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Interplay of Rules and Statutes in Complex Construction Projects: How the statute of limitations, statute of repose and discovery rule can affect each other

 

This article appeared in the January 29, 2015 New Jersey Law Journal.

 

For attorneys representing clients in complex construction cases, it is not unusual for claims to be asserted for bodily injury or property damage in connection with building construction completed years earlier. Claimants can assert that concealed construction deficiencies or latent design defects caused a condition that led to an injury to a person or to property. For example, suits brought on behalf of homeowners' associations against developers, designers and contractors can allege significant damages resulting from conditions claimed to have been concealed or dormant for many years. One of the first questions faced by an attorney handling a complex construction case involving multiple parties, multiple experts and thousands of documents, is whether or not the statute of limitations defense can be used by a particular defendant. This article will focus upon the basic statute of limitation time frame, and will also address how the statute of repose and the discovery rule can extend or limit the statute of limitations time frame.

Statute of Limitations

The New Jersey statute sets forth, in pertinent part, the following:

§ 2A:14-1. 6 years.

Every action at law for trespass to real property, for any tortious injury to real or personal property, for taking, detaining, or converting personal property, for replevin of goods or chattels, for any tortious injury to the rights of another not stated in sections 2A:14-2 and 2A:14-2 of this Title, or for recovery upon a contractual claim or liability, express or implied, not under seal, or upon an account other than one which concerns the trade or merchandise between merchant and merchant, their factors, agents and servants, shall be commenced within 6 years next after the cause of any such action shall have accrued.

In complex construction cases where there are multiple parties who perform work at different times, the claim accrues when the party being sued has completed its work. This can be many years after a contractor has completed its work. In condominium and cooperative development cases, where the condominium or cooperative board commences action, the cause of action accrues, for statute of limitation purposes, at the time of substantial completion of the project. Russo Farms v. Vineland Bd of Ed., 144 N.J. 84, 92-93 (1996); State v. Perini, 425 N.J. Super. 62, 72 (App. Div. 2012). The reason why the time frame to commence a lawsuit begins to run on substantial completion of the entire project as opposed to the individual contractor's completion of work is because the condominium and cooperative board, many times does not take control of the property until after the developer and the respective contractors have completed their work. "Substantial completion" in the construction industry is a term of art and is defined as the date when construction is sufficiently complete so the owner can occupy or utilize the building for its intended purposes. Port Imperial Condominium Ass'n v. K. Hovnanian, 419 N.J. Super. 459, 470 (App .Div. 2012); Hein v. GM Constr. Co., 330 N.J. Super. 282, 284 (App. Div. 2000).

Discovery Rule

In certain circumstances, courts have allowed "tolling" of the six-year statute of limitations in cases involving construction and design claims, when the allegation is that the damage or injury lay hidden for a period of time pursuant to the discovery rule. Grunwald v. Bronkesh, 131 N.J. 483, 494 (1993). Stated another way, "in an appropriate case a cause of action will be held not to accrue until the injured party discovers, or by an exercise of reasonable diligence and intelligence should have discovered, that he may have a basis for an actionable claim." Belmont Condominium Ass'n v. Geibel, 432 N.J. Super. 52 (App. Div. 2013) (quoting Lopez v. Sawyer, 62 N.J. 267, 272 (1973)).

The above cases hold that the discovery rule tolls the applicable statute of limitations until the deficient work is discovered or should have reasonably been discovered. For example, if a contractor completed its work in 2006, but the project owner did not discover the deficiencies of the contractor's work until 2010, the cases of Grunwald and Belmont, among others, would hold that the statute of limitations did not begin to accrue until 2010 rather than when the work was completed (i.e., 2006).

On the other hand, there are New Jersey cases that hold if the project was competed in 2006, and the project owner discovered the contractor's deficiencies in 2010, the statute of limitations accrued in 2006, and the plaintiff still has two years to commence a timely action. Torcon v. Alexian Brothers Hospital, 205 N.J. Super. 428, 432 (Ch. Div. 1985), aff'd Torcon v. Alexian Brothers Hospital, 209 N.J. Super. 239 (App. Div. 1986).

Under Torcon, once a party knows it has been injured and that the injury is the fault of another, it has the requisite knowledge for the applicable limitations period to commence running. Moreover, the Torcon court noted that it is not necessary that the injured party have knowledge of the extent of the injury for the statute to begin running. Put more plainly, a plaintiff cannot benefit from the discovery rule if the plaintiff was aware of its claims within the applicable statute of limitations and failed to take action. Caravaggio v. D'Agostini, 166 N.J. 237, 245 (2001). Indeed, 15 years before Caravaggio, the Torcon court had already clarified that, if after the plaintiff has sufficient knowledge of its claim there remains a reasonable time under the applicable limitations period to commence a cause of action, the action will be time barred if not filed within that remaining time. As the New Jersey Supreme Court held:

When a plaintiff knows or has reason to know that he has a cause of action against an identifiable defendant and voluntarily sleeps on his rights so long as to permit the customary period of limitations to expire, the pertinent considerations of individual justice as well as the broader considerations of repose, coincide to bar his action. Where, however, the plaintiff does not know or have reason to know that he has a cause of action against an identifiable defendant until after the normal period of limitations has expired, the considerations of individual justice and the considerations of repose are in conflict and other factors may be fairly brought into play.

Caravaggio, 166 N.J. at 245 (2001).

Statute of Repose

The Legislature adopted the statute of repose as a response to the then-expanding concept concerning the legal responsibilities of contractors, architects, engineers, and others involved in creating improvements to real estate. The statute of repose was intended to provide a measure of repose or prevent liability for life against contractors and architects.

The statute of repose (N.J.S.A. 2A:14-1.1) states in relevant part:

[n]o action, whether in contract, in tort, or otherwise, to recover damages for any deficiency in the design, planning, surveying, supervision or construction of an improvement to real property … shall be brought against any person performing or furnishing the design, planning, surveying, supervision of construction or construction of such improvement to real property, more than 10 years after the performance or furnishing of such services and construction ….

The Supreme Court in Town of Kearny v. Brandt, 214 N.J. 76 (2013),determined when the statute of repose begins to run for various contractors and design professionals. The Brandt court held for professionals whose responsibilities continue throughout the design and construction period, the 10-year period commences on the date of the project's substantial completion. This is distinguishable from a contractor or design professional whose project-related services do not continue through the lifespan of the project but are hired to perform limited services or discrete tasks. The court further explained:

[A]s the Appellate Division noted in Port Imperial Condominium Association, Inc. v. K. Hovnanian Port Imperial Urban Renewal Inc., [], 'unlike a claim against a general contractor whose work continued throughout the project up until the time of occupancy, a claim against a subcontractor who performed limited services with no further involvement with the construction is barred after ten years following the completion of that subcontractor's discrete task.'

Conclusion

The interplay between the statute of limitations, the discovery rule and statute of repose takes place in the following fact pattern. Contractor A completed its work on a construction project in 2003 and the six-year statute of limitations commences at that time. According to Belmont, the discovery rule tolls the statute of limitations until the deficiency is discovered, but the additional time period allotted by the discovery rule is cut off by the 10-year period of the statute of repose. Therefore, if the project owner learned of Contractor A's deficiencies between 2009-2011, the project owner would only have until 2013 and nothing more.

Conversely, Torcon applies the discovery rule if one first discovers the deficiency within the statute of limitation time frame, but without enough time to file suit, or discovers the deficiency after the statute of limitation have run but before the statute of repose cut off claims against the contractor. Thus, if the project owner learned of Contractor A's deficiencies five days before the statute of limitations ended in 2009 or learned of the deficiencies in 2010, the Torcon line of cases would allow the building owner to commence an action but again the statute of repose would cut off the building owner's claim in 2013. However, if the project owner learned of the aforementioned deficiencies in 2007, an argument can be made under the holding in Torcon that the project owner only has until 2009 because two years is enough time to commence the lawsuit within the six-year statute of limitations.

In sum, on complex construction projects, while lawyers have legal defenses such as the statute of limitations and statute of repose, New Jersey courts appear to be split on the enforcement of the discovery rule to toll the applicable statute of limitations (see Belmont as compared to Torcon).

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