Statutes of Repose (Part Two)
September 5, 2023
In the last Surety Today Blog post, we discussed Statutes of Repose. We explored what they are, their history, the differences between statutes of limitation and Statutes of Repose and Constitutionality. In this blog post we will discuss various issues and questions relating to the application of a Statute of Repose.
NO TOLLING OF STATUTE OF REPOSE
The first issue we will discuss is whether a Statute of Repose can be tolled? The Fourth Circuit in First United Methodist Church of Hyattsville v. U.S. Gypsum Co., 882 F.2d 862, 865 (4th Cir.1989), cert. denied, 493 U.S. 1070 (1990), noted that because the Statute of Repose is used to determine whether a claim can accrue and not whether an accrued claim may be pursued, the same reasoning for the tolling of statutes of limitations does not exist and the statute of repose cannot be tolled for any reason. Thus, unlike a statute of limitation, which may be tolled in order to prevent injustice, “a Statute of Repose is typically … not tolled for any reason because to do so would upset the economic balance struck by the legislative body.” Joyce v. Garnaas, 983 P.2d 369 (Mont. 1999); Snyder v. Love, 153 P.3d 571, 573 (Mont. 2006); Florence County Sch. Dist. # 2 v. Interkal, Inc. 348 S.C. 446, 559 S.E.2d 866 (2002); Ray & Sons Masonry Contractors, Inc. v. U.S. Fid. & Guar. Co., 353 Ark. 201, 219, 114 S.W.3d 189, 200 (2003). Were the Court to toll the Statute of Repose it would essentially annul the carefully balanced legislation, leaving open the possibility that a claim would accrue into perpetuity. Streeter v. SSOE Sys., 732 F. Supp. 2d 569, 576–77 (D. Md. 2010).
Indeed, the Maryland federal court has stated that Statutes of Repose, unlike statutes of limitations, are not even “tolled by a defendant’s fraudulent concealment of the cause of a plaintiff’s injury.” Council of Unit Owners of Milestone Townhouse Condominiums v. Beazer Homes, LLC, No. GJH-18-1572, 2019 WL 1282067, at *3 (D. Md. Mar. 20, 2019).
ACCRUAL
The second issue to discuss is the concept of accrual under a Statute of Repose, i.e.: when does the Statute of Repose begin to run? Accrual under a Statute of Repose is not the same as accrual under a statute of limitation. In a repose statute, accrual refers to the beginning of the period of repose, not a cause of action. The Statute of Repose has no regard for whether a cause of action exists or not. Rice v. Dow Chem. Co., 124 Wash.2d 205, 875 P.2d 1213 (1994). As discussed in the prior post, a Statute of Repose is a statute that bars a suit after a fixed number of years, even if this period ends before the plaintiff has suffered any injury or any cause of action has accrued. Many Statutes of Repose start the repose period when the improvement to the property is ready for its intended use or substantial completion.
For example, the Maryland Statute of Repose provides:
Except as provided by this section, a cause of action for damages does not accrue and a person may not seek contribution or indemnity from any architect, professional engineer, or contractor for damages incurred when wrongful death, personal injury, or injury to real or personal property, resulting from the defective and unsafe condition of an improvement to real property, occurs more than 10 years after the date the entire improvement first became available for its intended use.
Md. Code Anno., Courts & Judicial Proceedings Article, §5-108(b).
The “first became available for intended use” language echoes the typical definition of substantial completion. Indeed, the Maryland courts have interpreted the phrase as meaning “the entire improvement must only be substantially completed or completed to such a degree that it is capable of being used in its intended manner.” Rose v. Fox Pool Corp., 335 Md. 351, 643 A.2d 906, 919 (1994). Construction or installation of the entire improvement need not be totally completed for the entire improvement to be considered “first … available for its intended use.” The Alabama Statute of Repose states:
. . . [n]o relief can be granted on any cause of action which accrues or would have accrued more than thirteen years after the substantial completion of construction of the improvement on or to the real property, and any right of action which accrues or would have accrued more than thirteen years thereafter is barred . . .
§ 6–5–221, Ala.Code 1975.
The Alabama code expressly used “substantial completion” as the trigger. Substantial Completion is generally defined as the stage in the progress of the work when the work or designated portion thereof is sufficiently complete in accordance with the contract documents so that the owner can occupy or utilize the work for its intended use. Ordinarily, the date of substantial completion is a question of fact as to whether the work truly can be put to its intended use. See 5 Bruner & O’Connor Construction Law § 15:15. The Maryland courts have looked to such things as when use and occupancy permits were issued, when actual use began, and when substantial completion certificates have been issued by the project architect, etc.
However, some courts will defer to the terms of the parties’ contract to determine the definition of substantial completion. For example, in one case the court looked to the contract that provided “[t]he Architect shall conduct inspections to determine the Dates of Substantial Completion and final completion … and shall issue a final Certificate for Payment, . . .” See, e.g., Hilliard & Bartko Joint Venture v. Fedco Sys., Inc., 309 Md. 147, 156–57, 522 A.2d 961 (1987). This language linked the date of completion to the issuance of the architect’s certificate. KBE Bldg. Corp. v. Constr. Servs. of NC, Inc., No. 0763 Sept. Term 2013, 2015 WL 5813848, at *18 (Md. App. Oct. 5, 2015). Other courts have held that substantial completion is the date of the issuance of the Certificate of Substantial Completion, and no further factual inquiry is required. See, e.g., 15th Place Condo. Ass’n v. S. Campus Dev. Team, LLC, 14 N.E.3d 592, 601 (Ill. App. Ct. 2014).
Most courts agree that substantial completion does not require exact performance of every detail; rather, the test to be applied “is one of function and is concerned with whether the owner can make use of the work as it intended.” See 2 Bruner & O’Connor Construction Law § 5:184.
Because this is the trigger for the starting of the repose period there are many disputes relating to this issue. The takeaway is that each Statute of Repose will have its own trigger to start the period of repose and you will need to figure out what the statute requires and marshal the facts and information to determine when the trigger date was so that you will have a bright line for the end of the repose period and your bar date.
WAIVER
The next issue to consider is can the Statute of Repose be waived by failing to assert it in a timely fashion as a defense? The majority view holds that Statutes of Repose cannot be waived. Because of its substantive nature, the Statute of Repose is generally not considered to be an affirmative defense, and therefore, the failure to plead it as an affirmative defense is not a bar to raising the issue on appeal. Ray & Sons Masonry Contractors, Inc., 353 Ark. at 219; Chang–Williams v. U.S., 965 F. Supp. 2d 673, 694, fn. 9 (D. Md. 2013), Roskam Baking Co., Inc. v. Lanham Mach. Co., 288 F.3d 895, 902–904 (6th Cir. 2002); Am. Fed’n of Teachers, AFL-CIO v. Bullock, 605 F.Supp.2d 251, 261. (D.D.C. 2009); Donell v. Keppers, 835 F. Supp. 2d 871, 877 (S.D. Cal. 2011)(“Unlike a traditional statute of limitations, a statute of repose cannot be waived.”); Warfield v. Alaniz, 453 F.Supp.2d 1118, 1130 (D. Ariz. 2006); Klein v. Capital One Financial Corp., No. 4:10-CV-00629-EJL), 2011 WL 3270438, 2011 U.S. Dist. Lexis 83905 (D.Idaho July 29, 2011).
A minority of jurisdictions adhere to the rule that statutes of repose, like statutes of limitations, are affirmative defenses that are subject to the waiver doctrine. See Pratcher v. Methodist Healthcare Memphis Hospitals, 407 S.W.3d 727, 737–738 (Tenn. 2013); McRaith v. BDO Seidman, LLP, 909 N.E.2d 310, 327 (Ill. 2009); Johnston v. Hudlett, 32 So.3d 700, 704 (Fla.Dist.Ct.App. 2010); Dominguez v. Lanham Machinery Co., Inc., 122 F. Supp. 2d 852, 853 (W.D. Mich. 2000) [collecting cases].
As one leading decision adopting the majority view explained: “the statute of repose is a substantive provision which may not be waived because the time limit expressly qualifies the right which the statute creates.” Roskam Baking Co., Inc. v. Lanham Mach. Co., supra, 288 F.3d at pp. 902–903, quoting Cheswold Volunteer Fire Co. v. Lambertson Constr. Co., 489 A.2d 413, 421 (Del. 1985); PGA W. Residential Assn., Inc. v. Hulven Internat., Inc., 14 Cal. App. 5th 156, 185–86, 221 Cal. Rptr. 3d 353, 378–79 (2017), as modified (Aug. 23, 2017). Of course, the best practice is to raise any defense early and often and a statute of repose defense should be no different.
DISCOVERY RULE
One issue that arises in connection with the Statute of Repose is whether the discovery rule applies? The common law discovery rule is a departure from the general rule that “limitations against a right or cause of action begin to run from the date of the alleged wrong” and this rule permits a plaintiff to bring suit when the plaintiff “ascertains, or through the exercise of reasonable care and diligence should have ascertained, the nature and cause of his [or her] injury.” Harig v. Johns–Manville Prods. Corp., 284 Md. 70, 76, 83, 394 A.2d 299, 303, 306 (1978). The courts have recognized that legislatures enacted the Statute of Repose in part to provide a temporal limitation to the discovery rule’s applicability to causes of action for injuries “arising” from improvements to real property. Duffy v. CBS Corp., 458 Md. 206, 211, 182 A.3d 166, 168–69 (2018). Statutes of Repose run for a statutorily determined period of time after a definitely established event independent of any discovery of any injury. Fetterhoff v. Fetterhoff, 354 Pa. Superior Ct. 438, 512 A.2d 30 (1986) and Mitchell v. United Elevator Co., 290 Pa. Superior Ct. 476, 434 A.2d 1243 (1981). To apply the discovery rule would be to thwart the entire purpose of the Statute of Repose. Thus, the majority of courts hold that the discovery rule does not apply to a Statute of Repose.
NULLUM TEMPUS
Does a Statute of Repose apply to the State? Nullum Tempus Occurrit Regi, which translated means “time does not run against the sovereign” is an ancient doctrine that exempts certain governmental bodies from time bar defenses such as statutes of limitations or laches. The question is can Nullum Tempus be applied to defeat a Statute of Repose?
Some jurisdictions, although recognizing the differences between statutes of limitations and Statutes of Repose, nevertheless find that nullum tempus protects the state from all time based limitations, including Statutes of Repose. State v. Lombardo Bros. Mason Contractors, 307 Conn. 412, 54 A.3d 1005 (2012); Rowan Cty. Bd. of Educ. v. United States Gypsum Co., 332 N.C. 1, (1992); Rutgers v. The Grad Partnership, 269 N.J. Super 142, 148 (N.J. Sup. 1993). However, other courts have held that although statutes of limitations do not run against the government, Statutes of Repose do. City of Phoenix v. Glenayre Elecs., Inc., 242 Ariz. 139, 146, 393 P.3d 919, 926 (2017); Shasta View Irrigation District v. Amoco Chemicals Corp., 329 Or. 151, 164, 986 P.2d 536 (1999) (“The public policy for exempting governments from statutes of limitations … does not apply to statutes of ultimate repose. That is so … because the expiration of ultimate repose periods extinguishes all claims irrespective of whether the injured plaintiff was negligent in failing to assert claims in a timely manner.”); Commonwealth v. Owens–Corning Fiberglas Corp., 238 Va. 595, 598, 385 S.E.2d 865 (1989) (concluding that legislature intended to exempt state from statutes of limitation but not Statutes of Repose because “[t]he exemption from suit accorded those named in [those] statute[s] is a substantive right protected by the due process clause of the [Virginia constitution]”). The Virginia court reasoned that since Statutes of Repose represent an explicit determination by the legislature that liability is undesirable after a given time period, Statutes of Repose vest a statutory right in the defendant not to be sued after they expire. The court concluded that the vested right provided by Statutes of Repose could not be trumped by a common law doctrine of Nullum Tempus.
On this issue, (1) you will need to check if the applicable jurisdiction recognizes the Nullum Tempus doctrine, (2) whether the jurisdiction has addressed the issue in the past and (3) whether there has been a waiver or specific mention of an exemption for the state in the repose statute itself.
Statutes of Repose must be considered as a possible defense by the surety, particularly if significant time has passed since the project was substantially completed. If you have questions regarding the issues discussed in this post, please do not hesitate to contact Michael A. Stover, Esq. (410-659-1321 or mstover@wcslaw.com) or any member of the Surety and Fidelity Practice Group.