Tolling the Statutes of Limitation & Repose? (Law note)

Posted on August 19, 2010 by Melissa Dewey Brumback

A blog reader recently raised the question of to how to handle construction defect claims while repair attempts are being made on a defective building. In part, the answer to this question will depend on how close you are to the statute of limitations or the statue of repose from running. The closer you are, the more you need to be concerned about this issue. Just because all parties are working together to solve construction issues does not mean that the statutes are not running. They can. [There are, as usual, exceptions for equitable reasons.] And once statues run, there’s no getting them back.

One prudent approach to dealing with the statutes is to have all parties involved enter into a “Tolling Agreement.” What a properly drafted tolling agreement can do is to stop the running of the statue of limitations and/or repose while the parties attempt to fix the defects or otherwise settle their issues with one another. Note that the tolling agreement does not give a party any greater rights than they would have at the time it is signed– that is, if the statute has *already* run, then it would be of no use. But the tolling agreement can act as a “time out” on the running of the clock.

A good example of a tolling agreements is found in the Court of Appeals opinion in Charlotte Motor Speedway, Inc. v. Tindall Corporation, 195 N.C. App. 296, 672 S.E.2d 691 (2009). The Speedway case involved the infamous collapse of a pedestrian walkway during the NASCAR Winston Cup. The walkway which collapsed had been substantially completed by October 1995, and the collapse occurred in May 2000. Speedway (the project owner) and Tindall (which constructed the walkway) entered into a tolling agreement:

“to toll and suspend any applicable statute of limitations, repose or time, whether created by statute, contract, laches or otherwise, within which any cause, claim action, cause of action, or suit must be made, or commenced by the parties against any one of them concerning the [pedestrian] claims, including any and all claims for indemnification and contribution.” Id. at 298, 672 S.E.2d at 693.

Tindall attempted to argue that the statute of limitations barred Speedway’s claim for indemnification of monies paid prior to three years before it filed its complaint, but the Court found that the Tolling Agreement, which remained effective “through and including January 1, 2006” tolled the action, and Speedway brought suit on July 17, 2007, less than two years after the Tolling Agreement expired. Likewise, the Court held that the statute of repose did not bar the action, because the Tolling Agreement was entered into less than six years after substantial completion, and the lawsuit was brought during the pendency of a second funding [tolling] agreement between the parties.

If you are considering a tolling agreement (or think you don’t need one because you “have time”), it is always smart to get a professional opinion on the matter.

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Comments? Let me know. I welcome the opportunity to discuss how the statute of limitations and repose may be tolled in your specific situation.

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Photo “Trucks” by JMLeedy (Justin Leedy) via Flickr via Creative Commons License.

Follow your Change Order Requirements

Posted on August 12, 2010 by Melissa Dewey Brumback

It is extremely important that you follow your written contract requirements. No where is this more evident than in the change order process.

Most contracts have an explicit provision for the payment for additional work– and they generally require a written, signed change order (or change directive) before the work is performed. Can you get by with verbal agreements for additional work? Sometimes yes, sometimes no. Will it be much harder to get paid for additional services without a signed change order? You bet. So why put yourself through that trouble?

Often times parties begin to “waive” formal requirements for written change orders, and construction projects are often on tight deadlines where stopping work to get a fully executed change order would bog down the schedule. However, you run the risk of throwing yourself on the mercy of the Court when you don’t play by the contract rules.

A new case out of the Eastern District of Virginia demonstrates this fact very clearly. In Artistic Stone v. Safeco, 2010 WL 2977894 (E.D.Va July 27, 2010), the Court held that the requirement that change orders be in writing was to be strictly construed and the subcontractor in that case could not recover for verbal change orders that violated the written change order requirement. The Court held that where there is a method to ensure recovery of additional extra work in the written contract, the subcontractor could not recover additional money when it failed to follow that method.

“Written change order requirements maintain order and predictability in the construction business, and are meant ‘to avoid subsequent disagreement, and prevent just such a controversy as has arisen in this case. For this reason, ‘where there is a method under the contract by which a party can insure the recovery of the cost of extra work, that party is not entitled to recovery where it fails to follow that method.'” Artistic Stone Crafters at 5. [Internal citations omitted.]

A North Carolina court would likely concur.

To ensure you can fully recover for extra work, make sure it is authorized. Follow the contract. If circumstances make it so you cannot always follow the contract terms, document the situation as best as you can. A follow-up email, confirming a verbal change order, would at least provide written evidence you can present in Court, should it come to that. Otherwise, arguments can and will be made that the person who gave the change order wasn’t authorized to do so, and you may be stuck with no recovery for the extra work.

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Photo “white check mark on blue- acrylic on canvas” by kylemac via Flickr via Creative Commons license.

Exception to the Statute of Repose?

Posted on August 4, 2010 by Melissa Dewey Brumback

Hold the phone– didn’t I just say last week that the statute of repose was basically an absolute bar to any action after 6 years? Why, yes, yes I did.

BUT it too has exceptions! (If you’ve learned anything from my rantings, I hope it is that there is always an exception to the rule). In a recent Court of Appeals case, the application of the statute of repose was called into question.

In Dawson v. N.C. Dept of Environment and Natural Resources (June 15, 2010), a couple bought land only after inquiring of the Person County health department to determine that the lots perked. Based on a 1989 letter issued by the health department stating that the lots perked, the couple bought the land. In 2000 (that is, 11 years later!), the couple applied for building permits only to learn from DENR that the land was not suitable for building.

The couple sued DENR under a negligence theory, and DENR argued the time bar of the 6 year statute of repose. In its decision, the court held that because the 1989 letter was not based on an improvement to real property, the statute of repose was not applicable. The Court indicated that, had the county inspector been inspecting an existing septic system, their decision may have been different.

Moral of the story? Just because you think you have a good defense, don’t forget that there is always an exception to the rule or, rather, there are many times when the shoe looks like it fits, but it really doesn’t. Be careful– blisters are painful!

Photo “Dakota Composite Dual Toe” by Bottinex via Flickr via Creative Commons Attribution-Noncommercial-Sharealike license

Statute of Repose: Putting your Risk to Bed

Posted on July 29, 2010 by Melissa Dewey Brumback

Last week, I discussed the statute of limitations and how it is generally applied to North Carolina construction projects. Today, I want to introduce you to another important concept: the statute of repose.

What is the Statute of Repose?

The Statute of Repose is another time-barring statute within which your claim must fit. Like the statute of limitations, it depends on what state’s law will apply to your case, which is usually, but not always, the state where the project is located.

The Statute of Repose, under N.C. Gen. Stat. §1-50(a)(5)(a) provides:

“No action to recover damages based upon or arising out of the defective or unsafe conditions of an improvement to real property shall be brought more than six years from the later of the specific last act or omission of the defendant giving rise to the cause of action or substantial completion of the improvement.”

When does it run for North Carolina construction projects?

The Statute of Repose in North Carolina for improvements to real property is currently six (6) years from substantial completion or the last specific act or omission of the defendant, whichever is later. N.C. Gen. Stat. §1-50(a)(5)(a); Nolan v. Paramount Homes, Inc., 135 N.C. App 73, 518 S.E.2d 789 (1999). Once you have been off of a job for 6 years, you cannot (successfully) be sued for any construction defect, regardless of when the defect was or is discovered. It is an extreme, bright line bar to any claim after that time; that is, it puts your risk to bed.

How is it different from the Statute of Limitations?

Unlike the Statute of Limitations, the Statute of Repose starts running whether or not you are aware of any defect. Bryant v. Don Galloway Homes, Inc.,, 147 N.C. App. 655, 556 S.E.2d 597 (2001). This is a double-edged sword—if you are the one whose work is being questioned, you can rest easy that after you have been off of a project for 6 years, no claim can thereafter be (successfully) brought against you.

On the other hand, you are also bound by the repose statute, regardless of any equitable considerations. For example, in Monson v. Paramount Homes, Inc., homeowners sued a general contractor for defective construction, and the contractor brought a third-party action against his subcontractor. The claims against the subcontractor were deemed time-barred under the statute of repose. 133 N.C. App. 235,515 S.E.2d 445 (1999). In Monson, the contractor had to defend the action but had no ability to recover from the subcontractor who actually performed the poor construction.

Does punch list or warranty work extend the Statute of Repose?

In most cases, no. Once the statute of repose starts to run, it generally cannot be tolled by any subsequent action. For example, in one case, even when the contractor had performed some punch list work after substantial completion, and even though the architect failed to issue a certificate of substantial completion, the court held that the statute began to run at the date of substantial completion of the contractor’s work. Mitchell v. Mitchell’s Formal Wear, Inc, 168 N.C. App, 212, 606 S.E.2d 704 (2005).

This is also true if you return to the job for minor warranty type issues during the 6 year period. The statute of limitations is tolled during the repair time, but in general, the statute of repose is not tolled once it begins running. The policy behind this interpretation is that the Statute of Repose is a substantive right designed to limit the potential liability for a set period of time.

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Photo “Cama nova do furas / Ferret’s new hammock” by Isa Costa via Flickr via Attribution-NoDerivs 2.0 Generic Creative Commons license.

The Sticky Statute of Limitations in NC

Posted on July 22, 2010 by Melissa Dewey Brumback

If you are not a lawyer, but you play one on TV, you may have a passing understanding of the legal concept of a statute of limitations. This is post is to provide you just a little more information about the concept, and how it applies to your North Carolina construction project.

What is a statute of limitations, and why is it important?

The Statute of Limitations is a time-barring statute which gives you a set time within which to bring an action (i.e., lawsuit) against another party. If you do not bring your lawsuit within that period of time, the court will kick it to the curb. The reasoning behind the statute of limitation (often, ironically, abbreviated as “SOL” in legal circles) is that people need to have some certainty in how long they can be sued for an event that happened in the past. Witnesses die or forget, papers are destroyed, and in general it is extremely difficult to try a case years after the fact. The law has, therefore, established a somewhat arbitrary deadline for when you can sue or be sued, and it is vital that you do not go past that deadline if you hope to bring a lawsuit.

What is the statute of limitations on a construction project?

The answer, as always, is: it depends. The statue of limitations is governed by whatever state’s law will apply to your case—usually, but not always, the state the project was built in. The statute of limitations is also determined by what type of lawsuit you are trying to bring (or defend against).

In North Carolina, the statute of limitations for most construction disputes (breach of contract, professional negligence, implied warranty of plans) is generally 3 years from the date time when you knew or should have known about the issue. N.C. Gen. Stat §1-52.1 ABL Plumbing and Heating Corp. v. Bladen Co Board of Education, N.C. App. 623 S.E.2d 57 (2005). See also AIA A201 para. 13.7. As always, there are exceptions. If a contract is “under seal”, a claim can be brought for up to 10 years. (N.C. Gen. Stat. §1-47).

If the contract involves merchandise and falls under the Uniform Commercial Code, the statute of limitations is 4 years. N.C. Gen. Stat §25-2-725. However, where a defect in merchandise results in bodily injury or damage to real property, the shorter 3 year statute still applies. Hanover Ins Co. v. Amana Refrigeration, Inc., 106 N.C. App. 79, 415 S.E.2d 99 (1992). In Hanover, a defective HVAC unit caused a fire, which destroyed a building. The court held that the shorter 3 year statute of limitations applied because the defective merchandise caused damage to the real property.

Therefore, it is best practice to assume that the Courts will find that the statute starts running at the first inkling of a problem, and bring your action accordingly. Also, regardless of the length of any warranty period, contractors can still be liable until the statute of limitations period expires.

What happens to claims after the owner accepts the project?

Once a project has been accepted by an owner, the owner waives his right to claim damages for all but latent defects. Acceptance by the owner with knowledge of a defective performance may be deemed a waiver of the defective performance.

Where, however, the defect is unknown (or “latent”), the owner’s acceptance does not waive the defective performance. Tisdale v. Elliott, 13 N.C. App. 598, 186 S.E.2d 685 (1972). If a defect is a “latent” defect, hidden or not readily discoverable, the statute of limitations starts running from the date of discovery. Under AIA A201 para 13.7, any statute of limitations is deemed to have accrued in any and all events not later than the date of Substantial Completion. This section may shorten the statute of limitations in some cases of latent defects.

Can the Statute of Limitations be lengthened or shortened?

Yes. But, as they say on television, “don’t try this at home.” Carefully drafted agreements for a shorter or longer period of time can be executed. Consult your attorney before you do so, however. You may also want to check with your insurance carrier to make sure you have sufficient insurance coverage for a longer warranty period.

What if the parties are working together to fix construction problems?

If the parties are working to fix problems, but the statute of limitations is fast approaching– run, don’t walk, to your attorney to discuss a tolling agreement to stop the running of the statute, or otherwise enter into legally enforceable agreements concerning the statute of limitations. Just because the parties are all working together to solve a construction issue now doesn’t mean that the finger-pointing won’t begin once the bill is presented.

Have a question about the statute of limitations?

Comment below, drop me an email, or find me on twitter @melissabrumback .