private construction contracts contain binding arbitration clauses and apply the “law of the state where the project is located.” While arbitration is less formal than court/litigation, legal defenses are often raised, including whether a claim is barred by a statute of limitation or, in the case of construction claims, a statute of repose. A statute of repose, as opposed to a statute of limitation, with a few exceptions, means that no matter when the claimed defect is “discovered,” the claim is barred if not brought within a specific period of time after substantial completion. For example, in Tennessee a claim must be brought within four years of substantial completion or that claim is barred by the statute or repose. However, a recent arbitration ruling raises concerns about whether such statutes will apply in arbitration.

Most statutes of repose (and limitation) apply to “any and all actions.” In a recent arbitration case, an owner brought a $1.5 million defective work claim against its prime contractor 10 years after substantial completion of a project that was located in Tennessee. The contractor moved to dismiss the claim based upon Tennessee’s four-year statute of repose. However, the owner cited a few reported court cases (none from Tennessee) and argued that the word “action” in the statute of repose was intended by the legislature to apply only to court cases, not to arbitration. One point made by the owner was that the statute of repose was passed decades prior to any state passage of arbitration laws allowing courts to enforce arbitration agreements. The contractor argued that if statutes of repose (and limitation) do not apply when the parties agree to binding arbitration, contractors (and subcontractors) would have unlimited liability for years–even decades–after substantial completion.

A few states have surprisingly adopted the owner’s argument. However, in most of those cases, the state legislatures jumped in to clarify the law (but not in time for the particular contractor who had lost the argument).

The Tennessee arbitration panel ruled that the four-year statute of repose did not apply in arbitration, even though it was undisputed that the arbitration was commenced 10 years after the project was completed. The panel commented that this problem was up to the Tennessee Legislature to fix. The contractor was then forced to defend the owner’s alleged defect claim. While the panel ultimately found in favor of the contractor, the legal and arbitration fees were extensive and would have been avoided if the arbitration panel had applied the statute of repose.

What can be done to avoid such a result? One way is not to agree to arbitration. However, there are many other reasons to choose arbitration, and it has become the preferred method of dispute resolution in most design and construction contracts. Another suggestion is to check each state’s statute of repose to determine if the applicable state statutes use the same word “action” and then review any published case law on the issue. A proactive approach might include lobbying state legislatures to amend their statutes to ensure that “arbitration” is included in the definition of “action.” Finally, a helpful contract drafting suggestion would be to include, in any contract that calls for binding arbitration, a provision that states that in any arbitration the parties agree that the arbitrator(s) must apply any applicable statutes of repose and limitation.