When the “Discovery Rule” is Irrelevant

Can the statute of limitations for a claim expire even before a project owner knows that it has a claim?  This is a very real possibility if one is not careful in drafting contracts.  Courts generally recognize that sophisticated business entities should be permitted to forfeit rights in contracts, so long as the terms do not violate public policy.  Parties to a contract can limit the time period for bringing a claim or define when the limitations period begins.

Parties to a contract need to mindful that including these types of limiting provisions also affects third party claims for indemnity and breach of contract.  In 15th Place Condominium Assoc. v. South Campus Development Team, LLC (2014 Ill. App. LEXIS 457 (1st Dist. June 26, 2014)), the plaintiff condominium association filed a lawsuit against the project developer for design and construction defects.   Id. at ¶8.  The developer in turn filed a third-party complaint against its general contractor and architect.  Id. at ¶11.  However, the developer’s contracts with the general contractor and architect provided that the statute of limitation for claims against the general contractor and architect would begin to run on the date of Substantial Completion.  Id. at ¶27.

Various parts of project at issue were substantially completed on May 16, 2003 and October 11, 2004.  The Plaintiff condominium association filed its lawsuit on September 4, 2008.  The developer entered into tolling agreements with the general contractor and architect on March 9, 2009.  The developer filed its third party complaints on June 21, 2011.  The general contractor and architect filed Motions to Dismiss arguing that the third-party claims were time-barred based on the contractual provision.  In Illinois, claims for contribution or indemnity must be brought within two years (735 ILCS 5/13-204) and claims arising from a construction project must be brought within four year (735 ILCS 5/13-214).  The developer argued that the contractual limit could not apply to third party actions because it did not have a claim against either the general contractor or architect until it was sued by the condominium association.  15th Place Condominium Assoc., 2014 Ill. App. LEXIS 457 at ¶26.

The trial court ruled, and the Illinois Appellate Court affirmed, that the developer’s breach of contract and statutory indemnity claims were time-barred, because the developer’s claims had expired by the time it entered into the tolling agreements.    Id. at ¶42.  The Illinois Appellate Court held that the parties “were sophisticated parties enter[ed] into contracts involving more than $34 million in construction work, clearly intended to create an accrual date for all statutes of limitations in an effort to limit liability and eliminate the effect of the discovery rule.”  Id. at ¶30.  Sophisticated parties may include these limiting provisions, but they must understand that they may forfeit certain rights.  Likewise, through careful drafting, the developer could have excluded third party claims from the limiting provision.

Adam Gill (312-499-6728; ALGill@duanemorris.com) and Jeffrey L. Hamera (312-499-6782; JLHamera@duanemorris.com)


Further Confirmation Of The P3 “Tipping Point”

A Pennsylvania program announced yesterday provides support for the “tipping point” comment by Tony Sanacory and Will Fagan only two weeks ago, in a Duane Morris blog entry.  PennDOT plans to award a contract to a P3 entity to repair or replace 558 bridges, and operate those bridges over the next 25 years, per an ENR article.  The combination of increasing demand to upgrade infrastructure, coupled with inadequate public funds, is leading states to adopt the P3 funding alternative.

This will mean more roads and bridges with tolls, as P3 operators seek revenue sources to recoup the capital outlays.  And those competing for P3 projects should heed the warnings that come from a few of the Australian toll road projects, where inflated traffic projections on some of the projects led to overbidding and ultimately operating company failures, and from the Indiana toll road operator bankruptcy just announced, where debt service combined with long term locked-in toll rates may have been a lethal combination.  More opportunities, and more risks. 


U.S. Department of Labor Proposes Pay Transparency Rule for Employees of Federal Contractors

On September 17, 2014, the U.S. Department of Labor Office of Federal Contract Compliance Programs (OFCCP) published a Notice of Proposed Rulemaking in the Federal Register to implement Executive Order 13665, which was signed by President Obama on April 8, 2014. [Read More]

Has P3 Reached a Tipping Point in the United States?

A solution to an infrastructure problem is taking hold in this country, as a result of its adoption by influencers, and the timing and context are perfect for that idea to become really big.  The Moody’s press release is available here and refers to Moody’s recently released “Global P3 Landscape” report.

[Read More]

Construction Contract Forms – A New Battleground?

The American Institute of Architects issued a press release this week touting a custom set of contract documents it has worked out with the Kentucky Department of Education.  Ten AIA contract forms have been customized for the state department.  This could become a new battleground in the document wars between the AIA and ConsensusDocs, another major construction industry document group representing a coalition of more than 40 industry associations.

[Read More]

Reminder: False Claims Act Lessons Are Expensive

A contractor filing false prevailing wage certifications was reminded just how costly it can be to run afoul of a False Claims Act charge.  After a trial on damages, the federal court judge found that the contractor was paid $254,298.18 for the electrical portion of the project (the part involving the false wage certifications).  The government’s damages under the False Claims Act (FCA) are treble that amount, or $762,894.54.  There is no credit for value of work put in place, and no consideration of value to the government.  The damages are three times the amount paid by the government for the pertinent portion of the work, regardless of whether that amount was purely cost to the contractor, or included any profit.

[Read More]

Liens with Intentionally Incorrect Information May Still Be Enforceable

Generally, lien waivers that contain fraudulent information are not enforceable. However, not all intentionally misleading statements are fraudulent. The crux of the issue is whether a lien waiver simply states that the subcontractor has been paid a specific amount or whether the subcontractor claims that the work completed is worth the amount stated in the waiver. 

[Read More]

Massachusetts Passes Law Governing Retainage On Private Contracts

Massachusetts has just passed a law that governs the retainage process on private construction contracts.  It applies to projects of $3 million or more, entered into after November 8, 2014.  This law will fundamentally alter – and accelerate – project closeout on Massachusetts commercial projects. [Read More]

Three Strikes on Defective Work Insurance Claim

A federal appeals court recently retired, in short order, a contractor’s insurance claim arising from defective work.  The claim arose when scratches were noted on a glass storefront, shortly after installation by one sub but also after preliminary cleaning by another sub, and two days before the store was open to the public.  No cause for the scratches was identified, at least in the decision. 

Strike One.  The damage arose from work performed by one of the subs, thus coming within an exclusion on the contractor’s GL policy.  There was no evidence of any accident.

[Read More]

Pennsylvania Mechanics' Lien Law Amended, Clarifying Open-End Construction Loan Mortgage Priority

On July 9, 2014, Pennsylvania Governor Tom Corbett signed into law Act 117 of 2014, which amends the Pennsylvania Mechanics' Lien Law (MLL), 49 P.S. 1101, et seq., to provide that a construction loan secured by an open-end mortgage where at least 60 percent of the proceeds are "intended to pay or used to pay" all or part of the "costs of construction" will have lien priority ahead of any filed mechanics' lien claims, even when the visible commencement of work was prior to the recordation of the open-end mortgage.

[Read More]

California Supreme Court Addresses Architect's Duty of Care

The California Supreme Court issued a unanimous decision in Beacon Residential Community Association v. Skidmore, Owings & Merrill, S208173, on July 3, upholding a homeowners association's right to pursue a common law negligence claim against the project architects of a 595-unit condominium project in San Francisco. 

[Read More]

Supreme Court’s Mixed Outcome on EPA Regs Means Coal-Plant Emissions Here to Stay . . .

Energy contractors know well that predicting energy demand, and how the demand would be met, has been more art than science the last several years.  The downward economic cycle, recent strides in energy efficiency, volatility in fuel costs and emissions concerns have not only made electricity demand difficult to gauge, they have made it difficult to predict what types of new energy construction the power producers should be building for their customer bases. The recent boom in natural gas has moved gas-fired plants to the head of the class for the time-being, leaving many to ponder the fate of the United States’ aging fleet of coal plants.

[Read More]

Q: When Is a Monthly Release Not a Release?

A: When the issue is decided in arbitration.  An arbitrator’s decision that a periodic subcontractor release had not waived claims made in arbitration was upheld by the Rhode Island Supreme Court, although one could read between the lines to conclude that the court would have ruled otherwise on the merits.  This case highlights – with an issue that is controversial of its own accord – the distinction between arbitration and litigation.

[Read More]

High-Stakes Nuke Case Remains Where the Contract Says

Duke Energy and Westinghouse Electric are battling over money due, or not due, for the cancelled Levy County nuclear power plant in Florida.  After Duke terminated the contract earlier this year, the two parties engaged in negotiation per their contract.  When those efforts failed, both sides filed suit, one day apart, in two different states.  Duke filed in North Carolina, per the contract, and Westinghouse filed the next day in Pennsylvania, where it had performed most of its work.  The NC federal court judge has just refused to transfer that case to PA, and has directed Westinghouse to file an answer in the NC case. 

[Read More]

Legislation Proposed to Allow ERISA Trusts to Pursue Mechanics’ Liens

On April 17, 2014, the Supreme Court of Pennsylvania issued a decision in Bricklayers of Western Pennsylvania Combined Funds, Inc. v. Scott's Development Company, et al., that held that union workers (employees of the primary contractor) were not "subcontractors" as that term is defined in the Pennsylvania's Mechanics' Lien Law of 1963, and that trustees of the union's employee benefits trust funds were not entitled to file mechanic's lien claims on the employees' behalf for unpaid contributions to the trust funds.

[Read More]

Duane Morris Construction Law

Duane Morris’ acclaimed Construction Group shares insights on legal developments impacting the business of construction.

« September 2014
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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.