In a case which provides substantial guidance with respect to the interpretation of the 1997 AIA Standard Form of Agreement relating to statutes of limitations, the California Court of Appeal, First District ruled in Brisbane Lodging, LP v. Webcor Builders, Inc. (2013) 216 Cal.App.4th 1249 ("Brisbane Case") that a hotel construction project owner which brought a construction defect action against the builder for breach of contract, negligence and breach of implied and express warranties was not entitled to the delayed discovery rule insofar as the interpretation of the statute of limitations.
The facts of the Brisbane Case are certainly common enough. In that case, Brisbane Lodging, LP ("Brisbane Lodging") entered into a contract with Webcor Builders, Inc. ("Webcor") for the design and construction of a 210 room 8 story hotel to be known as the Sierra Pointe Radison Hotel ("Hotel"). Before construction, the agreement between the entities was substantially negotiated. The final contract contained the 1997 American Institute of Architects ("AIA") Standard Form of Agreement between Owner and Contractor (Cost Plus Fee), the AIA Document A201 General Conditions and several attachments. Key in that regard is that Section 13.7.1 of the General Conditions provided as is typical for that form:
"13.7.1 As between the Owner and Contractor: . . . 1. Before Substantial Completion. As to the acts or failures to act occurring prior to the relevant date of Substantial Completion, any applicable statute of limitations shall commence to run and any alleged cause of action shall be deemed to have accrued in any all events no later than such date of Substantial Completion…"
The Hotel project was substantially completed on July 31, 2000.
In early 2005 Brisbane Lodging learned that there was a kitchen sewer line break which caused waste to flow under the Hotel. Brisbane Lodging notified Webcor of the problem and undertook temporary repairs to address the issue. By late March 2005 Webcor visited the site. Webcor determined that the plumbing problem was a latent
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defect and that Therma Corporation, the plumbing contractor, was responsible for the problem. Therma Corporation made repairs to the kitchen sewer line in July 2005.
About two years later, additional problems with the plumbing system arose. In October 2007, Brisbane Lodging again informed Webcor and Therma Corporation of the situation. Both Webcor and Therma Corporation returned to the Hotel to inspect the problem but did not perform any repairs. Ultimately, Brisbane Lodging discovered, among other things, that Therma Corporation had used ABS pipe material rather than cast iron pipe for the sewer line, in violation of the Uniform Plumbing Code.
In May 2008, Brisbane Lodging filed a Complaint against Webcor for breach of contract, negligence and breach of implied and express warranties. Thereafter, Webcor moved for Summary Judgment contending that the action was barred by Article 13.7.1 because more than four years had passed since the date of Substantial Completion of the Hotel. The Trial Court ruled that, as a matter of law, Article 13.7.1 "clearly and unambiguously" abrogated the delayed discovery rule and granted Summary Judgment.
On appeal, and in the published portion of the opinion (Sections 5, 6 and 7 of part III were ordered not to be published), the Court of Appeal ruled that, given that the parties were sophisticated, Brisbane Lodging could not avoid enforcement of Article 13.7.1 on public policy grounds. The Court of Appeal noted that statutes [of limitations] are regarded as statutes of repose, carrying with them, not a right protected under the rule of public policy, but a mere personal right for the benefit of the individual, which may be waived. In fact, the Court of Appeal quoted from an early 1900 decision from the California Supreme Court which commented that "[t]o the extent there is any recognizable public policy underlying statutes of limitations, it is to limit the time within which claims may be brought, not to lengthen the time period." The Court of Appeal also acknowledged the published decision in Moreno v. Sanchez (2003) 106 Cal.App.4th 1415 ("Moreno Case") where, in the context of a residential homeowner inspection contract, the Court ruled that a one year statute of limitations period was unreasonable as a matter of law. In that regard, the Court of Appeal distinguished the Moreno Case holding on the basis that the Hotel involved a commercial development with sophisticated parties.
The Brisbane Case is certainly an important decision for construction defect cases involving a commercial project where sophisticated parties to the project have elected to use the AIA Standard Form of Agreement.
About the Authors: Edward F. Morrison, Jr. is the founding partner and Larry A. Schwartz is Of Counsel to The Morrison Law Group, a professional corporation. Their biographies can be viewed at www.morrisonlawgroup.com.
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