Utah’s Highest Court Holds That Plaintiffs Must Properly Commence an Action to Rely on the Relation-Back Doctrine to Overcome the Statute of Repose

Shannon M. Warren | The Subrogation Stategist | August 7, 2018

Earlier this summer, in Gables & Villas at River Oaks Homeowners Ass’n v. Castlewood Builders LLC, 2018 UT 28, the Supreme Court of Utah addressed the question of whether the plaintiff’s construction defects claims against the general contractor for a construction project were timely-filed, or barred by the statute of repose. In Utah, the statute of repose requires that an action be “commenced within six years of the date of completion.” The plaintiff alleged that its 2014 amended complaint naming the general contractor as a defendant was timely-commenced because, before the date on which Utah’s statute of repose ran, a defendant filed a motion to amend its third-party complaint to name the general contractor as a defendant, and the defendant subsequently assigned its claims to the plaintiff. The plaintiff argued that the filing of its 2014 amended complaint related back[1] to the date of its original complaint. The Supreme Court disagreed, holding that an action is “commenced” by filing a complaint and that a motion for leave to amend does not count as “commencing” an action.

In Gables & Villas, the plaintiff, Gables & Villas at River Oaks Homeowners Association (the Association), a homeowner’s association, filed suit against the developers of the project. Shortly after the plaintiff filed suit, the developers filed a third-party action against multiple sub-contractors. At this juncture, the Association and sub-contractors were not aware of the general contractor’s involvement with the construction at issue.

At a later date, the parties identified Castlewood Builders LLC (Castlewood) as the general contractor involved with the original construction project. On May 2, 2012, the developers filed a motion for leave to amend their third-party complaint to bring Castlewood into the action. After the court granted the developers’ motion, the developers assigned their claims to the Association. The Association then filed an amended complaint and Castlewood accepted service. However, the court struck the amended complaint because the Association, the filing party, had not obtained leave to amend the complaint. The court found that the leave it granted to the developers did not permit the Association to file an amended complaint, even if the developers assigned their claims to the Association.

Over six months after the general contractor accepted service of the Association’s amended complaint, the Association filed a motion for leave to amend. Its motion was finally granted approximately eight months later. Within two months, on May 13, 2014, the association filed its amended complaint.

In response, Castlewood filed a motion for summary judgment, alleging that the statute of repose precluded the Association from bringing claims against it related to six buildings that were completed in 2006 and 2007. There was no dispute that the amended complaint was filed more than six years after the final building was completed. However, the Association argued that its amended complaint was timely because it related back to the date of its original complaint.

The district court denied Castlewood’s motion, finding that the general contractor and developers were so closely related that the general contractor was on notice of the claims against it when the developers filed its motion to amend the complaint within the statute of repose period. Because the general contractor had notice of the motion to amend before the statute of repose period expired, the district court found that the relation-back doctrine was satisfied.

In response to Castlewood’s interlocutory appeal, the Association argued that its action against Castlewood “commenced” when the developers filed their motion for leave to amend. To decide when an action commences within the meaning of the statute of repose, the court looked to Utah R. Civ. P. 3(a) for guidance. Rule 3(a) states that a civil action is commenced by filing a complaint or by service of the summons and a copy of the complaint. It makes no mention of motions to amend, which the court considered fatal to the Association’s position.

Ultimately, the court found that the letter of the law was clear in what is meant by commencing an action and ­­was unwilling to accept policy arguments that were inconsistent with the plain meaning of Rule 3(a). Thus, the court held that the Association “commenced” its action when it filed its amended complaint, which was after the statute of repose period had expired. In support of its holding, the Supreme Court rejected the Association’s position that an injustice would result if motions to amend did not “commence” an action subject to the statute of repose because the moving party has no control over when a motion to amend is granted, and accordingly cannot control when the amended pleading is filed. However, as the court pointed out, while a party cannot control when a motion to amend is granted, it does have the option of filing a separate lawsuit to prevent its claims from being time-barred.

The procedural errors and delays in the Gables & Villas case ultimately led to the Association’s claims against Castlewood being time-barred by the statute of repose. This case is a reminder that subrogation practitioners should be diligent in meeting statutory and procedural requirements, and that failure to do so may lead to a dismissal of the subrogating insurer’s claims. Additionally, it is good practice to conduct prompt, thorough investigations to identify all potentially liable parties, rather than waiting until litigation is underway and there is a greater risk of statutory time limitations being an issue.


[1] The relation-back doctrine allows amended pleadings to relate back to the time an original pleading is filed in certain circumstances, including when the party to be brought in by amendment received notice of the action and knew that an action would be brought against it once properly identified by the party asserting such claims. See Utah R. Civ. P. 15(c).

Supreme Court of Minnesota Holds Ventilator Motor Incorporated Into a Home’s HVAC System Qualifies as “Machinery” Excepted From the State’s Ten-Year Statute of Repose

John J. Gazzola | Pepper Hamilton LLP | July 26, 2018

Great N. Ins. Co. v. Honeywell Int’l, Inc., No. A16-0997, 2018 Minn. LEXIS 236 (May 9, 2018)

This case arises out of a residential construction project and the installation of ventilators into a home’s HVAC system. Sixteen years after completion of the work, a fire occurred in one of the ventilators, causing property damage. After paying the homeowners’ insurance claim, Great Northern Insurance (“Great Northern”), as subrogee, filed suit against McMillan Electric Company (“McMillan”), the manufacturer of the motors in the ventilators, asserting claims for product liability, breach of warranty, and negligence, including a claim for breach of a post-sale duty to warn consumers of the risk of fires in ventilator motors.

The trial court granted McMillan summary judgment concluding that Minnesota’s 10-year statute of repose barred all of Great Northern’s claims except for the post-sale duty to warn claim, which also failed because McMillan owed no such duty. The Court of Appeals reversed both holdings. On appeal, the Supreme Court affirmed the Court of Appeals’ decision that McMillan’s motor was “machinery,” to which the statute of repose does not apply.

In reaching this conclusion, the Supreme Court explained the purpose of Minnesota’s statute of repose and the types of claims to which it applies. According to the Court, the statute is intended to avoid litigation of stale claims by barring actions relating to the defective construction of improvements to real property that accrue more than 10 years after a construction project achieves substantial completion. However, as an exception to this bar, the statute provides that “[t]he limitations prescribed in this section do not apply to the manufacturer or supplier of any equipment or machinery installed upon real property.” Minn. Stat. § 541.051, subd. 1(e). Here, the parties stipulated that the ventilators incorporated into a home’s HVAC system constitute an improvement to real property. Therefore, the Court reasoned that the statue of repose barred Great Northern’s claims unless McMillan’s motor constituted “equipment or machinery installed upon real property.”

In arguing that the statute of repose applied, McMillan argued that the ventilator (and its motor) was akin to “ordinary building materials” rather than “equipment or machinery” because it was part of a home’s systems and structure. According to McMillan, the machinery exception should apply only where the machinery assists “in some operation, activity or particular use of the building[.]” The Court rejected this argument, however, concluding that the statute’s plain language requires consideration of the material’s nature and function, rather than its integration into a structure.

Ultimately, the Court held that the motor fell within the machinery exception to the statute of repose. The Court reasoned that the ventilator containing McMillan’s motor constituted “machinery” because it consisted of a motor, fans, air filters and a heat-exchange core that modified and transmitted mechanical energy to efficiently regulate a home’s climate. The motor therefore was excepted from the time bar in Minnesota’s statute of repose and Great Northern’s claims for breach of warranty, negligence, and product liability could proceed.

New Jersey’s Highest Court Scrutinizes Statutes of Limitation and the Discovery Rule in Construction Defect Cases

Robert C. Neff, Jr. | Wilson Elser | July 11, 2018

The typical construction defect case presents an up-front analytical challenge: the defense attorney is presented with boxes of project materials, perhaps an extensive case history and prior discovery, and likely an unhappy (but these days, resigned) client. So you start with the basics: a review of the complaint to assess the allegations; a review of the contract documents, particularly the scope of work, for an understanding of the client’s role in the project; and a conference with the client to review the project and the expected course of the litigation.

At the same time, you speak with the carrier involved for an understanding of the terms of the applicable policy, and whether that may affect your strategy. Is there an ability to spread the risk, perhaps through a contractual indemnification provision? Or might your client be on the hook to defend and indemnify another party?

There is so much to do that sometimes a statute of limitations or statute of repose evaluation might take a back seat, unless it’s obvious. After all, particularly if your client was brought into the suit late, aren’t these cases typically subject to the discovery rule? And aren’t there often multiple owners, such that this new owner bringing suit wouldn’t have had prior knowledge of any defects?

Well, yes and yes. But a new case in New Jersey illustrates the importance of reviewing this potential affirmative defense and the related statute of repose defense, and making the review part of every initial analysis. Most importantly, the case gives defendants the ability to defend against the assertion that the statute of limitations was tolled until the most recent owner (and plaintiff) discovered the cause of action.

Background
In Palisades at Fort Lee Condo. Ass’n v. 100 Old Palisade, LLC, 2017 N.J. Lexis 845, 169 A.3d 473 (Supreme Court of New Jersey, September 14, 2017), Palisades at Fort Lee Condominium Association, Inc. (plaintiff) sued the general contractor and three subcontractors, alleging various defects in a commercial/residential high-rise under plaintiff’s control at the time suit was filed. However, the complex had gone through two ownership changes prior to suit being filed, and the building had been completed more than six years earlier.

The relevant timeline was as follows: in December 1999, Palisades A/V Acquisitions Co., LLC (A/V) retained defendant general contractor AJD Construction Co., Inc. (AJD) to build the complex. The project architect certified that the project was “substantially complete” as of May 1, 2002. A/V then rented units in the project for two years, after which, in June 2004, it sold the complex to 100 Old Palisade, LLC (Old Palisade), which converted the units into condominiums. On October 1, 2004, an engineer retained by Old Palisade found the complex to be in good condition.

In July 2006, the unit owners took control of the Condominium Association and retained another engineer to inspect the complex. That engineer issued a June 13, 2007, report detailing construction-related defects, and the Association eventually sued various defendants in 2009 and 2010. The allegations were the typical breach of warranty and negligent workmanship allegations found in most construction defect complaints.

Rulings
In New Jersey, the statute of limitations to file such a suit is six years, as set forth in N.J.S.A. 2A:14-1. Ruling on a motion to dismiss for violation of the statute of limitations, the trial court found that the statute began to run on May 1, 2002, when the complex was “substantially complete.” Because suit had been filed after May 2008, the court granted the motion and dismissed the case.

The Appellate Division disagreed, concluding that the Association’s claims accrued when it assumed control of the complex and became “reasonably aware” of the claims of construction defect based on its June 2007 engineer’s report. The Supreme Court granted certification, but did not completely agree with either the trial or appellate courts, illustrating the difficulties inherent in the application of the statute of limitations and the discovery rule in construction defect litigation.

First, the Supreme Court disagreed that it is simply a matter of determining when a project is “substantially complete” when setting the accrual date. The discovery rule applies, it noted. So if an owner does not reasonably first discover a cause of action until after the project is substantially complete, then the full six-year statute does not begin to run until the date that the cause of action is discovered.

The Supreme Court therefore rejected the trial court’s opinion that, because damages and an at-fault party were discovered within the initial six-year period commencing with the substantial completion of the project, the plaintiff had to file the action within the initial six-year period. “We therefore reject defendants’ argument that, so long as plaintiff discovered the basis for an actionable claim within six years from the date of substantial completion, plaintiff had to file within the time remaining in the limitations period.”

Instead, the Supreme Court determined the statute of limitations does not begin to run until “the date that the plaintiff knows or reasonably should know of an actionable claim against an identifiable defendant” if that date is after the date of substantial completion. While defendants lost that argument, they won another, perhaps less obvious, argument.

The plaintiff in Palisades was the third owner of the project in question, a 41-story high-rise consisting of a 30-story residential tower atop an 11-story parking garage, including mid-rise apartments, townhomes and recreation facilities. A/V owned it in 1999, Old Palisade took ownership in 2004, and the plaintiff, the Condominium Association, owned it in July 2006 when 75 percent of the unit owners took control of the Condominium Association.

Plaintiff attempted to argue that the statute of limitations did not begin to run until the Condominium Association received its expert report in June 2007, notifying it of the defects. In fact, that is how the Appellate Division ruled. It made no difference to the Appellate Division that the prior owners had known of defects in the project. Instead, the Supreme Court held that a current owner stands in the shoes of a prior owner for statute of limitations purposes, and has no right to revive what may have been a lapsed claim simply because of a change in ownership:

“The statute of limitations clock is not reset every time property changes hands… A cause of action, for purposes of N.J.S.A. 2A:14-1, accrues when someone in the chain of ownership first knows or reasonably should know of an actionable claim against an identifiable party.”

Rejecting plaintiff’s argument and that of its amicus curiae supporters, the Supreme Court explicitly held that a condominium association is not exempt from that rule: “Old Palisade took title subject to the rights of A/V Acquisitions, and the plaintiff Condominium Association took title subject to any limitation on the rights of the two predecessor owners.”

As a final point, the Supreme Court noted that its holding does not abrogate the effect of the statute of repose, which in New Jersey is 10 years. Repose statutes are specifically enacted to save architects, planners, designers, builders and contractors from indefinite liability through operation of the discovery rule. Thus, the 10-year period begins to run on the date of substantial completion and cannot be extended.

At the end of the day, the Supreme Court found in Palisades that it could not determine the accrual date of the statute of limitations, and that a hearing would have to be held with respect to when each of the three owners knew or should have known of a cause of action as against each defendant. It remanded the case for that purpose.

Analysis
Back to the beginning: a statute of limitations analysis must be conducted at the start of each case. In Palisades, the motions to dismiss based on the statute of limitations were filed at the conclusion of all discovery. While an initial analysis might yield the conclusion that certain discovery will be needed to ascertain the appropriate accrual date (or dates, in the case of multiple defendants), counsel will then know what discovery to seek during the discovery period.

In addition, as a practical matter − and if the managing judge or counsel are in agreement − discovery limited to the statute of limitations can be conducted in the beginning of the case, early motions can be filed, and an early hearing held, potentially obviating the need for a lengthy full-discovery period.

…And potentially winning the case on an affirmative defense short of trial for one of those resigned, but now pleasantly surprised, clients.

2018 Florida Legislature Amends Construction Statute Of Limitations And Repose

Jaret Fuente | Carlton Fields | June 28, 2018

The Florida Legislature has amended the construction statute of limitations and repose a second time in two years. Effective July 1, the amendments include (1) a provision addressing completion of the contract and final performance, and (2) a provision extending the statute of repose in certain circumstances.

Pursuant to Fla. Stat. §95.11(3)(c), Florida’s four-year statute of limitations and 10-year statute of repose, the time for commencing an action founded on the design, planning, or construction of an improvement to real property runs from the latest of the date of:

  1. actual possession by the owner;
  2. issuance of a certificate of occupancy;
  3. abandonment of construction if not completed; or
  4. completion of the contract or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer.

Completion of the Contract and Final Performance

To address final performance with regard to “completion of the contract,” which last year was defined to mean “the later of the date of final performance of all the contracted services or the date that final payment for such services becomes due without regard to the date final payment was made,” the 2018 Legislature added the following provision:

With respect to actions founded on the design, planning, or construction of an improvement to real property, if such construction is performed pursuant to a duly issued building permit and if a local enforcement agency, state enforcement agency, or special inspector, as those terms are defined in s. 553.71, has issued a final certificate of occupancy or certificate of completion, then as to the construction which is within the scope of such building permit and certificate, the correction of defects to completed work or repair of completed work, whether performed under warranty or otherwise, does not extend the period of time within which an action must be commenced.

This provision clarifies that repair or correction of completed work, including warranty work, performed after issuance of a certificate of occupancy or certificate of completion, does not delay the start of the running of the statute of limitations or repose.

Extension of the Statute of Repose

The 2018 Legislature also added the following provision to the statute of repose:

However, counterclaims, crossclaims, and third-party claims that arise out of the conduct, transaction, or occurrence set out or attempted to be set out in a pleading may be commenced up to 1 year after the pleading to which such claims relate is served, even if such claims would otherwise be time barred.

This provision extends the time for defendants in construction defect actions, upon being served, to commence a counterclaim, crossclaim, or third-party claim against other responsible persons or entities. It essentially provides a cushion where, for example, an owner sues a general contractor on the eve of the expiration of the SOR, thereby leaving the general contractor limited or no time to investigate and commence an action against responsible subcontractors.

Time’s Up! Or Is It?

Dara Jebrock and Lindy Keown | CLM | Spring 2018

Proposed legislation in Florida would lengthen the statute of repose for counter, cross and third-party claims in construction defect.

The time for bringing certain actions for latent construction defects in Florida may be relaxed, depending on the outcome of proposed legislation. Senate Bill 536 and House Bill 875 – both up for vote during the 2018 legislative session – propose new language to Florida’s 10-year statute of of repose to allow counterclaims, cross-claims, and third-party claims up to one year after the statute of repose has otherwise expired.

To understand the effect of this proposed legislation, a quick primer on the statute of repose is necessary.  Unlike the statute of limitations, which establishes a time limit within which an action must be brought after a cause of action accrues, the statute of repose “cuts off the right of action after a specified time measured from the delivery of a product or the completion of work…regardless of the time of the accrual of the cause of action or of notice of the invasion of a legal right,” according to Sabal Chase Homeowners Ass’n, Inc. v. Walt Disney World Co. quoting Bauld v J.A. Jones Const. Co.

Now imagine a general contractor – let’s call it Better Builders – has been served with a construction defect suit on the afternoon of the day the 10-year statute of repose expires. Of course, Better Builders wants to sue the involved subcontractors whose scopes of work are implicated by the alleged defects. However, Better Builders’ project files on this 10-year-old project are at an offsite storage unit – inaccessible for review. Sadly for Better Builders, its potential third-party action will likely be time-barred because the statute of repose expired the day it was served – that is, unless a lucky lawyer has immediate access to the project files and works against time to detect issues and file suit against the responsible subcontractors on the same day Better Builders was served. Without a remedy, Better Builders may be liable for the entirety of any construction defect damages.

While the statute of repose is purposefully unforgiving – recognizing that an aging building should not be the subject of construction defect litigation in perpetuity – the new, proposed legislative language is a game changer for a time-pressed construction defect defendant. Practically, the pending legislation will allow a defendant, sued right before the statute of repose expires, to investigate and bring counterclaims, cross-claims and third-party actions against potentially liable entities for an additional year after the expiration of the statute of repose. Without this revision, time-barred defendants are left without recourse against parties that should be on the hook.

Current State of the Law

For construction defect claims, section 95.11(3)(c) of the Florida Statutes sets forth time periods within which a party must bring suit for a deficiency in construction. If the party does not file a suit within the given time frames, any claims regarding the defect(s) will be barred. One legislative purpose for enacting this statute was to “limit the amount of time an architect, engineer or contractor could be exposed to potential liability for the design or construction of an improvement to real property,” as found in Long v. First Fed. Sav. & Loan Ass’n.

Under the statute’s guidelines, the statute of repose applicable to “[a]n action founded on the design, planning, or construction of an improvement to real property” must be commenced within 10 years after the latest of the following four events:

1) Date of actual possession by the owner

2) Date of the issuance of a certificate of occupancy

3) Date of abandonment of construction if not completed

4) Date of completion or termination of the contract between the professional engineer, registered architect, or licensed contractor and his employer.

At least on Florida court has held the repose periods in Fla. Stat. § 95.11(3)(c) apply to “all claims,” including claims for indemnity and contribution. See Fla. Dep’t of Transp. v. Echeverri, 736 So. 2d 791, 792 (Fla. 3d DCA 1999), finding that the plain language of the statute indicates it applies to indemnity and contribution actions.

Proposed Legislation

The proposed legislation is simple but powerful. The legislation recommends the following language be added to Section 95.11(3)(c) of the Florida Statutes:

[C]ounterclaims, cross-claims, and third-party claims that arise out of the conduct, transaction or occurrence set out or attempted to be set out in a pleading may be commenced up to 1 year after the pleading to which such claims relate is served, even if such claims would otherwise be time barred.

If passed, this legislation will undoubtedly benefit construction defect defendants, such as general contractors. For instance, our hypothetical Better Builders, which was served with a lawsuit in the 11th hour on the very day the statute of repose expired, would have a meaningful opportunity to investigate and pursue claims against the subcontractors whose scopes of work are implicated by the defect claims and may therefore be liable. Likewise, if Better Builders has a counterclaim or cross-claim, it can pursue those claims in the year that follows service of process.

Florida’s legislative session began Jan. 9, 2018. As of press time, the bills were both being evaluated by legislative subcommittees. If passed, the new legislation will go into effect July 1, 2019.